<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 333-29721
PROSPECTUS -- MARCH 31, 1998
- ------------------------------------------------------------------------------
Dean Witter S&P 500 Index Fund (the "Fund") is an open-end, diversified
management investment company whose investment objective is to provide
investment results that, before expenses, correspond to the total return
(i.e., the combination of capital changes and income) of the Standard &
Poor's(Registered Trademark) 500 Composite Stock Price Index (the "S&P 500
Index"). The Fund seeks to meet its investment objective by investing, under
normal circumstances, at least 80% of the value of its total assets in common
stocks included in the S&P 500 Index in approximately the same weightings as
the Index. (See "Investment Objective and Policies.")
The Fund offers four classes of shares (each, a "Class"), each with a
different combination of sales charges, ongoing fees and other features. The
different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. (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 March 31, 1998, 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.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 4
Financial Highlights .................................................. 6
The Fund and its Management ........................................... 7
Investment Objective and Policies ..................................... 7
Risk Considerations and
Investment Practices ................................................ 9
Investment Restrictions ............................................... 12
Purchase of Fund Shares ............................................... 12
Shareholder Services .................................................. 22
Redemptions and Repurchases ........................................... 25
Dividends, Distributions and Taxes .................................... 26
Performance Information ............................................... 27
Additional Information ................................................ 28
Financial Statements (unaudited)--
February 28, 1998 .................................................... 30
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Dean Witter
S&P 500 Index Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
<TABLE>
<CAPTION>
PROSPECTUS SUMMARY
- ---------------------------------------------------------------------------------------
<S> <C>
------------------- ------------------------------------------------------------------
The The Fund is organized as a trust, commonly known as a
Fund Massachusetts business trust, and is an open-end, diversified
management investment company. The Fund invests primarily in
common stocks included in the Standard & Poor's(Registered
Trademark) 500 Composite Stock Price Index (the "S&P 500 Index").
- ------------------- ------------------------------------------------------------------
Shares Offered Shares of beneficial interest with $0.01 par value (see page 28).
The Fund offers four Classes of shares, each with a different
combination of sales charges, ongoing fees and other features (see
pages 12-22).
- ------------------- ------------------------------------------------------------------
Minimum Purchase The minimum initial investment for each Class is $1,000 ($100 if
the account is opened through EasyInvest (Service Mark) ). Class D
shares are only available to persons investing $5 million ($25
million for certain qualified plans) or more and to certain other
limited categories of investors. For the purpose of meeting the
minimum $5 million (or $25 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 12).
- ------------------- ------------------------------------------------------------------
Investment The investment objective of the Fund is to provide investment
Objective results that, before expenses, correspond to the total return
(i.e., the combination of capital changes and income) of the S&P
500 Index (see page 7).
- ------------------- ------------------------------------------------------------------
Investment Manager Dean Witter InterCapital Inc., the Investment Manager of the Fund,
and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management
and administrative capacities to 101 investment companies and
other portfolios with net assets under management of approximately
$110 billion at February 28, 1998 (see page 7).
- ------------------- ------------------------------------------------------------------
Management Fee The Investment Manager receives a monthly fee at the annual rate
of 0.40% of the Fund's average daily net assets. The Investment
Manager has agreed to assume all expenses (except for brokerage
and 12b-1 fees) and to waive the compensation provided for in its
Management Agreement to the extent that such expenses and
compensation on an annualized basis exceed 0.50% of the daily net
assets of the Fund (see page 7).
- ------------------- ------------------------------------------------------------------
Distributor and Dean Witter Distributors Inc. (the "Distributor"). The Fund has
Distribution Fee adopted a distribution plan pursuant to 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 12 and
20).
- ------------------- ------------------------------------------------------------------
Alternative Four classes of shares are offered: o Class A shares are offered
Purchase with a front-end sales charge, starting at 5.25% and reduced for
Arrangements 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 12, 15 and 20). 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 the average daily net assets of Class B. Class B shares
convert to Class A shares approximately ten years after the date
of the original purchase (see pages 12, 18 and 20).
- ---------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
------------------- ------------------------------------------------------------------
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 12 and 20). o Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25
million for certain qualified plans) 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 12 and 20).
- ------------------- ------------------------------------------------------------------
Dividends and Dividends from net investment income and distributions from net
Capital Gains capital gains, if any, are paid at least once each year. The Fund
Distributions may, however, determine to retain all or part of any net long-term
capital gains in any 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 22 and 26).
- ------------------- ------------------------------------------------------------------
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 25).
- ------------------- ------------------------------------------------------------------
Risk Considerations An investment in the Fund should be considered a long-term holding
and subject to all the risks associated with investing in equity
securities. 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. The Fund operates as
a "straight" index fund and will therefore not be actively
managed; as such, the adverse performance of a portfolio security
will ordinarily not result in the elimination of the security from
the Fund's portfolio. The Fund may enter into repurchase
agreements, may lend its portfolio securities and may utilize
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" (page
9) before making an investment in the Fund.
</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
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
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 for the fiscal period
ending August 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ------------ -----------
<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+ ................................... 0.23% 0.23% 0.23% 0.23%
12b-1 Fees (5)(6)................................... 0.24% 1.00% 1.00% None
Other Expenses+ .................................... 0.27% 0.27% 0.27% 0.27%
Total Fund Operating Expenses+...................... 0.74% 1.50% 1.50% 0.50%
</TABLE>
- ------------
+ The Investment Manager has agreed to assume all expenses (except for
brokerage and 12b-1 fees) and to waive the compensation provided for in
its Investment Management Agreement to the extent that such expenses
and compensation on an annualized basis exceed 0.50% of the daily net
assets of the Fund. The fees and expenses disclosed above reflect the
assumption of such expenses and waiver of compensation by the
Investment Manager to the extent that such expenses and compensation on
an annualized basis exceed 0.50% of the daily net assets of the Fund.
(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").
4
<PAGE>
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Examples 1 Year 3 Years
-------- ------ ------
<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 .................................................................... $60 $75
Class B .................................................................... $65 $77
Class C..................................................................... $25 $47
Class D .................................................................... $ 5 $16
You would pay the following expenses on the same $1,000 investment assuming
no redemption at the end of the period:
Class A .................................................................... $60 $75
Class B .................................................................... $15 $47
Class C .................................................................... $15 $47
Class D .................................................................... $ 5 $16
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF 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.
5
<PAGE>
FINANCIAL HIGHLIGHTS (unaudited)
- ------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout the period have been taken from the records of the
Fund without examination by the independent accountants. The financial
highlights should be read in conjunction with the unaudited financial
statements and the notes thereto which are contained in this Prospectus
commencing on page 30.
<TABLE>
<CAPTION>
For the Period September 26, 1997* Through February 28, 1998++
- --------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class D
Shares Shares Shares Shares
------- ------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $10.00 $10.00 $10.00 $10.00
------- ------- -------- --------
Net investment income......................... 0.05 0.02 0.02 0.06
Net realized and unrealized gain.............. 1.10 1.09 1.09 1.09
------- ------- -------- --------
Total from investment operations ............. 1.15 1.11 1.11 1.15
------- ------- -------- --------
Less dividends from net investment income..... (0.03) (0.01) (0.01) (0.03)
------- ------- -------- --------
Net asset value, end of period................ $11.12 $11.10 $11.10 $11.12
======= ======= ======== ========
TOTAL INVESTMENT RETURN+(1) .................. 11.47% 11.09% 11.08% 11.53%
RATIOS TO AVERAGE NET ASSETS(2)(3):
Expenses ..................................... 0.74% 1.50% 1.50% 0.50%
Net investment income......................... 1.10% 0.36% 0.37% 1.29%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands....... $19,089 $380,009 $24,126 $12,705
Portfolio turnover rate(1).................... 1% 1% 1% 1%
Average commission rate paid.................. $0.0157 $0.0157 $0.0157 $0.0157
</TABLE>
- ------------
* Commencement of operations.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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 0.91% and 0.93%,
respectively, for Class A shares, 1.67% and 0.19%, respectively, for
Class B shares, 1.67% and 0.20%, respectively, for Class C shares and
0.67% and 1.12%, respectively, for Class D shares.
See Notes to Financial Statements
6
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter S&P 500 Index Fund (the "Fund") is an open-end, diversified
management investment company. The Fund is a trust of the type commonly known
as a "Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on June 18, 1997.
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 & 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 101 investment companies, 28 of which are listed
on the New York Stock Exchange, with combined assets of approximately $106
billion at February 28, 1998. The Investment Manager also manages portfolios
of pension plans, other institutions and individuals which aggregated
approximately $4 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 0.40% to the Fund's net assets. The Investment Manager has
agreed to assume all expenses (except for brokerage and 12b-1 fees) and to
waive the compensation provided for in its Management Agreement to the extent
that such expenses and compensation on an annualized basis exceed 0.50% of
the daily net assets of the Fund.
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, 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
- -----------------------------------------------------------------------------
The investment objective of the Fund is to provide investment results
that, before expenses, correspond to the total return (i.e., the combination
of capital changes and income) of the Standard & Poor's(Registered Trademark)
500 Composite Stock Price Index (the "S&P 500 Index"). 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 80% of its total assets in common stocks included in
the S&P 500 Index in approximately the same weight-
7
<PAGE>
ings as the Index. The Fund intends to invest in substantially all of the
stocks that comprise the S&P 500 Index in approximately the same weightings
as they are represented in the Index. The Fund operates as a "straight" index
fund and will not be actively managed; as such, adverse performance of a
security will ordinarily not result in the elimination of the security from
the Fund's portfolio. The Fund will remain invested in common stocks even
when stock prices are generally falling. Ordinarily, portfolio securities
will not be sold except to reflect additions or deletions of the stocks that
comprise the S&P 500 Index, including mergers, reorganizations and similar
transactions, or as may be necessary to satisfy redemption requests.
Over the long term, the Investment Manager seeks a correlation between the
performance of the Fund, before expenses, and that of the S&P 500 Index of
0.95 or better. A figure of 1.00 would indicate perfect correlation. The
Fund's ability to correlate its performance, before expenses, with the S&P
500 Index may be affected by, among other things, changes in securities
markets, the manner in which the S&P 500 Index is calculated and the timing
of purchases and redemptions. The Fund's ability to correlate its performance
to the Index also depends to some extent on the size of the Fund's portfolio
and the size of cash flows into and out of the Fund. To accomodate these cash
flows, investment changes may be made to maintain the similarity of the
Fund's portfolio to the S&P 500 Index to the maximum practicable extent. The
Investment Manager regularly monitors the correlation and, in the event the
desired correlation is not achieved, the Investment Manager will determine
what additional investment changes may need to be made.
Stock Index Futures Contracts. The Fund may purchase and sell stock index
futures contracts ("futures contracts") that are traded on U.S. commodity
exchanges on the S&P 500 Index ("stock index" futures). As a futures contract
purchaser, the Fund incurs an obligation to take delivery of a specified
amount of the obligation underlying the contract at a specified time in the
future for a specified price. As a seller of a futures contract, the Fund
incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed upon price. The Fund
will purchase or sell stock index futures contracts for the following
reasons: to simulate full investment in the S&P 500 Index while retaining a
cash balance for fund management purposes, to facilitate trading, to reduce
transaction costs or to seek higher investment returns when a futures
contract is priced more attractively than stocks comprising the S&P 500
Index. The Fund may enter into such instruments provided that not more than
5% of its assets are required as an initial margin deposit and provided that
the contract prices of the stock index futures contracts do not exceed 20% of
its total assets. While such instruments can be used as leveraged
investments, the Fund may not use them to leverage its assets.
Additional Information Concerning the S&P 500 Index. The S&P 500 Index is
a well-known stock market index that includes common stocks of 500 companies
from several industrial sectors representing a significant portion of the
market value of all common stocks publicly traded in the United States, most
of which are listed on the New York Stock Exchange Inc. (the "NYSE"). Stocks
in the S&P 500 Index are weighted according to their market capitalization
(i.e., the number of shares outstanding multiplied by the stock's current
price). The Investment Manager believes that the performance of the S&P 500
Index is representative of the performance of publicly traded common stocks
in general. The composition of the S&P 500 Index is determined by S&P and is
based on such factors as the market capitalization and trading activity of
each stock and its adequacy as a representation of stocks in a particular
industry group, and may be changed from time to time.
"Standard & Poor's(Registered Trademark)," "S&P(Registered Trademark),"
"S&P 500(Registered Trademark)," "Standard & Poor's 500," and "500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by the Fund. The Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of The McGraw Hill Companies, Inc. ("Standard &
Poor's") and Standard & Poor's makes no representation regarding the
advisability of investing in the Fund.
8
<PAGE>
The Fund may also invest in Standard & Poor's Depositary Receipts,
repurchase agreements and zero coupon securities and may lend its portfolio
securities, as discussed under "Risk Considerations and Investment Practices"
below.
The Fund reserves the right to seek to achieve its investment objective by
converting to a "master/ feeder" fund structure (see "Additional
Information").
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.
Risks of Futures Transactions. 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.
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."
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of
the securities which are the subject of the contract. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the securities and futures markets could result.
Cash Flows; Expenses. The ability of the Fund to meet its investment
objective depends to some extent on the Investment Manager's ability to
manage cash flows (primarily from purchases and redemptions and distributions
from the Fund's portfolio investments). Generally, the Investment Manager
will employ stock index futures to provide liquidity necessary to meet
anticipated redemptions or for day-to-day operating purposes. In addition, if
considered appropriate in the opinion of the Investment Manager, a portion of
a Fund's assets not exceeding 20% of its total assets may be invested in
money market instruments. The Investment Manager will also make investment
changes to the Fund's portfolio to accommodate cash flows while continuing to
seek to replicate the total return of the S&P 500 Index. Investors should
also be aware that the investment performance of the S&P 500 Index is a
hypothetical number which does not take into account brokerage commissions
and other transaction costs, custody and other costs of investing, which will
be borne by the Fund, and any incremental operating costs (e.g., transfer
agency, accounting) borne by the Fund. Finally, since the Fund seeks to
provide investment results that, before expenses, correspond to the total
return of the S&P 500 Index. S&P 500 Index, the Investment Manager will
generally not attempt to judge the merits of any particular security as an
investment.
Temporary Investments. A portion of the Fund's assets, not exceeding 20%
of its total assets, may be invested temporarily in money market instruments
under any one or more of the following circumstances: (a) pending investment
of proceeds of sale of shares of the Fund; (b) pending settlement of
purchases of portfolio securities; or (c) to maintain liquidity for the
purposes of meeting anticipated redemptions. The money market instruments in
which the Fund may invest are certificates of deposit of U.S. domestic banks
with assets of $1 billion or more; bankers' acceptances; time deposits; U.S.
Government and U.S. Government agency securities; or commercial paper rated
within the two highest grades by S&P or Moody's Investors Service, Inc., or,
if not rated, are of comparable quality as determined by the Trustees, and
which mature within one year from the date of purchase.
9
<PAGE>
Foreign Securities. The Fund may purchase common stocks, including
American Depository Receipts, of foreign corporations represented in the S&P
500 Index (such securities are listed on the New York Stock Exchange, the
American Stock Exchange or the NASDAQ Market System). Investments in foreign
securities may be affected by changes in governmental administration or
economic policy (in the United States and abroad) or changed circumstances in
dealings between nations. Foreign companies may be subject to less
governmental regulation than U.S. companies. Securities of foreign companies
may be more volatile than securities of U.S. companies. As noted above, the
Fund's investment in common stock of foreign corporations represented in the
S&P 500 Index may also be in the form of American Depository Receipts (ADRs).
ADRs are receipts typically issued by a United States bank or trust company
evidencing ownership of the underlying securities and are designed for use in
the U.S. securities markets.
Standard & Poor's Depositary Receipts ("SPDRs"). The Fund may purchase
interests in a unit investment trust holding a portfolio of securities linked
to the S&P 500 Index. SPDRs closely track the underlying portfolio of
securities, trade like a share of common stock and pay periodic dividends
proportionate to those paid by the portfolio of stocks that comprise the S&P
500 Index. The Fund may invest up to 10% of its total assets in the aggregate
in SPDRs and up to 5% of its total assets in SPDRs issued by a single unit
investment trust. As a holder of interests in a unit investment trust, the
Fund would indirectly bear its ratable share of that unit investment trust's
expenses. At the same time the Fund would continue to pay its own management
and advisory 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 such unit investment trusts. The liquidity of small
holdings of SPDRs will depend upon the existence and liquidity of a secondary
market. See the Statement of Additional Information for a further discussion
of SPDRs.
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.
Zero Coupon Securities. A portion of the money market instruments in which
the Fund may invest 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
fluctuationsduring 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
10
<PAGE>
security was purchased as income each year even though the Fund receives no
interest payments in cash on the security during the year.
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 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.
Year 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the
Distributor and the Transfer Agent depend on the smooth functioning of their
computer systems. Many computer software systems in use today cannot
recognize the year 2000, but revert to 1900 or some other date, due to the
manner in which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing and account
services. The Investment Manager, the Distributor and the Transfer Agent have
been actively working on necessary changes to their own computer systems to
prepare for the year 2000 and expect that their systems will be adapted
before that date, but there can be no assurance that they will be successful,
or that interaction with other non-complying computer systems will not impair
their services at that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout
the financial services industry beginning January 1, 2000. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S.
and foreign financial statements. Accordingly, the Fund's investments may be
adversely affected.
PORTFOLIO MANAGEMENT
The Fund's portfolio is managed by its Investment Manager with a view to
achieving the Fund's investment objective. The assets of the Fund are managed
within InterCapital's Growth Group, which manages 26 equity funds and fund
portfolios with approximately $9 billion in assets as of February 28, 1998.
Kenton J. Hinchliffe, Senior Vice President of InterCapital and a member of
InterCapital's Growth Group, is the primary portfolio manager of the Fund.
Mr. Hinchliffe has been a portfolio manager at InterCapital for over 5 years.
Orders for transactions in portfolio securities and commodities are placed
for the Fund with a number of brokers and dealers, including Dean Witter
Reynolds Inc. ("DWR"), Morgan Stanley & Co. Incorporated 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. Ordinarily,
securities will be sold from
11
<PAGE>
the portfolio only to reflect certain administrative changes in the S&P 500
Index or to accommodate cash flows into or out of the Fund while maintaining
the similarity of the Fund to the S&P 500 Index. 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.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
GENERAL
Dean Witter Distributors Inc. (the "Distributor") will act as the
Distributor of each Class of the Fund's shares during the continuous
offering. Pursuant to a Distribution Agreement between the Fund and the
Distributor, an affiliate of the Investment Manager, shares of the Fund are
distributed by the Distributor and offered by DWR and other dealers which
have entered into 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 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 ($25 million for certain
qualified plans), and to certain other limited categories of investors.
12
<PAGE>
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 ($25
million for certain qualified plans) or more and to certain other limited
categories of investors. For the purpose of meeting the minimum $5 million
(or $25 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 S&P 500 Index Fund,
directly to Morgan Stanley Dean Witter Trust FSB (the "Transfer Agent" or
"MSDW Trust") 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 in the 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, administrative and/or brokerage services, the
Fund, 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 Distributor 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 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 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 flexibil-
13
<PAGE>
ity 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 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:
14
<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 (or $25 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 1.0% B shares convert
Maximum 5.0% to A shares
CDSC during the first automatically after
year decreasing approximately
to 0 after six years ten years
- --------- ------------------------- ------------- -----------------------
C 1.0% CDSC during 1.0% No
first year
- --------- ------------------------- ------------- -----------------------
D None None No
- --------- ------------------------- ------------- -----------------------
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees
for each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge.
In some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase (calculated from the last day of the month in which the
shares were purchased), except for certain
15
<PAGE>
specific circumstances. The CDSC will be assessed on an amount equal to the
lesser of the current market value or the cost of the shares being redeemed.
The CDSC will not be imposed (i) in the circumstances set forth below in the
section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of
that section shall mean one year in the case of Class A shares, and (ii) in
the circumstances identified in the section "Additional Net Asset Value
Purchase Options" below. Class A shares are also subject to an annual 12b-1
fee of up to 0.25% of the average daily net assets of the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
--------------------------------
PERCENTAGE 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
16
<PAGE>
investor has a cumulative net asset value of shares of FSC Funds and Class A
and Class D shares that, together with the current investment amount, is
equal to at least $5 million ($25 million for certain qualified plans), such
investor is eligible to purchase Class D shares subject to the $1,000 minimum
initial investment requirement of that Class of the Fund. See "No Load
Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Selected Broker-Dealer or the Transfer Agent
fails to confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from DWR or other Selected Broker-Dealers. The cost of Class A
shares of the Fund or shares of other Dean Witter Funds which were previously
purchased at a price including a front-end sales charge during the 90-day
period prior to the date of receipt by the Distributor of the Letter of
Intent, or of Class A shares of the Fund or shares of other Dean Witter Funds
acquired in exchange for shares of such funds purchased during such period at
a price including a front-end sales charge, which are still owned by the
shareholder, may also be included in determining the applicable reduction.
Additional Net Asset Value Purchase Options. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value
by the following:
(1) trusts for which MSDW Trust (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, administrative and/or
brokerage 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) employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") with at
least 200 eligible employees and for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement 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.
17
<PAGE>
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 Qualified
Retirement 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 purchased by Qualified
Retirement Plans for which MSDW Trust serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement, shares held for three years or more after purchase
(calculated as described in the paragraph above) will not be subject to any
CDSC upon redemption. However, shares redeemed earlier than three years after
purchase may be subject to a CDSC (calculated as described in the paragraph
above), the percentage of which will depend on how long the shares have been
held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First ..................... 2.0%
Second .................... 2.0%
Third ..................... 1.0%
Fourth and thereafter .... None
</TABLE>
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or,
in the case of shares held by certain Qualified Retirement 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
Qualified Retirement 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 appli-cable 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
18
<PAGE>
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
Qualified Retirement Plan 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 MSDW Trust serves as
Trustee or DWR's Retirement Plan Services serves as recordkeeper pursuant to
a written Recordkeeping Services Agreement ("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. 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 acquired in exchange for shares
of another fund 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 Qualified Retirement Plan for which MSDW
Trust serves as Trustee or DWR's Retirement Plan Services serves as
recordkeeper pursuant to a written Recordkeeping Services Agreement, the plan
is treated as a single investor and all Class B shares will convert to Class
A shares on the conversion date of the first shares of a Dean Witter
Multi-Class Fund purchased by that plan. In the case of Class B shares
previously exchanged for shares of an "Exchange Fund" (see "Shareholder
Services--Exchange Privilege"), the period of time the shares were held in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired) is excluded from the holding period for
conversion. If those shares are subsequently re-exchanged for Class B shares
of a Dean Witter Multi-Class Fund, the holding period resumes on the last day
of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior
to the date for conversion. Class B shares evidenced by share certificates
that are not received by the
19
<PAGE>
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 ($25 million
for Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement) 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, administrative and/or brokerage 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 (or $25 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 (or $25 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
20
<PAGE>
the distribution of Class A, Class B and Class C shares of the Fund. In the
case of Class A and Class C shares, the Plan provides that the Fund will
reimburse the Distributor and others for the expenses of certain activities
and services incurred by them specifically on behalf of those shares.
Reimbursements for these expenses will be made in monthly payments by the
Fund to the Distributor, which will in no event exceed amounts equal to
payments at the annual rates of 0.25% and 1.0% of the average daily net
assets of Class A and Class C, respectively. In the case of Class B shares,
the Plan provides that the Fund will pay the Distributor a fee, which is
accrued daily and paid monthly, at the annual rate of 1.0% of the 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 September 26, 1997 (commencement of operations)
through February 28, 1998, Class A, Class B and Class C shares of the Fund
accrued payments under the Plan amounting to $12,848, $1,127,620, and
$75,709, respectively, which amounts on an annualized basis are equal to
0.24%, 1.0% and 1.0% of the average daily net assets of Class A, Class B 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 $15,470,964 at February 28, 1998, which was equal to 4.07% 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, this 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
21
<PAGE>
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 unreimbursed expenses representing a gross sales commission
credited to account executives at the time of sale totalled $145,457 in the
case of Class C at December 31, 1997, which amount was equal to 0.76% of the
net assets of Class C on such date, and that there were no such expenses that
may be reimbursed in the subsequent year in the case of Class A 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 is determined once daily at 4:00 p.m., New
York time, on each day that the New York Stock Exchange is open (or, on days
when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier
time), by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the
Class A, Class B, Class C and Class D shares will be invested together in a
single portfolio. The net asset value of each Class, however, will be
determined separately by subtracting each Class's accrued expenses and
liabilities. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by
the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
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").
22
<PAGE>
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 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. ("Global Short-Term") which is a Dean
Witter Fund offered with a CDSC. 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, Global
Short-Term or
23
<PAGE>
any Exchange Fund that is not a money market fund is on the basis of the next
calculated net asset value per share of each fund after the exchange order is
received. When exchanging into a money market fund from the Fund, shares of
the Fund are redeemed out of the Fund at their next calculated net asset
value and the proceeds of the redemption are used to purchase shares of the
money market fund at their net asset value determined the following day.
Subsequent exchanges between any of the money market funds and any of the
Dean Witter Multi-Class Funds, FSC Funds, Global Short-Term 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 invested 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 Global Short-Term, 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
Global Short-Term 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 Global Short-Term (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, if any, incurred on or after that
date which are attributable to those shares. (Exchange Fund 12b-1
distribution fees are described in the prospectuses for those funds.) Class B
shares of the Fund acquired in exchange for shares of Global Short-Term or
Class B shares of another Dean Witter Multi-Class 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 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
24
<PAGE>
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.
25
<PAGE>
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."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances, e.g., when normal trading is not
taking place on the New York Stock Exchange. If the shares to be redeemed
have recently been purchased by check, payment of the redemption proceeds may
be delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase
in shares of the Fund in the same Class from which such shares were redeemed
or repurchased, at 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, 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 ac-
26
<PAGE>
count 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 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. Shareholders will also be notified of their proportionate share of
long-term capital gains distributions that are eligible for a reduced rate of
tax under the Taxpayer Relief Act of 1997. 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
27
<PAGE>
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.
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 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
28
<PAGE>
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 S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (98.2%)
Advertising/Marketing Services (0.3%)
8,466 Cognizant Corp. ................................................ $ 422,771
6,575 Interpublic Group of Companies, Inc. ........................... 358,337
8,460 Omnicom Group, Inc. ............................................ 387,045
--------------
1,168,153
--------------
Aerospace & Defense (1.2%)
52,223 Boeing Co. ..................................................... 2,833,098
3,265 General Dynamics Corp. ......................................... 283,239
10,127 Lockheed Martin Corp. .......................................... 1,181,694
3,481 Northrop Grumman Corp. ......................................... 483,859
--------------
4,781,890
--------------
Agriculture Related (0.2%)
29,108 Archer-Daniels-Midland Co. ..................................... 653,111
3,433 Pioneer Hi-Bred International, Inc. ............................ 356,174
--------------
1,009,285
--------------
Air Freight (0.1%)
7,626 Federal Express Corp. .......................................... 485,681
--------------
Airlines (0.4%)
4,790 AMR Corp.* ..................................................... 606,234
3,840 Delta Air Lines, Inc. .......................................... 434,160
11,426 Southwest Airlines Co. ......................................... 327,783
4,739 US Airways Group Inc.* ......................................... 300,038
--------------
1,668,215
--------------
Aluminum (0.3%)
11,845 Alcan Aluminium Ltd. (Canada) ................................... 367,935
9,006 Aluminum Co. of America ........................................ 660,815
3,849 Reynolds Metals Co. ............................................ 239,841
--------------
1,268,591
--------------
Auto Parts - After Market (0.5%)
4,108 Cooper Tire & Rubber Co. ....................................... 94,741
5,454 Dana Corp. ..................................................... 297,584
3,288 Echlin, Inc. ................................................... 166,249
9,330 Genuine Parts Co. .............................................. 345,210
8,142 Goodyear Tire & Rubber Co. ..................................... 562,816
6,179 ITT Industries, Inc. ........................................... 211,631
6,427 TRW, Inc. ...................................................... 352,280
--------------
2,030,511
--------------
Automobiles (1.7%)
34,588 Chrysler Corp. ................................................. 1,346,770
62,651 Ford Motor Co. ................................................. 3,543,697
36,926 General Motors Corp. ........................................... 2,545,586
--------------
7,436,053
--------------
Banks - Money Center (3.8%)
36,206 BankAmerica Corp. .............................................. $ 2,805,965
5,115 Bankers Trust New York Corp. ................................... 604,849
22,004 Chase Manhattan Corp. .......................................... 2,729,871
23,887 Citicorp ....................................................... 3,165,027
15,188 First Chicago NBD Corp. ........................................ 1,248,264
32,760 First Union Corp. .............................................. 1,726,042
9,275 Morgan (J.P.) & Co., Inc. ...................................... 1,108,362
49,094 NationsBank Corp. .............................................. 3,362,939
--------------
16,751,319
--------------
Banks - Regional (4.6%)
33,709 Banc One Corp. ................................................. 1,904,558
19,665 Bank of New York Co., Inc. ..................................... 1,151,632
7,598 BankBoston Corp. ............................................... 757,426
7,143 BB&T Corporation ............................................... 443,312
2,864 Cincinnati Financial Corp. ..................................... 386,282
5,502 Comerica, Inc. ................................................. 554,670
10,328 CoreStates Financial Corp. ..................................... 872,070
8,041 Fifth Third Bancorp ............................................ 633,229
14,225 Fleet Financial Group, Inc. .................................... 1,121,108
9,971 Huntington Bancshares, Inc. .................................... 357,710
11,469 KeyCorp ........................................................ 803,547
13,292 Mellon Bank Corp. .............................................. 828,258
6,801 Mercantile Bancorporation, Inc. ................................ 378,306
11,157 National City Corp. ............................................ 727,994
5,828 Northern Trust Corp. ........................................... 441,471
39,434 Norwest Corp. .................................................. 1,614,329
15,926 PNC Bank Corp. ................................................. 883,893
2,858 Republic New York Corp. ........................................ 345,818
8,381 State Street Corp. ............................................. 518,051
9,187 Summit Bancorp ................................................. 456,479
11,009 SunTrust Banks, Inc. ........................................... 811,914
9,128 Synovus Financial Corp. ........................................ 320,621
12,818 U.S. Bancorp ................................................... 1,474,871
10,650 Wachovia Corp. ................................................. 846,675
4,527 Wells Fargo & Co. .............................................. 1,457,694
--------------
20,091,918
--------------
Beverages - Alcoholic (0.5%)
25,579 Anheuser-Busch Companies, Inc. .................................. 1,199,016
3,601 Brown-Forman Corp. (Class B) ................................... 199,855
1,933 Coors (Adolph) Co. (Class B) ................................... 60,406
18,610 Seagram Co. Ltd. (Canada) ...................................... 707,180
--------------
2,166,457
--------------
Beverages - Soft Drinks (2.7%)
129,126 Coca Cola Co.** ................................................ 8,869,342
79,206 PepsiCo, Inc. .................................................. 2,895,969
--------------
11,765,311
--------------
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------
Biotechnology (0.1%)
13,741 Amgen Inc.* .................................................... $ 729,991
--------------
Broadcast Media (1.0%)
36,755 CBS Corp. ...................................................... 1,137,108
5,116 Clear Channel Communications, Inc.* ............................ 463,637
Tele-Communications, Inc.
26,481 (Class A)* ..................................................... 769,604
31,693 U.S. West Media Group, Inc.* ................................... 1,020,118
18,418 Viacom, Inc. (Class B)* ........................................ 884,064
--------------
4,274,531
--------------
Building Materials (0.2%)
2,126 Armstrong World Industries Inc. ................................ 166,891
8,610 Masco Corp. .................................................... 468,169
2,785 Owens-Corning ................................................... 85,987
--------------
721,047
--------------
Chemicals (1.7%)
5,720 Air Products & Chemicals, Inc. ................................. 480,122
11,839 Dow Chemical Co. ............................................... 1,083,268
59,079 DuPont (E.I.) de Nemours & Co., Inc. ........................... 3,622,281
4,087 Eastman Chemical Co. ........................................... 267,698
3,750 Goodrich (B.F.) Co. ............................................ 185,859
5,044 Hercules, Inc. ................................................. 243,688
9,300 PPG Industries, Inc. ........................................... 602,756
8,240 Praxair, Inc. .................................................. 393,975
3,209 Rohm & Haas Co. ................................................ 327,117
6,469 Union Carbide Corp. ............................................ 300,404
--------------
7,507,168
--------------
Chemicals - Diversified (0.4%)
7,533 Engelhard Corp. ................................................ 136,536
1,936 FMC Corp.* ..................................................... 140,118
30,959 Monsanto Co. ................................................... 1,575,039
--------------
1,851,693
--------------
Chemicals -Specialty (0.3%)
3,876 Grace (W. R.) & Co. ............................................ 325,342
3,123 Great Lakes Chemical Corp. ..................................... 151,856
5,701 International Flavors & Fragrances, Inc. ....................... 262,246
6,946 Morton International, Inc. ..................................... 229,652
3,485 Nalco Chemical Co. ............................................. 140,271
5,232 Sigma-Aldrich Corp. ............................................ 206,664
--------------
1,316,031
--------------
Commercial & Consumer Services (0.7%)
5,432 Block (H.&R.), Inc. ............................................ $ 255,643
41,270 Cendant Corp.* ................................................. 1,547,625
8,893 Dun & Bradstreet Corp. ......................................... 297,915
17,150 Laidlaw, Inc. (Canada) .......................................... 251,891
13,128 Service Corp. International .................................... 497,223
--------------
2,850,297
--------------
Communications Equipment (1.0%)
4,706 Andrew Corp.* .................................................. 130,003
4,158 Harris Corp. ................................................... 210,759
31,166 Motorola, Inc. ................................................. 1,737,504
27,358 Northern Telecom Ltd. (Canada) .................................. 1,458,523
4,058 Scientific-Atlanta, Inc. ....................................... 71,015
9,452 Tellabs, Inc.* ................................................. 570,664
--------------
4,178,468
--------------
Computer - Networking (1.0%)
18,062 3Com Corp.* .................................................... 645,716
11,047 Bay Networks, Inc.* ............................................ 374,217
8,229 Cabletron Systems, Inc.* ....................................... 127,549
52,531 Cisco Systems, Inc.* ........................................... 3,460,480
--------------
4,607,962
--------------
Computer Software & Services (3.5%)
3,804 Adobe Systems, Inc. ............................................ 168,089
2,504 Autodesk, Inc. ................................................. 118,627
28,543 Computer Associates International, Inc. ........................ 1,345,089
4,032 Computer Sciences Corp.* ....................................... 422,100
11,033 HBO & Co. ...................................................... 597,161
126,001 Microsoft Corp.*_** ............................................ 10,678,585
18,218 Novell, Inc.* .................................................. 191,289
51,192 Oracle Corp.* .................................................. 1,260,603
6,648 Parametric Technology Corp.* ................................... 402,204
1,300 Shared Medical Systems Corp. ................................... 99,369
--------------
15,283,116
--------------
Computers - Peripheral Equipment (0.3%)
25,893 EMC Corp.* ..................................................... 990,407
12,760 Seagate Technology, Inc.* ...................................... 310,227
--------------
1,300,634
--------------
Computers - Systems (2.7%)
6,644 Apple Computer, Inc.* .......................................... 156,964
79,046 COMPAQ Computer Corp. .......................................... 2,534,412
2,495 Data General Corp.* ............................................ 51,459
17,043 Dell Computer Corp.* ........................................... 2,382,824
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------
7,717 Digital Equipment Corp.* ....................................... $ 439,387
50,757 International Business Machines Corp.** ........................ 5,300,934
19,559 Sun Microsystems, Inc.* ........................................ 931,497
--------------
11,797,477
--------------
Consumer - Noncyclical (0.0%)
American Greetings Corp.
3,843 (Class A) ...................................................... 175,337
2,040 Jostens, Inc. .................................................. 47,940
--------------
223,277
--------------
Containers - Metal & Glass (0.1%)
1,574 Ball Corp. ..................................................... 51,352
6,696 Crown Cork & Seal Co., Inc. .................................... 361,584
7,322 Owens-Illinois, Inc.* .......................................... 280,982
--------------
693,918
--------------
Containers - Paper (0.1%)
2,767 Bemis Company, Inc. ............................................ 124,688
5,181 Stone Container Corp. .......................................... 58,286
2,970 Temple-Inland, Inc. ............................................ 177,086
3,622 Union Camp Corp. ............................................... 216,414
--------------
576,474
--------------
Data Processing (0.5%)
15,275 Automatic Data Processing, Inc. ................................. 932,730
3,985 Ceridian Corp.* ................................................ 185,552
7,867 Equifax, Inc. .................................................. 282,720
22,347 First Data Corp. ............................................... 759,798
--------------
2,160,800
--------------
Distributors - Food & Health (0.2%)
5,709 Cardinal Health, Inc. .......................................... 467,424
3,158 Supervalu, Inc. ................................................ 150,400
8,930 Sysco Corp. .................................................... 420,268
--------------
1,038,092
--------------
Electrical Equipment (3.9%)
11,465 AMP, Inc. ...................................................... 506,610
23,138 Emerson Electric Co. ........................................... 1,476,494
170,868 General Electric Co.** ......................................... 13,284,987
2,619 General Signal Corp. ........................................... 106,397
6,651 Honeywell, Inc. ................................................ 527,092
4,489 Raychem Corp. .................................................. 194,991
10,896 Rockwell International Corp. ................................... 659,208
2,868 Thomas & Betts Corp. ........................................... 162,580
--------------
16,918,359
--------------
Electronic Components (0.0%)
2,593 Grainger (W.W.), Inc. .......................................... $ 251,035
9,775 Silicon Graphics, Inc.* ........................................ 147,236
--------------
398,271
--------------
Electronics - Defense (0.2%)
17,694 Raytheon Co. (Class B) ......................................... 1,040,628
--------------
Electronics - Instrumentation (0.9%)
2,382 EG & G, Inc. ................................................... 64,165
54,273 Hewlett-Packard Co. ............................................ 3,636,291
2,509 Perkin-Elmer Corp. ............................................. 183,627
2,618 Tektronix, Inc. ................................................ 116,828
--------------
4,000,911
--------------
Electronics - Semiconductors (2.2%)
7,361 Advanced Micro Devices, Inc.* .................................. 172,523
85,413 Intel Corp.** .................................................. 7,655,140
7,402 LSI Logic Corp.* ............................................... 175,335
10,999 Micron Technology, Inc.* ....................................... 365,029
8,523 National Semiconductor Corp.* .................................. 203,487
20,374 Texas Instruments, Inc. ........................................ 1,179,145
--------------
9,750,659
--------------
Engineering & Construction (0.0%)
4,378 Fluor Corp. .................................................... 206,040
2,122 Foster Wheeler Corp. ........................................... 56,763
2,902 McDermott International, Inc. .................................. 114,266
--------------
377,069
--------------
Entertainment (0.9%)
3,836 King World Productions Inc.* ................................... 102,373
35,226 Walt Disney Co. ................................................ 3,943,110
--------------
4,045,483
--------------
Facilities & Environmental Services (0.0%)
3,043 Safety-Kleen Corp. ............................................. 81,590
--------------
Finance -Consumer (0.6%)
2,773 Beneficial Corp. ............................................... 327,214
5,635 Countrywide Credit Industries, Inc. ............................ 250,405
7,090 Green Tree Financial Corp. ..................................... 162,627
5,575 Household International, Inc. .................................. 724,053
26,149 MBNA Corp. ..................................................... 936,461
4,967 Providian Financial Corp. ...................................... 281,877
--------------
2,682,637
--------------
Finance - Diversified (2.8%)
24,265 American Express Co. ........................................... 2,185,367
12,718 American General Corp. ......................................... 739,234
SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------
55,357 Fannie Mae ..................................................... $ 3,532,469
36,260 Freddie Mac .................................................... 1,713,285
6,155 Hartford Financial Services Group Inc. ......................... 604,729
5,320 Lehman Brothers Holdings, Inc. .................................. 335,492
5,957 MGIC Investment Corp. .......................................... 438,956
30,930 Morgan Stanley, Dean Witter, Discover & Co. (Note 4) ........... 2,155,434
10,178 SunAmerica, Inc. ............................................... 461,191
--------------
12,166,157
--------------
Foods (2.0%)
7,495 Bestfoods ...................................................... 789,786
23,888 Campbell Soup Co. .............................................. 1,386,997
24,664 ConAgra, Inc. .................................................. 739,920
8,262 General Mills, Inc. ............................................ 594,348
19,171 Heinz (H.J.) Co. ............................................... 1,079,567
7,453 Hershey Foods Corp. ............................................ 497,022
21,454 Kellogg Co. .................................................... 914,477
7,230 Quaker Oats Company (The) ...................................... 389,516
5,560 Ralston-Ralston Purina Group ................................... 563,992
25,057 Sara Lee Corp. ................................................. 1,415,720
6,063 Wrigley (WM.) Jr. Co. (Class A) ................................ 463,062
--------------
8,834,407
--------------
Footwear (0.2%)
15,164 Nike, Inc. (Class B) ........................................... 665,320
2,934 Reebok International Ltd. (United Kingdom) ..................... 91,504
--------------
756,824
--------------
Gaming, Lottery, & Pari-mutuel Companies (0.0%)
5,266 Harrah's Entertainment, Inc.* .................................. 110,915
9,335 Mirage Resorts, Inc.* .......................................... 213,538
--------------
324,453
--------------
Gold & Precious Metals Mining (0.2%)
19,447 Barrick Gold Corp. (Canada) .................................... 375,570
11,986 Battle Mountain Gold Co. ....................................... 71,916
7,655 Homestake Mining Co. ........................................... 76,550
8,156 Newmont Mining Corp. ........................................... 236,014
12,497 Placer Dome Inc. (Canada) ...................................... 160,899
--------------
920,949
--------------
Hardware & Tools (0.1%)
4,930 Black & Decker Corp. ........................................... 248,349
3,189 Snap-On, Inc. .................................................. 135,532
4,647 Stanley Works .................................................. 222,185
--------------
606,066
--------------
Healthcare - Diversified (4.4%)
39,933 Abbott Laboratories ............................................ $ 2,987,488
3,387 Allergan, Inc. ................................................. 118,545
33,918 American Home Products Corp. .................................... 3,179,813
51,910 Bristol-Myers Squibb Co. ....................................... 5,200,733
70,214 Johnson & Johnson .............................................. 5,301,157
3,823 Mallinckrodt Group, Inc. ....................................... 148,380
14,218 Warner-Lambert Co. ............................................. 2,079,383
--------------
19,015,499
--------------
Healthcare - Drugs (5.0%)
57,917 Lilly (Eli) & Co. .............................................. 3,811,663
62,560 Merck & Co., Inc.** ............................................ 7,980,310
67,521 Pfizer, Inc. ................................................... 5,975,609
26,484 Pharmacia & Upjohn, Inc. ....................................... 1,047,773
38,222 Schering-Plough Corp. .......................................... 2,907,261
--------------
21,722,616
--------------
Healthcare - HMOs (0.2%)
8,543 Humana, Inc.* .................................................. 217,313
9,833 United Healthcare Corp. ........................................ 596,740
--------------
814,053
--------------
Healthcare - Long Term (0.2%)
20,551 Healthsouth Corp.* ............................................. 554,877
3,320 Manor Care, Inc. ............................................... 124,708
--------------
679,585
--------------
Healthcare - Specialized Services (0.0%)
4,439 ALZA Corp. (Class A)* .......................................... 165,908
--------------
Heavy Duty Trucks & Parts (0.1%)
1,994 Cummins Engine Co., Inc. ....................................... 115,403
3,932 Navistar International Corp.* .................................. 119,435
4,060 PACCAR, Inc. ................................................... 256,288
--------------
491,126
--------------
Home Building (0.0%)
1,522 Centex Corp. ................................................... 111,201
1,875 Fleetwood Enterprises, Inc. .................................... 87,891
2,029 Kaufman & Broad Home Corp. ..................................... 52,500
1,106 Pulte Corp. .................................................... 50,323
--------------
301,915
--------------
Hospital Management (0.3%)
33,809 Columbia/HCA Healthcare Corp. ................................... 917,069
15,937 Tenet Healthcare Corp.* ........................................ 594,649
--------------
1,511,718
--------------
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------
Household Furnishings & Appliances (0.1%)
4,958 Maytag Corp. ................................................... $ 223,110
3,893 Whirlpool Corp. ................................................ 260,101
--------------
483,211
--------------
Household Products - Non-durable (2.7%)
5,392 Clorox Co. ..................................................... 473,148
15,437 Colgate-Palmolive Co. .......................................... 1,253,291
10,903 Fort James Corp. ............................................... 494,724
28,671 Kimberly-Clark Corp. ........................................... 1,596,616
70,169 Procter & Gamble Co. ........................................... 5,959,979
33,404 Unilever N.V. & PLC (Netherlands) ............................... 2,148,295
--------------
11,926,053
--------------
Housewares (0.2%)
8,942 Fortune Brands, Inc. ........................................... 354,886
8,302 Newell Co. ..................................................... 380,854
7,819 Rubbermaid, Inc. ............................................... 226,751
3,193 Tupperware Corp. ............................................... 85,812
--------------
1,048,303
--------------
Insurance Brokers (0.4%)
8,729 AON Corp. ...................................................... 522,103
8,868 Marsh & McLennan Co., Inc. ..................................... 768,745
5,111 MBIA Inc. ...................................................... 374,061
--------------
1,664,909
--------------
Investment Banking/Brokerage (0.4%)
17,392 Merrill Lynch & Co., Inc. ...................................... 1,244,615
13,866 Schwab (Charles) Corp. ......................................... 523,441
--------------
1,768,056
--------------
Leisure Time - Products (0.2%)
5,185 Brunswick Corp. ................................................ 164,624
6,619 Hasbro, Inc. ................................................... 240,352
15,157 Mattel, Inc. ................................................... 641,331
--------------
1,046,307
--------------
Life & Health Insurance (0.6%)
7,757 Aetna Inc. ..................................................... 677,768
9,808 Conseco, Inc. .................................................. 460,363
3,694 Jefferson-Pilot Corp. .......................................... 309,834
7,310 Torchmark Corp. ................................................ 340,372
3,299 Transamerica Corp. ............................................. 384,127
7,271 UNUM Corp. ..................................................... 374,002
--------------
2,546,466
--------------
Lodging - Hotels (0.2%)
13,048 Hilton Hotels Corp. ............................................ 388,994
6,643 Marriot International, Inc. .................................... 503,207
--------------
892,201
--------------
Machinery - Diversified (0.8%)
3,895 Case Corp. ..................................................... $ 253,418
19,436 Caterpillar Inc. ............................................... 1,061,692
2,080 Cincinnati Milacron, Inc. ...................................... 64,220
6,319 Cooper Industries, Inc. ........................................ 354,654
13,154 Deere & Co. .................................................... 738,268
11,603 Dover Corp. .................................................... 448,166
2,577 Harnischfeger Industries, Inc. ................................. 91,161
8,654 Ingersoll-Rand Co. ............................................. 412,147
424 NACCO Industries, Inc. (Class A) ................................ 55,147
3,284 Timken Co. ..................................................... 105,909
--------------
3,584,782
--------------
Manufacturing - Diversified (2.2%)
1,468 Aeroquip-Vickers, Inc. ......................................... 85,236
29,452 AlliedSignal, Inc. ............................................. 1,253,551
12,044 Corning, Inc. .................................................. 489,288
2,394 Crane Co. ...................................................... 117,306
4,030 Eaton Corp. .................................................... 387,132
13,014 Illinois Tool Works Inc. ....................................... 780,027
4,371 Johnson Controls, Inc. ......................................... 242,864
21,337 Minnesota Mining & Manufacturing Co. ........................... 1,820,313
2,255 National Service Industries, Inc. ............................... 125,012
8,883 Tenneco, Inc. .................................................. 365,313
8,599 Textron Inc. ................................................... 644,388
7,901 Thermo Electron Corp.* ......................................... 323,941
27,800 Tyco International Ltd. ........................................ 1,410,850
12,164 United Technologies Corp. ...................................... 1,086,397
9,594 UST, Inc. ...................................................... 339,987
--------------
9,471,605
--------------
Manufacturing - Specialized (0.2%)
5,375 Avery Dennison Corp. ........................................... 271,438
1,315 Briggs & Stratton Corp. ........................................ 58,271
2,273 Millipore Corp. ................................................ 85,948
6,641 Pall Corp. ..................................................... 139,046
5,825 Parker-Hannifin Corp. .......................................... 271,591
--------------
826,294
--------------
Medical Products & Supplies (1.0%)
2,992 Bard (C.R.), Inc. .............................................. 104,346
2,890 Bausch & Lomb, Inc. ............................................ 129,508
14,621 Baxter International, Inc. ..................................... 827,914
6,376 Becton, Dickinson & Co. ........................................ 405,673
5,806 Biomet, Inc. ................................................... 173,091
10,135 Boston Scientific Corp.* ....................................... 605,566
7,732 Guidant Corp. .................................................. 563,953
SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------
24,487 Medtronic, Inc. ................................................ $ 1,300,872
4,792 St. Jude Medical, Inc.* ........................................ 174,908
3,953 United States Surgical Corp. ................................... 121,061
--------------
4,406,892
--------------
Metals & Mining (0.1%)
2,106 ASARCO, Inc. ................................................... 46,595
4,875 Cyprus Amax Minerals Co. ....................................... 79,828
10,098 Freeport-McMoran Copper & Gold, Inc. (Class B) ................. 152,101
8,711 Inco Ltd. (Canada) ............................................. 154,076
3,067 Phelps Dodge Corp. ............................................. 194,755
--------------
627,355
--------------
Multi-line Insurance (2.2%)
36,625 American International Group, Inc. ............................. 4,401,867
3,862 CIGNA Corp. .................................................... 737,642
5,322 Lincoln National Corp. ......................................... 445,718
6,001 Loews Corp. .................................................... 601,975
59,868 Travelers Group, Inc. .......................................... 3,337,641
--------------
9,524,843
--------------
Office Equipment & Supplies (0.2%)
4,629 Moore Corp. Ltd. (Canada) ...................................... 72,617
15,070 Pitney Bowes, Inc. ............................................. 706,406
9,134 Unisys Corp.* .................................................. 163,270
--------------
942,293
--------------
Oil & Gas - Exploration & Production (0.2%)
8,156 Burlington Northern Santa Fe Corp. ............................. 812,542
--------------
Oil & Gas - Refining & Marketing (0.0%)
3,899 Ashland, Inc. .................................................. 217,126
--------------
Oil & Gas Drilling (0.8%)
8,805 Baker Hughes, Inc. ............................................. 360,455
9,137 Dresser Industries, Inc. ....................................... 408,310
13,678 Halliburton Co. ................................................ 636,027
2,604 Helmerich & Payne, Inc. ........................................ 75,353
4,516 Rowan Companies, Inc.* ......................................... 127,295
25,828 Schlumberger Ltd. .............................................. 1,946,786
2,819 Western Atlas, Inc.* ........................................... 214,068
--------------
3,768,294
--------------
Oil - Exploration & Production (0.2%)
3,116 Anardarko Petroleum Corp.* ..................................... 200,982
4,737 Apache Corp.* .................................................. 161,058
9,204 Burlington Resources, Inc. ..................................... $ 411,879
5,502 Oryx Energy Co.* ............................................... 139,957
--------------
913,876
--------------
Oil - Integrated - Domestic (1.0%)
4,787 Amerada Hess Corp. ............................................. 283,929
16,737 Atlantic Richfield Co. ......................................... 1,301,302
2,487 Kerr-McGee Corp. ............................................... 168,183
17,687 Occidental Petroleum Corp. ..................................... 452,124
2,466 Pennzoil Co. ................................................... 165,068
13,741 Phillips Petroleum Co. ......................................... 673,309
3,774 Sun Co., Inc. .................................................. 150,724
13,241 Union Pacific Resources Group, Inc. ............................ 296,267
12,880 Unocal Corp. ................................................... 485,415
15,032 USX-Marathon Group ............................................. 519,544
--------------
4,495,865
--------------
Oil - Integrated - International (5.4%)
25,423 Amoco Corp. .................................................... 2,160,955
34,288 Chevron Corp. .................................................. 2,781,614
128,744 Exxon Corp.** .................................................. 8,223,523
40,988 Mobil Corp. .................................................... 2,969,068
111,878 Royal Dutch Petroleum Co. (ADR)(Netherlands)** ................. 6,076,374
28,613 Texaco, Inc. ................................................... 1,596,963
--------------
23,808,497
--------------
Paper & Forest Products (0.6%)
2,907 Boise Cascade Corp. ............................................ 96,839
5,007 Champion International Corp. ................................... 255,670
4,835 Georgia-Pacific Corp. .......................................... 283,754
15,777 International Paper Co. ........................................ 735,603
5,704 Louisiana-Pacific Corp. ........................................ 125,132
5,459 Mead Corp. ..................................................... 186,630
1,507 Potlatch Corp. ................................................. 65,272
5,322 Westvaco Corp. ................................................. 172,965
10,406 Weyerhaeuser Co. ............................................... 519,650
5,797 Willamette Industries, Inc. .................................... 214,127
--------------
2,655,642
--------------
Personal Care (0.8%)
2,929 Alberto-Culver Co. (Class B) ................................... 89,151
6,903 Avon Products, Inc. ............................................ 486,230
29,241 Gillette Co. ................................................... 3,154,373
--------------
3,729,754
--------------
Photography/Imaging (0.6%)
16,992 Eastman Kodak Co. .............................................. 1,115,100
6,931 Ikon Office Solutions, Inc. .................................... 226,557
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------
2,370 Polaroid Corp. ................................................. $ 108,576
17,016 Xerox Corp. .................................................... 1,509,107
--------------
2,959,340
--------------
Property - Casualty Insurance (1.1%)
22,388 Allstate Corp. ................................................. 2,087,681
8,885 Chubb Corp. .................................................... 709,134
4,095 General Re Corp. ............................................... 872,235
3,764 Progressive Corp. .............................................. 436,154
7,369 SAFECO Corp. ................................................... 385,951
4,376 St. Paul Companies, Inc. ....................................... 387,823
5,882 USF&G Corp. .................................................... 143,741
--------------
5,022,719
--------------
Publishing (0.7%)
5,009 Dow Jones & Co., Inc. .......................................... 257,337
5,161 McGraw-Hill, Inc. .............................................. 390,301
2,789 Meredith Corp. ................................................. 119,753
29,208 Time Warner, Inc. .............................................. 1,971,540
4,618 Times Mirror Co. (Class A) ..................................... 284,296
--------------
3,023,227
--------------
Publishing - Newspaper (0.4%)
14,791 Gannett Co., Inc. .............................................. 954,944
4,408 Knight-Ridder Newspapers, Inc. .................................. 247,950
5,004 New York Times Co. (Class A) ................................... 327,449
6,407 Tribune Co. .................................................... 413,652
--------------
1,943,995
--------------
Railroads (0.4%)
11,370 CSX Corp. ...................................................... 636,009
19,668 Norfolk Southern Corp. ......................................... 677,317
12,892 Union Pacific Corp. ............................................ 657,492
--------------
1,970,818
--------------
Restaurants (0.5%)
7,979 Darden Restaurants, Inc. ....................................... 107,717
35,895 McDonald's Corp. ............................................... 1,965,251
7,923 TRICON Global Restaurants, Inc.* ............................... 224,815
6,877 Wendy's International, Inc. .................................... 149,145
--------------
2,446,928
--------------
Retail - Building Supplies (0.7%)
38,194 Home Depot, Inc. ............................................... 2,437,255
9,113 Lowe's Companies, Inc. ......................................... 532,541
9,009 Sherwin-Williams Co. ........................................... 301,238
--------------
3,271,034
--------------
Retail - Computers & Electronics (0.1%)
5,142 Circuit City Stores, Inc. ...................................... 198,610
5,397 Tandy Corp. .................................................... 240,167
--------------
438,777
--------------
Retail - Department Stores (0.6%)
5,815 Dillard Department Stores, Inc. (Class A) ...................... $ 207,159
10,917 Federated Department Stores, Inc.* ............................. 511,734
3,691 Harcourt General, Inc. ......................................... 199,314
12,075 May Department Stores Co. ...................................... 733,556
1,918 Mercantile Stores Co., Inc. .................................... 126,228
4,031 Nordstrom, Inc. ................................................ 230,775
13,049 Penney (J.C.) Co., Inc. ........................................ 922,401
--------------
2,931,167
--------------
Retail - Drug Stores (0.5%)
8,977 CVS Corp. ...................................................... 664,859
2,040 Longs Drug Stores Corp. ........................................ 64,643
13,021 Rite Aid Corp. ................................................. 421,555
25,683 Walgreen Co. ................................................... 942,245
--------------
2,093,302
--------------
Retail - Food Chains (0.5%)
12,820 Albertson's, Inc. .............................................. 600,136
14,214 American Stores Co. ............................................ 358,015
3,130 Giant Food, Inc. (Class A) ..................................... 113,658
1,995 Great Atlantic & Pacific Tea Co., Inc. ......................... 60,723
13,278 Kroger Co.* .................................................... 560,996
7,768 Winn-Dixie Stores, Inc. ........................................ 418,987
--------------
2,112,515
--------------
Retail - General Merchandise (2.0%)
5,601 Consolidated Stores Corp.* ..................................... 230,341
11,089 Costco Companies, Inc.* ........................................ 541,975
11,359 Dayton-Hudson Corp. ............................................ 878,193
25,411 Kmart Corp.* ................................................... 339,872
20,437 Sears, Roebuck & Co. ........................................... 1,084,438
117,651 Wal-Mart Stores, Inc. .......................................... 5,448,712
--------------
8,523,531
--------------
Retail - Specialty (0.2%)
7,882 AutoZone, Inc.* ................................................ 238,431
3,302 Pep Boys-Manny, Moe & Jack ..................................... 84,614
14,888 Toys 'R' Us, Inc.* ............................................. 390,810
7,039 Woolworth Corp.* ............................................... 167,176
--------------
881,031
--------------
Retail - Specialty Apparel (0.4%)
5,519 Charming Shoppes, Inc.* ........................................ 24,491
20,982 Gap, Inc. (The) ................................................ 937,633
14,172 Limited (The), Inc. ............................................ 410,988
8,520 TJX Companies, Inc. ............................................ 329,085
--------------
1,702,197
--------------
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------
Savings & Loan Companies (0.3%)
5,714 Ahmanson (H.F.) & Co. .......................................... $ 356,768
2,959 Golden West Financial Corp. .................................... 264,091
13,434 Washington Mutual, Inc. ........................................ 900,918
--------------
1,521,777
--------------
Semiconductor Equipment (0.2%)
19,023 Applied Materials, Inc.* ....................................... 700,284
4,417 KLA-Tencor Corp.* .............................................. 203,734
--------------
904,018
--------------
Specialty Printing (0.1%)
4,289 Deluxe Corp. ................................................... 146,094
7,629 Donnelley (R.R.) & Sons Co. .................................... 302,299
6,753 Ecolab, Inc. ................................................... 194,571
1,617 Harland (John H.) Co. .......................................... 24,558
--------------
667,522
--------------
Steel & Iron (2.0%)
9,099 Allegheny Teledyne Inc. ........................................ 246,810
5,596 Armco, Inc. .................................................... 29,729
5,876 Bethlehem Steel Corp.* ......................................... 62,433
2,549 Inland Steel Industries, Inc. .................................. 52,573
4,584 Nucor Corp. .................................................... 236,076
4,476 USX-U.S. Steel Group, Inc. ..................................... 157,220
5,048 Worthington Industries, Inc. ................................... 86,447
--------------
871,288
--------------
Telecommunications - Cellular/Wireless (0.3%)
26,352 Airtouch Communications, Inc.* .................................. 1,184,193
6,132 DSC Communications Corp.* ...................................... 120,341
7,693 General Instrument Corp. ....................................... 128,377
--------------
1,432,911
--------------
Telecommunications - Long Distance (2.3%)
84,801 AT&T Corp. ..................................................... 5,162,261
36,364 MCI Communications Corp. ....................................... 1,738,654
22,452 Sprint Corp. ................................................... 1,481,832
52,872 WorldCom, Inc.* ................................................ 2,019,050
--------------
10,401,797
--------------
Telephones (5.0%)
9,676 Alltel Corp. ................................................... 442,072
57,143 Ameritech Corp. ................................................ 2,382,149
40,548 Bell Atlantic Corp. ............................................ 3,639,183
51,771 BellSouth Corp. ................................................ 3,158,031
18,200 Comcast Corp. (Class A Special) ................................. 637,000
8,564 Frontier Corp. ................................................. 237,116
49,993 GTE Corp. ...................................................... 2,705,871
33,479 Lucent Technologies Inc. ....................................... 3,628,287
47,856 SBC Communications, Inc. ....................................... 3,619,110
25,224 U.S. West Communications Group ................................. $ 1,313,225
--------------
21,762,044
--------------
Textiles - Apparel (0.1%)
3,822 Fruit of the Loom, Inc. (Class A)* .............................. 122,782
3,491 Liz Claiborne, Inc. ............................................ 174,550
1,899 Russell Corp. .................................................. 51,510
6,380 VF Corp. ....................................................... 304,246
--------------
653,088
--------------
Textiles - Home Furnishings (0.0%)
Springs Industries, Inc.
1,051 (Class A) ...................................................... 58,790
--------------
Tobacco (1.2%)
126,577 Philip Morris Companies, Inc. .................................. 5,498,188
--------------
Truckers (0.0%)
3,995 Ryder System, Inc. ............................................. 146,567
--------------
Utilities - Electric (2.4%)
7,160 Ameren Corp. ................................................... 275,213
9,876 American Electric Power Co., Inc. .............................. 474,048
7,704 Baltimore Gas & Electric Co. ................................... 243,158
7,887 Carolina Power & Light Co. ..................................... 329,282
11,074 Central & South West Corp. ..................................... 296,922
8,226 CINergy Corp. .................................................. 286,368
12,262 Consolidated Edison Co. of New York, Inc. ...................... 521,135
9,760 Dominion Resources, Inc. ....................................... 389,180
7,572 DTE Energy Co. ................................................. 278,271
18,774 Duke Power Co. ................................................. 1,043,130
19,917 Edison International ........................................... 550,207
12,734 Entergy Corp. .................................................. 368,490
12,016 FirstEnergy Corp.* ............................................. 347,713
9,498 FPL Group, Inc. ................................................ 551,478
6,621 GPU, Inc. ...................................................... 266,081
14,884 Houston Industries, Inc. ....................................... 385,124
7,534 Niagara Mohawk Power Corp.* .................................... 96,529
3,858 Northern States Power Co. ...................................... 211,949
15,459 PacifiCorp ..................................................... 373,915
11,610 PECO Energy Co. ................................................ 229,298
22,877 PG & E Corp. ................................................... 690,599
8,624 PP&L Resources, Inc. ........................................... 192,962
Public Service Enterprise
12,103 Group, Inc. .................................................... 390,322
36,031 Southern Co. ................................................... 889,515
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------
12,867 Texas Utilities Co. ............................................ $ 520,309
11,286 Unicom Corp. ................................................... 361,857
--------------
10,563,055
--------------
Utilities - Natural Gas (0.6%)
5,531 Coastal Corp. .................................................. 351,910
2,891 Columbia Gas System, Inc. ...................................... 220,619
4,977 Consolidated Natural Gas Co. ................................... 286,178
1,062 Eastern Enterprises ............................................ 47,060
16,604 Enron Corp. .................................................... 780,388
2,531 NICOR, Inc. .................................................... 104,087
1,619 ONEOK, Inc. .................................................... 56,665
4,347 Pacific Enterprises ............................................ 157,850
1,831 Peoples Energy Corp. ........................................... 66,145
5,739 Sonat, Inc. .................................................... 247,494
16,687 Williams Companies, Inc. ....................................... 545,456
--------------
2,863,852
--------------
Waste Management (0.2%)
10,320 Browning-Ferris Industries, Inc. ................................ 343,785
23,757 Waste Management Inc. .......................................... 593,925
--------------
937,710
--------------
TOTAL COMMON STOCKS
(Identified Cost $390,140,659) ................................. 428,105,597
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
SHORT-TERM INVESTMENT (0.7%) ...................................
REPURCHASE AGREEMENT
$2,915 The Bank of New York 5.4375% due 03/02/98 (dated 02/27/98;
proceeds $2,916,669)(a) (Identified Cost $2,915,348)............. 2,915,348
-------------
TOTAL INVESTMENTS .............................................. 431,020,945
-------------
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION,
NUMBER OF DELIVERY YEAR,
CONTRACTS AND MONTH VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL FUTURES (B)(0.0%)
SHORT POSITION
23 S&P 500 Index/March 1998 ........................................ $(8,150)
----------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $393,056,007)(c) . 98.9% 431,020,945
TOTAL FINANCIAL FUTURES 0.0 (8,150)
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES ....................... 1.1 4,916,185
----- ----------------
NET ASSETS ........................ 100.0% $435,928,980
===== ================
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
** Some or all of these securities are segregated in connection with
open futures contracts.
(a) Collateralized by $330,862 Federal Home Loan Banks 6.55% due 03/04/02
valued at $343,209, $1,015,000 Federal Home Loan Banks 6.25% due
10/29/01 valued at $1,039,968, $1,000,000 Federal National Mortgage
Assoc. 7.15% due 09/15/05 valued at $1,038,943 and $530,069 Federal
National Mortgage Assoc. 6.65% due 03/08/06 valued at $551,535.
(b) Value represents variation margin on open futures contracts at
February 28, 1998. The market value of these futures contracts is
$5,901,900 and the unrealized appreciation is $138,268.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$42,956,830 and the aggregate gross unrealized depreciation is
$4,991,892, resulting in net unrealized appreciation of $37,964,938.
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $393,056,007)........................... $431,020,945
Cash...................................................... 25,567
Receivable for:
Shares of beneficial interest sold ..................... 5,630,771
Dividends............................................... 637,467
Deferred organizational expenses ......................... 45,271
Prepaid expenses and other assets ........................ 980
---------------
TOTAL ASSETS ........................................... 437,361,001
---------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased............... 855,292
Plan of distribution fee ............................... 300,567
Investment management fee .............................. 57,587
Variation margin on futures contracts .................. 8,150
Organizational expenses .................................. 49,500
Accrued expenses and other payables ...................... 160,925
---------------
TOTAL LIABILITIES ...................................... 1,432,021
---------------
NET ASSETS.............................................. $435,928,980
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital........................................... $397,807,150
Net unrealized appreciation .............................. 38,103,206
Undistributed net investment income....................... 219,833
Net realized loss ........................................ (201,209)
---------------
NET ASSETS.............................................. $435,928,980
===============
CLASS A SHARES:
Net Assets................................................ $19,088,917
Shares Outstanding (unlimited authorized, $.01 par value) 1,716,869
NET ASSET VALUE PER SHARE............................... $11.12
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ....... $11.74
======
CLASS B SHARES:
Net Assets................................................ $380,009,145
Shares Outstanding (unlimited authorized, $.01 par value) 34,233,805
NET ASSET VALUE PER SHARE .............................. $11.10
======
CLASS C SHARES:
Net Assets................................................ $24,126,224
Shares Outstanding (unlimited authorized, $.01 par value) 2,173,252
NET ASSET VALUE PER SHARE .............................. $11.10
======
CLASS D SHARES:
Net Assets................................................ $12,704,694
Shares Outstanding (unlimited authorized, $.01 par value) 1,142,033
NET ASSET VALUE PER SHARE .............................. $11.12
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the period September 26, 1997* through February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $3,216 foreign withholding
tax)............................................. $ 1,967,904
Dividends from affiliate (Note 4)................. 7,287
Interest ......................................... 398,787
-------------
TOTAL INCOME ................................... 2,373,978
-------------
EXPENSES
Plan of distribution fee (Class A shares) ....... 12,848
Plan of distribution fee (Class B shares) ....... 1,127,620
Plan of distribution fee (Class C shares) ........ 75,709
Investment management fee......................... 510,357
Registration fees ................................ 136,736
Transfer agent fees and expenses.................. 117,693
Custodian fees.................................... 38,277
Professional fees ................................ 17,577
S&P license fees ................................. 12,759
Shareholder reports and notices .................. 6,426
Trustees' fees and expenses....................... 6,145
Organizational expenses .......................... 4,229
-------------
TOTAL EXPENSES.................................. 2,066,376
Less: amounts waived/reimbursed................... (212,252)
-------------
NET EXPENSES ................................... 1,854,124
-------------
NET INVESTMENT INCOME........................... 519,854
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on:
Investments .................................... (67,320)
Futures contracts............................... (133,889)
-------------
NET LOSS........................................ (201,209)
-------------
Net unrealized appreciation on:
Investments .................................... 37,964,938
Futures contracts............................... 138,268
-------------
NET GAIN........................................ 38,103,206
-------------
NET INCREASE...................................... $38,421,851
=============
</TABLE>
- ------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 26, 1997*
THROUGH
FEBRUARY 28, 1998
- --------------------------------------------------------------- -------------------
(unaudited)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .......................................... $ 519,854
Net realized loss............................................... (201,209)
Net unrealized appreciation..................................... 38,103,206
-------------------
NET INCREASE ................................................. 38,421,851
-------------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares.................................................. (32,194)
Class B shares.................................................. (218,935)
Class C shares.................................................. (12,314)
Class D shares.................................................. (36,578)
-------------------
TOTAL DIVIDENDS ............................................. (300,021)
-------------------
Net increase from transactions in shares of beneficial interest 397,707,150
-------------------
NET INCREASE ................................................. 435,828,980
NET ASSETS:
Beginning of period............................................. 100,000
-------------------
END OF PERIOD
(Including undistributed net investment income of $219,833) .. $435,928,980
===================
</TABLE>
- ------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter S&P 500 Index Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
provide investment results that, before expenses, correspond to the total
return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500
Index"). The Fund seeks to achieve its objective by investing at least 80% of
its total assets in common stocks included in the S&P 500 Index in
approximately the same weighting as the Index. The Fund was organized as a
Massachusetts business trust on June 18, 1997 and had no other operations
other than those relating to organizational matters and the issuance of 2,500
shares of beneficial interest by each class for $25,000 of each class to Dean
Witter InterCapital Inc. (the "Investment Manager") to effect the Fund's
initial capitalization. The Fund commenced operations on September 26, 1997.
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 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 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; and (4) short-term debt
securities having a maturity date of more than sixty days at time of
42
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited) continued
purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st
day. Short-term debt securities having a maturity date of sixty days or less
at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date. Discounts are accreted over the respective life of the
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 incurred the
organizational expenses of the Fund in the amount of approximately $49,500
which will be reimbursed for the full amount thereof. Such expenses have been
deferred and are being amortized on the straight-line method over a period
not to exceed five years from the commencement of operations.
43
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited) continued
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 0.40% 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 has agreed to assume all operating expenses (except
for 12b-1 fees) and to waive the compensation provided for in its Investment
Management Agreement to the extent that such expenses and compensation on an
annualized basis exceed 0.50% of the daily net assets of 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 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 -up to
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 -up to 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, the 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 preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan,
44
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited) continued
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 $15,470,964 at February
28, 1998.
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 February 28, 1998, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.24% and 1.0%, respectively.
The Distributor has informed the Fund that for the period ended February 28,
1998, it received contingent deferred sales charges from certain redemptions
of the Fund's Class A shares, Class B shares and Class C shares of $1,233,
$176,043 and $2,465, respectively and received $317,745 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 February 28, 1998
aggregated $391,998,552 and $1,790,565, respectively. Included in the
aforementioned are purchases of U.S. Government securities of $4,238,575, and
purchases of Morgan Stanley, Dean Witter, Discover & Co. common stock of
$1,744,549.
45
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited) continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 26, 1997*
THROUGH
FEBRUARY 28, 1998
-----------------------------
SHARES AMOUNT
------------- --------------
<S> <C> <C>
CLASS A
Sold...................... 2,174,952 $ 22,337,813
Reinvestment of
dividends................ 2,992 30,640
Redeemed.................. (463,575) (4,833,628)
------------- --------------
Net increase -Class A .... 1,714,369 17,534,825
------------- --------------
CLASS B
Sold...................... 35,877,610 363,073,563
Reinvestment of
dividends................ 19,650 201,230
Redeemed.................. (1,665,955) (17,145,091)
------------- --------------
Net increase -Class B .... 34,231,305 346,129,702
------------- --------------
CLASS C
Sold...................... 2,361,111 23,865,804
Reinvestment of
dividends................ 1,135 11,618
Redeemed.................. (191,494) (1,986,049)
------------- --------------
Net increase -Class C .... 2,170,752 21,891,373
------------- --------------
CLASS D
Sold...................... 2,170,273 22,597,466
Reinvestment of
dividends................ 189 1,939
Redeemed.................. (1,030,929) (10,448,155)
------------- --------------
Net increase -Class D .... 1,139,533 12,151,250
------------- --------------
Net increase in Fund ..... 39,255,959 $397,707,150
============= ==============
</TABLE>
- ------------
* Commencement of operations.
6. FINANCIAL HIGHLIGHTS
See the "Financial Highlights" table on page 6 of this prospectus.
<PAGE>
Dean Witter
S&P 500 Index Fund
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
Kenton J. Hinchliffe
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
Morgan Stanley 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.
Dean Witter
S&P 500 Index Fund
PROSPECTUS -- MARCH 31, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DEAN WITTER
March 31, 1998 S&P 500 INDEX FUND
- -----------------------------------------------------------------------------
Dean Witter S&P 500 Index Fund (the "Fund") is an open-end, diversified
management investment company whose investment objective is to provide
investment results that, before expenses, correspond to the total return
(i.e., the combination of capital changes and income) of the S&P 500
Composite Stock Price Index (the "S&P 500 Index"). The Fund seeks to meet its
investment objective by investing, under normal circumstances, at least 80%
of the value of its total assets in equity securities included in the S&P 500
Index in approximately the same weightings as the Index. (See "Investment
Practices and Policies.")
A Prospectus for the Fund dated March 31, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone numbers listed below
or from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean
Witter Reynolds Inc, at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in
addition to and more detailed than that set forth in the Prospectus. It is
intended to provide additional information regarding the activities and
operations of the Fund, and should be read in conjunction with the
Prospectus.
Dean Witter S&P 500 Index Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
The Fund and its Management............................................... 3
Trustees and Officers..................................................... 7
Investment Practices and Policies......................................... 13
Investment Restrictions................................................... 17
Portfolio Transactions and Brokerage...................................... 18
The Distributor........................................................... 19
Determination of Net Asset Value ......................................... 23
Purchase of Fund Shares .................................................. 24
Shareholder Services...................................................... 26
Redemptions and Repurchases............................................... 31
Dividends, Distributions and Taxes........................................ 32
Performance Information................................................... 33
Shares of the Fund........................................................ 34
Custodian and Transfer Agent ............................................. 35
Independent Accountants................................................... 35
Reports to Shareholders................................................... 35
Legal Counsel............................................................. 35
Experts .................................................................. 36
Registration Statement.................................................... 36
Report of Independent Accountants ........................................ 37
Statement of Assets and Liabilities as at July 28, 1997................... 38
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of the Commonwealth of
Massachusetts on June 18, 1997.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or
"InterCapital"), a Delaware corporation, whose address is Two World Trade
Center, New York, New York 10048, is the Fund's Investment Manager.
InterCapital is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
("MSDW"), a Delaware corporation. In an internal reorganization which took
place in January, 1993, InterCapital assumed the investment advisory,
administrative and management activities previously performed by the
InterCapital Division of Dean Witter Reynolds Inc. ("DWR"), a broker-dealer
affiliate of InterCapital. (As hereinafter used in this Statement of
Additional Information, the terms "InterCapital" and "Investment Manager"
refer to DWR's InterCapital Division prior to the internal reorganization and
to Dean Witter InterCapital Inc. thereafter). The daily management of the
Fund and research relating to the Fund's portfolio are conducted by or under
the direction of officers of the Fund and of the Investment Manager, subject
to review by the Fund's Board of Trustees. Information as to these Trustees
and officers is contained under the caption "Trustees and Officers."
InterCapital is also the investment manager (or investment adviser) of the
following investment companies:
OPEN-END FUNDS
1 Active Assets California Tax-Free Trust
2 Active Assets Government Securities Trust
3 Active Assets Money Trust
4 Active Assets Tax-Free Trust
5 Dean Witter American Value Fund
6 Dean Witter Balanced Growth Fund
7 Dean Witter Balanced Income Fund
8 Dean Witter California Tax-Free Daily Income Trust
9 Dean Witter California Tax-Free Income Fund
10 Dean Witter Capital Appreciation Fund
11 Dean Witter Capital Growth Securities
12 Dean Witter Convertible Securities Trust
13 Dean Witter Developing Growth Securities Trust
14 Dean Witter Diversified Income Trust
15 Dean Witter Dividend Growth Securities Inc.
16 Dean Witter European Growth Fund Inc.
17 Dean Witter Federal Securities Trust
18 Dean Witter Financial Services Trust
19 Dean Witter Fund of Funds
20 Dean Witter Global Asset Allocation Fund
21 Dean Witter Global Dividend Growth Securities
22 Dean Witter Global Short-Term Income Fund Inc.
23 Dean Witter Global Utilities Fund
24 Dean Witter Hawaii Municipal Trust
25 Dean Witter Health Sciences Trust
26 Dean Witter High Yield Securities Inc.
27 Dean Witter Income Builder Fund
28 Dean Witter Information Fund
29 Dean Witter Intermediate Income Securities
30 Dean Witter Intermediate Term U.S. Treasury Trust
31 Dean Witter International SmallCap Fund
32 Dean Witter Japan Fund
33 Dean Witter Limited Term Municipal Trust
34 Dean Witter Liquid Asset Fund Inc.
35 Dean Witter Market Leader Trust
36 Dean Witter Mid-Cap Growth Fund
37 Dean Witter Multi-State Municipal Series Trust
38 Dean Witter Natural Resource Development Securities Inc.
39 Dean Witter New York Municipal Money Market Trust
40 Dean Witter New York Tax-Free Income Fund
41 Dean Witter Pacific Growth Fund Inc.
42 Dean Witter Precious Metals and Minerals Trust
43 Dean Witter Retirement Series
44 Dean Witter Select Dimensions Investment Series
45 Dean Witter Select Municipal Reinvestment Fund
46 Dean Witter Short-Term Bond Fund
47 Dean Witter Short-Term U.S. Treasury Trust
48 Dean Witter Special Value Fund
49 Dean Witter Strategist Fund
3
<PAGE>
50 Dean Witter Tax-Exempt Securities Trust
51 Dean Witter Tax-Free Daily Income Trust
52 Dean Witter U.S. Government Money Market Trust
53 Dean Witter U.S. Government Securities Trust
54 Dean Witter Utilities Fund
55 Dean Witter Value-Added Market Series
56 Dean Witter Variable Investment Series
57 Dean Witter World Wide Income Trust
58 Dean Witter World Wide Investment Trust
59 Morgan Stanley Dean Witter Competitive Edge Fund
60 Morgan Stanley Dean Witter Growth Fund
61 Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
CLOSED-END FUNDS
1 High Income Advantage Trust
2 High Income Advantage Trust II
3 High Income Advantage Trust III
4 InterCapital Income Securities Inc.
5 Dean Witter Government Income Trust
6 InterCapital Insured Municipal Bond Trust
7 InterCapital Insured Municipal Trust
8 InterCapital Insured Municipal Income Trust
9 InterCapital California Insured Municipal Income Trust
10 InterCapital Insured Municipal Securities
11 InterCapital Insured California Municipal Securities
12 InterCapital Quality Municipal Investment Trust
13 InterCapital Quality Municipal Income Trust
14 InterCapital Quality Municipal Securities
15 InterCapital California Quality Municipal Securities
16 InterCapital New York Quality Municipal Securities
17 Municipal Income Trust
18 Municipal Income Trust II
19 Municipal Income Trust III
20 Municipal Income Opportunities Trust
21 Municipal Income Opportunities Trust II
22 Municipal Income Opportunities Trust III
23 Prime Income Trust
24 Municipal Premium Income Trust
The foregoing investment companies, together with the Fund, are
collectively referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser (the
"TCW/DW Funds"):
OPEN-END FUNDS
1 TCW/DW Emerging Markets Opportunities Trust
2 TCW/DW Global Telecom Trust
3 TCW/DW Income and Growth Fund
4 TCW/DW Latin American Growth Fund
5 TCW/DW Mid-Cap Equity Trust
6 TCW/DW North American Government Income Trust
7 TCW/DW Small Cap Growth Fund
8 TCW/DW Total Return Trust
CLOSED-END FUNDS
1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
InterCapital also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company;
and (iii) investment adviser of Offshore Dividend Growth Fund and Offshore
Money Market Fund, mutual funds established under the laws of the Cayman
Islands and available only to investors who are participants in DWR's
International Active Assets Account program and are neither citizens nor
residents of the United States.
4
<PAGE>
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage
the investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
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, such office space, facilities,
equipment, clerical help and bookkeeping and certain legal services as the
Fund may reasonably require in the conduct of its business, including the
preparation of prospectuses, statements of additional information, proxy
statements and reports required to be filed with federal and state securities
commissions (except insofar as the participation or assistance of independent
accountants and attorneys is, in the opinion of the Investment Manager,
necessary or desirable). In addition, the Investment Manager pays the
salaries of all personnel, including officers of the Fund, who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone service, heat, light, power and other utilities provided to the
Fund. The Investment Manager has retained DWSC to perform its administrative
services under the Agreement.
Expenses not expressly assumed by the Investment Manager under the
Agreement or by Dean Witter Distributors Inc., the Distributor of the Fund's
shares ("Distributors" or "the Distributor") will be paid by the Fund. These
expenses will be allocated among the four classes of shares of the Fund
(each, a "Class") pro rata based on the net assets of the Fund attributable
to each Class, except as described below. Such expenses include, but are not
limited to: expenses of the Plan of Distribution pursuant to Rule 12b-1 (the
"12b-1 fee") (see "The Distributor"); charges and expenses of any registrar;
custodian, stock transfer and dividend disbursing agent; brokerage
commissions; taxes; engraving and printing of share certificates;
registration costs of the Fund and its shares under federal and state
securities laws; the cost and expense of printing, including typesetting, and
distributing Prospectuses and Statements of Additional Information of the
Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
of proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees
of the Investment Manager or any corporate affiliate of the Investment
Manager; all expenses incident to any dividend, withdrawal or redemption
options; charges and expenses of any outside service used for pricing of the
Fund's shares; fees and expenses of legal counsel, including counsel to the
Trustees who are not interested persons of the Fund or of the Investment
Manager (not including compensation or expenses of attorneys who are
employees of the Investment Manager) and independent accountants; membership
dues of industry associations; interest on Fund borrowings; postage;
insurance premiums on property or personnel (including officers and Trustees)
of the Fund which inure to its benefit; extraordinary expenses (including,
but not limited to, legal claims and liabilities and litigation costs and any
indemnification relating thereto); and all other costs of the Fund's
operation. The 12b-1 fees relating to a particular Class will be allocated
directly to that Class. In addition, other expenses associated with a
particular Class (except advisory or custodial fees) may be allocated
directly to that Class, provided that such expenses are reasonably identified
as specifically attributable to that Class and the direct allocation to that
Class is approved by the Trustees.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.40% to the Fund's daily net assets. The management fee is
allocated among the Classes pro rata based on the net assets of the Fund
attributable to each Class. The Investment Manager has agreed to assume all
expenses (except for brokerage and 12b-1 fees) and to waive the compensation
provided for in its Management Agreement to the extent that such expenses and
compensation on an annualized basis exceed 0.50% of the daily net assets of
the Fund. During the period September 26, 1997 (commencement of operations)
through February 28, 1998, the Fund accrued total compensation to the
Investment Manager under the Management Agreement in the amount of $510,357,
$212,252 of which was waived by the Investment Manager pursuant to the
undertaking described above.
5
<PAGE>
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Investment Manager paid the organizational expenses of the Fund
incurred prior to the offering of the Fund's shares. The Fund has agreed to
bear and reimburse the Investment Manager for such expenses, which totalled
approximately $49,500. The organizational expenses of the Fund are being
deferred by the Fund and are being amortized on the straight line method over
a period not to exceed five years from the date of commencement of the Fund's
operations.
The Agreement was initially approved by the Trustees on July 23, 1997 and
by InterCapital, as the then sole shareholder, on July 28, 1997. The
Agreement may be terminated at any time, without penalty, on thirty days'
notice by the Trustees of the Fund, by the holders of a majority of the
outstanding shares of the Fund, as defined in the Investment Company Act of
1940, as amended (the "Act"), or by the Investment Manager. The Agreement
will automatically terminate in the event of its assignment (as defined in
the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999
and will continue from year to year thereafter, provided continuance of the
Agreement is approved at least annually by the vote of the holders of a
majority of the outstanding shares of the Fund, as defined in the Act, or by
the Trustees of the Fund; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees of the Fund who
are not parties to the Agreement or "interested persons" (as defined in the
Act) of any such party (the "Independent Trustees"), which vote must be cast
in person at a meeting called for the purpose of voting on such approval.
The following persons owned 5% or more of the outstanding shares of Class
A on February 27, 1998: Morgan Stanley Dean Witter Trust FSB Trustee,
Ashcraft & Gerel Target Benefit Plan, P.O. Box 957, Jersey City, NJ
07303--11.619%; RPM007 Stark Co Women's Clinic, Retirement Savings Plan, Main
Holding FD #6, Attn: B. Kindig, 5000 Higbee Avenue NW, Canton, OH
44718--11.361%; RPM007 Tri Co Orthopedic Surgeons Retirement Savings Plan,
Mutual Fund-Portfolio #6, 1413 Harbor Drive NW, Canton, OH 44708--10.132%;
and Dave Sorenson & Marsha Sorensen JTTEN, 2625 W. Lake Van Ness Circle,
Fresno, CA 93711--5.768%. The following persons owned 5% or more of the
outstanding shares of Class D on February 27, 1998: Morgan Stanley Dean
Witter Trust FSB Trustee, Pizzagalli Construction, P.O. Box 957, Jersey City,
NJ 07303--81.330% and Hare & Co., c/o The Bank of New York, P.O. Box 11203,
New York, NY 10286--8.692%.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR. The Fund has agreed that DWR or its parent company may use or, at any
time, permit others to use, the name "Dean Witter." The Fund has also agreed
that in the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate
the name "Dean Witter" from its name if DWR or its parent company shall so
request.
6
<PAGE>
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital, and with the 86 Dean Witter Funds and the 11 TCW/DW Funds are
shown below:
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
<S> <C>
Michael Bozic (57).......................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee (since November, 1995); Director or Trustee of the Dean
c/o Levitz Furniture Corporation Witter Funds; formerly President and Chief Executive
7887 N. Federal Highway Officer of Hills Department Stores (May, 1991-July,
Boca Raton, Florida 1995); formerly variously Chairman, Chief Executive
Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial
Services, Inc., The United Negro College Fund and
Weirton Steel Corporation.
Charles A. Fiumefreddo* (64)................ Chairman, Chief Executive Officer and Director of
Chairman, President, InterCapital, Distributors and DWSC; Executive Vice
Chief Executive Officer and Trustee President and Director of DWR; Chairman, Director or
Two World Trade Center Trustee, President and Chief Executive Officer of the
New York, New York Dean Witter Funds; Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Chairman and Director of
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust");
Director and/or officer of various MSDW subsidiaries.
Edwin J. Garn (65).......................... Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah)(1974-1992) and Chairman,
c/o Huntsman Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way Salt Lake City, Utah (1972-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Corporation; Director of Franklin
Covey (time management systems); John Alden Financial
Corp. (health insurance); United Space Alliance (joint
venture between Lockheed Martin and Boeing Company) and
Nuskin Asia Pacific (multilevel marketing); member of
the board of various civic and charitable organizations.
John R. Haire (73).......................... Chairman of the Audit Committee and Chairman of the
Trustee Committee of the Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Chairman
New York, New York of the Audit Committee and Chairman of the Committee of
the Independent Trustees and Trustee of the TCW/DW
Funds; formerly President, Council for Aid to Education
(1978-1989) and Chairman and Chief Executive Officer of
Anchor Corporation, an Investment Adviser (1964-1978).
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Wayne E. Hedien (64) ....................... Retired; Director or Trustee of the Dean Witter Funds;
Trustee Director of The PMI Group, Inc. (private mortgage
c/o Gordon Altman Butowsky insurance); Trustee and Vice Chairman of The Field
Weitzen Shalov & Wein Museum of Natural History; formerly associated with the
Counsel to the Independent Trustees Allstate Companies (1966-1994), most recently as
114 West 47th Street Chairman of The Allstate Corporation (March,
New York, New York 1993-December, 1994) and Chairman and Chief Executive
Officer of its wholly-owned subsidiary, Allstate
Insurance Company (July, 1989-December, 1994); director
of various other business and charitable organizations.
Dr. Manuel H. Johnson (49).................. Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group
c/o Johnson Smick International, Inc. of Seven Council (G7C), an international economic
1133 Connecticut Avenue, N.W. commission; Director or Trustee of the Dean Witter
Washington, DC Funds; Trustee of the TCW/DW Funds; Director of NASDAQ
(since June, 1995); Director of Greenwich Capital
Markets, Inc. (broker-dealer) and NVR Inc. (home
construction); Chairman and Trustee of the Financial
Accounting Foundation (oversight organization for the
FASB); formerly Vice Chairman of the Board of Governors
of the Federal Reserve System (1986-1990) and Assistant
Secretary of the U.S. Treasury (1982-1986).
Michael E. Nugent (61)...................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Director or Trustee of the Dean
c/o Triumph Capital, L.P. Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital
New York, New York Corporation (1984-1988); Director of various business
organizations.
Philip J. Purcell* (54)..................... Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDW, DWR and Novus Credit Services Inc.;
1585 Broadway Director of InterCapital, DWSC and Distributors;
New York, New York Director or Trustee of the Dean Witter Funds; Director
and/or officer of various MSDW subsidiaries.
John L. Schroeder (67)...................... Retired; Director or Trustee of the Dean Witter Funds;
Trustee Trustee of the TCW/DW Funds; Director of Citizens
c/o Gordon Altman Butowsky Utilities Company; formerly Executive Vice President and
Weitzen Shalov & Wein Chief Investment Officer of the Home Insurance Company
Counsel to the Independent Trustees (August, 1991-Septem ber, 1995).
114 West 47th Street
New York, New York
8
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Barry Fink (43)............................. Senior Vice President (since March, 1997) and Secretary
Vice President, and General Counsel (since February, 1997) of
Secretary and General Counsel InterCapital and DWSC; Senior Vice President (since
Two World Trade Center March, 1997) and Assistant Secretary and Assistant
New York, New York General Counsel (since February, 1997) of Distributors;
Assistant Secretary of DWR (since August, 1996); Vice
President, Secretary and General Counsel of the Dean
Witter Funds and the TCW/DW Funds (since February,
1997); previously First Vice President (June,
1993-February, 1997); Vice President (until June, 1993)
and Assistant Secretary and Assistant General Counsel of
InterCapital and DWSC and Assistant Secretary of the
Dean Witter Funds and the TCW/DW Funds.
Kenton J. Hinchliffe (53).................. Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (52) ..................... First Vice President and Assistant Treasurer of
Treasurer InterCapital and DWSC; Treasurer of the Dean Witter
Two World Trade Center Funds and the TCW/DW Funds.
New York, New York
</TABLE>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
In addition, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and MSDW
Trust and Director of MSDW Trust, Executive Vice President and Director of
DWR, and Director of SPS Transaction Services, Inc. and various other MSDW
subsidiaries, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and MSDW
Trust and Director of MSDW Trust, Joseph J. McAlinden, Executive Vice
President and Chief Investment Officer of InterCapital and Director of MSDW
Trust, Robert S. Giambrone, Senior Vice President of InterCapital, DWSC,
Distributors and MSDW Trust and Director of MSDW Trust, and Paul D. Vance,
Peter Hermann, Mark Bavoso and Ira Ross, Senior Vice Presidents of
InterCapital, are Vice Presidents of the Fund. In addition, Marilyn K.
Cranney, First Vice President and Assistant General Counsel of InterCapital
and DWSC, Lou Anne D. McInnis, Ruth Rossi and Carsten Otto, Vice Presidents
and Assistant General Counsels of InterCapital and DWSC, and Frank
Bruttomesso and Todd Lebo, staff attorneys with InterCapital, are Assistant
Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of
this Statement of Additional Information, there are a total of 86 Dean Witter
Funds, comprised of 130 portfolios. As of February 28, 1998, the Dean Witter
Funds had total net assets of approximately $101 billion and more than six
million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own
any stock or other securities issued by InterCapital's parent company, MSDW.
These are the "disinterested" or "independent" Trustees. The other two
Trustees (the "management Trustees") are affiliated with InterCapital. Four
of the seven independent Trustees are also Independent Trustees of the TCW/DW
Funds.
9
<PAGE>
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Dean Witter Funds seek as Independent
Trustees individuals of distinction and experience in business and finance,
government service or academia; these are people whose advice and counsel are
in demand by others and for whom there is often competition. To accept a
position on the Funds' Boards, such individuals may reject other attractive
assignments because the Funds make substantial demands on their time. Indeed,
by serving on the Funds' Boards, certain Trustees who would otherwise be
qualified and in demand to serve on bank boards would be prohibited by law
from doing so.
All of the Independent Trustees serve as members of the Audit Committee
and the Committee of the Independent Trustees. Three of them also serve as
members of the Derivatives Committee. During the calendar year ended December
31, 1997, the three Committees held a combined total of seventeen meetings.
The Committees hold some meetings at InterCapital's offices and some outside
InterCapital. Management Trustees or officers do not attend these meetings
unless they are invited for purposes of furnishing information or making a
report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading
among Funds in the same complex; and approving fidelity bond and related
insurance coverage and allocations, as well as other matters that arise from
time to time. The Independent Trustees are required to select and nominate
individuals to fill any Independent Trustee vacancy on the Board of any Fund
that has a Rule 12b-1 plan of distribution. Most of the Dean Witter Funds
have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance of such
services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting
Committee meeting minutes to the full Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and
the Funds' operations and management. He screens and/or prepares written
materials and identifies critical issues for the Independent Trustees to
consider, develops agendas for Committee meetings, determines the type and
amount of information that the Committees will need to form a judgment on
various issues, and arranges to have that information furnished to Committee
members. He also arranges for the services of independent experts and
consults with them in advance of meetings to help refine reports and to focus
on critical issues. Members of the Committees believe that the person who
serves as Chairman of both Committees and guides their efforts is pivotal to
the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service
providers. In effect, the Chairman of the Committees serves as a combination
of chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as
10
<PAGE>
Committee Chairman and Independent Trustee of the Dean Witter Funds and as an
Independent Trustee and as Chairman of the Committee of the Independent
Trustees and the Audit Committee of the TCW/DW Funds. The current Committee
Chairman has had more than 35 years experience as a senior executive in the
investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of
separate groups of Independent Trustees arriving at conflicting decisions
regarding operations and management of the Funds and avoids the cost and
confusion that would likely ensue. Finally, having the same Independent
Trustees serve on all Fund Boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of Independent
Trustees, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee
of the Independent Trustees an additional annual fee of $1,200). If a Board
meeting and a Committee meeting, or more than one Committee meeting, take
place on a single day, the Trustees are paid a single meeting fee by the
Fund. The Fund also reimburses such Trustees for travel and other
out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by
the Investment Manager or an affiliated company receive no compensation or
expense reimbursement from the Fund.
At such time as the Fund has been in operation, and has paid fees to the
Independent Trustees, for a full fiscal year, and assuming that during such
fiscal year the Fund holds the same number of Board and committee meetings as
were held by the other Dean Witter Funds during the calendar year ended
December 31, 1997, it is estimated that the compensation paid to each
Independent Trustee during such fiscal year will be the amount shown in the
following table:
FUND COMPENSATION (ESTIMATED)
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
<S> <C>
Michael Bozic .................................................. $1,600
Edwin J. Garn .................................................. 1,600
John R. Haire .................................................. 3,550
Wayne E. Hedien................................................. 1,600
Dr. Manuel H. Johnson ......................................... 1,600
Michael E. Nugent............................................... 1,600
John L. Schroeder............................................... 1,600
</TABLE>
11
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for
services to the 84 Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1997. With respect to Messrs. Haire, Johnson, Nugent and
Schroeder, the TCW/DW Funds are included solely because of a limited exchange
privilege between those Funds and five Dean Witter Money Market Funds. Mr.
Hedien's term as Director or Trustee of each Dean Witter Fund commenced on
September 1, 1997.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF
COMMITTEES OF FOR SERVICE AS
INDEPENDENT CHAIRMAN OF
FOR SERVICE DIRECTORS/ COMMITTEES OF TOTAL CASH
AS DIRECTOR OR FOR SERVICE AS TRUSTEES AND INDEPENDENT COMPENSATION
TRUSTEE AND TRUSTEE AND AUDIT TRUSTEES FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER COMMITTEES OF 84 AND AUDIT 84 DEAN WITTER
NAME OF OF 84 DEAN WITTER OF 14 TCW/DW DEAN WITTER COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS TCW/DW FUNDS TCW/DW FUNDS
- ------------------- ----- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael Bozic ........ $133,602 -- -- -- $133,602
Edwin J. Garn ........ 149,702 -- -- -- 149,702
John R. Haire ........ 149,702 $73,725 $157,463 $25,350 406,240
Wayne E. Hedien....... 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson. 145,702 71,125 -- -- 216,827
Michael E. Nugent ... 149,702 73,725 -- -- 223,427
John L. Schroeder .... 149,702 73,725 -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, not including the Fund, have adopted a retirement program under
which an Independent Trustee who retires after serving for at least five
years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Dean Witter Fund that has adopted the
retirement program (each such Fund referred to as an "Adopting Fund" and each
such Trustee referred to as an "Eligible Trustee") is entitled to retirement
payments upon reaching the eligible retirement age (normally, after attaining
age 72). Annual payments are based upon length of service. Currently, upon
retirement, each Eligible Trustee is entitled to receive from the Adopting
Fund, commencing as of his or her retirement date and continuing for the
remainder of his or her life, an annual retirement benefit (the "Regular
Benefit") equal to 25.0% of his or her Eligible Compensation plus 0.4166666%
of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years
up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the Board.(1) "Eligible Compensation" is
one-fifth of the total compensation earned by such Eligible Trustee for
service to the Adopting Fund in the five year period prior to the date of the
Eligible Trustee's retirement. Benefits under the retirement program are not
secured or funded by the Adopting Funds.
- --------------
(1) An Eligible Trustee may elect alternate payments of his or her
retirement benefits based upon the combined life expectancy of such
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. The amount estimated to be payable under this
method, through the remainder of the later of the lives of such
Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit. In addition, the Eligible Trustee may elect that the
surviving spouse's periodic payment of benefits will be equal to either
50% or 100% of the previous periodic amount, an election that,
respectively, increases or decreases the previous periodic amount so
that the resulting payments will be the actuarial equivalent of the
Regular Benefit.
12
<PAGE>
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Dean Witter Funds (not including the
Fund) for the year ended December 31, 1997, and the estimated retirement
benefits for the Fund's Independent Trustees, to commence upon their
retirement, from the 57 Dean Witter Funds as of December 31, 1997.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
ESTIMATED BENEFITS BENEFITS
CREDITED ACCRUED AS UPON
YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- --------------------------- ------------ ------------ ----- --------
<S> <C> <C> <C> <C>
Michael Bozic .............. 10 50.0% $ 20,499 $ 47,025
Edwin J. Garn .............. 10 50.0 30,878 47,025
John R. Haire .............. 10 50.0 (19,823)(3) 127,897
Wayne E. Hedien............. 9 42.5 0 39,971
Dr. Manuel H. Johnson ..... 10 50.0 12,832 47,025
Michael E. Nugent .......... 10 50.0 22,546 47,025
John L. Schroeder........... 8 41.7 39,350 39,504
</TABLE>
- --------------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until June 1, 1998.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
ADDITIONAL INFORMATION CONCERNING THE S&P 500 INDEX
As set forth above, the Fund's investment objective is to provide
investment results that, before expenses, correspond to the total return of
the S&P 500 Index.
The Fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's. Standard & Poor's makes no representation or warranty, express or
implied, to the owners of shares of the Fund or any member of the public
regarding the advisability of investing in securities generally or in the
Fund particularly or the ability of the S&P 500 Index to track general stock
market performance. Standard & Poor's only relationship to the Fund is the
licensing of certain trademarks and trade names of Standard & Poor's and of
the S&P 500 Index which is determined, composed and calculated by Standard &
Poor's without regard to the Fund. Standard & Poor's has no obligation to
take the needs of the Fund or the owners of shares of the Fund into
consideration in determining, composing or calculating the S&P 500 Index.
Standard & Poor's is not responsible for and has not participated in the
determination of the prices and amount of the Fund or the timing of the
issuance of sale of shares of the Fund. Standard & Poor's has no obligation
or liability in connection with the administration, marketing or trading of
the Fund.
Standard & Poor's does not guarantee the accuracy and/or the completeness
of the S&P 500 Index or any data included therein and Standard & Poor's shall
have no liability for any errors, omissions, or interruptions therein.
Standard & Poor's makes no warranty, express or implied, as to results to be
obtained by the Fund, owners of shares of the Fund, or any other person or
entity from the use of the S&P 500 Index or any data included therein.
Standard & Poor's makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a particular
purpose or use with respect to the S&P 500 Index or any data included
therein. Without limiting any of the foregoing, in no event shall Standard &
Poor's have any liability for any special, punitive, indirect, or
consequential damages (including lost profits), even if notified of the
possibility of such damages.
13
<PAGE>
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested
or used for payments of obligations of the Fund. These agreements, which may
be viewed as a type of secured lending by the Fund, typically involve the
acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer.
The agreement provides that the Fund will sell back to the institution, and
that the institution will repurchase, the underlying security ("collateral")
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. The collateral will be maintained in a
segregated account and will be marked to market daily to determine that the
value of the collateral, as specified in the agreement, does not decrease
below the purchase price plus accrued interest. If such decrease occurs,
additional collateral will be requested and, when received, added to the
account to maintain full collateralization. The Fund will accrue interest
from the institution until the time when the repurchase is to occur. Although
such date is deemed by the Fund to be the maturity date of a repurchase
agreement, the maturities of the collateral are not subject to any limits.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed
to minimize such risks. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions whose financial condition will be continually monitored by the
Investment Manager subject to procedures established by the Board of Trustees
of the Fund. In addition, as described above, the value of the collateral
underlying the repurchase agreement will be at least equal to the repurchase
price, including any accrued interest earned on the repurchase agreement. In
the event of a default or bankruptcy by a selling financial institution, the
Fund will seek to liquidate such collateral. However, the exercising of the
Fund's right to liquidate such collateral could involve certain costs or
delays and, to the extent that proceeds from any sale upon a default of the
obligation to repurchase were less than the repurchase price, the Fund could
suffer a loss. It is the current policy of the Fund not to invest in
repurchase agreements that do not mature within seven days of any such
investment, which together with any other illiquid assets held by the Fund,
amounts to more than 15% of its net assets.
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS")
SPDRs are interests in a unit investment trust ("UIT") that may be
obtained from the UIT or purchased in the secondary market as SPDRs listed on
the American Stock Exchange.
The UIT will issue SPDRs in aggregations of 50,000 known as "Creation
Units" in exchange for a "Portfolio Deposit" consisting of (a) a portfolio of
securities substantially similar to the component securities ("Index
Securities") of the S&P 500 Index, (b) a cash payment equal to a pro rata
portion of the dividends accrued on the UIT's portfolio securities since the
last dividend payment by the UIT, net of expenses and liabilities, and (c) a
cash payment or credit ("Balancing Amount") designed to equalize the net
asset value of the S&P 500 Index and the net asset value of a Portfolio
Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT.
To redeem, the Fund must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon
the existence of a secondary market. Upon redemption of a Creation Unit, the
Fund will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by
the UIT. Accordingly, the level of risk involved in the purchase or sale of a
SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is
based on a basket of stocks. Disruptions in the markets for the securities
underlying SPDRs purchased or sold by the Fund could result in losses on
SPDRs.
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
14
<PAGE>
Fund (subject to notice provisions described below), and are at all times
secured by cash or cash equivalents, which are maintained in a segregated
account pursuant to applicable regulations and that are equal to at least the
market value, determined daily, of the loaned securities. The advantage of
such loans is that the Fund continues to receive the income on the loaned
securities while at the same time earning interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations.
The Fund will not lend more than 20% of the value of its total assets. A loan
may be terminated by the borrower on one business day's notice, or by the
Fund on four business days' notice. If the borrower fails to deliver the
loaned securities within four days after receipt of notice, the Fund could
use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities
fail financially. However, these loans of portfolio securities will only be
made to firms deemed by the Fund's management to be creditworthy and when the
income which can be earned from such loan justifies the attendant risks. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss in the market price during the loan period would
inure to the Fund. The creditworthiness of firms to which the Fund lends its
portfolio securities will be monitored on an ongoing basis by the Investment
Manager pursuant to procedures adopted and reviewed, on an ongoing basis, by
the Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned
securities, to be delivered within one day after notice, to permit the
exercise of such rights if the matters involved would have a material effect
on the Fund's investment in such loaned securities. The Fund will pay
reasonable finder's, administrative and custodial fees in connection with a
loan of its securities.
Stock Index Futures Contracts. As discussed in the Prospectus, the Fund
may invest in stock index futures contracts. An index futures contract sale
creates an obligation by the Fund, as seller, to deliver cash at a specified
future time. An index futures contract purchase would create an obligation by
the Fund, as purchaser, to take delivery of cash at a specified future time.
Futures contracts on indexes do not require the physical delivery of
securities, but provide for a final cash settlement on the expiration date
which reflects accumulated profits and losses credited or debited to each
party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in
the form of variation margin payments. The Fund may be required to make
additional margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required
to be paid by or released to the Fund and the Fund realizes a loss or a gain.
Stock index futures contracts provide for the delivery of an amount of
cash equal to a specified dollar amount times the difference between the
stock index value at the open or close of the last trading day of the
contract and the futures contract price. A futures contract sale is closed
out by effecting a futures contract purchase for the same aggregate amount of
the specific type of equity security and the same delivery date. If the sales
price exceeds the offsetting purchase price, the seller would be paid the
difference and would realize a gain. If the offsetting purchase price exceeds
the sale price, the seller would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same aggregate amount of the specific type of security
and the same delivery date. If the offsetting sale price exceeds the purchase
price, the purchaser would realize a gain, whereas if the purchase price
exceeds the offsetting sale price, the purchaser would realize a loss. There
is no assurance that the Fund will be able to enter into a closing
transaction.
15
<PAGE>
Limitations on Futures Contracts. 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, after taking into account
unrealized gains and unrealized losses on such contracts it has entered into.
However, there is no overall limitation on the percentage of the Fund's
assets which may be subject to a hedge position. Except as described above
and in the Prospectus, there are no other limitations on the use of futures
and options thereon by the Fund.
Risks of Transactions in Futures Contracts. The Fund may sell a futures
contract to protect against the decline in the value of securities held by
the Fund. However, it is possible that the futures market may advance and the
value of securities held in the portfolio of the Fund may decline. If this
occurred, the Fund would lose money on the futures contract and also
experience a decline in value of its portfolio securities. However, while
this could occur for a very brief period or to a very small degree, over time
the value of a diversified portfolio will tend to move in the same direction
as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Investment Manager may determine not to invest in the
securities as planned and will realize a loss on the futures contract that is
not offset by a reduction in the price of the securities.
If the Fund maintains a short position in a futures contract, it will
cover this position by holding, in a segregated account maintained at its
Custodian, cash, U.S. Government securities or other liquid portfolio
securities equal in value (when added to any initial or variation margin on
deposit) to the market value of the securities underlying the futures
contract or the exercise price of the option. Such a position may also be
covered by owning the securities underlying the futures contract (in the case
of a sock index futures contract a portfolio of securities substantially
replicating the index).
In addition, if the Fund holds a long position in a futures contract, it
will hold cash, U.S. Government securities or other liquid portfolio
securities equal to the purchase price of the contract or the exercise price
of the put option (less the amount of initial or variation margin on deposit)
in a segregated account maintained for the Fund by its Custodian.
Alternatively, the Fund could cover its long position by purchasing a put
option on the same futures contract with an exercise price as high or higher
than the price of the contract held by the Fund.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments
underlying interest rate futures contracts it holds at a time when it is
disadvantageous to do so. The inability to close out options and futures
positions could also have an adverse impact on the Fund's ability to
effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur
a loss of all or part of its margin deposits with the broker. Transactions
are entered into by the Fund only with brokers or financial institutions
deemed creditworthy by the Investment Manager.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of
the securities which are the subject of the contract. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the securities and futures markets could result.
Price distortions could also result if investors in futures contracts opt to
make or take delivery of underlying securities rather than engage in closing
transactions due to the resultant reduction in the liquidity of the futures
market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less
16
<PAGE>
onerous than margin requirements in the cash market, increased participation
by speculators in the futures market could cause temporary price distortions.
Due to the possibility of price distortions in the futures market and because
of the imperfect correlation between movements in the prices of securities
and movements in the prices of futures contracts, a correct forecast of stock
price or interest rate trends by the Investment Manager may still not result
in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for
futures contracts in which the Fund may invest. In the event a liquid market
does not exist, it may not be possible to close out a futures position and,
in the event of adverse price movements, the Fund would continue to be
required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures
contracts are traded may compel or prevent the Fund from closing out a
contract which may result in reduced gain or increased loss to the Fund. The
absence of a liquid market in futures contracts might cause the Fund to make
or take delivery of the underlying securities at a time when it may be
disadvantageous to do so.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate will not exceed
100%. A 100% turnover rate would occur, for example, if 100% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced
within one year.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at
a meeting of Shareholders, if the holders of 50% of the outstanding shares of
the Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund. For purposes of the following restrictions:
(i) all percentage limitations apply immediately after a purchase or initial
investment; and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets
does not require elimination of any security from the portfolio.
The Fund may not:
1. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of issuers
which engage in real estate operations and securities secured by real estate
or interests therein.
2. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or sell index futures contracts.
3. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
4. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
5. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(6).
6. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement; (b) purchasing or selling futures
contracts or options; (c) borrowing money in accordance with restrictions
described above; (d) purchasing any securities on a when-issued or delayed
delivery basis; or (e) lending portfolio securities.
17
<PAGE>
7. Make loans of money or securities, except: (a) by the purchase of
debt obligations in which the Fund may invest consistent with its investment
objective and policies; (b) by investment in repurchase agreements; or (c)
by lending its portfolio securities.
8. Make short sales of securities.
9. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options is not considered the purchase of a
security on margin.
10. Invest more than 15% of its total assets in "illiquid securities"
(securities for which market quotations are not readily available),
restricted securities and repurchase agreements which have a maturity of
longer than seven days.
11. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
12. Invest for the purpose of exercising control or management of any
other issuer, 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- -----------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the
Investment Manager is responsible for decisions to buy and sell securities
for the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. The Fund also
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation, generally referred
to as the underwriter's concession or discount. Futures transactions are
usually effected through a broker and a commission will be charged. On
occasion, the Fund may also purchase certain money market instruments
directly from an issuer, in which case no commissions or discounts are paid.
During the period September 26, 1997 (commencement of operations) through
February 28, 1998, the Fund paid a total of $48,266 in brokerage commissions.
The Investment Manager currently serves as investment manager to a number
of clients, including other investment companies, and may in the future act
as investment manager or adviser to others. It is the practice of the
Investment Manager to cause purchase and sale transactions to be allocated
among the Fund and others whose assets it manages in such manner as it deems
equitable. In making such allocations among the Fund and other client
accounts, various factors may be considered, including the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client
accounts. In the case of certain initial and secondary public offerings, the
Investment Manager may utilize a pro-rata allocation process based on the
size of the Dean Witter Funds involved and the number of shares available
from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange,
the Fund's policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the Fund and the Investment
Manager from obtaining a high quality of brokerage and research services. In
seeking to determine the reasonableness of brokerage commis-
18
<PAGE>
sions paid in any transaction, the Investment Manager relies upon its
experience and knowledge regarding commissions generally charged by various
brokers and on its judgment in evaluating the brokerage and research services
received from the broker effecting the transaction. Such determinations are
necessarily subjective and imprecise, as in most cases an exact dollar value
for those services is not ascertainable.
In seeking to implement the Fund's policies, the Investment Manager
effects transactions with those brokers and dealers who the Investment
Manager believes provide the most favorable prices and are capable of
providing efficient executions. If the Investment Manager believes such
prices and executions are obtainable from more than one broker or dealer, it
may give consideration to placing portfolio transactions with those brokers
and dealers who also furnish research and other services to the Fund or the
Investment Manager. Such services may include, but are not limited to, any
one or more of the following: information as to the availability of
securities for purchase or sale; statistical or factual information or
opinions pertaining to investments; wire services; and appraisals or
evaluations of portfolio securities.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager in the
management of accounts of some of its other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of
research or services otherwise performed by the Investment Manager and
thereby reduce its expenses, it is of indeterminable value and the management
fee paid to the Investment Manager is not reduced by any amount that may be
attributable to the value of such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund
may effect principal transactions in certain money market instruments with
DWR. The Fund will limit its transactions with DWR to U.S. Government and
Government Agency Securities, Bank Money Instruments (i.e., Certificates of
Deposit and Bankers' Acceptances) and Commercial Paper. Such transactions
will be effected with DWR only when the price available from DWR is better
than that available from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR, Morgan Stanley & Co. Incorporated ("MS & Co.") and
other brokers and dealers that are affiliates of the Investment Manager. In
order for an affiliated broker or dealer to effect any portfolio transactions
for the Fund, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on an exchange during a comparable period of time. This standard would
allow the affiliated broker or dealer to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker
in a commensurate arm's-length transaction. Furthermore, the Board of
Trustees of the Fund, including a majority of the Trustees who are not
"interested" persons of the Fund, as defined in the Act, have adopted
procedures which are reasonably designed to provide that any commissions,
fees or other remuneration paid to an affiliated broker or dealer are
consistent with the foregoing standard. The Fund does not reduce the
management fee it pays to the Investment Manager by any amount of the
brokerage commissions it may pay to an affiliated broker or dealer. During
the period September 26, 1997 (commencement of operations) through February
28, 1998, the Fund paid no brokerage commissions to MS & Co. or DWR.
THE DISTRIBUTOR
- -----------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered
into a selected dealer agreement with DWR, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into selected dealer agreements with other selected broker-dealers. The
Distributor, a Delaware corporation, is a wholly-owned subsidiary of MSDW.
The Board of Trustees of the Fund including a majority of the Trustees who
are not, and were not at the time they voted, interested persons of the Fund,
as defined in the Act ( the "Independent Trustees"), approved, at their
meeting held on July 23, 1997, a Distribution
19
<PAGE>
Agreement appointing the Distributor as exclusive distributor of the Fund's
shares and providing for the Distributor to bear distribution expenses not
borne by the Fund. By its terms, the Distribution Agreement has an initial
term ending April 30, 1998, and provides that it will remain in effect from
year to year thereafter if approved by the Board.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
account executives. The Distributor also pays certain expenses in connection
with the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears
the costs of initial typesetting, printing and distribution of prospectuses
and supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal securities laws and pays
filing fees in accordance with state securities laws. The Fund and the
Distributor have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment
or mistake of law or for any act or omission or for any losses sustained by
the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan") pursuant to which each Class, other than Class D, pays
the Distributor compensation accrued daily and payable monthly at the annual
rate of 0.25% of the average daily net assets of Class A and 1.0% of the
average daily net assets of each of Class B and Class C. The Distributor
receives the proceeds of front-end sales charges and of contingent deferred
sales charges imposed on certain redemptions of shares, which are separate
and apart from payments made pursuant to the Plan (see "Purchase of Fund
Shares" in the Prospectus). The Distributor has informed the Fund that for
the fiscal period ended February 28, 1998 it and/or DWR received (a)
approximately $1,233, $176,043 and $2,465 in contingent deferred sales
charges from Class A, Class B and Class C, respectively, and (b)
approximately $317,745 in front-end sales charges from Class A, none of which
was retained by the Distributor.
The Distributor has informed the Fund that the entire fee payable by Class
A and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class's average daily net assets
are currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers, Inc. (of which
the Distributor is a member). The "service fee" is a payment made for
personal service and/or the maintenance of shareholder accounts. The
remaining portion of the Plan fees payable by a Class, if any, is
characterized as an "asset-based sales charge" as such is defined by the
aforementioned Rules of the Association.
The Plan was adopted by a vote of the Trustees of the Fund on July 23,
1997 at a meeting of the Trustees called for the purpose of voting on such
Plan. The vote included the vote of a majority of the Trustees of the Fund
who are not "interested persons" of the Fund (as defined in the Act) and who
have no direct or indirect financial interest in the operation of the Plan
(the "Independent 12b-1 Trustees"). In making their decision to adopt the
Plan, the Trustees requested from the Distributor and received such
information as they deemed necessary to make an informed determination as to
whether or not adoption of the Plan was in the best interests of the
shareholders of the Fund. After due consideration of the information
received, the Trustees, including the Independent 12b-1 Trustees, determined
that adoption of the Plan would benefit the shareholders of the Fund.
InterCapital, as then sole shareholder of the Fund, approved the Plan on July
28, 1997, whereupon the Plan went into effect.
Under its terms, the Plan will continue in effect until April 30, 1998 and
will remain in effect from year to year thereafter, provided such continuance
is approved annually by a vote of the Trustees in the manner described above.
Under the Plan and as required by Rule 12b-1, the Trustees will receive and
review promptly after the end of each fiscal quarter a written report
provided by the Distributor of the
20
<PAGE>
amounts expended by the Distributor under the Plan and the purpose for which
such expenditures were made. The following chart shows the amounts accrued
under the Plan by each Class of shares for the period September 26, 1997
(commencement of operations) through February 28, 1998 and the percentage of
the net assets of each Class represented by such amounts.
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE OF NET
ACCRUED ASSETS OF CLASS
------- ---------------
<S> <C> <C>
Class A...................................... $ 12,848 0.24%
Class B...................................... 1,127,620 1.00
Class C...................................... 75,709 1.00
</TABLE>
- ------------
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set
forth in the Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the account executives or
dealers of record in all cases. On orders of $1 million or more (for which no
sales charge was paid) or net asset value purchases by employer-sponsored
401(k) and other plans qualified under Section 401(a) of the Internal Revenue
Code ("Qualified Retirement Plans") for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, the Investment Manager compensates DWR's
account executives by paying them, from its own funds, a gross sales credit
of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission,
currently a residual of up to 0.25% of the current value of the respective
accounts for which they are the account executives of record in all cases. In
the case of Class B shares purchased by Qualified Retirement Plans for which
MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves as
recordkeeper pursuant to a written Recordkeeping Services Agreement, DWR
compensates its account executives by paying them, from its own funds, a
gross sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value
of the respective accounts for which they are the account executives of
record.
With respect to Class D shares other than shares held by participants in
the InterCapital mutual fund asset allocation program, the Investment Manager
compensates DWR's account executives by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of
up to 1.0% of the amount sold. There is a chargeback of 100% of the amount
paid if the Class D shares are redeemed in the first year and a chargeback of
50% of the amount paid if the Class D shares are redeemed in the second year
after purchase. The Investment Manager also compensates DWR's account
executives by paying them, from its own funds, an annual residual commission,
currently a residual of up to 0.10% of the current value of the respective
accounts for which they are the account executives of record (not including
accounts of participants in the InterCapital mutual fund asset allocation
program).
The gross sales credit is a charge which reflects commissions paid by DWR
to its account executives and Fund associated distribution-related expenses,
including sales compensation and overhead and other branch office
distribution-related expenses including: (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and
21
<PAGE>
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies; (b) the costs
of client sales seminars; (c) travel expenses of mutual fund sales
coordinators to promote the sale of Fund shares; and (d) other expenses
relating to branch promotion of Fund shares sales. Payments may also be made
with respect to distribution expenses incurred in connection with the
distribution of shares, including personal services to shareholders with
respect to holdings of such shares, of an investment company whose assets are
acquired by the Fund in a tax-free reorganization. The distribution fee that
the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred on behalf of the Fund and, in the case of
Class B shares, opportunity costs, such as the gross sales credit and an
assumed interest charge thereon ("carrying charge"). In the Distributor's
reporting of the distribution expenses to the Fund, in the case of Class B
shares, such assumed interest (computed at the "broker's call rate") has been
calculated on the gross sales credit as it is reduced by amounts received by
the Distributor under the Plan and any contingent deferred sales charges
received by the Distributor upon redemption of shares of the Fund. No other
interest charge is included as a distribution expense in the Distributor's
calculation of its distribution costs for this purpose. The broker's call
rate is the interest rate charged to securities brokers on loans secured by
exchange-listed securities.
Each Class paid 100% of the amounts accrued under the Plan with respect to
the Class for the period September 26, 1997 (commencement of operations)
through February 28, 1998 to the Distributor. The Distributor and DWR
estimate that they have spent, pursuant to the Plan, $16,764,482 on behalf of
Class B since the inception of the Plan. It is estimated that this amount was
spent in approximately the following ways: (i) 6.29%
($1,054,568)--advertising and promotional expenses; (ii) 0.84%
($140,874)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 92.87% ($15,569,040)--other expenses, including the
gross sales credit and the carrying charge, of which 1.64% ($255,121)
represents carrying charges, 40.23% ($6,263,393) represents commission
credits to DWR branch offices for payments of commissions to account
executives and 58.13% ($9,050,526) represents overhead and other branch
office distribution-related expenses. The amounts accrued by Class A and
Class C for distribution during the period were for expenses which relate to
compensation of sales personnel and associated overhead expenses.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments
at the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case
of Class A, and 1.0%, in the case of Class C, of the average net assets of
the respective Class during the month. No interest or other financing
charges, if any, incurred on any distribution expenses on behalf of Class A
and Class C will be reimbursable under the Plan. With respect to Class A, in
the case of all expenses other than expenses representing the service fee,
and, with respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to account executives, such
amounts shall be determined at the beginning of each calendar quarter by the
Trustees, including, a majority of the Independent 12b-1 Trustees. Expenses
representing the service fee (for Class A) or a gross sales credit or a
residual to account executives (for Class C) may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall
be reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Trustees will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund,
together with a report explaining the purposes and anticipated benefits of
incurring such expenses. The Trustees will determine which particular
expenses, and the portions thereof, that may be borne by the Fund, and in
making such a determination shall consider the scope of the Distributor's
commitment to promoting the distribution of the Fund's Class A and Class C
shares.
In the case of Class B shares, at any given time, the expenses in
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of
shares. The
22
<PAGE>
Distributor has advised the Fund that in the case of Class B shares the
excess distribution expenses including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges
imposed at the time of sale of the Fund's Class B shares, totaled $15,470,964
as of February 28, 1998. Because there is no requirement under the Plan that
the Distributor be reimbursed for all expenses for all expenses with respect
to Class B shares or any requirement that the Plan be continued from year to
year, this excess amount does not constitute a liability of the Fund.
Although there is no legal obligation for the Fund to pay distribution
expenses in excess of payments made under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of
shares, if for any reason the Plan is terminated, the Trustees will consider
at that time the manner in which to treat such expenses. Any cumulative
expenses incurred, but not yet recovered through distribution fees or
contingent deferred sales charges, may or may not be recovered through future
distribution fees or contingent deferred sales charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that the Distributor, InterCapital, DWSC and DWR or certain of their
employees may be deemed to have such an interest as a result of benefits
derived from the successful operation of the Plan or as a result of receiving
a portion of the amounts expended thereunder by the Fund.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of
the affected Class of the Fund, and all material amendments of the Plan must
also be approved by the Trustees in the manner described above. The Plan may
be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) or not more
than thirty days' written notice to any other party to the Plan. So long as
the Plan is in effect, the election and nomination of Independent 12b-1
Trustees shall be committed to the discretion of the Independent 12b-1
Trustees.
DETERMINATION OF NET ASSET VALUE
- -----------------------------------------------------------------------------
As stated in the Prospectus, short-term securities with remaining
maturities of sixty days or less at the time of purchase are valued at
amortized cost, unless the Trustees determine such does not reflect the
securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty days, whereupon they will be valued at
amortized cost using their value on the 61st day unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. All other securities and other assets are valued at their fair
value as determined in good faith under procedures established by and under
the supervision of the Trustees.
The net asset value per share for each Class of shares of the Fund is
determined once daily at 4:00 p.m. New York time (or, on days when the New
York Stock Exchange closes prior to 4:00 p.m., at such earlier time), on each
day that the New York Stock Exchange is open. The New York Stock Exchange
currently observes the following holidays: New Year's Day, Reverend Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
23
<PAGE>
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
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 in the
circumstances discussed in the Prospectus.
Right of Accumulation. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for
purchases of shares of the Fund totalling at least $25,000 in net asset
value. For example, if any person or entity who qualifies for this privilege
holds Class A shares of the Fund and/or other Dean Witter Funds that are
multiple class funds ("Dean Witter Multi-Class Funds") or shares of other
Dean Witter Funds sold with a front-end sales charge purchased at a price
including a front-end sales charge having a current value of $5,000, and
purchases $20,000 of additional shares of the Fund, the sales charge
applicable to the $20,000 purchase would be 4.75% of the offering price.
The Distributor must be notified by the 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 selected broker-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 Distributor or MSDW Trust
(the "Transfer Agent") fails to confirm the investor's represented holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges
are 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 the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase of Class A shares made during the period will receive the
reduced sales commission applicable to the amount represented by the goal, as
if it were a single purchase. A number of shares equal in value to 5% of the
dollar amount of the Letter of Intent will be held in escrow by the Transfer
Agent, in the name of the shareholder. The initial purchase under a Letter of
Intent must be equal to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to
pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the
Distributor is authorized by the shareholder to liquidate a sufficient number
of his or her escrowed shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced
sales charges in the same manner as set forth above under "Right of
Accumulation," but there will be no retroactive reduction of sales charges on
previous purchases. For the purpose of determining whether the investor is
entitled to a further reduced sales charge applicable to purchases at or
above a sales charge level which exceeds the stated goal of a Letter of
Intent, the cumulative current net asset value of any shares owned by the
investor in any other Dean Witter Funds held by the shareholder which were
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) will be added to the cost or net asset value of
shares of the Fund owned by the investor. However, shares of "Exchange Funds"
(see "Shareholder Services--Exchange Privilege") and the purchase of shares
of other Dean Witter Funds will not be included in determining whether the
stated goal of a Letter of Intent has been reached.
24
<PAGE>
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As
stated in the Prospectus, a CDSC will be imposed on any redemption by an
investor if after such redemption the current value of the investor's Class B
shares of the Fund is less than the dollar amount of all payments by the
shareholder for the purchase of Class B shares during the preceding six years
(or, in the case of shares held by certain Qualified Retirement Plans, three
years). However, no CDSC will be imposed to the extent that the net asset
value of the shares redeemed does not exceed: (a) the current net asset value
of shares purchased more than six years (or, in the case of shares held by
certain Qualified Retirement Plans, three years) prior to the redemption,
plus (b) the current net asset value of shares purchased through reinvestment
of dividends or distributions of the Fund or another Dean Witter Fund (see
"Shareholder Services--Targeted Dividends"), plus (c) the current net asset
value of shares acquired in exchange for (i) shares of Dean Witter front-end
sales charge funds, or (ii) shares of other Dean Witter Funds for which
shares of front-end sales charge funds have been exchanged (see "Shareholder
Services--Exchange Privilege"), plus (d) increases in the net asset value of
the investor's shares above the total amount of payments for the purchase of
Fund shares made during the preceding six (three) years. The CDSC will be
paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the
amount which represents an increase in the net asset value of the investor's
shares above the amount of the total payments for the purchase of shares
within the last six years (or, in the case of shares held by certain
Qualified Retirement Plans, three years) will be redeemed first. In the event
the redemption amount exceeds such increase in value, the next portion of the
amount redeemed will be the amount which represents the net asset value of
the investor's shares purchased more than six (three) years prior to the
redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of Dean Witter
front-end sales charge funds, or for shares of other Dean Witter funds for
which shares of front-end sales charge funds have been exchanged. A portion
of the amount redeemed which exceeds an amount which represents both such
increase in value and the value of shares purchased more than six years (or,
in the case of shares held by certain Qualified Retirement Plans, three
years) prior to the redemption and/or shares purchased through reinvestment
of dividends or distributions and/or shares acquired in the above-described
exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number
of years from the time of any payment for the purchase of shares, all
payments made during a month will be aggregated and deemed to have been made
on the last day of the month. The following table sets forth the rates of the
CDSC applicable to most Class B shares of the Fund:
<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>
25
<PAGE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased by Qualified Retirement Plans for which MSDW
Trust serves as Trustee or DWR's Retirement Plan Services serves as
recordkeeper pursuant to a written Recordkeeping Services Agreement:
<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>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year or three-year period. This will result in any such
CDSC being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years
(or, in the case of shares held by certain Qualified Retirement Plans, three
years) of purchase which are in excess of these amounts and which redemptions
do not qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC
of 1.0% on most redemptions made within one year after purchase, except in
the circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund and maintained by the
Transfer Agent. This is an open account in which shares owned by the investor
are credited by the Transfer Agent in lieu of issuance of a share
certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares
and may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder instituted
transaction takes place in the Shareholder Investment Account, the
shareholder will be mailed a confirmation of the transaction from the Fund or
from DWR or other selected broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of
the Fund, unless the shareholder requests that they be paid in cash. Each
purchase of shares of the Fund is made upon the condition that the Transfer
Agent is thereby automatically appointed as agent of the investor to receive
all dividends and capital gains distributions on shares owned by the
investor. Such dividends and distributions will be paid, at the net asset
value per share, in shares of the applicable Class of the Fund (or in cash if
the shareholder so requests) as of the close of business on the record date.
At any time an investor may request the Transfer Agent, in writing, to have
subsequent dividends and/or capital gains distributions paid to him or her in
cash rather than shares. To assure sufficient time to process the change,
such request should be received by the Transfer Agent at least five business
days prior to the record date of the dividend or distribution. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payments will be made to DWR or other
selected broker-dealer, and will be forwarded to the shareholder, upon the
receipt of proper instructions. It has been and remains the Fund's policy and
practice that, if checks for dividends or distributions paid in cash remain
uncashed, no interest will accrue on amounts represented by such uncashed
checks.
26
<PAGE>
Targeted Dividends (Service Mark) . In states where it is legally
permissible, shareholders may also have all income dividends and capital
gains distributions automatically invested in shares of any Class of an
open-end Dean Witter Fund other than Dean Witter S&P 500 Index Fund or in
another Class of Dean Witter S&P 500 Index Fund. Such investment will be made
as described above for automatic investment in shares of the applicable Class
of the Fund, at the net asset value per share of the selected Dean Witter
Fund as of the close of business on the payment date of the dividend or
distribution and will begin to earn dividends, if any, in the selected Dean
Witter Fund the next business day. To participate in the Targeted Dividends
program, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent. Shareholders of the
Fund must be shareholders of the selected Class of the Dean Witter Fund
targeted to receive investments from dividends at the time they enter the
Targeted Dividends program. Investors should review the prospectus of the
targeted Dean Witter Fund before entering the program.
EasyInvest (Service Mark). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account 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. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated the same
business day the transfer of funds is effected (subject to any applicable
sales charges). Shares of the Dean Witter money market funds redeemed in
connection with EasyInvest are redeemed on the business day preceding the
transfer of funds. For further information or to subscribe to EasyInvest,
shareholders should contact their DWR or other selected broker-dealer account
executive or the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares
of the applicable Class at net asset value, without the imposition of a CDSC
upon redemption, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset
value per share next determined after receipt of the check or proceeds by the
Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own
or purchase shares of the Fund having a minimum value of $10,000 based upon
the then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount,
not less then $25, or in any whole percentage of the account balance, on an
annualized basis. 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.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment designated in the application. The
shares will be redeemed at their net asset value determined, at the
shareholder's option, on the tenth or twenty-fifth day (or next following
business day) of the relevant month or quarter and normally a check for the
proceeds will be mailed by the Transfer Agent, or amounts credited to a
shareholder's DWR brokerage account, within five business days after the date
of redemption. The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the share holder's original
investment will be correspondingly reduced and ultimately exhausted. Each
withdrawal constitutes a redemption of shares and any gain or loss realized
must be recognized for federal income
27
<PAGE>
tax purposes. Although the shareholder may make additional investments of
$2,500 or more under the Withdrawal Plan, withdrawals made concurrently with
purchases of additional shares may be inadvisable because of sales charges
which may be applicable to purchases or redemptions of shares (see "Purchase
of Fund Shares").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the
account must send complete written instructions to the Transfer Agent to
enroll in the Withdrawal Plan. The shareholder's signature on such
instructions must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). A shareholder may, at any time, change the amount and interval of
withdrawal payments through his or her Account Executive or by written
notification to the Transfer Agent. In addition, the party and/or the address
to which checks are mailed may be changed by written notification to the
Transfer Agent, with signature guarantees required in the manner described
above. The shareholder may also terminate the Withdrawal Plan at any time by
written notice to the Transfer Agent. In the event of such termination, the
account will be continued as a regular shareholder investment account. The
shareholder may also redeem all or part of the shares held in the Withdrawal
Plan account (see "Redemptions and Repurchases" in the Prospectus) at any
time. Shareholders wishing to enroll in the Withdrawal Plan should contact
their account executive or the Transfer Agent.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the
Fund for which they qualify at any time by sending a check in any amount, not
less than $100, payable to Dean Witter S&P 500 Index Fund, and indicating the
selected Class, directly to the Fund's Transfer Agent. In the case of Class A
shares, after deduction of any applicable sales charge, the balance will be
applied to the purchase of Fund shares, and, in the case of shares of the
other Classes, the entire amount will be applied to the purchase of Fund
shares, at the net asset value per share next computed after receipt of the
check or purchase payment by the Transfer Agent. The shares so purchased will
be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of each Class of
shares of the Fund may exchange their shares for shares of the same Class of
shares of any other Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be exchanged for share of any 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 foregoing nine funds are hereinafter referred to as
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. ("Global Short-Term"), which is a
Dean Witter Fund offered with a CDSC. Exchanges may be made after the shares
of the Fund acquired by purchase (not by exchange or dividend reinvestment)
have been held for thirty days. There is no waiting period for exchanges of
shares acquired by exchange or dividend reinvestment. An exchange will be
treated for federal income tax purposes the same as a repurchase or
redemption of shares, on which the shareholder may realize a capital gain or
loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to
the contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit
should not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number
of factors, including the number of years
28
<PAGE>
from the time of purchase until the time of redemption or exchange ("holding
period"). When shares of a Dean Witter Multi-Class Fund or Global Short-Term
are exchanged for shares of an Exchange Fund, the exchange is executed at no
charge to the shareholder, without the imposition of the CDSC at the time of
the exchange. During the period of time the shareholder remains in the
Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired), the holding period or "year since
purchase payment made" is frozen. When shares are redeemed out of the
Exchange Fund, they will be subject to a CDSC which would be based upon the
period of time the shareholder held shares in a Dean Witter Multi-Class Fund
or in Global Short-Term. However, 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, if any, incurred on or after that date which are
attributable to those shares. Shareholders acquiring shares of an Exchange
Fund pursuant to this exchange privilege may exchange those shares back into
a Dean Witter Multi-Class Fund or Global Short-Term from the Exchange Fund,
with no CDSC being imposed on such exchange. The holding period previously
frozen when shares were first exchanged for shares of the Exchange Fund
resumes on the last day of the month in which shares of a Dean Witter
Multi-Class Fund or Global Short-Term are reacquired. A CDSC is imposed only
upon an ultimate redemption, based upon the time (calculated as described
above) the shareholder was invested in a Dean Witter Multi-Class Fund or in
Global Short-Term. 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 a FSC Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or in
Global Short-Term are exchanged for shares of a Dean Witter Multi-Class Fund,
shares of Global Short-Term, shares of a FSC Fund, or shares of an Exchange
Fund, the date of purchase of the shares of the fund exchanged into, for
purposes of the CDSC upon redemption, will be the last day of the month in
which the shares being exchanged were originally purchased. In allocating the
purchase payments between funds for purposes of the CDSC, the amount which
represents the current net asset value of shares at the time of the exchange
which were (i) purchased more than one, three or six years (depending on the
CDSC schedule applicable to the shares) prior to the exchange, (ii)
originally acquired through reinvestment of dividends or distributions and
(iii) acquired in exchange for shares of FSC Funds, or for shares of other
Dean Witter Funds for which shares of FSC Funds have been exchanged (all such
shares called "Free Shares"), will be exchanged first. After an exchange, all
dividends earned on shares in an Exchange Fund will be considered Free
Shares. If the exchanged amount exceeds the value of such Free Shares, an
exchange is made, on a block-by-block basis, of non-Free Shares held for the
longest period of time (except that, with respect to Class B shares, if
shares held for identical periods of time but subject to different CDSC
schedules are held in the same Exchange Privilege account, the shares of that
block that are subject to a lower CDSC rate will be exchanged prior to the
shares of that block that are subject to a higher CDSC rate). Shares equal to
any appreciation in the value of non-Free Shares exchanged will be treated as
Free Shares, and the amount of the purchase payments for the non-Free Shares
of the fund exchanged into will be equal to the lesser of (a) the purchase
payments for, or (b) the current net asset value of, the exchanged non-Free
Shares. If an exchange between funds would result in exchange of only part of
a particular block of non-Free Shares, then shares equal to any appreciation
in the value of the block (up to the amount of the exchange) will be treated
as Free Shares and exchanged first, and the purchase payment for that block
will be allocated on a pro rata basis between the non-Free Shares of that
block to be retained and the non-Free Shares to be exchanged. The prorated
amount of such purchase payment attributable to the retained non-Free Shares
will remain as the purchase payment for such shares, and the amount of
purchase payment for the exchanged non-Free Shares will be equal to the
lesser of (a) the prorated amount of the purchase payment for, or (b) the
current net asset value of, those exchanged non-Free Shares. Based upon the
procedures described in the Prospectus under the caption "Purchase of Fund
Shares," any applicable CDSC will be imposed upon the ultimate redemption of
shares of any fund, regardless of the number of exchanges since those shares
were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any
other of the funds and the general administration of the
29
<PAGE>
Exchange Privilege, the Transfer Agent acts as agent for the Distributor and
for the shareholder's selected broker-dealer, if any, in the performance of
such functions. With respect to exchanges, redemptions or repurchases, the
Transfer Agent shall be liable for its own negligence and not for the default
or negligence of its correspondents or for losses in transit. The Fund shall
not be liable for any default or negligence of the Transfer Agent, the
Distributor or any selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Dean Witter Liquid
Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter
California Tax-Free Daily Income Trust, Dean Witter New York Municipal Money
Market Trust although those funds may, at their discretion, accept initial
investments of as low as $1,000. The minimum investment for the Exchange
Privilege account of each Class is $10,000 for Dean Witter Short-Term U.S.
Treasury Trust, although that fund, in its discretion, may accept initial
purchases of as low as $5,000. The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Dean Witter Special
Value Fund. The minimum initial investment for the Exchange Privilege account
of each Class for all other Dean Witter Funds for which the Exchange
Privilege is available is $1,000.) Upon exchange into an Exchange Fund, the
shares of that fund will be held in a special Exchange Privilege Account
separately from accounts of those shareholders who have acquired their shares
directly from that fund. As a result, certain services normally available to
shareholders of those funds, including the check writing feature, will not be
available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required
by applicable regulatory agencies (presently sixty days' prior written notice
for termination or material revision), provided that six months' prior
written notice of termination will be given to the shareholders who hold
shares of Exchange Funds, pursuant to the Exchange Privilege, and provided
further that the Exchange Privilege may be terminated or materially revised
without notice at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on that Exchange
is restricted, (c) when an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange
Commission by order so permits (provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to
whether the conditions prescribed in (b) or (c) exist) or (e) if the Fund
would be unable to invest amounts effectively in accordance with its
investment objective, policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
30
<PAGE>
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount
of any applicable CDSC. If shares are held in a shareholder's account without
a share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption. The share certificate, or
an accompanying stock power, and the request for redemption, must be signed
by the shareholder or shareholders exactly as the shares are registered. Each
request for redemption, whether or not accompanied by a share certificate,
must be sent to the Fund's Transfer Agent, which will redeem the shares at
their net asset value next computed (see "Purchase of Fund Shares") after it
receives the request, and certificate, if any, in good order. Any redemption
request received after such computation will be redeemed at the next
determined net asset value. The term good order means that the share
certificate, if any, and request for redemption are properly signed,
accompanied by any documentation required by the Transfer Agent, and bear
signature guarantees when required by the Fund or Transfer Agent.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other
than the record owner, or if the proceeds are to be paid to a corporation
(other than the Distributor or a selected broker-dealer for the account of
the shareholder), partnership, trust or fiduciary, or sent to the shareholder
at an address other than the registered address, signatures must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A stock
power may be obtained from any dealer or commercial bank. The Fund may change
the signature guarantee requirements from time to time upon notice to
shareholders, which may be by means of a supplement to the prospectus.
Repurchase. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by
DWR and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer
reduced by any applicable CDSC.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares of any Class presented for repurchase or
redemption will be made by check within seven days after receipt by the
Transfer Agent of the certificate and/or written request in good order. Such
payment may be postponed or the right of redemption suspended at times (a)
when the New York Stock Exchange is closed for other than customary weekends
and holidays, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) during
any other period when the Securities and Exchange Commission by order so
permits; provided that applicable rules and regulations of the Securities and
Exchange Commission shall govern as to whether the conditions prescribed in
(b) or (c) exist. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum
time needed to verify that the check used for investment has been honored
(not more than fifteen days from the time of receipt of the check by the
Transfer Agent). It has been and remains the Fund's policy and practice that,
if checks for redemption proceeds remain uncashed, no interest will accrue on
amounts represented by such uncashed checks. Shareholders maintaining margin
accounts with DWR or another selected broker-dealer are referred to their
account executive regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to
31
<PAGE>
the status of shares which are either subject to the CDSC or free of such
charge (and with regard to the length of time shares subject to the charge
have been held), any transfer involving less than all of the shares in an
account will be made on a pro rata basis (that is, by transferring shares in
the same proportion that the transferred shares bear to the total shares in
the account immediately prior to the transfer). The transferred shares will
continue to be subject to any applicable CDSC as if they had not been so
transferred.
Reinstatement Privilege. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 35 days after 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 at the
net asset value next determined after a reinstatement request, together with
the proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax and state income tax treatment of any gain or loss realized upon the
redemption or repurchase, except that if the redemption or repurchase
resulted in a loss and reinstatement is made in shares of the Fund, some or
all of the loss, depending on the amount reinstated, will not be allowed as a
deduction for federal income tax and state personal income tax purposes but
will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
As discussed in the Prospectus under "Dividends, Distributions and Taxes,"
the Fund will determine either to distribute or to retain all or part of any
net long-term capital gains in any year for reinvestment. If any such gains
are retained, the Fund will pay federal income tax thereon, and shareholders
at year-end will be able to claim their share of the tax paid by the Fund as
a credit against their individual federal income tax. Shareholders will
increase their tax basis of Fund shares owned by an amount equal, under
current law, to 65% of the amount of undistributed capital gains.
Because the Fund intends to distribute substantially all of its net
investment income and net capital gains to shareholders and otherwise qualify
as a regulated investment company under Subchapter M of the Internal Revenue
Code, it is not expected that the Fund will be required to pay any federal
income tax. In addition, the Fund intends to distribute to its shareholders
each calendar year a sufficient amount of ordinary income and capital gains
to avoid the imposition of a 4% excise tax. Shareholders 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 the net investment income or net
short-term capital gains, are taxable to the shareholder as ordinary income
regardless of whether the shareholder receives such payments in additional
shares or in cash. Any dividends declared in the last quarter of any calendar
year which are paid in the following year prior to February 1 will be deemed
received by the shareholder in the prior calendar year. The amount of
dividends paid by the Fund which may qualify for the dividends received
deduction is limited to the aggregate amount of qualifying dividends which
the Fund derives from its portfolio investments which the Fund has held for a
minimum period, usually 46 days within a 90-day period beginning 45 days
before the ex dividend date of each qualifying dividend. Shareholders must
meet a similar holding period requirement with respect to their shares to
claim the dividends received deduction with respect to any distribution of
qualifying dividends. Any long-term capital gain distributions will also not
be eligible for the dividends received deduction. The ability to take the
dividends received deduction will also be limited in the case of a Fund
shareholder which incurs or continues indebtedness which is directly
attributable to its investment in the Fund.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have a tax holding period of more
than twelve months. Gains or losses on the sale of securities with a tax
holding period of twelve months or less will be short-term capital gains or
losses. The Treasury Department intends to issue regulations to permit
shareholders to take into account their proportionate share of the Fund's
capital gains distributions that will be subject to a reduced rate under the
Taxpayer Relief Act of 1997. The Taxpayer Relief Act reduced the maximum tax
on long-term capital gains from
32
<PAGE>
28% to 20%; however, it also lengthened the required holding period to obtain
this lower rate from more than 12 months to more than 18 months. These lower
rates do not apply to collectibles and certain other assets. Additionally,
the maximum capital gain rate for assets that are held more than 5 years and
that are acquired after December 31, 2000 is 18%.
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. Gains or losses on the
Fund's transactions in certain listed options on securities and on futures
and options on futures generally are treated as 60% long-term gain or loss
and 40% short-term gain or loss. When the Fund engages in options and futures
transactions, various tax regulations applicable to the Fund may have the
effect of causing the Fund to recognize a gain or loss for tax purposes
before that gain or loss is realized, or to defer recognition of a realized
loss for tax purposes. Recognition, for tax purposes, of an unrealized loss
may result in a lesser amount of the Fund's realized net gains being
available for distribution.
Under current federal tax law, the Fund will receive net investment income
in the form of interest by virtue of holding Treasury bills, notes and bonds,
and will recognize income attributable to it from holding zero coupon
Treasury securities. 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 payment in cash on the security during the year. As an investment
company, the Fund must pay out substantially all of its net investment income
each year. Accordingly, the Fund, to the extent it invests in zero coupon
Treasury securities, may be required to pay out as an income distribution
each year an amount which is greater than the total amount of cash receipts
of interest the Fund actually received. Such distributions will be made from
the available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution of cash necessitates the liquidation of
portfolio securities, the Investment Manager will select which securities to
sell. The Fund may realize a gain or loss from such sales. In the event the
Fund realizes net capital gains from such transactions, its shareholders may
receive a larger capital gain distribution, if any, than they would in the
absence of such transactions.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value
of the shareholder's stock in that company by the exact amount of the
dividend or capital gains distribution. Furthermore, capital gains
distributions and some portion of the dividends are subject to federal income
taxes. If the net asset value of the shares should be reduced below a
shareholder's cost as a result of the payment of dividends or the
distribution of realized long-term capital gains, such payment or
distribution would be in part a return of capital but nonetheless would be
taxable to the shareholder. Therefore, an investor should consider the tax
implications of purchasing Fund shares immediately prior to a distribution
record date.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. These figures are
computed separately for Class A, Class B, Class C and Class D shares. The
Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten
year period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing.
33
<PAGE>
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each Class for specified periods by determining the aggregate
percentage rate which will result in the ending value of a hypothetical
$1,000 investment made at the beginning of the period. For the purpose of
this calculation, it is assumed that all dividends and distributions are
reinvested. The formula for computing aggregate total return involves a
percentage obtained by dividing the ending value by the initial $1,000
investment and subtracting 1 from the result. The ending redeemable value is
reduced by any CDSC at the end of the period. Based on the foregoing
calculations, the total returns for the period September 26, 1997
(commencement of operations) through February 28, 1998 were 5.62%, 6.09%,
10.08% and 11.53% for Class A, Class B, Class C and Class D, respectively.
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 imposition of the maximum front-end sales charge for
Class A or the deduction of the CDSC for each of Class B and Class C which,
if reflected, would reduce the performance quotes. For example, the total
return of the Fund may be calculated in the manner described above, but
without deduction of any applicable sales charge. Based on this calculation,
the total returns for each Class for the period September 26, 1997
(commencement of operations) through February 28, 1998 were 11.47%, 11.09%,
11.08% and 11.53% for Class A, Class B, Class C and Class D, respectively.
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 by adding 1
to the Fund's aggregate total return to date (expressed as a decimal and
without taking into account the effect of any applicable CDSC) and
multiplying by $9,475, $48,000 and $97,000 in the case of Class A
(investments of $10,000, $50,000 and $100,000 adjusted for the initial sales
charge) or by $10,000, $50,000 and $100,000 in each Class at inception of the
Class would have grown to the following amounts at February 28, 1998:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION -----------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ----- ----- ------- ------- --------
<S> <C> <C> <C> <C>
Class A .. 9/26/97 $10,562 $53,506 $108,126
Class B .. 9/26/97 11,109 55,545 111,090
Class C .. 9/26/97 11,108 55,540 111,080
Class D .. 9/26/97 11,153 55,765 111,530
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent
organizations.
SHARES OF THE FUND
- -----------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share of beneficial interest held. The Fund is authorized to issue an
unlimited number of shares of beneficial interest. The Trustees themselves
have the power to alter the number and the terms of office of the Trustees
(as provided for in the Declaration of Trust), and they may at any time
lengthen or shorten their own terms or make their terms of unlimited duration
and appoint their own successors, provided that always at least a majority of
the Trustees has been elected by the shareholders of the Fund. Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove the
Trustees. The voting rights of shareholders are not cumulative, so that
holders of more than 50 percent of the shares voting can, if they choose,
elect all Trustees being selected, while the holders of the remaining shares
would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. The Trustees have not presently authorized any such
additional series or classes of shares other than as set forth in the
Prospectus.
34
<PAGE>
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor
is any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise
from his/her or its own bad faith, willful misfeasance, gross negligence or
reckless disregard of his/her or its duties. It also provides that all third
persons shall look solely to the Fund property for satisfaction of claims
arising in connection with the affairs of the Fund. With the exceptions
stated, the Declaration of Trust provides that a Trustee, officer, employee
or agent is entitled to be indemnified against all liability in connection
with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of
beneficial interest.
The Fund shall be of unlimited duration subject to the provisions in the
Declaration of Trust concerning termination by action of the shareholders or
the Trustees.
CUSTODIAN AND TRANSFER AGENT
- -----------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, NY 10286, is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), Harborside Financial
Center, Plaza Two, Jersey City, New Jersey 07311 is the Transfer Agent of the
Fund's shares and Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various
investment plans described herein. MSDW Trust is an affiliate of Dean Witter
InterCapital Inc., the Fund's Investment Manager, and Dean Witter
Distributors Inc., the Fund's Distributor. As Transfer Agent and Dividend
Disbursing Agent, MSDW Trust's responsibilities include maintaining
shareholder accounts, disbursing cash dividends and reinvesting dividends,
processing account registration changes, handling purchase and redemption
transactions, mailing prospectuses and reports, mailing and tabulating
proxies, processing share certificate transactions, and maintaining
shareholder records and lists. For these services MSDW Trust receives a per
shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund.
The independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- -----------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports
showing the Fund's portfolio and other information. An annual report,
containing financial statements audited by independent account-ants, will be
sent to shareholders each year.
The Fund's fiscal year ends on August 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- -----------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
35
<PAGE>
EXPERTS
- -----------------------------------------------------------------------------
The Statement of Assets and Liabilities of the Fund included in this
Statement of Additional Information and incorporated by reference in the
Prospectus has been so included and incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
To the Shareholder and Trustees of
Dean Witter S&P 500 Index Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Dean Witter S&P
500 Index Fund (the "Fund") at July 28, 1997, in conformity with generally
accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our
audit of this financial statement in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
July 30, 1997
37
<PAGE>
DEAN WITTER S&P 500 INDEX FUND
Statement of Assets and Liabilities at July 28, 1997
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Cash.................................................... $100,000
Deferred organizational expenses (Note 1)............... 49,500
--------
Total Assets.......................................... 149,500
--------
LIABILITIES:
Organizational expenses payable (Note 1)................ 49,500
Commitments (Notes 1 and 2)............................. -0-
--------
Total Liabilities..................................... 49,500
--------
Net Assets............................................ $100,000
========
CLASS A SHARES:
Net Assets............................................... $ 25,000
Shares Outstanding (unlimited authorized, $.01 par
value).................................................. 2,500
NET ASSET VALUE PER SHARE.............................. $ 10.00
========
MAXIMUM OFFERING PRICE
(net asset value plus 5.5% of net asset value) ....... $ 10.55
========
CLASS B SHARES:
Net Assets............................................... $ 25,000
Shares Outstanding (unlimited authorized, $.01 par
value).................................................. 2,500
NET ASSET VALUE PER SHARE.............................. $ 10.00
========
CLASS C SHARES:
Net Assets............................................... $ 25,000
Shares Outstanding (unlimited authorized, $.01 par
value).................................................. 2,500
NET ASSET VALUE PER SHARE.............................. $ 10.00
========
CLASS D SHARES:
Net Assets............................................... $ 25,000
Shares Outstanding (unlimited authorized, $.01 par
value).................................................. 2,500
NET ASSET VALUE PER SHARE.............................. $ 10.00
========
</TABLE>
- --------------
NOTE 1--Dean Witter S&P 500 Index Fund (the "Fund") was organized as a
Massachusetts business trust on June 18, 1997. To date the Fund has had no
transactions other than those relating to organizational matters and the sale
of 2,500 shares of beneficial interest for $25,000 of each class to Dean
Witter InterCapital Inc. (the "Investment Manager"). The Fund is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The investment objective
of the Fund is to provide investment results that, before expenses,
correspond to the total return of the Standard & Poor's 500 Composite Stock
Price Index. Organizational expenses of the Fund incurred prior to the
offering of the Fund's shares will be paid by the Investment Manager. It is
currently estimated that the Investment Manager will incur and be reimbursed
by the Fund for approximately $49,500 in organizational expenses. These
expenses will be deferred and amortized by the Fund on the straight-line
method over a period not to exceed five years from the date of commencement
of the Fund's operations. In the event that at any time during the five year
period beginning with the date of the commencement of operations the initial
shares acquired by the Investment Manager prior to such date are redeemed, by
any holder thereof, the redemption proceeds payable in respect of such shares
will be reduced by the pro rata share (based on the proportionate share of
the initial shares redeemed to the total number of original shares
outstanding at the time of redemption) of the then unamortized deferred
organizational expenses as of the date of such redemption. In the event that
the Fund liquidates before the deferred organizational expenses are fully
amortized, the Investment Manager shall bear such unamortized deferred
organizational expenses.
38
<PAGE>
NOTE 2--The Fund has entered into an investment management agreement with
the Investment Manager. Certain officers and/or trustees of the Fund are
officers and/or directors of the Investment Manager. The Fund has retained
the Investment Manager to manage the investment of the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. Under the terms of the Investment Management Agreement, the
Investment Manager maintains certain of the Fund's books and records and
furnishes, at its own expense, such office space, facilities, equipment,
supplies, clerical help and bookkeeping and certain legal services as the
Fund may reasonably require in the conduct of its business. In addition, the
Investment Manager pays the salaries of all personnel, including officers of
the Fund, who are employees of the Investment Manager. The Investment Manager
also bears the cost of the Fund's telephone service, heat, light, power and
other utilities.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund incurred by the Investment Manager, the Fund will
pay the Investment Manager monthly compensation calculated daily by applying
the annual rate of 0.40% to the Fund's daily net assets. The Investment
Manager has agreed to assume all expenses (except for brokerage and Plan of
Distribution fees) and to waive the compensation provided for in its
Management Agreement to the extent that such expenses and compensation on an
annualized basis exceed 0.50% of the daily net assets of the Fund.
Shares of the Fund will be distributed by Dean Witter Distributors Inc.
(the "Distributor"), an affiliate of the Investment Manager, during the
initial and continuous offering of the Fund's shares. The Fund has adopted a
Plan of Distribution pursuant to Rule 12b-1 under the Act (the "Plan") with
respect to the distribution of Class A, Class B and Class C shares of the
Fund. The Plan provides that the Distributor will bear the expense of all
promotional and distribution related activities on behalf of those shares,
including the payment of commissions for sales of such shares and incentive
compensation to and expenses of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager, 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, with
respect to Class B, the Distributor may utilize fees paid pursuant to the
Plan to compensate DWR and others for their opportunity costs in advancing
such amounts, which compensation would be in the form of a carrying charge on
any unreimbursed distribution expenses incurred.
To compensate the Distributor for the services provided and for the
expenses borne by the Distributor and others under the Plan, Class A, Class B
and Class C will pay the Distributor compensation accured daily and payable
monthly at the annual rate of 0.25% of the average daily net assets of Class
A and 1.0% of the average daily net assets of each of Class B and Class C. 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. 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 1.00% 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.
Dean Witter Trust FSB (the "Transfer Agent"), an affiliate of the
Investment Manager and the Distributor, is the transfer agent of the Fund's
shares, dividend disbursing agent for payment of dividends and distributions
on Fund shares and agent for shareholders under various investment plans.
The Investment Manager has undertaken to assume all Fund expenses (except
for the Plan fee and brokerage fees) and to waive the compensation provided
for in its investment management agreement for services rendered until such
time as the Fund has $50 million of net assets or until six months from the
date of commencement of the Fund's operations, whichever occurs first.
39
