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PROSPECTUS
OCTOBER 3, 1997
Dean Witter Fund of Funds (the "Fund") is an open-end,
non-diversified management investment company currently consisting of two
separate portfolios (individually a "Portfolio" and collectively the
"Portfolios") which seek to achieve their investment objectives by investing in
shares of other open-end management investment companies that are either members
of the Dean Witter Family of Funds or managed by an investment adviser that is
an affiliate of Dean Witter InterCapital Inc. (individually, an "Underlying
Fund" and collectively, the "Underlying Funds"). The International Portfolio has
an investment objective of long-term capital appreciation and invests in a
selection of Underlying Funds which invest their assets primarily in the
international equity markets. The investment objective of the Domestic Portfolio
is to maximize total investment return through capital growth and income by
investing in a selection of Underlying Funds which invest their assets primarily
in the U.S. equity and fixed-income markets. See "Investment Objective and
Policies".
INITIAL OFFERING--Shares are being offered in an underwriting
by Dean Witter Distributors Inc. at $10.00 per share for Class B, Class C and
Class D shares with all proceeds going to the Fund and at $10.00 per share plus
a sales charge for Class A shares with the sales charge paid to the Underwriter
and the net asset value of $10.00 per share going to the Fund. All expenses in
connection with the organization of the Fund and this offering will be paid by
the Investment Manager and Underwriter except for a maximum of $250,000 of
organizational expenses to be reimbursed by the Fund. The initial offering will
run from approximately October 27, 1997 through November 20, 1997.
CONTINUOUS OFFERING--A continuous offering will commence
approximately two weeks after the closing date of the initial offering which is
anticipated for November 25, 1997. Class B, Class C and Class D shares will be
priced at the net asset value per share and Class A shares will be priced at the
net asset value per share plus a sales charge, in each case as next determined
following receipt of an order.
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.")
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/5
The Fund and its Management/8
Investment Objective and Policies/10
Risk Considerations/43
Investment Restrictions/55
Underwriting/55
Purchase of Fund Shares/56
Shareholder Services/65
Redemptions and Repurchases/68
Dividends, Distributions and Taxes/69
Performance Information/70
Additional Information/71
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated October 3, 1997, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
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
Fund of Funds
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll free)
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PROSPECTUS SUMMARY
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The The Fund is an open-end, non-diversified management investment company currently consisting of two separate
Fund Portfolios: The International Portfolio and the Domestic Portfolio. The International Portfolio currently
invests in a selection of the following Underlying Funds: Dean Witter European Growth Fund Inc., Dean Witter
International SmallCap Fund, Dean Witter Japan Fund, and Dean Witter Pacific Growth Fund Inc. The Domestic
Portfolio currently invests in a selection of the following Underlying Funds: Dean Witter American Value Fund,
Dean Witter Capital Appreciation Fund, Dean Witter Capital Growth Securities, Dean Witter Convertible Securities
Trust, Dean Witter Developing Growth Securities, Dean Witter Dividend Growth Securities Inc., Dean Witter
Financial Services Trust, Dean Witter Health Sciences Trust, Dean Witter High Yield Securities Inc., Dean Witter
Information Fund, Dean Witter Intermediate Income Securities, Dean Witter Market Leader Trust, Dean Witter
Mid-Cap Growth Fund, Dean Witter Natural Resource Development Securities, Inc., Dean Witter Precious Metals and
Minerals Trust, Dean Witter S&P 500 Index Fund, Dean Witter Short-Term Bond Fund, Dean Witter Special Value
Fund, Dean Witter U.S. Government Securities Trust, Dean Witter Utilities Fund and Dean Witter Value-Added
Market Series/Equity Portfolio. The Underlying Funds in which each Portfolio may invest may be changed from time
to time and additional or different Underlying Funds may be added or substituted.
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Shares Offered Shares of beneficial interest with $0.01 par value (see page 71). Each portfolio of the Fund offers four Classes
of shares, each with a different combination of sales charges, ongoing fees and other features (see page 56).
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Initial Shares are being offered in an underwriting by Dean Witter Distributors Inc. at $10.00 per share for each of
Offering Class B, Class C and Class D and $10.00 per share plus a sales charge for Class A. The minimum purchase for each
Class is 100 shares; however, Class D shares are only available to persons who are otherwise qualified to
purchase such shares. The initial offering will run approximately from October 27, 1997 through November 20,
1997. The closing will take place on November 25, 1997 or such other date as may be agreed upon by Dean Witter
Distributors Inc. and the Fund (the "Closing Date"). Shares will not be issued and dividends will not be
declared by the Fund until after the Closing Date. If any orders received during the initial offering period are
accompanied by payment, such payment will be returned unless an accompanying request for investment in a Dean
Witter money market fund is received at the time the payment is made. Any purchase order may be cancelled at any
time prior to the Closing Date (see page 55).
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Continuous A continuous offering, if any, will commence within approximately two weeks after the Closing Date. The minimum
Offering/ initial investment for each Class is $1,000 ($100 if the account is opened through EasyInvest-SM-). Class D
Minimum shares are only available to persons investing $5 million or more and to certain other limited categories of
Purchase investors. For the purpose of meeting the minimum $5 million investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of each Portfolio of the Fund, an investor's existing holdings
of Class A shares and shares of funds for which Dean Witter InterCapital 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 56).
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Investment The investment objective of the International Portfolio is long-term capital appreciation. The investment
Objective objective of the Domestic Portfolio is to maximize total investment return (see page 10).
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Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-owned
Manager subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory, management and
administrative capacities to 102 investment companies and other portfolios with assets of approximately $102.3
billion at September 30, 1997 (see page 8).
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Management The Fund pays no management fee. However, the Fund, through its investments in the Underlying Funds, will pay
Fee its pro rata share of the management or advisory or sub-advisory fees to the Investment Manager and/or
Sub-Advisors or Advisor of the Underlying Funds (see page 8).
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2
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Underwriter and Dean Witter Distributors Inc. (the "Distributor") is the Fund's Underwriter and Distributor. The Fund has
Distributor adopted a distribution plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with
and respect to the distribution fees paid by the Class A, Class B and Class C shares of each Portfolio of the Fund
Distribution Fee 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 56 and
64).
Each Portfolio of the Fund will invest in the Class D or no load shares of the Underlying Funds set forth below
and accordingly will not pay any sales load or 12b-1 service or distribution fees in connection with its
investments in shares of the Underlying Funds.
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Alternative Four classes of shares are offered:
Purchase - Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for larger purchases.
Arrangements 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, on behalf of each Portfolio, is authorized to
reimburse the Distributor for specific expenses incurred in promoting the distribution of each Portfolio'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 of each
respective Portfolio (see pages 56, 59 and 64).
- 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 of each
respective Portfolio. Class B shares convert to Class A shares approximately ten years after the date of the
original purchase (see pages 56, 62 and 64).
- 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, on behalf of each Portfolio, is authorized to
reimburse the Distributor for specific expenses incurred in promoting the distribution of each Portfolio'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 of each
respective Portfolio (see pages 56, 63 and 64).
- Class D shares are offered only to investors meeting an initial investment minimum of $5 million and to
certain other limited categories of investors. Class D shares are offered without a front-end sales charge or
CDSC and are not subject to any 12b-1 fee (see pages 56, 63 and 64).
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Dividends and Dividends from net investment income and distributions from net capital gains, if any, are paid at least once
Capital Gains per year. Each Portfolio of the Fund may, however, determine to retain all or part of any net long- term capital
Distributions 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 65 and 69).
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Redemption Shares are redeemable by the shareholder at net asset value less any applicable CDSC on Class A, Class B or
Class C shares. An account may be involuntarily redeemed if the total value of the account is less than $100 or,
if the account was opened through EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account (see page 68).
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3
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Risk The net asset value of each Portfolio's shares will fluctuate with changes in the market value of its portfolio
Considerations securities, and each Portfolio's investment performance will reflect the performance of the Underlying Funds and
the investment selections made by the Fund's Investment Manager. Investment in either Portfolio of the Fund
involves the same risks as an investment in the Underlying Funds in which each such Portfolio invests. The Fund
is a non-diversified management investment company and, as a result, a relatively high percentage of each
Portfolio's shares may be invested in a limited number of issuers. Investing in lesser known, smaller and medium
sized capitalization companies may involve greater risk of volatility in the Underlying Funds which invest in
such companies and consequently in net asset value of each Portfolio than is customarily associated with
investing in larger, more established companies. To the extent that the International Portfolio invests in
Underlying Funds which concentrate their investments in particular geographical regions or countries (I.E.,
Latin America, the Pacific Rim, Japan), the Portfolio will be subject to the risks of adverse social, political
or economic events which occur in or affect those regions or countries. These may include the risk of
expropriation, nationalization or confiscation of assets or the imposition of restrictions on foreign investment
or repatriation of capital invested, political and social uncertainties, high levels of inflation and
non-uniform corporate disclosure standards and governmental regulation which may lead to less publicly available
and less reliable information than is generally the case for U.S. issuers. Additionally, it should be recognized
that certain foreign securities and markets may pose different and greater risks than those customarily
associated with domestic securities and their markets such as fluctuations in foreign currency exchange rates
(I.E., if a substantial portion of an Underlying Fund's assets is denominated in foreign currencies which
decrease in value with respect to the U.S. dollar, the value of the investor's shares and the distributions made
on those shares will, likewise, decrease in value), foreign securities exchange controls and foreign tax rates.
The prices of interest-bearing securities are, generally, inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values of fixed-income securities also may
be affected by changes in the credit rating or financial condition of the issuing entities. Mortgage-backed
securities are subject to prepayments or refinancings of the mortgage pools underlying such securities which may
have an impact upon the yield and the net asset value of an Underlying Fund's shares. Certain of the
mortgage-backed securities in which an Underlying Fund may invest have higher yields than traditional
mortgage-backed securities and will have concomitant greater price volatility. Asset-backed securities involve
risks resulting mainly from the fact that such securities do not usually contain the complete benefit of a
security interest in the related collateral. Certain of the high yield, high risk fixed-income securities in
which an Underlying Fund may invest are subject to greater risk of loss of income and principal than the higher
rated lower yielding fixed-income securities. Certain of the Underlying Funds in which each Portfolio may invest
may enter into repurchase agreements, reverse repurchase agreements and dollar rolls, may purchase securities on
a when-issued, delayed delivery or forward commitment basis or on a "when, as and if issued" basis which entail
certain risks and may utilize certain investment techniques including options and futures transactions and
forward foreign currency exchange transactions which may be considered speculative in nature and may involve
greater risks than those customarily assumed by other investment companies which do not utilize such
instruments. (See pages 43-54).
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION.
4
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
each Portfolio of the Fund will incur. The expenses and fees set forth in the
table are based on the fees and estimated other expenses for the fiscal period
ending July 31, 1998.
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CLASS A CLASS B CLASS C CLASS D
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<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
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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)
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Management Fees................................................................. None None None None
12b-1 Fees (5) (6).............................................................. 0.25% 1.00% 1.00% None
Other Expenses*................................................................. 0.30% 0.30% 0.30% 0.30%
Total Fund Operating Expenses* (7).............................................. 0.55% 1.30% 1.30% 0.30%
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* THE INVESTMENT MANAGER HAS AGREED TO ASSUME ALL OPERATING EXPENSES (EXCEPT
FOR BROKERAGE AND 12B-1 FEES) FOR EACH PORTFOLIO UNTIL SUCH TIME AS THE
RESPECTIVE PORTFOLIO HAS $50 MILLION OF NET ASSETS OR UNTIL SIX MONTHS FROM
COMMENCEMENT OF THE FUND'S OPERATIONS, WHICHEVER OCCURS FIRST.
(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 OF EACH PORTFOLIO 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 EACH PORTFOLIO OF THE FUND'S
SHARES (SEE "PURCHASE OF FUND SHARES--PLAN OF DISTRIBUTION").
(6) UPON CONVERSION OF CLASS B SHARES TO CLASS A SHARES, SUCH SHARES WILL BE
SUBJECT TO THE LOWER 12B-1 FEE APPLICABLE TO CLASS A SHARES. NO SALES CHARGE
IS IMPOSED AT THE TIME OF CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
CLASS C SHARES DO NOT HAVE A CONVERSION FEATURE AND, THEREFORE, ARE SUBJECT
TO AN ONGOING 1.00% DISTRIBUTION FEE (SEE "PURCHASE OF FUND
SHARES--ALTERNATIVE PURCHASE ARRANGEMENTS").
(7) "TOTAL FUND OPERATING EXPENSES," AS SHOWN ABOVE WITH RESPECT TO EACH CLASS,
ARE BASED UPON THE SUM OF 12B-1 FEES, AND ESTIMATED "OTHER EXPENSES."
5
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EXAMPLE 1 Year 3 Years
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You would pay the following expenses on a $1,000 investment in each of the Portfolios assuming (1) a
5% annual return and (2) redemption at the end of each time period:
Class A........................................................................................... $ 58 $ 69
Class B........................................................................................... $ 63 $ 71
Class C........................................................................................... $ 23 $ 41
Class D........................................................................................... $ 3 $ 10
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EXAMPLE 1 Year 3 Years
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You would pay the following expenses on the same $1,000 investment in each of the Portfolios assuming
no redemption at the end of the period:
Class A........................................................................................... $ 58 $ 69
Class B........................................................................................... $ 13 $ 41
Class C........................................................................................... $ 13 $ 41
Class D........................................................................................... $ 3 $ 10
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EXPENSE RATIOS OF THE UNDERLYING FUNDS
The Portfolios will invest only in the Class D or no load shares of the
Underlying Funds and, accordingly, will not pay any sales load or 12b-1 service
or distribution fees in connection with their investments in shares of the
Underlying Funds. The Portfolios, however, will indirectly bear their pro rata
share of the fees and expenses incurred by the Underlying Funds that are
applicable to Class D shareholders. The investment returns of the respective
Portfolios, therefore, will be net of the expenses of the Underlying Funds in
which they are invested. The following charts shows the expense ratios
applicable to the Class D shareholders of each Underlying Fund held by a
Portfolio, based on operating expenses for its most recent fiscal year:
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INTERNATIONAL PORTFOLIO-- OTHER TOTAL
EXPENSE RATIOS OF UNDERLYING FUNDS MANAGEMENT FEES 12B-1 FEE EXPENSES EXPENSES
- ------------------------------------------------------------ --------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Dean Witter European Growth Fund Inc........................ 0.97% 0% 0.25% 1.22%
Dean Witter Pacific Growth Fund Inc......................... 0.98% 0% 0.41% 1.39%
Dean Witter International SmallCap Fund..................... 1.25% 0% 0.64% 1.89%
Dean Witter Japan Fund...................................... 1.00% 0% 0.43% 1.43%
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6
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DOMESTIC PORTFOLIO-- OTHER TOTAL
EXPENSE RATIOS OF UNDERLYING FUNDS MANAGEMENT FEES 12B-1 FEE EXPENSES EXPENSES
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Dean Witter American Value Fund............................. 0.51% 0% 0.14% 0.65%
<S> <C> <C> <C> <C>
Dean Witter Capital Appreciation Fund....................... 0.75% 0% 0.29% 1.04%
Dean Witter Capital Growth Securities....................... 0.65% 0% 0.19% 0.84%
Dean Witter Convertible Securities Trust.................... 0.60% 0% 0.29% 0.89%
Dean Witter Developing Growth Securities.................... 0.49% 0% 0.20% 0.69%
Dean Witter Dividend Growth Securities Inc.................. 0.39% 0% 0.09% 0.48%
Dean Witter Financial Services Trust........................ 0.75% 0% 0.29% 1.04%
Dean Witter Health Sciences Trust........................... 1.00% 0% 0.20% 1.20%
Dean Witter High Yield Securities Inc....................... 0.50% 0% 0.16% 0.66%
Dean Witter Information Fund................................ 0.75% 0% 0.26% 1.01%
Dean Witter Intermediate Income Securities.................. 0.60% 0% 0.17% 0.77%
Dean Witter Market Leader Trust............................. 0.75% 0% 0.38% 1.13%
Dean Witter Mid-Cap Growth Fund............................. 0.75% 0% 0.24% 0.99%
Dean Witter Natural Resource Development Securities Inc..... 0.62% 0% 0.24% 0.86%
Dean Witter Precious Metals and Minerals Trust.............. 0.80% 0% 0.47% 1.27%
Dean Witter S&P 500 Index Fund.............................. 0.22% 0% 0.28% 0.50%
Dean Witter Short-Term Bond Fund............................ 0.23% 0% 0.25% 0.48%
Dean Witter Special Value Fund.............................. 0.75% 0% 0.36% 1.11%
Dean Witter U.S. Government Securities Trust................ 0.42% 0% 0.08% 0.50%
Dean Witter Utilities Fund.................................. 0.53% 0% 0.11% 0.64%
Dean Witter Value-Added Market Series/Equity Portfolio...... 0.47% 0% 0.14% 0.61%
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares--Plan of Distribution"
and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
7
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THE FUND AND ITS MANAGEMENT
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Dean Witter Fund of Funds (the "Fund") is an open-end, non-diversified
management investment company. The Fund is a trust of the type commonly known as
a "Massachusetts business trust" and was organized under the laws of the
Commonwealth of Massachusetts on July 3, 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, Discover &
Co., a preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses--securities, asset management
and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 102 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$98.6 billion as of September 30, 1997. The Investment Manager also manages and
advises portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.7 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, which includes the allocation of each Portfolio's assets among the
Underlying Funds. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund. The Fund's
Board of Trustees reviews the various services provided by or under the
direction of the Investment Manager to ensure that each Portfolio's general
investment policies and programs are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory manner.
The Investment Manager does not receive a management fee from either
Portfolio of the Fund for providing the aforementioned investment management
services. However, each Portfolio, through its investments in the Class D or no
load shares of the Underlying Funds, will pay its pro rata share of the
management fees and certain other expenses of the Underlying Funds. The Fund's
direct expenses are expected to include certain legal and auditing fees,
transfer agency fees, custodian fees, compensation to the Independent Trustees
and printing and out-of-pocket expenses relating to the Fund's operations which
expenses will be allocated to each Portfolio on the basis of asset size of each
Portfolio. The Investment Manager has agreed to assume all operating expenses
(except for brokerage and 12b-1 fees) for each Portfolio until such time as the
respective Portfolio has $50 million of net assets or until six months from
commencement of the Fund's operations, whichever occurs first.
In addition to serving as the Fund's Investment Manager, InterCapital also
serves as Investment Manager to the following Underlying Funds in which the Fund
may invest: Dean Witter American Value Fund, Dean Witter Capital Appreciation
Fund, Dean Witter Capital Growth Securities, Dean Witter Convertible Securities
Trust, Dean Witter Developing Growth Securities, Dean Witter Dividend Growth
Securities Inc., Dean Witter European Growth Fund Inc., Dean Witter Financial
Services Trust, Dean Witter Health Sciences Trust, Dean Witter High Yield
Securities Inc., Dean Witter Information Fund, Dean Witter Intermediate Income
Securities, Dean Witter International SmallCap Fund, Dean Witter Japan Fund,
Dean Witter Market Leader Trust, Dean Witter Mid-Cap Growth Fund, Dean Witter
Natural Resource Development Securities Inc., Dean Witter Pacific Growth Fund
Inc., Dean Witter Precious Metals and Minerals Trust, Dean Witter S&P 500 Index
Fund, Dean Witter Short-Term Bond Fund, Dean Witter Special Value
Fund--contingent upon a "re-opening", Dean Witter U.S. Government Securities
Trust, Dean Witter Utilities Fund and Dean Witter
8
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Value-Added Market Series/Equity Portfolio. Under Sub-Advisory Agreements
between Morgan Grenfell Investment Services Limited ("Morgan Grenfell") and the
Investment Manager, Morgan Grenfell provides investment advice and portfolio
management to Dean Witter European Growth Fund, Dean Witter International
SmallCap Fund, Dean Witter Japan Fund, and Dean Witter Pacific Growth Fund
subject to the overall supervision of the Investment Manager.
Morgan Grenfell, whose address is 20 Finsbury Circus, London, England,
manages, as of August 31, 1997, assets of approximately $15 billion for U.S.
corporate and public employee benefit plans, investment companies, endowments
and foundations. Morgan Grenfell is an indirect subsidiary of Deutsche Bank AG,
the largest commercial bank in Germany.
Set forth below is the compensation received by the Investment Manager, and
Morgan Grenfell for their management, investment advisory services or
sub-advisory services to the aforementioned Underlying Funds set forth below. As
full compensation for the services and facilities furnished to the fund and for
expenses of the fund assumed by the Investment Manager, the fund pays the
Investment Manager monthly compensation calculated daily by applying the
following annual rates:
DEAN WITTER AMERICAN VALUE FUND. 0.625% to the portion of daily net assets
not exceeding $250 million; 0.50% to such assets exceeding $250 million but not
exceeding $2.5 billion and scaled down at various asset levels to 0.45% on such
assets exceeding $3.5 billion.
DEAN WITTER CAPITAL APPRECIATION FUND. 0.75% to the Fund's average daily
net assets not exceeding $500 million; and 0.725% to such assets exceeding $500
million.
DEAN WITTER CAPITAL GROWTH SECURITIES. 0.65% to the Fund's average daily
net assets not exceeding $500 million scaled down at various asset levels to
0.475% on such assets exceeding $1.5 billion.
DEAN WITTER CONVERTIBLE SECURITIES TRUST. 0.60% to the portion of the Fund's
average daily net assets not exceeding $750 million, scaled down at various
asset levels to 0.425% on such assets exceeding $3 billion.
DEAN WITTER DEVELOPING GROWTH SECURITIES. 0.50% to the Fund's average daily
net assets not exceeding $500 million and 0.475% to such assets exceeding $500
million.
DEAN WITTER DIVIDEND GROWTH SECURITIES INC. 0.625% to the Fund's average
daily net assets up to $250 million, scaled down at various asset levels to
0.30% on such assets over $10 billion and 0.275% on such assets over $15
billion.
DEAN WITTER EUROPEAN GROWTH FUND INC. 1.0% to the portion of the daily net
assets not exceeding $500 million and scaled down at various asset levels to
0.90% to such assets exceeding $2 billion. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays to
Morgan Grenfell 40% of its monthly compensation.
DEAN WITTER FINANCIAL SERVICES TRUST. 0.75% to the Fund's average daily net
assets.
DEAN WITTER HEALTH SCIENCES TRUST. 1.0% to the Fund's average daily net
assets up to $500 million and 0.95% to such assets exceeding $500 million.
DEAN WITTER HIGH YIELD SECURITIES INC. 0.50% to the Fund's average daily
net assets up to $500 million scaled down at various asset levels to 0.30% on
such assets exceeding $3 billion.
DEAN WITTER INFORMATION FUND. 0.75% to the Fund's average daily net assets
up to $500 million and 0.725% to such assets exceeding $500 million.
DEAN WITTER INTERMEDIATE INCOME SECURITIES. 0.60% to the Fund's average
daily net assets up to $500 million scaled down at various asset levels to 0.30%
on assets exceeding $1 billion.
DEAN WITTER INTERNATIONAL SMALLCAP FUND. 1.25% to the Fund's average daily
net assets. As compensation for its services provided pursuant to the
Sub-Advisory Agreement, the Investment
Man-
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ager pays to Morgan Grenfell 40% of its monthly compensation.
DEAN WITTER JAPAN FUND. 1.0% to the Fund's average daily net assets. As
compensation for its services provided pursuant to the Sub-Advisory Agreement,
the Investment Manager pays 40% of its monthly compensation to Morgan Grenfell.
DEAN WITTER MARKET LEADER TRUST. 0.75% to the Fund's average daily net
assets.
DEAN WITTER MID-CAP GROWTH FUND. 0.75% to the Fund's average daily net
assets.
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC. 0.625% to the
Fund's daily net assets not exceeding $250 million and 0.50% to such assets
exceeding $250 million.
DEAN WITTER PACIFIC GROWTH FUND INC. 1.0% to the portion of the Fund's
average daily net assets not exceeding $500 million and scaled down at various
asset levels to 0.90% of the portion to such assets exceeding $2 billion. As
compensation for its services provided pursuant to the Sub-Advisory Agreement,
the Investment Manager pays to Morgan Grenfell 40% of its monthly compensation.
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST. 0.80% to the Fund's average
daily net assets.
DEAN WITTER S&P 500 INDEX FUND. 0.40% to the Fund's average daily net
assets.
DEAN WITTER SHORT-TERM BOND FUND. 0.70% to the Fund's average daily net
assets.
DEAN WITTER SPECIAL VALUE FUND. 0.75% to the Fund's average daily net
assets.
DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST. 0.50% to the portion of the
Fund's average daily net assets up to $1 billion, scaled down at various asset
levels to 0.30% to such assets over $12.5 billion.
DEAN WITTER UTILITIES FUND. 0.65% to the portion of the Fund's average
daily net assets up to $500 million, scaled down at various asset levels to
0.425% to such assets exceeding $5 billion.
DEAN WITTER VALUE-ADDED MARKET SERIES--EQUITY PORTFOLIO. 0.50% to the
Fund's average daily net assets up to $500 million, scaled down at various asset
levels to 0.425% on such assets exceeding $1 billion.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund currently consists of two Portfolios: the International Portfolio
and the Domestic Portfolio. The investment objective of the International
Portfolio is long-term capital appreciation; the investment objective of the
Domestic Portfolio is to maximize total investment return. The investment
objective of the International Portfolio and the investment objective of the
Domestic Portfolio are fundamental policies and may not be changed without
shareholder approval of each respective Portfolio. There is no assurance that
the objective of each Portfolio will be achieved.
The International Portfolio seeks to achieve its investment objective by
currently investing, under normal circumstances, at least 65% of its total
assets in the following Dean Witter Underlying Funds: Dean Witter European
Growth Fund Inc., Dean Witter International SmallCap Fund, Dean Witter Japan
Fund and Dean Witter Pacific Growth Fund Inc. These Underlying Funds have been
selected in order to give the International Portfolio, as well as investors, the
opportunity for broad international exposure. The Investment Manager will
allocate that Portfolio's assets among the selected Underlying Funds in
accordance with the Portfolio's investment objective, the Investment Manager's
outlook for the various economies and financial markets worldwide and the
relative market valuation of the selected Underlying Funds.
The Domestic Portfolio seeks to achieve its investment objective by
currently investing, under normal circumstances, at least 65% of its total
assets in the following Dean Witter Underlying Funds: Dean Witter American Value
Fund, Dean Witter Capital Appreciation Fund, Dean Witter Capital Growth
Securities, Dean Witter Convertible
Secu-
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rities Trust, Dean Witter Developing Growth Securities, Dean Witter Dividend
Growth Securities Inc., Dean Witter Financial Services Trust, Dean Witter Health
Sciences Trust, Dean Witter High Yield Securities Inc., Dean Witter Information
Fund, Dean Witter Intermediate Income Securities, Dean Witter Market Leader
Trust, Dean Witter Mid-Cap Growth Fund, Dean Witter Natural Resource Development
Securities Inc., Dean Witter Precious Metals and Minerals Trust, Dean Witter S&P
500 Index Fund, Dean Witter Short-Term Bond Fund, Dean Witter Special Value Fund
(contingent upon a "re-opening"), Dean Witter U.S. Government Securities Trust,
Dean Witter Utilities Fund and Dean Witter Value-Added Market Series/Equity
Portfolio. These Underlying Funds have been selected in order to give the
Domestic Portfolio, as well as investors, the opportunity for broad exposure to
the U.S. equity and fixed-income markets. The Investment Manager will allocate
the Portfolio's assets among the selected Underlying Funds in accordance with
the Portfolio's investment objective, the Investment Manager's outlook for the
U.S. economy and financial markets and the relative market valuation of the
selected Underlying Funds. Under normal circumstances, the Domestic Portfolio
expects to invest between 50%-100% of its assets in Underlying Funds which
invest primarily in equity securities and between 0%-50% of its assets in
Underlying Funds which invest primarily in fixed-income securities.
The Investment Manager may vary the relative portions of each Portfolio's
assets invested in the Underlying Funds in response to changes in economic
conditions and international and/or domestic markets and therefore the
percentages of each Portfolio's assets invested in any one Underlying Fund as
well as the number of the Underlying Funds in which each Portfolio may invest
may vary at any time. There are no minimum or maximum percentages in which each
Portfolio may invest in any Underlying Fund. Additionally, the Underlying Funds
in which each Portfolio may invest may be changed from time to time and
additional or different Underlying Funds may be added or substituted if such
Underlying Funds are deemed appropriate for investment by each respective
Portfolio.
Each Portfolio may invest up to 35% of its total assets in money market
instruments or cash. The money market instruments in which the Fund may invest
are securities issued or guaranteed by the U.S. Government (Treasury bills,
notes and bonds (including zero coupon securities)) American bank obligations;
Eurodollar certificates of deposit; obligations of American savings
institutions; fully insured certificates of deposit; and commercial paper of
American issuers rated within the two highest grades by Moody's Investors
Service Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") or, if not
rated, issued by a company having an outstanding debt issue rated at least AA by
S&P or Aa by Moody's.
There may be periods during which market conditions warrant reduction of
some or all of the Fund's securities holdings. During such periods, the Fund may
adopt a temporary "defensive" posture in which up to 100% of each Portfolio's
net assets are invested in cash or money market instruments.
Each Portfolio may also enter into repurchase agreements, which may be
viewed as a type of secured lending by a Portfolio, and which typically involve
the acquisition by the Portfolio of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Portfolio 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, each Portfolio
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.
It is the current policy of each Portfolio not to invest in repurchase
agree-
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<PAGE>
ments that do not mature within seven days if any such investment amounts to
more than 15% of each Portfolio's net assets in keeping with each Portfolio's
policy on illiquid securities.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940, as amended (the "Act"), and as such is not
limited by the Act in the proportion of its assets that it may invest in the
obligations of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" under Subchapter
M of the Internal Revenue Code. See "Dividends, Distributions and Taxes." Any
investment in the Underlying Funds will be qualifying assets. To the extent that
a relatively high percentage of the Fund's assets may be invested in the
securities of a limited number of issuers, the Fund's portfolio securities may
be more susceptible to any single economic, political or regulatory occurrence
than the portfolio securities of a diversified investment company. The
limitations described in this paragraph are not fundamental policies and may be
revised to the extent applicable Federal income tax requirements are revised.
Except as specifically noted, all investment objectives, policies and
practices discussed above are not fundamental policies of either Portfolio of
the Fund and, as such, may be changed without shareholder approval.
INVESTMENT OBJECTIVES AND POLICIES OF THE UNDERLYING FUNDS
Set forth below are brief descriptions of the Investment Objectives and
Policies of the Underlying Funds in which the Portfolios of the Fund may invest.
Shareholders, or those who wish to invest in the Underlying Fund directly, are
referred to the Prospectuses of those funds for more detailed information.
DEAN WITTER AMERICAN VALUE FUND. The investment objective of this fund is
long-term capital growth consistent with an effort to reduce volatility. The
fund seeks to achieve its investment objective by investing in a diversified
portfolio of securities consisting principally of common stocks. The fund
utilizes an investment process that places primary emphasis on seeking to
identify industries, rather than individual companies, as prospects for capital
appreciation and whereby the Investment Manager seeks to invest assets of the
fund in industries it considers to be undervalued at the time of purchase and to
sell those it considers overvalued.
After selection of the fund's target industries, specific company
investments are selected. In this process, the Investment Manager seeks to
identify companies whose prospects are deemed attractive on the basis of an
evaluation of valuation screens and prospective company fundamentals.
Following selection of the fund's specific investments, the Investment
Manager will attempt to allocate the assets of the fund so as to reduce the
volatility of its portfolio. In doing so, the fund may hold a portion of its
portfolio in fixed-income securities (including zero coupon securities) in an
effort to moderate extremes of price fluctuations. The fund may invest up to 35%
of its portfolio in common stocks of non-U.S. companies, in companies in non-
classified industries, and in convertible debt securities, convertible preferred
securities, U.S. Government securities (securities issued or guaranteed as to
principal and interest by the United States or its agencies and
instrumentalities) and investment grade corporate debt securities when, in the
opinion of the Investment Manager, the projected total return on such securities
is equal to or greater than the expected total return on common stocks, or when
such holdings might be expected to reduce the volatility of the portfolio, and
in money market instruments under any one or more of the following
circumstances: (i) pending investment of proceeds of sale of fund shares or of
portfolio securities; (ii) pending settlement of purchases of portfolio
securities; or (iii) to maintain liquidity for the purpose of meeting
anticipated redemptions. Greater than 35% of the fund's total assets may be
invested in money market instruments to maintain, temporarily, a "defensive"
posture when, in the opinion of the Investment Manager, it is advisable to do so
because of economic or market conditions.
12
<PAGE>
Because prices of stocks fluctuate from day to day, the value of an
investment in the fund will vary based upon the fund's investment performance.
The fund's emphasis on "undervalued" industries reflects investment views which
are frequently contrary to general market assessments and which may involve
risks associated with departure from general investment opinions.
The fund has adopted the following specific policies which are not
fundamental investment policies and may be changed by the Board of Trustees.
1. At least 65% of the fund's total assets will be invested in common stocks
of U.S. companies which, at the time of purchase, were in undervalued or
moderately valued industries as determined by the Investment Manager, except as
stated in Paragraph (3) below.
2. Up to 35% of the value of the fund's total assets may be invested in: (a)
common stocks of non-U.S. companies, or companies in non-classified industries,
including American Depository Receipts (which are custody receipts with respect
to foreign securities) (the fund's investments in unlisted foreign securities
are deemed to be illiquid securities, which under the fund's current investment
policies may not in the aggregate amount to more than 15% of the fund's net
assets); (b) convertible debt securities (bonds, debentures, corporate notes,
preferred stock and other securities) which are convertible into common stock;
(c) U.S. Government securities and investment grade corporate debt securities,
when, in the opinion of the Investment Manager, the projected total return on
such securities is equal to or greater than the expected total return on equity
securities, or when such holdings might be expected to reduce the volatility of
the portfolio; and (d) money market instruments under any one or more of the
following circumstances: (i) pending investment of proceeds of sale of shares of
the fund or of portfolio securities; (ii) pending settlement of purchases of
portfolio securities; or (iii) to maintain liquidity for the purpose of meeting
anticipated redemptions.
3. Notwithstanding any of the foregoing limitations, the fund may invest more
than 35% of the fund's total assets in money market instruments to maintain,
temporarily, a "defensive" posture when, in the opinion of the Investment
Manager, it is advisable to do so because of economic or market conditions,
including, for example, times during which the Investment Manager believes the
risk, or volatility, relative to expected returns of the securities it monitors,
is excessive.
The foregoing limitations apply at the time of acquisition based on the last
determined market value of the fund's assets, and any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total assets will not require elimination of any security from the portfolio.
DEAN WITTER CAPITAL APPRECIATION FUND. The investment objective of this
fund is long-term capital appreciation. The fund seeks to achieve its investment
objective by investing, under normal circumstances, at least 65% of its total
assets in the common stocks of U.S. companies that, in the opinion of the
Investment Manager, offer the potential for either superior earnings growth
and/or appear to be undervalued.
The Investment Manager will base the selection of stocks for the fund's
portfolio on research and analysis, taking into account, among other factors, a
company's price/earnings ratio (that is whether the current stock price appears
undervalued in relation to earnings, projected cash flow, or asset value per
share; or the price-to-earnings ratio is attractive relative to the company's
underlying earnings growth rate), growth in sales, market-to-book ratio, the
quality of a company's balance sheet, sales-per-share and profitability in order
to determine whether the current market valuation is less than the Investment
Manager's view of a company's intrinsic value. Also, when reviewing investments
for selection, the Investment Manager will consider the following
characteristics of a company: capable management; attractive business niches;
pricing flexibility; sound financial and accounting practices and a
13
<PAGE>
demonstrated ability or prospects to consistently grow revenues, earnings and
cash flow. Stocks may also be selected on the basis of whether the Investment
Manager believes that the potential exists for some catalyst (such as increased
investor attention, asset sales, a new product/innovation, or a change in
management) to cause the stock's price to rise. Such factors are part of the
Investment Manager's overall investment selection process.
The Investment Manager has no general criteria as to asset size, earnings or
industry type which would make an investment unsuitable for purchase by the
fund. In addition, since the Investment Manager is seeking investments in
companies whose securities may appear to be undervalued, there is no limitation
on the stock price of any particular investment. However, as a result of the
selection process, which focuses on fundamentals in relation to prices, such
review of investments will include companies with low-priced stocks. In this
category are large companies with low-priced stocks (so called "fallen angels")
which, in the opinion of the Investment Manager, may appear to be undervalued
because they are overlooked by many investors; may not be closely followed
through investment research and/or their prices may reflect pessimism about the
companies' (and/or their industries') outlook. Such companies, by virtue of
their stock price, may be takeover candidates. Low-priced stocks are also
associated with smaller companies whose securities' value may reflect a discount
because of smaller size and lack of research coverage, emerging growth companies
and private companies undergoing their initial public offering. The fund will
invest in companies of all sizes. For a discussion of the risks of investing in
the securities of such companies, see "Risk Considerations and Investment
Practices of the Underlying Funds" below.
Consequently, the fund looks for quality businesses with an investment
outlook based upon a mix of growth potential, financial strength and fundamental
value. The focus on price and fundamentals sets the fund apart from pure
"growth" or pure "value" funds. The fund's holdings will be widely diversified
by industry and company and under most circumstances, at the time of initial
purchase, the average position will be less than 1.5% of the fund's net assets.
In addition to U.S. common stock, up to 35% of the fund's total assets may
be invested in debt or preferred equity securities convertible into or
exchangeable for equity securities, rights and warrants, when considered by the
Investment Manager to be consistent with the fund's investment objective. (For a
discussion of the risks of investing in each of these securities, see "Risk
Considerations and Investment Practices of the Underlying Funds" below.)
The fund may also invest in other debt securities without regard to quality
or rating, if in the opinion of the Investment Manager such securities meet the
investment criteria of the fund. The fund will not purchase a non-investment
grade debt security (or junk bond) if, immediately after such purchase, the fund
would have more than 5% of its total assets invested in such securities.
The fund may invest up to 10% of its assets in foreign securities, including
non-dollar denominated securities traded outside of the U.S. and U.S.
dollar-denominated securities such as American Depository Receipts ("ADRs").
(For a discussion of the risks of investing in foreign securities, see "Risk
Considerations and Investment Practices of the Underlying Funds" below.)
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant a reduction of some or all of the fund's securities
holdings. During such periods, the fund may adopt a temporary "defensive"
posture in which greater than 35% of its total assets is invested in money
market instruments or cash, including obligations issued or guaranteed as to
principal or interest by the United States Government, its agencies or
instrumentalities, certificates of deposit, bankers' acceptances and other
obligations of domestic banks having total assets of $1 billion or more, and
short-term commercial paper of
corpora-
14
<PAGE>
tions organized under the laws of any state or political subdivision of the
United States.
The securities in which the fund invests may or may not be listed on a
national stock exchange, but if they are not so listed, will generally have an
established over-the-counter market.
DEAN WITTER CAPITAL GROWTH SECURITIES. The investment objective of this
fund is long-term capital growth. The fund seeks to achieve its investment
objective by investing, under normal circumstances, at least 65% of its total
assets in common stocks. As part of its management of the fund, the Investment
Manager utilizes a two-stage computerized screening process. The first stage of
the process involves the screening of a database of approximately 3,000
companies for those companies demonstrating a history of consistent growth in
earnings and revenues for the past several years. If further refinement of the
list of companies obtained from the first screen is required, those companies
are then applied against two additional screens designed to measure current
earnings momentum and current price valuations, respectively, in order to
further refine the list of companies for potential investment by the fund, which
investment may be on an equally-weighted basis. (Current earnings momentum
refers to the rate of change in earnings growth over the prior four quarters and
current price valuations refers to the current price of a company's stock in
relation to a theoretical value based upon current dividends, projected growth
rates and the rate of inflation.) Subject to the fund's investment objective,
the Investment Manager, without notice, may modify the foregoing screening
process and/or may utilize additional or different screening processes in
connection with the investment of the fund's assets. Dividend income will not be
a consideration in the selection of stocks for purchase.
Although the fund invests primarily in common stocks, the fund may invest up
to 35% of its total assets (taken at current value and subject to any
restrictions appearing elsewhere in the fund's Prospectus), in any combination
of the following: (a) U.S. Government securities (securities issued or
guaranteed as to principal and interest by the U.S. Government or its agencies
or instrumentalities) and investment grade fixed-income securities; (b)
convertible securities; (c) money market instruments; (d) options on equity and
debt securities; and (e) futures contracts and related options thereon, as
described below. The fund may also purchase unit offerings (where corporate debt
securities are offered as a unit with convertible securities, preferred or
common stocks, warrants, or any combination thereof). U.S. Government securities
in which the fund may invest include zero coupon securities. Convertible
securities in which the fund may invest include bonds, debentures, corporate
notes, preferred stock and other securities. The fund may also purchase
securities on a when-issued or delayed delivery basis, may purchase or sell
securities on a forward commitment basis, and may purchase securities on a
"when, as and if issued" basis.
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some or all of the fund's securities
holdings. During such periods, the fund may adopt a temporary "defensive"
posture in which greater than 35% of its total assets are invested in cash or
money market instruments. Money market instruments in which the fund may invest
are securities issued or guaranteed by the U.S. Government (Treasury bills,
notes and bonds, including zero coupon securities); bank obligations; Eurodollar
certificates of deposit; obligations of savings institutions; fully insured
certificates of deposit; and commercial paper rated within the two highest
grades by Moody's or S&P or, if not rated, are issued by a company having an
outstanding debt issue rated at least AA by S&P or Aa by Moody's.
The fund may invest in securities of foreign companies. However, the fund
will not invest more than 25% of the value of its total assets, at the time of
purchase, in foreign securities (other than securities of Canadian issuers
registered under the Securities Exchange Act of 1934 or American Depository
Receipts, on which there is no such limit). The
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<PAGE>
fund's investments in unlisted foreign securities are subject to the overall
restrictions applicable to its investments in illiquid securities. For a
discussion of the risks of investing in foreign securities, see "Risk
Considerations and Investment Practices of the Underlying Funds" below.
DEAN WITTER CONVERTIBLE SECURITIES TRUST. The investment objective of this
fund is to seek a high level of total return on its assets through a combination
of current income and capital appreciation.
(1) The fund will normally invest at least 65% of its total assets (taken at
current value) in "convertible securities," I.E., securities (bonds, debentures,
corporate notes, preferred stocks and other securities) which are convertible
into common stock. Securities received upon conversion may be retained in the
fund's portfolio to permit orderly disposition or to establish long-term holding
periods for federal income tax purposes. The fund is not required to sell these
securities for the purpose of assuring that 65% of its assets are invested in
convertible securities.
(2) The fund may invest up to 35% of its total assets (taken at current
value and subject to any restrictions appearing elsewhere in its Prospectus) in
any combination and quantity of the following securities: (a) common stock; (b)
nonconvertible preferred stock; (c) nonconvertible corporate debt securities;
(d) options on debt and equity securities; (e) financial futures contracts and
related options thereon; and (f) money market instruments.
(3) Notwithstanding paragraphs (1) and (2) above, when market conditions
dictate a "defensive" investment strategy, the fund may invest without limit in
money market instruments, including commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks or domestic
branches of foreign banks, or foreign branches of domestic banks, in each case
having total assets of at least $500 million, and obligations issued or
guaranteed by the United States Government, or foreign governments or their
respective instrumentalities or agencies.
The fund may invest in fixed-income securities rated Baa or lower by
Moody's, or BBB or lower by S&P. Fixed-income securities rated Baa by Moody's or
BBB by S&P have speculative characteristics greater than those of more highly
rated bonds, while fixed-income securities rated Ba or BB or lower by Moody's
and S&P, respectively, are considered to be speculative investments.
Furthermore, the fund does not have any minimum quality rating standard for its
investments. As such, the fund may invest in securities rated as low as Caa, Ca
or C by Moody's or CCC, CC, C or C1 by S&P. Fixed-income securities rated Caa or
Ca by Moody's may already be in default on payment of interest or principal,
while bonds rated C by Moody's, their lowest bond rating, can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Bonds rated C1 by S&P, their lowest bond rating, are no longer making interest
payments. Non-rated securities are also considered for investment by the fund
when the Investment Manager believes that the financial condition of the issuers
of such securities, or the protection afforded by the terms of the securities
themselves, makes them appropriate investments for the fund. A general
description of Moody's and S&P's ratings is set forth in the Appendix to the
Statement of Additional Information.
The fund may invest in securities of foreign companies, may purchase private
placements, real estate investment trusts, repurchase agreements, zero coupon
securities, may purchase securities on a when-issued delayed delivery or forward
commitment basis and may lend its portfolio securities. For a discussion of the
risks of investing in these securities, see "Risk Considerations and Investment
Practices of the Underlying Funds" below.
DEAN WITTER DEVELOPING GROWTH SECURITIES. The Investment objective of this
fund is long-term capital growth. The fund seeks to achieve capital growth which
significantly exceeds the historical total return of common stocks as measured
by the Standard & Poor's 500 index. The primary emphasis is on the securities of
smaller and medium-sized companies that, in the opinion of the Investment
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<PAGE>
Manager, have the potential to grow much more rapidly than the economy; at
times, investments may also be made in the securities of larger, established
companies which also have such growth potential. The fund will normally invest
at least 65% of its total assets in the securities of such companies. In
addition to common stock, this portion of the portfolio may also include
convertible securities, preferred stocks and warrants.
The Investment Manager attempts to identify companies whose earnings growth
will be significantly higher than the average. Dividend income is not generally
a consideration in the selection of stocks for purchase.
The Investment Manager focuses its stock selection for the fund upon a
diversified group of emerging growth companies which have moved beyond the
difficult and extremely risky "start-up" phase and which at the time of
selection show positive earnings with the prospects of achieving significant
further profit gains in at least the next two-to-three years after acquisition.
New technologies, techniques, products or services, cost-reducing measures,
changes in management, capitalization or asset deployment, changes in government
regulations or favorable shifts in other external circumstances may all
contribute to the anticipated phase of growth.
The application of the fund's investment policies is basically dependent
upon the judgment of the Investment Manager. The proportions of the fund's
assets invested in particular industries will shift from time to time in
accordance with the judgment of the Investment Manager.
The fund may invest up to 35% of its total assets in corporate debt
securities which are rated at the time of purchase Baa or better by Moody's or
BBB or better by S&P or which, if not rated, are deemed to be of comparable
quality by the Investment Manager, and money market instruments. There may be
periods during which, in the opinion of the Investment Manager, general market
conditions warrant reduction of some or all of the fund's securities holdings.
During such periods, the fund may adopt a temporary "defensive" posture in which
greater than 35% of its total assets are invested in cash or money market
instruments, including obligations issued or guaranteed as to principal or
interest by the United States Government, its agencies or instrumentalities,
certificates of deposit, bankers' acceptances and other obligations of domestic
banks having total assets of $1 billion or more, and short-term commercial paper
of corporations organized under the laws of any state or political subdivision
of the United States.
The securities in which the fund invests may or may not be listed on a
national stock exchange, but if they are not so listed, will generally have an
established over-the-counter market.
The fund may invest in foreign securities, real estate investment trusts and
private placements, enter into repurchase agreements, borrow money for the
purpose of leveraging its investments, purchase securities on a when-issued or
delayed delivery basis, purchase or sell securities on a forward commitment
basis, purchase securities on a "when, as and if issued" basis, and lend its
portfolio securities, as discussed under "Risk Considerations and Investment
Practices of the Underlying Funds" below.
DEAN WITTER DIVIDEND GROWTH SECURITIES INC. The investment objective of the
fund is to provide reasonable current income and long-term growth of income and
capital. The fund seeks to achieve its investment objective primarily through
investments in common stock of companies with a record of paying dividends and
the potential for increasing dividends. Net asset value of the fund's shares
will fluctuate with changes in market values of portfolio securities. The fund
will attempt to avoid speculative securities or those with speculative
characteristics.
This fund has adopted the following specific policies which are not
fundamental investment policies and which may be changed by the fund's Board of
Directors:
1. Up to 30% of the value of the fund's total assets may be invested in: (a)
convertible debt securities, convertible preferred securities, U.S.
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Government securities (securities issued or guaranteed as to principal and
interest by the United States or its agencies and instrumentalities), investment
grade corporate debt securities and/or money market instruments when, in the
opinion of the Investment Manager, the projected total return on such securities
is equal to or greater than the expected total return on equity securities or
when such holdings might be expected to reduce the volatility of the portfolio
(for purposes of this provision, the term "total return" means the difference
between the cost of a security and the aggregate of its market value and income
earned); or (b) in money market instruments under any one or more of the
following circumstances: (i) pending investment of proceeds of sale of fund
shares or of portfolio securities; (ii) pending settlement of purchases of
portfolio securities; or (iii) to maintain liquidity for the purpose of meeting
anticipated redemptions.
2. Notwithstanding any of the foregoing limitations, the fund may invest more
than 30% of its total assets in money market instruments to maintain,
temporarily, a "defensive" posture when, in the opinion of the Investment
Manager, it is advisable to do so because of economic or market conditions.
The foregoing limitations will apply at the time of acquisition based on the
last determined value of the fund's assets. Any subsequent change in any
applicable percentage resulting from fluctuations in value or other change in
total assets will not require elimination of any security from the portfolio.
The fund may purchase securities on a when-issued or delayed delivery basis, may
purchase or sell securities on a forward commitment basis and may purchase
securities on a "when, as and if issued" basis as described below under "Risk
Considerations and Investment Practices of the Underlying Funds."
DEAN WITTER EUROPEAN GROWTH FUND INC. The investment objective of this fund
is to maximize capital appreciation. The fund seeks to achieve its investment
objective by investing at least 65% of its total assets in securities issued by
issuers located in countries located in Europe. Such issuers will include
companies (i) which are organized under the laws of a European country and have
a principal office in a European country, or (ii) which derive 50% or more of
their total revenues from business in Europe, or (iii) the equity securities of
which are traded principally on a stock exchange in Europe. The securities
invested in will primarily consist of equity securities issued by companies
based in European countries, but may also include fixed-income securities issued
or guaranteed by European governments (including zero coupon treasury
securities), when it is deemed that such investments are consistent with the
fund's investment objective. The principal countries in which such issuers will
be located are France; the United Kingdom; Germany; the Netherlands; Spain;
Sweden; Switzerland and Italy. The fund currently intends to invest more than
25% of its total assets in the United Kingdom. As such, the investment
performance of the fund will be subject to social, political and economic events
occurring in the United Kingdom to a greater extent than those occurring in
other European countries.
The remainder of the fund's portfolio equalling, at times, up to 35% of its
total assets, may be invested in equity and/or government and convertible
securities issued by issuers located anywhere in the world, including the United
States, subject to its investment objective. In addition, this portion of its
portfolio will consist of various other financial instruments such as forward
foreign exchange contracts, futures contracts and options (see below under "Risk
Considerations and Investment Practices of the Underlying Funds").
It is anticipated that the securities held by the fund in its portfolio will
be denominated, principally, in liquid European currencies. Such currencies
include the German mark, French franc, British pound, Dutch guilder, Swiss
franc, Swedish krona, Italian lira, and Spanish peseta. In addition, the fund
may hold securities denominated in the European Currency Unit (a weighted
composite of the currencies of member states of the European Monetary System).
Securities of issuers within a given country may be denominated in the currency
of a different country.
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The fund may also invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs), European Depository Receipts (EDRs) or
other similar securities convertible into securities of foreign issuers (as
described below under "Risk Considerations and Investment Practices of the
Underlying Funds").
DEAN WITTER FINANCIAL SERVICES TRUST. The investment objective of this fund
is long-term capital appreciation. The fund seeks to achieve its investment
objective by investing, under normal circumstances, at least 65% of its total
assets in the equity securities of companies in the financial services and
financial services related industries. Issuers in these industries provide
financial services or financial products to companies and individuals or to
other financial services providers. The financial services companies in which
the fund may invest include but are not limited to the following: asset
management companies, securities brokerage firms, financial planners, regional
and money center banks, merchant banks, mortgage companies, consumer finance
companies, savings banks and thrift institutions, insurance companies, insurance
brokerage firms, leasing companies, government-sponsored agencies, credit and
finance companies and foreign financial service companies. Examples of companies
in which the fund may invest which provide products and services to the
aforementioned financial services companies include but are not limited to the
following: providers of financial publishing and news services, credit research
and rating services, financial advertising (including Internet site
development), financial equipment and technology (including financial software),
data processing and payroll services and other financial products or services
which do not involve the providing of credit, brokerage or management of assets.
The equity securities in which the fund may invest may be issued either by
large, established, well-capitalized companies or by newly-formed small
capitalization companies. There are no restrictions on the market capitalization
size of the fund's holdings. While the equity securities in which the fund may
invest will consist primarily of common stocks, the fund may also invest in
other types of equity securities such as preferred and convertible securities,
rights and warrants.
The fund's equity investments will be determined pursuant to an investment
process that seeks to identify companies that show good appreciation prospects
and value. This approach to stock selection involves a fundamental analysis of
individual companies through an analysis of their balance sheets, income
statements, products and services. Also, the Investment Manager will take into
consideration certain criteria which include, among other things, capable
management, attractive business niches or product innovation, sound financial
and accounting practices, ability to grow revenues, earnings and cash flows
consistently, and stock prices and growth potential which, in the opinion of the
Investment Manager, appear to be undervalued or temporarily unrecognized by the
market.
Companies considered to be in the financial services and financial services
related industries will be those which derive at least 35% of their revenues or
earnings from the aforementioned respective activities, or devote at least 35%
of their assets to such respective activities.
Up to 35% of the fund's total assets may be invested in equity securities of
issuers not in the financial services or financial services related industries,
investment grade fixed-income securities, convertible securities, rights and
warrants of issuers not in the financial services or financial services related
industries, U.S. Government securities (including zero coupon securities) or
money market instruments. With respect to corporate non-convertible fixed-income
securities, the term "investment grade" means securities which are rated Baa or
higher by Moody's or BBB or higher by S&P or, if not rated, are deemed by the
Investment Manager to be of comparable quality. The fund may invest up to 25% of
its total assets in the securities of foreign issuers.
Money market instruments in which the fund may invest are securities issued
or guaranteed by
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the U.S. Government or its agencies (Treasury bills, notes and bonds);
obligations of banks subject to regulation by the U.S. Government and having
total assets of $1 billion or more; Eurodollar certificates of deposit;
obligations of savings banks and savings and loan associations having total
assets of $1 billion or more; fully insured certificates of deposit; and
commercial paper rated within the two highest grades by Moody's or S&P or, if
not rated, issued by a company having an outstanding debt issue rated AA by S&P
or Aa by Moody's.
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some or all of the fund's securities
holdings. During such periods, the fund may adopt a temporary "defensive"
posture in which up to 100% of its total assets is invested in money market
instruments or cash.
In accordance with SEC rules, the fund will not purchase the security of any
company which in its most recent fiscal year derived more than 15% of its gross
revenues from securities related activities (defined by the SEC as activities as
a broker, dealer, underwriter or investment adviser) if immediately after such
purchase the fund: (i) would own more than 5% of any class of equity securities
of the company; (ii) would own more than 10% of the outstanding principal amount
of the company's debt securities; or (iii) would have invested more than 5% of
its total assets in securities of such company.
The fund may invest in convertible securities. Up to 20% of the fund's
assets in convertible fixed-income securities can be rated below investment
grade or, if unrated, are of comparable quality as determined by the Investment
Manager. Securities rated below investment grade are the equivalent of high
yield, high risk bonds (commonly known as "junk bonds"). The fund will not
invest in convertible fixed-income securities that are in default in payment of
principal or interest. In the event that the fund's investments in convertible
securities rated below investment grade, including downgraded convertible
securities, constitute more than 20% of the fund's total assets, the fund will
seek immediately to sell sufficient securities to reduce the total to below the
applicable percentage. See "Risk Considerations and Investment Practices of the
Underlying Funds" below for a discussion of the risks of investing in
convertible securities and lower-rated and unrated fixed-income securities and
the Appendix to the Statement of Additional Information for a description of
fixed-income security ratings.
As noted above, the fund may invest in securities of foreign companies. Such
investments may also be in the form of ADRs, EDRs or other similar securities
convertible into securities of foreign issuers as described below. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. The fund's investments in unlisted
foreign securities are subject to the fund's overall policy limiting its
investment in illiquid securities to 15% or less of its net assets. The fund may
also engage in options and futures transactions and forward foreign currency
exchange contracts, may invest in repurchase agreements, private placements,
zero coupon securities, convertible securities, real estate investment trusts,
may purchase securities on a when-issued delayed delivery or forward committment
basis and may lend its portfolio securities. For a discussion of the risks of
these investments or techniques, see "Risk Considerations and Investment
Practices of the Underlying Funds" below.
DEAN WITTER HEALTH SCIENCES TRUST. The investment objective of this fund is
capital appreciation. The fund will seek to achieve its investment objective by
investing at least 65% of its total assets in the equity securities of health
science companies throughout the world. A health science company is defined as a
company which is principally engaged in the health sciences industry. A company
is deemed to be "principally engaged" if it has at least 50% of its earnings or
revenues derived from health sciences activities, as defined below, or at least
50% of its assets is devoted to such activities, based upon the financial
statements of the company's most recently reported fiscal year.
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In addition, the Investment Manager may invest in companies other than
health science companies if it considers that such companies have potential for
capital appreciation primarily as a result of particular products, technology,
patents or other market advantages in the health sciences industry. The fund
does not anticipate that companies not principally engaged in the health
sciences industry will represent more than 20% of the fund's investments.
Health sciences activities are defined as activities which consist of the
research, development, production or distribution of products and services by
health science companies which include, but are not limited to, companies such
as: pharmaceutical companies; companies involved in the ownership and/or
operation or delivery of health care services such as hospitals, clinical test
laboratories, convalescent and mental health care facilities, rehabilitation
centers, and products and services for home care; companies involved in
biotechnology, medical diagnostics, biochemical, and nuclear research and
development; and companies that produce and manufacture medical, dental and
optical supplies and equipment.
The fund's portfolio will primarily consist of common stocks. The fund may
also invest up to 35% of its total assets in preferred stock and in investment
grade domestic and foreign debt securities of any type of issuer (such as
foreign and domestic corporations and foreign and domestic governments and their
political subdivisions), including bonds, notes, debentures and debt securities
convertible into equity if the Investment Manager believes that such securities
present a favorable opportunity for capital appreciation. The term investment
grade consists of debt instruments rated Baa or higher by Moody's or BBB or
higher by S&P or, if not rated, determined to be of comparable quality by the
Investment Manager. Investments in securities rated either Baa by Moody's or BBB
by S&P may have speculative characteristics and, therefore, changes in economic
conditions or other circumstances are more likely to weaken their capacity to
make principal and interest payments than would be the case with investments in
securities with higher credit ratings. If a debt instrument held by the fund is
rated BBB or Baa and is subsequently downgraded by a rating agency, the fund
will retain such security in its portfolio until the Investment Manager
determines that it is practicable to sell the security without undue market or
tax consequences to the fund. In the event that such downgraded securities
constitute 5% or more of the fund's total assets, the Investment Manager will
sell immediately sufficient securities to reduce the total to below 5%. The fund
may invest in various other financial instruments such as warrants and forward
foreign currency exchange contracts, futures and options, including stock index
futures contracts and related options in an attempt to hedge its portfolio (see
below under "Risk Considerations and Investment Practices of the Underlying
Funds").
While the fund expects that, from time to time, a significant portion of its
investments will be in securities of U.S. companies, the fund's Investment
Manager believes that a portfolio comprised only of U.S. securities does not
provide the greatest potential for capital appreciation from an investment in
the health sciences industry. It believes that a worldwide focus is necessary if
the fund is to take advantage of the increasing opportunities presented by
health science companies headquartered throughout the world. The fund may invest
substantially in securities denominated in one or more currencies. The
Investment Manager believes that by investing worldwide, the fund can better
position itself to take advantage of available health sciences investment
opportunities.
The fund may also invest in securities of foreign issuers in the form of
ADRs, EDRs or other similar securities convertible into securities of foreign
issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted (see below). The
fund may also engage in options and futures transactions and forward foreign
currency exchange contracts and enter into repurchase agreements, may purchase
securities on a when-issued delayed
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delivery or forward commitment basis and may lend its portfolio securities. For
a discussion of the risks of investing in these securities, see "Risk
Considerations and Investment Practices of the Underlying Funds" below.
DEAN WITTER HIGH YIELD SECURITIES INC. The primary investment objective of
this fund is to earn a high level of current income. As a secondary objective,
the fund will seek capital appreciation, but only when consistent with its
primary objective. Capital appreciation may result, for example, from an
improvement in the credit standing of an issuer whose securities are held in the
fund's portfolio or from a general decline in interest rates, or a combination
of both. Conversely, capital depreciation may result, for example, from a
lowered credit standing or a general rise in interest rates, or a combination of
both. The higher yields sought by the fund are generally obtainable from
securities rated in the lower categories by recognized rating services. The fund
seeks high current income by investing principally in fixed-income securities
rated Baa or lower by Moody's, or BBB or lower by S&P. Fixed-income securities
rated Baa by Moody's or BBB by Standard & Poor's have speculative
characteristics greater than those of more highly rated bonds, while
fixed-income securities rated Ba or BB or lower by Moody's and S&P,
respectively, are considered to be speculative investments. Furthermore, the
fund does not have any minimum quality rating standard for its investments. As
such, the fund may invest in securities rated as low as Caa, Ca or C by Moody's
or CCC, CC, C or C1 by S&P. Fixed-income securities rated Caa or Ca by Moody's
may already be in default on payment of interest or principal, while bonds rated
C by Moody's, their lowest bond rating, can be regarded as having extremely poor
prospects of ever attaining any real investment standing. Bonds rated C1 by S&P,
their lowest bond rating, are no longer making interest payments. For a further
discussion of the characteristics and risks associated with high yield
securities, see "Risk Considerations and Investment Practices of the Underlying
Funds" below. A description of corporate bond ratings is contained in the
Appendix to the Statement of Additional Information.
Non-rated securities will also be considered for investment by the fund when
the Investment Manager believes that the financial condition of the issuers of
such securities, or the protection afforded by the terms of the securities
themselves, makes them appropriate investments for the fund.
In circumstances where the Investment Manager determines that investment in
municipal obligations would facilitate the fund's ability to accomplish its
investment objectives, it may invest up to 10% of its total assets in such
obligations, including municipal bonds issued at a discount.
The fund may also invest in securities of foreign companies, may purchase
common stock, repurchase agreements, private placements, zero coupon securities,
may engage in options and futures transactions, may purchase securities on a
when-issued delayed delivery or forward commitment basis and may lend its
portfolio securities. For a discussion of the risks of investing in these
securities, see "Risk Considerations and Investment Practices of the Underlying
Funds" below.
DEAN WITTER INFORMATION FUND. The investment objective of this Fund is
long-term capital appreciation. The fund seeks to achieve its investment
objective by investing under normal circumstances at least 65% of its total
assets in common stocks and securities convertible into common stocks of
domestic or foreign companies which are involved in all areas, including
emerging areas, of the communications and information industry. The fund will
not have more than 10% of its total assets invested in convertible securities
determined as of the time of purchase. Under normal circumstances, the fund will
invest in equity securities of issuers located in at least three countries, one
of which is the United States.
The communications and information industry is experiencing widespread
changes and expansion due to rapidly changing technologies (including enabling
technologies), industry migration in search of new markets, communications needs
in
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developing countries, competitive pressures and changes in governmental
regulation. Additionally, a number of traditional communications industries have
either converged or evolved into new corporate forms and some of these
industries are only beginning to emerge. The Investment Manager believes that as
technologies develop, many of the traditional distinctions and characteristics
of these industries will blur. The Investment Manager believes that the
communications and information industry will continue to grow in the future and
that the fund's investment policies as outlined below are designed to take
advantage of the investment opportunities present in this industry.
Companies in the communications and information industry will be considered
those companies engaged in designing, developing, manufacturing or providing the
following products and services, or the enabling technology with respect
thereto, throughout the world: regular telephone service; communications
equipment and services (including equipment and services for both data and voice
transmission); electronic components and equipment; broadcasting (including
television and radio, satellite, microwave and cable television and
narrow-casting); computer equipment, enabling software, mobile communications
and cellular radio/paging; electronic mail and other electronic data
transmission services; local and wide area networking and linkage of word and
data processing systems; publishing and information systems, including the
storage and transmission of information; video text and teletext; and emerging
technologies combining telephone, television and/or computer systems; the
creation, packaging, distribution, and ownership of entertainment and
information programming throughout the world including but not limited to
prerecorded music, feature length motion pictures, made for T.V. movies,
television series, documentaries, educational tutorials, animation, game shows,
sports programming, news programs, and live events such as professional sporting
events, concerts and theatrical exhibitions and academic courses or tutorials;
television and radio broadcasting via VHF, UHF, satellite and microwave
transmission, cable television programming and systems, and broadcast and cable
networks, wireless cable television and other emerging distribution
technologies, home video, and interactive/multimedia programming including
financial services, education, home shopping, video games and multiplayer games;
publishing including newspapers, magazines and books, advertising agencies and
niche advertising mediums such as in-store and direct mail, emerging
technologies combining television, telephone and computer systems, computer
hardware and software, and equipment used in the creation and distribution of
entertainment programming such as that required in the provision of broadcast,
cable or telecommunications services.
Companies considered to be in communications and information industry will
be those which derive at least 35% of their revenues or earnings from the
aforementioned respective activities, or devote at least 35% of their assets to
such respective activities.
Up to 35% of the fund's total assets may be invested in investment grade
fixed-income securities, U.S. Government securities (including zero coupon
securities) or money market instruments. With respect to corporate fixed-income
securities, the term "investment grade" means securities which are rated Baa or
higher by Moody's or BBB or higher by S&P or, if not rated, are deemed by the
Investment Manager to be of comparable quality.
Investments in fixed-income securities rated either BBB by S&P or Baa by
Moody's (the lowest credit ratings designated "investment grade") have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities with
higher credit ratings. If a fixed-income or convertible security held by the
fund is rated BBB or Baa and is subsequently downgraded by a rating agency, or
otherwise falls below investment grade the Fund will sell such securities as
soon as is practicable without undue market or tax consequences to the fund. See
the
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Appendix to the Statement of Additional Information for a discussion of ratings
of fixed-income securities.
The fund may invest up to 50% of its total assets in the securities of
foreign issuers. The fund will not invest 25% or more of its total assets in any
one foreign country.
Money market instruments in which the fund may invest are securities issued
or guaranteed by the U.S. Government or its agencies (Treasury bills, notes and
bonds); obligations of banks subject to regulation by the U.S. Government and
having total assets of $1 billion or more; Eurodollar certificates of deposit;
obligations of savings banks and savings and loan associations having total
assets of $1 billion or more; fully insured certificates of deposit; and
commercial paper rated within the two highest grades by Moody's or S&P or, if
not rated, issued by a company having an outstanding debt issue rated AA by S&P
or Aa by Moody's.
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some or all of the fund's securities
holdings. During such periods, the fund may adopt a temporary "defensive"
posture in which greater than 35% of its total assets is invested in money
market instruments or cash.
The fund may invest in investment grade convertible securities. A
convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, entail less
risk than the corporation's common stock. The value of a convertible security is
a function of its "investment value" (its value as if it did not have a
conversion privilege), and its "conversion value" (the security's worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege).
As noted above, the fund may also invest in securities of foreign companies.
Such investments may also be in the form of ADRs, EDRs or other similar
securities convertible into securities of foreign issuers (see below). These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. The fund's investments in unlisted
foreign securities are subject to the fund's overall policy limiting its
investment in illiquid securities to 15% or less of its net assets.
This fund concentrates its investments in the communications and information
industry. Because of this concentration, the value of the fund's shares may be
more volatile than that of investment companies that do not similarly
concentrate their investments. The communications and information industry may
be subject to greater changes in governmental policies and governmental
regulation than in many other industries in the United States and worldwide.
Regulatory approval requirements, ownership restrictions and restrictions on
rates of return and types of services that may be offered may materially affect
the products and services of this industry. Additionally, the products and
services of companies in this industry may be subject to faster obsolescence as
a result of greater competition, advancing technological developments, and
changing market and consumer preferences. As a result, the stocks of companies
in this industry may exhibit greater price volatility than those of companies in
other industries.
The fund may engage in options and futures contracts and forward foreign
currency exchange contracts, may enter into repurchase agreements, may purchase
private placements, convertible securities, zero coupon securities, when, as and
if issued securities, securities of other investment companies, may purchase
securities on a when-issued delayed delivery or forward commitment basis and may
lend its portfolio securities. For a discussion of the risks of investing in
these securities, see "Risk Considerations and Investment Practices of the
Underlying Funds" below.
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DEAN WITTER INTERMEDIATE INCOME SECURITIES. The investment objective of this
fund is high current income consistent with safety of principal. The fund seeks
to achieve its objective by investing at least 65% of its total assets in
intermediate term, investment grade fixed-income securities. The fund will
maintain an average weighted maturity of approximately seven years or less and
may not invest in securities with remaining maturities greater than twelve
years. Under normal conditions, the fund's average weighted maturity will not be
less than three years. (Under the current interpretation by the staff of the
Securities and Exchange Commission, an intermediate bond fund must have an
average weighted maturity between three and ten years.)
Under normal circumstances, the fund will invest primarily in corporate debt
securities and preferred stock of investment grade, which consists of securities
which are rated at the time of purchase Baa or better by Moody's or BBB or
better by S&P, or which, if unrated, are deemed to be of comparable quality by
the fund's Trustees. Fixed-income securities rated Baa by Moody's have
speculative characteristics. (A more detailed description of bond ratings is
contained in the Appendix to the Statement of Additional Information.) The fund
may also purchase U.S. Government securities (securities guaranteed as to
principal and interest by the United States or its agencies or
instrumentalities) and investment grade securities, denominated in U.S. Dollars,
issued by foreign governments or issuers. U.S. Government securities in which
the Fund may invest include zero coupon securities and mortgage-backed
securities, such as securities issued by the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. There can be no assurance that the investment objective of
the fund will be achieved.
The Investment Manager believes that the fund's policies of purchasing
intermediate term securities will reduce the volatility of the fund's net asset
value over the long term. Although the values of fixed-income securities
generally increase during periods of declining interest rates and decrease
during periods of increasing interest rates, the extent of these fluctuations
has historically generally been smaller for intermediate term securities than
for securities with longer maturities. Conversely, the yield available on
intermediate term securities has also historically been lower than those
available from long term securities.
Investment by the fund in U.S. Dollar denominated fixed-income securities
issued by foreign governments and other foreign issuers may involve certain
risks not associated with U.S. issued securities. Those risks include the
political or economic instability of the issuer or of the country of issue, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. In addition, there may be less publicly
available information about a foreign company than about a domestic company. The
fund believes that those risks are substantially lessened because the foreign
securities in which the fund may invest are investment grade.
While the fund will invest primarily in investment grade fixed-income
securities, under ordinary circumstances it also may invest up to 35% of its
total assets in money market instruments, repurchase agreements, as discussed
below, and up to 5% of the fund's net assets may be invested in lower rated
fixed-income securities.
Lower rated fixed-income securities, which are those rated from Ba to C or
BB to C by Moody's or S&P, respectively, are considered to be speculative
investments. Such lower rated securities, while producing higher yields than
investment grade securities, are subject to credit risk to a greater extent than
investment grade securities. The fund does not have any minimum quality rating
standard with respect to the portion (up to 5%) of its net assets which may be
invested in lower rated securities.
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some or all of the fund's securities
holdings. During such periods, the fund may adopt a temporary "defensive"
posture in
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which greater than 35% of its total assets are invested in cash or money market
instruments. Money market instruments in which the fund may invest are
securities issued or guaranteed by the U.S. Government (Treasury bills, notes
and bonds, including zero coupon securities); bank obligations; Eurodollar
certificates of deposit; obligations of savings institutions; fully insured
certificates of deposit; and commercial paper rated within the two highest
grades by Moody's or S&P or, if not rated, are issued by a company having an
outstanding debt issue rated at least AA by S&P or Aa by Moody's.
The fund may also purchase private placements, zero coupon securities, when,
as and if issued securities, may enter into repurchase agreements and reverse
repurchase agreements, may purchase securities on a when-issued delayed delivery
or forward commitment basis and may lend its portfolio securities. For a
discussion of the risks of investing in these securities, see "Risk
Considerations and Investment Practices of the Underlying Funds" below.
DEAN WITTER INTERNATIONAL SMALLCAP FUND. The investment objective of this
fund is long-term growth of capital. The fund seeks to achieve its investment
objective by investing, under normal circumstances, at least 65% of its total
assets in equity securities of "small capitalization" companies located outside
of the United States. A "small capitalization" company is defined as being, at
the time of purchase of its equity securities by the fund, among the smallest
capitalized companies (where capitalization is calculated by multiplying the
total number of outstanding shares of common stock of the company by their
market price and by ranking the resulting companies from smallest to largest
capitalization) principally located in a given country, whose aggregate
capitalizations comprise no more than 25% of the total market capitalization of
the country. Equity securities in which the fund may invest include common
stocks, rights or warrants to purchase common stocks and securities convertible
into common stocks. The fund will invest in securities issued by issuers located
in at least three countries outside of the U.S. An issuer of a security will be
considered to be located in a given country if it: (i) is organized under the
laws of the country; (ii) derives at least 50% of its revenues from goods
produced or sold, investments made, or services performed in the country; (iii)
maintains at least 50% of its assets in the country; or (iv) has securities
which are principally traded on a stock exchange in the country. The fund
currently intends to invest, from time to time, more than 25% of its total
assets in securities issued by issuers located in each of the United Kingdom and
Japan.
The remainder of the fund's portfolio equalling, at times, up to 35% of the
fund's total assets, may be invested in (i) securities issued by companies whose
market capitalizations place them outside the fund's definition of "small
capitalization" and/or (ii) fixed-income securities issued or guaranteed by
foreign governments. In addition, this portion of the fund's portfolio will
consist of various other financial instruments such as forward foreign exchange
contracts, futures contracts and options (see below).
The fund may also invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs), European Depository Receipts (EDRs) or
other similar securities convertible into securities of foreign issuers (as
described below under "Risk Considerations and Investment Practices of the
Underlying Funds").
DEAN WITTER JAPAN FUND. The investment objective of this fund is long-term
capital appreciation. The fund seeks to achieve its investment objective by
investing, under normal circumstances, at least 65% of its total assets in
equity securities issued by issuers located in Japan. Such issuers will include
companies (i) which are organized under the laws of Japan and have a principal
office in Japan; (ii) which derive 50% or more of their total revenues from
operating business(es) in Japan; or (iii) the equity securities of which are
traded principally on a stock exchange in Japan. Equity securities in which the
fund may invest include common and preferred stocks and rights or warrants to
purchase common stocks. The fund may invest up to
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25% of its total assets in equity securities of Japanese companies traded on the
Second Sections of the Main Japanese exchanges and in the over-the-counter
market. These would generally be smaller companies with above-average growth
potential.
The remainder of the fund's portfolio equalling, at times, up to 35% of the
fund's total assets, may be invested in fixed-income and convertible securities
of issuers located in Japan or guaranteed by the Japanese government when it is
deemed that such investments are consistent with the fund's investment
objective. This remainder may also include equity, government, fixed-income and
convertible securities issued by issuers located in developed economies in Asia,
Europe and North America, including the United States, subject to the fund's
investment objective. Although the fund may invest up to 35% of its net assets
in fixed-income and convertible securities which are either not rated or rated
below investment grade, the fund has no current intention of investing in excess
of 10% of its net assets in unrated or lower rated convertible securities nor in
excess of 5% of its net assets in unrated or lower rated non-convertible debt
securities. In addition, this portion of the fund's portfolio will consist of
various other financial instruments such as forward foreign exchange contracts,
futures contracts and options (see below).
The fund may also invest in securities of Japanese and other foreign issuers
in the form of American Depository Receipts (ADRs), European Depository Receipts
(EDRs) or other similar securities convertible into securities of foreign
issuers (as described below under "Risk Considerations and Investment Practices
of the Underlying Funds").
DEAN WITTER MARKET LEADER TRUST. The investment objective of this fund is
long-term growth of capital. The fund seeks to achieve its objective by
investing, under normal circumstances, at least 65% of its total assets in
equity securities of companies that, in the opinion of the Investment Manager,
are established leaders in their respective fields in growing industries in
domestic and foreign markets. The equity securities in which the fund may invest
in include common stocks, preferred stocks and debt or preferred stocks
convertible into or exchangeable for common stocks. These companies generally
will possess well-recognized proprietary skills or products, will have equity
market capitalizations in excess of $1 billion and will be listed on a United
States stock exchange (including U.S. dollar-denominated securities such as
ADRs. Generally these companies will be considered "leaders," in the view of the
Investment Manager, if they are nationally-known and have established a strong
reputation for quality management, products and services in the United States
and/or globally.
In addition to equity securities of market leader companies, up to 35% of
the fund's total assets may be invested in equity securities or debt securities
convertible into or exchangeable for equity securities of other companies, in
non-convertible debt securities, including U.S. Government securities and money
market instruments, and in rights and warrants. (For a discussion of the risks
of investing in each of these securities, see "Risk Considerations and
Investment Practices of the Underlying Funds" below.)
The Investment Manager intends to use both "top down" and "bottom-up"
approaches. The "top down" approach seeks to identify growing industries in
domestic and foreign markets. Within these industries, the Investment Manager
will apply a "bottom-up" fundamental analysis to identify the most attractive
securities to purchase, giving particular attention to companies with the
following attributes: recognized product and service leadership within its
industry, strong financial position (strong financial fundamentals) relative to
its peers, strong history of earnings growth or momentum often exceeding
consensus analyst expectations, evidence of corporate management's attention to
equity structure (evidenced by, among other things, stock buy-backs, the extent
to which management exercises stock options or otherwise acquires shares of the
company and sound financing decisions) as well as other attributes which the
Invest-
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ment Manager believes are indicators of sustainable long-term growth.
Fixed-income securities in which this fund may invest include corporate
notes and bonds and obligations issued or guaranteed by the United States
Government, its agencies and instrumentalities. The non-governmental debt
securities in which the fund will invest will include: (a) corporate debt
securities, including bonds, notes and commercial paper, rated in the four
highest categories by a nationally recognized statistical rating organization
("NRSRO") including Moody's, S&P, Duff and Phelps, Inc. and Fitch Investors
Service, Inc., or, if unrated, of comparable quality as determined by the
Investment Manager, and (b) bank obligations, including CDs, banker's
acceptances and time deposits, issued by banks with a long-term CD rating in one
of the four highest categories by a NRSRO. Investments in securities rated
within the four highest rating categories by a NRSRO are considered "investment
grade." However, such securities rated within the fourth highest rating category
by a NRSRO have speculative characteristics and, therefore, changes in economic
conditions or other circumstances are more likely to weaken the capacity of
their issuers to make principal and interest payments than would be the case
with investments in securities with higher credit ratings. Where a fixed-income
security is not rated by a NRSRO, the Investment Manager will make a
determination of its creditworthiness and may deem it to be investment grade. If
a fixed-income non-convertible security held by the fund is subsequently
downgraded by a rating agency below investment grade, the fund will sell such
securities as soon as practicable without undue market or tax consequences to
the fund. See the Appendix to the Statement of Additional Information for a
discussion of ratings of fixed income securities.
The U.S. Government securities in which this fund may invest include
securities which are direct obligations of the United States Government, such as
United States treasury bills, notes and bonds (including zero coupon bonds), and
which are backed by the full faith and credit of the United States; securities
which are backed by the full faith and credit of the United States but which are
obligations of a United States agency or instrumentality (E.G., obligations of
the Government National Mortgage Association); securities issued by a United
States agency or instrumentality which has the right to borrow, to meet its
obligations, from an existing line of credit with the United States Treasury
(E.G., obligations of the Federal National Mortgage Association); and securities
issued by a United States agency or instrumentality which is backed by the
credit of the issuing agency or instrumentality (E.G., obligations of the
Federal Farm Credit System).
Money market instruments in which the fund may invest include securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
(Treasury bills, notes and bonds, including zero coupon securities); bank
obligations; Euro-dollar certificates of deposit; obligations of savings
institutions; fully insured certificates of deposit; and commercial paper rated
within the four highest grades by Moody's or S&P or, if not rated, issued by a
company having an outstanding debt issue rated at least AA by S&P or Aa by
Moody's. Such securities may be used to invest uncommitted cash balances.
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some or all of the fund's securities
holdings. During such periods, the fund may adopt a temporary "defensive"
posture in which up to 100% of its total assets is invested in money market
instruments or cash.
The fund may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. Convertible securities rank senior to common stocks in a corporation's
capital structure and, therefore, entail less risk than the corporation's common
stock. The value of a convertible security is
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a function of its "investment value" (its value as if it did not have a
conversion privilege), and its "conversion value" (the security's worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege).
Up to 20% of this fund's assets in convertible fixed-income securities can
be rated below investment grade or, if unrated, of comparable quality as
determined by the Investment Manager. Securities rated below investment grade
are the equivalent of high yield, high risk bonds (commonly known as "junk
bonds"). The fund will not invest in convertible fixed-income securities that
are in default in payment of principal or interest. In the event that the fund's
investments in convertible securities rated below investment grade, including
downgraded convertible securities, constitute more than 20% of the fund's total
assets, the fund will seek immediately to sell sufficient securities to reduce
the total to below the applicable percentage. See "Risk Considerations and
Investment Practices of the Underlying Funds" below for a discussion of the
risks of investing in lower-rated and unrated fixed-income securities and the
Appendix to the Statement of Additional Information for a description of fixed
income security ratings.
This fund may also purchase and sell futures contracts on stock indexes, may
invest in repurchase agreements, private placements, zero coupon securities and
real estate investment trusts, may purchase securities on a when-issued, delayed
delivery or forward commitment basis, may purchase securities on a "when, as and
if issued" basis, and may lend its portfolio securities, as discussed under
"Risk Considerations and Investment Practices of the Underlying Funds" below.
DEAN WITTER MID-CAP GROWTH FUND. The investment objective of this fund is
long-term capital growth. This fund seeks to achieve its investment objective by
investing, under normal circumstances, at least 65% of its total assets in a
diversified portfolio of domestic and foreign equity securities of "mid-cap"
companies. A mid-cap company is a company whose market capitalization falls
within the range of $250 million to $5 billion. The fund may invest up to 35% of
its total assets in (i) U.S. Government Securities and investment grade
corporate debt securities; or (ii) equity securities of companies with market
capitalizations which fall outside of the range of $250 million to $5 billion at
the time of purchase as long as such investments are consistent with the fund's
investment objective. The fund may invest up to 35% of its total assets in the
equity securities of non-U.S. companies, including American or other Depository
Receipts, rights, warrants, and the direct purchase of foreign securities.
Equity securities in which the fund may invest include common stocks and
securities convertible into common stocks. The fund utilizes an investment
process that places primary emphasis on seeking to identify industries, rather
than individual companies, as prospects for capital appreciation and whereby the
Investment Manager seeks to invest assets of the fund in industries it considers
to be attractive at the time of purchase and to sell those it considers
overvalued. The Investment Manager will invest principally in those mid-cap
companies that in the opinion of the Investment Manager have above-average
relative growth potential. Mid-cap companies typically have a better growth
potential than their large-cap counterparts because they are still in the early
and more dynamic period of their corporate existences. Often mid-size companies
and the industries in which they are focused are still evolving as opposed to
the more mature industries served by large-cap companies. Moreover, mid-cap
companies are not considered "emerging" stocks, nor are they as volatile as
small-cap firms. This is due to the fact that mid-cap companies have increased
liquidity, attributable to their larger market capitalization as well as longer
and more established track records, and a stronger market presence and dominance
than small-cap firms. Consequently, because of the better growth inherent in
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these companies and their industries, mid-cap companies offer superior return
potential to large-cap companies, yet owing to their relatively larger size and
better recognition in the investment community, they have a reduced risk profile
compared to smaller, emerging or micro-cap companies.
In selecting stocks within the mid-cap universe, the Investment Manager will
use an industry approach that seeks to diversify the assets of the fund in
approximately 18 to 35 industries. The fund will hold less than 5% of its net
assets in any one security and will hold less than 10% of its net assets in any
one industry. Companies will be selected based on at least three-year track
records, and purchases will be primarily focused on companies that: (1) have the
potential for above-average relative earnings growth; (2) are focused in
industries that are rapidly expanding or have the potential to see increasing
sales or earnings; (3) historically have had well-defined and recurring
revenues; or (4) are attractive based on an assessment of private market or
franchise values.
After selection of the fund's target industries, specific company
investments are selected. In this process, the Investment Manager seeks to
identify companies whose prospects are deemed attractive on the basis of an
evaluation of valuation screens and prospective company fundamentals. From the
total of all companies included in the industry valuation process, the
Investment Manager selects a limited number from each industry as representative
of that industry. Such selections are made on the basis of various criteria,
including size and quality of a company, the visibility of its earnings and
various valuation parameters. Valuation screens may include dividend discount
model values, price-to-book ratios, price-to-cash flow values, relative and
absolute price-to-earnings ratios and ratios of price-earnings multiples to
earnings growth. Price and earnings momentum ratings derived from external
sources are also factored into the stock selection decision. Those companies
which the Investment Manager believes to be attractive investments are finally
selected for inclusion in the fund. For a discussion of the risks of mid-cap
stocks, see "Risk Considerations and Investment Practices of the Underlying
Funds" below.
Common stocks, particularly those sought for possible capital appreciation,
have historically experienced a great amount of price fluctuation. The
Investment Manager believes it is desirable to attempt to reduce the risks of
extreme price fluctuations even if such an attempt results, as it likely will at
times, in reducing the probabilities of obtaining greater capital appreciation.
Accordingly, the Investment Manager's investment process incorporates elements
which may reduce, although certainly not eliminate, the volatility of a
portfolio. The fund may hold a portion of its portfolio in investment grade
fixed-income securities, including convertible securities, in an effort to
moderate extremes of price fluctuation. The determination of the appropriate
asset allocation as between equity and fixed-income investments will be made by
the Investment Manager in its discretion, based upon its evaluation of economic
and market conditions.
DEAN WITTER NATURAL RESOURCE DEVELOPMENT SECURITIES INC. The investment
objective of this fund is capital growth. The fund will invest primarily in
common stock of companies in the natural resources and related areas, and will
invest at least 65% of its net assets at all times, except for temporary and
defensive purposes, in the securities of companies engaged in these areas. A
portfolio company is considered to be so engaged when at least 50% of its assets
and/or revenues are currently the result of ownership or development of assets
in such areas. Such companies include those engaged in the exploration for and
development, production and distribution of natural resources, in the
development of energy-efficient technologies or in other natural
resource-related supplies or services.
The fund will seek capital growth by investing in securities of issuers
believed to be responsive to domestic and world demand for natural resources. As
a result of the challenges presented by natural
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<PAGE>
resource needs, the fund believes that opportunities for growth can be found in
securities of issuers which: (1) own or process natural resources, such as
precious metals, other minerals, water, timberland and forest products; (2) own
or produce sources of energy such as oil, natural gas, coal, uranium,
geothermal, oil shale and biomass; (3) participate in the exploration for and
development of natural resources supplies from new and conventional sources; (4)
own or control oil, gas, or other mineral leases (which may not produce
recoverable energy or resources), rights or royalty interests; (5) provide
natural resources transportation, distribution or processing services, such as
refining and pipeline services; (6) provide related services or supplies, such
as drilling, well servicing, chemicals, parts and equipment; and (7) contribute
energy-efficient technologies, such as systems for energy conversion,
conservation and pollution control. Emphasis on natural resources may result in
exposure of some portfolio companies to foreign political and currency risks and
substantial price fluctuations.
The fund may purchase zero coupon securities and private placements, may
also purchase securities on a when issued or delayed delivery basis, may
purchase or sell securities on a forward commitment basis and may purchase
securities on a "when, as and if issued" basis, may enter into repurchase
agreements and may invest in options and futures transactions all as described
below under "Risk Considerations and Investment Practices of the Underlying
Funds."
DEAN WITTER PACIFIC GROWTH FUND INC. The investment objective of this fund
is to maximize capital appreciation. The fund seeks to achieve its investment
objective by investing at least 65% of its total assets in securities issued by
issuers located in Asia, Australia and New Zealand. Such issuers will include
companies which are organized under the laws of an Asian country, Australia or
New Zealand and have a principal office in an Asian country, Australia or New
Zealand, or which derive 50% or more of their total revenues from business in an
Asian country, Australia or New Zealand. The securities invested in will
primarily consist of equity securities issued by companies based in Asian
countries, Australia and New Zealand which the Investment Manager and/or
Sub-Adviser believe are most likely to help the fund meet its investment
objective, but may also include fixed-income securities issued or guaranteed by
(or the direct obligations of) the governments of such countries (including zero
coupon treasury securities), when it is deemed by the Investment Manager or
Sub-Adviser that such investments are consistent with the fund's investment
objective. The principal countries in which such issuers will be located are
Japan, Australia, Malaysia, Singapore, Hong Kong, Thailand, the Philippines,
Indonesia, Taiwan and South Korea. The fund may invest more than 25% of its
total assets in Japan, reflecting the dominance of the Japanese stock market in
the Pacific basin. The fund also may invest over 25% of its total assets in
securities issued by issuers located in Hong Kong. The fund may also purchase
securities issued by various agencies and instrumentalities of the U.S.
Government and may invest up to 10% of its total assets in securities issued by
other investment companies in order to participate in certain foreign markets
where foreigners are prohibited from investing directly in the securities of
foreign issuers.
The remainder of the fund's portfolio equalling, at times, up to 35% of the
fund's total assets, may be invested in equity and/or fixed-income and
convertible securities issued by issuers located anywhere in the world,
including the United States, subject to the fund's investment objective. In
addition, this portion of the fund's portfolio will consist of various other
financial instruments such as forward foreign exchange contracts, futures
contracts and options (see below under "Risk Considerations and Investment
Practices of the Underlying Funds").
It is anticipated that the securities held by the fund in its portfolio will
be denominated, principally, in the liquid Asian currencies and the Australian
dollar. Such currencies include the Japanese yen, Malaysian ringgit, Singapore
dollar, Hong Kong
dol-
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lar, Thai baht, Philippine peso, Indonesia rupiah, Taiwan dollar and South
Korean won. Securities of issuers within a given country may be denominated in
the currency of a different country.
The fund may also invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs) or other similar securities convertible into
securities of foreign issuers (as described below under "Risk Considerations and
Investment Practices of the Underlying Funds").
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST. The investment objective of
this fund is long-term capital appreciation. The fund will attempt to achieve
its investment objective by investing principally in the securities of foreign
and domestic companies engaged in the exploration, mining, fabrication,
processing, distribution or trading of precious metals and minerals or in
companies engaged in financing, managing, controlling or operating companies
engaged in these activities and also by investing a portion of its assets in
gold, silver, platinum and palladium bullion and coins.
Except during temporary defensive periods, the fund will invest at least 65%
of its total assets in precious metals and minerals securities and precious
metals bullion and coins as well as other precious metals-related investments
(such as debt instruments indexed to or payable in precious metals warrants).
This concentration policy is a fundamental policy of the fund.
The precious metals and minerals securities in which the fund will invest
include foreign and domestic common stocks, securities convertible into common
stocks, preferred stocks, debt securities, precious metals indexed debt
securities and options issued by companies engaged in the exploration, mining,
fabricating, processing, distributing or trading of precious metals and
minerals. A company will be considered to be principally engaged in such
activities if it derives more than 50% of its income or devotes 50% or more of
its assets to such activities.
Up to 35% of the fund's total assets may be invested in (a) common stocks of
companies that derive less than 50% of their income or devote 50% or less of
their assets to precious metals and minerals activities, (b) long-term U.S.
Government securities (securities guaranteed as to principal and interest by the
U.S. Government or its agencies or instrumentalities) (including zero coupon
bonds) and (c) short-term money market instruments such as obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities
(including zero coupon bonds); commercial paper; bankers' acceptances and
certificates of deposit of U.S. domestic banks, including foreign branches of
domestic banks, with assets of $500 million or more; time deposits; or debt
securities rated within the two highest grades by Moody's or S&P or, if not
rated, are of comparable quality as determined by the Investment Manager and
which mature within one year from the date of purchase. Investments in
short-term money market instruments may equal more than 35% of the fund's assets
during temporary defensive periods. Additionally, within the percentage
limitation described above, up to 20% of the fund's total assets may be invested
in long-term U.S. Government securities in order to offset the possible decline
in the value of precious metals and precious metals securities during periods of
low inflation rates.
Because most of the world's gold production is outside of the United States,
the fund expects that a majority of its assets will be invested in the
securities of foreign issuers. The percentage of assets invested in particular
countries or regions, however, will change from time to time according to the
Investment Manager's judgement of their political stability and economic
outlook. Under normal market conditions, the Fund intends to invest at least 30%
of its assets in the securities of foreign issuers. Such securities may be in
the form of ADRs, EDRs or other similar securities convertible into securities
of foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs
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are receipts typically issued by a United States bank or trust company
evidencing ownership of the underlying securities. EDRs are European receipts
evidencing a similar arrangement with a European bank. Generally, ADRs in
registered form, are designed for use in the United States securities markets
and EDRs, in bearer form, are designed for use in the European securities
markets. In the event that ADRs or EDRs are not available for a particular
security, the fund nevertheless may invest in that security. Such securities may
or may not be listed on a foreign securities exchange.
The fund will also invest a portion of its assets in gold, silver, platinum
and palladium bullion and coins (or certificates, receipts or contracts
representing ownership interests in these precious metals). While it is intended
that no more than 25% of the fund's total assets will be invested in such
bullion or coins, the fund's investment in bullion or coins may be further
restricted in order to comply with regulations of states where the fund's shares
are qualified for sale.
Bullion and coins will only be bought from and sold to U.S. and foreign
banks, regulated U.S. commodities exchanges, exchanges affiliated with a
regulated U.S. stock exchange, and dealers who are members of, or affiliated
with members of, a regulated U.S. commodities exchange, in accordance with
applicable investment laws. Gold, silver, platinum and palladium bullion will
not be purchased in any form that is not readily marketable. Coins will not be
purchased for their numismatic value and will not be considered for purchase if
they cannot be bought or sold in an active market. Any bullion or coins
purchased by the fund will be delivered to and stored with a qualified custodian
bank in the U.S. Investors should note that bullion and coins do not generate
income, offering only the potential for capital appreciation or depreciation,
and in these transactions the fund may encounter higher custody and transaction
costs than those normally associated with the ownership of securities, as well
as shipping and insurance costs. The fund may attempt to minimize the costs
associated with actual custody of bullion or coins by the use of receipts or
certificates representing ownership interests in these precious metals. The
fund's Investment Manager believes that investments in precious metals
themselves could serve to moderate fluctuations in the value of the fund's
portfolio since at times the prices of precious metals have tended not to
fluctuate as widely as the securities of issuers engaged in the mining of such
metals.
Investments related to gold and other precious metals and minerals are
considered speculative and are impacted by a host of world-wide economic,
financial and political factors. Prices of gold and other precious metals may
fluctuate sharply over short periods of time due to changes in inflation or
expectations regarding inflation in various countries, the availability of
supplies of these precious metals, changes in industrial and commercial demand,
metal sales by governments, central banks or international agencies, investment
speculation, monetary and other economic policies of various governments and
governmental restrictions on the private ownership of certain precious metals
and minerals. Additionally, the precious metals and minerals securities in which
the fund may invest may not necessarily move in tandem with the prices of actual
precious metals and minerals.
At the present time, there are five major producers of gold bullion. In
order of magnitude they are: the Republic of South Africa, the successor states
of the former Soviet Union, Canada, the United States and Australia. Political
and economic conditions in these countries may have a direct effect on the
mining, distribution and price of gold and sales of central bank gold holdings.
The fund may engage in options and futures transactions and forward currency
exchange transactions, may purchase private placements, zero coupon securities,
when, as and if issued securities, may purchase securities on a when-issued
delayed delivery or forward commitment basis and may lend its portfolio
securities. For a discussion of the risks of investing in these securities, see
"Risk
Consider-
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ations and Investment Practices of the Underlying Funds" below.
DEAN WITTER S&P 500 INDEX FUND. The investment objective of this 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 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 weightings 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
perform-
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ance 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.
The fund may also invest in repurchase agreements, zero coupon securities
and may lend its portfolio securities, as discussed under "Risk Considerations
and Investment Practices of the Underlying Funds" below.
The fund reserves the right to seek to achieve its investment objective by
converting to a "master/ feeder" fund structure.
DEAN WITTER SHORT-TERM BOND FUND. The investment objective of this fund is
to provide investors with a high level of current income, consistent with the
preservation of capital. The fund seeks to achieve its investment objective by
investing in short-term, fixed-income securities with a dollar-weighted average
portfolio maturity of less than three years. The fund may invest in nominally
longer-term securities that have many of the characteristics of shorter-term
securities which will be deemed to have maturities earlier than their ultimate
maturity dates (E.G., securities with demand features). A substantial portion of
the fund's portfolio will consist of fixed-income securities issued by U.S.
corporate issuers and by the U.S. Government, its agencies and
instrumentalities.
Under normal market conditions, at least 65% of the fund's total assets will
be invested in bonds (for purposes of this provision, debt securities, which had
at time of issuance a maturity of greater than one year, are defined as
"bonds"). Furthermore, a portion of the fund's portfolio (up to 25% of the
fund's total assets) may be invested in fixed-income securities issued by
foreign corporate and government issuers.
The fund is designed for the investor who seeks a higher yield than a money
market fund and less fluctuation in net asset value than a longer-term bond
fund. In addition, while an investment in the fund is not federally insured and
there is no guarantee of price stability (the fund is not a money market fund
with a virtually constant net asset value per share), an investment in the
fund--unlike a certificate of deposit ("CD")--is not frozen for any specific
period of time, may be redeemed at any time without incurring early withdrawal
penalties, and may also provide a higher yield.
The non-governmental debt securities in which the fund will invest will
include: (a) corporate debt securities, including bonds, notes and commercial
paper, rated in the four highest categories by a nationally recognized
statistical rating organization ("NRSRO") including Moody's, S&P, Duff and
Phelps, Inc. and Fitch Investors Service, Inc.; (b) bank obligations, including
CDs, bankers' acceptances and time deposits, issued by banks with a long-term CD
rating in one of the four highest categories by a NRSRO; and (c) investment
grade fixed-rate and adjustable rate Mortgage-Backed and Asset-Backed securities
of corporate issuers. Investments in securities rated within the four highest
rating categories by a NRSRO are considered "investment grade." However, such
securities rated within the fourth highest rating category by a NRSRO may have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities with
higher credit ratings. Where a fixed-income
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<PAGE>
security is not rated by a NRSRO (as may be the case with a foreign security)
the Investment Manager will make a determination of its creditworthiness and may
deem it to be investment grade.
The fund may also invest in preferred stocks rated in one of the four
highest categories by a NRSRO.
Up to 5% of the fund's net assets may be invested in fixed-income securities
rated below investment grade. Such lower-rated securities are considered to be
speculative investments and, while producing higher yields than investment grade
securities, are subject to greater credit risks. The fund does not have any
minimum quality rating standards with respect to this portion of its portfolio.
If an investment grade fixed-income security held by the fund is downgraded by a
rating agency to a grade below investment grade, the fund may retain such
security in its portfolio unless such downgraded security, together with all
other non-investment grade fixed-income securities held by the fund constitute,
in the aggregate, more than 5% of the fund's net assets. In such event, the
Investment Manager will seek to sell such securities from its portfolio, as soon
as is reasonably practicable, in sufficient amounts to reduce this total to
below 5% of its net assets. A description of fixed-income security ratings is
contained in the Appendix to the Statement of Additional Information.
The United States Government securities (including zero coupon securities)
in which the fund will invest include securities which are direct obligations of
the United States Government, such as United States treasury bills, and which
are backed by the full faith and credit of the United States; securities which
are backed by the full faith and credit of the United States but which are
obligations of a United States agency or instrumentality (E.G., obligations of
the Government National Mortgage Association); securities issued by a United
States agency or instrumentality which has the right to borrow, to meet its
obligations, from an existing line of credit with the United States Treasury
(E.G., obligations of the Federal National Mortgage Association); securities
issued by a United States agency or instrumentality which is backed by the
credit of the issuing agency or instrumentality (E.G., obligations of the
Federal Farm Credit System); and governmentally issued mortgage-backed
securities.
In addition, as stated above, up to 25% of the fund's total assets may be
invested in securities issued by foreign corporations and governments and their
agencies and instrumentalities. Such securities may be denominated in foreign
currencies. The principal foreign currencies in which such securities will be
denominated are: the Australian dollar; Deutsche mark; Japanese yen; French
franc; British pound; Canadian dollar; Mexican peso; Swiss franc; Dutch guilder;
Austrian schilling; Spanish Peseta; Swedish Krona; and European Currency Unit.
The fund will only invest in foreign securities which are rated by a NRSRO as
investment grade or which, if unrated, are deemed by the Investment Manager to
be of investment grade creditworthiness.
The fund may also purchase foreign securities, repurchase agreements, when,
as and if issued securities, zero coupon securities, may purchase securities on
a when-issued delayed delivery or forward commitment basis and may lend its
portfolio securities. For a discussion of the risks of investing in these
securities, see "Risk Considerations and Investment Practices of the Underlying
Funds" below.
DEAN WITTER SPECIAL VALUE FUND. The investment objective of this fund is
long-term capital appreciation. This fund seeks to achieve its objectives by
investing primarily in equity securities issued by companies whose equity market
capitalization, at the time of purchase, falls within the range of $100 million
to $1 billion and that, in the opinion of the Investment Manager, appear
undervalued relative to the marketplace or to investments in similar companies.
Under normal market conditions, the fund will invest at least 65% of its total
assets in common stocks issued by these small-sized
com-
36
<PAGE>
panies. Up to 35% of the fund's total assets may be invested in common stocks
not meeting the foregoing small company equity market parameters, in debt or
preferred equity securities convertible into or exchangeable for equity
securities, in non-convertible debt or preferred equity securities, and in
rights and warrants.
The Investment Manager intends to pursue a value-oriented approach in
selecting securities for the fund's portfolio. This approach seeks to identify
securities whose market value, in the Investment Manager's view, is less than
their intrinsic value. The Investment Manager believes that securities of
certain small companies often trade at a discount from their intrinsic value
(sometimes also referred to as "business value" or "investment worth").
Stocks of small companies are often under-researched and not widely
recognized by stock analysts or the financial press and, as a result, may be
less efficiently priced than larger, better-known companies. In addition, small
companies may have other unique attributes which make them relatively
undervalued in the market place compared to other similar larger companies. The
Investment Manager will attempt to identify and invest in such securities for
the fund with the expectation that the "value discount" may narrow over time and
lead to capital appreciation for the fund.
As part of the value-oriented approach, the Investment Manager, based on
research and analysis, will seek to identify companies with attributes which the
Investment Manager believes provide growth opportunities but are not fairly
valued in the market place. Such attributes may include, among other things, one
or more of the following: valuable franchises or other intangibles; ownership of
valuable trademarks or trade names; control of distribution networks or of other
market share for particular products; ownership of real estate, the value of
which is understated; underutilized liquidity and other factors that would
identify the issuer as a potential takeover target or turnaround candidate.
In addition to, or instead of, seeking companies with attributes such as
those described above, the Investment Manager may select securities for
investment by the fund on the basis of the Investment Manager's belief that the
potential exists for some catalyst to cause a stock's price to rise. Such a
catalyst might include, among other things, one or more of the following:
increased investor attention, asset sales, corporate restructurings or
reorganizations, a cyclical turnaround of a depressed business or industry, a
new product/innovation, or significant changes in management and regulatory or
environmental shifts.
In its security selection process, the Investment Manager will focus
initially on securities with market-to-book ratios and price-earnings ratios
which are lower than those of the general market averages or those of securities
of similar companies, although the fund is not restricted to selecting only
securities with those characteristics if other indicators of a value discount
exist. In evaluating a company as a potential investment of the fund, the
Investment Manager will consider factors such as the company's dividend yield
(if any), growth in sales, balance sheet, average sales-per-share, cash flow per
share, management capabilities, attractiveness of business opportunities,
pricing flexibility, financial and accounting practices and an ability or
prospects to increase revenues, earning and cash flow, and profitability, in an
effort to determine whether the company's intrinsic value is greater than its
market price.
The fund's strategy of investing in small companies will involve investment
in a large number of portfolio securities which may be volatile and long-term in
nature. Such investments may include "micro-cap" companies (generally, companies
with equity market capitalization of less than $150 million) which represent
some of the smallest and least liquid equity securities in the U.S. markets. An
investment in the fund, therefore, should be considered a long-term holding and
not a complete investment program and may not be suitable for all investors, For
a further discussion of the risks of investing
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<PAGE>
in smaller companies, see "Risk Considerations and Investment Practices of the
Underlying Funds" below.
Fixed-income securities in which the fund may invest include corporate notes
and bonds and obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities. The non-governmental debt securities in which
the fund will invest will include: (a) corporate debt securities, including
bonds, notes and commercial paper, rated in the four highest categories by a
NRSRO including Moody's, S&P, Duff and Phelps, Inc. and Fitch Investors Service,
Inc., or, if unrated, of comparable quality as determined by the Investment
Manager, and (b) bank obligations, including CDs, banker's acceptances and time
deposits, issued by banks with a long-term CD rating in one of the four highest
categories by a NRSRO. Investments in securities rated within the four highest
rating categories by a NRSRO are considered "investment grade." However, such
securities rated within the fourth highest rating category by a NRSRO have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken the capacity of their issuers to
make principal and interest payments than would be the case with investments in
securities with higher credit ratings. Where a fixed-income security is not
rated by a NRSRO, the Investment Manager will make a determination of its
creditworthiness and may deem it to be investment grade.
This fund also may invest up to 20% of its total assets in convertible
fixed-income securities rated below investment grade or, if unrated, of
comparable quality as determined by the Investment Manager. In addition, the
fund may invest up to 5% of its total assets in non-convertible fixed-income
securities rated below investment grade or, if unrated, of comparable quality as
determined by the Investment Manager. Securities below investment grade are the
equivalent of high yield, high risk bonds (commonly known as " junk bonds"). The
fund will not invest in fixed-income securities that are in default in payment
of principal or interest. In the event that the fund's investments in securities
rated below investment grade, including downgraded securities, constitute more
than 20% (in the case of convertible fixed-income securities) or 5% (in the case
of non-convertible fixed-income securities) of the fund's total assets, the fund
will seek immediately to sell sufficient securities to reduce the total to below
the applicable percentage. See "Risk Considerations and Investment Practices of
the Underlying Funds" below for a discussion of the risks of investing in
lower-rated and unrated fixed-income securities and the Appendix to the
Statement of Additional Information for a description of fixed-income security
ratings.
The U.S. Government securities in which the fund may invest include
securities which are direct obligations of the United States Government, such as
United States treasury bills, notes and bonds, and which are backed by the full
faith and credit of the United States; securities which are backed by the full
faith and credit of the United States but which are obligations of a United
States agency or instrumentality (E.G., obligations of the Government National
Mortgage Association); securities issued by a United States agency or
instrumentality which has the right to borrow, to meet its obligations, from an
existing line of credit with the United States Treasury (E.G., obligations of
the Federal National Mortgage Association); securities issued by the United
States agency or instrumentality which is backed by the credit of the issuing
agency or instrumentality (E.G., obligations of the Federal Farm Credit System).
Money market instruments in which the fund may invest include securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
(Treasury bills, notes and bonds, including zero coupon securities); bank
obligations; Eurodollar certificates of deposit; obligations of savings
institutions; fully insured certificates of deposit; and commercial paper rated
within the four highest grades by Moody's or S&P or, if not rated, issued by a
company having an outstanding debt issue rated at least AA by S&P or Aa by
Moody's. Such
securi-
38
<PAGE>
ties may be used to invest uncommitted cash balances.
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some of all of the fund's securities
holdings. During such periods, the fund may adopt a temporary "defensive"
posture in which up to 100% of its total assets is invested in money market
instruments or cash.
The fund may invest in American Depository Receipts and securities of
Canadian issuers registered under the Securities Act of 1934, but under current
policy the fund will not otherwise invest in foreign securities. The fund may
also purchase and sell futures contracts on stock indexes, may invest in
repurchase agreements, private placements, zero coupon securities and real
estate investment trusts, may purchase securities on a when-issued, delayed
delivery or forward commitment basis, may purchase securities on a "when, as and
if issued" basis, and may lend its portfolio securities, as discussed under
"Risk Considerations and Investment Practices of the Underlying Funds" below.
The fund intends to suspend the offering of its shares to new investors
whenever the Investment Manager determines that doing so is in the best
interests of prudent portfolio management. During any such suspension, current
shareholders of the fund will continue to be able to purchase additional fund
shares. The fund currently anticipates suspending the offering of its shares to
new investors if its net assets reach a level of approximately $250 million,
unless the Investment Manager determines that the continued offering of the
fund's shares is consistent at that time with prudent portfolio management.
Subsequently, the fund may recommence offering its shares to new investors from
time to time as may be consistent with prudent portfolio management.
DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST. The investment objective of
this fund is high current income consistent with safety of principal. The fund
seeks to achieve its objective by investing in obligations issued or guaranteed
by the U.S. Government or its instrumentalities ("U.S. Government securities").
All such obligations are backed by the "full faith and credit" of the United
States. Investments may be made in obligations of instrumentalities of the U.S.
Government only where such obligations are guaranteed by the U.S. Government.
U.S. Government securities include U.S. Treasury securities consisting of
Treasury bills, Treasury notes and Treasury bonds. Some of the other U.S.
Government securities in which the fund may invest include securities of the
Federal Housing Administration, the Government National Mortgage Association,
the Department of Housing and Urban Development, the Export-Import Bank, the
Farmers Home Administration, the General Services Administration, the Maritime
Administration, Resolution Funding Corporation and the Small Business
Administration. The maturities of such securities usually range from three
months to thirty years.
The fund is not limited as to the maturities of the U.S. Government
securities in which it may invest, except that the fund will not purchase zero
coupon securities with remaining maturities of longer than ten years. For a
discussion of the risks of investing in U.S. Government securities (including
such securities purchased on a when-issued, delayed delivery or firm commitment
basis and zero coupon securities), see "Risk Considerations and Investment
Practices of the Underlying Funds" below.
While the fund has the ability to invest in any securities backed by the
full faith and credit of the United States, it is currently anticipated that a
substantial portion of the fund's assets will be invested in Certificates of the
Government National Mortgage Association (GNMA). Should market or economic
conditions warrant, this policy is subject to change at any time at the
discretion of the Investment Manager.
Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods
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<PAGE>
of falling interest rates the rate of prepayment tends to increase, thereby
shortening the actual average life of a pool of mortgage-related securities.
Conversely, in periods of rising rates the rate of prepayment tends to decrease,
thereby lengthening the actual average life of the pool. Reinvestment by the
fund of prepayments may occur at higher or lower interest rates than the
original investment. Historically, actual average life has been consistent with
the twelve-year assumption referred to above. The actual yield of each GNMA
Certificate is influenced by the prepayment experience of the mortgage pool
underlying the Certificates. Interest on GNMA Certificates is paid monthly
rather than semi-annually as for traditional bonds.
The fund will invest in mortgage pass-through securities representing
participation interests in pools of residential mortgage loans originated by
United States governmental or private lenders such as banks, broker-dealers and
financing corporations and guaranteed, to the extent provided in such
securities, by the United States Government or one of its agencies or
instrumentalities. Such securities, which are ownership interests in the
underlying mortgage loans, differ from conventional debt securities, which
provide for periodic payment of interest in fixed amounts (usually
semi-annually) and principal payments at maturity or on specified call dates.
Mortgage pass-through securities provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans. The guaranteed mortgage pass-through securities in
which the fund may invest include those issued or guaranteed by GNMA or other
entities which securities are backed by the full faith and credit of the United
States.
Certificates for mortgage-backed securities evidence an interest in a
specific pool of mortgages. These certificates are, in most cases, "modified
pass-through" instruments, wherein the issuing agency guarantees the payment of
principal and interest on mortgages underlying the certificates, whether or not
such amounts are collected by the issuer on the underlying mortgages.
The fund may also invest in adjustable rate mortgage securities ("ARMs"),
which are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed rates. ARMs eligible for inclusion in a mortgage
pool generally provide for a fixed initial mortgage interest rate for either the
first three, six, twelve or thirteen scheduled monthly payments. Thereafter, the
interest rates are subject to periodic adjustment based on changes to a
designated benchmark index.
The fund may also invest in collateralized mortgage obligations or "CMOs"
which are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by GNMA, FNMA or
FHLMC Certificates, but also may be collateralized by whole loans or private
mortgage pass-through securities (such collateral collectively hereinafter
referred to as "Mortgage Assets"). Multiclass pass-through securities are equity
interests in a trust composed of Mortgage Assets. Payments of principal of and
interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduled distributions on the
multiclass pass-through securities. CMOs may be issued by agencies or
instrumentalities of the United States government, or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. However, the fund will only invest in CMOs which
are backed by the full faith and credit of the United States.
The fund also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in
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<PAGE>
calculating the stated maturity date or final distribution date of each class,
which, as with other CMO structures, must be retired by its stated maturity date
or final distribution date but may be retired earlier. PAC Bonds generally
require payments of a specified amount of principal on each payment date. PAC
Bonds always are parallel pay CMOs with the required principal payment on such
securities having the highest priority after interest has been paid to all
classes.
For a discussion of the risks of investing in mortgage-backed securities,
see "Risk Considerations and Investment Practices of the Underlying Funds"
below.
DEAN WITTER UTILITIES FUND. The investment objective of this fund is to
provide current income and long-term growth of income and capital. The fund
seeks to achieve its investment objective by investing primarily in equity and
fixed-income securities of companies engaged in the public utilities industry.
The term "public utilities industry" consists of companies engaged in the
manufacture, production, generation, transmission, sale and distribution of gas
and electric energy, as well as companies engaged in the communications field,
including telephone, telegraph, satellite, microwave and other companies
providing communication facilities for the public, but excluding public
broadcasting companies.
The fund invests in both equity securities (common stocks and securities
convertible into common stock) and fixed income securities (bonds and preferred
stock) in the public utilities industry. The fund does not have any set policies
to concentrate within any particular segment of the utilities industry.
Fixed-income securities in which the fund may invest are debt securities and
preferred stocks, which are rated at the time of purchase Baa or better by
Moody's or BBB or better by S&P, or which, if unrated, are deemed to be of
comparable quality by the fund's Trustees. The fund may also purchase equity and
fixed-income securities issued by foreign issuers.
Investments in fixed-income securities rated either BBB by S&P or Baa by
Moody's (the lowest credit ratings designated "investment grade") may have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities with
higher credit ratings. If a fixed-income security held by the fund is rated BBB
or Baa and is subsequently downgraded by a rating agency, the fund will retain
such security in its portfolio until the Investment Manager determines that it
is practicable to sell the security without undue market or tax consequences to
the fund. In the event that such downgraded securities constitute 5% or more of
the fund's total assets, the Investment Manager will sell immediately securities
sufficient to reduce the total to below 5%.
While the fund will invest primarily in the securities of public utility
companies, under ordinary circumstances it may invest up to 35% of its total
assets in U.S. Government securities (securities issued or guaranteed as to
principal and interest by the United States or its agencies and
instrumentalities), money market instruments and repurchase agreements. U.S.
Government securities in which the fund may invest include zero coupon
securities.
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some or all of the fund's securities
holdings. During such periods, the fund may adopt a temporary "defensive"
posture in which greater than 35% of its net assets are invested in cash or
money market instruments.
The fund may invest in securities of foreign companies, may purchase private
placements, zero coupon securities, when, as and if issued securities, may enter
into repurchase agreements, may purchase securities on a when-issued delayed
delivery or forward commitment basis and may lend its portfolio securities. For
a discussion of the risks of investing in these securities, see "Risk
Considera-
41
<PAGE>
tions and Investment Practices of the Underlying Funds" below.
DEAN WITTER VALUE-ADDED MARKET SERIES--EQUITY PORTFOLIO. The investment
objective of the Equity Portfolio, currently this fund's single investment
portfolio, is to achieve a high level of total return on its assets through a
combination of capital appreciation and current income. The fund will seek to
attain the Equity Portfolio's investment objective by investing on an
equally-weighted basis in a diversified portfolio of common stocks of the
companies which are included in the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index"). The S&P 500 Index consists of 500 common stocks
selected by S&P, most of which are listed on the New York Stock Exchange.
Inclusion of a stock in the S&P 500 Index implies no opinion by S&P as to the
quality of the stock as an investment. The S&P 500 Index is determined, composed
and calculated by S&P without regard to the fund. S&P is neither a sponsor of,
nor in any way affiliated with, the fund, and S&P makes no representation or
warranty, express or implied, on the advisability of investing in the fund or as
to the ability of the S&P Index to track general stock market performance, and
S&P disclaims all warranties of merchantability or fitness for a particular
purpose or use with respect to the S&P Index or any data included therein. S&P
has no connection with the fund other than the licensing to the Investment
Manager of the use of the S&P 500 Index in connection with the fund.
The fund invests in the stocks included in the S&P 500 Index on an
equally-weighted basis; that is, to the extent practicable and subject to the
specific investment policies and restrictions described below, an equal portion
of the fund's assets is invested in each of the 500 securities in the S&P 500
Index. This differs from the S&P 500 Index and nearly all other major indexes,
which generally are weighted on a market-capitalization basis. For example, the
50 largest capitalization issuers in the S&P 500 Index represent approximately
45% of the S&P 500 Index. However, in accordance with its investment policies,
the fund will strive to maintain each stock holding equally, so that, subject to
the specific investment policies and investment restrictions described below,
approximately 0.20 of 1% of the fund's total invested assets will be invested in
each of the 500 companies included in the S&P 500 Index. The equal-weighting
technique is based on the Investment Manager's statistical analysis that most
portfolio performance is usually generated by only one-quarter to one-third of
the portfolio. Since there is no certainty that any specific company or industry
selection, even within a broad-based index such as the S&P 500 Index, will
achieve superior performance, the Investment Manager believes equal-weighting
may benefit the fund in seeking to attain its investment objective.
The holdings of the fund will be adjusted by the Investment Manager not less
than quarterly to reflect changes in the fund's asset levels and in the relative
values of the common stocks in the fund's portfolio so that following each
adjustment the value of the fund's investment in each security will be equal to
the extent practicable. In addition, whenever a company is eliminated from or
added to the S&P 500 Index, the fund will sell or purchase the stock of such
company, as the case may be, as soon as practicable. Accordingly, securities may
be purchased and sold by the fund when such purchases and sales would not be
made under traditional investment criteria.
In addition, the Investment Manager may eliminate one or more securities (or
elect not to increase the fund's position in such securities), notwithstanding
the continued listing of such securities in the S&P 500 Index, in the following
circumstances: (a) the stock is no longer publicly traded, such as in the case
of a leveraged buyout or merger; (b) an unexpected adverse development with
respect to a company, such as bankruptcy or insolvency; (c) in the view of the
Investment Manager, there is a high degree of risk with respect to a company
that bankruptcy or insolvency will occur; or (d) in the view of the Investment
Manager, based on its consideration of the price of a company's securities, the
depth of
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the market in those securities and the amount of those securities held or to be
held by the fund, retaining shares of a company or making any additional
purchases would be inadvisable because of liquidity risks. The Investment
Manager will monitor on an ongoing basis all companies falling within any of the
circumstances described in this paragraph, and will return such company's shares
to the fund's portfolio, or recommence purchases, when and if those conditions
cease to exist.
RISK CONSIDERATIONS AND INVESTMENT PRACTICES OF THE UNDERLYING FUNDS
The net asset value of each Portfolio 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. At
times, purchases or redemptions of the Underlying Funds by the Fund could
adversely impact the Underlying Fund. An Underlying Fund may be required to sell
securities at inopportune times in order to meet Fund redemption requests. In
addition, there may be tax consequences associated with sales of securities and
such sales may also increase transaction costs. The Investment Manager will seek
to minimize the impact of allocation decisions on the Underlying Funds and may,
at times, allocate or re-allocate assets in greater or lesser amounts among
funds than it otherwise would have had the Investment Manager not taken such
factors into account. A general description and the risks involved of the
various investment practices and techniques which some or all of the Underlying
Funds (in this section "fund" or "funds") may engage in is set forth below. A
more detailed discussion can be found in this Fund's Statement of Additional
Information as well as in the Prospectus and Statement of Additional Information
of each Underlying Fund.
FOREIGN SECURITIES. Investors should carefully consider the risks of
investing in securities of foreign issuers and securities denominated in
non-U.S. currencies. Fluctuations in the relative rates of exchange between the
currencies of different nations will affect the value of a fund's investments.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of a funds' assets denominated in that currency and
thereby impact upon the fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of a
fund's assets and any effects of foreign social, economic or political
instability. Political and economic developments in Asia may have profound
effects upon the value of a large segment of a fund's portfolio. Foreign
companies are not subject to the regulatory requirements of U.S. companies and,
as such, there may be less publicly available information about such companies.
Moreover, foreign companies are not subject to uniform accounting, auditing and
financial reporting standards and requirements comparable to those applicable to
U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
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settlements of fund trades effected in such markets. Inability to dispose of
portfolio securities due to settlement delays could result in losses to a fund
due to subsequent declines in value of such securities and the inability of the
fund to make intended security purchases due to settlement problems could result
in a failure of the fund to make potentially advantageous investments.
The foreign securities in which the Fund will be investing through its
investments in the Underlying Funds may be issued by issuers located in
developing countries. Compared to the United States and other developed
countries, developing countries may have relatively unstable governments,
economies based on only a few industries, and securities markets which trade a
small number of securities. Prices of these securities tend to be especially
volatile and, in the past, securities in these countries have offered greater
potential for gain (as well as loss) than securities of companies located in
developed countries.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Certain Underlying Funds may
enter into forward foreign currency exchange contracts ("forward contracts") in
connection with their foreign securities investments.
A forward contract involves an obligation to purchase or sell a currency at
a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
A fund may enter into forward contracts as a hedge against fluctuations in
future foreign exchange rates.
A fund will enter into forward contracts under various circumstances. When a
fund enters into a contract for the purchase or sale of a security denominated
in a foreign currency, it may, for example, desire to "lock in" the price of the
security in U.S. dollars or some other foreign currency which the fund is
temporarily holding in its portfolio. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars or other currency, of the
amount of foreign currency involved in the underlying security transactions, the
fund will be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar or other currency
which is being used for the security purchase (by the fund or the counterparty)
and the foreign currency in which the security is denominated during the period
between the date on which the security is purchased or sold and the date on
which payment is made or received.
At other times, when, for example, a fund's Investment Manager or Adviser or
Sub-Adviser believe that the currency of a particular foreign country may suffer
a substantial decline against the U.S. dollar or some other foreign currency,
the fund may enter into a forward contract to sell, for a fixed amount of
dollars or other currency, the amount of foreign currency approximating the
value of some or all of the fund's securities holdings (or securities which the
fund has purchased for its portfolio) denominated in such foreign currency.
Under identical circumstances, a fund may enter into a forward contract to sell,
for a fixed amount of U.S. dollars or other currency, an amount of foreign
currency other than the currency in which the securities to be hedged are
denominated approximating the value of some or all of the portfolio securities
to be hedged. This method of hedging, called "cross-hedging," will be selected
by the Investment Manager or Adviser or Sub-Adviser when it is determined that
the foreign currency in which the portfolio securities are denominated has
insufficient liquidity or is trading at a discount as compared with some other
foreign currency with which it tends to move in tandem.
In addition, when a fund's Investment Manager or Adviser or Sub-Adviser
anticipate purchasing securities at some time in the future, and wishes to lock
in the current exchange rate of the currency in which those securities are
denominated against the U.S. dollar or some other foreign currency, the fund may
enter into a forward contract to purchase an amount of currency equal to some or
all of the value of the anticipated purchase, for a fixed amount of U.S. dollars
or other currency. The fund may,
how-
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ever, close out the forward contract without purchasing the security which was
the subject of the "anticipatory" hedge.
In all of the above circumstances, if the currency in which a fund's
securities holdings (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the fund will have realized fewer gains than had the fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. A fund is not
required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager or Adviser or Sub-Adviser. A fund generally will not
enter into a forward contract with a term of greater than one year, although it
may enter into forward contracts for periods of up to five years. A fund may be
limited in its ability to enter into hedging transactions involving forward
contracts by the Internal Revenue Code requirements relating to qualification as
a regulated investment company.
OPTIONS AND FUTURES TRANSACTIONS. Certain of the Underlying Funds may
purchase and sell (write) call and put options on (i) portfolio securities which
are denominated in either U.S. dollars or foreign currencies; (ii) stock
indexes; and (iii) the U.S. dollar and foreign currencies. Such options are or
may in the future be listed on several U.S. and foreign securities exchanges or
may be traded in over-the-counter transactions ("OTC options"). OTC options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with the fund.
A fund is permitted to write covered call options on portfolio securities
and the U.S. dollar and foreign currencies, without limit, in order to hedge
against the decline in the value of a security or currency in which such
security is denominated (although such hedge is limited to the value of the
premium received) and to close out long call option positions. A fund may write
covered put options, under which the fund incurs an obligation to buy the
security (or currency) underlying the option from the purchaser of the put at
the option's exercise price at any time during the option period, at the
purchaser's election.
A fund may purchase listed and OTC call and put options in amounts equalling
up to 5% of its total assets. A fund may purchase call options to close out a
covered call position or to protect against an increase in the price of a
security it anticipates purchasing or, in the case of call options on a foreign
currency, to hedge against an adverse exchange rate change of the currency in
which the security it anticipates purchasing is denominated vis-a-vis the
currency in which the exercise price is denominated. A fund may purchase put
options on securities which it holds in its portfolio to protect itself against
a decline in the value of the security and to close out written put positions in
a manner similar to call option closing purchase transactions. There are no
other limits on a fund's ability to purchase call and put options other than
compliance with the foregoing policies.
A fund may purchase and sell futures contracts that are currently traded, or
may in the future be traded, on U.S. and foreign commodity exchanges on
underlying portfolio securities, on any currency ("currency" futures), on U.S.
and foreign fixed-income securities ("interest rate" futures) and on such
indexes of U.S. or foreign equity or fixed-income securities as may exist or
come into being ("index" futures). A fund may purchase or sell interest rate
futures contracts for the purpose of hedging some or all of the value of its
portfolio securities (or anticipated portfolio securities) against changes in
prevailing interest rates. A fund may purchase or sell index futures contracts
for the purpose of hedging some or all of its portfolio (or anticipated
portfolio) securities against changes in their prices. A fund
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may purchase or sell currency futures contracts to hedge against an anticipated
rise or decline in the value of the currency in which a portfolio security is
denominated vis-a-vis another currency. As a futures contract purchaser, a 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, a fund incurs an obligation to deliver the
specified amount of the underlying obligation at a specified time in return for
an agreed upon price.
A fund also may purchase and write call and put options on futures contracts
which are traded on an exchange and enter into closing transactions with respect
to such options to terminate an existing position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. A fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. A fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options may generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer. Also,
exchanges may limit the amount by which the price of many futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
Futures contracts and options transactions may be considered speculative in
nature and may involve greater risks than those customarily assumed by other
investment companies which do not invest in such instruments. One such risk is
that the Investment Manager or Adviser or Sub-Adviser could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if a fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the fund would lose money on the sale. Another risk
which will arise in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities, currencies
and indexes subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the U.S. dollar cash
prices of a fund's portfolio securities and their denominated currencies. See
the Statement of Additional Information for a further discussion of these risks.
REPURCHASE AGREEMENTS. Certain Underlying Funds may enter into repurchase
agreements, which may be viewed as a type of secured lending, and which
typically involve the acquisition by a 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, a fund follows procedures to minimize such risks. These procedures
include effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions and maintaining adequate
collateralization.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Certain Underlying Funds
may also use reverse repurchase agreements and dollar rolls as part of their
investment strategy. Reverse repurchase agreements involve sales by a fund of
portfolio assets concurrently with an agreement by that
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fund to repurchase the same assets at a later date at a fixed price. A fund may
enter into dollar rolls in which the fund sells securities and simultaneously
contracts to repurchase substantially similar (same type and coupon) securities
on a specified future date. Reverse repurchase agreements and dollar rolls
involve the risk that the market value of the securities the fund is obligated
to repurchase under the agreement may decline below the repurchase price. In the
event the buyer of securities under a reverse repurchase agreement or dollar
roll files for bankruptcy or becomes insolvent, the fund's use of proceeds of
the agreement may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the fund's obligation to repurchase
the securities. Reverse repurchase agreements and dollar rolls are speculative
techniques involving leverage, and are considered borrowings by a fund.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, certain of the Underlying
Funds may purchase securities on a when-issued or delayed delivery basis or may
purchase or sell securities on a forward commitment basis. When such
transactions are negotiated, the price is fixed at the time of the commitment,
but delivery and payment can take place a month or more after the date of the
commitment. There is no overall limit on the percentage of the fund's assets
which may be committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis. An increase in the percentage of the
fund's assets committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis may increase the volatility of a fund's net
asset value.
WHEN, AS AND IF ISSUED SECURITIES. Certain Underlying Funds may purchase
securities on a "when, as and if issued" basis under which the issuance of the
security depends upon the occurrence of a subsequent event, such as approval of
a merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the fund
will have lost an investment opportunity. There is no overall limit on the
percentage of a fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage of
a fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by certain Underlying Funds may be zero coupon securities. Such securities are
purchased at a discount from their face amount, giving the purchaser the right
to receive their full value at maturity. The interest earned on such securities
is, implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner of
a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as a fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the fund receives no interest payments in cash on the security
during the year.
PRIVATE PLACEMENTS. Certain Underlying Funds may invest up to either 5% or
10% of their total assets in securities which are subject to restrictions on
resale because they have not been registered under the Securities Act of 1933,
as amended
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(the "Securities Act"), or which are otherwise not readily marketable.
(Securities eligible for resale pursuant to Rule 144A under the Securities Act,
and determined to be liquid pursuant to the procedures discussed in the
following paragraph, are not subject to the foregoing restriction.) These
securities are generally referred to as private placements or restricted
securities. Limitations on the resale of such securities may have an adverse
effect on their marketability, and may prevent a fund from disposing of them
promptly at reasonable prices. A fund may have to bear the expense of
registering such securities for resale and the risk of substantial delays in
effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits a fund to sell restricted securities to qualified
institutional buyers without limitation. The Investment Manager, pursuant to
procedures adopted by the Trustees of each Underlying Fund, will make a
determination as to the liquidity of each restricted security purchased by that
fund. If a restricted security is determined to be "liquid," such security will
not be included within the category "illiquid securities," which under current
policy may not exceed 15% of each Underlying Fund's net assets.
CONVERTIBLE SECURITIES. Certain Underlying Funds may acquire, through
purchase or a distribution by the issuer of a security held in its portfolio, a
fixed-income security which is convertible into common stock of the issuer. A
convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, entail less
risk than the corporation's common stock. The value of a convertible security is
a function of its "investment value" (its value as if it did not have a
conversion privilege), and its "conversion value" (the security's worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
A portion of the fixed-income and convertible securities in which certain
Underlying Funds may invest are not rated; when rated, such ratings will
generally be below investment grade. Securities below investment grade are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds."
Investment grade is generally considered to be debt securities rated BBB or
higher by S&P or Baa or higher by Moody's. However, the aforementioned funds
will not invest in debt securities that are in default in payment of principal
or interest.
Because of the special nature of investments in lower rated debt securities,
a fund's Investment Manager or Adviser or Sub-Adviser must take account of
certain special considerations in assessing the risks associated with such
investments. The prices of lower rated securities have been found to be less
sensitive to changes in prevailing interest rates than higher rated investments,
but are likely to be more sensitive to adverse economic changes or individual
corporate developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience
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financial stress which would adversely affect their ability to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. If the issuer of a fixed-income
security owned by a fund defaults, the fund may incur additional expenses to
seek recovery. In addition, periods of economic uncertainty and change can be
expected to result in an increased volatility of market prices of lower rated
securities and a corresponding volatility in the net asset value of a share of a
fund holding such securities.
HIGH YIELD SECURITIES. All fixed-income securities are subject to two types
of risks: the credit risk and the interest rate risk. The credit risk relates to
the ability of the issuer to meet interest or principal payments or both as they
come due. Generally, higher yielding bonds are subject to a credit risk to a
greater extent than higher quality bonds. The interest rate risk refers to the
fluctuations in net asset value of any portfolio of fixed-income securities
resulting solely from the inverse relationship between price and yield of
fixed-income securities; that is, when the general level of interest rates
rises, the prices of outstanding fixed-income securities generally decline, and
when interest rates fall, prices generally rise.
The ratings of fixed-income securities by Moody's and Standard & Poor's are
a generally accepted barometer of credit risk.
Because of the special nature of a fund's investment in high yield
securities, commonly known as junk bonds, the Investment Manager must take
account of certain special considerations in assessing the risks associated with
such investments. Although the growth of the high yield securities market in the
1980s had paralleled a long economic expansion, recently many issuers have been
affected by adverse economic and market conditions. It should be recognized that
an economic downturn or increase in interest rates is likely to have a negative
effect on the high yield bond market and on the value of the high yield
securities held by a fund, as well as on the ability of the securities' issuers
to repay principal and interest on their borrowings.
The prices of high yield securities have been found to be less sensitive to
changes in prevailing interest rates than higher-rated investments, but are
likely to be more sensitive to adverse economic changes or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. If the issuer of a fixed-income security owned by a fund
defaults, the fund may incur additional expenses to seek recovery. In addition,
periods of economic uncertainty and change can be expected to result in an
increased volatility of market prices of high yield securities and a concomitant
volatility in the net asset value of a share of a fund. Moreover, the market
prices of certain of a fund's portfolio securities which are structured as zero
coupon and payment-in-kind securities are affected to a greater extent by
interest rate changes and thereby tend to be more volatile than securities which
pay interest periodically and in cash.
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The limited liquidity of the market
may also adversely affect the ability of a fund's Directors/Trustees to arrive
at a fair value for certain high yield securities at certain times and could
make it difficult for the fund to sell certain securities. In addition, new laws
and potential new laws may have an adverse effect upon the value of high yield
securities and a concomitant negative impact upon the net asset value of a share
of a fund.
MORTGAGE-BACKED SECURITIES. As stated above, a portion of a fund's
investments may be in Mortgage-Backed securities. Mortgage-Backed
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securities are securities that directly or indirectly represent a participation
in, or are secured by and payable from, mortgage loans secured by real property.
The term Mortgage-Backed securities as used herein includes adjustable rate
mortgage securities and derivative mortgage products such as collateralized
mortgage obligations, stripped Mortgage-Backed securities and other products
described below.
There are currently three basic types of Mortgage-Backed securities: (i)
those issued or guaranteed by the United States Government or one of its
agencies or instrumentalities, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC") (securities issued by GNMA, but
not those issued by FNMA or FHLMC, are backed by the "full faith and credit" of
the United States); (ii) those issued by private issuers that represent an
interest in or are collateralized by Mortgage-Backed securities issued or
guaranteed by the United States Government or one of its agencies or
instrumentalities; and (iii) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or Mortgage-Backed
securities without a government guarantee but usually having some form of
private credit enhancement.
Mortgage-Backed securities have certain different characteristics than
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, if a fund purchases such a
security at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Alternatively, if
a fund purchases these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce,
yield to maturity. A fund may invest a portion of its assets in derivative
Mortgage-Backed securities such as Stripped Mortgage-Backed securities which are
highly sensitive to changes in prepayment and interest rates. The Investment
Manager seeks to manage these risks (and potential benefits) by investing in a
variety of such securities and through hedging techniques.
Mortgage-Backed securities, like all fixed income securities, generally
decrease in value as a result of increases in interest rates. In addition,
although generally the value of fixed-income securities increases during periods
of falling interest rates and, as stated above, decreases during periods of
rising interest rates, as a result of prepayments and other factors, this is not
always the case with respect to Mortgage-Backed securities.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by a fund are likely to be greater during a period of
declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Mortgage-Backed
securities generally decrease in value as a result of increases in interest
rates and may benefit less than other fixed-income securities from declining
interest rates because of the risk of prepayment.
There are certain risks associated specifically with CMOs. CMOs issued by
private entities are not U.S. Government securities and are not guaranteed by
any government agency, although the securities underlying a CMO may be subject
to a guarantee. Therefore, if the collateral securing the CMO, as well as any
third party credit support or guarantees, is insufficient to make payment, the
holder could sustain a loss. Also, a number of different factors, including the
extent of prepayment of principal of the Mortgage Assets, affect the
availability of cash for principal payments by the CMO issuer on any
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payment date and, accordingly, affect the timing of principal payments on each
CMO class. In addition, CMO classes with higher yields tend to be more volatile
with respect to cash flow of the underlying mortgages; as a result the market
prices of a yield on these classes tend to be more volatile.
Asset-Backed securities represent the securitization techniques used to
develop Mortgage-Backed securities applied to a broad range of other assets.
Through the use of trusts and special purpose corporations, various types of
assets, primarily automobile and credit card receivables and home equity loans,
are being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a pay-through structure similar to
the CMO structure. Asset-Backed securities involve certain risks that are not
posed by Mortgage-Backed securities, resulting mainly from the fact that
Asset-Backed securities do not usually contain the complete benefit of a
security interest in the related collateral. For example, credit card
receivables generally are unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, including the
bankruptcy laws, some of which may reduce the ability to obtain full payment. In
the case of automobile receivables, due to various legal and economic factors,
proceeds for repossessed collateral may not always be sufficient to support
payments on these securities.
RIGHTS AND WARRANTS. Certain Underlying Funds may acquire rights and/or
warrants which are attached to other securities in its portfolio, or which are
issued as a distribution by the issuer of a security held in its portfolio.
Rights and/or warrants are, in effect, options to purchase equity securities at
a specific price, generally valid for a specific period of time, and have no
voting rights, pay no dividends and have no rights with respect to the
corporation issuing them.
REAL ESTATE INVESTMENT TRUSTS. A fund may invest in real estate investment
trusts which pool investors' funds for investments primarily in commercial real
estate properties. Investment in real estate investment trusts may be the most
practical available means for a fund to invest in the real estate industry (a
fund is prohibited from investing in real estate directly). As a shareholder in
a real estate investment trust, a fund would bear its ratable share of the real
estate investment trust's expenses, including its advisory and administration
fees. At the same time the fund would continue to pay its own investment
management fees and other expenses, as a result of which the fund and its
shareholders in effect will be absorbing duplicate levels of fees with respect
to investments in real estate investment trusts.
OTHER INVESTMENT VEHICLES. Certain Underlying Funds may invest a small
portion of their total assets in securities issued by other investment
companies. Such investments may be necessary in order to participate in certain
foreign markets where foreigners are prohibited from investing directly in the
securities of individual issuers. Each fund will incur any indirect expenses
incurred through investment in an investment company, such as the payment of a
management fee (which may result in the payment of an additional advisory fee).
Furthermore, it should be noted that foreign investment companies are not
subject to the U.S. securities laws and may be subject to fewer or less
stringent regulations than U.S. investment companies.
SECURITIES RECEIPTS. Certain Underlying Funds may also invest in securities
of foreign issuers in the form of American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying securities. EDRs are European
receipts evidencing a similar arrangement. Generally, ADRs, in registered form,
are designed for use in the United States securities markets and EDRs, in
51
<PAGE>
bearer form, are designed for use in European securities markets.
INVESTMENTS IN EUROPEAN SECURITIES. The Dean Witter European Growth Fund
Inc. invests its assets primarily in the securities of European issuers.
Political and economic developments in Europe, especially as they relate to
changes in the structure of the European Economic Community and the anticipated
development of a unified common market, may have profound effects upon the value
of a large segment of that fund's portfolio. Continued progress in the evolution
of, for example, a united European common market may be slowed by unanticipated
political or social events and may, therefore, adversely affect the value of
certain of the securities held in that fund's portfolio. Foreign companies are
not subject to the regulatory requirements of U.S. companies and, as such, there
may be less publicly available information about such companies.
The Dean Witter International SmallCap Fund may invest more than 25% of its
total assets in British issuers and that fund's investment performance may be
affected by social, political and economic events occurring in the United
Kingdom.
SMALL-CAP STOCKS. Certain Underlying Funds invest primarily in small
capitalization foreign or U.S. equity securities. Investing in lesser-known,
smaller capitalized companies may involve greater risk of volatility of a fund's
net asset value than is customarily associated with investing in larger, more
established companies. There is typically less publicly available information
concerning foreign and smaller companies than for domestic and larger, more
established companies. Some small companies have limited product lines,
distribution channels and financial and managerial resources and tend to
concentrate on fewer geographic markets than do larger companies. Also, because
smaller companies normally have fewer shares outstanding than larger companies
and trade less frequently, it may be more difficult for the fund to buy and sell
significant amounts of such shares without an unfavorable impact on prevailing
market prices. Some of the companies in which the fund may invest may
distribute, sell or produce products which have recently been brought to market
and may be dependent on key personnel with varying degrees of experience.
MID-CAP STOCKS. Investing in medium-sized market capitalization companies
may involve greater risk of volatility of a fund's net asset value than is
customarily associated with investing in larger, more established companies.
Often mid-size companies and the industries in which they are focused are still
evolving and while this may offer better growth potential than larger,
established companies it also may make them more sensitive to changing market
conditions. Because prices of stocks, including mid-cap stocks, fluctuate from
day to day, the value of an investment in the Underlying Fund will vary based
upon the Underlying Fund's investment performance.
INVESTMENTS IN ASIAN AND PACIFIC RIM SECURITIES. Dean Witter Pacific Growth
Fund Inc. and Dean Witter International SmallCap Fund may invest all or large
portions of their assets in Asian and Pacific Rim securities. Certain Asian and
Pacific Rim countries may be subject to a greater degree of economic, political
and social instability than is the case in the United States and Western
European countries. Such instability may result from, among other things, the
following: (i) authoritarian governments or military involvement in political
and economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection. Such social, political and economic instability could
disrupt the principal financial markets in which the Underlying Funds invest and
adversely affect the value of the assets of these Underlying Funds.
52
<PAGE>
During the past decade, countries in the Asian region have experienced real
economic growth rates exceeding those experienced by many Western industrialized
countries. Certain economic conditions which presently exist in the Asian region
may offer the potential for long-term capital appreciation from investment in
equity securities of Asian issuers. Among these conditions, are the following:
the increasing industrialization of Asian economies, favorable demographics and
competitive wage rates, high rates of domestic savings available to fund
investment, particularly in the area of infrastructure, the ability to attract
foreign direct investment, the emergence of a regional trading zone and rising
per capita incomes available to support local markets for consumer goods. The
rapid ongoing shift from primary industries into industrial manufacturing has
contributed to high rates of economic activity. Between 1970 and 1991, there was
a significant shift in the percentage of gross domestic product ("GDP")
accounted for by the agricultural sector in these markets and a marked increase
in output by the industrial sector, most markedly in Indonesia, Malaysia and
Thailand. Generally, in the Asian countries there is still potential for further
industrialization so as to reach the levels presently attained by the countries
of the industrialized world.
INVESTMENTS IN JAPANESE SECURITIES. Dean Witter Pacific Growth Fund Inc.,
Dean Witter International SmallCap Fund and Dean Witter Japan Fund all may
invest large portions of their assets in Japanese Securities. The concentration
of assets in Japanese issuers will subject these funds to the risks of adverse
social, political or economic events which occur in Japan. Specifically,
investments in the Japanese stock market may entail a higher degree of risk than
investments in other markets as, by fundamental measures of corporate valuation,
such as its high price-earnings ratios and low dividend yields, the Japanese
market as a whole may appear expensive relative to other world stock markets
(I.E., the prices of Japanese stocks may be relatively high). In addition, the
prices of securities traded on the Japanese markets may be more volatile than
many other markets.
Overall, Japanese securities markets have declined significantly since 1989
which has contributed to a weakness in the Japanese economy and the impact of a
further decline cannot be ascertained. The common stocks of many Japanese
companies continue, as they have historically, to trade at high price-earnings
ratios in comparison with those in the U.S., even after the recent market
decline. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the United States.
The Japanese economy experienced its worst recession since World War II in
the 1990s. While Japan's Economic Planning Agency claims the recession ended in
October 1993, the economy has been largely stagnant since then. In addition,
asset deflation, both financial and in real estate, has exerted a continuous
drag on the economy. The Japanese government has called for a transformation of
the economy away from its high dependency on export-led growth towards greater
stimulation of the domestic economy. The plan calls for direct government
spending on public works and includes measures to support weak land prices and
to revitalize Japan's stagnating financial markets. There is no assurance that
this package, however, will succeed in fueling economic growth. Japan is largely
dependent upon foreign economies for raw materials. International trade is
important to Japan's economy, as exports provide the means to pay for many of
the raw materials it must import. Because of the concentration of Japanese
exports in highly visible products such as automobiles, machine tools and
semiconductors, and the large trade surpluses ensuing therefrom, Japan has
entered a difficult phase in its relations with its trading partners,
particularly with respect to the United States, with whom the trade imbalance is
the greatest. It is possible that differences over trade policy may lead the
U.S. to take actions which may have an adverse effect on the Japanese economy.
53
<PAGE>
INVESTMENTS IN LATIN AMERICAN SECURITIES. The securities markets of Latin
American countries are substantially smaller, less developed, less liquid and
more volatile than the major securities markets in the United States. The
limited size of many Latin American securities markets and limited trading
volume in issuers compared to volume of trading in U.S. securities could cause
prices to be erratic for reasons apart from factors that affect the quality of
the securities. For example, limited market size may cause prices to be unduly
influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on fundamental analysis, may
decrease the value and liquidity of portfolio securities, especially in these
markets.
Latin American companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, Latin American companies are not subject to
uniform accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Also, certain Latin American
countries may impose unusually high withholding taxes on dividends payable to a
fund, thereby effectively reducing the fund's investment income.
In addition, Latin American exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their
American counterparts. Brokerage commissions, dealer concessions, custodial
expenses and other transaction costs may be higher in foreign markets than in
the U.S.
Political and economic developments in Latin America may have profound
effects upon the value of a fund's portfolio. In the event of expropriation,
nationalization or other complication, a fund could lose its entire investment
in any one country. In addition, individual Latin American countries may place
restrictions on the ability of foreign entities such as the fund to invest in
particular segments of the local economies. Certain Latin American countries are
among the largest debtors to commercial banks and foreign governments. At times
certain Latin American countries have declared moratoria on the payment of
principal and/or interest on external debt. Most Latin American countries have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have very negative effects on the economies and securities
markets of certain Latin American countries.
In addition, many of the currencies of Latin American countries have
experienced steady devaluations relative to the U.S. dollar, and major
devaluations have historically occurred in certain countries. Any devaluations
in the currencies in which a fund's portfolio securities are denominated may
have a detrimental impact on a fund. Some Latin American countries also may have
managed currencies which are not free floating against the U.S. dollar. In
addition, there is a risk that certain Latin American countries may restrict the
free conversion of their currencies into other currencies. Further, certain
Latin American currencies may not be internationally traded.
See the Statement of Additional Information for additional information
regarding the risks of the Underlying Funds' investment policies.
PORTFOLIO MANAGEMENT
Each Portfolio of the Fund is managed by the Investment Manager with a view
to achieving the respective Portfolio's investment objective. In determining the
selection of the Underlying Funds for each Portfolio, the Investment Manager
will rely on information from various sources, including research, analysis and
appraisals of brokers and dealers, the views of Trustees of the Fund and others
regarding economic developments and interest rate trends, and the Investment
Manager's own analysis of factors it deems relevant.
Each Portfolio of the Fund will be managed by a separate Committee
consisting of, in each case, the
54
<PAGE>
Chief Investment Officer of the Investment Manager as well as Senior Portfolio
Managers assigned to the respective Committees. The investment activities of the
International Portfolio and the Domestic Portfolio will be directed by the
International Committee and the Domestic Committee, respectively.
Each of the Underlying Funds incurs expenses relating to their portfolio
management which costs include custodial costs, brokerage commissions and other
transaction charges related to investing in foreign securities markets which
costs are generally higher than in the United States.
The portfolio turnover rate for each Portfolio (I.E., the rate at which each
Portfolio buys and sells shares of the Underlying Funds) is expected to be under
100%.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies of the Portfolios. Under
the Investment Company Act of 1940, as amended (the "Act"), a fundamental policy
may not be changed with respect to a Portfolio, without the vote of a majority
of the outstanding voting securities of that Portfolio, 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.
Each Portfolio of the Fund may not:
1. Invest 25% or more of the value of its total
assets in securities of issuers in any one industry except that each Portfolio
will concentrate its investments in the mutual fund industry. This restriction
does not apply to a Portfolio's investments in the mutual fund industry by
virtue of its investments in the Underlying Dean Witter Funds or investment
companies managed by an adviser that is an affiliate of the Investment Manager.
This restriction also does not apply to obligations issued or guaranteed by the
United States Government, its agencies or instrumentalities.
2. Borrow money except a bank for temporary or emergency purposes, including
the meeting of redemption requests in an amount not exceeding 33 1/3% of the
value of each Portfolio's total assets (including the amount borrowed) valued at
market less liabilities (not including the amount borrowed) at the time the
borrowing is made.
Notwithstanding any other investment policy or restriction, each Portfolio
of the Fund may seek to achieve its investment objective by investing all or
substantially all of its assets in another investment company having
substantially the same investment objective and policies as the respective
Portfolio.
UNDERWRITING
- --------------------------------------------------------------------------------
Dean Witter Distributors Inc. (the "Underwriter") has agreed to purchase up
to 10,000,000 shares from the Fund, which number may be increased or decreased
in accordance with the Underwriting Agreement. The initial offering will run
approximately from October 27, 1997 through November 20, 1997. The Underwriting
Agreement provides that the obligation of the Underwriter is subject to certain
conditions precedent and that the Underwriter will be obligated to purchase the
shares on November 25, 1997, or such other date as may be agreed upon by the
Underwriter and the Fund (the "Closing Date"). Shares will not be issued and
dividends will not be declared by the Fund until after the Closing Date. For
this reason, payment is not required to be made prior to the Closing Date. If
any orders received during the initial offering period are accompanied by
payment, such payment will be
55
<PAGE>
returned unless an accompanying request for investment in a Dean Witter money
market fund is received at the time the payment is made. Prospective investors
in money market funds should request and read the money market fund prospectus
prior to investing. All such funds received and invested in a Dean Witter money
market fund will be automatically invested in the Fund on the Closing Date
without any further action by the investor. Any investor may cancel his or her
purchase of Fund shares without penalty at any time prior to the Closing Date.
The Underwriter will purchase Class B, Class C and Class D shares from the
Fund at $10.00 per share with all proceeds going to the Fund and will purchase
Class A shares at $10.00 per share plus a sales charge with the sales charge
paid to the Underwriter and the net asset value of $10.00 per share going to the
Fund. The Underwriter may, however, receive contingent deferred sales charges
from future redemptions of Class A, Class B and Class C shares (see "Purchase of
Fund Shares-- Continuous Offering").
The Underwriter shall, regardless of its expected underwriting commitment,
be entitled and obligated to purchase only the number of shares for which
purchase orders have been received by the Underwriter prior to 2:00 p.m., New
York time, on the third business day preceding the Closing Date, or such other
date as may be agreed to between the parties.
The minimum number of Fund shares which may be purchased by any shareholder
pursuant to this offering is 100 shares. Certificates for shares purchased will
not be issued unless requested by the shareholder in writing.
PURCHASE OF FUND SHARES--CONTINUOUS OFFERING
- --------------------------------------------------------------------------------
GENERAL
Each Portfolio of the Fund offers each class of its shares for sale to the
public on a continuous basis. Pursuant to a Distribution Agreement between the
Fund and Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the
Investment Manager, shares of each Portfolio of the Fund are distributed by the
Distributor and offered by DWR and other dealers which have entered into
agreements with the Distributor ("Selected Broker-Dealers"). The principal
executive office of the Distributor is located at Two World Trade Center, New
York, New York 10048.
Each Portfolio of the Fund offers four classes of shares (each, a "Class").
Class A shares are sold to investors with an initial sales charge that declines
to zero for larger purchases; however, Class A shares sold without an initial
sales charge are subject to a contingent deferred sales charge ("CDSC") of 1.0%
if redeemed within one year of purchase, except for certain specific
circumstances. Class B shares are sold without an initial sales charge but are
subject to a CDSC (scaled down from 5.0% to 1.0%) payable upon most redemptions
within six years after purchase. (Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a CDSC scaled down from 2.0% to
1.0% if redeemed within three years after purchase.) Class C shares are sold
without an initial sales charge but are subject to a CDSC of 1.0% on most
redemptions made within one year after purchase. Class D shares are sold without
an initial sales charge or CDSC and are available only to investors meeting an
initial investment minimum of $5 million, and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the Fund,
Class A shares may be sold to categories of investors in addition to those set
forth in this prospectus at net asset value without a front-end sales charge,
and Class D shares may be sold to certain other categories of investors, in each
case as may be described in the then current prospectus of the Fund. See
"Alternative Purchase Arrangements-- Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
56
<PAGE>
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million or more and to
certain other limited categories of investors. For the purpose of meeting the
minimum $5 million initial investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of the Fund, an investor's
existing holdings of Class A shares of the Fund and other Dean Witter Funds that
are multiple class funds ("Dean Witter Multi-Class Funds") and shares of Dean
Witter Funds sold with a front-end sales charge ("FSC Funds") and concurrent
investments in Class D shares of the Fund and other Dean Witter Multi-Class
Funds will be aggregated. Subsequent purchases of $100 or more may be made by
sending a check, payable to Dean Witter Fund of Funds, directly to Dean Witter
Trust FSB (the "Transfer Agent" or "DWT") at P.O. Box 1040, Jersey City, NJ
07303 or by contacting an account executive of DWR or other Selected
Broker-Dealer. When purchasing shares of the Fund, investors must specify which
Portfolio they wish to invest in and whether the purchase is for Class A, Class
B, Class C or Class D shares. If no Class is specified, the Transfer Agent will
not process the transaction until the proper Class is identified. The minimum
initial purchase, in the case of investments through EasyInvest-SM-, an
automatic purchase plan (see "Shareholder Services"), is $100, provided that the
schedule of automatic investments will result in investments totalling at least
$1,000 within the first twelve months. In the case of investments pursuant to
Systematic Payroll Deduction Plans (including Individual Retirement Plans), the
Fund, in its discretion, may accept investments without regard to any minimum
amounts which would otherwise be required, if the Fund has reason to believe
that additional investments will increase the investment in all accounts under
such Plans to at least $1,000. Certificates for shares purchased will not be
issued unless a request is made by the shareholder in writing to the Transfer
Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. 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 distributions. Sales
personnel of a Selected Broker-Dealer are compensated for selling shares of the
Fund at the time of their sale by the Distributor or any of its affiliates
and/or the Selected Broker-Dealer. In addition, some sales personnel of the
Selected Broker-Dealer will receive various types of non-cash compensation as
special sales incentives, including trips, educational and/or business seminars
and merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Portfolio of the Fund offers several Classes of shares to investors
designed to provide them with the flexibility of selecting an investment best
suited to their needs. The general public is offered three Classes of shares:
Class A shares, Class B shares and Class C shares, which differ principally in
terms of sales charges and rate of expenses to which they are subject. A fourth
Class of shares, Class D shares, is offered only to limited categories of
investors (see "No Load Alternative-- Class D Shares" below).
Each Class A, Class B, Class C or Class D share of each Portfolio of the
Fund represents an identical interest in the respective 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
57
<PAGE>
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 of a Portfolio that are imposed on
Class A, Class B and Class C shares will be imposed directly against those
Classes of that Portfolio and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative--Class A Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified employer-sponsored benefit plans are subject to a CDSC scaled down
from 2.0% to 1.0% if redeemed within three years after purchase.) This CDSC may
be waived for certain redemptions. Class B shares are also subject to an annual
12b-1 fee of 1.0% of the average daily net assets of Class B. The Class B
shares' distribution fee will cause that Class to have higher expenses and pay
lower dividends than Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative--Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares are
sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
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
58
<PAGE>
Class C shares. Moreover, Class A shares are subject to lower ongoing expenses
than are Class B or Class C shares over the term of the investment. As an
alternative, Class B and Class C shares are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund. Any
investment return on these additional investment amounts may partially or wholly
offset the higher annual expenses of these Classes. Because the Fund's future
return cannot be predicted, however, there can be no assurance that this would
be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million minimum investment amount for
Class D shares, holdings of Class A shares in all Dean Witter Multi-Class Funds,
shares of FSC Funds and shares of Dean Witter Funds for which such shares have
been exchanged, will be included together with the current investment amount.
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
<C> <S> <C> <C>
A Maximum 5.25% 0.25% No
initial sales
charge reduced for
purchases of
$25,000 and over;
shares sold
without an initial
sales charge
generally subject
to a 1.0% CDSC
during first year.
B Maximum 5.0% CDSC 1.0% B shares convert
during the first to A shares
year decreasing to automatically
0 after six years after
approximately
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
59
<PAGE>
certain specific circumstances. The CDSC will be assessed on an amount equal to
the lesser of the current market value or the cost of the shares being redeemed.
The CDSC will not be imposed (i) in the circumstances set forth below in the
section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of that
section shall mean one year in the case of Class A shares, and (ii) in the
circumstances identified in the section "Additional Net Asset Value Purchase
Options" below. Class A shares are also subject to an annual 12b-1 fee of up to
0.25% of the average daily net assets of the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF PUBLIC OFFERING PERCENTAGE OF AMOUNT
SINGLE TRANSACTION PRICE 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
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<PAGE>
case shares acquired through reinvestment of dividends and distributions), which
are held at the time of such transaction, amounts to $25,000 or more. If such
investor has a cumulative net asset value of shares of FSC Funds and Class A and
Class D shares equal to at least $5 million, such investor is eligible to
purchase Class D shares subject to the $1,000 minimum initial investment
requirement of that Class of the Fund. See "No Load Alternative-- Class D
Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from DWR or other Selected Broker-Dealers. The cost of Class A shares of the
Fund or shares of other Dean Witter Funds which were previously purchased at a
price including a front-end sales charge during the 90-day period prior to the
date of receipt by the Distributor of the Letter of Intent, or of Class A shares
of the Fund or shares of other Dean Witter Funds acquired in exchange for shares
of such funds purchased during such period at a price including a front-end
sales charge, which are still owned by the shareholder, may also be included in
determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1) trusts for which DWT (an affiliate of the Investment Manager) provides
discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory or administrative services (such
investments are subject to all of the terms and conditions of such programs,
which may include termination fees, mandatory redemption upon termination and
such other circumstances as specified in the programs' agreements, and
restrictions on transferability of Fund shares);
(3) retirement plans qualified under Section 401(k) of the Internal Revenue
Code ("401(k) plans") and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code with at least 200 eligible employees and for
which DWT serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper;
(4) 401(k) plans and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code for which DWT serves as Trustee or the
401(k) Support Services Group of DWR serves as recordkeeper whose Class B shares
have converted to Class A shares, regardless of the plan's asset size or number
of eligible employees;
(5) investors who are clients of a Dean Witter account executive who joined
Dean Witter from another investment firm within six months prior to the date of
purchase of Fund shares by such investors, if the shares are being purchased
with the proceeds from a redemption of shares of an open-end proprietary mutual
fund of the account executive's previous firm which imposed either a front-end
or deferred sales charge, provided such purchase was made within sixty days
after the redemption and the proceeds of the redemption had been maintained in
the interim in cash or a money market fund; and
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<PAGE>
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE
ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain employer-sponsored benefit
plans, three years) preceding the redemption. In addition, Class B shares are
subject to an annual 12b-1 fee of 1.0% of the average daily net assets of Class
B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any CDSC upon redemption.
Shares redeemed earlier than six years after purchase may, however, be subject
to a CDSC which will be a percentage of the dollar amount of shares redeemed and
will be assessed on an amount equal to the lesser of the current market value or
the cost of the shares being redeemed. The size of this percentage will depend
upon how long the shares have been held, as set forth in the following table:
<TABLE>
<CAPTION>
CDSC AS A
YEAR SINCE PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 5.0%
Second................................ 4.0%
Third................................. 3.0%
Fourth................................ 2.0%
Fifth................................. 2.0%
Sixth................................. 1.0%
Seventh and thereafter................ None
</TABLE>
In the case of Class B shares of the Fund held by 401 (k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code for which DWT serves as Trustee or the 401(k) Support Services Group of DWR
serves as recordkeeper and whose accounts are opened on or after July 28, 1997,
shares held for three years or more after purchase (calculated as described in
the paragraph above) will not be subject to any CDSC upon redemption. However,
shares redeemed earlier than three years after purchase may be subject to a CDSC
(calculated as described in the paragraph above), the percentage of which will
depend on how long the shares have been held, as set forth in the following
table:
<TABLE>
<CAPTION>
CDSC AS A
YEAR SINCE PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 2.0%
Second................................ 2.0%
Third................................. 1.0%
Fourth and thereafter................. None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain employer-sponsored benefit plans, three
years) preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption; and
(iii) the current net asset value of shares purchased
62
<PAGE>
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of other open-end investment companies for which
InterCapital serves as investment manager (collectively, with the Fund, the
"Dean Witter Funds") sold with a front-end sales charge or of other Dean Witter
Funds acquired in exchange for such shares. Moreover, in determining whether a
CDSC is applicable it will be assumed that amounts described in (i), (ii) and
(iii) above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2); (B) dis
tributions from an IRA or 403(b) Custodial Account following attainment of age
59 1/2; or (C) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
401(k) plan or other employer-sponsored plan qualified under Section 401(a) of
the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which DWT serves as Trustee or the
401(k) Support Services Group of DWR serves as recordkeeper ("Eligible Plan"),
provided that either: (A) the plan continues to be an Eligible Plan after the
redemption; or (B) the redemption is in connection with the complete
termination of the plan involving the distribution of all plan assets to
participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
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
inves-
63
<PAGE>
tors meeting an initial investment minimum of $5 million and the following
categories of investors: (i) investors participating in the InterCapital mutual
fund asset allocation program pursuant to which such persons pay an asset based
fee; (ii) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory or administrative services (subject to all
of the terms and conditions of such programs referred to in (i) and (ii) above,
which may include termination fees, mandatory redemption upon termination and
such other circumstances as specified in the programs' agreements, and
restrictions on transferability of Fund shares); (iii) 401(k) plans established
by DWR and SPS Transaction Services, Inc. (an affiliate of DWR) for their
employees; (iv) certain Unit Investment Trusts sponsored by DWR; (v) certain
other open-end investment companies whose shares are distributed by the
Distributor; and (vi) other categories of investors, at the discretion of the
Board, as disclosed in the then current prospectus of the Fund. Investors who
require a $5 million minimum initial investment to qualify to purchase Class D
shares may satisfy that requirement by investing that amount in a single
transaction in Class D shares of the Fund and other Dean Witter Multi-Class
Funds, subject to the $1,000 minimum initial investment required for that Class
of the Fund. In addition, for the purpose of meeting the $5 million minimum
investment amount, holdings of Class A shares in all Dean Witter Multi-Class
Funds, shares of FSC Funds and shares of Dean Witter Funds for which such shares
have been exchanged will be included together with the current investment
amount. If a shareholder redeems Class A shares and purchases Class D shares,
such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act with respect to the distribution of Class A, Class B and Class C shares of
each Portfolio of the Fund. In the case of Class A and Class C shares, the Plan
provides that the Fund will, on behalf of each Portfolio, 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 each Portfolio of 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, on behalf of each Portfolio, 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 each Portfolio of 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
64
<PAGE>
would be in the form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of each Portfolio of the Fund may be in excess of
the total of (i) the payments made by a Portfolio of the Fund pursuant to the
Plan, and (ii) the proceeds of CDSCs paid by investors upon the redemption of
Class B shares of that Portfolio. 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. Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses or any requirement that the Plan be
continued from year to year, such excess amount does not constitute a liability
of that Portfolio of the Fund. Although there is no legal obligation for a
Portfolio of 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 of any Portfolio, 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 a Portfolio of the Fund through payments in any subsequent year,
except that expenses representing a gross sales commission credited to account
executives at the time of sale may be reimbursed in the subsequent calendar
year. No interest or other financing charges will be incurred on any Class A or
Class C distribution expenses incurred by the Distributor under the Plan or on
any unreimbursed expenses due to the Distributor pursuant to the Plan.
Each Portfolio of the Fund will invest in the Class D or no load shares of
the Underlying Funds and accordingly will not pay any sales load or 12b-1
service or distribution fees in connection with its investments in shares of the
Underlying Funds.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio 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 each Portfolio of the Fund, dividing
by the respective number of shares outstanding and adjusting to the nearest
cent. The assets of each Portfolio, 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 of each Portfolio, 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.
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 each respective Portfolio of the Fund (or, if
specified by the shareholder in shares of any other open-end "Dean Witter
Fund"), unless the shareholder requests that they be paid in cash. Shares so
acquired are acquired at net asset value and are not subject to the imposition
of a front-end sales charge or a CDSC (see "Redemptions and Repurchases").
INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital
65
<PAGE>
gains distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the proceeds to the Transfer
Agent within thirty days after the payment date. Shares so acquired are acquired
at net asset value are not subject to the imposition of a front-end sales charge
or a CDSC (see "Redemptions and Repurchases").
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of 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 dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable CDSC
will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase of
Fund Shares"). Therefore, any shareholder participating in the Withdrawal Plan
will have sufficient shares redeemed from his or her account so that the
proceeds (net of any applicable CDSC) to the shareholder will be the designated
monthly or quarterly amount.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Each withdrawal constitutes a
redemption of shares and any gain or loss realized must be recognized for
federal income tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other Selected Dealer
account executive or the Transfer Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Dean Witter Multi-Class Fund without the imposition of any exchange fee.
Shares may also be exchanged for shares of the following funds: Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust
and five Dean Witter funds which are money market funds (the "Exchange Funds").
Class A shares may also be exchanged for shares of Dean Witter Multi-State
Municipal Series Trust and Dean Witter Hawaii Municipal Trust, which are Dean
Witter Funds sold with a front-end sales charge ("FSC Funds"). Class B shares
may also be exchanged for shares of Dean Witter Global Short-Term Income Fund
Inc., Dean Witter High Income Securities and Dean Witter National Municipal
Trust, which are Dean Witter Funds offered with a CDSC ("CDSC Funds"). Exchanges
may be made after the shares of the Fund acquired by purchase (not by exchange
or dividend reinvestment) have been held for thirty days. There is no waiting
period for exchanges of shares acquired by exchange or dividend reinvestment.
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<PAGE>
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, any CDSC
Fund or any Exchange Fund that is not a money market fund is on the basis of the
next calculated net asset value per share of each fund after the exchange order
is received. When exchanging into a money market fund from the Fund, shares of
the Fund are redeemed out of the Fund at their next calculated net asset value
and the proceeds of the redemption are used to purchase shares of the money
market fund at the net asset value determined the following business day.
Subsequent exchanges between any of the Dean Witter Multi-Class Funds, FSC Funds
or CDSC Funds or any Exchange Fund that is not a money market fund can be
effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a Dean Witter Multi-Class
Fund or shares of a CDSC Fund, the holding period previously frozen when the
first exchange was made resumes on the last day of the month in which shares of
a Dean Witter Multi-Class Fund or shares of a CDSC Fund are reacquired. Thus,
the CDSC is based upon the time (calculated as described above) the shareholder
was invested in shares of a Dean Witter Multi-Class Fund or in shares of a CDSC
Fund (see "Purchase of Fund Shares"). In the case of exchanges of Class A shares
which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in shares of a FSC
Fund. In the case of shares exchanged into an Exchange Fund on or after April
23, 1990, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount equal
to the Exchange Fund 12b-1 distribution fees incurred on or after that date
which are attributable to those shares. (Exchange Fund 12b-1 distribution fees
are described in the prospectuses for those funds.) Class B shares of the Fund
acquired in exchange for Class B shares of another Dean Witter Multi-Class Fund
or shares of a CDSC Fund having a different CDSC schedule than that of this Fund
will be subject to the higher CDSC schedule, even if such shares are
subsequently re-exchanged for shares of the fund with the lower CDSC schedule.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders and,
at the Investment Manager's discretion, may be limited by the Fund's refusal to
accept additional purchases and/ or exchanges from the investor. Although the
Fund does not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive and contrary to the best interests of
the Fund and its other shareholders, investors should be aware that the Fund and
each of the other Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice of the shareholder not later than ten days following such
shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Dean Witter
Funds for which shares of the Fund have been exchanged, upon such notice as may
be required by applicable regulatory agencies. Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on exchange of shares of the Fund
pledged in the margin account.
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<PAGE>
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement of
each Class of Shares and any other conditions imposed by each fund. In the case
of any shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. An exchange will be
treated for federal income tax purposes the same as a repurchase or redemption
of shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization Form,
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made in writing or
by contacting the Transfer Agent at (800) 869-NEWS (toll free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the experience with the Dean
Witter Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
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REDEMPTION. Shares of each Class of each Portfolio of the Fund can be
redeemed for cash at any time at the net asset value per share next determined
less the amount of any applicable CDSC in the case of Class A, Class B or Class
C shares (see "Purchase of Fund Shares"). If shares are held in a shareholder's
account without a share certificate, a written request for redemption sent to
the Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder(s), the shares may be redeemed by
surrendering the certificates with a written request for redemption, along with
any additional information required by the Transfer Agent.
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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 next computed (see "Purchase of Fund Shares") after
such repurchase order is received by DWR or other Selected Broker-Dealer,
reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by either the Fund, the
Distributor or DWR or other Selected Broker-Dealer. The offer by DWR and other
Selected Broker-Dealers to repurchase shares may be suspended without notice by
the Distributor at any time. In that event, shareholders may redeem their shares
through the Fund's Transfer Agent as set forth above under "Redemption."
The Fund is not subject to any contingent deferred sales charges at any time
with respect to its investments in the Underlying Funds.
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 and Portfolio from which such shares were
redeemed or repurchased at their net asset value next determined after a
reinstatement request, together with the proceeds, is received by the Transfer
Agent and receive a pro rata credit for any CDSC paid in connection with such
redemption or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, on sixty
days' notice and at net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100 or such lesser amount as may
be fixed by the Trustees or, in the case of an account opened through
EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account. However, before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares is less than the applicable amount and allow him or her sixty days
to make an additional investment in an amount which will increase the value of
his or her account to at least the applicable amount before the redemption is
processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS. Each Portfolio of the Fund intends to
distribute substantially all of its net investment income and distribute capital
gains, if any, at least once each year. Each Portfolio may,
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however, determine either to distribute or to retain all or part of any
long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends and/or distributions be paid in cash. Shares acquired
by dividend and distribution reinvestments will not be subject to any front-end
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. Distributions paid on Class A and Class D shares will be higher than
for Class B and Class C shares because distribution fees paid by Class B and
Class C shares are higher. (See "Shareholder Services--Automatic Investment of
Dividends and Distributions.")
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise qualify as
a regulated investment company under Subchapter M of the Internal Revenue Code,
it is not expected that the Fund will be required to pay any Federal income tax
on any such income and capital gains. Shareholders will normally have to pay
Federal income taxes, and any state and local income taxes, on the dividends and
distributions they receive from the Fund. 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 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.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes.
To avoid being subject to a 31% Federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
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From time to time each Portfolio of 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 the life of the Fund, if less than any of the foregoing.
Average annual total return reflects all income earned by the Fund, any
appreciation or depreciation of the Fund's assets, all expenses incurred by the
applicable Class and all sales charges which will be incurred by shareholders,
for the stated periods. It also assumes reinvestment of all dividends and
distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average, and
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected,
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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
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VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges except that
each Class of each Portfolio 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 of each Portfolio bear the expenses related to the
distribution of their respective shares.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, in the opinion of Massachusetts
counsel to the Fund, the risk to shareholders of personal liability is remote.
CODE OF ETHICS. Directors, officers and employees of the Investment
Manager, Dean Witter Services Company Inc. and the Distributor are subject to a
strict Code of Ethics adopted by those companies. The Code of Ethics is intended
to ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from a
person's employment activities and that actual and potential conflicts of
interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an advance
clearance process to monitor that no Dean Witter Fund is engaged at the same
time in a purchase or sale of the same security. The Code of Ethics bans the
purchase of securities in an initial public offering, and also prohibits
engaging in futures and options transactions and profiting on short-term trading
(that is, a purchase within sixty days of a sale or a sale within sixty days of
a purchase) of a security. In addition, investment personnel may not purchase or
sell a security for their personal account within thirty days before or after
any transaction in any Dean Witter Fund managed by them. Any violations of the
Code of Ethics are subject to sanctions, including reprimand, demotion or
suspension or termination of employment. The Code of Ethics comports with
regulatory requirements and the recommendations in the 1994
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report by the Investment Company Institute Advisory Group on Personal Investing.
MASTER/FEEDER CONVERSION. Each Portfolio of 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 respective Portfolio.
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.
The Investment Manager provided the initial capital for the Fund by
purchasing 1,250 shares each of Class A, Class B, Class C and Class D of each
Portfolio for $12,500, respectively, on July 28, 1997. As of the date of this
Prospectus, the Investment Manager owned 100% of the outstanding shares of the
Fund. The Investment Manager may be deemed to control the Fund until such time
as it owns less than 25% of the outstanding shares of the Fund.
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Dean Witter
Fund of Funds
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Manuel N. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
DEAN WITTER
FUND OF FUNDS
[GRAPHIC]
PROSPECTUS -- OCTOBER 3, 1997
