<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1997
REGISTRATION NO. 333-30769
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
----------------
DEAN WITTER HIGH YIELD SECURITIES INC.
(Exact Name of Registrant as Specified in Charter)
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(Address of Principal Executive Offices)
212-392-2550
(Registrant's Telephone Number)
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(Name and Address of Agent for Service)
COPY TO:
STUART M. STRAUSS, ESQ.
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The Exhibit Index is located on page [ ]
No filing fee is due because the Registrant has previously registered an
indefinite number of shares pursuant to Section (a)(1) of Rule 24f-2 under
the Investment Company Act of 1940, as amended. The Registrant filed the Rule
24f-2 Notice, for its fiscal year ended August 31, 1996, with the Securities
and Exchange Commission on October 4, 1996.
Pursuant to Rule 429, this Registration Statement relates to shares
previously registered by the Registrant on Form N-1A (Registration Nos.
2-64782; 811-2932).
<PAGE>
FORM N-14
DEAN WITTER HIGH YIELD SECURITIES INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PART A OF FORM N-14
ITEM NO. PROXY STATEMENT AND PROSPECTUS HEADING
- ----------------------- ---------------------------------------------------------
<S> <C>
1(a) Cross Reference Sheet
(b) Front Cover Page
(c) *
2(a) *
(b) Table of Contents
3(a) Fee Table
(b) Synopsis
(c) Principal Risk Factors
4(a) The Reorganization
(b) The Reorganization--Capitalization Table (Unaudited)
5(a) Registrant's Prospectus
(b) *
(c) *
(d) *
(e) Available Information
(f) Available Information
6(a) Prospectus of Dean Witter High Income Securities
(b) Available Information
(c) *
(d) *
7(a) Introduction--Proxies
(b) *
(c) Introduction; The Reorganization--Appraisal Rights
8(a) The Reorganization
(b) *
9 *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B OF FORM N-14
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ----------------------- ------------------------------------------------------------------------------
<S> <C>
10(a) Cover Page
(b) *
11 Table of Contents
12(a) Additional Information about Dean Witter High Yield Securities Inc.
(b) *
(c) *
13(a) Additional Information about Dean Witter High Income Securities
(b) *
(c) *
14 Registrant's Annual Report for the fiscal year ended August 31, 1996 and
Registrant's Semi-Annual Report for the six month period ended February 28,
1997; Dean Witter High Income Securities' Annual Report for the fiscal year
ended March 31, 1997.
</TABLE>
<TABLE>
<CAPTION>
PART C OF FORM N-14
ITEM NO. OTHER INFORMATION HEADING
- ----------------------- -----------------------------
<S> <C>
15 Indemnification
16 Exhibits
17 Undertakings
</TABLE>
- ------------
* Not Applicable or negative answer
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 21, 1997
TO THE SHAREHOLDERS OF DEAN WITTER HIGH INCOME SECURITIES:
Notice is hereby given of a Special Meeting of the Shareholders of Dean
Witter High Income Securities ("High Income") to be held at the Conference
Room, 44th Floor, Two World Trade Center, New York, New York 10048, at 9:00
A.M., New York time, on October 24, 1997, and any adjournments thereof (the
"Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization,
dated June 30, 1997 (the "Reorganization Agreement"), between High
Income and Dean Witter High Yield Securities Inc. ("High Yield"),
pursuant to which substantially all of the assets of High Income would
be combined with those of High Yield and shareholders of High Income
would become shareholders of High Yield receiving Class B shares of
High Yield with a value equal to the value of their holdings in High
Income (the "Reorganization"); and
2. To act upon such other matters as may properly come before the
Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is
attached as Exhibit A thereto. Shareholders of record at the close of
business on , 1997 are entitled to notice of, and to vote at, the
Meeting. Please read the Proxy Statement and Prospectus carefully before
telling us, through your proxy or in person, how you wish your shares to be
voted. The Board of Trustees of High Income recommends you vote in favor of
the Reorganization. WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY
PROMPTLY.
By Order of the Board of Trustees,
Barry Fink,
Secretary
August , 1997
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE TO
BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY IN
ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE ENCLOSED
ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(212) 392-2550
ACQUISITION OF THE ASSETS OF
DEAN WITTER HIGH INCOME SECURITIES
BY AND IN EXCHANGE FOR SHARES OF
DEAN WITTER HIGH YIELD SECURITIES INC.
This Proxy Statement and Prospectus is being furnished to shareholders of
Dean Witter High Income Securities ("High Income") in connection with an
Agreement and Plan of Reorganization, dated June 30, 1997 (the
"Reorganization Agreement"), pursuant to which substantially all the assets
of High Income will be combined with those of Dean Witter High Yield
Securities Inc. ("High Yield") in exchange for shares of High Yield. As a
result of this transaction, shareholders of High Income will become
shareholders of High Yield and will receive Class B shares of High Yield with
a value equal to the value of their holdings in High Income. The terms and
conditions of this transaction are more fully described in this Proxy
Statement and Prospectus and in the Reorganization Agreement between High
Income and High Yield, attached hereto as Exhibit A. The address of High
Income is that of High Yield set forth above. This Proxy Statement also
constitutes a Prospectus of High Yield, which is dated, , 1997, filed
by High Yield with the Securities and Exchange Commission (the "Commission")
as part of its Registration Statement on Form N-14 (the "Registration
Statement").
High Yield is an open-end diversified management investment company whose
primary investment objective is to provide a high level of current income. As
a secondary objective, High Yield seeks capital appreciation, but only when
consistent with its primary objective. High Yield seeks high current income
by investing principally in fixed-income securities which are rated in the
lower categories by established rating services (Baa or lower by Moody's
Investors Service, Inc. or BBB or lower by Standard & Poor's Corporation) or
are non-rated securities of comparable quality. Such securities are commonly
known as "junk bonds."
This Proxy Statement and Prospectus sets forth concisely information about
High Yield that shareholders of High Income should know before voting on the
Reorganization Agreement. A copy of the Prospectus for High Yield, dated July
28, 1997, is attached as Exhibit B and is incorporated herein by reference.
Also enclosed and incorporated herein by reference is High Yield's Annual
Report for the fiscal year ended August 31,1996 and the succeeding
Semi-Annual Report for the six months ended February 28, 1997. A Statement of
Additional Information relating to the Reorganization, described in this
Proxy Statement and Prospectus (the "Additional Statement"), dated August ,
1997, has been filed with the Commission and is also incorporated herein by
reference. Also incorporated herein by reference are High Income's Prospectus
dated June 16, 1997, and High Income's Annual Report for its fiscal year
ended March 31, 1997. Such documents are available without charge by calling
(212) 392-2550 or (800) 526-3143 (TOLL FREE).
Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.
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
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement and Prospectus is dated August , 1997.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INTRODUCTION .................................................................................. 1
General .................................................................................... 1
Record Date; Share Information ............................................................. 1
Proxies .................................................................................... 2
Expenses of Solicitation ................................................................... 2
Vote Required .............................................................................. 3
SYNOPSIS ...................................................................................... 4
The Reorganization ......................................................................... 4
Fee Table .................................................................................. 4
Tax Consequences of the Reorganization ..................................................... 7
Comparison of High Income and High Yield ................................................... 7
PRINCIPAL RISK FACTORS ........................................................................ 10
THE REORGANIZATION ............................................................................ 10
The Proposal ............................................................................... 10
The Board's Consideration .................................................................. 10
The Reorganization Agreement ............................................................... 12
Tax Aspects of the Reorganization .......................................................... 14
Description of Shares ...................................................................... 15
Capitalization Table (unaudited) ........................................................... 15
Appraisal Rights ........................................................................... 16
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS ................................ 16
Investment Objectives and Policies ......................................................... 16
Investment Restrictions .................................................................... 17
ADDITIONAL INFORMATION ABOUT HIGH INCOME AND HIGH YIELD ....................................... 18
General .................................................................................... 18
Financial Information ...................................................................... 18
Management ................................................................................. 18
Description of Securities and Shareholder Inquiries ........................................ 18
Dividends, Distributions and Taxes ......................................................... 18
Purchases, Repurchases and Redemptions ..................................................... 18
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ................................................... 19
FINANCIAL STATEMENTS AND EXPERTS .............................................................. 19
LEGAL MATTERS ................................................................................. 19
AVAILABLE INFORMATION ......................................................................... 19
OTHER BUSINESS ................................................................................ 20
Exhibit A--Agreement and Plan of Reorganization, dated as of June 30, 1997, by and between
Dean Witter High Income Securities and Dean Witter High Yield Securities Inc. ............... A-1
</TABLE>
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
PROXY STATEMENT AND PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 21, 1997
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of Dean Witter High Income Securities ("High Income"), an open-end
diversified management investment company, in connection with the
solicitation by the Board of Trustees of High Income (the "Board") of proxies
to be used at the Special Meeting of Shareholders of High Income to be held
at the Conference Room, 44th Floor, Two World Trade Center, New York, New
York 10048 at 9:00 A.M., New York time, on October 24, 1997, and any
adjournments thereof (the "Meeting"). It is expected that the mailing of this
Proxy Statement and Prospectus will be made on or about August , 1997.
At the Meeting, High Income shareholders ("Shareholders") will consider
and vote upon an Agreement and Plan of Reorganization, dated June 30, 1997
(the "Reorganization Agreement"), between High Income and Dean Witter
HighYield Securities Inc. ("High Yield") pursuant to which substantially all
of the assets of High Income will be combined with those of High Yield in
exchange for shares of High Yield. As a result of this transaction,
Shareholders will become shareholders of High Yield and will receive Class B
shares of High Yield equal to the value of their holdings in High Income on
the date of such transaction (the "Reorganization"). The shares to be issued
by High Yield pursuant to the Reorganization will be Class B shares of High
Yield which will be issued at net asset value without an initial sales charge
(the "High Yield Shares"). Further information relating to High Yield, its
Class B shares as well as the other three classes of shares (each, a "Class"
and collectively, the "Classes") offered by High Yield, is set forth herein
and in High Yield's current Prospectus, dated July 28, 1997 ("High Yield's
Prospectus"), attached to this Proxy Statement and Prospectus and
incorporated herein by reference.
The information concerning High Income contained herein has been supplied
by High Income and the information concerning High Yield contained herein has
been supplied by High Yield.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on , 1997 as the record
date (the "Record Date") for the determination of the Shareholders entitled
to notice of, and to vote at, the Meeting. As of the Record Date, there were
shares of High Income issued and outstanding. Shareholders on the Record
Date are entitled to one vote per share on each matter submitted to a vote at
the Meeting. A majority of the outstanding shares entitled to vote,
represented in person or by proxy, will constitute a quorum at the Meeting.
<PAGE>
[To the knowledge of the Board, as of the Record Date, no person owned of
record or beneficially 5% or more of the outstanding shares of High Income.]
[As of the Record Date, the trustees and officers of High Income, as a group,
owned less than 1% of the outstanding shares of High Income.]
[To the knowledge of High Yield's Board of Directors, as of the Record
Date, no person owned of record or beneficially 5% or more of the outstanding
shares of High Yield. As of the Record Date, the directors and officers of
High Yield, as a group, owned less than 1% of the outstanding shares of High
Yield.]
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be
voted in favor of the Reorganization Agreement unless a choice is indicated
to vote against or to abstain from voting on the Reorganization Agreement.
The Board knows of no business, other than that set forth in the Notice of
Special Meeting of Shareholders, to be presented for consideration at the
Meeting. However, the proxy confers discretionary authority upon the persons
named therein to vote as they determine on other business, not currently
contemplated, which may come before the Meeting. Abstentions and, if
applicable, broker "non-votes" will not count as votes in favor of the
Reorganization Agreement, and broker "non-votes" will not be deemed to be
present at the meeting for purposes of determining whether the Reorganization
Agreement has been approved. Broker "non-votes" are shares held in street
name for which the broker indicates that instructions have not been received
from the beneficial owners or other persons entitled to vote and for which
the broker does not have discretionary voting authority. The proxy may be
revoked at any time prior to the voting thereof by: (i) delivering written
notice of revocation to the Secretary of High Income at Two World Trade
Center, New York, New York 10048; (ii) attending the Meeting and voting in
person; or (iii) signing and returning a new proxy (if returned and received
in time to be voted). Attendance at the Meeting will not in and of itself
revoke a proxy.
In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more
adjournments of the Meeting for a total of not more than 90 days in the
aggregate from the Record Date to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of the holders of a
majority of High Income's shares present in person or by proxy at the
Meeting. The persons named as proxies will vote in favor of such adjournment
those proxies which they are entitled to vote in favor of the Reorganization
Agreement and will vote against any such adjournment those proxies required
to be voted against the Reorganization Agreement.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by Dean Witter
InterCapital Inc. (the "Investment Manager" or "InterCapital"). In addition
to the solicitation of proxies by mail, proxies may be solicited by officers
and regular employees or certain affiliates of High Income, including
InterCapital and/or Dean Witter Trust Company ("DWTC"), without compensation
other than regular compensation, personally or by mail, telephone, telegraph
or otherwise. Brokerage houses, banks and other fiduciaries may be requested
to forward soliciting material to the beneficial owners of shares and to
obtain authorization for the execution of proxies.
2
<PAGE>
DWTC may call Shareholders to ask if they would be willing to have their
votes recorded by telephone. The telephone voting procedure is designed to
authenticate Shareholders' identities, to allow Shareholders to authorize the
voting of their shares in accordance with their instructions and to confirm
that their instructions have been recorded properly. No recommendation will
be made as to how a Shareholder should vote on the Reorganization Agreement
other than to refer to the recommendation of the Board. High Income has been
advised by counsel that these procedures are consistent with the requirements
of applicable law. Shareholders voting by telephone will be asked for their
social security number or other identifying information and will be given an
opportunity to authorize proxies to vote their shares in accordance with
their instructions. To ensure that the Shareholders' instructions have been
recorded correctly they will receive a confirmation of their instructions in
the mail. A special toll-free number will be available in case the
information contained in the confirmation is incorrect. Although a
Shareholder's vote may be taken by telephone, each Shareholder will receive a
copy of this Prospectus and Proxy Statement and may vote by mail using the
enclosed proxy card.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (i.e., more than 50%) of the outstanding
shares of High Income represented in person or by proxy and entitled to vote
at the Meeting, provided a quorum is present at the Meeting. If the
Reorganization Agreement is not approved by Shareholders, High Income will
continue in existence and the Board will consider alternative actions.
3
<PAGE>
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. This
synopsis is only a summary and is qualified in its entirety by the more
detailed information contained or incorporated by reference in this Proxy
Statement and Prospectus and the Reorganization Agreement. Shareholders should
carefully review this Proxy Statement and Prospectus and the Reorganization
Agreement in their entirety and, in particular, High Yield's Prospectus, which
is attached to this Proxy Statement and incorporated herein by reference.
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially
all the assets of High Income, subject to stated liabilities, to High Yield
in exchange for the High Yield Shares. The aggregate net asset value of the
High Yield Shares issued in the exchange will equal the aggregate value of
the net assets of High Income received by High Yield. On or after the closing
date scheduled for the Reorganization (the "Closing Date"), High Income will
distribute the High Yield Shares received by High Income to Shareholders as
of the Valuation Date (as defined below under "The Reorganization Agreement")
in complete liquidation of High Income and High Income will thereafter be
dissolved and deregistered under the Investment Company Act of 1940, as
amended (the "1940 Act"). As a result of the Reorganization, each Shareholder
will receive that number of full and fractional High Yield Shares equal in
value to such Shareholder's pro rata interest in the net assets transferred
to High Yield. Shareholders holding certificates representing their shares
will not be required to surrender their certificates in connection with the
Reorganization. However, such Shareholders will have to surrender such
certificates in order to receive certificates representing High Yield Shares
or to redeem, transfer or exchange the High Yield Shares received. The Board
has determined that the interests of Shareholders will not be diluted as a
result of the Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION --THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED
PERSONS" OF HIGH INCOME ("INDEPENDENT TRUSTEES"), AS THAT TERM IS DEFINED IN
THE 1940 ACT, HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST INTERESTS
OF HIGH INCOME AND ITS SHAREHOLDERS AND RECOMMENDS APPROVAL OF THE
REORGANIZATION AGREEMENT.
FEE TABLE
High Income and High Yield each pay expenses for management of their
assets, distribution of their shares and other services, and those expenses
are reflected in the net asset value per share of each such fund. The
following table illustrates expenses and fees that a Shareholder incurred
during High Income's fiscal year ended March 31, 1997. On July 28, 1997, High
Yield began offering its shares in multiple classes, each with different
distribution arrangements and sales charges. Class B shares of High Yield
will be issued to High Income Shareholders in connection with the
Reorganization. Accordingly, expenses of High Yield that are set forth in the
table are for the fiscal year ended August 31, 1996 but they have been
restated to reflect the fees and expenses applicable to Class B shares
("Class B Fees and Expenses"). The table below also sets forth pro forma fees
for the surviving combined fund (High Yield) reflecting what the fee schedule
would have been at March 31, 1997, if the Reorganization had been consummated
twelve (12) months prior to that date and assuming Class B Fees and Expenses.
Further information on the fees
4
<PAGE>
and expenses applicable to High Yield's Class B shares as well as the other
three classes of High Yield shares is set forth herein and in High Yield's
Prospectus, attached hereto and incorporated herein by reference.
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
PRO FORMA
HIGH INCOME HIGH YIELD COMBINED
--------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ..... None None(1) None(1)
Maximum Sales Charge Imposed on Reinvested
Dividends................................. None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of the lesser
of original purchase price or
redemption proceeds) ..................... 4.00% during the 5.00% during the 5.00% during the
first year scaled first year scaled first year scaled
down to 0 after down annually to down annually to
sixth year 1.00% during the 1.00% during the
sixth year, reaching sixth year, reaching
zero thereafter(2) zero thereafter(3)
Redemption Fees ........................... None None None
Exchange Fee .............................. None None None
</TABLE>
Annual Fund Operating Expenses As a Percentage of Average Net Assets
<TABLE>
<CAPTION>
PRO FORMA
HIGH INCOME HIGH YIELD COMBINED
-------------- -------------- -------------
<S> <C> <C> <C>
Management and Advisory Fees ..... 0.47% 0.50% 0.43%(4)
12b-1 Fees(5) ..................... 0.80% 0.75%(6) 0.75%(6)
Other Expenses .................... 0.12% 0.16% 0.12%
-------------- -------------- -------------
Total Fund Operating Expenses .... 1.39% 1.41% 1.30%
</TABLE>
- ------------
1 During High Yield's fiscal year ended August 31, 1996, shares of High
Yield were sold exclusively with a front-end sales charge, the
maximum rate of which was 5.50% of the offering price. On July 28,
1997, however, High Yield began offering four Classes of shares.
Classes B, C and D are sold without a front-end sales charge; Class A
shares are sold with a maximum front-end charge of 4.25%.
2 During High Yield's fiscal year ended August 31, 1996, there were no
CDSCs imposed upon redemptions and/or repurchases of shares of High
Yield. However, Class B shares of High Yield are currently offered
and subject to the CDSC set forth in the table. High Yield shares
held by certain employee benefit plans, however, are subject to a
different CDSC schedule (see "Purchases, Exchanges and Redemptions"
below).
5
<PAGE>
3 The CDSC schedule of High Income (with the lower maximum CDSC of
4.00%) will continue to apply (after the Reorganization) to the High
Yield Shares acquired by Shareholders as a result of the
Reorganization, and, accordingly, Shareholders acquiring High Yield
Shares as a result of the Reorganization will not pay a higher CDSC
on redemption of the High Yield Shares than the rate currently in
effect for redemptions of their High Income shares so long as such
Shareholders do not (i) exchange the High Yield Shares for shares of
another Dean Witter Fund which has a higher maximum CDSC rate than
4.00% (a "Higher CDSC Fund") or (ii) having exchanged to Dean Witter
Global Short-Term Income Fund Inc. or any Exchange Fund (as such term
is defined under "Purchases, Exchanges and Redemptions" below),
re-exchange back to High Yield after the Reorganization. Under such
circumstances, the CDSC schedule of the Higher CDSC Fund acquired in
the exchange will become applicable upon the redemption of such
fund's shares, or in the case of shares of any of the Exchange Funds
or Dean Witter Global Short-Term Income Fund acquired in an exchange
and then subsequently re-exchanged back into High Yield, the CDSC
applicable to High Yield shares will be charged upon the redemption
of any such shares (see "Purchases, Exchanges and Redemptions"
below).
4 This rate assumes that the level of assets upon the combination of
the two funds would have caused a breakpoint in the advisory fee of
High Yield to be reached, thus, a scaling down of the advisory fee to
the effective advisory fee rate shown.
5 The 12b-1 fee is accrued daily and payable monthly. The 12b-1 fee is,
in the case of High Income, calculated as a percentage of the lesser
of (a) the average daily net sales or (b) the average daily net
assets of the Fund and, in the case of High Yield, calculated as a
percentage of average daily net assets. With respect to each fund, a
portion of the 12b-1 fee equal to 0.20% of average daily net assets
is characterized as a service fee within the meaning of the National
Association of Securities Dealers, Inc. ("NASD") guidelines.
6 For the fiscal year ended August 31, 1996, there was no 12b-1 fee
paid by High Yield. However, on June 30, 1997, a 12b-1 fee calculated
at the annual rate of 0.75% of the average daily net assets of Class
B was authorized for Class B shares of High Yield to take effect upon
implementation of the multiple class distribution structure on July
28, 1997. The actual total fund operating expense ratio for High
Yield during the fund's fiscal year ended August 31, 1996 was 0.66%
(this rate reflects that no 12b-1 fees were incurred during this
period).
6
<PAGE>
Hypothetical Expenses
To attempt to show the effect of these expenses on an investment over
time, the hypotheticals shown below have been created. Assuming that an
investor makes a $1,000 investment in either High Income or Class B Shares of
High Yield or the new combined fund (Class B shares of High Yield), that the
annual return is 5% and that the operating expenses for each fund are the
ones shown in the chart above; if the investment was redeemed at the end of
each period shown below, the investor would incur the following expenses by
the end of each period shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
High Income................... $54 $64 $86 $167
High Yield (Class B).......... $64 $75 $97 $169
Pro Forma Combined (Class B).. $63 $71 $91 $157
</TABLE>
If such investment was not redeemed, the investor would incur the following
expenses:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
High Income................... $14 $44 $76 $167
High Yield (Class B).......... $14 $45 $77 $169
Pro Forma Combined (Class B).. $13 $41 $71 $157
</TABLE>
The above example should not be considered a representation of past or
future expenses or performance. Actual operating expenses may be greater or
less than those shown. Long-term shareholders of High Income and Class B
shareholders of High Yield may pay more in sales charges including
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, High Income will receive an opinion
of Gordon Altman Butowsky Weitzen Shalov & Wein to the effect that the
Reorganization will constitute a tax-free reorganization for federal income
tax purposes, and that no gain or loss will be recognized by High Income or
the shareholders of High Income for Federal income tax purposes as a result
of the transactions included in the Reorganization. For further information
about the tax consequences of the Reorganization, see "The Reorganization --
Tax Aspects of the Reorganization" below.
COMPARISON OF HIGH INCOME AND HIGH YIELD
INVESTMENT OBJECTIVES AND POLICIES. High Income and High Yield have
identical investment objectives, which is primarily to seek a high level of
current income and, as a secondary objective, to seek capital appreciation
(but only when consistent with the primary objective). High Yield seeks to
achieve its investment objectives by investing principally in fixed-income
securities rated Baa or lower by Moody's Investors Service, Inc. ("Moody's"),
or BBB or lower by Standard & Poor's Corporation ("Standard & Poor's"). High
Income also invests principally in fixed-income securities to achieve its
objectives; however, such fixed-income securities are defined only to include
those rated Ba or lower by Moody's, or BB or lower by Standard & Poor's. Both
funds do not have any minimum quality rating standard for its
7
<PAGE>
investments. Both funds also consider non-rated securities for investment
when InterCapital 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 of the funds. With respect to
High Income, the fund seeks to maintain under normal circumstances a dollar
weighted average maturity of between five and ten years. High Yield does not
have a specific policy as to the portfolio's dollar weighted average
maturity.
The investment policies of both funds are essentially the same; the
principal differences between them are described under "Comparison of
Investment Objectives, Policies and Restrictions" below.
The investment policies of both High Income and High Yield are not
fundamental and may be changed by their respective Boards of
Trustees/Directors.
INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. High Income and High
Yield obtain investment management services from InterCapital. With respect
to High Income, the fund pays InterCapital monthly compensation calculated
daily by applying the annual rate of 0.50% to the first $500 million of the
fund's average net assets and 0.425% to the fund's average net assets
exceeding $500 million. With respect to High Yield, the fund pays
InterCapital monthly compensation calculated daily by applying the annual
rate of: 0.50% to the fund's first $500 million of average net assets; 0.425%
to the fund's next $250 million of average net assets; 0.375% to the fund's
next $250 million of average net assets; 0.35% to the fund's next $1 billion
of average net assets; 0.325% to the next $1 billion of the fund's average
net assets; and 0.30% to the fund's average net assets exceeding $3 billion.
Both High Income and High Yield have adopted distribution plans ("Plans")
pursuant to Rule 12b-1 under the 1940 Act. Pursuant to High Income's Plan,
the fund pays to Dean Witter Distributors Inc. (the "Distributor") a fee,
which is accrued daily and payable monthly, at the annual rate of 0.80% of
the lesser of (a) the average daily net sales of such fund's shares, or (b)
the average net assets of the fund. The 12b-1 fee applicable to Class B
shares of High Yield is accrued daily and payable monthly at the annual rate
of 0.75% of average daily net assets allocated to that Class. For further
information relating to the 12b-1 fees applicable to Class B shares as well
as High Yield's other classes of shares, see the section entitled "Purchase
of Fund Shares" in High Yield's Prospectus, attached hereto. Rule 12b-1 fees
compensate the Distributor for the services provided and the expenses borne
by the Distributor and others in distribution of the funds' shares. The
Distributor also receives the proceeds of any CDSC paid by the funds'
shareholders at the time of redemption. (High Income's and High Yield's
respective CDSC schedules are set forth below under "Purchases, Exchanges and
Redemptions.")
OTHER SIGNIFICANT FEES. Both High Income and High Yield pay additional
fees in connection with their operations, including legal, auditing, transfer
agent and custodial fees. See "Synopsis -- Fee Table" above for the
percentage of average net assets represented by such "Other Expenses."
PURCHASES, EXCHANGES AND REDEMPTIONS. High Income continuously issues its
shares to investors at a price equal to net asset value at the time of such
issuance. However, redemptions and/or repurchases are subject, under most
circumstances, to a CDSC. Likewise, Class B shares of High Yield are
currently offered at net asset value and redemptions and/or repurchases are
subject under most circumstances to a CDSC. The following are the respective
CDSC schedules applicable to each of High Income and Class B shares of High
Yield. Class B shares held by certain qualified employer-sponsored benefit
plans are subject to a reduced CDSC schedule.
8
<PAGE>
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT MADE HIGH INCOME HIGH YIELD
- ------------------------------------ --------------- --------------
<S> <C> <C>
First ............................... 4.0% 5.0%
Second .............................. 3.0% 4.0%
Third ............................... 2.0% 3.0%
Fourth .............................. 2.0% 2.0%
Fifth ............................... 1.0% 2.0%
Sixth................................ none 1.0%
Seventh and thereafter............... none none
</TABLE>
The lower CDSC schedule of High Income will continue to apply to
Shareholders only with respect to the High Yield Shares acquired in the
Reorganization. However, the lower CDSC schedule will not apply if such
Shareholder (i) exchanges his/her High Yield Shares after the Reorganization
for a fund with a higher CDSC schedule than High Income (a "Higher CDSC
Fund") or (ii) having exchanged to Dean Witter Global Short-Term Income Fund
Inc. 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 (collectively, the "Exchange Funds"), re-exchanges back to High Yield
after the Reorganization. Under such circumstances, the CDSC schedule
applicable to the Higher CDSC Fund shares acquired in the exchange will apply
to redemptions of such fund's shares or, in the case of shares of any of the
Exchange Funds acquired in an exchange and then subsequently re-exchanged
back into High Yield, the CDSC schedule for High Yield (set forth in the
table above) will apply to redemptions of any of such shares.
The CDSC charge is paid to the Distributor. Shares of High Yield and High
Income are distributed by the Distributor and offered by Dean Witter Reynolds
Inc. and other dealers who have entered into selected dealer agreements with
the Distributor. For further information relating to the CDSC schedules
applicable to Class B and the other classes of High Yield's shares, see the
section entitled "Purchase of Fund Shares" in High Yield's Prospectus.
Shares of each Class of High Yield may be exchanged for shares of the same
Class of any other Dean Witter Fund that offers its shares in more than one
Class (the "Multi-Class Funds") or any of Dean Witter Global Short-Term
Income Fund Inc. and Dean Witter National Municipal Trust ("CDSC Funds"),
without the imposition of an exchange fee. High Income shares also may be
exchanged for Class B shares of any Multi-Class Fund or for shares of either
CDSC Fund. Both funds may be exchanged for shares of any of the Exchange
Funds. With respect to High Income and High Yield, no CDSC is imposed at the
time of any exchange, although any applicable CDSC will be imposed upon
ultimate redemption. During the period of time a shareholder remains in an
Exchange Fund, the holding period (for purposes of determining the CDSC rate)
is frozen. Both High Income and High Yield provide telephone exchange
privileges to their shareholders. For greater details relating to exchange
privileges applicable to High Yield, see the section entitled "Shareholder
Services" in High Yield's Prospectus.
Shareholders of High Income and High Yield may redeem their shares for
cash at any time at the net asset value per share next determined; however,
such redemption proceeds may be reduced by the amount of any applicable CDSC.
Both High Income and High Yield offer a reinstatement privilege whereby a
shareholder who has not previously exercised such privilege whose shares have
been redeemed or repurchased may, within thirty days, in the case of High
Income, and within thirty-five days, in the case of High Yield, after the
date of redemption or repurchase, reinstate any portion or all of the
proceeds
9
<PAGE>
thereof in shares of High Income or Class B shares of High Yield,
respectively, and receive a pro rata credit for any CDSC paid in connection
with such redemption or repurchase. High Income and High Yield may redeem
involuntarily, at net asset value, most accounts valued at less than $100.
DIVIDENDS. Dividends from both High Income's and High Yield's anticipated
net investment income are declared and paid monthly and net short-term
capital gains and long-term capital gains distributions, if any, are paid at
least annually. Dividends and capital gains distributions of both High Income
and High Yield are automatically reinvested in additional shares at net asset
value unless the shareholder elects to receive cash.
PRINCIPAL RISK FACTORS
The net asset value of High Yield's and High Income's shares will
fluctuate with changes in the market value of their respective portfolio
securities. Both High Income and High Yield invest principally in high yield
fixed-income securities, which, compared with higher rated lower yielding
fixed-income securities, may be subject to greater risk of loss of income and
principal, including the risk of default, and greater risk of increases and
decreases in net asset value due to market fluctuations. The overall risks of
investments in both funds are substantially similar.
The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each fund, see "Investment
Objectives and Policies --Risk Considerations" in High Income's Prospectus
and "Investment Objectives and Policies -- Special Risk Considerations" in
High Yield's Prospectus.
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of High Income, including the Independent Trustees,
having reviewed High Income's financial position and the prospects for
achieving economies of scale through the Reorganization, determined that the
Reorganization is in the best interests of High Income and its Shareholders
and that the interests of High Income's Shareholders will not be diluted as a
result thereof, recommends approval of the Reorganization by High Income
Shareholders.
THE BOARD'S CONSIDERATION
At a meeting held on June 30, 1997, the Board, including all of the
Independent Trustees, unanimously approved the Reorganization Agreement and
determined to recommend that Shareholders of High Income approve the
Reorganization Agreement. In reaching this decision, the Board made an
extensive inquiry into a number of factors, particularly the comparative
expenses to be incurred in the operations of High Income and Class B shares
of High Yield. The Board also considered other factors, including, but not
limited to: the comparative investment performance and past growth in assets
of High Income and High Yield; the compatibility of the investment
objectives, policies, restrictions and portfolios of High Income and High
Yield; the terms and conditions of the Reorganization which would affect the
price of shares to be issued in the Reorganization; the tax-free nature of
the Reorganization; and any direct or indirect costs to be incurred by High
Income and High Yield in connection with the Reorganization.
10
<PAGE>
In recommending the Reorganization to Shareholders, the Board of High
Income considered that the Reorganization would have the following benefits
for Shareholders:
1. Once the Reorganization is consummated, the expenses which would be
borne by Class B shareholders of the "combined fund" should be lower on a
percentage basis than the actual expenses per share of High Income. In part,
this is because the rate of the investment management fee payable by the
surviving High Yield fund would be lower than the fees currently paid by High
Income as a result of breakpoints in the management fee of High Yield
achieved through the combination of fund assets resulting from the
Reorganization.
In addition, the rate of the 12b-1 fee payable by High Yield will be lower
than those currently paid by High Income. As discussed in the "Fee Table,"
above, the funds use different formulas to calculate 12b-1 fees: in
accordance with its two-part formula, High Income has been paying 12b-1 fees
at the rate of 0.80% of average daily net assets (which has been lower than
average daily net sales since inception of the fund). The 12b-1 fee payable
by High Yield Shares will be 0.75% of average daily net assets.
Shareholders who remain invested in High Yield for approximately ten years
from the Closing Date (as defined below) will receive an additional benefit
as a result of the automatic conversion of Class B shares of High Yield into
Class A shares of High Yield after such period. As discussed more fully in
High Yield's Prospectus, attached hereto, once Shareholders are converted to
Class A they will be subject to the Class's 12b-1 fee of only 0.25% of the
average daily net assets of that Class. For greater details regarding the
conversion feature, including the method by which the 10 year period is
calculated and the treatment of reinvested dividends, see "Purchase of Fund
Shares" in High Yield's Prospectus.
Furthermore, to the extent that the Reorganization would result in
Shareholders becoming shareholders of a combined larger fund, further
economies of scale could be achieved since various fixed expenses (e.g.,
auditing and legal) can be spread over a larger number of shares. The Board
noted that High Income's expense ratio, for its fiscal year ended March 31,
1997, was 1.39%, whereas the expense ratio for High Yield was 1.41% (based on
the fiscal year ended August 31, 1996 assuming a 0.75% 12b-1 fee, as well as
a reduced management fee). The Board further noted that the combined fund is
expected to have a lower expense ratio than both funds currently do (taking
into account the other assumptions described in the "Fee Table," above).
2. Shareholders would have a continued participation in the high yield
fixed-income markets through investment in High Yield, which has identical
investment objectives and substantially similar investment policies and
restrictions to those of High Income. Upon consummation of the
Reorganization, the lower CDSC schedule of High Income will continue to apply
(with respect to the High Yield Shares acquired in the Reorganization),
except under certain circumstances in which such High Yield Shares are
exchanged for another fund, as described in "Comparison of High Income and
High Yield -- Purchases, Exchanges and Redemptions."
3. The Reorganization will constitute a tax-free reorganization for
federal income tax purposes, and no gain or loss will be recognized by High
Income or its Shareholders for federal income tax purposes as a result of
transactions included in the Reorganization.
4. The Board also took into consideration that effective July 28, 1997,
High Yield Shares will also be available to certain investors at net asset
value and, therefore, absent the Reorganization, High Yield
11
<PAGE>
will compete for investor funds directly with High Income. The Reorganization
should allow for more concentrated selling efforts to the benefit of both
High Income and High Yield shareholders and avoid the inefficiencies
associated with the operation and distribution of substantially similar
funds.
The Board of Directors of High Yield, including a majority of such
Directors who are not "interested persons" of High Yield, also have
determined that the Reorganization is in the best interests of High Yield and
its shareholders and that the interests of existing shareholders of High
Yield will not be diluted as a result thereof. The transaction will enable
High Yield to acquire investment securities which are consistent with High
Yield's investment objective, without the brokerage costs attendant to the
purchase of such securities in the market. Furthermore, the addition of High
Income's assets to High Yield's portfolio is expected to result in the
economies of scale described above. The Board also considered the limitations
on the use of High Yield's capital loss carryforwards that would result from
the Reorganization (see "Tax Aspects of the Reorganization"), and upon
consideration of all factors deemed relevant, including the likelihood that
the tax carryforward would be utilized, determined, in the exercise of its
reasonable business judgment, that the potential benefits of the
Reorganization outweighed any adverse effects.
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization
Agreement. This summary is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached as Exhibit A to this
Proxy Statement and Prospectus.
The Reorganization Agreement provides that (i) High Income will transfer
all of its assets, including portfolio securities, cash (other than cash
amounts retained by High Income as a "Cash Reserve" in the amount sufficient
to discharge its liabilities not discharged prior to the Valuation Date (as
defined below) and for expenses of the dissolution), cash equivalents and
receivables to High Yield on the Closing Date in exchange for the assumption
by High Yield of High Income's stated liabilities, including all expenses,
costs, charges and reserves, as reflected on an unaudited statement of assets
and liabilities of High Income prepared by the Treasurer of High Income as of
the Valuation Date (as defined below) in accordance with generally accepted
accounting principles consistently applied from the prior audited period, and
the delivery of High Yield Shares, (ii) such High Yield Shares would be
distributed to the Shareholders of High Income on the Closing Date or as soon
as practicable thereafter, (iii) High Income would be dissolved and (iv) the
outstanding shares of High Income would be canceled.
The number of High Yield Shares to be delivered to High Income will be
determined by dividing the value of High Income assets acquired by High Yield
(net of stated liabilities assumed by High Yield) by the net asset value of a
High Yield Share; these values will be calculated as of 4:00 p.m. New York
City time on the third day that the New York Stock Exchange is open for
business following the receipt of the requisite approval by the shareholders
of High Income of the Reorganization Agreement or at such other time as High
Income and High Yield may agree (the "Valuation Date"). As an illustration,
if on the Valuation Date, High Income were to have securities with a market
value of $95,000 and cash in the amount of $10,000 (of which $5,000 was to be
retained by it as the Cash Reserve), the value of the assets which would be
transferred to High Yield would be $100,000. If the net asset value per share
of High Yield were $10 per share at the close of business on the Valuation
Date, the number of shares to be issued would be 10,000 ($100,000 (divided
by) $10). These 10,000 Class B shares of High Yield would be distributed to
the former
12
<PAGE>
shareholders of High Income. This example is given for illustration purposes
only and does not bear any relationship to the dollar amounts or shares
expected to be involved in the Reorganization.
On the Closing Date or as soon as practicable thereafter, High Income will
distribute pro rata to its Shareholders of record as of the close of business
on the Valuation Date, the High Yield Shares it receives. High Yield will
cause its transfer agent to credit and confirm an appropriate number of High
Yield Shares to each Shareholder. Certificates for High Yield Shares will be
issued upon written request of a Shareholder but only for whole shares, with
fractional shares credited to the name of the Shareholder on the books of
High Yield. Such Shareholders who wish certificates representing their High
Yield Shares must, after receipt of their confirmations, make a written
request to High Yield's transfer agent, Dean Witter Trust Company, Harborside
Financial Center, Jersey City, New Jersey 07311. Shareholders holding
certificates representing their shares will not be required to surrender
their certificates in connection with the Reorganization. However, such
Shareholders will have to surrender such certificates (or provide indemnities
reasonably acceptable to High Yield in respect of lost certificates) in order
to receive certificates representing High Yield Shares or to redeem, transfer
or exchange the High Yield Shares received.
The Closing Date will be the next business day following the Valuation
Date. The consummation of the Reorganization is contingent upon the approval
of the Reorganization by the shareholders of High Income and the receipt of
the other opinions and certificates set forth in Sections 6, 7 and 8 of the
Reorganization Agreement and the occurrence of the events described in those
Sections, certain of which may be waived by High Income or High Yield. The
Reorganization Agreement may be amended in any mutually agreeable manner,
except that no amendment may be made subsequent to the Meeting which would
detrimentally affect the value of the shares of High Yield to be distributed.
InterCapital will bear all of the expenses associated with the
Reorganization. Management estimates that such expenses associated with the
Reorganization will not exceed $305,000.
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by High Income's Shareholders
by mutual consent of High Income and High Yield. In addition, either party
may terminate the Reorganization Agreement upon the occurrence of a material
breach of the Reorganization Agreement by the other party or if, by January
31, 1998, any condition set forth in the Reorganization Agreement has not
been fulfilled or waived by the party entitled to its benefits.
Under the Reorganization Agreement, within one year after the Closing
Date, High Income shall: either pay or make provision for all of its
liabilities and distribute any remaining amount of the Cash Reserve (after
paying or making provision for such liabilities and the estimated cost of
making the distribution) to former shareholders of High Income that received
High Yield Shares. High Income shall be dissolved and deregistered as an
investment company promptly following the distributions of shares of High
Yield to Shareholders of record of High Income.
The effect of the Reorganization is that Shareholders who vote their
shares in favor of the Reorganization Agreement are electing to sell their
shares of High Income (at net asset value on the Valuation Date calculated
after subtracting the Cash Reserve) and reinvest the proceeds in High Yield
Shares at net asset value and without recognition of taxable gain or loss for
federal income tax purposes. See "Tax Aspects of the Reorganization" below.
As noted in "Tax Aspects of the Reorganization" below, if High Income
recognizes net gain from the sale of securities prior to the Closing Date,
such gain, to the extent not offset by capital loss carryovers, will be
distributed to Shareholders prior to the Closing Date and will be taxable to
Shareholders as capital gain.
13
<PAGE>
Shareholders will continue to be able to redeem their shares of High
Income at net asset value next determined after receipt of the redemption
request (subject to any applicable CDSC) until the close of business on the
business day next preceding the Closing Date. Redemption requests received by
High Income thereafter will be treated as requests for redemption of shares
of High Yield.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation
Date, High Income will declare and pay a dividend or dividends which,
together with all previous such dividends, will have the effect of
distributing to Shareholders all of High Income's investment company taxable
income for all periods since inception of High Income through and including
the Valuation Date (computed without regard to any dividends paid deduction),
and all of High Income's net capital gain, if any, realized in such periods
(after reduction for any capital loss carry-forward).
The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). High Income and High Yield have
represented that, to their best knowledge, there is no plan or intention by
Shareholders to redeem, sell, exchange or otherwise dispose of a number of
High Yield Shares received in the transaction that would reduce Shareholders'
ownership of High Yield Shares to a number of shares having a value, as of
the Closing Date, of less than 50% of the value of all of the formerly
outstanding High Income shares as of the same date. High Income and High
Yield have each further represented that, as of the Closing Date, High Income
and High Yield will qualify as regulated investment companies.
As a condition to the Reorganization, High Income and High Yield will
receive an opinion of Gordon Altman Butowsky Weitzen Shalov & Wein that,
based on certain assumptions, facts, the terms of the Reorganization
Agreement and additional representations set forth in the Reorganization
Agreement or provided by High Income and High Yield:
1. The transfer of substantially all of High Income's assets in exchange
for the High Yield Shares and the assumption by High Yield of certain stated
liabilities of High Income followed by the distribution by High Income of the
High Yield Shares to Shareholders in exchange for their High Income shares
will constitute a "reorganization" within the meaning of Section 368(a)(1) of
the Code, and High Income and High Yield will each be a "party to a
reorganization" within the meaning of Section 368 (b) of the Code;
2. No gain or loss will be recognized by High Yield upon the receipt of
the assets of High Income solely in exchange for the High Yield Shares and
the assumption by High Yield of the stated liabilities of High Income;
3. No gain or loss will be recognized by High Income upon the transfer of
the assets of High Income to High Yield in exchange for the High Yield Shares
and the assumption by High Yield of the stated liabilities or upon the
distribution of High Yield Shares to Shareholders in exchange for their High
Income shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of High Income for the High Yield Shares;
5. The aggregate tax basis for the High Yield Shares received by each of
the Shareholders pursuant to the reorganization will be the same as the
aggregate tax basis of the shares in High Income held by each such
Shareholder immediately prior to the reorganization;
14
<PAGE>
6. The holding period of the High Yield Shares to be received by each
Shareholder will include the period during which the shares in High Income
surrendered in exchange therefor were held (provided such shares in High
Income were held as capital assets on the date of the Reorganization);
7. The tax basis of the assets of High Income acquired by High Yield will
be the same as the tax basis of such assets to High Income immediately prior
to the Reorganization; and
8. The holding period of the assets of High Income in the hands of High
Yield will include the period during which those assets were held by High
Income.
The Reorganization will result in a "change of ownership" of High Yield
under Section 382 of the Code. High Yield has a capital loss carryover of
approximately $982 million as of June 30, 1997. Under the provisions of
Section 382 of the Code, the full amount of those built-in-losses and capital
loss carryovers will not be available to offset realized capital gains of the
combined fund after the Reorganization. Only a portion of the unrealized
capital losses and capital loss carryovers (i.e., approximately $27 million
per year for eight years) will be available to offset realized net capital
gains of the combined fund. After eight years, the unused loss carryover will
be eliminated. The Board has considered this limitation on the use of High
Yield's capital loss carryforwards that would result from the Reorganization
(see "The Board's Consideration").
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF
ANY, OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
BECAUSE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT
THEIR TAX ADVISORS AS TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE
PROPOSED TRANSACTION.
DESCRIPTION OF SHARES
Class B Shares of High Yield to be issued pursuant to the Reorganization
Agreement will, when issued, be fully paid and non-assessable by High Yield
and transferable without restrictions and will have no preemptive rights. As
discussed above, Class B shares of High Yield also have a conversion feature
pursuant to which approximately ten (10) years after the date of the original
purchase of such shares, the shares will convert automatically to Class A
Shares, based on the relative net asset values of the two classes. For
greater details regarding the conversion feature, including the method by
which the 10 year period is calculated and the treatment of reinvested
dividends, see "Purchase of Fund Shares" in High Yield's Prospectus attached
hereto.
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of High Yield and High
Income as of March 31, 1997 and on a pro forma combined basis as if the
Reorganization had occurred on that date:
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
-------------- ------------- -----------
<S> <C> <C> <C>
High Income ............... $1,129,080,877 115,231,451 $9.80
High Yield................. $ 466,011,270 70,887,414 $6.57
Combined Fund (pro forma) $1,595,092,147 242,741,429 $6.57
</TABLE>
15
<PAGE>
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
High Income and High Yield have identical investment objectives, which is
primarily to seek a high level of current income, and, as a secondary
objective, to seek capital appreciation (but only when consistent with the
primary objective). High Yield seeks to achieve its investment objective by
investing principally (under normal circumstances at least 65% of its total
assets) in fixed-income securities rated Baa or lower by Moody's, or BBB or
lower by Standard & Poor's. High Income also seeks to achieve its investment
objective by investing principally in fixed income securities; however, High
Income's fixed income securities are rated Ba or lower by Moody's, or BB or
lower by Standard & Poor's. Neither fund has any minimum quality rating
standard for its investments. Both funds also consider non-rated securities
for investment when the Investment Manager believes that the financial
conditions of the issuers of such securities, or the protection afforded by
the terms of the securities themselves, make them appropriate investments of
the funds. With respect to High Income, the fund seeks to maintain under
normal circumstances a dollar weighted average maturity of between five and
ten years. High Yield does not have a specific policy as to the portfolio's
dollar weighted average maturity.
Up to 35% of each fund's total assets may, under normal conditions, be
invested in securities other than the fixed-income securities described,
including, among other securities, common stocks (in the case of High Yield,
up to 20% of the fund's total assets), U.S. Government Obligations (including
zero coupon securities), repurchase agreements, and futures contracts and
related options thereon. Up to 35% of High Income's total assets may, under
normal conditions, be invested in securities of foreign issuers; whereas High
Yield may invest only up to 20% of its total assets in fixed-income
securities issued by foreign governments and other foreign issuers and in
foreign currency issues of domestic issuers, but not more than 10% of its
total assets in such securities, whether issued by a foreign or domestic
issuer, which are denominated in foreign currency. High Income also is
specifically authorized to enter into forward foreign currency exchange
contracts as a hedge against fluctuations in future foreign exchange rates.
Both High Yield and High Income may invest part or all of their respective
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 market conditions.
High Income may purchase and sell (write) listed options on portfolio
securities or on the U.S. Dollar or foreign currencies and may write covered
call options on such securities, without limit, in order to hedge against the
decline in the value of a security or currency in which such security is
denominated, to earn additional income and or to close out long call option
positions. High Income also may purchase listed and over-the-counter call and
put options in amounts equaling up to 5% of its total assets. High Income may
purchase call and put options to close out covered call or written put
positions, as applicable, or to protect the value of the relevant security.
High Yield, however, may purchase or sell (write) listed options only on debt
securities as a means of achieving additional return or of hedging the value
of the
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fund's portfolio. High Income fund may only write covered options which are
listed on national securities exchanges, the total amount of which may not
exceed 20% of the fund's total assets. High Income has an overall limitation
that it may not purchase options if, as a result, the aggregate cost of all
outstanding options exceeds 10% of the fund's total assets.
High Income may purchase and sell U.S. and foreign exchange-traded futures
contracts on portfolio securities, on foreign currencies, on U.S. and foreign
fixed-income securities and on index securities or securities indexes, for
hedging purposes. High Yield, however, may only purchase and sell financial
futures contracts and related options thereon as a hedge against changes in
interest rates. Both funds may purchase and sell options on eligible futures
contracts for hedging purposes or to close out an opposite position.
Both High Yield and High Income may (i) purchase securities on a
when-issued or delayed delivery basis, (ii) purchase or sell securities on a
forward commitment basis and (iii) purchase securities on a "when, as and if
issued" basis. High Income may invest in warrants and stock rights attached
to other portfolio securities, without limit, and it may invest up to 5% of
its net assets in other warrants. By contrast, High Yield has a 5% limitation
as to investments in all warrants. Both funds may enter into repurchase
agreements subject to certain procedures designed to minimize risks
associated with such agreements. However, only High Income is authorized to
enter into reverse repurchase agreements and dollar rolls. High Income may
invest up to 10% of its total assets in securities which are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933, or which are otherwise not readily marketable;
whereas, High Yield has a 5% limit respecting investments in such securities.
The investment policies of both High Income and High Yield are not
fundamental and may be changed by their respective Boards. The foregoing
discussion is a summary of the principal differences and similarities between
the investment policies of the funds. For a more complete discussion of each
fund's policies see "Investment Objectives and Policies" in each fund's
respective Prospectus and "Investment Practices and Policies" in each fund's
respective Statement of Additional Information.
INVESTMENT RESTRICTIONS
The investment restrictions adopted by High Income and High Yield as
fundamental are substantially similar and are summarized under the caption
"Investment Restrictions" in their respective Prospectuses and Statements of
Additional Information. A fundamental investment restriction cannot be
changed without the vote of a majority of the outstanding voting securities
of a fund, as defined in the 1940 Act. The material differences are as
follows. High Yield has a fundamental restriction that it may not invest more
than 5% of the value of its total assets in the securities of any one issuer
(other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities), whereas High Income is subject to a similar
fundamental limitation only with respect to 75% of its total assets. High
Yield has a fundamental restriction that it may not purchase more than 10% of
the voting securities, or more than 10% of any class of securities of any one
issuer, whereas High Income is subject to a similar limitation with respect
to only 75% of its total assets.
In addition, High Yield has a fundamental restriction that it may not
acquire common stocks in excess of 20% of its total assets, whereas High
Income does not have any such policy.
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High Yield has a fundamental restriction that it may not write, purchase
or sell puts, calls, or combinations thereof except options on futures
contacts or options on debt securities, whereas High Income has no similar
limitation. In addition, both funds, as a matter of fundamental policy, may
not purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets;
however, High Income carves out an additional exception for purchases made in
accordance with Section 12(d) of the 1940 Act.
Finally, High Yield has a fundamental restriction that it may not invest
in securities of any issuer if, to the knowledge of such fund, any officer,
or director of the fund or of the Investment Manager, owns more than 1/2 of
1% of the outstanding securities of such issuer, and such officers and
directors who own more than 1/2 of 1% own in the aggregate more than 5% of
the outstanding securities of such issuer; whereas, High Income is subject to
such limitation on a non-fundamental basis.
ADDITIONAL INFORMATION ABOUT HIGH INCOME
AND HIGH YIELD
GENERAL
For a discussion of the organization and operation of High Yield and High
Income, see "The Fund and its Management," "Investment Objectives and
Policies," "Investment Restrictions" and "Prospectus Summary" in, and the
cover page of, their respective Prospectuses.
FINANCIAL INFORMATION
For certain financial information about High Yield and High Income, see
"Financial Highlights" and "Performance Information" in their respective
Prospectuses.
MANAGEMENT
For information about High Yield's and High Income's Board of
Trustees/Directors, the Investment Manager and the Distributor, see "The Fund
and its Management" and "Investment Objectives and Policies" in, and the back
cover of, their respective Prospectuses.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares
of High Income and High Yield, and information regarding shareholder
inquiries, see "Additional Information" in their respective Prospectuses.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of High Yield's and High Income's policies with respect
to dividends, distributions and taxes, see "Dividends, Distributions and
Taxes" in their respective Prospectuses as well as the discussion herein
under "Synopsis -- Purchases, Exchanges and Redemptions."
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how High Yield's and High Income's shares may be
purchased, repurchased and redeemed, see "Purchase of Fund Shares",
"Shareholder Services" and "Redemptions and Repurchases" in their respective
Prospectuses.
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MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For a discussion of High Yield's performance, see management's letter to
shareholders in its Annual Report for its fiscal year ended August 31, 1996
accompanying this Proxy Statement and Prospectus. For a discussion of High
Income's performance, see its Annual Report for its fiscal year ended March
31, 1997.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of High Yield and High Income as of August 31,
1996 and March 31, 1997, respectively, which are incorporated by reference in
the Statement of Additional Information relating to the Registration
Statement on Form N-14 of which this Proxy Statement and Prospectus forms a
part, have been audited by Price Waterhouse LLP, independent accountants, for
the periods indicated in its respective reports thereon. Such financial
statements have been incorporated by reference in reliance upon such reports
given upon the authority of Price Waterhouse LLP as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of High Yield will
be passed upon by Gordon Altman Butowsky Weitzen Shalov & Wein, New York, New
York. Such firm will rely on Piper & Marbury LLP as to matters of Maryland
law.
AVAILABLE INFORMATION
Additional information about High Income and High Yield is available, as
applicable, in the following documents which are incorporated herein by
reference: (i) High Yield's Prospectus dated July 28, 1997, attached to this
Proxy Statement and Prospectus, which Prospectus forms a part of
Post-Effective Amendment No. 21 to High Yield's Registration Statement on
Form N-1A (File Nos. 2-64782; 811-2932); (ii) High Yield's Annual Report for
its fiscal year ended August 31, 1996 and its Semi-Annual Report for the six
months ended February 28, 1997, accompanying this Proxy Statement and
Prospectus; (iii) High Income's Prospectus dated June 16, 1997, which
Prospectus forms a part of Post-Effective Amendment No. 5 to High Income's
Registration Statement on Form N-1A (File Nos. 33-53299; 811-07157); and (iv)
High Income's Annual Report for the fiscal year ended March 31, 1997. The
foregoing documents may be obtained without charge by calling (212) 293-2550
or (800) 526-3143.
High Income and High Yield are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended, and in accordance
therewith, file reports and other information with the Commission. Proxy
material, reports and other information about High Income and High Yield
which are of public record can be inspected and copied at public reference
facilities maintained by the Commission at Room 1204, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and certain of its regional
offices, and copies of such materials can be obtained at prescribed rates
from the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549.
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OTHER BUSINESS
Management of High Income knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not
known at the time of the solicitation may come before the Meeting, the proxy
as solicited confers discretionary authority with respect to such matters as
properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such
matters.
By Order of the Board of Trustees,
BARRY FINK,
Secretary
August , 1997
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
30th day of June, 1997, by and between DEAN WITTER HIGH YIELD SECURITIES
INC., a Maryland Corporation ("High Yield") and DEAN WITTER HIGH INCOME
SECURITIES, a Massachusetts business trust ("High Income").
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a) (1) of the Internal Revenue Code of 1986,
as amended (the "Code"). The reorganization ("Reorganization") will consist
of the transfer to High Yield of substantially all of the assets of High
Income in exchange for the assumption by High Yield of all stated liabilities
of High Income and the issuance by High Yield of Class B shares of common
stock ("High Yield Shares"), to be distributed, after the Closing Date
hereinafter referred to, to the shareholders of High Income in liquidation of
High Income as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF HIGH INCOME
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, High Income agrees to
assign, deliver and otherwise transfer the High Income Assets (as defined in
paragraph 1.2) to High Yield and High Yield agrees in exchange therefor to
assume all of High Income's stated liabilities on the Closing Date as set
forth in paragraph 1.3(a) and to deliver to High Income the number of High
Yield Shares, including fractional High Yield Shares, determined by dividing
the value of the High Income Assets, net of such stated liabilities, computed
as of the Valuation Date (as defined in paragraph 2.1) in the manner set
forth in paragraph 2.1, by the net asset value of a High Yield Share,
computed at the time and date and in the manner set forth in paragraph 2.2.
Such transactions shall take place at the closing provided for in paragraph
3.1 ("Closing").
1.2 (a) The "High Income Assets" shall consist of all property, including
without limitation, all cash (other than the "Cash Reserve" (as defined in
paragraph 1.3(b)), cash equivalents, securities and dividend and interest
receivables owned by High Income, and any deferred or prepaid expenses shown
as an asset on High Income's books on the Valuation Date.
(b) On or prior to the Valuation Date, High Income will provide High
Yield with a list of all of High Income's assets to be assigned, delivered
and otherwise transferred to High Yield and of the stated liabilities to be
assumed by High Yield pursuant to this Agreement. High Income reserves the
right to sell any of the securities on such list but will not, without the
prior approval of High Yield, acquire any additional securities other than
securities of the type in which High Yield is permitted to invest and in
amounts agreed to in writing by High Yield. High Yield will, within a
reasonable time prior to the Valuation Date, furnish High Income with a
statement of High Yield's investment objectives, policies and restrictions
and a list of the securities, if any, on the list referred to in the first
sentence of this paragraph that do not conform to High Yield's investment
objective, policies and restrictions. In the event that High
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Income holds any investments that High Yield is not permitted to hold, High
Income will dispose of such securities on or prior to the Valuation Date. In
addition, if it is determined that the portfolios of High Income and High
Yield, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon High Yield with respect to such
investments, High Income if requested by High Yield will, on or prior to the
Valuation Date, dispose of and/or reinvest a sufficient amount of such
investments as may be necessary to avoid violating such limitations as of the
Closing Date (as defined in paragraph 3.1).
1.3 (a) High Income will endeavor to discharge all of its liabilities and
obligations on or prior to the Valuation Date. High Yield will assume all
stated liabilities, which includes, without limitation, all expenses, costs,
charges and reserves reflected on an unaudited Statement of Assets and
Liabilities of High Income prepared by the Treasurer of High Income as of the
Valuation Date in accordance with generally accepted accounting principles
consistently applied from the prior audited period.
(b) On the Valuation Date, High Income may establish a cash reserve,
which shall not exceed 5% of High Income's net assets as of the close of
business on the Valuation Date ("Cash Reserve") to be retained by High Income
and used for the payment of its liabilities not discharged prior to the
Valuation Date and for the expenses of dissolution.
1.4 In order for High Income to comply with Section 852(a)(1) of the Code
and to avoid having any investment company taxable income or net capital gain
(as defined in Sections 852(b)(2) and 1222(11) of the Code, respectively) in
the short taxable year ending with its dissolution, High Income will on or
before the Valuation Date (a) declare a dividend in an amount large enough so
that it will have declared dividends of all of its investment company taxable
income and net capital gain, if any, for such taxable year (determined
without regard to any deduction for dividends paid) and (b) distribute such
dividend.
1.5 On the Closing Date or as soon as practicable thereafter, High Income
will distribute High Yield Shares received by High Income pursuant to
paragraph 1.1 pro rata to its shareholders of record determined as of the
close of business on the Valuation Date ("High Income Shareholders"). Such
distribution will be accomplished by an instruction, signed by High Income's
Secretary, to transfer High Yield Shares then credited to High Income's
account on the books of High Yield to open accounts on the books of High
Yield in the names of the High Income Shareholders and representing the
respective pro rata number of High Yield Shares due such High Income
Shareholders. All issued and outstanding shares of High Income simultaneously
will be canceled on High Income's books; however, share certificates
representing interests in High Income will represent a number of High Yield
Shares after the Closing Date as determined in accordance with paragraph 2.3.
High Yield will issue certificates representing High Yield Shares in
connection with such exchange only upon the written request of a High Income
Shareholder.
1.6 Ownership of High Yield Shares will be shown on the books of High
Yield's transfer agent. High Yield Shares will be issued in the manner
described in High Yield's current Prospectus and Statement of Additional
Information.
1.7 Any transfer taxes payable upon issuance of High Yield Shares in a
name other than the registered holder of High Yield Shares on High Income's
books as of the close of business on the Valuation Date shall, as a condition
of such issuance and transfer, be paid by the person to whom High Yield
Shares are to be issued and transferred.
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1.8 Any reporting responsibility of High Income is and shall remain the
responsibility of High Income up to and including the date on which High
Income is dissolved and deregistered pursuant to paragraph 1.9.
1.9 Within one year after the Closing Date, High Income shall pay or make
provision for the payment of all its liabilities and taxes, and distribute to
the shareholders of High Income as of the close of business on the Valuation
Date any remaining amount of the Cash Reserve (as reduced by the estimated
cost of distributing it to shareholders). High Income shall be dissolved as a
Massachusetts business trust and deregistered as an investment company under
the Investment Company Act of 1940, as amended ("1940 Act"), promptly
following the making of all distributions pursuant to paragraph 1.5.
1.10 Copies of all books and records maintained on behalf of High Income
in connection with its obligations under the 1940 Act, the Code, state blue
sky laws or otherwise in connection with this Agreement will promptly after
the Closing be delivered to officers of High Yield or their designee and High
Yield or its designee shall comply with applicable record retention
requirements to which High Income is subject under the 1940 Act.
2. VALUATION
2.1 The value of the High Income Assets shall be the value of such assets
computed as of 4:00 p.m. New York City time on the third day that the New
York Stock Exchange is open for business following the receipt of the
requisite approval by shareholders of High Income of this Agreement or at
such time on such earlier or later date after such approval as may be
mutually agreed upon in writing (such time and date being hereinafter called
the "Valuation Date"), using the valuation procedures set forth in High
Yield's then current Prospectus and Statement of Additional Information.
2.2 The net asset value of a High Yield Share shall be the net asset value
per share computed on the Valuation Date, using the valuation procedures set
forth in High Yield's then current Prospectus and Statement of Additional
Information.
2.3 The number of High Yield Shares (including fractional shares, if any)
to be issued hereunder shall be determined by dividing the value of the High
Income Assets, net of the liabilities of High Income assumed by High Yield
pursuant to paragraph 1.1, determined in accordance with paragraph 2.1, by
the net asset value of a High Yield Share determined in accordance with
paragraph 2.2.
2.4 All computations of value shall be made by Dean Witter Services
Company Inc. ("Services") in accordance with its regular practice in pricing
High Yield. High Yield shall cause Services to deliver a copy of its
valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the next business day following the
Valuation Date (the "Closing Date"). The Closing shall be held as of 9:00
a.m. Eastern time, or at such other time as the parties may agree. The
Closing shall be held in a location mutually agreeable to the parties hereto.
All acts taking place at the Closing shall be deemed to take place
simultaneously as of 9:00 a.m. Eastern time on the Closing Date unless
otherwise provided.
3.2 Portfolio securities held by High Income and represented by a
certificate or other written instrument shall be presented by it or on its
behalf to The Bank of New York (the "Custodian"), as
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custodian for High Yield, for examination no later than five business days
preceding the Valuation Date. Such portfolio securities (together with any
cash or other assets) shall be delivered by High Income to the Custodian for
the account of High Yield on or before the Closing Date in conformity with
applicable custody provisions under the 1940 Act and duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof in
accordance with the custom of brokers. The portfolio securities shall be
accompanied by all necessary federal and state stock transfer stamps or a
check for the appropriate purchase price of such stamps. Portfolio securities
and instruments deposited with a securities depository (as defined in Rule
17f-4 under the 1940 Act) shall be delivered on or before the Closing Date by
book-entry in accordance with customary practices of such depository and the
Custodian. The cash delivered shall be in the form of a Federal Funds wire,
payable to the order of "The Bank of New York, Custodian for Dean Witter High
Yield Securities Inc."
3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall
be disrupted so that, in the judgment of both High Yield and High Income,
accurate appraisal of the value of the net assets of High Yield or the High
Income Assets is impracticable, the Valuation Date shall be postponed until
the first business day after the day when trading shall have been fully
resumed without restriction or disruption and reporting shall have been
restored.
3.4 If requested, High Income shall deliver to High Yield or its designee
(a) at the Closing, a list, certified by its Secretary, of the names,
addresses and taxpayer identification numbers of the High Income Shareholders
and the number and percentage ownership of outstanding High Income shares
owned by each such High Income Shareholder, all as of the Valuation Date, and
(b) as soon as practicable after the Closing, all original documentation
(including Internal Revenue Service forms, certificates, certifications and
correspondence) relating to the High Income Shareholders' taxpayer
identification numbers and their liability for or exemption from back-up
withholding. High Yield shall issue and deliver to such Secretary a
confirmation evidencing delivery of High Yield Shares to be credited on the
Closing Date to High Income or provide evidence satisfactory to High Income
that such High Yield Shares have been credited to High Income's account on
the books of High Yield. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request.
4. COVENANTS OF HIGH YIELD AND HIGH INCOME
4.1 Except as otherwise expressly provided herein with respect to High
Income, High Yield and High Income each will operate its business in the
ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and other distributions.
4.2 High Yield will prepare and file with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as amended ("1933 Act"), relating to High Yield
Shares ("Registration Statement"). High Income will provide High Yield with
the Proxy Materials as described in paragraph 4.3 below, for inclusion in the
Registration Statement. High Income will further provide High Yield with such
other information and documents relating to High Yield as are reasonably
necessary for the preparation of the Registration Statement.
4.3 High Income will call a meeting of its shareholders to consider and
act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein. High
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Income will prepare the notice of meeting, form of proxy and proxy statement
(collectively, "Proxy Materials") to be used in connection with such meeting;
provided that High Yield will furnish High Income with its currently
effective prospectus for inclusion in the Proxy Materials and with such other
information relating to High Yield as is reasonably necessary for the
preparation of the Proxy Materials.
4.4 High Income will assist High Yield in obtaining such information as
High Yield reasonably requests concerning the beneficial ownership of High
Income shares.
4.5 Subject to the provisions of this Agreement, High Yield and High
Income will each take, or cause to be taken, all action, and do or cause to
be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
4.6 High Income shall furnish or cause to be furnished to High Yield
within 30 days after the Closing Date a statement of High Income's assets and
liabilities as of the Closing Date, which statement shall be certified by
High Income's Treasurer and shall be in accordance with generally accepted
accounting principles consistently applied. As promptly as practicable, but
in any case within 60 days after the Closing Date, High Income shall furnish
High Yield, in such form as is reasonably satisfactory to High Yield, a
statement certified by High Income's Treasurer of High Income's earnings and
profits for federal income tax purposes that will be carried over to High
Yield pursuant to Section 381 of the Code.
4.7 As soon after the Closing Date as is reasonably practicable, High
Income (a) shall prepare and file all federal and other tax returns and
reports of High Income required by law to be filed with respect to all
periods ending on or before the Closing Date but not theretofore filed and
(b) shall pay all federal and other taxes shown as due thereon and/or all
federal and other taxes that were unpaid as of the Closing Date, including
without limitation, all taxes for which the provision for payment was made as
of the Closing Date (as represented in paragraph 5.2(k)).
4.8 High Yield agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act and to
make such filings required by the state Blue Sky and securities laws as it
may deem appropriate in order to continue its operations after the Closing
Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 High Yield represents and warrants to High Income as follows:
(a) High Yield is a validly existing Maryland corporation with full
power to carry on its business as presently conducted;
(b) High Yield is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act are
in full force and effect;
(c) All of the issued and outstanding shares of High Yield have been
offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws. Shares
of High Yield are registered in all jurisdictions in which they are required
to be registered under state securities laws and other laws, and said
registrations, including any periodic reports or supplemental filings, are
complete and current, all fees required to be paid have been paid, and High
Yield is not subject to any stop order and is fully qualified to sell its
shares in each state in which its shares have been registered;
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(d) The current Prospectus and Statement of Additional Information of
High Yield conform in all material respects to the applicable requirements of
the 1933 Act and the 1940 Act and the regulations thereunder and do not
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; '
(e) High Yield is not in, and the execution, delivery and performance
of this Agreement will not result in a, material violation of any provision
of High Yield's Articles of Incorporation or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which High
Yield is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against High Yield or any of its properties or assets
which, if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business; and High Yield knows of
no facts that might form the basis for the institution of such proceedings
and is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely
affects, or is reasonably likely to materially and adversely effect, its
business or its ability to consummate the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights as of August 31,
1996, and for the year then ended, of High Yield certified by Price
Waterhouse LLP (copies of which have been furnished to High Income), fairly
present, in all materials respects, High Yield's financial condition as of
such date in accordance with generally accepted accounting principles, and
its results of such operations, changes in its net assets and financial
highlights for such period, and as of such date there were no known
liabilities of High Yield (contingent or otherwise) not disclosed therein
that would be required in accordance with generally accepted accounting
principles to be disclosed therein;
(h) All issued and outstanding High Yield Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof,
except as set forth under the caption "Additional Information" in High
Yield's current Prospectus incorporated by reference in the Registration
Statement. High Yield does not have outstanding any options, warrants or
other rights to subscribe for or purchase any of its shares;
(i) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of High Yield, and
this Agreement constitutes a valid and binding obligation of High Yield
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors rights and to general equity principles. No other
consents, authorizations or approvals are necessary in connection with High
Yield's performance of this Agreement;
(j) High Yield Shares to be issued and delivered to High Income, for
the account of the High Income Shareholders, pursuant to the terms of this
Agreement will at the Closing Date have been duly authorized and, when so
issued and delivered, will be duly and validly issued High Yield Shares, and
will be fully paid and non-assessable with no personal liability attaching to
the ownership thereof, except as set forth under the caption "Additional
Information" in High Yield's current Prospectus incorporated by reference in
the Registration Statement;
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(k) All material Federal and other tax returns and reports of High
Yield required by law to be filed on or before the Closing Date have been
filed and are correct, and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of High
Yield's knowledge, no such return is currently under audit and no assessment
has been asserted with respect to any such return;
(l) For each taxable year since its inception, High Yield has met the
requirements of Subchapter M of the Code for qualification and treatment as a
"regulated investment company" and neither the execution or delivery of nor
the performance of its obligations under this Agreement will adversely
affect, and no other events are reasonably likely to occur which will
adversely affect the ability of High Yield to continue to meet the
requirements of Subchapter M of the Code;
(m) Since August 31, 1996 there has been no change by High Yield in
accounting methods, principles, or practices, including those required by
generally accepted accounting principles;
(n) The information furnished or to be furnished by High Yield for use
in registration statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all
material respects with Federal securities and other laws and regulations
applicable thereto; and
(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to High Yield) will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially
misleading.
5.2 High Income represents and warrants to High Yield as follows:
(a) High Income is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) High Income is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act are
in full force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
High Income have been offered and sold in compliance in all material respects
with applicable requirements of the 1933 Act and state securities laws.
Shares of High Income are registered in all jurisdictions in which they are
required to be registered and said registrations, including any periodic
reports or supplemental filings, are complete and current, all fees required
to be paid have been paid, and High Income is not subject to any stop order
and is fully qualified to sell its shares in each state in which its shares
have been registered;
(d) The current Prospectus and Statement of Additional Information of
High Income conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the regulations thereunder and do not
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(e) High Income is not, and the execution, delivery and performance of
this Agreement will not result, in a material violation of any provision of
High Income's Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which High Income is a
party or by which it is bound;
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(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against High Income or any of its properties or assets
which, if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business; and High Income knows of
no facts that might form the basis for the institution of such proceedings
and is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely
affects, or is reasonably likely to materially and adversely effect, its
business or its ability to consummate the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of High Income as
of March 31, 1997 and for the year then ended, certified by Price Waterhouse
LLP (copies of which have been or will be furnished to High Yield) fairly
present, in all material respects, High Income's financial condition as of
such date, and its results of operations, changes in its net assets and
financial highlights for such period in accordance with generally accepted
accounting principles, and as of such date there were no known liabilities of
High Income (contingent or otherwise) not disclosed therein that would be
required in accordance with generally accepted accounting principles to be
disclosed therein;
(h) High Income has no material contracts or other commitments (other
than this Agreement) that will be terminated with liability to it prior to
the Closing Date;
(i) All issued and outstanding shares of High Income are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof,
except as set forth under the caption "Additional Information" in High
Income's current Prospectus incorporated by reference in the Registration
Statement. High Income does not have outstanding any options, warrants or
other rights to subscribe for or purchase any of its shares, nor is there
outstanding any security convertible to any of its shares. All such shares
will, at the time of Closing, be held by the persons and in the amounts set
forth in the list of shareholders submitted to High Yield pursuant to
paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action
on the part of High Income, and subject to the approval of High Income's
shareholders, this Agreement constitutes a valid and binding obligation of
High Income, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors rights and to general equity
principles. No other consents, authorizations or approvals are necessary in
connection with High Income's performance of this Agreement;
(k) All material federal and other tax returns and reports of High
Income required by law to be filed on or before the Closing Date shall have
been filed and are correct and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of High
Income's knowledge, no such return is currently under audit and no assessment
has been asserted with respect to any such return;
(l) For each taxable year since its inception, High Income has met all
the requirements of Subchapter M of the Code for qualification and treatment
as a "regulated investment company" and neither the execution or delivery of
nor the performance of its obligations under this Agreement will adversely
affect, and no other events are reasonably likely to occur which will
adversely affect the ability of High Income to continue to meet the
requirements of Subchapter M of the Code;
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(m) At the Closing Date, High Income will have good and valid title
to the High Income Assets, subject to no liens (other than the obligation, if
any, to pay the purchase price of portfolio securities purchased by High
Income which have not settled prior to the Closing Date), security interests
or other encumbrances, and full right, power and authority to assign, deliver
and otherwise transfer such assets hereunder, and upon delivery and payment
for such assets, High Yield will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof, including any
restrictions as might arise under the 1933 Act;
(n) On the effective date of the Registration Statement, at the time
of the meeting of High Income's shareholders and on the Closing Date, the
Proxy Materials (exclusive of the currently effective High Yield's Prospectus
contained therein) will (i) comply in all material respects with the
provisions of the 1933 Act, the Securities Exchange Act of 1934, as amended
("1934 Act") and the 1940 Act and the regulations thereunder and (ii) not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading. Any other information furnished by High Income for
use in the Registration Statement or in any other manner that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete and shall comply in all material respects with
applicable federal securities and other laws and regulations thereunder;
(o) High Income will, on or prior to the Valuation Date, declare one
or more dividends or other distributions to shareholders that, together with
all previous dividends and other distributions to shareholders, shall have
the effect of distributing to the shareholders all of its investment company
taxable income and net capital gain, if any, through the Valuation Date
(computed without regard to any deduction for dividends paid);
(p) High Income has maintained or has caused to be maintained on its
behalf all books and accounts as required of a registered investment company
in compliance with the requirements of Section 31 of the 1940 Act and the
Rules thereunder; and
(q) High Income is not acquiring High Yield Shares to be issued
hereunder for the purpose of making any distribution thereof other than in
accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF HIGH INCOME
The obligations of High Income to consummate the transactions provided for
herein shall be subject, at its election, to the performance by High Yield of
all the obligations to be performed by it hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of High Yield contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date;
6.2 High Yield shall have delivered to High Income a certificate of its
President and Treasurer, in a form reasonably satisfactory to High Income and
dated as of the Closing Date, to the effect that the representations and
warranties of High Yield made in this Agreement are true and correct at and
as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as High Income
shall reasonably request;
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6.3 High Income shall have received a favorable opinion from Gordon
Altman Butowsky Weitzen Shalov & Wein, counsel to High Yield, dated as of the
Closing Date, to the effect that:
(a) High Yield is a validly existing Maryland corporation, and has the
power to own all of its properties and assets and to carry on its business
as presently conducted (Maryland counsel may be relied upon in delivering
such opinion); (b) High Yield is a duly registered, open-end, management
investment company, and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; (c)
this Agreement has been duly authorized, executed and delivered by High
Yield and, assuming that the Registration Statement complies with the 1933
Act, the 1934 Act and the 1940 Act and regulations thereunder and assuming
due authorization, execution and delivery of this Agreement by High
Income, is a valid and binding obligation of High Yield enforceable
against High Yield in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors rights and to general equity
principles; (d) High Yield Shares to be issued to High Income Shareholders
as provided by this Agreement are duly authorized and upon such delivery
will be validly issued and outstanding and fully paid and non-assessable
(except as set forth under the caption "Additional Information" in High
Yield's Prospectus), and no shareholder of High Yield has any preemptive
rights to subscription or purchase in respect thereof (Maryland counsel
may be relied upon in delivering such opinion); (e) the execution and
delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate High Yield's Articles
of Incorporation or By-Laws; and (f) to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental
authority of the United States or any state is required for the
consummation by High Yield of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act and the 1940
Act and such as may be required under state securities laws; and
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any increase in the
investment management fees or annual fees payable pursuant to High Yield's
12b-1 plan of distribution from those described in High Yield's Prospectus
and Statement of Additional Information dated July 28, 1997.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF HIGH YIELD
The obligations of High Yield to complete the transactions provided for
herein shall be subject, at its election, to the performance by High Income
of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of High Income contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date;
7.2 High Income shall have delivered to High Yield at the Closing a
certificate of its President and its Treasurer, in form and substance
satisfactory to High Yield and dated as of the Closing Date, to the effect
that the representations and warranties of High Income made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as High Yield shall reasonably request;
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7.3 High Income shall have delivered to High Yield a statement of the
High Income Assets and its liabilities, together with a list of High Income's
portfolio securities and other assets showing the respective adjusted bases
and holding periods thereof for income tax purposes, as of the Closing Date,
certified by the Treasurer of High Income;
7.4 High Income shall have delivered to High Yield within three business
days after the Closing a letter from Price Waterhouse LLP dated as of the
Closing Date stating that (a) such firm has performed a limited review of the
federal and state income tax returns of High Income for each of the last
three taxable years and, based on such limited review, nothing came to their
attention that caused them to believe that such returns did not properly
reflect, in all material respects, the federal and state income tax
liabilities of High Income for the periods covered thereby, (b) for the
period from March 31, 1997 to and including the Closing Date, such firm has
performed a limited review (based on unaudited financial data) to ascertain
the amount of applicable federal, state and local taxes and has determined
that same either have been paid or reserves have been established for payment
of such taxes, and, based on such limited review, nothing came to their
attention that caused them to believe that the taxes paid or reserves set
aside for payment of such taxes were not adequate in all materials respects
for the satisfaction of all federal, state and local tax liabilities for the
period from March 31, 1997 to and including the Closing Date and (c) based on
such limited reviews, nothing came to their attention that caused them to
believe that High Income would not qualify as a regulated investment company
for federal income tax purposes for any such year or period;
7.5 High Yield shall have received at the Closing a favorable opinion from
Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to High Income, dated
as of the Closing Date to the effect that:
(a) High Income is a validly existing Massachusetts business trust and
has the power to own all of its properties and assets and to carry on its
business as presently conducted (Massachusetts counsel may be relied upon
in delivering such opinion); (b) High Income is a duly registered,
open-end, management investment company under the 1940 Act, and its
registration with the Commission as an investment company under the 1940
Act is in full force and effect; (c) this Agreement has been duly
authorized, executed and delivered by High Income and, assuming that the
Registration Statement complies with the 1933 Act, the 1934 Act and the
1940 Act and the regulations thereunder and assuming due authorization,
execution and delivery of this Agreement by High Yield, is a valid and
binding obligation of High Income enforceable against High Income in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors rights and to general equity principles; (d) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate High Income's
Declaration of Trust or By-Laws; and (e) to the knowledge of such counsel,
no consent, approval, authorization or order of any court or governmental
authority of the United States or any state is required for the
consummation by High Income of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act and such as may be required under state securities laws; and
7.6 On the Closing Date, the High Income Assets shall include no assets
that High Yield, by reason of limitations of the fund's Articles of
Incorporation or otherwise, may not properly acquire.
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8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF HIGH YIELD AND HIGH INCOME
The obligations of High Income and High Yield hereunder are each subject
to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares
of High Income in accordance with the provisions of High Income's Declaration
of Trust, and certified copies of the resolutions evidencing such approval
shall have been delivered to High Yield;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such federal and state
authorities) deemed necessary by High Yield or High Income to permit
consummation, in all material respects, of the transactions contemplated
herein shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve risk of a material adverse effect
on the assets or properties of High Yield or High Income;
8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5 High Income shall have declared and paid a dividend or dividends
and/or other distribution or distributions that, together with all previous
such dividends or distributions, shall have the effect of distributing to the
High Income Shareholders all of High Income's investment company taxable
income (computed without regard to any deduction for dividends paid) and all
of its net capital gain (after reduction for any capital loss carry-forward
and computed without regard to any deduction for dividends paid) for all
taxable years ending on or before the Closing Date; and
8.6 The parties shall have received a favorable opinion of the law firm of
Gordon Altman Butowsky Weitzen Shalov & Wein (based on such representations
as such law firm shall reasonably request), addressed to High Yield and High
Income, which opinion may be relied upon by the shareholders of High Income,
substantially to the effect that, for federal income tax purposes:
(a) The transfer of substantially all of High Income's assets in exchange
for High Yield Shares and the assumption by High Yield of certain stated
liabilities of High Income followed by the distribution by High Income of
High Yield Shares to the High Income Shareholders in exchange for their
High Income shares will constitute a "reorganization" within the meaning
of Section 368(a)(1) of the Code, and High Income and High Yield will each
be a "party to a reorganization" within the meaning of Section 368(b) of
the Code;
(b) No gain or loss will be recognized by High Yield upon the receipt of
the assets of High Income solely in exchange for High Yield Shares and the
assumption by High Yield of the stated liabilities of High Income;
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(c) No gain or loss will be recognized by High Income upon the transfer
of the assets of High Income to High Yield in exchange for High Yield
Shares and the assumption by High Yield of the stated liabilities or upon
the distribution of High Yield Shares to the High Income Shareholders in
exchange for their High Income shares;
(d) No gain or loss will be recognized by the High Income Shareholders
upon the exchange of the High Income shares for High Yield Shares;
(e) The aggregate tax basis for High Yield Shares received by each High
Income Shareholder pursuant to the reorganization will be the same as the
aggregate tax basis of the High Income Shares held by each such High
Income Shareholder immediately prior to the Reorganization;
(f) The holding period of High Yield Shares to be received by each High
Income Shareholder will include the period during which the High Income
Shares surrendered in exchange therefor were held (provided such High
Income Shares were held as capital assets on the date of the
Reorganization);
(g) The tax basis of the assets of High Income acquired by High Yield
will be the same as the tax basis of such assets to High Income
immediately prior to the Reorganization; and
(h) The holding period of the assets of High Income in the hands of High
Yield will include the period during which those assets were held by High
Income.
Notwithstanding anything herein to the contrary, neither High Yield nor High
Income may waive the conditions set forth in this paragraph 8.6.
9. FEES AND EXPENSES
9.1 (a) Dean Witter InterCapital Inc. ("InterCapital"), the investment
manager to both High Income and High Yield, shall bear all expenses incurred
in connection with the carrying out of the provisions of this Agreement,
including legal, accounting, Commission registration fees and Blue Sky
expenses, printing, filing and proxy solicitation expenses and portfolio
transfer taxes (if any) incurred in connection with the consummation of the
transactions contemplated herein.
(b) In the event the transactions contemplated herein are not
consummated by reason of High Yield's or High Income's being either unwilling
or unable to go forward, the funds' only respective obligations hereunder
shall be to reimburse InterCapital for all reasonable out-of-pocket fees and
expenses incurred by InterCapital in connection with those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein, except that the representations, warranties and covenants of High
Income hereunder shall not survive the dissolution and complete liquidation
of High Income in accordance with Section 1.9.
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11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of High Income and High Yield;
(b) by either High Yield or High Income by notice to the other, without
liability to the terminating party on account of such termination
(providing the termination party is not otherwise in material default or
breach of this Agreement) if the Closing shall not have occurred on or
before January 31, 1998; or
(c) by either High Yield or High Income, in writing without liability to
the terminating party on account of such termination (provided the
terminating party is not otherwise in material default or breach of this
Agreement), if (i) the other party shall fail to perform in any material
respect its agreements contained herein required to be performed on or
prior to the Closing Date, (ii) the other party materially breaches any of
its representations, warranties or covenants contained herein, (iii) the
High Income shareholders fail to approve this Agreement at any meeting
called for such purpose at which a quorum was present or (iv) any other
condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will
not or cannot be met.
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall
be no liability for damages on the part of High Yield or High Income or the
trustees or officers of High Yield or High Income, to any other party or its
trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c)
shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of High Yield or High Income or the
directors or officers of High Yield or High Income, except that any party in
breach of this Agreement shall, upon demand, reimburse InterCapital for all
reasonable out-of-pocket fees and expenses incurred in connection with the
transactions contemplated by this Agreement, including legal, accounting and
filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties; provided, however,
that following the meeting of High Income's shareholders called by High
Income pursuant to paragraph 4.3, no such amendment may have the effect of
changing the provisions for determining the number of High Yield Shares to be
issued to the High Income Shareholders under this Agreement to the detriment
of such High Income Shareholders without their further approval.
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
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13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason
of this Agreement.
13.5 The obligations and liabilities of High Yield hereunder are solely
those of High Yield. It is expressly agreed that no shareholder, nominee,
director, officer, agent, or employee of High Yield shall be personally
liable hereunder. The execution and delivery of this Agreement have been
authorized by the directors of High Yield and signed by authorized officers
of High Yield acting as such, and neither such authorization by such
directors nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any
of them personally.
13.6 The obligations and liabilities of High Income hereunder are solely
those of High Income. lt is expressly agreed that no shareholder, nominee,
trustee, officer, agent, or employee of High Income shall be personally
liable hereunder. The execution and delivery of this Agreement have been
authorized by the trustees of High Income and signed by authorized officers
of High Income acting as such, and neither such authorization by such
trustees nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any
of them personally.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer.
DEAN WITTER HIGH INCOME SECURITIES
By: /s/ Charles A. Fiumefreddo
................................
NAME: CHARLES A. FIUMEFREDDO
TITLE: PRESIDENT
DEAN WITTER HIGH YIELD SECURITIES INC.
By: /s/ Barry Fink
................................
NAME: BARRY FINK
TITLE: VICE PRESIDENT
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EXHIBIT B
PROSPECTUS
JULY 28, 1997
Dean Witter High Yield Securities Inc. (the "Fund") is an
open-end diversified management investment company whose primary investment
objective 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. The Fund seeks high current income by investing principally
in fixed-income securities which are rated in the lower categories by
established rating services (Baa or lower by Moody's Investors Service, Inc.
or BBB or lower by Standard & Poor's Corporation) or are non-rated securities
of comparable quality.
INVESTORS SHOULD CAREFULLY CONSIDER THE RELATIVE RISKS, INCLUDING
THE RISK OF DEFAULT, OF INVESTING IN HIGH YIELD SECURITIES, WHICH ARE COMMONLY
KNOWN AS JUNK BONDS. BONDS OF THIS TYPE ARE CONSIDERED TO BE SPECULATIVE WITH
REGARD TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. INVESTORS SHOULD ALSO
BE COGNIZANT OF THE FACT THAT SUCH SECURITIES ARE NOT GENERALLY MEANT FOR SHORT-
TERM INVESTING AND SHOULD ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE
FUND. (See "Investment Objectives and Policies.")
The Fund offers four classes of shares (each, a "Class"), each
with a different combination of sales charges, ongoing fees and other features.
The different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Shares of the Fund held prior to July
28, 1997 have been designated Class D shares. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated July 28, 1997, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/4
Financial Highlights/6
The Fund and its Management/7
Investment Objectives and Policies/7
Special Risk Considerations/8
Investment Restrictions/13
Purchase of Fund Shares/14
Shareholder Services/25
Redemptions and Repurchases/28
Dividends, Distributions and Taxes/29
Performance Information/30
Additional Information/31
Appendix/32
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 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
High Yield Securities Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
PROSPECTUS SUMMARY
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The Fund An open-end diversified management investment company
investing principally in lower-rated fixed-income securities
(see page 7).
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Shares Offered Common stock of $0.01 par value (see page 31). The
Fund offers four Classes of shares, each with a different
combination of sales charges, ongoing fees and other features
(see pages 14-24).
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Minimum The minimum initial investment for each Class is $1,000 ($100
Purchase if the account is opened through EasyInvest(SM)). Class D
shares are only available to persons investing $5 million or
more and to certain other limited categories of investors.
For the purpose of meeting the minimum $5 million investment
for Class D shares, and subject to the $1,000 minimum
initial investment for each Class of the Fund, an investor's
existing holdings of Class A shares and shares of funds for
which Dean Witter InterCapital Inc. serves as investment
manager ("Dean Witter Funds") that are sold with a front-end
sales charge, and concurrent investments in Class D shares of
the Fund and other Dean Witter Funds that are multiple class
funds, will be aggregated. The minimum subsequent investment
is $100 (see page 14).
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Investment A high level of current income primarily; capital appreciation
Objectives is secondary (see page 7).
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Investment High yield fixed-income securities, principally rated Baa/BBB
Policies or lower, and non-rated securities of comparable quality.
However, the Fund may also invest in municipal securities,
futures and options and common stock (see pages 7-14).
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Investment Dean Witter InterCapital Inc., the Investment Manager of the
Manager Fund, and its wholly-owned subsidiary, Dean Witter Services
Company, Inc., serve in various investment management,
advisory, management and administrative capacities to 100
investment companies and other portfolios, with assets of
approximately $ billion at June 30, 1997 (see page 7).
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Management The monthly fee is at an annual rate of 1/2 of 1% of average
Fee daily net assets, scaled down on assets over $500 million
(see page 7).
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Distributor Dean Witter Distributors Inc. (the "Distributor"). The Fund
and has adopted a distribution plan pursuant and to Rule 12b-1
Distribution under the Investment Company Act (the "12b-1 Plan") with
Fee respect to the distribution fees paid by the
Class A, Class B and Class C shares of the Fund to the
Distributor. The entire Fee 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 0.20% of the average daily net assets of Class B
and 0.25% of the average daily net assets of Class C are
currently each characterized as a service fee within the
meaning of the National Association of Securities Dealers,
Inc. guidelines. The remaining portion of the 12b-1 fee, if
any, is characterized as an asset-based sales charge (see
pages 14 and 23).
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Alternative Four classes of shares are offered:
Purchase
Arrangements o Class A shares are offered with a front-end sales charge,
starting at 4.25% and reduced for larger purchases.
Investments of $1 million or more (and investments by certain
other limited categories of investors) are not subject to any
sales charge at the time of purchase but a contingent deferred
sales charge ("CDSC") of 1.0% may be imposed on redemptions
within one year of purchase. The Fund is authorized to
reimburse the Distributor for specific expenses incurred in
promoting the distribution of the Fund's Class A shares and
servicing shareholder accounts pursuant to the Fund's 12b-1
Plan. Reimbursement may in no event exceed an amount equal to
payments at an annual rate of 0.25% of average daily net
assets of the Class (see pages 14, 17 and 23).
2
<PAGE>
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o Class B shares are offered without a front-end sales charge,
but will in most cases be subject to a CDSC (scaled down from
5.0% to 1.0%) if redeemed within six years after purchase. The
CDSC will be imposed on any redemption of shares if after such
redemption the aggregate current value of a Class B account
with the Fund falls below the aggregate amount of the
investor's purchase payments made during the six years
preceding the redemption. A different CDSC schedule applies to
investments by certain qualified plans. Class B shares are
also subject to a 12b-1 fee assessed at the annual rate of
0.75% of the average daily net assets of Class B. Class B
shares convert to Class A shares approximately ten years after
the date of the original purchase (see pages 14, 20 and 23).
o Class C shares are offered without a front-end sales charge,
but will in most cases be subject to a CDSC of 1.0% if
redeemed within one year after purchase. The Fund is
authorized to reimburse the Distributor for specific expenses
incurred in promoting the distribution of the Fund's Class C
shares and servicing shareholder accounts pursuant to the
Fund's 12b-1 Plan. Reimbursement may in no event exceed an
amount equal to payments at an annual rate of 0.85% of average
daily net assets of the Class (see pages 14, 22 and 23).
o Class D shares are offered only to investors meeting an
initial investment minimum of $5 million and to certain other
limited categories of investors. Class D shares are offered
without a front-end sales charge or CDSC and are not subject
to any 12b-1 fee (see pages 14, 22 and 23. All shares of the
Fund held prior to July 28, 1997 have been designated Class D
shares. Additional investments in Class D shares by
shareholders holding such shares may only be made if those
shareholders are otherwise eligible to purchase Class D
shares. However, shareholders holding such shares will receive
the benefit of the value of such shares towards reduced sales
charges on purchases of Class A shares pursuant to the Fund's
"Right of Accumulation" (see page 18).
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Dividends Dividends from net investment income are declared and paid
and monthly; distributions from net capital gains, if any, are
Capital Gains paid at least annually. The Fund may, however, determine to
Distributions retain all or part of any net long-term capital gains in any
year for reinvestment. Dividends and capital gains
distributions paid on shares of a Class are automatically
reinvested in additional shares of the same Class at net asset
value unless the shareholder elects to receive cash. Shares
acquired by dividend and distribution reinvestment will not be
subject to any sales charge or CDSC (see pages 25 and 29).
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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 28).
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Risks The net asset value of the Fund's shares will fluctuate with
changes in the market value of its portfolio securities. The
Fund's yield will also vary based on the yield of the Fund's
portfolio securities. Compared with higher rated, lower
yielding fixed-income securities, portfolio securities of the
Fund may be subject to greater risk of loss of income and
principal, including the risk of default, and greater risk of
increases and decreases in net asset value due to market
fluctuations. The Fund may purchase foreign securities,
when-issued and delayed delivery and when, as and if issued
securities and other securities subject to repurchase
agreements which involve certain special risks. The Fund may
purchase common stock which is exchangeable for fixed-income
securities in circumstances involving takeovers or
recapitalizations. The Fund may also invest in futures and
options which may be considered speculative in nature and may
involve greater risks than those customarily assumed by
certain other investment companies which do not invest in such
instruments. Investors should review the investment objectives
and policies of the Fund carefully and consider their ability
to assume the risks involved in purchasing shares of the Fund
(see pages 7-14).
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The above is qualified in its entirety by the detailed information appearing
elsewhere in the Prospectus and the Statement of Additional Information.
3
<PAGE>
SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of the
Fund will incur. The expenses and fees set forth in the table are based on the
expenses and fees for the fiscal year ended August 31, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ----------- ----------- -----------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)................. 4.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments.. None None None None
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds).......................... None(2) 5.00%(3) 1.00%(4) None
Redemption Fees................................. None None None None
Exchange Fee.................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Management Fees................................. 0.50% 0.50% 0.50% 0.50%
12b-1 Fees (5) (6).............................. 0.25% 0.75% 0.85% None
Other Expenses.................................. 0.16% 0.16% 0.16% 0.16%
Total Fund Operating Expenses (7)............... 0.91% 1.41% 1.51% 0.66%
</TABLE>
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(1) Reduced for purchases of $25,000 and over (see "Purchase of FUND
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of purchase
are subject to a CDSC of 1.00% that will be imposed on redemptions made
within one year after purchase, except for certain specific circumstances
(see "Purchase of Fund Shares--Initial Sales Charge Alternative--Class A
Shares").
(3) The CDSC is scaled down annually to 1.00% during the sixth year, reaching
zero thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1 fee
payable by Class A and a portion of the 12b-1 fee payable by each of Class B
and Class C equal to 0.20% of the average daily net assets of Class B and
0.25% of the average daily net assets of Class C are currently each
characterized as a service fee within the meaning of National Association of
Securities Dealers, Inc. ("NASD") guidelines and are payments made for
personal service and/or maintenance of shareholder accounts. The remainder
of the 12b-1 fee, if any, is an asset-based sales charge, and is a
distribution fee paid to the Distributor to compensate it for the services
provided and the expenses borne by the Distributor and others in the
distribution of the Fund's shares (see "Purchase of Fund Shares--Plan of
Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will be
subject to the lower 12b-1 fee applicable to Class A Shares. No sales charge
is imposed at the time of conversion of Class B Shares to Class A shares.
Class C shares do not have a conversion feature and, therefore, are subject
to an ongoing 0.85% distribution fee (see "Purchase of Fund
Shares--Alternative Purchase Arrangements").
(7) There were no outstanding shares of Class A, Class B or Class C prior to the
date of this Prospectus. Accordingly, "Total Fund Operating Expenses," as
shown above with respect to those Classes, are based upon the sum of 12b-1
Fees, Management Fees and estimated "Other Expenses."
4
<PAGE>
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<TABLE>
<CAPTION>
Examples 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ----------- ----------- ----------- -----------
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the
end of each time period:
<S> <C> <C> <C> <C>
Class A.................................................. $ 51 $ 70 $ 91 $ 150
Class B.................................................. $ 64 $ 75 $ 97 $ 169
Class C.................................................. $ 25 $ 48 $ 82 $ 180
Class D.................................................. $ 7 $ 21 $ 37 $ 82
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A.................................................. $ 51 $ 70 $ 90 $ 150
Class B.................................................. $ 14 $ 45 $ 77 $ 169
Class C.................................................. $ 15 $ 48 $ 82 $ 180
Class D.................................................. $ 7 $ 21 $ 37 $ 82
</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.
5
<PAGE>
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of capital stock
outstanding throughout each of the periods through August 31, 1996 have been
audited by Price Waterhouse LLP, independent accountants. The information for
the six-month period ended February 28, 1997 is unaudited. The financial
highlights should be read in conjunction with the financial statements, the
notes thereto and the unqualified report of independent accountants which are
contained in the Statement of Additional Information. Further information about
the performance of the Fund is contained in the Fund's Annual Report to
Stockholders, which may be obtained without charge upon request to the Fund. All
shares of the Fund held prior to July 28, 1997 have been designated Class D
shares.
<TABLE>
<CAPTION>
FOR THE
SIX
MONTHS
ENDED FOR THE YEAR ENDED AUGUST 31
FEBRUARY ------------------------------------------------------------------------------------------
28, 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $6.71 $ 6.77 $ 6.83 $ 7.58 $ 7.23 $ 5.92 $ 6.78 $ 10.40 $ 11.99 $ 13.72 $ 14.16
----- ------ ------ ---- ------ ------ ------ ------- ------- ------- -------
Net investment income... 0.38 0.83 0.80 0.79 0.89 0.95 0.94 1.48 1.67 1.84 1.82
Net realized and
unrealized gain
(loss)................. 0.07 (0.12) (0.06) (0.68) 0.54 1.04 (0.86) (3.78) (1.48) (1.77) (0.48)
----- ----- ----- ----- ---- ---- ----- ----- ----- ----- -----
Total from investment
operations............. 0.45 0.71 0.74 0.11 1.43 1.99 0.08 (2.30) 0.19 0.07 1.38
----- ---- ---- ---- ---- ---- ---- ----- ---- ---- ----
Less dividends and
distributions from:
Net investment
income............... (0.50) (0.77) (0.80) (0.86) (1.08) (0.68) (0.94) (1.32) (1.75) (1.80) (1.80)
Paid-in-capital....... -- -- -- -- -- -- -- -- (0.03) -- --
----- ----- ------ ------ ------ ----- ----- ----- ----- ----- -----
Total dividends and
distributions.......... (0.50) (0.77) (0.80) (0.86) (1.08) (0.68) (0.94) (1.32) (1.78) (1.80) (1.80)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
period................. $6.66 $6.71 $6.77 $6.83 $7.58 $7.23 $5.92 $6.78 $10.40 $11.99 $13.72
----- ----- ------ ----- ----- ----- ----- ----- ------ ------ ------
----- ----- ------ ----- ----- ----- ----- ----- ------ ------ ------
TOTAL INVESTMENT
RETURN+.................. 6.92% (1) 11.07% 11.98% 0.93% 22.29% 35.46% 4.67% (23.28)% 1.39% 0.97% 10.07%
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ 0.67% (2) 0.66% 0.79% 0.69% 0.67% 0.77% 0.87% 0.60% 0.49% 0.49% 0.51%
Net investment income... 11.34% (2) 12.27% 12.06% 10.40% 12.14% 13.96% 16.47% 17.67% 14.61% 14.79% 12.83%
SUPPLEMENTAL DATA:
Net assets, end of
period, in millions.... $473 $460 $455 $478 $540 $512 $436 $690 $1,794 $2,140 $2,034
Portfolio turnover
rate................... 50% (1) 49% 74% 127% 173% 113% 93% 21% 55% 107% 176%
</TABLE>
- -----------------
+ Does not reflect the deduction of sales load. Calculated based on the net
asset value of the last business day of the period.
(1) Not annualized
(2) Annualized
6
<PAGE>
THE FUND AND ITS MANAGEMENT
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Dean Witter High Yield Securities Inc. (the "Fund") is an open-end
diversified management investment company incorporated in Maryland on June 14,
1979.
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 100 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined total assets of
approximately $ billion as of June 30, 1997. The Investment Manager also
manages, and advises managers of, common stock portfolios of pension plans,
other institutions and individuals which aggregated approximately $ billion
at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
The Fund's Board of Directors reviews the various services provided by or
under the direction of the Investment Manager to ensure that the Fund's general
investment policies and programs are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying a
percentage rate to the daily net assets of the Fund which declines as net assets
of the Fund reach levels over $500 million (up to $3 billion). For the fiscal
year ended August 31, 1996, the Fund accrued total compensation to the
Investment Manager amounting to 0.50% of the Fund's average daily net assets and
the Fund's total expenses amounted to 0.66% of the Fund's average daily net
assets.
INVESTMENT OBJECTIVES AND POLICIES
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The primary investment objective of the 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. There is no assurance
that the objectives will be achieved.
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 Investors Service, Inc. ("Moody's"), or BBB or
lower by Standard & Poor's Corporation ("Standard & Poor's"). Fixed-income
securities rated Baa by Moody's or BBB by Standard & Poor's
7
<PAGE>
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 Standard &
Poor's, 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 Standard & Poor's. 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 Standard & Poor's, 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 "Special
Investment Considerations" below. A description of corporate bond ratings is
contained in the Appendix.
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.
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. However, as the creditworthiness
of issuers of lower-rated fixed-income securities is more problematical than
that of issuers of higher-rated fixed-income securities, the achievement of the
Fund's investment objective will be more dependent upon the Investment Manager's
own credit analysis than would be the case with a mutual fund investing
primarily in higher quality bonds. The Investment Manager will utilize a
security's credit rating as simply one indication of an issuer's
creditworthiness and will principally rely upon its own analysis of any security
currently held by the Fund or potentially purchasable by the Fund for its
portfolio.
In determining which securities to purchase or hold for the Fund's portfolio
and in seeking to reduce credit and interest rate risks, the Investment Manager
will rely on information from various sources, including: the rating of the
security; research, analysis and appraisals of brokers and dealers, including
DWR; the views of the Fund's directors and others regarding economic
developments and interest rate trends; and the Investment Manager's own analysis
of factors it deems relevant. The extent to which the Investment Manager is
successful in reducing depreciation or losses arising from either interest rate
or credit risks depends in part on the Investment Manager's portfolio management
skills and judgment in evaluating the factors affecting the value of securities.
No assurance can be given regarding the degree of success that will be achieved.
SPECIAL RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities. The Fund's yield will also vary based
on the yield of the Fund's portfolio securities.
8
<PAGE>
Because of the special nature of the 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 the Fund, as well as on the ability of the securities'
issuers to repay principal and interest on their borrowings.
The prices of high yield securities have been found to be less sensitive to
changes in prevailing interest rates than higher-rated investments, but are
likely to be more sensitive to adverse economic changes or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. If the issuer of a fixed-income security owned by the Fund
defaults, the Fund may incur additional expenses to seek recovery. In addition,
periods of economic uncertainty and change can be expected to result in an
increased volatility of market prices of high yield securities and a concomitant
volatility in the net asset value of a share of the Fund. Moreover, the market
prices of certain of the 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 (see "Dividends, Distributions and Taxes"
for a discussion of the tax ramifications of investments in such securities).
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The limited liquidity of the market
may also adversely affect the ability of the Fund's Directors to arrive at a
fair value for certain high yield securities at certain times and could make it
difficult for the Fund to sell certain securities. In addition, new laws and
potential new laws may have an adverse effect upon the value of high yield
securities and a concomitant negative impact upon the net asset value of a share
of the Fund.
During the fiscal year ended August 31, 1996, the monthly dollar weighted
average ratings of the debt obligations held by the Fund, expressed as a
percentage of the Fund's total investments, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
-------------------- ----------------------
<S> <C>
AAA/Aaa 0.1%
AA/Aa 0.0%
A/A 6.2%
BBB/Baa 0.0%
BB/Ba 6.2%
B/B 74.9%
CCC/Caa 6.6%
CC/Ca 0.0%
C/C 0.0%
D 0.0%
Unrated 6.0%
</TABLE>
Consistent with its primary investment objective, the Fund anticipates that,
under normal conditions, at least 65% of the value of its total assets will be
invested in the lower-rated and non-rated fixed-income securities previously
described. However, when the difference between yields derived from such
securities and those derived from higher rated issues are relatively narrow, the
Fund may invest in the higher rated issues since they may provide similar yields
with somewhat less risk. Fixed-income securities appropriate for the Fund may
include both convertible and nonconvertible debt securities and preferred stock.
Pending investment of proceeds from the sale of shares of the Fund or of its
portfolio securities or
9
<PAGE>
at other times when market conditions dictate a more "defensive" investment
strategy, the Fund may invest without limit in money market instruments,
including commercial paper of corporations organized under the laws of any state
or political subdivision of the United States, 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 (including zero coupon securities), or foreign
governments or their respective instrumentalities or agencies. The yield on
these securities will generally tend to be lower than the yield on other
securities to be purchased by the Fund. To the extent the Fund purchases
Eurodollar certificates of deposit issued by foreign branches of domestic United
States banks, consideration will be given to their domestic marketability, the
lower reserve requirements normally mandated for overseas banking operations,
the possible impact of interruptions in the flow of international currency
transactions and economic developments which might adversely affect the payment
of principal or interest.
Public Utilities. The Fund's investments in public utilities, if any, may
be subject to certain risks incurred by the Fund due to Federal, State or
municipal regulatory changes, insufficient rate increases or cost overruns.
Repurchase Agreements. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities, from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, including the risk of default or
bankruptcy of the selling institution, the Fund follows procedures designed to
minimize such risks.
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis; i.e., delivery and
payment can take place a month or more after the date of the transaction. These
securities are subject to market fluctuation and no interest accrues to the
purchaser prior to settlement. At the time the Fund makes the commitment to
purchase such securities, it will record the transaction and thereafter reflect
the value, each day, of such security in determining its net asset value. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value.
When, as and if Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage of
the Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value.
Foreign Securities. The Fund may invest up to 20% of its total assets in
fixed-income securities issued by foreign governments and other foreign issuers
and in foreign currency issues of domestic issuers, but not more than 10% of its
total assets in such securities, whether issued by a foreign or domestic issuer,
which are denominated in foreign currency. Foreign securities investments may be
affected by changes in currency rates or exchange
10
<PAGE>
control regulations, changes in governmental administration or economic or
monetary policy (in the United States and abroad) or changed circumstances in
dealings between nations. Costs will be incurred in connection with conversions
between various currencies held by the Fund.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Finally, in the event of a
default of any foreign debt obligations, it may be more difficult for the Fund
to obtain or enforce a judgment against the issuers of such securities.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of the Fund's trades effected in such markets. As such, the
inability to dispose of portfolio securities due to settlement delays could
result in losses to the Fund due to subsequent declines in value of such
securities and the inability of the Fund to make intended security purchases due
to settlement problems could result in a failure of the Fund to make potentially
advantageous investments.
Common Stocks. The Fund may invest in common stocks in an amount up to 20%
of its total assets. The Fund may directly purchase common stocks on the open
market. In addition, the Fund may acquire common stocks when they are included
in a unit with fixed-income securities purchased by the Fund; when fixed-income
securities held by the Fund are converted to equity issues; when the Fund
exercises a warrant; and when the Fund purchases the common stock of companies
involved in takeovers or recapitalizations, where the issuer or a stockholder
has offered, or pursuant to a "going private" transaction is effecting, a
transaction involving the issuance of newly issued fixed-income securities to
the holders of such common stock.
The prices of common stock are generally more volatile than those of
fixed-income securities. Moreover, not all common stock pay dividends and those
that do generally pay lower amounts than most fixed-income securities. The Fund
will only purchase common stocks directly when the Investment Manager believes
that their purchase will assist the Fund in meeting its investment objectives.
Zero Coupon Securities. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities
11
<PAGE>
are subject to substantially greater price fluctuations during periods of
changing prevailing interest rates than are comparable securities which pay
interest on a current basis. Current federal tax law requires that a holder
(such as the Fund) of a zero coupon security accrue a portion of the discount at
which the security was purchased as income each year even though the Fund
receives no interest payments in cash on the security during the year.
Futures Contracts and Options on Futures. The Fund may invest in financial
futures contracts ("futures contracts") and related options thereon. The Fund
may sell a futures contract or a call option thereon or purchase a put option on
such futures contract, if the Investment Manager anticipates interest rates to
rise, as a hedge against a decrease in the value of the Fund's portfolio
securities. If the Investment Manager anticipates that interest rates will
decline, the Fund may purchase a futures contract or a call option thereon or
sell a put option on such futures contract to protect against an increase in the
price of the securities the Fund intends to purchase. These futures contracts
and related options thereon will be used only as a hedge against anticipated
interest rate changes.
The Fund may not enter into futures contracts or purchase related options
thereon if immediately thereafter the amount committed to margin plus the amount
paid for premiums for unexpired options on futures contracts exceeds 5% of the
value of the Fund's total assets. The Fund may not purchase or sell futures
contracts or related options thereon if, immediately thereafter, more than
one-third of its net assets would be hedged.
Options. The Fund may purchase or sell (write) listed options on debt
securities as a means of achieving additional return or of hedging the value of
the Fund's portfolio. The Fund may only write covered options which are listed
on national securities exchanges. The Fund may not write covered options in an
amount exceeding 20% of the value of its total assets. The Fund may only buy
options which are listed on national securities exchanges. The Fund will not
purchase options if, as a result, the aggregate cost of all outstanding options
exceeds 10% of the Fund's total assets.
For a discussion of futures and options, including the risks of such
transactions, see the Statement of Additional Information.
Private Placements. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (See "Investment
Restrictions" in the Statement of Additional Information.) These securities are
generally referred to as private placements or restricted securities.
Limitations on the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Board of Directors of the Fund, will make
a determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid," such security will
not be considered to be "restricted" for purposes of the above-disclosed 5%
limitation and will not be included within the category "illiquid securities,"
which under current policy may not exceed 15% of the Fund's total assets.
However, investing in Rule 144A securities could have the effect of increasing
the level of Fund illiquidity to the extent the Fund, at a particular point of
time, may be unable to find qualified institutional buyers interested in
purchasing such securities.
12
<PAGE>
PORTFOLIO MANAGEMENT
The Fund is actively managed by the Investment Manager with a view to
achieving the Fund's investment objective. The Fund is managed within
InterCapital's Taxable Income Group, which managed approximately $ billion in
assets at June 30, 1997. Peter M. Avelar, Senior Vice President of InterCapital
and a member of InterCapital's Taxable Fixed-Income Group, has been the primary
portfolio manager of the Fund since January, 1991 and has been managing fixed
portfolios consisting of fixed-income and equity securities at InterCapital for
over five years.
Securities purchased by the Fund are, generally, sold by dealers acting as
principal for their own accounts. Pursuant to an order issued by the Securities
and Exchange Commission, the Fund may effect principal transactions in certain
money market instruments with Dean Witter Reynolds Inc. ("DWR") and other
broker-dealer affiliates of InterCapital. In addition, the Fund may incur
brokerage commissions on transactions conducted through DWR and other brokers
and dealers that are affiliates of InterCapital.
Although the Fund does not intend to engage in substantial short-term
trading, it may sell portfolio securities without regard to the length of time
that they have been held, in order to take advantage of new investment
opportunities or yield differentials, or because the Fund desires to preserve
gains or limit losses due to changing economic conditions, interest rate trends,
or the financial condition of the issuer. The Fund's portfolio turnover rate for
the fiscal year ended August 31, 1996 was 49%. The Fund will incur underwriting
discount costs (on underwritten securities) and brokerage costs commensurate
with its portfolio turnover rate. Short term gains and losses may result from
such portfolio transactions. See "Dividends, Distributions and Taxes" for a
discussion of the tax implications of the Fund's trading policy.
Except as otherwise noted, all investment policies and practices discussed
above are not fundamental policies of the Fund and, as such may be changed
without shareholder approval.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act.
The Fund may not:
1. Acquire common stocks in excess of 20% of its total assets.
2. Invest more than 5% of its total assets in the securities of any one
issuer (other than obligations of, or guaranteed by, the United States
Government, its agencies or instrumentalities).
3. Purchase more than 10% of the voting securities, or more than 10% of any
class of securities, of any issuer. For purposes of this restriction, all
outstanding debt securities of an issuer are considered as one class and all
preferred stocks of an issuer are considered as one class.
4. Invest more than 25% of its total assets in securities of issuers in any
one industry. For purposes of this restriction, gas, electric, water and
telephone utilities will each be treated as being a separate industry. This
restriction does not apply to obligations issued or guaranteed by the United
States Government or its agencies or instrumentalities.
5. Invest more than 5% of its total assets in securities of companies having
a record, together with predecessors, of less than three years of continuous
operation. This restriction shall not apply to any obligation of the United
States Government, its agencies or instrumentalities.
13
<PAGE>
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objectives by investing all or substantially all
of its assets in another investment company having substantially the same
investment objectives and policies as the Fund.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and Dean
Witter Distributors Inc. (the "Distributor"), an affiliate of the Investment
Manager, shares of the Fund are distributed by the Distributor and offered by
DWR and other dealers who have entered into agreements with the Distributor
("Selected Broker-Dealers"). The principal executive office of the Distributor
is located at Two World Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an initial sales charge are
subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a CDSC scaled down from 2.0% to
1.0% if redeemed within three years after purchase.) Class C shares are sold
without an initial sales charge but are subject to a CDSC of 1.0% on most
redemptions made within one year after purchase. Class D shares are sold without
an initial sales charge or CDSC and are available only to investors meeting an
initial investment minimum of $5 million, and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the Fund,
Class A shares may be sold to categories of investors in addition to those set
forth in this prospectus at net asset value without a front-end sales charge,
and Class D shares may be sold to certain other categories of investors, in each
case as may be described in the then current prospectus of the Fund. See
"Alternative Purchase Arrangements--Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million or more and to
certain other limited categories of investors. For the purpose of meeting the
minimum $5 million initial investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of the Fund, an investor's
existing holdings of Class A shares of the Fund and other Dean Witter Funds that
are multiple class funds ("Dean Witter Multi-Class Funds") and shares of Dean
Witter Funds sold with a front-end sales charge ("FSC Funds") and concurrent
investments in Class D shares of the Fund and other Dean Witter Multi-Class
Funds will be aggregated. Subsequent purchases of $100 or more may be made by
sending a check, payable to Dean Witter High Yield Securities Inc., directly to
Dean Witter Trust Company (the "Transfer Agent") at P.O. Box 1040, Jersey City,
N.J. 07303 or by contacting an account executive of DWR or other Selected
Broker-Dealer. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A, Class B, Class C or Class D shares. If no
Class is specified, the Transfer Agent will not process the transaction until
the proper Class is identified. The minimum initial purchase in the case of
investments through EasyInvest(SM), an automatic purchase plan (see "Shareholder
Services"), is $100, provided that the schedule of automatic investments will
result in investments totalling at least $1,000 within the first twelve months.
In the case of purchases made pursuant to Systematic Payroll Deduction
14
<PAGE>
plans (including Individual Retirement plans), the Fund, in its discretion, may
accept such Purchases without regard to any minimum amounts which would
otherwise be required if the Fund has reason to believe that additional
purchases will increase the amount of the purchase of shares 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 are sold through the Distributor on a normal three business day
settlement basis; that is, payment is due on the third business day (settlement
date) after the order is placed with the Distributor. Since DWR and other
Selected Broker-Dealers forward investors' funds on settlement date, they will
benefit from the temporary use of the funds if payment is made prior thereto. As
noted above, orders placed directly with the Transfer Agent must be accompanied
by payment. Investors will be entitled to receive income dividends and capital
gains distributions if their order is received by the close of business on the
day prior to the record date for such dividends and distributions. Sales
personnel of a Selected Broker-Dealer are compensated for selling shares of the
Fund by the Distributor 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 order.
Analogous Dean Witter Funds. The Distributor and the Investment Manager
serve in the same capacities for Dean Witter High Income Securities, an open-end
investment company with investment objectives and policies similar to those of
the Fund. Shares of Dean Witter High Income Securities are offered to the public
at net asset value, with a CDSC assessed upon redemptions within five years of
purchase, as well as an annual Rule 12b-1 distribution fee. The Classes of the
Fund and Dean Witter High Income Securities have differing fees and expenses,
which will affect performance. Investors who would like to receive a prospectus
for Dean Witter High Income Securities should call the telephone numbers listed
on the front cover of this Prospectus, or may call their account executive for
additional information.
The Board of Directors of the Fund and the Board of Trustees of Dean Witter
High Income Securities have approved a reorganization plan whereby Dean Witter
High Income Securities would be merged into the Fund. This plan is subject to
the consent of the Dean Witter High Income Securities shareholders. If approved,
the Funds' assets would be combined and Dean Witter High Income Securities
shareholders would become shareholders of the Fund, receiving Class B shares of
the Fund equal to the value of their holdings in Dean Witter High Income
Securities. A proxy statement formally detailing the proposal will be
distributed to Dean Witter High Income Securities shareholders in August 1997.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their needs.
The general public is offered three Classes of shares: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales charges
and rate of expenses to which they are subject. A fourth Class of shares, Class
D shares, is offered only to limited categories of investors (see "No Load
Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class A,
Class B and Class C shares bear the expenses of the ongoing shareholder service
fees, Class B and Class C shares bear the expenses of
15
<PAGE>
the ongoing distribution fees and Class A, Class B and Class C shares which are
redeemed subject to a CDSC bear the expense of the additional incremental
distribution costs resulting from the CDSC applicable to shares of those
Classes. The ongoing distribution fees that are imposed on Class A, Class B and
Class C shares will be imposed directly against those Classes and not against
all assets of the Fund and, accordingly, such charges against one Class will not
affect the net asset value of any other Class or have any impact on investors
choosing another sales charge option. See "Plan of Distribution" and
"Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.25%. 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 0.75% 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 0.85% 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
16
<PAGE>
the case of purchases of $1 million or more, no initial sales charges may find
Class A shares particularly attractive because similar sales charge reductions
are not available with respect to Class B or Class C shares. Moreover, Class A
shares are subject to lower ongoing expenses than are Class B or Class C shares
over the term of the investment. As an alternative, Class B and Class C shares
are sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses
of these Classes. Because the Fund's future return cannot be predicted,
however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 0.85% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million minimum investment amount for
Class D shares, holdings of Class A shares in all Dean Witter Multi-Class Funds,
shares of FSC Funds and shares of Dean Witter Funds for which such shares have
been exchanged will be included together with the current investment amount.
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
<S> <C> <C> <C>
A Maximum 4.25% 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% 0.75% B shares
CDSC during the convert to
first year A shares
decreasing to 0 automatically
after six years after
approximately
ten years
C 1.0% CDSC during 0.85% 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
17
<PAGE>
the time of purchase but are subject to a CDSC of 1.0% on redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased), except for certain specific circumstances. The
CDSC will be assessed on an amount equal to the lesser of the current market
value or the cost of the shares being redeemed. The CDSC will not be imposed (i)
in the circumstances set forth below in the section "Contingent Deferred Sales
Charge Alternative--Class B Shares--CDSC Waivers," except that the references to
six years in the first paragraph of that section shall mean one year in the case
of Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF AMOUNT
TRANSACTION PRICE INVESTED
- -------------------------- ------------------- ---------------------
<S> <C> <C>
Less than $25,000......... 4.25% 4.44%
$25,000 but less
than $50,000......... 4.00% 4.17%
$50,000 but less
than $100,000........ 3.50% 3.63%
$100,000 but less
than $250,000........ 2.75% 2.83%
$250,000 but less
than $1 million...... 1.75% 1.78%
$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
18
<PAGE>
front-end sales charge (including shares of the Fund and other Dean Witter Funds
acquired in exchange for those shares, and including in each case shares
acquired through reinvestment of dividends and distributions), which are held at
the time of such transaction, amounts to $25,000 or more. If such investor has a
cumulative net asset value of shares of FSC Funds and Class A and Class D shares
equal to at least $5 million, such investor is eligible to purchase Class D
shares subject to the $1,000 minimum initial investment requirement of that
Class of the Fund. See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from DWR or other Selected Broker-Dealers. The cost of Class A shares of the
Fund or shares of other Dean Witter Funds which were previously purchased at a
price including a front-end sales charge during the 90-day period prior to the
date of receipt by the Distributor of the Letter of Intent, or of Class A shares
of the Fund or shares of other Dean Witter Funds acquired in exchange for shares
of such funds purchased during such period at a price including a front-end
sales charge, which are still owned by the shareholder, may also be included in
determining the applicable reduction.
Additional Net Asset Value Purchase Options. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1) trusts for which Dean Witter Trust Company ("DWTC") or Dean Witter Trust
FSB ("DWTFSB") (each of which is an affiliate of the Investment Manager)
provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the Distributor,
pursuant to which such persons pay an asset based fee for services in the nature
of investment advisory or administrative services (such investments are subject
to all of the terms and conditions of such programs, which may include
termination fees and restrictions on transferability of Fund shares);
(3) retirement plans qualified under Section 401(k) of the Internal Revenue
Code ("401(k) plans") and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code with at least 200 eligible employees and for
which DWTC or DWTFSB serves as Trustee or the 401(k) Support Services Group of
DWR serves as recordkeeper;
(4) 401(k) plans and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code for which DWTC or DWTFSB serves as Trustee
or the 401(k) Support Services Group of DWR serves as recordkeeper whose Class B
shares have converted to Class A shares, regardless of the plan's asset size or
number of eligible employees;
(5) investors who are clients of a Dean Witter account executive who joined
Dean Witter from another investment firm within six months prior to the date of
purchase of Fund shares by such investors, if the shares are being purchased
with the proceeds from a redemption of shares of an open-end proprietary mutual
fund of the account executive's previous firm which imposed either a front-end
or deferred sales charge, provided such purchase was made within sixty days
after the redemption and the proceeds of the redemption had been maintained in
the interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
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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 0.75% of the 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:
YEAR SINCE CDSC AS A
PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- --------------------------------- -----------------------
First............................ 5.0%
Second........................... 4.0%
Third............................ 3.0%
Fourth........................... 2.0%
Fifth............................ 2.0%
Sixth............................ 1.0%
Seventh and thereafter........... None
In the case of Class B shares of the Fund held by 401(k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code for which DWTC or DWTFSB serves as Trustee or the 401(k) Support Services
Group of DWR serves as recordkeeper and whose accounts are opened on or after
July 28, 1997, shares held for three years or more after purchase (calculated as
described in the paragraph above) will not be subject to any CDSC upon
redemption. However, shares redeemed earlier than three years after purchase may
be subject to a CDSC (calculated as described in the paragraph above), the
percentage of which will depend on how long the shares have been held, as set
forth in the following table:
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- --------------------------------- -----------------------
First............................ 2.0%
Second........................... 2.0%
Third............................ 1.0%
Fourth and thereafter............ None
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain employer-sponsored benefit plans, three
years) preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption; and
(iii) the current net asset value of shares purchased through reinvestment of
dividends or distributions and/or shares acquired in exchange for shares of FSC
Funds or of other Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names
20
<PAGE>
of such shareholder and his or her spouse as joint tenants with right of
survivorship; or (B) held in a qualified corporate or self-employed retirement
plan, Individual Retirement Account ("IRA") or Custodial Account under Section
403(b)(7) of the Internal Revenue Code ("403(b) Custodial Account"), provided in
either case that the redemption is requested within one year of the death or
initial determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2); (B)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (C) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
401(k) plan or other employer-sponsored plan qualified under Section 401(a) of
the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper ("
Eligible Plan"), provided that either: (a) the plan continues to be an
Eligible Plan after the redemption; or (b) the redemption is in connection
with the complete termination of the plan involving the distribution of all
plan assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
Conversion To Class A Shares. Class B shares will convert automatically to
Class A shares, based on the relative net asset values of the shares of the two
Classes on the conversion date, which will be approximately ten (10) years after
the date of the original purchase. The ten year period is calculated from the
last day of the month in which the shares were purchased or, in the case of
Class B shares acquired through an exchange or a series of exchanges, from the
last day of the month in which the original Class B shares were purchased. The
conversion of shares will take place in the month following the tenth
anniversary of the purchase. There will also be converted at that time such
proportion of Class B shares acquired through automatic reinvestment of
dividends and distributions owned by the shareholder as the total number of his
or her Class B shares converting at the time bears to the total number of
outstanding Class B shares purchased and owned by the shareholder. In the case
of Class B shares held by a 401(k) plan or other employer-sponsored plan
qualified under Section 401(a) of the Internal Revenue Code and for which DWTC
or DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper, the plan is treated as a single investor and all Class B shares
will convert to Class A shares on the conversion date of the first shares of a
Dean Witter Multi-Class Fund purchased by that plan. In the case of Class B
shares previously exchanged for shares of an "Exchange Fund" (see "Shareholder
Services--Exchange Privilege"), the period of time the shares were held in the
Exchange Fund (calculated from the last day of the month in which the Exchange
Fund shares were acquired) is excluded from the holding period for conversion.
If those shares are subsequently re-exchanged for Class B shares of a Dean
Witter Multi-Class Fund, the holding period resumes on the last day of the month
in which Class B shares are reacquired.
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<PAGE>
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of that
section shall mean one year in the case of Class C shares. Class C shares are
subject to an annual 12b-1 fee of up to 0.85% of the average daily net assets of
the Class. Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject to 12b-1
fees applicable to Class C shares for an indefinite period subject to annual
approval by the Fund's Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million and the following
categories of investors: (i) investors participating in the InterCapital mutual
fund asset allocation program pursuant to which such persons pay an asset based
fee; (ii) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory or administrative services (subject to all
of the terms and conditions of such programs, which may include termination fees
and restrictions on transferability of Fund shares); (iii) 401(k) plans
established by DWR and SPS Transaction Services, Inc. (an affiliate of DWR) for
their employees; (iv) certain Unit Investment Trusts sponsored by DWR; (v)
certain other open-end investment companies whose shares are distributed by the
Distributor; and (vi) other categories of investors, at the discretion of the
Board, as disclosed in the then current prospectus of the Fund. All shares of
the Fund held prior to July 28, 1997 have been designated Class D shares.
Additional investments in Class D shares by shareholders holding such shares may
only be made if those shareholders are otherwise eligible to purchase Class D
shares. However, shareholders holding such shares will receive the benefit of
the value of such shares towards reduced sales charges on purchases of Class A
shares pursuant to the Fund's "Right of Accumulation" (see "Initial Sales Charge
Alternative--Class A Shares--Right of Accumulation"). 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
22
<PAGE>
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
Effective July 28, 1997, the Fund has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the Act with respect to the distribution of Class
A, Class B and Class C shares of the Fund. In the case of Class A and Class C
shares, the Plan provides that the Fund will reimburse the Distributor and
others for the expenses of certain activities and services incurred by them
specifically on behalf of those shares. Reimbursements for these expenses will
be made in monthly payments by the Fund to the Distributor, which will in no
event exceed amounts equal to payments at the annual rates of 0.25% and 0.85% of
the average daily net assets of Class A and Class C, respectively. In the case
of Class B shares, the Plan provides that the Fund will pay the Distributor a
fee, which is accrued daily and paid monthly, at the annual rate of 0.75% of the
average daily net assets of Class B. The fee is treated by the Fund as an
expense in the year it is accrued. In the case of Class A shares, the entire
amount of the fee currently represents a service fee within the meaning of the
NASD guidelines. In the case of Class B and Class C shares, a portion of the fee
payable pursuant to the Plan, equal to 0.20% and 0.25% of the average daily net
assets of each of these Classes, respectively, is currently characterized as a
service fee. A service fee is a payment made for personal service and/or the
maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses borne
by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of DWR's account executives
and others who engage in or support distribution of shares or who service
shareholder accounts, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's shares to other than current shareholders; and preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan in the case of Class B
shares to compensate DWR and other Selected Broker-Dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i) the
payments made by the Fund pursuant to the Plan, and (ii) the proceeds of CDSCs
paid by investors upon the redemption of Class B shares. For example, if $1
million in expenses in distributing Class B shares of the Fund had been incurred
and $750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. Because there is no requirement under the Plan
that the Distributor be reimbursed for all distribution expenses or any
requirement that the Plan be continued from year to year, such excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made to
the Distributor under the Plan, and the proceeds of CDSCs paid by investors upon
redemption of shares, if for any reason the Plan is terminated the Trustees will
consider at that time the manner in which to treat such expenses. Any cumulative
expenses incurred, but not yet recovered through distribution fees or
23
<PAGE>
CDSCs, may or may not be recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 0.85% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to account executives at the time of sale may be
reimbursed in the subsequent calendar year. No interest or other financing
charges will be incurred on any Class A or Class C distribution expenses
incurred by the Distributor under the Plan or on any unreimbursed expenses due
to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time on each day that the New York Stock Exchange is open (or, on days when
the New York Stock Exchange closes prior to 4:00 p.m., at such earlier time), by
taking the net assets of the Fund, dividing by the number of shares outstanding
and adjusting to the nearest cent. The assets belonging to the Class A, Class B,
Class C and Class D shares will be invested together in a single portfolio. The
net asset value of each Class, however, will be determined separately by
subtracting each Class's accrued expenses and liabilities. The net asset value
per share will not be determined on Good Friday and on such other federal and
non-federal holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign exchange is valued at its latest sale price on that exchange
prior to the time assets are valued; (if there were no sales that day, the
security is valued at the latest bid price); and (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest bid price. When market quotations are not readily
available, including circumstances under which it is determined by the
Investment Manager that sale or bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Fund's Board of Directors (valuation of securities for which market
quotations are not readily available may be based upon current market prices of
securities which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors).
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Directors. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
Municipal securities will be valued for the Fund by an outside computer
matrix pricing service approved by the Board of Directors. Periodically, the
Investment Manager and the Board of Directors review the continued
appropriateness of the prices obtained through the service.
Short-term debt securities with remaining maturities of 60 days or less at
the time of purchase are valued at amortized cost, unless the Board determines
such does not reflect the securities' fair value, in which case these securities
will be valued at their fair market value as determined by the Board of
Directors. Other short-term debt securities will be valued on a marked-to-market
basis until such time as they reach a maturity of 60 days, whereupon they will
be valued at amortized cost using their value on the 61st day unless the
Directors determine such does not reflect the securities' market value, in which
case these securities will be valued at their fair market value as determined by
the Board of Directors. Listed options on debt securities are val-
24
<PAGE>
ued at the latest sale price on the exchange on which they are listed unless no
sales of such options have taken place that day, in which case, they will be
valued at the mean between their closing bid and asked prices. Unlisted options
on debt securities and all options on equity securities are valued at the mean
between their latest bid and asked price. Futures are valued at the latest sale
price on the commodities exchange on which they trade unless the Directors
determine that such price does not reflect their market value, in which case
they will be valued at their fair value as determined by the Board of Directors.
All other securities and other assets are valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Board of Directors.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the shareholder,
in shares of any other open-end Dean Witter Fund), unless the shareholder
requests that they be paid in cash. Shares so acquired are acquired at net asset
value and are not subject to the imposition of a front-end sales charge or a
CDSC (see "Redemptions and Repurchases").
Investment of Distributions Received in Cash. Any shareholder who receives a
cash payment representing a dividend or capital gains distribution may invest
such dividend or distribution in shares of the applicable Class at the net asset
value next determined after receipt by the Transfer Agent, by returning the
check or the proceeds to the Transfer Agent within thirty days after the payment
date. Shares so acquired are acquired at net asset value and are not subject to
the imposition of a front-end sales charge or a CDSC (see "Redemptions and
Repurchases").
Easyinvest(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 Fund's Transfer Agent for investment in
shares of the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
Systematic Withdrawal Plan. A 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 plan
provides for monthly or quarterly (March, June, September, December) checks in
any amount, not less than $25, or in any whole percentage of the account
balance, on an annualized basis. Any applicable CDSC will be imposed on shares
redeemed under the Withdrawal Plan (see "Purchase of Fund Shares"). Therefore,
any shareholder participating in the Withdrawal Plan will have sufficient shares
redeemed from his or her account so that the proceeds (net of any applicable
CDSC) to the shareholder will be the designated monthly or quarterly amount.
Withdrawal plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Each withdrawal constitutes a
redemption of shares and any gain or loss realized must be recognized for
federal income tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
Tax-Sheltered Retirement Plans. Retirement plans are available through the
Investment Manager for use by corporations, the self-employed, Individual
Retirement Accounts and Custodial Accounts
25
<PAGE>
under Section 403(b)(7) of the Internal Revenue Code. Adoption of such plans
should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact the Fund.
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 holding
period for exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, any CDSC
Fund or any Exchange Fund that is not a money market fund is on the basis of the
next calculated net asset value per share of each fund after the exchange order
is received. When exchanging into a money market fund from the Fund, shares of
the Fund are redeemed out of the Fund at their next calculated net asset value
and the proceeds of the redemption are used to purchase shares of the money
market fund at their net asset value determined the following business day.
Subsequent exchanges between any of the money market funds and any of the Dean
Witter Multi-Class Funds, FSC Funds or CDSC Funds or any Exchange Fund that is
not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a Dean Witter Multi-Class
Fund or shares of a CDSC Fund, the holding period previously frozen when the
first exchange was made resumes on the last day of the month in which shares of
a Dean Witter Multi-Class Fund or shares of a CDSC Fund are reacquired. Thus,
the CDSC is based upon the time (calculated as described above) the shareholder
was invested in shares of a Dean Witter Multi-Class Fund or in shares of a CDSC
Fund (see "Purchase of Fund Shares"). In the case of exchanges of Class A shares
which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in shares of a FSC
Fund. However, in the case of shares exchanged into an Exchange Fund on or after
April 23, 1990, upon a redemption of shares which results in a CDSC being
imposed, a credit (not to exceed the amount of the CDSC) will be given in an
amount equal to the Exchange Fund 12b-1 distribution fees 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
26
<PAGE>
schedule, even if such shares are subsequently re-exchanged for shares of the
fund with the lower CDSC schedule.
Additional Information Regarding Exchanges. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional purchases
and/ or exchanges from the investor. Although the Fund does not have any
specific definition of what constitutes a pattern of frequent exchanges, and
will consider all relevant factors in determining whether a particular situation
is abusive and contrary to the best interests of the Fund and its other
shareholders, investors should be aware that the Fund and each of the other Dean
Witter Funds may in their discretion limit or otherwise restrict the number of
times this Exchange Privilege may be exercised by any investor. Any such
restriction will be made by the Fund on a prospective basis only, upon notice to
the shareholder not later than ten days following such shareholder's most recent
exchange. Also, the Exchange Privilege may be terminated or revised at any time
by the Fund and/or any of such Dean Witter Funds for which shares of the Fund
have been exchanged, upon such notice as may be required by applicable
regulatory agencies. Shareholders maintaining margin accounts with DWR or
another Selected Broker-Dealer are referred to their account executive regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. An exchange will be
treated for federal income tax purposes the same as a repurchase or redemption
of shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their DWR or other Selected Broker-Dealer account
executive (no Exchange Privilege Authorization Form is required). Other
shareholders (and those shareholders who are clients of DWR or other Selected
Broker-Dealer but who wish to make exchanges directly by 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.
27
<PAGE>
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 Form and who is unable to reach the Fund
by telephone should contact his or her DWR or other Selected Broker-Dealer
account executive, if appropriate, or make a written exchange request.
Shareholders are advised that during periods of drastic economic or market
changes, it is possible that the telephone exchange procedures may be difficult
to implement, although this has not been the experience of the 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
- --------------------------------------------------------------------------------
Redemption. Shares of each Class of the Fund can be redeemed for cash at
any time at the current 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 stock certificate, a written request for redemption is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption along with
any additional information requested by the Transfer Agent.
Repurchase. DWR and other Selected Broker-Dealers are authorized to
repurchase, as agent for the Fund, shares represented by a stock certificate
which is delivered to any of their offices. Shares held in a shareholder's
account without a stock certificate may also be repurchased by DWR and other
Selected Broker-Dealers upon the telephonic request of the shareholder. The
repurchase price is the net asset value next determined (see "Purchase of Fund
Shares") after such repurchase order is received by DWR or other Selected
Broker-Dealer reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund, the Distributor,
DWR or other Selected Broker-Dealers. The offer by DWR and other Selected
Broker-Dealers to repurchase shares may be suspended without notice by them at
any time. In that event, shareholders may redeem their shares through the Fund's
Transfer Agent as set forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended at
times 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 and other Selected Broker Dealers are
referred to their account executive regarding restrictions on redemption of
shares of the Fund pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at their net asset value next determined after a rein-
28
<PAGE>
statement request, together with the proceeds, is received by the Transfer Agent
and receive a pro rata credit for any CDSC paid in connection with such
repurchase or redemption.
Involuntary Redemption. The Fund reserves the right, on sixty days' notice,
to redeem, at their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or custodial account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100, or such lesser amount as
may be fixed by the Board of Directors or, in the case of an account opened
through EasyInvest, if after twelve months the shareholder has invested less
than $1,000 in the account. However, before the Fund redeems such shares and
sends the proceeds to the shareholder, it will notify the shareholder that the
value of the shares is less than the applicable amount and allow the shareholder
sixty days in which to make an additional investment in an amount which will
increase the value of the account to at least the applicable amount or more
before the redemption is processed. No CDSC will be imposed on any involuntary
redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions. The Fund declares dividends separately for
each Class of shares and intends to declare and pay monthly income dividends and
to distribute net short-term and net long-term capital gains, if any, at least
once each year. The Fund may, however, determine either to distribute or to
retain all or part of any long-term capital gains in any year for reinvestment.
All dividends and 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 stock certificate unless the shareholder requests in
writing that all dividends be paid in cash. Shares acquired by dividend and
distribution reinvestments will not be subject to any front-end sales charge or
CDSC. Class B shares acquired through dividend and distribution reinvestments
will become eligible for conversion to Class A shares on a pro rata basis.
Distributions paid on Class A and Class D shares will be higher than for Class B
and Class C shares because distribution fees paid by Class B and Class C shares
are higher. (See "Shareholder Services--Automatic Investment of Dividends and
Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and net capital gains to shareholders and otherwise continue to 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 such income and capital gains.
With respect to the Fund's investments in zero coupon and payment-in-kind
bonds, the Fund accrues income prior to any actual cash payments by their
issuers. In order to continue to comply with Subchapter M of the Internal
Revenue Code and remain able to forego payment of Federal income tax on its
income and capital gains, the Fund must distribute all of its net investment
income, including income accrued from zero coupon and payment-in-kind bonds. As
such, the Fund may be required to dispose of some of its portfolio securities
under disadvantageous circumstances to generate the cash required for
distribution.
Shareholders will normally have to pay Federal income taxes, and any
applicable state and/or local income taxes, on the dividends and distributions
they receive from the Fund. Such dividends and distributions, to the extent they
are derived from net investment income or net short-term capital gains, are
taxable to the shareholder as ordinary dividend income regardless of whether the
shareholder receives such distributions in additional shares or in cash. Any
dividends declared in the last calendar quarter of any year to shareholders of
record for that
29
<PAGE>
period which are paid in the following year prior to February 1 will be deemed
received by the shareholder in the prior year. Since the Fund's income is
expected to be derived primarily from interest rather than dividends, only a
small portion, if any, of such dividends and distributions is expected to be
eligible for the Federal dividends received deduction available to corporations.
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. Capital gains may be generated by transactions
in options and futures contracts engaged in by the Fund.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return of
a portion of each shareholder's investment. All, or a portion, of such payments
will not be taxable to shareholders.
After the end of the calendar year, shareholders will receive a statement of
their dividends and capital gains distributions for tax purposes, including
information as to the portion taxable as ordinary income and the portion taxable
as capital gains.
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 regarding specific questions
as to state or local taxes and as to the applicability of the foregoing to their
current federal tax situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. These figures are computed separately
for Class A, Class B, Class C and Class D shares. Both the yield and the total
return of the Fund are based on historical earnings and are not intended to
indicate future performance. The yield of each Class of the Fund will be
computed by dividing the Class's net investment income over a 30-day period by
an average value (using the average number of shares entitled to receive
dividends and the maximum offering price per share at the end of the period),
all in accordance with applicable regulatory requirements. Such amount will be
compounded for six months and then annualized for a twelve-month period to
derive the Fund's yield for each Class.
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. 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 incurred by shareholders,
for the stated periods. It also assumes reinvestment of all dividends and
distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may advertise the growth of hypothetical
investments of $10,000, $50,000 or $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.
30
<PAGE>
Prior to July 28, 1997 the Fund offered only one Class of shares. Because
the distribution arrangement for Class A most closely resembles the distribution
arrangement applicable prior to the implementation of multiple classes,
historical performance information may be restated to reflect the current
maximum sales charge applicable to Class A. In addition, because all shares of
the Fund held prior to July 28, 1997 have been designated Class D shares, the
Fund's historical performance may also be restated to reflect the absence of any
sales charge in the case of Class D shares.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Voting Rights. All shares of the Fund are of common stock of $0.01 par
value and are equal as to earnings, assets and voting privileges except that
each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other matter
in which the interests of one Class differ from the interests of any other
Class. In addition, Class B shareholders will have the right to vote on any
proposed material increase in Class A's expenses, if such proposal is submitted
separately to Class A shareholders. Also, as discussed herein, Class A, Class B
and Class C bear the expenses related to the distribution of their respective
shares.
Under ordinary circumstances, the Fund is not required, nor does it intend,
to hold Annual Meetings of Stockholders. The Directors may call Special Meetings
of Stockholders for action by stockholder vote as may be required by the Act or
the Fund's By-Laws.
Code of Ethics. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is engaged at the same time in a purchase or sale of the same
security. The Code of Ethics bans the purchase of securities in an initial
public offering, and also prohibits engaging in futures and options transactions
and profiting on short-term trading (that is, a purchase within 60 days of a
sale or a sale within 60 days of a purchase) of a security. In addition,
investment personnel may not purchase or sell a security for their personal
account within 30 days before or after any transaction in any Dean Witter Fund
managed by them. Any violations of the Code of Ethics are subject to sanctions,
including reprimand, demotion or suspension or termination of employment. The
Code of Ethics comports with regulatory requirements and the recommendations in
the 1994 report by the Investment Company Institute Advisory Group on Personal
Investing.
Master/feeder Conversion. The Fund reserves the right to seek to achieve
its investment objectives by investing all of its investable assets in a
diversified, open-end management investment company having the same investment
objectives and policies and substantially the same investment restrictions as
those applicable to the Fund.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
31
<PAGE>
APPENDIX -- RATINGS OF INVESTMENTS
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate,
and therefore not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this
class.
B Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
32
<PAGE>
Conditional Rating: Municipal bonds for which the security depends
upon the completion of some act or the fulfillment of some condition are
rated conditionally. These are bonds secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals which begin when facilities are completed, or
(d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and
3 in each generic rating classification from Aa through B in its
corporate and municipal bond rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and a modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to
repay punctually promissory obligations not having an original maturity
in excess of nine months. Moody's employs the following three
designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of
short-term promissory obligations. Issuers rated Prime-2 have a strong
capacity for repayment of short-term promissory obligations; and Issuers
rated Prime-3 have an acceptable capacity for repayment of short-term
promissory obligations. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers
reliable. The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default-capacity and willingness of
the obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation; (2) nature of
and provisions of the obligation; and (3) protection afforded by, and
relative position of, the obligation in the event of bankruptcy,
reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
reasons.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
33
<PAGE>
A Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and
principal payment.
B Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
CCC Debt rated CCC has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal.
CC The rating CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
CI The rating CI is reserved for income bonds on which no interest is
being paid.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
Bonds rated BB, B, CCC, CC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest
and repay principal. BB indicates the least degree of speculation and
C the highest degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major ratings categories.
In the case of municipal bonds, the foregoing ratings are sometimes
followed by a "p" which indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project
being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of
the project, makes no comment on the likelihood or risk of default
upon failure of such completion.
34
<PAGE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt having an original maturity
of no more than 365 days. The commercial paper rating is not a
recommendation to purchase or sell a security. The ratings are based
upon current information furnished by the issuer or obtained by S&P from
other sources it considers reliable. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of
such information. Ratings are graded into group categories, ranging from
"A" for the highest quality obligations to "D" for the lowest. Ratings
are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designation 1, 2 and 3 to indicate the relative degree of
safety.
A-1 indicates that the degree of safety regarding timely payment is very
strong.
A-2 indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as
for issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations
carrying this designation are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying
the higher designations.
35
<PAGE>
Dean Witter
High Yield Securities Inc.
Two World Trade Center
New York, New York 10048
BOARD OF DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell DEAN WITTER
John L. Schroeder HIGH YIELD
SECURITIES
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Barry Fink
Vice President, Secretary and
General Counsel
Peter M. Avelar
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
PROSPECTUS -- JULY 28, 1997
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS AUGUST 31, 1996
DEAR SHAREHOLDER:
The fixed-income markets rebounded sharply during the second half of 1995, as
economic growth slowed and inflation fears subsided. This trend reversed itself
in the first half of 1996, as signs of an economic recovery caused the U.S.
Treasury market to retreat. The high-yield market, which performed nicely during
1995's market rally, held up relatively well during the first eight months of
1996, even as interest rates moved up sharply. While signs of an economic
recovery have led to a sharp increase in interest rates, this recovery also
bodes well for the future prospects of many corporate issuers in the high-yield
marketplace and helps erase some of the recession fears that plagued the
high-yield market in late 1995.
Against this backdrop, Dean Witter High Yield Securities Inc. produced a total
return of 11.07 percent for the twelve-month period ended August 31, 1996. Over
the past twelve months, the Fund continued to distribute regular income
dividends at a rate of $0.055 per share per month. For the full fiscal year, the
Fund's distributions totaled $0.767 per share, including an extra income
dividend of $0.107 per share paid on December 29, 1995. On August 31, 1996, the
Fund's net assets exceeded $460 million. The accompanying chart illustrates the
growth of a $10,000 investment in the Fund for the ten-year period ended August
31, 1996 versus the performance of the Lehman Brothers Mutual Fund
Corporate/High Yield Index. (The Fund commenced operations on September 26,
1979.)
INVESTMENT STRATEGY
The Fund's investment strategy remained essentially unchanged over the past
year, with a continued emphasis on discontinued B-rated issues. In today's
market, many of these issues can be purchased below par providing significant
future appreciation potential and an attractive yield versus comparable
Treasuries (in the 11 percent to 12 percent range). In light of the rebounding
economy, we feel quite comfortable
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
LETTER TO THE SHAREHOLDERS AUGUST 31, 1996, CONTINUED
with the earnings outlook for most of our B-rated issuers. Recognizing that the
economy may slow somewhat during the remainder of 1996, we have tried to limit
the portfolio's volatility by
focusing primarily on growth type, [GRAPHIC]
recession resistant industry sectors
such as cable, media, foods and
beverages and telecommunications.
MARKET OUTLOOK
Given our outlook for continued, albeit
moderate economic growth, we find that
many of today's B-rated issues offer
excellent long-term return potential.
Over the near term, there could be
continued volatility in the financial
markets as investors assess the
economy's strength, possible Federal
Reserve Board actions and the upcoming
Presidential election. However, despite
any potential short-term weakness, we
consider today's high-yield market to
be an attractive long-term opportunity
for investors.
We appreciate your support of Dean
Witter High Yield Securities Inc. and
look forward to continuing to serve
your investment needs and objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (87.6%)
AEROSPACE (1.6%)
$ 9,000 Sabreliner Corp. (Series B)................. 12.50 % 04/15/03 $ 7,515,000
---------------
AUTOMOTIVE (3.5%)
4,000 APS, Inc.................................... 11.875 01/15/06 4,260,000
7,700 Envirotest Systems, Inc..................... 9.125 03/15/01 6,930,000
6,018 Envirotest Systems, Inc..................... 9.625 04/01/03 4,694,040
---------------
15,884,040
---------------
BROADCAST MEDIA (2.9%)
4,000 Adams Outdoor Advertising................... 10.75 03/15/06 4,090,000
4,000 Paxson Communications Corp.................. 11.625 10/01/02 4,190,000
5,000 Spanish Broadcasting System, Inc............ 7.50 06/15/02 5,150,000
---------------
13,430,000
---------------
BUSINESS SERVICES (4.1%)
4,072 Anacomp, Inc................................ 13.00+ 06/04/02 4,010,920
2,000 Pierce Leahy Corp. - 144A*.................. 11.125 07/15/06 2,085,000
12,000 Xerox Corp.................................. 15.00 06/10/97 12,788,280
---------------
18,884,200
---------------
CABLE & TELECOMMUNICATIONS (13.0%)
9,180 Adelphia Communications Corp. (Series B).... 9.50+ 02/15/04 7,561,987
5,000 American Communications Services, Inc....... 12.75++ 04/01/06 2,600,000
12,000 AT&T Capital Corp........................... 15.00 05/05/97 12,680,640
5,000 Charter Communication South East L.P.
(Series B).................................. 11.25 03/15/06 4,975,000
5,373 Falcon Holdings Group L.P. (Series B)....... 11.00+ 09/15/03 4,875,624
5,000 Hyperion Communication - 144A*.............. 13.00++ 04/15/03 2,775,000
28,500 In-Flight Phone Corp. (Series B)............ 14.00++ 05/15/02 10,687,500
4,000 IXC Communications Inc. (Series B).......... 12.50 10/01/05 4,120,000
5,050 Peoples Telephone Co., Inc.................. 12.25 07/15/02 5,087,875
4,000 Rifkin Acquisition Partners L.P............. 11.125 01/15/06 4,015,000
---------------
59,378,626
---------------
COMPUTER EQUIPMENT (3.9%)
4,000 Advanced Micro Devices...................... 11.00 08/01/03 4,070,000
5,000 Unisys Corp................................. 15.00 07/01/97 5,300,000
7,900 Unisys Corp. (Conv.)........................ 8.25 03/15/06 8,770,738
---------------
18,140,738
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSUMER PRODUCTS (1.2%)
$ 5,500 J.B Williams Holdings, Inc.................. 12.00 % 03/01/04 $ 5,527,500
---------------
CONTAINERS (3.3%)
8,000 Ivex Holdings Corp. (Series B).............. 13.25++ 03/15/05 5,040,000
5,000 Mail-Well Corp.............................. 10.50 02/15/04 4,900,000
5,000 Packaging Resources Inc. - 144A*............ 11.625 05/01/03 5,075,000
---------------
15,015,000
---------------
ELECTRICAL & ALARM SYSTEMS (2.0%)
11,000 Mosler, Inc................................. 11.00 04/15/03 9,295,000
---------------
ENTERTAINMENT/GAMING & LODGING (8.5%)
4,000 AMF Group Inc. - 144A*...................... 10.875 03/15/06 4,000,000
9,000 Fitzgeralds Gaming Corp. (Units)+++......... 13.00 12/31/02 6,750,000
5,000 Lady Luck Gaming Finance Corp............... 11.875 03/01/01 4,925,000
8,000 Motels of America, Inc. (Series B).......... 12.00 04/15/04 7,200,000
4,000 Players International, Inc.................. 10.875 04/15/05 3,940,000
4,000 Plitt Theaters, Inc. (Canada)............... 10.875 06/15/04 4,040,000
41,950 Spectravision, Inc. (a)..................... 11.65 12/01/02 4,213,778
4,000 Station Casinos, Inc........................ 9.625 06/01/03 3,820,000
---------------
38,888,778
---------------
FOODS & BEVERAGES (8.1%)
21,271 Envirodyne Industries, Inc.................. 10.25 12/01/01 18,931,190
42,650 Specialty Foods Acquisition Corp. (Series
B).......................................... 13.00++ 08/15/05 18,339,550
---------------
37,270,740
---------------
HEALTHCARE (1.4%)
8,250 Unilab Corp................................. 11.00 04/01/06 6,517,500
---------------
MANUFACTURING (5.5%)
4,150 Alpine Group, Inc........................... 12.25 07/15/03 4,305,625
5,000 Berry Plastics Corp......................... 12.25 04/15/04 5,350,000
4,000 Exide Electronics Group, Inc. (Series B).... 11.50 03/15/06 4,040,000
5,000 International Wire Group, Inc............... 11.75 06/01/05 5,118,750
7,000 Uniroyal Technology Corp.................... 11.75 06/01/03 6,650,000
---------------
25,464,375
---------------
MANUFACTURING - DIVERSIFIED (6.5%)
4,000 Foamex L.P.................................. 11.875 10/01/04 4,200,000
5,000 Interlake Corp.............................. 12.125 03/01/02 5,112,500
5,000 J.B. Poindexter & Co., Inc.................. 12.50 05/15/04 4,775,000
6,030 Jordan Industries, Inc...................... 10.375 08/01/03 5,834,025
13,420 Jordan Industries, Inc...................... 11.75++ 08/01/05 9,930,800
5,000 Starcraft Industrial Corp. (a).............. 16.50 01/15/98 --
---------------
29,852,325
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OIL & GAS (1.0%)
$ 5,500 Empire Gas Corp............................. 7.00 % 07/15/04 $ 4,785,000
---------------
PUBLISHING (4.4%)
8,000 Affiliated Newspapers Investments, Inc...... 13.25++ 07/01/06 5,920,000
4,000 American Media Operations, Inc.............. 11.625 11/15/04 4,160,000
10,600 United States Banknote Corp................. 10.375 06/01/02 10,070,000
---------------
20,150,000
---------------
RESTAURANTS (8.3%)
26,057 American Restaurant Group Holdings, Inc..... 14.00++ 12/15/05 9,575,948
5,000 Boston Chicken Inc. (Conv.)................. 4.50 02/01/04 6,350,000
4,000 Carrols Corp................................ 11.50 08/15/03 4,140,000
27,500 Flagstar Corp............................... 11.25 11/01/04 18,081,250
---------------
38,147,198
---------------
RETAIL (2.3%)
4,997 Cort Furniture Rental Corp.................. 12.00 09/01/00 5,196,880
10,450 County Seat Stores Co....................... 12.00 10/01/02 5,538,500
---------------
10,735,380
---------------
RETAIL - FOOD CHAINS (2.8%)
4,000 Jitney-Jungle Stores........................ 12.00 03/01/06 4,170,000
4,000 Pathmark Stores, Inc........................ 9.625 05/01/03 3,790,000
5,000 Ralphs Grocery Co........................... 11.00 06/15/05 4,862,500
---------------
12,822,500
---------------
TEXTILES (3.3%)
1,638 Farley Inc. (Conv.)......................... 0.00 01/01/12 173,988
14,219 JPS Textile Group, Inc...................... 10.85 06/01/99 8,815,780
7,950 U.S. Leather, Inc........................... 10.25 07/31/03 6,399,750
---------------
15,389,518
---------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $459,074,347)....................................... 403,093,418
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (b) (4.4%)
AUTOMOTIVE (0.0%)
709 Northern Holdings Industrial Corp. (Restricted) (c)..................... $ --
---------------
COMPUTER EQUIPMENT (0.1%)
477,769 Memorex Telex NV (ADR) (Netherlands) (c)................................ 582,281
---------------
ENTERTAINMENT/GAMING & LODGING (0.1%)
7,500 Motels of America, Inc. - 144A*......................................... 525,000
781,421 Vagabond Inns, Inc. (Class D) (a)....................................... --
---------------
525,000
---------------
FOODS & BEVERAGES (1.0%)
489,055 Seven-Up/RC Bottling Co. Southern California, Inc. (c).................. 4,156,969
273,750 Specialty Foods Acquisition Corp. - 144A*............................... 410,625
---------------
4,567,594
---------------
MANUFACTURING - DIVERSIFIED (3.0%)
671,263 Thermadyne Holdings Corp. (c)........................................... 14,013,516
---------------
PUBLISHING (0.1%)
15,000 Affiliated Newspapers Investments, Inc. (Class B)....................... 525,000
---------------
RESTAURANTS (0.1%)
26,057 American Restaurant Group Holdings, Inc. - 144A*........................ 260,570
---------------
TEXTILES (0.0%)
12,000 JPS Textile Group, Inc. (Class A)....................................... --
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $85,779,555)........................................... 20,473,961
---------------
PREFERRED STOCKS (b) (0.4%)
ENTERTAINMENT/GAMING & LODGING (0.4%)
80,000 Fitzgeralds Gaming Corp. (Units)+++..................................... 1,620,000
---------------
OIL & GAS PRODUCTS (0.0%)
113,955 TGX Corp. (Series A) (c)................................................ 1,139
---------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $2,830,000)............................................ 1,621,139
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WARRANTS (b) (0.2%)
AEROSPACE (0.0%)
9,000 Sabreliner Corp. - 144A*................................. 04/15/03 $ 90,000
---------------
CABLE & TELECOMMUNICATIONS (0.1%)
5,000 Hyperion Communication - 144A*........................... 04/01/01 50,000
27,600 In-Flight Phone Corp. - 144A*............................ 08/31/02 276,281
---------------
326,281
---------------
CONTAINERS (0.0%)
10,000 Crown Packaging Holdings, Ltd. (Canada) - 144A*.......... 11/01/03 --
---------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
5,000 Boomtown, Inc. - 144A*................................... 11/01/98 --
13,052 Casino America, Inc...................................... 11/15/96 --
8,312 Fitzgeralds Gaming Corp.................................. 12/19/98 37,407
3,500 Fitzgeralds South Inc. - 144A*........................... 03/15/99 --
---------------
37,407
---------------
MANUFACTURING (0.1%)
4,000 Exide Electronics Group, Inc. - 144A*.................... 03/15/06 80,000
70,000 Uniroyal Technology Corp................................. 06/01/03 96,250
---------------
176,250
---------------
OIL & GAS (0.0%)
15,180 Empire Gas Corp.......................................... 07/15/04 151,800
---------------
RETAIL (0.0%)
10,000 County Seat Holdings Co.................................. 10/15/98 100,000
---------------
TOTAL WARRANTS
(IDENTIFIED COST $2,992,791).......................................... 881,738
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (5.2%)
U.S. GOVERNMENT AGENCIES (d) (5.0%)
$ 12,900 Federal Home Loan Banks..................... 5.16 % 09/03/96 $ 12,896,302
10,000 Federal National Mortgage Assoc............. 5.20 09/06/96 9,992,778
---------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $22,889,080)......................................... 22,889,080
---------------
REPURCHASE AGREEMENT (0.2%)
999 The Bank of New York (dated 08/30/96;
proceeds $999,231; collateralized by
$1,134,189 Federal National Mortgage Assoc.
6.50% due 03/25/23 valued at $1,018,635)
(Identified Cost $998,662).................. 5.125 09/03/96 998,662
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $23,887,742)........................................ 23,887,742
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST $574,564,435) (E)........... 97.8% 449,957,998
OTHER ASSETS IN EXCESS OF LIABILITIES........ 2.2 10,244,841
----- ------------
NET ASSETS................................... 100.0% $460,202,839
----- ------------
----- ------------
<FN>
- ---------------------
ADR American Depository Receipt.
* Resale is restricted to qualified institutional investors.
+++ Consists of one or more class of securities traded together as a unit;
generally bonds with attached stocks/warrants.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified date.
(a) Non-income producing security; issuer in bankruptcy.
(b) Non-income producing securities.
(c) Acquired through exchange offer.
(d) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(e) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation was $16,754,848 and the
aggregate gross unrealized depreciation was $141,361,285, resulting in net
unrealized depreciation of $124,606,437.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $574,564,435)............................ $ 449,957,998
Receivable for:
Interest................................................ 11,041,222
Capital stock sold...................................... 609,887
Prepaid expenses and other assets........................... 30,020
--------------
TOTAL ASSETS........................................... 461,639,127
--------------
LIABILITIES:
Payable for:
Dividends to shareholders............................... 926,442
Investment management fee............................... 194,706
Capital stock repurchased............................... 145,004
Accrued expenses and other payables......................... 170,136
--------------
TOTAL LIABILITIES...................................... 1,436,288
--------------
NET ASSETS:
Paid-in-capital............................................. 1,528,089,659
Net unrealized depreciation................................. (124,606,437)
Accumulated undistributed net investment income............. 10,337,288
Accumulated net realized loss............................... (953,617,671)
--------------
NET ASSETS............................................. $ 460,202,839
--------------
--------------
NET ASSET VALUE PER SHARE,
68,542,004 SHARES OUTSTANDING (400,000,000 SHARES
AUTHORIZED OF $.01 PAR VALUE).............................
$6.71
--------------
--------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.82% OF NET ASSET VALUE)*..........
$7.10
--------------
--------------
<FN>
- ---------------------
* On sales of $25,000 or more, the offering price is reduced.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 58,749,969
------------
EXPENSES
Investment management fee................................... 2,271,578
Transfer agent fees and expenses............................ 539,994
Custodian fees.............................................. 59,401
Shareholder reports and notices............................. 57,480
Professional fees........................................... 35,218
Registration fees........................................... 34,963
Directors' fees and expenses................................ 16,072
Other....................................................... 13,132
------------
TOTAL EXPENSES......................................... 3,027,838
------------
NET INVESTMENT INCOME.................................. 55,722,131
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (17,329,860)
Net change in unrealized depreciation....................... 9,730,771
------------
NET LOSS............................................... (7,599,089)
------------
NET INCREASE................................................ $ 48,123,042
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1996 AUGUST 31, 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 55,722,131 $ 54,062,648
Net realized loss........................................... (17,329,860) (20,016,987)
Net change in unrealized depreciation....................... 9,730,771 15,205,812
--------------- ---------------
NET INCREASE........................................... 48,123,042 49,251,473
Dividends from net investment income........................ (51,517,938) (54,031,376)
Net increase (decrease) from capital stock transactions..... 8,152,392 (17,637,501)
--------------- ---------------
TOTAL INCREASE (DECREASE).............................. 4,757,496 (22,417,404)
NET ASSETS:
Beginning of period......................................... 455,445,343 477,862,747
--------------- ---------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$10,337,288 AND $6,133,095, RESPECTIVELY)............... $ 460,202,839 $ 455,445,343
--------------- ---------------
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter High Yield Securities Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's primary investment objective is to
earn a high level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective. The Fund was
incorporated in Maryland on June 14, 1979.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York or American Stock Exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued; if there were no sales that
day, the security is valued at the latest bid price; (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation; (3)
when market quotations are not readily available, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Directors (valuation of
debt securities for which market quotations are not readily available may be
based upon current market prices of securities which are comparable in coupon,
rating and maturity or an appropriate matrix utilizing similar factors); (4)
certain portfolio securities may be valued by an outside pricing service
approved by the Directors. The pricing service utilizes a matrix system
incorporating security quality, maturity and coupon as the evaluation model
parameters, and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service; and (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996, CONTINUED
by the identified cost method. Dividend income and other distributions are
recorded on the ex-dividend date. Discounts are accreted over the life of the
respective securities. Interest income is accrued daily except where collection
is not expected.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), the Fund pays the Investment Manager a
management fee, calculated daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.50% to the portion of daily net assets not exceeding $500
million; 0.425% to the portion of daily net assets exceeding $500 million but
not exceeding $750 million; 0.375% to the portion of daily net assets exceeding
$750 million but not exceeding $1 billion; 0.35% to the portion of daily net
assets exceeding $1 billion but not exceeding $2 billion; 0.325% to the portion
of daily net assets exceeding $2 billion but not exceeding $3 billion; and 0.30%
to the portion of daily net assets exceeding $3 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996, CONTINUED
all personnel, including officers of the Fund who are employees of the
Investment Manager. The Investment Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended August 31, 1996, aggregated
$393,514,207 and $415,856,430, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the Fund's
transfer agent. At August 31, 1996, the Fund had transfer agent fees and
expenses payable of approximately $57,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors/Trustees for at least five years at the time of retirement. Benefits
under this plan are based on years of service and compensation during the last
five years of service. Aggregate pension costs for the year ended August 31,
1996 included in Directors' fees and expenses in the Statement of Operations
amounted to $1,274. At August 31, 1996, the Fund had an accrued pension
liability of $49,856 which is included in accrued expenses in the Statement of
Assets and Liabilities.
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Distributor has
informed the Fund that for the year ended August 31, 1996, it received
approximately $1,595,000 in commissions from the sale of shares of the Fund's
capital stock. Such commissions are deducted from the proceeds of the capital
stock shares and are not an expense of the Fund.
4. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1996 AUGUST 31, 1995
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 7,479,221 $ 50,396,628 4,185,702 $ 27,764,909
Reinvestment of dividends........................................ 3,993,442 26,742,126 4,187,296 27,351,637
----------- -------------- ----------- ------------
11,472,663 77,138,754 8,372,998 55,116,546
Repurchased...................................................... (10,236,571) (68,986,362) (10,983,714) (72,754,047)
----------- -------------- ----------- ------------
Net increase (decrease).......................................... 1,236,092 $ 8,152,392 (2,610,716) $(17,637,501)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996, CONTINUED
5. FEDERAL INCOME TAX STATUS
At August 31, 1996, the Fund had an approximate net capital loss carryover, to
offset future capital gains to the extent provided by regulations, which is
available through August 31 in the following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- ---------------------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 TOTAL
- ----------- ----------- ------------- ------------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 94,246 $ 82,210 $ 292,752 $ 182,732 $ 45,208 $ 166,406 $ 50,598 $ 23,294 $ 937,446
- ----------- ----------- ------------- ------------- ----------- ------------- ----------- ----------- -------------
- ----------- ----------- ------------- ------------- ----------- ------------- ----------- ----------- -------------
</TABLE>
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $13,146,000 during fiscal 1996.
At August 31, 1996, the Fund had temporary book/tax differences primarily
attributable to post-October losses, capital loss deferrals on wash sales and
dividend payable and permanent book/tax differences primarily attributable to an
expired capital loss carryover. To reflect reclassifications arising from
permanent book/tax differences for the year ended August 31, 1996,
paid-in-capital was charged and accumulated net realized loss was credited
$37,795,049.
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31
-----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
OPERATING PERFORMANCE:
Net asset value,
beginning of
period.......... $ 6.77 $ 6.83 $ 7.58 $ 7.23 $ 5.92 $ 6.78 $ 10.40 $ 11.99 $ 13.72 $ 14.16
---------- --------- --------- ---------- --------- --------- ---------- --------- ---------- ----------
Net investment
income.......... 0.83 0.80 0.79 0.89 0.95 0.94 1.48 1.67 1.84 1.82
Net realized and
unrealized gain
(loss).......... (0.12) (0.06) (0.68) 0.54 1.04 (0.86) (3.78) (1.48) (1.77) (0.46)
---------- --------- --------- ---------- --------- --------- ---------- --------- ---------- ----------
Total from
investment
operations...... 0.71 0.74 0.11 1.43 1.99 0.08 (2.30) 0.19 0.07 1.36
---------- --------- --------- ---------- --------- --------- ---------- --------- ---------- ----------
Less dividends
and
distributions
from:
Net investment
income........ (0.77) (0.80) (0.86) (1.08) (0.68) (0.94) (1.32) (1.75) (1.80) (1.80)
Paid-in-capital... -- -- -- -- -- -- -- (0.03) -- --
---------- --------- --------- ---------- --------- --------- ---------- --------- ---------- ----------
Total dividends
and
distributions... (0.77) (0.80) (0.86) (1.08) (0.68) (0.94) (1.32) (1.78) (1.80) (1.80)
---------- --------- --------- ---------- --------- --------- ---------- --------- ---------- ----------
Net asset value,
end of period... $ 6.71 $ 6.77 $ 6.83 $ 7.58 $ 7.23 $ 5.92 $ 6.78 $ 10.40 $ 11.99 $ 13.72
---------- --------- --------- ---------- --------- --------- ---------- --------- ---------- ----------
---------- --------- --------- ---------- --------- --------- ---------- --------- ---------- ----------
TOTAL INVESTMENT
RETURN+.......... 11.07% 11.98% 0.93% 22.29% 35.46% 4.67% (23.28)% 1.39% 0.97% 10.07%
RATIOS TO
AVERAGE NET
ASSETS:
Expenses......... 0.66% 0.79% 0.69% 0.67% 0.77% 0.87% 0.60% 0.49% 0.49% 0.51%
Net investment
income.......... 12.27% 12.06% 10.40% 12.14% 13.96% 16.47% 17.67% 14.61% 14.79% 12.83%
SUPPLEMENTAL DATA:
Net assets, end
of period, in
millions........ $460 $455 $478 $540 $512 $436 $690 $1,794 $2,140 $2,034
Portfolio
turnover rate... 49% 74% 127% 173% 113% 93% 21% 55% 107% 176%
<FN>
- ---------------------
+ Does not reflect the deduction of sales load. Calculated based on the net
asset value as of the last business day of the period.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DEAN WITTER HIGH YIELD SECURITIES INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter High Yield Securities
Inc. (the "Fund") at August 31, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the ten years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 1996 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
OCTOBER 11, 1996
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC. Two World Trade Center, New York, New
York 10048
LETTER TO THE SHAREHOLDERS February 28, 1997
DEAR SHAREHOLDER:
Continuing its strong performance of the first half of 1996, the high-yield
market posted solid returns during the past six months and outperformed most
of the other fixed-income markets. With the economy rebounding and with
corporate earnings holding up well, the market was able to offset what was a
relatively weak fixed-income environment.
A year ago, investors were anticipating a recession due to concern over a
then-weakening economy. U.S. Treasury yields were lower than today's levels,
while yields in the high-yield market were higher. As the year played out, we
saw the economy bounce back, corporate earnings hold up, the equity markets
reach all time highs and recession fears ease. The result was a somewhat
volatile U.S. Treasury market, while the high-yield market held up well given
the stronger-than-expected economy. Although yield spreads narrowed during
the year, many B-rated issues still provide an attractive yield advantage
over U.S. Treasuries (nearly 400 basis points) and trade at or below par.
As Dean Witter High Yield Securities begins the second half of its fiscal
year, we note that a correction is underway across most of the financial
markets, including the high-yield bond sector. On the heels of a credit
tightening by the Federal Reserve Board in late March, considerable
nervousness was evident in both the equity and fixed-income markets.
Speculation as to the timing and impact of any further increases in interest
rates has created uncertainty on the part of many investors. The high-yield
market has felt this weakness as well, as investors discount a future
potential slowing in the economy resulting from today's higher interest
rates.
PERFORMANCE AND PORTFOLIO STRATEGY
Against this backdrop, Dean Witter High Yield Securities produced a total
return of 6.92 percent for the six-month period ended February 28, 1997,
based on its net asset value (NAV) of $6.66 per share. This compares to a
return of 8.74 percent for the Lehman High Yield Index and a return of
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
LETTER TO THE SHAREHOLDERS, continued
8.76 percent for the Lipper High Yield Fund Index during the same period.
Over the past six months, the Fund continued to distribute regular income
dividends at a rate of $0.055 per share per month. For the full six-month
period, the Fund's distributions totaled $0.50 per share, including an extra
income dividend of $0.17 per share paid on December 31, 1996. On February 28,
1997, the Fund's net assets exceeded $472 million.
As the economy continued to expand over the past few years, we have tended to
concentrate on B-rated issues. In a growing economy, one can find
undervalued, "upgrade" candidates in this sector of the market that provide
attractive yields as well as appreciation potential. As such, we continue to
feel that many of these issues are very attractive long-term investments.
However, given a potentially slowing economy down the road, we have begun to
take some defensive steps in the portfolio. Over the past six to nine months,
we have upgraded the portfolio by increasing our allocation to the
higher-quality end of the market (BB-rated issues or higher) from 10 percent
to 25 percent. We also sold many of our heavy cyclical positions and are now
focused mainly on the more predictable recession-resistant or growth sectors
of the economy. In certain of these sectors, such as media and
telecommunications, we expect to see continued consolidation, which should
bode well for most industry participants.
LOOKING AHEAD
Overall, we continue our focus on discounted B-rated investments yielding 10
percent or higher. However, while we are not expecting a recession in 1997,
we have begun to take a more defensive approach in case of any further
economic slowing down the road.
We thank you for your continued support of Dean Witter High Yield Securities
and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (92.5%)
Aerospace (1.6%)
$ 8,000 Sabreliner Corp. (Series B) ..................................... 12.50 % 04/15/03 $ 7,760,000
--------------
Automotive (4.5%)
4,000 APS, Inc. ...................................................... 11.875 01/15/06 4,280,000
6,800 Envirotest Systems, Inc. ....................................... 9.125 03/15/01 6,417,500
10,000 Toyota Motor Credit Corp. ...................................... 15.00 09/26/97 10,505,500
--------------
21,203,000
--------------
Broadcast Media (4.0%)
4,000 Adams Outdoor Advertising L.P. .................................. 10.75 03/15/06 4,300,000
7,000 Capstar Broadcasting Partners -144A* ............................ 12.75 ++ 02/01/09 4,060,000
4,000 Paxson Communications Corp. .................................... 11.625 10/01/02 4,290,000
6,000 Spanish Broadcasting System, Inc. .............................. 7.50 06/15/02 6,360,000
--------------
19,010,000
--------------
Business Services (4.6%)
9,052 Anacomp, Inc. .................................................. 13.00 + 06/04/02 9,458,863
12,000 Xerox Credit Corp. ............................................. 15.00 06/10/97 12,292,320
--------------
21,751,183
--------------
Cable & Telecommunications (15.8%)
7,116 Adelphia Communications Corp.
(Series B) .................................................... 9.50 + 02/15/04 6,439,981
3,500 Adelphia Communications, Inc. -144A* ............................ 9.875 03/01/07 3,408,125
5,000 American Communications Services, Inc. ......................... 13.00 ++ 11/01/05 3,287,500
5,000 American Communications Services, Inc. ......................... 12.75 ++ 04/01/06 3,087,500
12,000 AT&T Capital Corp. ............................................. 15.00 05/05/97 12,184,920
4,000 Cablevision Systems Corp. ...................................... 10.50 05/15/16 4,210,000
5,000 Charter Communication South East L.P. (Series B) ................ 11.25 03/15/06 5,375,000
10,627 Falcon Holdings Group L.P. (Series B) ........................... 11.00 + 09/15/03 9,617,054
5,000 Frontiervision, Inc. ........................................... 11.00 10/15/06 5,225,000
11,000 Hyperion Telecommunication, Inc. (Series B) ..................... 13.00 ++ 04/15/03 6,407,500
13,400 In-Flight Phone Corp. (Series B)(a) ............................. 14.00 ++ 05/15/02 1,005,000
4,000 IXC Communications, Inc. (Series B) ............................. 12.50 10/01/05 4,530,000
5,050 Peoples Telephone Co., Inc. .................................... 12.25 07/15/02 5,390,875
4,000 Rifkin Acquisition Partners L.P. ............................... 11.125 01/15/06 4,235,000
--------------
74,403,455
--------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
Computer Equipment (3.1%)
$ 5,000 Unisys Corp. ................................................... 15.00 % 07/01/97 $ 5,231,250
8,000 Unisys Corp. (Conv.) ............................................ 8.25 03/15/06 9,620,000
--------------
14,851,250
--------------
Consumer Products (2.2%)
5,500 J.B. Williams Holdings, Inc. ................................... 12.00 03/01/04 5,692,500
4,500 Renaissance Cosmetics, Inc. -144A* .............................. 11.75 02/15/04 4,640,625
--------------
10,333,125
--------------
Containers (2.2%)
5,000 Mail-Well Corp. ................................................ 10.50 02/15/04 5,150,000
5,000 Packaging Resources, Inc. ...................................... 11.625 05/01/03 5,318,750
--------------
10,468,750
--------------
Electrical & Alarm Systems (2.2%)
11,000 Mosler, Inc. ................................................... 11.00 04/15/03 10,505,000
--------------
Entertainment/Gaming & Lodging (9.3%)
4,000 AMF Group Inc. (Series B) ....................................... 10.875 03/15/06 4,365,000
9,750 Fitzgeralds Gaming Corp. (Units)++ ............................. 13.00 12/31/02 8,531,250
8,000 Lady Luck Gaming Finance Corp. ................................. 11.875 03/01/01 7,870,000
8,000 Motels of America, Inc. (Series B) .............................. 12.00 04/15/04 6,960,000
4,000 Players International, Inc. .................................... 10.875 04/15/05 4,200,000
4,000 Plitt Theaters, Inc. (Canada) ................................... 10.875 06/15/04 4,100,000
4,000 Station Casinos, Inc. .......................................... 9.625 06/01/03 4,060,000
4,000 Stuart Entertainment, Inc. -144A* ............................... 12.50 11/15/04 4,070,000
--------------
44,156,250
--------------
Financial (4.4%)
9,500 General Electric Capital Corp. ................................. 13.50 01/20/98 10,113,795
10,000 Household Finance Corp. ........................................ 15.00 09/25/97 10,505,400
--------------
20,619,195
--------------
Foods & Beverages (7.4%)
9,621 Envirodyne Industries, Inc. .................................... 10.25 12/01/01 9,621,000
4,000 Fleming Companies Inc. ......................................... 10.625 12/15/01 4,225,000
4,000 General Mills, Inc. ............................................ 13.50 01/21/98 4,253,680
42,650 Specialty Foods Acquisition Corp. (Series B) .................... 13.00 ++ 08/15/05 17,060,000
--------------
35,159,680
--------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
Healthcare (2.9%)
$11,750 Unilab Corp. ................................................... 11.00 % 04/01/06 $ 8,401,250
5,000 Unison Healthcare Corp. -144A* .................................. 12.25 11/01/06 5,362,500
--------------
13,763,750
--------------
Manufacturing (4.3%)
5,000 Berry Plastics Corp. ........................................... 12.25 04/15/04 5,556,250
4,000 Exide Electronics Group, Inc. (Series B) ........................ 11.50 03/15/06 4,345,000
5,000 International Wire Group, Inc. ................................. 11.75 06/01/05 5,425,000
5,000 Uniroyal Technology Corp. ...................................... 11.75 06/01/03 5,037,500
--------------
20,363,750
--------------
Manufacturing -Diversified (6.5%)
4,000 Foamex L.P. .................................................... 11.875 10/01/04 4,320,000
5,000 Interlake Corp. ................................................ 12.125 03/01/02 5,250,000
5,000 J.B. Poindexter & Co., Inc. .................................... 12.50 05/15/04 5,100,000
6,030 Jordan Industries, Inc. ........................................ 10.375 08/01/03 6,060,150
11,420 Jordan Industries, Inc. ........................................ 11.75 ++ 08/01/05 9,906,900
5,000 Starcraft Industrial Corp. (a) ................................. 16.50 01/15/98 --
--------------
30,637,050
--------------
Oil & Gas (2.1%)
4,000 Petro Stopping Centers L.P. -144A* .............................. 10.50 02/01/07 4,220,000
5,000 TransTexas Gas Corp. ........................................... 11.50 06/15/02 5,562,500
--------------
9,782,500
--------------
Publishing (4.2%)
5,000 Affiliated Newspapers Investments, Inc. ........................ 13.25 ++ 07/01/06 4,250,000
4,000 American Media Operations, Inc. ................................ 11.625 11/15/04 4,350,000
3,000 MDC Communications Corp. ....................................... 10.50 12/01/06 3,172,500
3,000 Petersen Publishing, Inc. -144A* ................................ 11.125 11/15/06 3,262,500
5,000 United States Banknote Corp. ................................... 10.375 06/01/02 5,018,750
--------------
20,053,750
--------------
Restaurants (4.9%)
25,072 American Restaurant Group Holdings, Inc. ....................... 14.00 ++ 12/15/05 11,470,440
3,000 Ameriking, Inc. ................................................ 10.75 12/01/06 3,127,500
4,000 Carrols Corp. .................................................. 11.50 08/15/03 4,280,000
4,000 FRD Acquisition Corp. (Series B) ................................ 12.50 07/15/04 4,185,000
--------------
23,062,940
--------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
Retail (0.9%)
$10,450 County Seat Stores Co. (b) ...................................... 12.00 % 10/01/02 $ 4,180,000
--------------
Retail -Food Chains (2.1%)
4,000 Jitney-Jungle Stores ............................................ 12.00 03/01/06 4,480,000
5,500 Pathmark Stores, Inc. .......................................... 9.625 05/01/03 5,376,250
--------------
9,856,250
--------------
Textiles (2.4%)
4,000 Reeves Industries, Inc. ........................................ 11.00 07/15/02 3,800,000
8,117 U.S. Leather, Inc. ............................................. 10.25 07/31/03 7,386,470
--------------
11,186,470
--------------
Transportation (0.9%)
4,000 Atlantic Express -144A* ......................................... 10.75 02/01/04 4,120,000
--------------
TOTAL CORPORATE BONDS
(Identified Cost $454,451,511) ....................................................... 437,227,348
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<S> <C> <C>
VALUE
--------------
COMMON STOCKS (c)(3.7%)
Automotive (0.0%)
709 Northern Holdings Industrial Corp. (d) ......................... --
--------------
Entertainment/Gaming & Lodging (0.1%)
7,500 Motels of America, Inc. -144A* .................................. 262,500
781,421 Vagabond Inns, Inc. (Class D)(a) ............................... 781
--------------
263,281
--------------
Foods & Beverages (1.0%)
408,055 Seven-Up/RC Bottling Co. Southern California, Inc. (d) ......... 4,539,612
273,750 Specialty Foods Acquisition Corp. -144A* ........................ 273,750
--------------
4,813,362
--------------
Manufacturing - Diversified (2.6%)
451,613 Thermadyne Holdings Corp. (d) .................................. 12,419,359
--------------
Restaurants (0.0%)
26,057 American Restaurant Group Holdings, Inc. -144A* ................. 26,057
--------------
Textiles (0.0%)
12,000 JPS Textile Group, Inc. (Class A) .............................. 120
--------------
TOTAL COMMON STOCKS
(Identified Cost $69,873,804) .................................. 17,522,179
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------------------------------------------------------- --------------
<S> <C> <C>
PREFERRED STOCKS (0.4%)
Entertainment/Gaming & Lodging (0.4%)
80,000 Fitzgeralds Gaming Corp. (Units) ++ ............................. $1,830,000
--------------
Oil & Gas Products (0.0%)
113,955 TGX Corp. (Series A) (c) (d) ................................... 1,140
--------------
TOTAL PREFERRED STOCKS
(Identified Cost $2,830,000) ................................... 1,831,140
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ----------- ---------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C>
WARRANTS (c)(0.1%)
Aerospace (0.0%)
9,000 Sabreliner Corp. -144A* ......................................... 04/15/03 90,000
-------------
Cable & Telecommunications (0.0%)
8,000 Hyperion Telecommunication, Inc. (Series B) -144A* .............. 04/01/01 240,000
-------------
Containers (0.0%)
10,000 Crown Packaging Holdings, Ltd. -144A* ........................... 11/01/03 100
-------------
Entertainment/Gaming & Lodging (0.0%)
5,000 Boomtown, Inc. -144A* ........................................... 11/01/98 --
8,312 Fitzgeralds Gaming Corp. ....................................... 12/19/98 8,397
3,500 Fitzgeralds South Inc. -144A* ................................... 03/15/99 --
-------------
8,397
-------------
Manufacturing (0.1%)
4,000 Exide Electronics Group, Inc. -144A* ............................ 03/15/06 191,000
70,000 Uniroyal Technology Corp. ...................................... 06/01/03 70,000
-------------
261,000
-------------
Retail (0.0%)
10,000 County Seat Holdings Co. ....................................... 10/15/98 100
-------------
TOTAL WARRANTS
(Identified Cost $1,383,529) ................................... 599,597
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (2.9%)
U.S. GOVERNMENT AGENCY (e) (2.4%)
$11,000 Federal Home Loan Banks
(Amortized Cost $10,996,761) .................................... 5.30% 03/03/97 $10,996,761
--------------
REPURCHASE AGREEMENT (0.5%)
2,474 The Bank of New York (dated 02/28/97; proceeds $2,475,352;
collateralized by $461,122 Federal National Mortgage Assoc.
7.36% due 02/07/07 valued at $464,063 and $1,646,467
U.S. Treasury Bond 9.25% due 02/15/16 valued at $2,059,693)
(Identified Cost $2,474,270) ................................... 5.25 03/03/97 2,474,270
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $13,471,031) ............................................ 13,471,031
--------------
TOTAL INVESTMENTS
(Identified Cost $542,009,875) (f) ....................................... 99.6% 470,651,295
OTHER ASSETS IN EXCESS OF LIABILITIES .................................... 0.4 1,916,313
--------------
NET ASSETS ............................................................... 100.0% $472,567,608
========== ==============
</TABLE>
- ------------
* Resale is restricted to qualified institutional investors.
++ Consists of one or more classes of securities traded together as a
unit; bonds or preferred stocks with attached warrants.
+ Payment-in-kind securities.
++ Currently a zero coupon bond and will pay interest at the rate shown
at a future specified date.
(a) Non-income producing security; issuer in bankruptcy.
(b) Non-income producing security; bond in default.
(c) Non-income producing securities.
(d) Acquired through exchange offer.
(e) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(f) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$28,233,135 and the aggregate gross unrealized depreciation is
$99,591,715, resulting in net unrealized depreciation of $71,358,580.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $542,009,875).......... $ 470,651,295
Receivable for:
Interest............................... 10,960,585
Investments sold....................... 3,176,250
Capital stock sold..................... 514,802
Prepaid expenses and other assets ....... 66,220
---------------
TOTAL ASSETS........................... 485,369,152
---------------
LIABILITIES:
Payable for:
Investments purchased ................. 11,341,083
Dividends to shareholders ............. 908,454
Capital stock repurchased ............. 220,229
Investment management fee ............. 180,368
Accrued expenses and other payables .... 151,410
---------------
TOTAL LIABILITIES...................... 12,801,544
---------------
NET ASSETS:
Paid-in-capital ......................... 1,543,860,051
Net unrealized depreciation.............. (71,358,580)
Accumulated undistributed net investment
income ................................. 1,931,583
Accumulated net realized loss............ (1,001,865,446)
---------------
NET ASSETS ............................ $ 472,567,608
===============
NET ASSET VALUE PER SHARE,
70,909,927 shares outstanding
(400,000,000 shares authorized of $.01
par value) ............................. $6.66
===============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.82% of net
asset value)*........................... $7.05
===============
</TABLE>
- ------------
* On sales of $25,000 or more, the offering price is reduced.
STATEMENT OF OPERATIONS
For the six months ended February 28, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ....................... $ 27,883,411
--------------
EXPENSES
Investment management fee.............. 1,160,316
Transfer agent fees and expenses ...... 266,965
Professional fees ..................... 47,250
Shareholder reports and notices ...... 32,044
Custodian fees ........................ 23,006
Registration fees ..................... 18,338
Directors' fees and expenses .......... 6,202
Other.................................. 4,590
--------------
TOTAL EXPENSES ...................... 1,558,711
--------------
NET INVESTMENT INCOME ............... 26,324,700
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss ..................... (48,247,775)
Net change in unrealized depreciation 53,247,857
--------------
NET GAIN ............................ 5,000,082
--------------
NET INCREASE .......................... $ 31,324,782
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 1997 AUGUST 31, 1996
- -------------------------------------------------- ----------------- ---------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................. $ 26,324,700 $ 55,722,131
Net realized loss ................................. (48,247,775) (17,329,860)
Net change in unrealized depreciation ............. 53,247,857 9,730,771
----------------- ---------------
NET INCREASE .................................... 31,324,782 48,123,042
Dividends from net investment income............... (34,730,405) (51,517,938)
Net increase from capital stock transactions ..... 15,770,392 8,152,392
----------------- ---------------
NET INCREASE .................................... 12,364,769 4,757,496
NET ASSETS:
Beginning of period................................ 460,202,839 455,445,343
----------------- ---------------
END OF PERIOD
(Including undistributed net investment income
of $1,931,583 and $10,337,288, respectively) .... $472,567,608 $460,202,839
================= ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS February 28, 1997 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter High Yield Securities Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's primary investment objective is to
earn a high level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective. The Fund
was incorporated in Maryland on June 14, 1979 and commenced operations on
September 26, 1979.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where securities are traded on more than one exchange,
the securities are valued on the exchange designated as the primary market
pursuant to procedures adopted by the Directors); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, including circumstances
under which it is determined by Dean Witter InterCapital Inc. (the
"Investment Manager") that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Directors (valuation of debt securities for which
market quotations are not readily available may be based upon current market
prices of securities which are comparable in coupon, rating and maturity or
an appropriate matrix utilizing similar factors); (4) certain portfolio
securities may be valued by an outside pricing service approved by the
Directors. The pricing service may utilize a matrix system incorporating
security quality, maturity and coupon as the evaluation model parameters,
and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service; and (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity
date of sixty days or less at the time of purchase are valued at amortized
cost.
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS February 28, 1997 (unaudited) continued
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date. Discounts are accreted over the life of the respective
securities. Interest income is accrued daily except where collection is not
expected.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying
the following annual rates to the net assets of the Fund determined as of the
close of each business day: 0.50% to the portion of daily net assets not
exceeding $500 million; 0.425% to the portion of daily net assets exceeding
$500 million but not exceeding $750 million; 0.375% to the portion of daily
net assets exceeding $750 million but not exceeding $1 billion; 0.35% to the
portion of daily net assets exceeding $1 billion but not exceeding $2 billion;
0.325% to the portion of daily net assets exceeding $2 billion but not
exceeding $3 billion; and 0.30% to the portion of daily net assets exceeding
$3 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS February 28, 1997 (unaudited) continued
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the six months ended February 28, 1997,
aggregated $237,747,854 and $220,427,940, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Fund's transfer agent. At February 28, 1997, the Fund had transfer agent fees
and expenses payable of approximately $56,000.
The Fund has an unfunded noncontributory defined benefit pension plan
covering all independent Directors of the Fund who will have served as
independent Directors for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five years of service. Aggregate pension costs for the six
months ended February 28, 1997 included in Directors' fees and expenses in
the Statement of Operations amounted to $635. At February 28, 1997, the Fund
had an accrued pension liability of $48,911 which is included in accrued
expenses in the Statement of Assets and Liabilities.
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Distributor has
informed the Fund that for the six months ended February 28, 1997, it
received approximately $963,000 in commissions from the sale of shares of the
Fund's capital stock. Such commissions are deducted from the proceeds of the
capital stock shares and are not an expense of the Fund.
4. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 1997 AUGUST 31, 1996
---------------------------- -----------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sold .................... 4,443,983 $ 29,891,249 7,479,221 $ 50,396,628
Reinvestment of dividends 2,738,144 18,229,841 3,993,442 26,742,126
------------- -------------- -------------- --------------
7,182,127 48,121,090 11,472,663 77,138,754
Repurchased.............. (4,814,204) (32,350,698) (10,236,571) (68,986,362)
------------- -------------- -------------- --------------
Net increase............. 2,367,923 $ 15,770,392 1,236,092 $ 8,152,392
============= ============== ============== ==============
</TABLE>
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS February 28, 1997 (unaudited) continued
5. FEDERAL INCOME TAX STATUS
At August 31, 1996, the Fund had an approximate net capital loss carryover,
which may be used to offset future capital gains to the extent provided by
regulations, which is available through August 31 in the following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 TOTAL
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$94,246 $82,210 $292,752 $182,732 $45,208 $166,406 $50,598 $23,294 $937,446
======= ======= ======== ======== ======= ======== ======= ======= ========
</TABLE>
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $13,146,000 during fiscal 1996.
At August 31, 1996, the Fund had temporary book/tax differences primarily
attributable to post-October losses, capital loss deferrals on wash sales and
dividends payable.
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED AUGUST 31
FEBRUARY 28, 1997 ------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 6.71 $ 6.77 $ 6.83 $ 7.58 $ 7.23 $ 5.92
----------------- -------- -------- -------- -------- --------
Net investment income ................... 0.38 0.83 0.80 0.79 0.89 0.95
Net realized and unrealized gain (loss) 0.07 (0.12) (0.06) (0.68) 0.54 1.04
----------------- -------- -------- -------- -------- --------
Total from investment operations ....... 0.45 0.71 0.74 0.11 1.43 1.99
----------------- -------- -------- -------- -------- --------
Less dividends from net investment
income ................................. (0.50) (0.77) (0.80) (0.86) (1.08) (0.68)
----------------- -------- -------- -------- -------- --------
Net asset value, end of period .......... $ 6.66 $ 6.71 $ 6.77 $ 6.83 $ 7.58 $ 7.23
================= ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ ................ 6.92%(1) 11.07% 11.98% 0.93% 22.29% 35.46%
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 0.67%(2) 0.66% 0.79% 0.69% 0.67% 0.77%
Net investment income ................... 11.34%(2) 12.27% 12.06% 10.40% 12.14% 13.96%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions . $ 473 $ 460 $ 455 $ 478 $ 540 $ 512
Portfolio turnover rate ................. 50%(1) 49% 74% 127% 173% 113 %
</TABLE>
- ------------
+ Does not reflect the deduction of sales load. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
BOARD OF DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire DEAN WITTER
Dr. Manuel H. Johnson HIGH YIELD
Michael E. Nugent SECURITIES
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and accordingly they do
not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and directors,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
SEMIANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
PROSPECTUS
JUNE 16, 1997
Dean Witter High Income Securities (the "Fund") is an open-end
diversified management investment company whose primary investment objective 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.
The Fund seeks high current income by investing principally in fixed-income
securities which are rated in the lower categories by established rating
services (Ba or lower by Moody's Investors Service, Inc. or BB or lower by
Standard & Poor's Corporation) or are non-rated securities of comparable
quality.
THE FUND INVESTS PREDOMINANTLY IN LOWER-RATED FIXED-INCOME
SECURITIES COMMONLY KNOWN AS JUNK BONDS AND INVESTORS SHOULD CAREFULLY CONSIDER
THE RISKS THEY PRESENT, INCLUDING THE RISK OF DEFAULT. BONDS OF THIS TYPE ARE
SUBJECT TO GREATER RISKS THAN HIGHER-RATED SECURITIES AND ARE CONSIDERED TO BE
SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL.
INVESTORS SHOULD ALSO BE COGNIZANT OF THE FACT THAT SUCH SECURITIES ARE NOT
GENERALLY MEANT FOR SHORT-TERM INVESTING AND SHOULD ASSESS THE RISKS ASSOCIATED
WITH AN INVESTMENT IN THE FUND. (SEE "RISK CONSIDERATIONS.")
Shares of the Fund are continuously offered at net asset value.
However, redemptions and/or repurchases are subject in most cases to a
contingent deferred sales charge, scaled down from 4% to 1% of the amount
redeemed, if made within five years of purchase, which charge will be paid to
the Fund's Distributor, Dean Witter Distributors Inc. (See "Redemptions and
Repurchases--Contingent Deferred Sales Charge.") In addition, the Fund pays the
Distributor a distribution fee pursuant to a Rule 12b-1 Plan of Distribution at
the annual rate of 0.80% of the lesser of the (i) average daily aggregate net
sales or (ii) average daily net assets of the Fund. (See "Purchase of Fund
Shares--Plan of Distribution.")
Dean Witter
High Income Securities
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll free)
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/3
Financial Highlights/4
The Fund and its Management/5
Investment Objectives and Policies/5
Risk Considerations/7
Investment Restrictions/14
Purchase of Fund Shares/14
Shareholder Services/17
Redemptions and Repurchases/20
Dividends, Distributions and Taxes/22
Performance Information/23
Additional Information/23
Appendix/25
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 June 16, 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 below. 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 COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an
Fund open-end diversified management investment company investing principally in lower-rated fixed- income
securities (see page 5).
- ----------------------------------------------------------------------------------------------------------------------
Shares Offered Shares of beneficial interest with $0.01 par value (see page 23).
- ----------------------------------------------------------------------------------------------------------------------
Offering At net asset value without sales charge (see page 14). Shares redeemed within five years of purchase
Price are subject to a contingent deferred sales charge under most circumstances (see page 20).
- ----------------------------------------------------------------------------------------------------------------------
Minimum Purchase Minimum initial investment, $1,000 ($100 if the account is opened through EasyInvest-SM-); minimum
subsequent investment, $100 (see page 14).
- ----------------------------------------------------------------------------------------------------------------------
Investment A high level of current income primarily; capital appreciation is secondary (see page 5).
Objective
- ----------------------------------------------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc., the Investment Manager of the Fund, and its wholly-owned subsidiary,
Manager Dean Witter Services Company Inc., serve in various investment management, advisory, management and
administrative capacities to 100 investment companies and other portfolios with assets of
approximately $95.6 billion at May 31, 1997 (see page 5).
- ----------------------------------------------------------------------------------------------------------------------
Management Fee The Investment Manager receives a monthly fee at the annual rate of 0.50% of average daily net
assets. The fee should not be compared with fees paid by other investment companies without also
considering applicable sales loads and distribution fees, including those noted below (see page 5).
- ----------------------------------------------------------------------------------------------------------------------
Dividends and Income dividends are declared and paid monthly; capital gains, if any, may be distributed at least
Capital Gains annually. Dividends and distributions are automatically reinvested in additional shares at net asset
Distributions value (without sales charge), unless the shareholder elects to receive cash (see page 22).
- ----------------------------------------------------------------------------------------------------------------------
Distributor and Dean Witter Distributors Inc. (the "Distributor"). The Distributor receives from the Fund, pursuant
Distribution Fee to a Rule 12b-1 Plan of Distribution, a distribution fee accrued daily and payable monthly at the
rate of 0.80% per annum of the lesser of (i) the Fund's average daily aggregate net sales or (ii)
the Fund's average daily net assets. This fee compensates the Distributor for the services provided
in distributing shares of the Fund and for its sales-related expenses. The Distributor also receives
the proceeds of any contingent deferred sales charges (see pages 15 and 20).
- ----------------------------------------------------------------------------------------------------------------------
Redemption-- Shares are redeemable by the shareholder at net asset value. An account may be involuntarily
Contingent redeemed if total value of the account is less than $100 or, if the account was opened through
Deferred Sales EasyInvest-SM-, if after twelve months the shareholder has invested less than $1,000 in the account.
Charge Although no commission or sales charge is imposed upon the purchase of shares, a contingent deferred
sales charge (scaled down from 4% to 1%) is imposed on any redemption of shares if after such
redemption the aggregate current value of an account with the Fund falls below the aggregate amount
of the investor's purchase payments made during the five years preceding the redemption. However,
there is no charge imposed on redemption of shares purchased through reinvestment of dividends or
distributions (see pages 20-21).
- ----------------------------------------------------------------------------------------------------------------------
Risks Compared with higher rated, lower yielding fixed-income securities, portfolio securities of the Fund
may be subject to greater risk of loss of income and principal and greater risk of increases and
decreases in net asset value due to market fluctuations. The Fund may also purchase when-issued and
delayed delivery, when, as and if issued securities, restricted securities, and zero coupon
securities, rights and warrants, convertible securities, foreign securities, common stock and
adjustable rate mortgages and enter into repurchase agreements, reverse repurchase agreements and
dollar rolls, options and futures transactions and forward foreign currency exchange contracts, all
of which involve certain special risks. Investors should review the investment objectives and
policies of the Fund carefully and consider their ability to assume the risks involved in purchasing
shares of the Fund (see pages 6-13).
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE
IN THE PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
2
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended March 31, 1997.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases................................. None
Maximum Sales Charge Imposed on Reinvested Dividends...................... None
Contingent Deferred Sales Charge
(as a percentage of the lesser of original purchase price or redemption
proceeds).............................................................. 4.0%
A contingent deferred sales charge is imposed at the following
declining rates:
</TABLE>
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT MADE PERCENTAGE
- --------------------------------------------------------------------- ----------
<S> <C>
First................................................................ 4.0%
Second............................................................... 3.0%
Third................................................................ 2.0%
Fourth............................................................... 2.0%
Fifth................................................................ 1.0%
Sixth and thereafter................................................. None
</TABLE>
<TABLE>
<S> <C>
Redemption Fees.......................................................... None
Exchange Fees............................................................ None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------
Management Fees.......................................................... 0.47%
12b-1 Fees*.............................................................. 0.80%
Other Expenses........................................................... 0.12%
Total Fund Operating Expenses............................................ 1.39%
<FN>
- ------------
* A PORTION OF THE 12b-1 FEE EQUAL TO 0.20% OF THE FUND'S AVERAGE DAILY NET
ASSETS IS CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES (SEE "PURCHASE OF
FUND SHARES").
</TABLE>
<TABLE>
<CAPTION>
10
EXAMPLE 1 year 3 years 5 years years
- ------------------------------------------------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period:........................................ $ 54 $ 64 $ 86 $ 167
You would pay the following expenses on the same investment,
assuming no redemption:..................................... $ 14 $ 44 $ 76 $ 167
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Plan of Distribution" and "Redemptions and
Repurchases."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, notes thereto, and the unqualified report of
independent accountants, which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JUNE 2, 1994*
ENDED ENDED THROUGH
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1995
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 9.93 $ 9.77 $10.00
------- ------ -------
Net investment income............ 0.99 1.03 0.75
Net realized and unrealized gain
(loss).......................... 0.02 0.18 (0.26)
------- ------ -------
Total from investment
operations...................... 1.01 1.21 0.49
------- ------ -------
Less dividends and distributions
from:
Net investment income.......... (1.03) (1.01) (0.72)
Net realized gain.............. (0.11) (0.04) --
------- ------ -------
Total dividends and
distributions................... (1.14) (1.05) (0.72)
------- ------ -------
Net asset value, end of period... $ 9.80 $ 9.93 $ 9.77
------- ------ -------
------- ------ -------
TOTAL INVESTMENT RETURN+........... 10.71% 12.85% 5.19%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses......................... 1.39% 1.49% 1.55%(2)(3)
Net investment income............ 10.50% 11.22% 10.85%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions........................ $1,129 $ 505 $ 169
Portfolio turnover rate.......... 42% 69% 53%(1)
<FN>
- ---------------
* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE FUND HAD BORNE ALL THE EXPENSES THAT WERE REIMBURSED OR WAIVED BY THE
INVESTMENT MANAGER, THE ANNUALIZED EXPENSE AND NET INVESTMENT RATIOS WOULD
HAVE BEEN 1.65% AND 10.75%, RESPECTIVELY.
</TABLE>
4
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Dean Witter High Income Securities (the "Fund") is an open-end diversified
management investment company. The Fund is a trust of the type commonly known as
a "Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on March 23, 1994.
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. ("MSDWD"), 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 100 investment companies (the "Dean Witter Funds"),
thirty of which are listed on the New York Stock Exchange, with combined assets
of approximately $92.3 billion at May 31, 1997. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.3 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund. The Fund's
Board of Trustees reviews the various services provided by or under the
direction of the Investment Manager to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.50% to the Fund's net assets determined as of the close of each
business day. For the fiscal year ended March 31, 1997, the Fund accrued total
compensation to the Investment Manager amounting to an annual rate of 0.47% of
the Fund's average daily net assets and the Fund's total expenses amounted to an
annual rate of 1.39% of the Fund's average daily net assets.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The primary investment objective of the 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. There is no assurance
that the objectives will be achieved. The objectives are fundamental policies of
the Fund and may not be changed without the approval of the Fund's shareholders.
The following policies may be changed by the Fund's Trustees, without
shareholder approval.
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
5
<PAGE>
(at least 65% of its total assets) in fixed-income securities rated Ba or lower
by Moody's Investors Service, Inc. ("Moody's"), or BB or lower by Standard &
Poor's Corporation ("Standard & Poor's"). Fixed-income securities rated Ba or BB
or lower by Moody's and Standard & Poor's, 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, CI or D by Standard &
Poor's. 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 (the Fund may purchase securities
which are in default and which, thereby, are not paying its fixed-income
security holders principal and/or interest). Bonds rated D by Standard & Poor's,
their lowest bond rating, are in payment default. For a further discussion of
the characteristics and risks associated with high yield securities, see "Risk
Considerations" below. A description of corporate bond ratings is contained in
the Appendix.
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. Under normal
circumstances, the dollar-weighted average maturity of the Fund's portfolio will
be between five and ten years.
Up to 35% of the Fund's total assets may, under normal conditions, be
invested in common stocks; fixed-income securities convertible into common
stocks; warrants to purchase common stocks; investment grade fixed-income
securities; U.S. Government securities (including zero coupon securities);
mortgage-backed securities, financial futures contracts and options thereon;
index options; options on debt and equity securities; private placements;
repurchase agreements; and reverse repurchase agreements. In addition, any or
all of the above 35% of total assets portion of the Fund's portfolio may be
comprised of securities issued by foreign issuers.
Pending investment of proceeds from the sale of shares of the Fund or of its
portfolio securities or at other times when market conditions dictate a more
"defensive" investment strategy, the Fund may invest without limit in money
market instruments, including commercial paper of corporations organized under
the laws of any state or political subdivision of the United States,
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 yield on
these securities will generally tend to be lower than the yield on other
securities to be purchased by the Fund. To the extent the Fund purchases
Eurodollar certificates of deposit issued by foreign branches of domestic United
States banks, consideration will be given to their domestic marketability, the
lower reserve requirements normally mandated for overseas banking operations,
the possible impact of interruptions in the flow of international currency
transactions and economic developments which might adversely affect the payment
of principal or interest.
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
6
<PAGE>
fixed-income securities generally decline, and when interest rates fall, prices
generally rise. The Fund's yield will also vary based on the yield of the Fund's
portfolio securities.
The ratings of fixed-income securities by Moody's and Standard & Poor's are
a generally accepted barometer of credit risk. However, as the creditworthiness
of issuers of lower-rated fixed-income securities is more problematical than
that of issuers of higher-rated fixed-income securities, the achievement of the
Fund's investment objectives will be more dependent upon the Investment
Manager's own credit analysis than would be the case with a mutual fund
investing primarily in higher quality bonds. The Investment Manager will utilize
a security's credit rating as simply one indication of an issuer's
creditworthiness and will principally rely upon its own analysis of any security
currently held by the Fund or potentially purchasable by the Fund for its
portfolio.
In determining which securities to purchase or hold for the Fund's portfolio
and in seeking to reduce credit and interest rate risks, the Investment Manager
will rely on information from various sources, including: the rating of the
security; research, analysis and appraisals of brokers and dealers, including
DWR; the views of the Fund's Trustees and others regarding economic developments
and interest rate trends; and the Investment Manager's own analysis of factors
it deems relevant. The extent to which the Investment Manager is successful in
reducing depreciation or losses arising from either interest rate or credit
risks depends in part on the Investment Manager's portfolio management skills
and judgment in evaluating the factors affecting the value of securities. No
assurance can be given regarding the degree of success that will be achieved.
RISK CONSIDERATIONS
Because of the special nature of the Fund's investment in high income
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 income 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 income bond market and on the value of the high
income securities held by the Fund, as well as on the ability of the securities'
issuers to repay principal and interest on their borrowings.
The prices of high income securities have been found to be less sensitive to
changes in prevailing interest rates than higher-rated investments, but are
likely to be more sensitive to adverse economic changes or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. If the issuer of a fixed-income security owned by the Fund
defaults, the Fund may incur additional expenses to seek recovery. In addition,
periods of economic uncertainty and change can be expected to result in an
increased volatility of market prices of high income securities and a
concomitant volatility in the net asset value of a share of the Fund. Moreover,
the market prices of certain of the 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 (see "Dividends,
Distributions and Taxes" for a discussion of the tax ramifications of
investments in such securities).
The secondary market for high income securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The limited liquidity of the market
may also adversely affect the ability of the Fund's Trustees to
7
<PAGE>
arrive at a fair value for certain high income securities at certain times and
could make it difficult for the Fund to sell certain securities. In addition,
new laws and proposed new laws may have an adverse effect upon the value of high
income securities and a concomitant negative impact upon the net asset value of
a share of the Fund.
During the fiscal year ended March 31, 1997, the monthly dollar weighted
average ratings of the debt obligations held by the Fund, expressed as a
percentage of the Fund's total investments, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
- ----------------------------------- -------------------
<S> <C>
AAA/Aaa............................ 1.9%
AA/Aa.............................. 0.0%
A/A................................ 8.0%
BBB/Baa............................ 0.0%
BB/Ba.............................. 8.3%
B/B................................ 71.0%
CCC/Caa............................ 0.5%
CC/Ca.............................. 0.0%
C/C................................ 0.0%
D.................................. 0.0%
Unrated............................ 10.3%
-----
100.0%
</TABLE>
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities, from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, including the risks of default or
bankruptcy of the selling financial institution, the Fund follows procedures to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
and maintaining adequate collateralization.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are negotiated,
the price is fixed at the time of the commitment, but delivery and payment can
take place a month or more after the date of the commitment. While the Fund will
only purchase securities on a when-issued, delayed delivery or forward
commitment basis with the intention of acquiring the securities, the Fund may
sell the securities before the settlement date, if it is deemed advisable. The
securities so purchased or sold are subject to market fluctuation and no
interest accrues to the purchaser during this period. An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
when-issued, delayed delivery or forward commitment basis may increase the
volatility of the Fund's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage of
the Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value.
PRIVATE PLACEMENTS. The Fund may invest up to 10% of its total assets in
securities which are subject to restrictions on resale because they have
8
<PAGE>
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or which are otherwise not readily marketable. (Securities
eligible for resale pursuant to Rule 144A under the Securities Act, and
determined to be liquid pursuant to the procedures discussed in the following
paragraph, are not subject to the foregoing restriction.) These securities are
generally referred to as private placements or restricted securities.
Limitations on the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid", such security will
not be included within the category "illiquid securities", which under current
policy may not exceed 15% of the Fund's net assets. However, investing in Rule
144A Securities could have the effect of increasing the level of Fund
illiquidity to the extent the Fund, at a particular point in time, may be unable
to find qualified institutional buyers interested in purchasing such securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may also use
reverse repurchase agreements and dollar rolls as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. The Fund may enter into dollar rolls in which
the Fund sells securities and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. Reverse repurchase agreements and dollar rolls involve the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of proceeds of the agreement may
be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques
involving leverage, and are considered borrowings by the Fund.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real
estate investment trusts,
9
<PAGE>
which pool investors' funds for investments primarily in commercial real estate
properties. Investment in real estate investment trusts may be the most
practical available means for the Fund to invest in the real estate industry
(the Fund is prohibited from investing in real estate directly). As a
shareholder in a real estate investment trust, the Fund would bear its ratable
share of the real estate investment trust's expenses, including its advisory and
administration fees. At the same time the Fund would continue to pay its own
investment management fees and other expenses as a result of which the Fund and
its stockholders in effect will be absorbing duplicate levels of fees with
respect to investments in real estate investment trusts.
RIGHTS AND WARRANTS. The Fund may acquire rights and/or warrants which are
attached to other securities in its portfolio, or which are issued as a
distribution by the issuer of a security held in its portfolio. Rights and/or
warrants are, in effect, options to purchase equity securities at a specific
price, generally valid for a specific period of time, and have no voting rights,
pay no dividends and have no rights with respect to the corporation issuing
them.
CONVERTIBLE SECURITIES. Among the fixed-income securities in which the Fund
may invest are "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). Fluctuations in the prices
of an underlying security will affect the conversion value and cause a
concomitant fluctuation in the price of the convertible security.
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.
Because of the special nature of the Fund's permitted investments in lower
rated convertible securities, the Investment Manager must take account of
certain special considerations in assessing the risks associated with such
investments. The prices of lower rated 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 lower rated convertible security
owned by the Fund defaults, the Fund may incur additional expenses to seek
recovery. In addition, periods of economic uncertainty and change can be
expected to result in an increased volatility of market prices of lower rated
securities and a corresponding volatility in the net asset value of a share of
the Fund.
10
<PAGE>
FOREIGN SECURITIES. The Fund may invest in securities of foreign companies.
Foreign securities investments may be affected by changes in currency rates or
exchange control regulations, change in governmental administration or economic
or monetary policy (in the United States and abroad) or changed circumstances in
dealings between nations. Costs will be incurred in connection with conversions
between various currencies held by the Fund. Investments in foreign securities
will also occasion risks relating to political and economic developments abroad,
including the possibility of expropriations or confiscatory taxation,
limitations on the use or transfer of Fund assets and any effects of foreign
social, economic or political instability.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into forward
foreign currency exchange contracts ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward
contract involves an obligation to purchase or sell a specific 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. Should
forward prices decline during the period between the Fund's entering into a
forward contract for the sale of a foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, the Fund will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
COMMON STOCKS. The Fund may directly purchase common stocks on the open
market. In addition, the Fund may acquire common stocks when they are included
in a unit with fixed-income securities purchased by the Fund; when fixed-income
securities held by the Fund are converted to equity issues; when the Fund
exercises a warrant; and when the Fund purchases the common stock of companies
involved in takeovers or recapitalization, where the issuer or a stockholder has
offered, or pursuant to a "going private" transaction is effecting, a
transaction involving the issuance of newly issued fixed-income securities to
the holders of such common stock.
The prices of common stock are generally more volatile than those of
fixed-income securities. Moreover, not all common stock pay dividends and those
that do generally pay lower amounts than most fixed-income securities. The Fund
will only purchase common stocks directly when the Investment Manager believes
that their purchase will assist the Fund in meeting its investment objectives.
ADJUSTABLE RATE MORTGAGE SECURITIES. 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.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain ARMs
provide for additional limitations on the maximum amount by which the mortgage
interest rate may adjust for any single adjustment period. Alternatively,
certain ARMs contain limitations on changes in the required monthly payment. In
the event that a monthly payment is not sufficient to pay the interest accruing
on an ARM, any such excess interest is added to the principal balance of the
mortgage loan, which is repaid through future monthly payments. If the monthly
payment for such
11
<PAGE>
an instrument exceeds the sum of the interest accrued at the applicable mortgage
interest rate and the principal payment required at such point to amortize the
outstanding principal balance over the remaining term of the loan, the excess is
utilized to reduce the then outstanding principal balance of the ARM.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on portfolio
securities which are denominated in either U.S. dollars or foreign currencies
and on the U.S. dollar and foreign currencies, which are or may in the future be
listed on several U.S. and foreign securities exchanges or are written in
over-the-counter transactions ("OTC options"). OTC options are purchased from or
sold (written) to dealers or financial institutions which have entered into
direct agreements with the Fund.
The Fund is permitted to write covered call options on portfolio securities
and the U.S. dollar and foreign currencies, without limit, in order to hedge
against the decline in the value of a security or currency in which such
security is denominated, to earn additional income and to close out long call
option positions. The Fund may write covered put options, under which the Fund
incurs an obligation to buy the security (or currency) underlying the option
from the purchaser of the put at the option's exercise price at any time during
the option period, at the purchaser's election.
The Fund may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Fund may purchase call options to
close out a covered call position or to protect against an increase in the price
of a security it anticipates purchasing or, in the case of call options on a
foreign currency, to hedge against an adverse exchange rate change of the
currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The Fund may
purchase put options on securities which it holds in its portfolio to protect
itself against a decline in the value of the security and to close out written
put positions in a manner similar to call option closing purchase transactions.
There are no other limits on the Fund's ability to purchase call and put
options.
The Fund may purchase and sell futures contracts that are currently traded,
or may in the future be traded, on U.S. and foreign commodity exchanges on
underlying portfolio securities, on any currency ("currency" futures), on U.S.
and foreign fixed-income securities ("interest rate" futures) and on such
indexes of U.S. or foreign equity or fixed-income securities as may exist or
come into being ("index" futures). The Fund may purchase or sell interest rate
futures contracts for the purpose of hedging some or all of the value of its
portfolio securities (or anticipated portfolio securities) against changes in
prevailing interest rates. The Fund may purchase or sell index futures contracts
for the purpose of hedging some or all of its portfolio (or anticipated
portfolio) securities against changes in their prices (or the currency in which
they are denominated). As a futures contract purchaser, the Fund incurs an
obligation to take delivery of a specified amount of the obligation underlying
the contract at a specified time in the future for a specified price. As a
seller of a futures contract, the Fund incurs an obligation to deliver the
specified amount of the underlying obligation at a specified time in return for
an agreed upon price.
The Fund also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
12
<PAGE>
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.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale of the
futures contract. Another risk which will arise in employing futures contracts
to protect against the price volatility of portfolio securities is that the
prices of securities, currencies and indexes subject to futures contracts (and
thereby the futures contract prices) may correlate imperfectly with the behavior
of the U.S. dollar cash prices of the Fund's portfolio securities and their
denominated currencies. See the Statement of Additional Information for a
further discussion of risks.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of InterCapital, 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.
The Fund is managed within InterCapital's Taxable Fixed-Income Group, which
manages 24 funds and fund portfolios, with approximately $13 billion in assets
at May 31, 1997. Peter M. Avelar, Senior Vice President of InterCapital and a
member of InterCapital's Taxable Fixed-Income Group, has been the primary
portfolio manager of the Fund since its inception. Mr. Avelar has been managing
portfolios consisting of fixed-income and equity securities at InterCapital for
over five years.
Although the Fund does not engage in substantial short-term trading as a
means of achieving its investment objective, it may sell portfolio securities
without regard to the length of time they have been held, in accordance with the
investment policies described earlier. Pursuant to an order of the Securities
and Exchange Commission, the Fund may effect principal transactions in certain
money market instruments with DWR. In addition, the Fund may incur brokerage
commissions on transactions conducted through DWR. Under normal circumstances,
it is not anticipated that the portfolio trading will result in the Fund's
portfolio turnover rate exceeding 200% in any one year. The Fund will incur
underwriting discount costs (on underwritten securities) and brokerage costs
commensurate with its portfolio turnover rate. Short-term gains and losses may
result from such portfolio transactions. See "Dividends, Distributions and
Taxes" for a discussion of the tax implications of the Fund's trading policy.
13
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act. For purposes of the following limitations: (i)
all percentage limitations apply immediately after a purchase or initial
investment, and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities).
2. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities.
3. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
4. As to 75% of its total assets, purchase more than 10% of the voting
securities of any issuer.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other brokers and dealers who 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.
The minimum initial purchase is $1,000. Minimum subsequent purchases of $100
or more may be made by sending a check, payable to Dean Witter High Income
Securities, directly to Dean Witter Trust Company (the "Transfer Agent") at P.O.
Box 1040, Jersey City, NJ 07303 or by contacting an account executive of DWR or
other Selected Broker-Dealer. The minimum initial purchase in the case of
investments through EasyInvest, 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. The offering price will be the
net asset value per share next determined following receipt of an order (see
"Determination of Net Asset Value").
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<PAGE>
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gains distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions. While no sales charge is imposed at the time shares are
purchased, a contingent deferred sales charge may be imposed at the time of
redemption (see "Redemptions and Repurchases"). Sales personnel are compensated
for selling shares of the Fund at the time of their sale by the Distributor
and/or Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive various types of non-cash compensation 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.
ANALOGOUS DEAN WITTER FUNDS. The Distributor and the Investment Manager
serve in the same capacities for Dean Witter High Yield Securities Inc., an
open-end investment company with investment objectives and policies similar to
those of the Fund. Unlike the Fund, however, shares of Dean Witter High Yield
Securities Inc. are offered to the public with a sales charge imposed at the
time of purchase, rather than a contingent deferred sales charge assessed upon
redemption within five years of purchase. These two Dean Witter Funds have
differing fees and expenses, which will affect performance. Investors who would
like to receive a prospectus for Dean Witter High Yield Securities Inc. should
call the telephone numbers listed on the front cover of this Prospectus, or may
call their account executive for additional information.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan"), under which the Fund pays the Distributor a fee, which is
accrued daily and payable monthly, at an annual rate of 0.80% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's shares since the
inception of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived, or (b) the Fund's average daily net
assets. This fee is treated by the Fund as an expense in the year it is accrued.
A portion of the fee payable pursuant to the Plan, equal to 0.20% of the Fund's
average daily net assets, is characterized as a service fee within the meaning
of NASD guidelines. The service fee is a payment made for personal services
and/or the maintenance of shareholder accounts.
Amounts paid under the Plan are paid to the Distributor for services
provided and the expenses borne by the Distributor and others in the
distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and 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 to compensate DWR and other Selected Broker-Dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses.
15
<PAGE>
For the fiscal year ended March 31, 1997, the Fund accrued payments under
the Plan amounting to $6,228,452, which amount is equal to 0.80% of the Fund's
average daily net assets for the period. The payments accrued under the Plan
were calculated pursuant to clause (b) of the compensation formula under the
Plan.
At any given time the expenses of distributing shares of the Fund may be in
excess of the total of (i) the payments made by the Fund pursuant to the Plan,
and (ii) the proceeds of contingent deferred sales charges paid by investors
upon the redemption of shares (see "Redemptions and Repurchases--Contingent
Deferred Sales Charge"). For example, if $1 million in expenses in distributing
shares of the Fund had been incurred and $750,000 had been received as described
in (i) and (ii) above, the excess expense would amount to $250,000. The
Distributor has advised the Fund that the excess distribution expenses,
including the carrying charge described above, totalled $28,870,822 at March 31,
1997, which was equal to 2.56% of the Fund's net assets on such date.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses or any requirement that the Plan be
continued from year to year, such excess amount, if any, does not constitute a
liability of the Fund. Although there is no legal obligation for the Fund to pay
expenses incurred in excess of payments made to the Distributor under the Plan,
and the proceeds of contingent deferred sales charges paid by investors upon
redemption of shares, if for any reason the Plan is terminated the Trustees will
consider at that time the manner in which to treat such expenses. Any cumulative
expenses incurred, but not yet recovered through distribution fees or contingent
deferred sales charges, may or may not be recovered through future distribution
fees or contingent deferred sales charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time, (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time) on each day that the New York Stock Exchange
is open by taking the value of all assets of the Fund, subtracting all its
liabilities, dividing by the number of shares outstanding and adjusting to the
nearest cent. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by the
New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued (if there were no sales that
day, the security is valued at the latest bid price) (in cases where a security
is traded on more than one exchange, the security is valued on the exchange
designated as the primary market pursuant to procedures adopted by the
Trustees); and (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest bid price. When
market quotations are not readily available, including circumstances under which
it is determined by the Investment Manager that sale and bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Board of Trustees.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff,
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<PAGE>
including review of broker-dealer market price quotations, in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other open-end
investment company for which InterCapital serves as investment manager
(collectively, with the Fund, the "Dean Witter Funds")), unless the shareholder
requests that they be paid in cash. Shares as acquired are not subject to the
imposition of a contingent deferred sales charge upon their redemption (see
"Redemptions and Repurchases").
INVESTMENT OF DISTRIBUTIONS RECEIVED IN CASH. Any shareholder who receives a
cash payment representing a dividend or capital gains distribution may invest
such dividend or distribution at the net asset value per share next determined
after receipt by the Transfer Agent, by returning the check or the proceeds to
the Transfer Agent within thirty days after the payment date. Shares so acquired
are not subject to the imposition of a contingent deferred sales charge upon
their redemption (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, 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
contingent deferred sales charge will be imposed on shares redeemed under the
Withdrawal Plan (see "Redemptions and Repurchases--Contingent Deferred Sales
Charge"). Therefore, any shareholder participating in the Withdrawal Plan will
have sufficient shares redeemed from his or her account so that the proceeds
(net of any applicable contingent deferred sales charge) to the shareholder will
be the designated monthly or quarterly amount.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other Selected Broker-
Dealer account executive or the Transfer Agent.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of shares of the Fund for shares of other Dean Witter
Funds sold with a contingent deferred sales charge ("CDSC funds"), and for
shares of Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Intermediate
Term U.S. Treasury Trust, Dean Witter Short-Term Bond Fund, Dean Witter Limited
Term Municipal Trust, Dean Witter Balanced Growth Fund, Dean Witter Balanced
Income Fund and five Dean Witter Funds which are money market funds
17
<PAGE>
(the foregoing eleven non-CDSC funds are hereinafter collectively referred to as
the "Exchange Funds"). Exchanges may be made after the shares of the Fund
acquired by purchase (not by exchange or dividend reinvestment) have been held
for thirty days. There is no waiting period for exchanges of shares acquired by
exchange or dividend reinvestment.
An exchange to another CDSC fund or to any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share of
each fund after the exchange order is received. When exchanging into a money
market fund from the Fund, shares of the Fund are redeemed out of the Fund at
their next calculated net asset value and the proceeds of the redemption are
used to purchase shares of the money market fund at their net asset value
determined the following business day. Subsequent exchanges between any of the
money market funds and any of the CDSC funds can be effected on the same basis.
No contingent deferred sales charge ("CDSC") is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate redemption.
Shares of the Fund which are exchanged for shares of another CDSC fund having a
higher CDSC schedule than that of the Fund will be subject to the CDSC schedule
of the other CDSC fund, even if shares are subsequently re-exchanged for shares
of the Fund prior to redemption. Concomitantly, shares of the Fund acquired in
exchange for shares of another CDSC fund having a lower CDSC schedule than that
of this Fund will be subject to the CDSC schedule of this Fund, even if such
shares are subsequently re-exchanged for shares of the CDSC fund originally
purchased. During the period of time the shareholder remains in the Exchange
Fund (calculated from the last day of the month in which the Exchange Fund
shares were acquired), the holding period (for the purpose of determining the
rate of the CDSC) is frozen. If those shares are subsequently reexchanged for
shares of a CDSC fund, the holding period previously frozen when the first
exchange was made resumes on the last day of the month in which shares of a CDSC
fund are reacquired. Thus, the CDSC is based upon the time (calculated as
described above) the shareholder was invested in a CDSC fund (see "Redemptions
and Repurchases--Contingent Deferred Sales Charge"). However, in the case of
shares exchanged into an Exchange Fund on or after April 23, 1990, upon a
redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the Exchange
Fund 12b-1 distribution fees 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.)
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds"), but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter Funds for which shares of a front-end sales charge fund
have been exchanged) are not subject to any CDSC upon their redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders and,
at the Investment Manager's discretion, may be limited by the Fund's refusal to
accept additional purchases and/ or exchanges from the investor. Although the
Fund does not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive and contrary to the best interests of
the Fund and its other shareholders, investors should be aware that the Fund and
each of the other Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to
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<PAGE>
the shareholder not later than ten days following such shareholder's most recent
exchange. Also, the Exchange Privilege may be terminated or revised at any time
by the Fund and/or any of such Dean Witter Funds for which shares of the Fund
have been exchanged, upon such notice as may be required by applicable
regulatory agencies. Shareholders maintaining margin accounts with DWR or
another Selected Broker-Dealer are referred to their account executive regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain one and examine it carefully before
investing. Exchanges are subject to the minimum investment requirement 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 the share
certificate(s) 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 of 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 other Selected Broker-Dealers 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.
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<PAGE>
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds may
be reduced by the amount of any applicable contingent deferred sales charges
(see below). If shares are held in a shareholder's account without a share
certificate, a written request for redemption to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by the
shareholder(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.
CONTINGENT DEFERRED SALES CHARGE. Shares of the Fund which are held for
five years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any charge upon
redemption. Shares redeemed sooner than five years after purchase may, however,
be subject to a charge upon redemption. This charge is called a "contingent
deferred sales charge" ("CDSC"), and it 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 table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ---------------------------------------- --------------------
<S> <C>
First................................... 4.0%
Second.................................. 3.0%
Third................................... 2.0%
Fourth.................................. 2.0%
Fifth................................... 1.0%
Sixth and thereafter.................... None
</TABLE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the five years preceding the redemption;
(ii) the current net asset value of shares purchased more than five years prior
to the redemption; and (iii) the current net asset value of shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of 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 or Custodial Account under Section 403(b)(7) of the Internal Revenue
Code, provided in either case that the redemption is requested within one year
of the death or initial determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate or
self-employed retirement plan following retirement (or in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2; (B)
distributions from an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code following attainment of age
59 1/2); and (C) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
corporate or self-employed retirement plan qualified under Section 401(k) of the
Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc.,
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<PAGE>
as self-directed investment alternatives and for which Dean Witter Trust Company
or Dean Witter Trust FSB, each of which is an affiliate of the Investment
Manager, serves as Trustee or the 401(k) Support Services Group of DWR serves as
recordkeeper ("Eligible 401(k) Plan"), provided that either: (A) the plan
continues to be an Eligible 401(k) Plan after the redemption; or (B) the
redemption is in connection with the complete termination of the plan involving
the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
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 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."
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. 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 thirty 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 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, on sixty days' notice,
to redeem 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, 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
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<PAGE>
amount and allow him or her sixty days to make an additional investment in an
amount which will increase the value of his or her account to at least the
applicable amount before the redemption is processed. No CDSC will be imposed on
any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS. The Fund intends to declare and pay monthly
income dividends and to distribute net short-term and net long-term capital
gains, if any, at least once each year. The Fund may, however, determine either
to distribute or to retain all or part of any long-term capital gains in any
year for reinvestment.
All dividends and capital gains distributions will be paid in additional
Fund shares (without sales charge) and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends be paid in cash and such
request is received by the close of business on the day prior to the record date
for such distributions. (See "Shareholder Services--Automatic Investment of
Dividends and Distributions".)
TAXES. Because the Fund intends to distribute all of its net investment
income and net capital gains to shareholders and otherwise continue to 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 such income and capital gains.
With respect to the Fund's investments in zero coupon and payment-in-kind
bonds, the Fund accrues income prior to any actual cash payments by their
issuers. In order to comply with Subchapter M of the Internal Revenue Code and
be able to forego payment of Federal income tax on its income and capital gains,
the Fund must distribute all of its net investment income, including income
accrued from zero coupon and payment-in-kind bonds. As such, the Fund may be
required to dispose of some of its portfolio securities under disadvantageous
circumstances to generate the cash required for distribution.
Shareholders will normally have to pay Federal income taxes, and any
applicable state and/or local income taxes, on the dividends and distributions
they receive from the Fund. Such dividends and distributions, to the extent they
are derived from net investment income or net short-term capital gains, are
taxable to the shareholder as ordinary dividend income regardless of whether the
shareholder receives such distributions in additional shares or in cash. Any
dividends declared in the last calendar quarter of any year to shareholders of
record for that period which are paid in the following calendar year prior to
February 1 will be deemed received by the shareholder in the prior calendar
year. Since the Fund's income is expected to be derived primarily from interest
rather than dividends, only a small portion, if any, of such dividends and
distributions is expected to be eligible for the Federal dividends received
deduction available to corporations.
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. Capital gains may be generated by transactions
in options and futures contracts engaged in by the Fund.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return of
a portion of each shareholder's investment. All, or a portion, of such payments
will not be taxable to shareholders.
After the end of the calendar year, shareholders will receive a statement of
their dividends and capital gains distributions for tax purposes, including
infor-
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<PAGE>
mation as to the portion taxable as ordinary income and the portion taxable as
capital gains.
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 regarding specific questions
as to state or local taxes and as to the applicability of the foregoing to their
current federal tax situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. Both the yield and the total return of
the Fund are based on historical earnings and are not intended to indicate
future performance. The yield of the Fund is computed by dividing the Fund's net
investment income over a 30-day period by an average value (using the average
number of shares entitled to receive dividends and the net asset value per share
at the end of the period), all in accordance with applicable regulatory
requirements. Such amount is compounded for six months and then annualized for a
twelve-month period to derive the Fund's yield.
The "average annual total return" of the Fund refers to a figure reflecting
the average annualized percentage increase (or decrease) in the value of an
initial investment in the Fund of $1,000 over one, five and ten years, or the
life of the Fund, if less than any of the foregoing. Average annual total return
reflects all income earned by the Fund, any appreciation or depreciation of the
Fund's assets, all expenses incurred by the Fund and all sales charges incurred
by shareholders, for the stated period. It also assumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, and year-by-year or
other types of total return figures. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the Fund.
Such calculations may or may not reflect the deduction of the contingent
deferred sales charge which, if reflected, would reduce the performance quoted.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations,
such as mutual fund performance rankings of Lipper Analytical Services, Inc.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to
23
<PAGE>
circumstances in which the Fund itself would be unable to meet its obligations.
Given the above limitations on shareholder personal liability, and the nature of
the Fund's assets and operations, the possibility of the Fund being unable to
meet its obligations is remote and, in the opinion of Massachusetts counsel to
the Fund, the risk to Fund shareholders of personal liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is engaged at the same time in a purchase or sale of the same
security. The Code of Ethics bans the purchase of securities in an initial
public offering,
and also prohibits engaging in futures and options transactions and profiting on
short-term trading (that is, a purchase within sixty days of a sale or a sale
within sixty days of a purchase) of a security. In addition, investment
personnel may not purchase or sell a security for their personal account within
thirty days before or after any transaction in any Dean Witter Fund managed by
them. Any violations of the Code of Ethics are subject to sanctions, including
reprimand, demotion or suspension or termination of employment. The Code of
Ethics comports with regulatory requirements and the recommendations in the 1994
report by the Investment Company Institute Advisory Group on Personal Investing.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same investment
objective and policies and substantially the same investment restrictions as
those applicable to the Fund.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
24
<PAGE>
APPENDIX -- RATINGS OF INVESTMENTS
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
<TABLE>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations; i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate, and therefore not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable investments.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
</TABLE>
25
<PAGE>
CONDITIONAL RATING: Municipal bonds for which the security depends
upon the completion of some act or the fulfillment of some condition are
rated conditionally. These are bonds secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals which begin when facilities are completed, or
(d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2 and
3 in each generic rating classification from Aa through B in its
corporate and municipal bond rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and a modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to
repay punctually promissory obligations not having an original maturity
in excess of nine months. Moody's employs the following three
designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of
short-term promissory obligations. Issuers rated Prime-2 have a strong
capacity for repayment of short-term promissory obligations; and Issuers
rated Prime-3 have an acceptable capacity for repayment of short-term
promissory obligations. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers
reliable. The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default-capacity and willingness of
the obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation; (2) nature of
and provisions of the obligation; and (3) protection afforded by, and
relative position of, the obligation in the event of bankruptcy,
reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
reasons.
<TABLE>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than for debt in higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated BB has less near-term vulnerability to default than other speculative
grade debt. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payment.
B Debt rated B has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to
pay interest and repay principal.
CCC Debt rated CCC has a current identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payments of interest and repayments of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC The rating CC is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating.
CI The rating CI is reserved for income bonds on which no interest is being paid.
D Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
Bonds rated BB, B, CCC, CC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.
In the case of municipal bonds, the foregoing ratings are sometimes followed by
a "p" which indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the bonds
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood or risk of default upon
failure of such completion.
</TABLE>
27
<PAGE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt having an original maturity
of no more than 365 days. The commercial paper rating is not a
recommendation to purchase or sell a security. The ratings are based
upon current information furnished by the issuer or obtained by S&P from
other sources it considers reliable. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of
such information. Ratings are graded into group categories, ranging from
"A" for the highest quality obligations to "D" for the lowest. Ratings
are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designation 1, 2 and 3 to indicate the relative degree of
safety.
<TABLE>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying
this designation are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
</TABLE>
28
<PAGE>
Dean Witter
High Income Securities
Two World Trade Center
New York, New York 10048
DEAN WITTER
TRUSTEES HIGH INCOME
Michael Bozic SECURITIES
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Barry Fink
Vice President, Secretary and
General Counsel
Peter M. Avelar
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center,
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
PROSPECTUS -- JUNE 16, 1997
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES TWO WORLD TRADE CENTER, NEW YORK, NEW YORK
10048
LETTER TO THE SHAREHOLDERS MARCH 31, 1997
DEAR SHAREHOLDER:
The high-yield market posted solid returns during the past twelve months and
outperformed most of the other fixed-income markets. With the economy rebounding
from its late 1995 weakness and with corporate earnings holding up well during
the year, the market was able to offset what was a relatively weak fixed-income
environment.
In early 1996, investors were anticipating a recession, due to concern over a
then-weakening economy. U.S. Treasury yields were lower than today's levels,
with yields in the high-yield market higher. As the year played out, we saw the
economy bounce back, corporate earnings hold up, the equity markets reach
all-time highs and recession fears ease. The result was a somewhat weak and
volatile U.S. Treasury market, while the high-yield market held up well, given
the stronger than expected economy. Although yield spreads narrowed during the
year, many B-rated issues still provide an attractive yield advantage (nearly
400 basis points) over U.S. Treasuries and trade at or below par.
As Dean Witter High Income Securities begins its new fiscal year, a correction
is under way across most of the financial markets, including the high-yield bond
sector. On the heels of a credit tightening by the Federal Reserve Board in late
March, considerable nervousness has been evident in both the equity and
fixed-income markets. Speculation as to the timing and impact of any further
increases in interest rates has created uncertainty on the part of many
investors. The high-yield market also has felt this weakness, as investors
attempt to discount the possibility of slowing in the economy within the context
of any further tightening by the Federal Reserve Board.
PERFORMANCE AND PORTFOLIO STRATEGY
Against this backdrop, Dean Witter High Income Securities produced a total
return of 10.71 percent for the twelve-month period ended March 31, 1997, based
on its net asset value (NAV) of $9.80 per share plus reinvestment of dividends
and capital gains distributions. This compares to returns of 10.64 percent for
the Lehman High Yield Index
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
LETTER TO THE SHAREHOLDERS MARCH 31, 1997, CONTINUED
and a return of 10.30 percent for the Lipper High Yield Bond Fund Index during
the same period. Over the past twelve months, the Fund continued to distribute
regular income dividends at a rate of $0.08 per share per month. For the full
twelve-month period, the Fund's distributions totaled approximately $1.14 per
share, including an extra income dividend of $0.068 per share and capital gain
distributions of $0.106011 per share. On March 31, 1997, the Fund's net assets
exceeded $1.1 billion. The accompanying chart illustrates the growth of a
$10,000 investment in the Fund since inception (June 2, 1994) through the fiscal
year ended March 31, 1997, compared to a similar investment in the issues that
comprise the Lehman Brothers Mutual Fund Corporate/High Yield Index, the Lehman
Brothers High Yield Index and the Lipper High Yield Bond Funds Index.
(Note: We will be changing the
benchmark that we measure the Fund's [GRAPHIC]
performance against from the Lehman
Brothers Mutual Fund Corporate/High
Yield Index to the Lehman Brothers High
Yield Index, which represents the
Fund's portfolio composition more
accurately.)
As the economy has continued to expand
over the past few years, we have tended
to concentrate on B-rated issues. In a
growing economy one can find
undervalued "upgrade" candidates in
this sector of the market that provide
attractive yields as well as
appreciation potential. We therefore
continue to feel that many of these
issues are very attractive long-term
investments. However, given today's
higher interest rate environment and a
potentially slowing economy down the
road, we have recently taken some
defensive steps with the portfolio.
Over the past six to nine months, we
have upgraded the portfolio by
increasing our allocation to the
higher-quality end of the market
(BB-rated issues or higher) from 10
percent to 25 percent. We also sold
many of our heavily cyclical positions
and are now focused mainly on the more
predictable recession-resistant or
growth sectors of the economy. These
are areas which would tend to hold up
well in an
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
LETTER TO THE SHAREHOLDERS MARCH 31, 1997, CONTINUED
economic slowdown. In certain of these sectors, such as media and
telecommunications, we expect to see continued consolidation, which should bode
well for most industry participants, including many of the portfolio's current
holdings.
LOOKING AHEAD
Overall, we continue our primary focus on discounted B-rated investments
yielding 10 percent or higher, which we feel possess appreciation potential as
well as an attractive yield. In addition, while we are not expecting a recession
in 1997, we have begun to take a more defensive approach in case of any economic
slowing down the road as a result of today's higher interest rate environment.
We thank you for your continued support of Dean Witter High Income Securities
and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (93.2%)
AEROSPACE (0.8%)
$ 9,000 Sabreliner Corp. (Series B).............. 12.50 % 04/15/03 $ 8,685,000
-----------------
AUTOMOTIVE (6.9%)
8,950 APS, Inc................................. 11.875 01/15/06 9,039,500
13,505 Envirotest Systems, Inc.................. 9.125 03/15/01 12,694,700
30,000 General Motors Acceptance Corp........... 15.00 03/17/98 32,346,000
23,000 Toyota Motor Credit Corp................. 15.00 09/26/97 23,990,150
-----------------
78,070,350
-----------------
BROADCAST MEDIA (3.9%)
9,350 Adams Outdoor Advertising L.P............ 10.75 03/15/06 9,887,625
9,750 Capstar Broadcasting Partners - 144A*.... 12.75++ 02/01/09 5,167,500
11,500 Paxson Communications Corp............... 11.625 10/01/02 12,132,500
9,749 Spanish Broadcasting System, Inc......... 7.50 06/15/02 10,480,175
7,000 STC Broadcasting, Inc. - 144A*........... 11.00 03/15/07 6,930,000
-----------------
44,597,800
-----------------
BUSINESS SERVICES (5.2%)
21,365 Anacomp, Inc............................. 13.00+ 06/04/02 22,219,553
20,000 Anacomp, Inc. - 144A*.................... 10.875 04/01/04 19,794,000
16,000 Xerox Credit Corp........................ 15.00 06/10/97 16,273,920
-----------------
58,287,473
-----------------
CABLE & TELECOMMUNICATIONS (15.5%)
10,828 Adelphia Communications Corp. (Series
B)..................................... 9.50+ 02/15/04 9,284,766
10,500 Adelphia Communications, Inc. - 144A*.... 9.875 03/01/07 9,843,750
11,050 American Communications Services, Inc.... 13.00++ 11/01/05 6,685,250
10,050 American Communications Services, Inc.... 12.75++ 04/01/06 5,678,250
14,000 AT&T Capital Corp........................ 15.00 05/05/97 14,112,980
13,500 Cablevision Systems Corp................. 10.50 05/15/16 13,601,250
4,599 Cablevision Systems Corp................. 9.875 04/01/23 4,392,045
10,750 Charter Communication South East L.P.
(Series B)............................. 11.25 03/15/06 11,180,000
22,306 Falcon Holdings Group L.P. (Series B).... 11.00+ 09/15/03 20,409,950
10,000 FrontierVision Operating Partners,
L.P.................................... 11.00 10/15/06 9,975,000
24,800 Hyperion Telecommunication, Inc. (Series
B)..................................... 13.00++ 04/15/03 13,516,000
20,400 In-Flight Phone Corp. (Series B) (b)..... 14.00++ 05/15/02 1,734,000
10,000 IXC Communications, Inc. (Series B)...... 12.50 10/01/05 10,900,000
10,750 Paging Network, Inc...................... 10.125 08/01/07 9,701,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,000 Paging Network, Inc...................... 10.00 % 10/15/08 $ 4,437,500
10,000 Peoples Telephone Co., Inc............... 12.25 07/15/02 10,625,000
10,000 Rifkin Acquisition Partners L.P.......... 11.125 01/15/06 10,050,000
10,500 Shared Technology/Fairchild, Inc......... 12.25++ 03/01/06 8,610,000
-----------------
174,737,616
-----------------
COMPUTER EQUIPMENT (6.8%)
14,000 Advanced Micro Devices, Inc.............. 11.00 08/01/03 15,330,000
31,500 IBM Credit Corp.......................... 15.00 03/04/98 33,936,840
7,000 Unisys Corp.............................. 15.00 07/01/97 7,157,500
17,500 Unisys Corp. (Conv.)..................... 8.25 03/15/06 20,017,550
-----------------
76,441,890
-----------------
CONSUMER PRODUCTS (1.3%)
5,500 J.B. Williams Holdings, Inc.............. 12.00 03/01/04 5,678,750
8,750 Renaissance Cosmetics, Inc. - 144A*...... 11.75 02/15/04 8,837,500
-----------------
14,516,250
-----------------
CONTAINERS (2.8%)
7,500 Mail-Well Corp........................... 10.50 02/15/04 7,725,000
9,475 Packaging Resources, Inc................. 11.625 05/01/03 9,759,250
13,500 Silgan Corp.............................. 11.75 06/15/02 14,360,625
-----------------
31,844,875
-----------------
ELECTRICAL & ALARM SYSTEMS (0.9%)
11,000 Mosler, Inc.............................. 11.00 04/15/03 10,340,000
-----------------
ENTERTAINMENT/GAMING & LODGING (9.5%)
9,850 AMF Group Inc. (Series B)................ 10.875 03/15/06 10,268,625
12,000 Fitzgeralds Gaming Corp. (Units)++....... 13.00 12/31/02 10,230,000
14,250 Lady Luck Gaming Finance Corp............ 11.875 03/01/01 13,929,375
6,377 MGM Grand Hotels Corp. (Series A)........ 11.75 05/01/99 6,528,454
19,730 MGM Grand Hotels Corp.................... 12.00 05/01/02 20,889,137
8,000 Motels of America, Inc. (Series B)....... 12.00 04/15/04 6,960,000
9,925 Players International, Inc............... 10.875 04/15/05 10,272,375
9,900 Plitt Theaters, Inc. (Canada)............ 10.875 06/15/04 10,098,000
10,100 Station Casinos, Inc. (Series B)......... 9.625 06/01/03 9,595,000
8,750 Stuart Entertainment, Inc. - 144A*....... 12.50 11/15/04 8,050,000
-----------------
106,820,966
-----------------
FINANCIAL (4.8%)
29,000 General Electric Capital Corp............ 13.50 01/20/98 30,654,160
23,000 Household Finance Corp................... 15.00 09/25/97 23,988,540
-----------------
54,642,700
-----------------
FOODS & BEVERAGES (8.1%)
21,961 Envirodyne Industries, Inc............... 10.25 12/01/01 21,741,390
11,221 Fleming Companies, Inc................... 10.625 12/15/01 11,249,052
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 23,750 General Mills, Inc....................... 13.50 % 01/21/98 $ 25,078,813
72,425 Specialty Foods Acquisition Corp. (Series
B)..................................... 13.00++ 08/15/05 33,315,500
-----------------
91,384,755
-----------------
HEALTHCARE (1.5%)
11,975 Unilab Corp.............................. 11.00 04/01/06 9,101,000
10,000 Unison Healthcare Corp. - 144A*.......... 12.25 11/01/06 8,100,000
-----------------
17,201,000
-----------------
MANUFACTURING (7.2%)
7,900 Berry Plastics Corp...................... 12.25 04/15/04 8,690,000
9,075 Cabot Safety Corp........................ 12.50 07/15/05 9,755,625
11,000 Exide Electronics Group, Inc. (Series
B)..................................... 11.50 03/15/06 11,742,500
11,500 International Wire Group, Inc............ 11.75 06/01/05 12,161,250
30,000 John Deere Capital Corp.................. 15.00 02/24/98 32,264,400
7,230 Uniroyal Technology Corp................. 11.75 06/01/03 7,230,000
-----------------
81,843,775
-----------------
MANUFACTURING - DIVERSIFIED (5.0%)
9,650 Foamex L.P............................... 11.875 10/01/04 10,397,875
10,000 Interlake Corp........................... 12.125 03/01/02 10,450,000
8,350 J.B. Poindexter & Co., Inc............... 12.50 05/15/04 8,527,438
7,000 Jordan Industries, Inc................... 10.375 08/01/03 6,965,000
35,500 Jordan Industries, Inc. - 144A*.......... 11.75++ 04/01/09 20,103,650
-----------------
56,443,963
-----------------
OIL & GAS (1.9%)
3,000 Petro Stopping Centers L.P. - 144A*...... 10.50 02/01/07 3,030,000
17,000 TransTexas Gas Corp...................... 11.50 06/15/02 18,742,500
-----------------
21,772,500
-----------------
PUBLISHING (3.4%)
11,175 Affiliated Newspapers Investments,
Inc.................................... 13.25++ 07/01/06 9,219,375
8,200 American Media Operations, Inc........... 11.625 11/15/04 8,856,000
4,500 MDC Communications Corp.................. 10.50 12/01/06 4,657,500
5,000 Petersen Publishing, Inc. (Series B)..... 11.125 11/15/06 5,350,000
10,100 United States Banknote Corp.............. 10.375 06/01/02 10,074,750
-----------------
38,157,625
-----------------
RESTAURANTS (3.1%)
12,000 American Restaurant Group Holdings,
Inc.................................... 14.00++ 12/15/05 5,250,000
17,000 American Restaurant Group Holdings, Inc.
- 144A*................................ 14.00++ 12/15/05 7,437,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 3,000 Ameriking, Inc........................... 10.75 % 12/01/06 $ 3,105,000
10,437 Carrols Corp............................. 11.50 08/15/03 10,958,850
7,647 FRD Acquisition Corp. (Series B)......... 12.50 07/15/04 7,991,115
-----------------
34,742,465
-----------------
RETAIL (0.4%)
10,450 County Seat Stores Co. (a)............... 12.00 10/01/02 4,754,750
-----------------
RETAIL - FOOD CHAINS (2.1%)
9,000 Jitney-Jungle Stores of America, Inc..... 12.00 03/01/06 9,540,000
14,200 Pathmark Stores, Inc..................... 9.625 05/01/03 13,383,500
1,000 Ralphs Grocery Co........................ 10.45 06/15/04 1,030,000
-----------------
23,953,500
-----------------
TEXTILES (1.9%)
10,030 Reeves Industries, Inc................... 11.00 07/15/02 9,403,125
13,400 U.S. Leather, Inc........................ 10.25 07/31/03 11,524,000
-----------------
20,927,125
-----------------
TRANSPORTATION (0.2%)
1,750 Atlantic Express - 144A*................. 10.75 02/01/04 1,789,375
-----------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $1,065,113,290).................................. 1,051,955,753
-----------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<S> <C> <C>
COMMON STOCKS (c) (2.6%)
FOODS & BEVERAGES (0.5%)
490,000 Seven-Up/RC Bottling Co. Southern California, Inc (d)................ 5,787,880
300,975 Specialty Foods Acquisition Corp. - 144A*............................ 300,975
-----------------
6,088,855
-----------------
HEALTHCARE (0.1%)
1,358,200 Unilab Corp.......................................................... 933,763
-----------------
MANUFACTURING - DIVERSIFIED (2.0%)
835,689 Thermadyne Holdings Corp. (d)........................................ 22,668,064
-----------------
RESTAURANTS (0.0%)
12,000 American Restaurant Group Holdings, Inc. - 144A*..................... 12,000
-----------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $21,786,775)........................................ 29,702,682
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK (0.2%)
ENTERTAINMENT/GAMING & LODGING
80,000 Fitzgeralds Gaming Corp. (Units) ++
(Identified Cost $2,000,000)....................................... $ 1,840,000
-----------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- ----------- -----------
<S> <C> <C> <C>
WARRANTS (c) (0.1%)
CABLE & TELECOMMUNICATIONS (0.1%)
17,000 Hyperion Telecommunication, Inc. (Series B) - 144A*... 04/01/01 510,000
-----------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
9,000 Fitzgeralds Gaming Corp............................... 12/19/98 9,035
3,500 Fitzgeralds South Inc. - 144A*........................ 03/15/99 --
-----------------
9,035
-----------------
MANUFACTURING (0.0%)
6,000 Exide Electronics Group, Inc. - 144A*................. 03/15/06 240,000
20,000 Uniroyal Technology Corp.............................. 06/01/03 20,000
-----------------
260,000
-----------------
TOTAL WARRANTS
(IDENTIFIED COST $626,644)......................................... 779,035
-----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ----------- ----------- ----------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (2.3%)
U.S. GOVERNMENT AGENCY (e) (0.7%)
$ 8,000 Federal Home Loan Banks (Amortized Cost
$7,998,800)............................ 5.40 % 04/02/97 7,998,800
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT (1.6%)
$ 18,084 The Bank of New York (dated 03/31/97;
proceeds $18,086,441; collateralized by
$18,811,006 U.S. Treasury Note 6.25%
due 02/15/03 valued at $18,445,416)
(Identified Cost $18,083,741).......... 5.375 % 04/01/97 $ 18,083,741
-----------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $26,082,541)..................................... 26,082,541
-----------------
TOTAL INVESTMENTS
(IDENTIFIED COST $1,115,609,250) (F)...................... 98.4% 1,110,360,011
OTHER ASSETS IN EXCESS OF LIABILITIES..................... 1.6 18,720,866
------ ----------------
NET ASSETS................................................ 100.0% $ 1,129,080,877
------ ----------------
------ ----------------
<FN>
- ---------------------
* Resale is restricted to qualified institutional investors.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified date.
++ Consists of one or more class of securities traded together as a unit;
bonds or preferred stocks with attached warrants.
(a) Non-income producing security; bond in default.
(b) Non-income producing security; issuer in bankruptcy.
(c) Non-income producing securities.
(d) Acquired through exchange offer.
(e) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(f) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $35,594,566 and the
aggregate gross unrealized depreciation is $40,843,805, resulting in net
unrealized depreciation of $5,249,239.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,115,609,250).......................... $1,110,360,011
Receivable for:
Interest................................................ 22,160,555
Investments sold........................................ 20,135,679
Shares of beneficial interest sold...................... 6,622,760
Deferred organizational expenses............................ 70,539
Prepaid expenses............................................ 26,377
--------------
TOTAL ASSETS........................................... 1,159,375,921
--------------
LIABILITIES:
Payable for:
Investments purchased................................... 25,503,561
Shares of beneficial interest repurchased............... 1,785,316
Dividends to shareholders............................... 1,505,306
Plan of distribution fee................................ 752,441
Investment management fee............................... 431,584
Accrued expenses............................................ 316,836
--------------
TOTAL LIABILITIES...................................... 30,295,044
--------------
NET ASSETS:
Paid-in-capital............................................. 1,144,188,118
Net unrealized depreciation................................. (5,249,239)
Accumulated undistributed net investment income............. 1,795,238
Accumulated net realized loss............................... (11,653,240)
--------------
NET ASSETS............................................. $1,129,080,877
--------------
--------------
NET ASSET VALUE PER SHARE,
115,231,451 SHARES OUTSTANDING (UNLIMITED SHARES
AUTHORIZED OF $.01 PAR VALUE).............................
$9.80
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 92,540,476
------------
EXPENSES
Plan of distribution fee.................................... 6,228,452
Investment management fee................................... 3,685,133
Transfer agent fees and expenses............................ 406,387
Registration fees........................................... 286,221
Professional fees........................................... 56,237
Shareholder reports and notices............................. 54,942
Custodian fees.............................................. 45,434
Organizational expenses..................................... 32,000
Trustees' fees and expenses................................. 14,811
Other....................................................... 13,809
------------
TOTAL EXPENSES......................................... 10,823,426
------------
NET INVESTMENT INCOME.................................. 81,717,050
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (10,135,805)
Net change in unrealized depreciation....................... 1,728,943
------------
NET LOSS............................................... (8,406,862)
------------
NET INCREASE................................................ $ 73,310,188
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE YEAR
MARCH 31, ENDED
1997 MARCH 31, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 81,717,050 $ 37,030,684
Net realized gain (loss).................................... (10,135,805) 8,183,189
Net change in unrealized depreciation....................... 1,728,943 (6,754,811)
------------- --------------
NET INCREASE........................................... 73,310,188 38,459,062
------------- --------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (82,972,651) (34,585,105)
Net realized gain........................................... (6,935,617) (1,424,003)
------------- --------------
TOTAL.................................................. (89,908,268) (36,009,108)
------------- --------------
Net increase from transactions in shares of beneficial
interest.................................................. 640,188,381 334,159,446
------------- --------------
NET INCREASE........................................... 623,590,301 336,609,400
NET ASSETS:
Beginning of period......................................... 505,490,576 168,881,176
------------- --------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$1,795,238 AND $3,050,651, RESPECTIVELY)................ $1,129,080,877 $ 505,490,576
------------- --------------
------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter High Income Securities (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's primary investment objective
is to earn a high level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective. The Fund
seeks to achieve its objective by investing primarily in lower-rated fixed
income securities. The Fund was organized as a Massachusetts business trust on
March 23, 1994 and commenced operations on June 2, 1994.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued, if
there were no sales that day, the security is valued at the latest bid price (in
cases where a security is traded on more than one exchange, the security is
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Dean Witter InterCapital Inc. (the "Investment Manager") that sale
and bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees
(valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the portfolio securities
valued by such pricing service; and (5) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997, CONTINUED
on a mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily except where collection is not expected.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-date. The amount of dividends and
distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $154,000 which haven been
reimbursed for the full amount thereof. Such expenses have been deferred and are
being amortized on the straight-line method over a period not to exceed five
years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying the
annual rate of 0.50% to the net assets of the Fund determined as of the close of
each business day. Effective May 1, 1996, the annual rate was reduced to 0.425%
for net assets in excess of $500 million.
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997, CONTINUED
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 0.80% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived; or (b) the Fund's average daily net
assets. Amounts paid under the Plan are paid to the Distributor to compensate it
for the services provided and the expenses borne by it and others in the
distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to, and expenses of, the
account executives of Dean Witter Reynolds Inc., an affiliate of the Investment
Manager and Distributor, and other employees or selected broker-dealers who
engage in or support distribution of the Fund's shares or who service
shareholder accounts, including overhead and telephone expenses, printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's shares to other than current shareholders and preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may be compensated under the Plan for its opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses incurred by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997, CONTINUED
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Fund that such excess amounts,
including carrying charges, totaled $28,870,822 at March 31, 1997.
The Distributor has informed the Fund that for the year ended March 31, 1997, it
received approximately $1,408,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended March 31, 1997 aggregated
$882,695,717 and $301,847,787, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and the
Distributor, is the Fund's transfer agent. At March 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $66,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 92,034,373 $915,772,428 41,085,242 $408,356,512
Reinvestment of dividends and distributions...................... 3,505,097 34,682,684 1,336,198 13,186,801
----------- ------------ ----------- ------------
95,539,470 950,455,112 42,421,440 421,543,313
Repurchased...................................................... (31,220,883) (310,266,731) (8,797,583) (87,383,867)
----------- ------------ ----------- ------------
Net increase..................................................... 64,318,587 $640,188,381 33,623,857 $334,159,446
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $6,272,000 during fiscal 1997.
As of March 31, 1997, the Fund had temporary book/tax differences attributable
to post-October losses and capital loss deferrals on wash sales.
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE JUNE 2, 1994*
YEAR ENDED YEAR ENDED THROUGH
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 9.93 $ 9.77 $ 10.00
----- ------ ------
Net investment income.............. 0.99 1.03 0.75
Net realized and unrealized gain
(loss)............................ 0.02 0.18 (0.26)
----- ------ ------
Total from investment operations... 1.01 1.21 0.49
----- ------ ------
Less dividends and distributions
from:
Net investment income........... (1.03) (1.01) (0.72)
Net realized gain............... (0.11) (0.04) --
----- ------ ------
Total dividends and
distributions..................... (1.14) (1.05) (0.72)
----- ------ ------
Net asset value, end of period..... $ 9.80 $ 9.93 $ 9.77
----- ------ ------
----- ------ ------
TOTAL INVESTMENT RETURN+........... 10.71% 12.85% 5.19%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.39% 1.49% 1.55%(2)(3)
Net investment income.............. 10.50% 11.22% 10.85%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions.......................... $ 1,129 $ 505 $ 169
Portfolio turnover rate............ 42% 69% 53%(1)
<FN>
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all the expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment ratios
would have been 1.65% and 10.75%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER HIGH INCOME SECURITIES
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter High Income Securities
(the "Fund") at March 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the two years in the period
then ended and for the period June 2, 1994 (commencement of operations) through
March 31, 1995, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at March
31, 1997 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
MAY 9, 1997
1997 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended March 31, 1997, the Fund paid to its
shareholders $0.01 per share from long-term capital gains.
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of Dean
Witter High Yield Securities Inc. ("High Yield") to be issued pursuant to an
Agreement and Plan of Reorganization, dated June 30, 1997, between High Yield
and Dean Witter High Income Securities ("High Income") in connection with the
acquisition by High Yield of substantially all of the assets, subject to
stated liabilities, of High Income. This Statement of Additional Information
does not constitute a prospectus. This Statement of Additional Information
does not include all information that a shareholder should consider before
voting on the proposals contained in the Proxy Statement and Prospectus, and,
therefore, should be read in conjunction with the related Proxy Statement and
Prospectus, dated August , 1997. A copy of the Proxy Statement and
Prospectus may be obtained without charge by mailing a written request to
High Yield at Two World Trade Center, New York, New York 10048 or by calling
(212) 392-2550 or (800) 526-3143 (TOLL FREE). Please retain this document for
future reference.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS AUGUST , 1997.
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INTRODUCTION ................................ B-3
ADDITIONAL INFORMATION ABOUT HIGH YIELD .... B-3
FINANCIAL STATEMENTS ........................ B-4
</TABLE>
B-2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated August ,
1997 (the "Proxy Statement and Prospectus"). The Proxy Statement and
Prospectus has been sent to High Income shareholders in connection with the
solicitation of proxies by the Board of Trustees of High Income to be voted
at the Special Meeting of Shareholders of High Income to be held on October
24, 1997. This Statement of Additional Information incorporates by reference
the Statement of Additional Information of High Yield dated July 28, 1997 and
the Statement of Additional Information of High Income dated June 16, 1997.
ADDITIONAL INFORMATION ABOUT HIGH YIELD
INVESTMENT OBJECTIVES AND POLICIES
For additional information about High Yield's investment objectives and
policies, see "Investment Practices and Policies" and "Investment
Restrictions" in High Yield's Statement of Additional Information.
MANAGEMENT
For additional information about the Board of Directors, officers and
management personnel of High Yield , see "The Fund and Its Management" and
"Directors and Officers" in High Yield's Statement of Additional Information.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about High Yield's investment manager, see "The
Fund and Its Management" in High Yield's Statement of Additional Information.
For additional information about High Yield's independent auditors, see
"Independent Accountants" in High Yield's Statement of Additional
Information. For additional information about other services provided to High
Yield see "Custodian and Transfer Agent" and "Shareholder Services" in High
Yield's Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For additional information about brokerage allocation practices, see
"Portfolio Transactions and Brokerage" in High Yield's Statement of
Additional Information.
DESCRIPTION OF FUND SHARES
For additional information about the voting rights and other
characteristics of the shares of High Yield, see "Description of Common
Stock" in High Yield's Statement of Additional Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of High
Yield's shares and the determination of net asset value, see "Purchase of
Fund Shares," "Redemptions and Repurchases," "Financial Statements -- August
31, 1996" and "Shareholder Services" in High Yield's Statement of Additional
Information.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
For additional information about High Yield's policies regarding dividends
and distributions and tax matters affecting High Yield and its shareholders,
see "Dividends, Distributions and Taxes" and "Financial Statements -- August
31, 1996" in High Yield's Statement of Additional Information.
B-3
<PAGE>
DISTRIBUTION OF SHARES
For additional information about High Yield's distributor and the
distribution agreement between High Yield and its distributor, see "Purchase
of Fund Shares" in High Yield's Statement of Additional Information.
PERFORMANCE DATA
For additional information about High Yield's performance data, see
"Performance Information" in High Yield's Statement of Additional
Information.
FINANCIAL STATEMENTS
High Yield's most recent audited financial statements are set forth in
High Yield's Annual Report for the fiscal year ended August 31, 1996 and High
Yield's updated, unaudited financial statements are set forth in its
Semi-Annual Report for the six month period ended February 28, 1997. Copies
of both Reports accompany, and are incorporated by reference in, the Proxy
Statement and Prospectus. High Income's most recent audited financial
statements are set forth in High Income's Annual Report for the fiscal year
ended March 31, 1997, which is incorporated by reference to the Proxy
Statement and Prospectus.
B-4
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER
HIGH YIELD HIGH INCOME COMBINED
SECURITIES INC. SECURITIES (NOTE 1)
--------------------- ------------------ ----------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value (identified
cost--$538,363,244, $1,115,609,250 and
$1,653,972,494, respectively) ........................ $ 458,066,554 $1,110,360,011 $1,568,426,565
Receivable for:
Interest ............................................. 10,245,586 22,160,555 32,406,141
Investments sold ..................................... 13,464,215 20,135,679 33,599,894
Fund shares sold ..................................... 340,491 6,622,760 6,963,251
Receivable from affiliate (1) ......................... -- 70,539 70,539
Prepaid expenses and other assets ..................... 78,603 26,377 104,980
--------------------- ------------------ ----------------
TOTAL ASSETS ........................................ 482,195,449 1,159,375,921 1,641,571,370
--------------------- ------------------ ----------------
LIABILITIES:
Payable for:
Investments purchased ................................ 14,232,180 25,503,561 39,735,741
Fund shares repurchased .............................. 600,869 1,785,316 2,386,185
Dividends to shareholders ............................ 904,907 1,505,306 2,410,213
Plan of distribution fee ............................. -- 752,441 752,441
Investment management fee ............................ 199,948 431,584 631,532
Accrued expenses and other payables ................... 246,275 316,836 563,111
--------------------- ------------------ ----------------
TOTAL LIABILITIES ................................... 16,184,179 30,295,044 46,479,223
--------------------- ------------------ ----------------
NET ASSETS:
Paid-in-capital (Note 3) .............................. 763,707,900 1,144,188,306 1,907,896,206
Net unrealized depreciation............................ (80,296,690) (5,249,239) (85,545,929)
Accumulated undistributed net investment income ....... 2,979,230 1,795,050 4,774,280
Accumulated net realized loss (Note 3) ................ (220,379,170) (11,653,240) (232,032,410)
--------------------- ------------------ ----------------
NET ASSETS .......................................... $ 466,011,270 $1,129,080,877 $1,595,092,147
===================== ================== ================
NET ASSET VALUE PER SHARE ............................. $ 6.57 $ 9.80 $ 6.57
===================== ================== ================
SHARES OUTSTANDING (Notes 1 and 2) .................... 70,887,414 115,231,451 242,741,429
===================== ================== ================
</TABLE>
- ------------
(1) Reflects reclassification of unamortized organizational expenses
which will be reimbursed by Dean Witter InterCapital Inc., the Fund's
Investment Manager.
See Notes to Pro Forma Financial Statements
1
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER PRO FORMA
HIGH YIELD HIGH INCOME ADJUSTMENTS
SECURITIES INC. SECURITIES (NOTE 3) COMBINED
----------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ...................... $ 57,632,696 $ 92,540,476 $ $150,173,172
--
----------------- ---------------- -------------- --------------
EXPENSES
Plan of distribution fee ............ -- 6,228,452 (389,335)(1) 5,839,117
Investment management fee............ 2,316,252 3,685,133 (653,743)(2) 5,347,642
Transfer agent fees and expenses ... 525,076 406,387 -- 931,463
Professional fees ................... 65,977 56,237 (56,237)(3) 65,977
Shareholder reports and notices .... 56,344 54,942 (26,300)(3) 84,986
Custodian fees....................... 47,551 45,434 -- 92,985
Registration fees.................... 40,026 286,221 (2,366)(3) 323,881
Organizational expenses ............. -- 32,000 (32,000)(4) --
Trustees' fees and expenses ......... 10,907 14,811 (14,811)(3) 10,907
Other................................ 11,695 13,809 (13,809)(3) 11,695
----------------- ---------------- -------------- --------------
TOTAL EXPENSES ..................... 3,073,828 10,823,426 (1,188,601) 12,708,653
----------------- ---------------- -------------- --------------
NET INVESTMENT INCOME .............. 54,558,868 81,717,050 1,188,601 137,464,519
----------------- ---------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized loss .................... (41,344,951) (10,135,805) -- (51,480,756)
Net change in unrealized 33,732,663 1,728,943 -- 35,461,606
depreciation.........................
----------------- ---------------- -------------- --------------
NET LOSS ........................... (7,612,288) (8,406,862) -- (16,019,150)
----------------- ---------------- -------------- --------------
NET INCREASE ...................... $ 46,946,580 $ 73,310,188 $ 1,188,601 $121,445,369
================= ================ ============== ==============
</TABLE>
- ------------
(1) Reflects adjustment to plan of distribution fee based on the Class B
fee schedule of the surviving Fund.
(2) Reflects adjustment to investment management fees based on the
surviving Fund's fee schedule.
(3) Reflects elimination of duplicate services or fees.
(4) Prepaid organizational expenses will not be assumed by the surviving
Fund.
See Notes to Pro Forma Financial Statements
2
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION -- The Pro Forma Statement of Assets and Liabilities,
including the Portfolio of Investments, at March 31, 1997 and the related
Statement of Operations ("Pro Forma Statements") for the twelve months ended
March 31, 1997, reflect the accounts of Dean Witter High Yield Securities
Inc. ("High Yield") and Dean Witter High Income Securities ("High Income").
The Pro Forma Statements give effect to the proposed transfer of all assets
and liabilities of High Income in exchange for shares in High Yield. The Pro
Forma Statements should be read in conjunction with the historical financial
statements of each Fund included in its Prospectus or Statement of Additional
Information.
2. FUND SHARES TRANSACTIONS -- The pro forma net asset value per share
assumes the issuance of additional shares of High Yield which would have been
issued on March 31, 1997 in connection with the proposed reorganization. The
amount of additional shares assumed to be issued (171,854,015) was calculated
based on the March 31, 1997 net assets of High Income ($1,129,080,877) and
the net asset value per share of High Yield ($6.57).
3. PRO FORMA OPERATIONS -- On July 28, 1997, High Yield will begin offering
four classes of shares. Class B shares of High Yield will be issued to High
Income shareholders and High Yield shareholders will be issued Class D
shares.
The Pro Forma Statement of Operations assumes similar rates of gross
investment income for the investments of each Fund. Accordingly, the combined
gross investment income is equal to the sum of each Fund's gross investment
income. Certain expenses have been adjusted to reflect the expected expenses
of the combined entity. The Statement of Operations includes the actual
operating expenses of the Funds and the pro forma expenses of the combined
Fund based on the fee schedule in effect for High Yield at the combined level
of average net assets for the twelve months ended March 31, 1997 except for
the plan of distribution, the expenses of which are based on the proposed fee
schedule for Class B shares of High Yield. It is intended that the combined
Fund will bear all of its expenses. Pro forma operating expenses do not
include the impact of estimated solicitation costs in connection with the
reorganization, which will be paid by Dean Witter InterCapital Inc, the
Investment Manager of both High Yield and High Income.
High Yield has a capital loss carryover of approximately $937 million and a
net unrealized loss of approximately $80 million. Most of those
built-in-losses and capital loss carryovers will not be available to offset
realized capital gains of the combined fund. Only a portion of the unrealized
capital losses and capital loss carryovers (i.e., approximately $27 million
per year for seven years) will be available to offset realized net capital
gains of the combined fund. After seven years, the unused loss carryover will
be eliminated. To reflect the approximate limitation on the use of the
carryover losses, paid-in-capital was charged $780,000,000 and accumulated
net realized loss was credited $780,000,000.
3
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER HIGH YIELD DEAN WITTER HIGH INCOME
SECURITIES INC. SECURITIES COMBINED
------------------------- --------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
COUPON MATURITY (In (In (In
RATE DATE thousands) VALUE thousands) VALUE thousands) VALUE
------- -------- ------------ ------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CORPORATE BONDS (93.0%)
AEROSPACE (1.0%)
Sabreliner Corp. (Series B) . 12.50% 04/15/03 $ 8,000 $ 7,720,000 $ 9,000 $ 8,685,000 $17,000 $ 16,405,000
------------ -------------- --------------
AUTOMOTIVE (6.2%)
APS, Inc..................... 11.875 01/15/06 4,000 4,040,000 8,950 9,039,500 12,950 13,079,500
Envirotest Systems, Inc. .... 9.125 03/15/01 6,800 6,392,000 13,505 12,694,700 20,305 19,086,700
General Motors Acceptance
Corp. ...................... 15.00 03/17/98 -- -- 30,000 32,346,000 30,000 32,346,000
Toyota Motor Credit Corp. ... 15.00 09/26/97 10,000 10,430,500 23,000 23,990,150 33,000 34,420,650
------------ -------------- --------------
20,862,500 78,070,350 98,932,850
------------ -------------- --------------
BROADCAST MEDIA (4.2%)
Adams Outdoor Advertising
L.P. ....................... 10.75 03/15/06 4,000 4,230,000 9,350 9,887,625 13,350 14,117,625
Capstar Broadcasting
Partners -144A*............. 12.75++ 02/01/09 7,000 3,710,000 9,750 5,167,500 16,750 8,877,500
Paxson Communications Corp. 11.625 10/01/02 4,000 4,220,000 11,500 12,132,500 15,500 16,352,500
Spanish Broadcasting System,
Inc. ....................... 7.50 06/15/02 6,000 6,450,000 9,749 10,480,175 15,749 16,930,175
STC Broadcasting, Inc.
-144A*...................... 11.00 03/15/07 4,000 3,960,000 7,000 6,930,000 11,000 10,890,000
------------ -------------- --------------
22,570,000 44,597,800 67,167,800
------------ -------------- --------------
BUSINESS SERVICES (5.0%)
Anacomp, Inc................. 13.00+ 06/04/02 -- -- 21,365 22,219,553 21,365 22,219,553
Anacomp, Inc. -144A*......... 10.875 04/01/04 10,000 9,897,000 20,000 19,794,000 30,000 29,691,000
Xerox Credit Corp. .......... 15.00 06/10/97 12,000 12,205,440 16,000 16,273,920 28,000 28,479,360
------------ -------------- --------------
22,102,440 58,287,473 80,389,913
------------ -------------- --------------
CABLE & TELECOMMUNICATIONS (15.2%)
Adelphia Communications
Corp. (Series B)............ 9.50+ 02/15/04 5,416 4,644,221 10,828 9,284,766 16,244 13,928,987
Adelphia Communications,
Inc. -144A*................. 9.875 03/01/07 5,200 4,875,000 10,500 9,843,750 15,700 14,718,750
American Communications
Services, Inc............... 13.00++ 11/01/05 5,000 3,025,000 11,050 6,685,250 16,050 9,710,250
American Communications
Services, Inc............... 12.75++ 04/01/06 5,000 2,825,000 10,050 5,678,250 15,050 8,503,250
AT&T Capital Corp............ 15.00 05/05/97 -- -- 14,000 14,112,980 14,000 14,112,980
Cablevision Systems Corp. .. 10.50 05/15/16 4,000 4,030,000 13,500 13,601,250 17,500 17,631,250
Cablevision Systems Corp. .. 9.875 04/01/23 -- -- 4,599 4,392,045 4,599 4,392,045
Charter Communication South
East L.P.
(Series B).................. 11.25 03/15/06 5,000 5,200,000 10,750 11,180,000 15,750 16,380,000
Falcon Holdings Group L.P.
(Series B).................. 11.00+ 09/15/03 10,627 9,723,320 22,306 20,409,950 32,933 30,133,270
FrontierVision Operating
Partners, L.P............... 11.00 10/15/06 5,000 4,987,500 10,000 9,975,000 15,000 14,962,500
Hyperion Telecommunication,
Inc. (Series B)............. 13.00++ 04/15/03 11,000 5,995,000 24,800 13,516,000 35,800 19,511,000
In-Flight Phone Corp.
(Series B)(b) .............. 14.00++ 05/15/02 20,400 1,734,000 20,400 1,734,000 40,800 3,468,000
4
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 1997
(UNAUDITED)
DEAN WITTER HIGH YIELD DEAN WITTER HIGH INCOME
SECURITIES INC. SECURITIES COMBINED
------------------------- --------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
COUPON MATURITY (In (In (In
RATE DATE thousands) VALUE thousands) VALUE thousands) VALUE
------- -------- ------------ ------------ ------------ -------------- ------------ --------------
IXC Communications, Inc.
(Series B).................. 12.50% 10/01/05 $ 4,000 $ 4,360,000 $10,000 $ 10,900,000 $14,000 $ 15,260,000
Paging Network, Inc. ........ 10.125 08/01/07 4,000 3,610,000 10,750 9,701,875 14,750 13,311,875
Paging Network, Inc. ........ 10.00 10/15/08 -- -- 5,000 4,437,500 5,000 4,437,500
Peoples Telephone Co., Inc. . 12.25 07/15/02 5,050 5,365,625 10,000 10,625,000 15,050 15,990,625
Rifkin Acquisition Partners
L.P......................... 11.125 01/15/06 4,000 4,020,000 10,000 10,050,000 14,000 14,070,000
Shared Technology/Fairchild,
Inc......................... 12.25++ 03/01/06 4,000 3,280,000 10,500 8,610,000 14,500 11,890,000
------------ -------------- --------------
67,674,666 174,737,616 242,412,282
------------ -------------- --------------
COMPUTER EQUIPMENT (5.7%)
Advanced Micro Devices,
Inc......................... 11.00 08/01/03 -- -- 14,000 15,330,000 14,000 15,330,000
IBM Credit Corp.............. 15.00 03/04/98 -- -- 31,500 33,936,840 31,500 33,936,840
Unisys Corp.................. 15.00 07/01/97 5,000 5,112,500 7,000 7,157,500 12,000 12,270,000
Unisys Corp. (Conv.)......... 8.25 03/15/06 8,000 9,150,880 17,500 20,017,550 25,500 29,168,430
------------ -------------- --------------
14,263,380 76,441,890 90,705,270
------------ -------------- --------------
CONSUMER PRODUCTS (1.5%)
J.B. Williams Holdings,
Inc......................... 12.00 03/01/04 5,500 5,678,750 5,500 5,678,750 11,000 11,357,500
Renaissance Cosmetics, Inc.
-144A*...................... 11.75 02/15/04 4,500 4,545,000 8,750 8,837,500 13,250 13,382,500
------------ -------------- --------------
10,223,750 14,516,250 24,740,000
------------ -------------- --------------
CONTAINERS (2.6%)
Mail-Well Corp............... 10.50 02/15/04 5,000 5,150,000 7,500 7,725,000 12,500 12,875,000
Packaging Resources, Inc. ... 11.625 05/01/03 5,000 5,150,000 9,475 9,759,250 14,475 14,909,250
Silgan Corp.................. 11.75 06/15/02 -- -- 13,500 14,360,625 13,500 14,360,625
------------ -------------- --------------
10,300,000 31,844,875 42,144,875
------------ -------------- --------------
ELECTRICAL & ALARM SYSTEMS (1.3%)
Mosler, Inc.................. 11.00 04/15/03 11,000 10,340,000 11,000 10,340,000 22,000 20,680,000
------------ -------------- --------------
ENTERTAINMENT/GAMING & LODGING (9.4%)
AMF Group Inc. (Series B) ... 10.875 03/15/06 4,000 4,170,000 9,850 10,268,625 13,850 14,438,625
Fitzgeralds Gaming Corp.
(Units) ++.................. 13.00 12/31/02 9,750 8,311,875 12,000 10,230,000 21,750 18,541,875
Lady Luck Gaming Finance
Corp........................ 11.875 03/01/01 8,000 7,820,000 14,250 13,929,375 22,250 21,749,375
MGM Grand Hotels Corp.
(Series A).................. 11.75 05/01/99 -- -- 6,377 6,528,454 6,377 6,528,454
MGM Grand Hotels Corp........ 12.00 05/01/02 -- -- 19,730 20,889,137 19,730 20,889,137
Motels of America, Inc.
(Series B).................. 12.00 04/15/04 8,000 6,960,000 8,000 6,960,000 16,000 13,920,000
Players International, Inc. . 10.875 04/15/05 4,000 4,140,000 9,925 10,272,375 13,925 14,412,375
Plitt Theaters, Inc.
(Canada).................... 10.875 06/15/04 4,000 4,080,000 9,900 10,098,000 13,900 14,178,000
Station Casinos, Inc.
(Series B).................. 9.625 06/01/03 4,000 3,800,000 10,100 9,595,000 14,100 13,395,000
Stuart Entertainment, Inc.
-144A*...................... 12.50 11/15/04 4,000 3,680,000 8,750 8,050,000 12,750 11,730,000
------------ -------------- --------------
42,961,875 106,820,966 149,782,841
------------ -------------- --------------
5
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 1997
(UNAUDITED)
DEAN WITTER HIGH YIELD DEAN WITTER HIGH INCOME
SECURITIES INC. SECURITIES COMBINED
------------------------- --------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
COUPON MATURITY (In (In (In
RATE DATE thousands) VALUE thousands) VALUE thousands) VALUE
------- -------- ------------ ------------ ------------ -------------- ------------ --------------
FINANCIAL (4.7%)
General Electric Capital
Corp. ...................... 13.50% 01/20/98 $ 9,500 $10,041,880 $29,000 $ 30,654,160 $ 38,500 $ 40,696,040
Household Finance Corp. ..... 15.00 09/25/97 10,000 10,429,800 23,000 23,988,540 33,000 34,418,340
------------ -------------- --------------
20,471,680 54,642,700 75,114,380
------------ -------------- --------------
FOODS & BEVERAGES (8.1%)
Envirodyne Industries, Inc. . 10.25 12/01/01 9,621 9,524,790 21,961 21,741,390 31,582 31,266,180
Fleming Companies, Inc. ..... 10.625 12/15/01 4,000 4,010,000 11,221 11,249,052 15,221 15,259,052
General Mills, Inc........... 13.50 01/21/98 4,000 4,223,800 23,750 25,078,813 27,750 29,302,613
Specialty Foods Acquisition
Corp. (Series B)............ 13.00++ 08/15/05 42,650 19,619,000 72,425 33,315,500 115,075 52,934,500
------------ -------------- --------------
37,377,590 91,384,755 128,762,345
------------ -------------- --------------
HEALTHCARE (2.1%)
Unilab Corp.................. 11.00 04/01/06 11,750 8,930,000 11,975 9,101,000 23,725 18,031,000
Unison Healthcare Corp.
-144A*...................... 12.25 11/01/06 10,000 8,100,000 10,000 8,100,000 20,000 16,200,000
------------ -------------- --------------
17,030,000 17,201,000 34,231,000
------------ -------------- --------------
MANUFACTURING (6.4%)
Berry Plastics Corp. ........ 12.25 04/15/04 5,000 5,500,000 7,900 8,690,000 12,900 14,190,000
Cabot Safety Corp............ 12.50 07/15/05 -- -- 9,075 9,755,625 9,075 9,755,625
Exide Electronics Group,
Inc. (Series B)............. 11.50 03/15/06 4,000 4,270,000 11,000 11,742,500 15,000 16,012,500
International Wire Group,
Inc. ....................... 11.75 06/01/05 5,000 5,287,500 11,500 12,161,250 16,500 17,448,750
John Deere Capital Corp. .... 15.00 02/24/98 -- -- 30,000 32,264,400 30,000 32,264,400
Uniroyal Technology Corp. .. 11.75 06/01/03 5,000 5,000,000 7,230 7,230,000 12,230 12,230,000
------------ -------------- --------------
20,057,500 81,843,775 101,901,275
------------ -------------- --------------
MANUFACTURING -DIVERSIFIED (5.5%)
Foamex L.P................... 11.875 10/01/04 4,000 4,310,000 9,650 10,397,875 13,650 14,707,875
Interlake Corp............... 12.125 03/01/02 5,000 5,225,000 10,000 10,450,000 15,000 15,675,000
J.B. Poindexter & Co., Inc. . 12.50 05/15/04 5,000 5,106,250 8,350 8,527,438 13,350 13,633,688
Jordan Industries, Inc. ..... 10.375 08/01/03 6,030 5,999,850 7,000 6,965,000 13,030 12,964,850
Jordan Industries, Inc.
-144A*...................... 11.75++ 04/01/09 18,400 10,419,920 35,500 20,103,650 53,900 30,523,570
Starcraft Corp. (b).......... 16.50 01/15/98 5,000 50 -- -- 5,000 50
------------ -------------- --------------
31,061,070 56,443,963 87,505,033
------------ -------------- --------------
OIL & GAS (2.0%)
Petro Stopping Centers
L.P. -144A*................. 10.50 02/01/07 4,000 4,040,000 3,000 3,030,000 7,000 7,070,000
TransTexas Gas Corp.......... 11.50 06/15/02 5,000 5,512,500 17,000 18,742,500 22,000 24,255,000
------------ -------------- --------------
9,552,500 21,772,500 31,325,000
------------ -------------- --------------
PUBLISHING (3.4%)
Affiliated Newspapers
Investments, Inc. .......... 13.25++ 07/01/06 -- -- 11,175 9,219,375 11,175 9,219,375
American Media Operations,
Inc. ....................... 11.625 11/15/04 4,000 4,320,000 8,200 8,856,000 12,200 13,176,000
MDC Communications Corp. ... 10.50 12/01/06 3,000 3,105,000 4,500 4,657,500 7,500 7,762,500
6
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 1997
(UNAUDITED)
DEAN WITTER HIGH YIELD DEAN WITTER HIGH INCOME
SECURITIES INC. SECURITIES COMBINED
------------------------- --------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
COUPON MATURITY (In (In (In
RATE DATE thousands) VALUE thousands) VALUE thousands) VALUE
------- -------- ------------ ------------ ------------ -------------- ------------ --------------
Petersen Publishing, Inc.
(Series B) ................. 11.125 %11/15/06 $ 3,000 $ 3,210,000 $ 5,000 $ 5,350,000 $ 8,000 $ 8,560,000
United States Banknote
Corp........................ 10.375 06/01/02 5,000 4,987,500 10,100 10,074,750 15,100 15,062,250
------------ -------------- --------------
15,622,500 38,157,625 53,780,125
------------ -------------- --------------
RESTAURANTS (3.6%)
American Restaurant Group
Holdings, Inc. ............. 14.00++ 12/15/05 25,072 10,969,000 12,000 5,250,000 37,072 16,219,000
American Restaurant Group
Holdings, Inc. -144A*....... 14.00++ 12/15/05 -- -- 17,000 7,437,500 17,000 7,437,500
Ameriking, Inc............... 10.75 12/01/06 3,000 3,105,000 3,000 3,105,000 6,000 6,210,000
Carrols Corp................. 11.50 08/15/03 4,000 4,200,000 10,437 10,958,850 14,437 15,158,850
FRD Acquisition Corp.
(Series B).................. 12.50 07/15/04 4,000 4,180,000 7,647 7,991,115 11,647 12,171,115
------------ -------------- --------------
22,454,000 34,742,465 57,196,465
------------ -------------- --------------
RETAIL (0.6%)
County Seat Stores Co. (a) .. 12.00 10/01/02 10,450 4,754,750 10,450 4,754,750 20,900 9,509,500
------------ -------------- --------------
RETAIL -FOOD CHAINS (2.1%)
Jitney-Jungle Stores of
America, Inc................ 12.00 03/01/06 4,000 4,240,000 9,000 9,540,000 13,000 13,780,000
Pathmark Stores, Inc. ....... 9.625 05/01/03 5,500 5,183,750 14,200 13,383,500 19,700 18,567,250
Ralphs Grocery Co. .......... 10.45 06/15/04 -- -- 1,000 1,030,000 1,000 1,030,000
------------ -------------- --------------
9,423,750 23,953,500 33,377,250
------------ -------------- --------------
TEXTILES (2.0%)
Reeves Industries, Inc. ..... 11.00 07/15/02 4,000 3,750,000 10,030 9,403,125 14,030 13,153,125
U.S. Leather, Inc............ 10.25 07/31/03 8,117 6,980,620 13,400 11,524,000 21,517 18,504,620
------------ -------------- --------------
10,730,620 20,927,125 31,657,745
------------ -------------- --------------
TRANSPORTATION (0.4%)
Atlantic Express -144A* ..... 10.75 02/01/04 4,000 4,090,000 1,750 1,789,375 5,750 5,879,375
------------ -------------- --------------
TOTAL CORPORATE BONDS
(Identified Cost
$457,821,822,
$1,065,113,290, and
$1,522,935,112,
respectively)............... 431,644,571 1,051,955,753 1,483,600,324
------------ -------------- --------------
</TABLE>
7
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER HIGH YIELD DEAN WITTER HIGH INCOME
SECURITIES INC. SECURITIES COMBINED
------------------------ ------------------------ ------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS (c)(3.0%)
AUTOMOTIVE (0.0%)
Northern Holdings Industrial Corp. (d) ........ 709 -- -- -- 709 --
------------ ------------ ------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
Motels of America, Inc. -144A*................. 7,500 $ 187,500 -- -- 7,500 $ 187,500
Vagabond Inns, Inc. (Class D)(b)............... 781,421 781 -- -- 781,421 781
------------ ------------ ------------
188,281 -- 188,281
------------ ------------ ------------
FOODS & BEVERAGES (0.7%)
Seven-Up/RC Bottling Co. Southern California,
Inc (d)....................................... 408,055 4,819,946 490,000 $ 5,787,880 898,055 10,607,826
Specialty Foods Acquisition Corp. -144A* ...... 273,750 273,750 300,975 300,975 574,725 574,725
------------ ------------ ------------
5,093,696 6,088,855 11,182,551
------------ ------------ ------------
HEALTHCARE (0.1%)
Unilab Corp.................................... -- -- 1,358,200 933,763 1,358,200 933,763
------------ ------------ ------------
MANUFACTURING -DIVERSIFIED (2.2%)
Thermadyne Holdings Corp. (d).................. 451,613 12,250,003 835,689 22,668,064 1,287,302 34,918,067
------------ ------------ ------------
RESTAURANTS (0.0%)
American Restaurant Group Holdings, Inc.
-144A*........................................ 26,057 26,057 12,000 12,000 38,057 38,057
------------ ------------ ------------
TEXTILES (0.0%)
JPS Textile Group, Inc. (Class A) ............. 12,000 120 -- -- 12,000 120
------------ ------------ ------------
TOTAL COMMON STOCKS
(Identified Cost $69,873,804, $21,786,775,
and $91,660,579, respectively)................ 17,558,157 29,702,682 47,260,839
------------ ------------ ------------
PREFERRED STOCKS (0.2%)
ENTERTAINMENT/GAMING & LODGING (0.2%)
Fitzgeralds Gaming Corp. (Units) ++............ 80,000 1,840,000 80,000 1,840,000 160,000 3,680,000
------------ ------------ ------------
OIL & GAS PRODUCTS (0.0%)
TGX Corp. (Series A)(d)........................ 113,955 1,140 -- -- 113,955 1,140
------------ ------------ ------------
TOTAL PREFERRED STOCKS
(Identified Cost $2,830,000, $2,000,000, and
$4,830,000, respectively)..................... 1,841,140 1,840,000 3,681,140
------------ ------------ ------------
</TABLE>
8
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER HIGH DEAN WITTER HIGH
YIELD INCOME
SECURITIES INC. SECURITIES COMBINED
--------------------- ---------------------- ----------------------
EXPIRATION NUMBER OF NUMBER OF NUMBER OF
DATE WARRANTS VALUE WARRANTS VALUE WARRANTS VALUE
------------ ----------- --------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
WARRANTS (C)(0.1%)
AEROSPACE (0.0%)
Sabreliner Corp. -144A*....................... 04/15/03 9,000 $ 90,000 -- -- 9,000 $ 90,000
--------- ----------
CABLE & TELECOMMUNICATIONS (0.1%)
Hyperion Telecommunication, Inc. (Series B)
-144A*....................................... 04/01/01 8,000 240,000 17,000 $510,000 25,000 750,000
--------- ---------- ----------
CONTAINERS (0.0%)
Crown Packaging Holdings, Ltd. -144A* ........ 11/01/03 10,000 100 -- -- 10,000 100
--------- ---------- ----------
ENTERTAINMENT/GAMING & LODGING (0.0%)
Boomtown, Inc. -144A*......................... 11/01/98 5,000 50 -- -- 5,000 50
Fitzgeralds Gaming Corp....................... 12/19/98 8,312 8,312 9,000 9,035 17,312 17,347
Fitzgeralds South Inc. -144A*................. 03/15/99 3,500 35 3,500 -- 7,000 35
--------- ---------- ----------
8,397 9,035 17,432
--------- ---------- ----------
MANUFACTURING (0.0%)
Exide Electronics Group, Inc. -144A* ......... 03/15/06 4,000 160,000 6,000 240,000 10,000 400,000
Uniroyal Technology Corp...................... 06/01/03 70,000 70,000 20,000 20,000 90,000 90,000
--------- ---------- ----------
230,000 260,000 490,000
--------- ---------- ----------
RETAIL (0.0%)
County Seat Holdings Co....................... 10/15/98 10,000 100 -- -- 10,000 100
--------- ---------- ----------
TOTAL WARRANTS
(Identified Cost $1,383,529, $626,644, and
$2,010,173, respectively).................... 568,597 779,035 1,347,632
--------- ---------- ----------
</TABLE>
9
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER HIGH YIELD DEAN WITTER HIGH INCOME
SECURITIES INC. SECURITIES COMBINED
------------------------- --------------------------- --------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
COUPON MATURITY (In (In (In
RATE DATE thousands) VALUE thousands) VALUE thousands) VALUE
---------- -------- ------------ ------------ ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (2.0%)
U.S. GOVERNMENT AGENCY (e) (0.5%)
Federal Home Loan Banks
(Amortized Cost
$7,998,800)........... 5.40% 04/02/97 -- -- $ 8,000 $ 7,998,800 $ 8,000 $ 7,998,800
----------- -------------- ------------
REPURCHASE AGREEMENTS (1.5%)
The Bank of New York 5.375% due 04/01/97
(dated 03/31/97; proceeds $6,455,053 and
$18,086,441, respectively, collateralized by
$1,873,336 U.S. Treasury Note 5.875% due
11/15/05 valued at $1,787,044 and $4,828,512
Federal Home Loan Banks 6.04% due 08/13/98
valued at $4,796,127; and by $18,811,006
U.S. Treasury Note 6.25% due 02/15/03 valued
at $18,445,415, respectively)(Identified
Cost $6,454,089, $18,083,741 and
$24,537,830, respectively)............... $6,454 $ 6,454,089 18,084 18,083,741 24,538 24,537,830
----------- -------------- ------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $6,454,089, $26,082,541 and
$32,536,630, respectively) .................. 6,454,089 26,082,541 32,536,630
----------- -------------- ------------
TOTAL INVESTMENTS
(Identified Cost $538,363,244,
$1,115,609,250 and $1,653,972,494,
respectively)(f).................. 98.3% 458,066,554 1,110,360,011 1,568,426,565
OTHER ASSETS IN EXCESS OF
LIABILITIES ..................... 1.7 7,944,716 18,720,866 26,665,582
---- ----------- ------------- -------------
NET ASSETS ........................ 100.0% $466,011,270 $1,129,080,877 $1,595,092,147
===== ============ ============== ==============
</TABLE>
- ------------
* Resale is restricted to qualified institutional investors.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at
a future specified date.
++ Consists of one or more classes of securities traded together as a
unit; bonds or preferred stocks with attached warrants.
(a) Non-income producing security; bond in default.
(b) Non-income producing security; issuer in bankruptcy.
(c) Non-income producing securities.
(d) Acquired through exchange offer.
(e) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(f) The aggregate cost for federal income tax purposes approximates
identified cost.
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION DEPRECIATION
-------------- -------------- --------------
<S> <C> <C> <C>
Dean Witter High Yield Securities Inc. $19,423,068 $ 99,719,758 $80,296,690
============== ============== ==============
Dean Witter High Income Securities .... $35,594,566 $ 40,843,805 $ 5,249,239
============== ============== ==============
Combined ............................... $55,017,634 $140,563,563 $85,545,929
============== ============== ==============
</TABLE>
See Notes to Pro Forma Financial Statements
10
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JULY 28, 1997
DEAN WITTER
HIGH YIELD
SECURITIES INC.
Dean Witter High Yield Securities Inc. (the "Fund") is an open-end
diversified management investment company whose investment objective 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. The
Fund seeks high current income by investing principally in fixed-income
securities which are rated in the lower categories by established rating
services (Baa or lower by Moody's Investors Service, Inc. or BBB or lower by
Standard & Poor's Corporation) or are non-rated securities of comparable
quality. Such securities are commonly known as junk bonds. (See "Investment
Practices and Policies".)
A Prospectus for the Fund, dated July 28, 1997, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge by request of the Fund at its address or telephone numbers listed
below or from the Fund's Distributor, Dean Witter Distributors Inc., or from
Dean Witter Reynolds Inc. at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in addition
to and more detailed than that set forth in the Prospectus. It is intended to
provide additional information regarding the activities and operations of the
Fund, and should be read in conjunction with the Prospectus.
Dean Witter High Yield Securities Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
The Fund and its Management............................................. 3
Directors and Officers.................................................. 6
Investment Practices and Policies....................................... 11
Investment Restrictions................................................. 18
Portfolio Transactions and Brokerage.................................... 19
The Distributor......................................................... 20
Determination of Net Asset Value........................................ 23
Purchase of Fund Shares................................................. 23
Shareholder Services.................................................... 26
Redemptions and Repurchases............................................. 30
Dividends, Distributions and Taxes...................................... 32
Performance Information................................................. 32
Description of Common Stock............................................. 34
Custodian and Transfer Agent............................................ 34
Independent Accountants................................................. 35
Reports to Shareholders................................................. 35
Legal Counsel........................................................... 35
Experts................................................................. 35
Registration Statement.................................................. 35
Financial Statements -- August 31, 1996................................. 36
Report of Independent Accountants....................................... 50
Financial Statements -- February 28, 1997 (unaudited)................... 51
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- -------------------------------------------------------------------------------
THE FUND
The Fund was incorporated under Maryland law on June 14, 1979, under the
name InterCapital High Yield Securities Inc. On March 16, 1983, the Fund's
shareholders approved a change in the Fund's name, effective March 21, 1983, to
Dean Witter High Yield Securities Inc.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
a Delaware corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. InterCapital is a wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co., ("MSDWD"), a Delaware
corporation. In an internal reorganization which took place in January, 1993,
InterCapital assumed the investment advisory, administrative and management
activities previously performed by the InterCapital Division of Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of InterCapital. (As
hereinafter used in this Statement of Additional Information, the terms
"InterCapital" and "Investment Manager" refer to DWR's InterCapital Division
prior to the internal reorganization and to Dean Witter InterCapital Inc.
thereafter.) The daily management of the Fund and research relating to the
Fund's portfolio are conducted by or under the direction of officers of the Fund
and of the Investment Manager, subject to review by the Fund's Board of
Directors. Information as to these Directors and officers is contained under the
caption "Directors and Officers."
InterCapital is also the investment manager or investment adviser of the
following management investment companies: Active Assets Money Trust, Active
Assets Tax-Free Trust, Active Assets California Tax-Free Trust, Active Assets
Government Securities Trust, Dean Witter Liquid Asset Fund Inc., InterCapital
Income Securities Inc., Dean Witter Strategist Fund, Dean Witter Tax-Free Daily
Income Trust, Dean Witter Developing Growth Securities Trust, Dean Witter
Tax-Exempt Securities Trust, Dean Witter Natural Resource Development Securities
Inc., Dean Witter Dividend Growth Securities Inc., Dean Witter American Value
Fund, Dean Witter U.S. Government Money Market Trust, Dean Witter Variable
Investment Series, Dean Witter World Wide Investment Trust, Dean Witter Select
Municipal Reinvestment Fund, Dean Witter U.S. Government Securities Trust, Dean
Witter California Tax-Free Income Fund, Dean Witter New York Tax-Free Income
Fund, Dean Witter Convertible Securities Trust, Dean Witter Federal Securities
Trust, Dean Witter Value-Added Market Series, High Income Advantage Trust, High
Income Advantage Trust II, Dean Witter Government Income Trust, Dean Witter
Utilities Fund, Dean Witter California Tax-Free Daily Income Trust, Dean Witter
World Wide Income Trust, Dean Witter Intermediate Income Securities, High Income
Advantage Trust III, Dean Witter Capital Growth Securities, Dean Witter European
Growth Fund Inc., Dean Witter Precious Metals and Minerals Trust, Dean Witter
New York Municipal Money Market Trust, Dean Witter Global Short-Term Income Fund
Inc., Dean Witter Multi-State Municipal Series Trust, Dean Witter Short-Term
U.S. Treasury Trust, Dean Witter Diversified Income Trust, InterCapital Quality
Municipal Investment Trust, InterCapital Insured Municipal Bond Trust, Dean
Witter Pacific Growth Fund Inc., Dean Witter Health Sciences Trust, Dean Witter
Retirement Series, InterCapital Insured Municipal Trust, InterCapital California
Quality Municipal Securities, InterCapital California Insured Municipal Income
Trust, InterCapital Quality Municipal Income Trust, InterCapital Quality
Municipal Securities, InterCapital New York Quality Municipal Securities,
InterCapital Insured Municipal Securities, InterCapital Insured California
Municipal Securities, Dean Witter Global Dividend Growth Securities, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter
Global Utilities Fund, Dean Witter National Municipal Trust, Dean Witter High
Income Securities, Dean Witter International SmallCap Fund, Dean Witter Mid-Cap
Growth Fund, Dean Witter Select Dimensions Investment Series, Dean Witter
Global Asset Allocation Fund, Dean Witter Balanced Growth Fund, Dean Witter
Balanced Income Fund, Dean Witter Hawaii Municipal Trust, Dean Witter Capital
Appreciation Fund, Dean Witter Intermediate Term U.S. Treasury Trust, Dean
Witter Information Fund, Dean Witter Japan Fund, Dean Witter Income Builder
Fund, Dean Witter Special Value Fund, Dean Witter Financial Services Trust, Dean
Witter Market Leader Trust, InterCapital Insured Municipal Income Trust,
Municipal Income Trust, Municipal Income Trust II, Municipal Income Trust III,
Municipal Income Opportunities
3
<PAGE>
Trust, Municipal Income Opportunities Trust II, Municipal Income Opportunities
Trust III, Municipal Premium Income Trust and Prime Income Trust. The
foregoing investment companies, together with the Fund, are collectively
referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser: TCW/DW
Core Equity Trust, TCW/DW North American Government Income Trust, TCW/DW Latin
American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth
Fund, TCW/DW Balanced Fund, TCW/DW Total Return Trust, TCW/DW Mid-Cap Equity
Trust, TCW/DW Global Telecom Trust, TCW/DW Strategic Income Trust, TCW/DW
Emerging Markets Opportunites Trust, TCW/DW Term Trust 2000, TCW/DW Term Trust
2002 and TCW/DW Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves
as: (i) administrator of The BlackRock Strategic Term Trust Inc., a closed-end
investment company; and (ii) sub-administrator of MassMutual Participation
Investors and Templeton Global Governments Income Trust, closed-end investment
companies.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objectives and policies.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and certain legal services as the Fund
may reasonably require in the conduct of its business, including the preparation
of prospectuses, statements of additional information, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone service, heat,
light, power and other utilities provided to the Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to the
Fund which were previously performed directly by InterCapital. On April 17,
1995, DWSC was reorganized in the State of Delaware, necessitating the entry
into a new Services Agreement by InterCapital and DWSC on that date. The
foregoing internal reorganization did not result in any change in the nature or
scope of the administrative services being provided to the Fund or any of the
fees being paid by the Fund for the overall services being performed under the
terms of the existing Agreement.
Expenses not expressly assumed by the Investment Manager under the
Agreement or by the Distributor of the Fund's shares, Dean Witter Distributors
Inc. ("Distributors" or the "Distributor") (see "The Distributor"), will be paid
by the Fund. These expenses will be allocated among the four classes of shares
of the Fund (each, a "Class") pro rata based on the assets of the Fund
attributable to each Class, except as described below. The expenses borne by the
Fund include, but are not limited to: expenses of the Plan of Distribution
pursuant to Rule 12b-1 (the "12b-1 fee") (see "The Distributor"); charges and
expenses of any registrar, custodian, stock transfer and dividend disbursing
agent; brokerage commissions; taxes; engraving and printing of stock
certificates; registration costs of the Fund and its shares under federal and
state securities laws; the cost and expense of printing, including typesetting,
and distributing prospectuses of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of directors or members of any advisory board or
committee who are not employees of the Investment Manager or any corporate
affiliate of the Investment
4
<PAGE>
Manager; all expenses incident to any dividend, distribution, withdrawal or
redemption options; charges and expenses of any outside service used for
pricing of the Fund's shares; fees and expenses of legal counsel, including
counsel to directors who are not interested persons of the Fund or of the
Investment Manager (not including compensation or expenses of attorneys who
are employees of the Investment Manager) and independent accountants;
membership dues of industry associations; interest on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto); and all other costs of the
Fund's operation. The 12b-1 fees relating to a particular Class will be
allocated directly to that Class. In addition, other expenses associated with
a particular Class (except advisory or custodial fees) may be allocated
directly to that Class, provided that such expenses are reasonably identified
as specifically attributable to that Class and the direct allocation to that
Class is approved by the Directors.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.50% of the portion of the daily net assets not exceeding
$500 million; 0.425% of the portion of the daily net assets exceeding $500
million but not exceeding $750 million; 0.375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1 billion; 0.35% of the portion
of the daily net assets exceeding $1 billion but not exceeding $2 billion;
0.325% of the portion of daily net assets exceeding $2 billion but not exceeding
$3 billion; and 0.30% of the portion of daily net assets exceeding $3 billion.
Total compensation accrued to the Investment Manager for the Fund's fiscal years
ended August 31, 1994, 1995 and 1996 amounted to $2,690,898, $2,241,952 and
$2,271,578, respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or adviser to others.
The Agreement was initially approved by the Directors on February 21, 1997
and by the shareholders of the Fund at a Special Meeting of Shareholders held on
May 21, 1997. The Agreement is substantially identical to a prior investment
management agreement which was initially approved by the Board of Directors on
October 30, 1992 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on January 12, 1993. The Agreement took effect on May 31, 1997
upon the consummation of the merger of Dean Witter, Discover & Co. with Morgan
Stanley Group Inc. The Agreement may be terminated at any time, without penalty,
on thirty days' notice, by the Board of Directors of the Fund, by the holders of
a majority, as defined in the Investment Company Act of 1940, as amended (the
"Act"), of the outstanding shares of the Fund, or by the Investment Manager. The
Agreement will automatically terminate in the event of its assignment (as
defined in the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999,
and will remain in effect from year to year thereafter, provided continuation of
the Agreement is approved at least annually by the vote of the holders of a
majority, as defined in the Act, of the outstanding shares of the Fund, or by
the Board of Directors of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Directors of
the Fund who are not parties to the Agreement or "interested persons" (as
defined in the Act) of any such party (the "Independent Directors"), which vote
must be cast in person at a meeting called for the purpose of voting on such
approval.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR. The Fund has agreed that DWR or its parent company may use or, at any
time, permit others to use, the name "Dean Witter." The Fund has also agreed
that in the event the Agreement between InterCapital and the Fund is terminated,
or if the affiliation between InterCapital and its parent company is terminated,
the Fund will eliminate the name "Dean Witter" from its name if DWR or its
parent company shall so request.
5
<PAGE>
Mellon Bank, N.A., Mutual Funds, P.O. Box 320, Pittsburgh, Pennsylvania
15230-0320, as trustee of the Dean Witter START Plan and the SPS Transaction
Services, Inc. START Plan, employee benefit plans established by DWR and SPS
Transaction Services, Inc. (an affiliate of DWR) for their employees as
qualified under Section 401(k) of the Internal Revenue Code, owned approximately
6.5% of the outstanding shares of the Fund on June 30, 1997.
DIRECTORS AND OFFICERS
- -------------------------------------------------------------------------------
The Directors and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital, and with the 83 Dean Witter Funds and the 14 TCW/DW Funds are
shown below.
NAME, AGE, POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
AND ADDRESS
- ----------------------------- --------------------------------------------
Michael Bozic (56) Chairman and Chief Executive Officer of
Director Levitz Furniture Corporation (since
c/o Levitz Furniture November, 1995); Director or Trustee of the
Corporation Dean Witter Funds; formerly President and
6111 Broken Sound Parkway Chief Executive Officer of Hills Department
N.W. Stores (May, 1991-July, 1995); formerly
Boca Raton, Florida variously Chairman, Chief Executive
Officer, President and Chief Operating
Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and
Co.; Director of Eaglemark Financial
Services, Inc., the United Negro College
Fund and Weirton Steel Corporation.
Charles A. Fiumefreddo* (64) Chairman and Chief Executive Officer and
Chairman of the Board, Director of InterCapital, DWSC and
President and Chief Executive Distributors; Executive Vice President and
Officer and Director Director of DWR; Chairman, Director or
Two World Trade Center Trustee, President and Chief Executive
New York, New York Officer of the Dean Witter Funds; Chairman,
Chief Executive Officer and Trustee of the
TCW/DW Funds; Chairman and Director of Dean
Witter Trust Company ("DWTC"); Director
and/or officer of various MSDWD
subsidiaries; formerly Executive Vice
President and Director of Dean Witter,
Discover & Co. (until February, 1993).
Edwin J. Garn (64) Director or Trustee of the Dean Witter
Director Funds; formerly United States Senator
c/o Huntsman Corporation (R-Utah) (1974-1992) and Chairman, Senate
500 Huntsman Way Banking Committee (1980-1986); formerly
Salt Lake City, Utah Mayor of Salt Lake City, Utah (1972-1974);
formerly Astronaut, Space Shuttle Discovery
(April 12-19, 1985); Vice Chairman,
Huntsman Corporation (since January 1993);
Director of Franklin Quest (time management
systems) and John Alden Financial Corp.
(health insurance); member of the board of
various civic and charitable organizations.
John R. Haire (72) Chairman of the Audit Committee and
Director Chairman of the Committee of the
Two World Trade Center Independent Directors or Trustees and
New York, New York Director or Trustee of the Dean Witter
Funds; Chairman of the Audit Committee and
Chairman of the Committee of the
Independent Trustees and Trustee of the
TCW/DW Funds; formerly President, Council
for Aid to Education (since 1978-1989) and
Chairman and Chief Executive Officer of
Anchor Corporation, an Investment Adviser
(1964-1978); Director of Washington
National Corporation (insurance).
6
<PAGE>
NAME, AGE, POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
AND ADDRESS
- ----------------------------- --------------------------------------------
Wayne E. Hedien** (63) Retired, Director or Trustee of the Dean
Director Witter Funds (commencing on September 1,
c/o Gordon Altman Butowsky 1997); Director of The PMI Group, Inc.
Weitzen Shalov & Wein (private mortgage insurance); Trustee and
Counsel to the Independent Vice Chairman of The Field Museum of
Trustees Natural History; formerly associated with
114 West 47th Street the Allstate Companies (1966-1994), most
New York, New York recently as Chairman of The Allstate
Corporation (March, 1993-December, 1994)
and Chairman and Chief Executive Officer of
its wholly-owned subsidiary, Allstate
Insurance Company (July, 1989-December,
1994); director of various other business
and charitable organizations.
Manuel H. Johnson (48) Senior Partner, Johnson Smick
Director International, Inc., a consulting firm;
c/o Johnson Smick Co-Chairman and a founder of the Group of
International, Inc. Seven Council (G7C), an international
1133 Connecticut Avenue, N.W. economic commission; Director or Trustee of
Washington, D.C. the Dean Witter Funds; Trustee of the
TCW/DW Funds; Director of Greenwich Capital
Markets, Inc. (broker-dealer); Director of
NASDAQ (since June, 1995); Trustee of the
Financial Accounting Foundation (oversight
organization for the Financial Accounting
Standards Board); formerly Vice Chairman of
the Board of Governors of the Federal
Reserve System (1986-1990) and Assistant
Secretary of the U.S. Treasury.
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a
Director private investment partnership; Director or
c/o Triumph Capital, L.P. Trustee of the Dean Witter Funds; Trustee
237 Park Avenue of the TCW/DW Funds; formerly Vice
New York, New York President, Bankers Trust Company and BT
Capital Corporation (1984-1988); Director
of various business organizations.
Philip J. Purcell* (53) Chairman of the Board of Directors and
Director Chief Executive Officer of MSDWD, DWR and
1585 Broadway Novus Credit Services Inc.; Director of
New York, New York InterCapital, DWSC and Distributors;
Director or Trustee of the Dean Witter
Funds; Director and/or officer of various
MSDWD subsidiaries.
John L. Schroeder (66) Retired; Director or Trustee of the Dean
Director Witter Funds; Trustee of the TCW/DW Funds;
c/o Gordon Altman Butowsky Director of Citizens Utilities Company;
Weitzen Shalov & Wein formerly Executive Vice President and Chief
Counsel to the Independent Investment Officer of the Home Insurance
Trustees Company (August, 1991-September, 1995).
114 West 47th Street
New York, New York
Barry Fink (42) Senior Vice President (since March, 1997)
Vice President, Secretary and Secretary and General Counsel (since
and General Counsel February, 1997) of InterCapital and DWSC;
Two World Trade Center Senior Vice President (since March, 1997)
New York, New York and Assistant Secretary and Assistant
General Counsel (since February, 1997) of
Distributors; Assistant Secretary of DWR
(since August, 1996); Vice President,
Secretary and General Counsel of the Dean
Witter Funds and the TCW/DW Funds (since
February, 1997); previously First Vice
President (June, 1993-February, 1997), Vice
President (until June, 1993) and Assistant
Secretary and Assistant General Counsel of
InterCapital and DWSC and Assistant
Secretary of the Dean Witter Funds and the
TCW/DW Funds.
Peter M. Avelar (38) Senior Vice President of InterCapital; Vice
Vice President President of various Dean Witter Funds.
Two World Trade Center
New York, New York
7
<PAGE>
NAME, AGE, POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
AND ADDRESS
- ----------------------------- --------------------------------------------
Thomas F. Caloia (51) First Vice President and Assistant
Treasurer Treasurer of InterCapital and DWSC;
Two World Trade Center Treasurer of the Dean Witter Funds and the
New York, New York TCW/DW Funds.
- ---------------------
*Denotes Directors who are "interested persons" of the Fund, as defined in the
Act.
**Mr. Hedien's term as Director will commence on September 1, 1997.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Executive Vice President and Director of DWR, and Director of
SPS Transaction Services, Inc. and various other MSDWD subsidiaries, Joseph J.
McAlinden, Executive Vice President and Chief Investment Officer of InterCapital
and Director of DWTC, and Robert S. Giambrone, Senior Vice President of
InterCapital, DWSC, Distributors and DWTC and Director of DWTC, and Jonathan R.
Page and James F. Willison, Senior Vice Presidents of InterCapital, are also
Vice Presidents of the Fund and Marilyn K. Cranney, First Vice President and
Assistant General Counsel of InterCapital and DWSC, and Lou Anne D. McInnis,
Carsten Otto and Ruth Rossi, Vice Presidents and Assistant General Counsels of
InterCapital and DWSC, and Frank Bruttomesso, a staff attorney with
InterCapital, are also Assistant Secretaries of the Fund.
THE BOARD OF DIRECTORS, THE INDEPENDENT DIRECTORS, AND THE COMMITTEES
The Board of Directors currently consists of eight (8) directors; as noted
above, Mr. Hedien's term will commence on September 1, 1997. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Directors. As of the date of this
Statement of Additional Information, there are a total of 83 Dean Witter Funds,
comprised of 126 portfolios. As of June 30, 1997, the Dean Witter Funds had
total net assets of approximately $87.9 billion and more than six million
shareholders.
Six Directors and Mr. Hedien (77% of the total number) have no affiliation
or business connection with InterCapital or any of its affiliated persons and do
not own any stock or other securities issued by InterCapital's parent company,
MSDWD. These are the "disinterested" or "independent" Directors. The other two
Directors (the "management Directors") are affiliated with InterCapital. Four of
the six independent Directors are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Directors. The Dean Witter Funds seek as Independent
Directors or Trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' Boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
Indeed, by serving on the Funds' Boards, certain Directors or Trustees who would
otherwise be qualified and in demand to serve on bank boards would be prohibited
by law from doing so.
All of the current Independent Directors serve as members of the Audit
Committee and the Committee of the Independent Directors. Three of them also
serve as members of the Derivatives Committee. During the calendar year ended
December 31, 1996, the three Committees held a combined total of sixteen
meetings. The Committees hold some meetings at InterCapital's offices and some
outside InterCapital. Management Directors or officers do not attend these
meetings unless they are invited for purposes of furnishing information or
making a report.
The Committee of the Independent Directors is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio
8
<PAGE>
securities, brokerage commissions, transfer agent costs and performance, and
trading among Funds in the same complex; and approving fidelity bond and
related insurance coverage and allocations, as well as other matters that
arise from time to time. The Independent Directors are required to select and
nominate individuals to fill any Independent Director vacancy on the Board of
any Fund that has a Rule 12b-1 plan of distribution. Most of the Dean Witter
Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT DIRECTORS AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Directors and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Directors to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees will need to form a judgment on various issues,
and arranges to have that information furnished to Committee members. He also
arranges for the services of independent experts and consults with them in
advance of meetings to help refine reports and to focus on critical issues.
Members of the Committees believe that the person who serves as Chairman of both
Committees and guides their efforts is pivotal to the effective functioning of
the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Directors and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service providers.
In effect, the Chairman of the Committees serves as a combination of chief
executive and support staff of the Independent Directors.
The Chairman of the Committee of the Independent Directors and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Director of the Dean Witter Funds and as an Independent Director and, since
July 1, 1996, as Chairman of the Committee of the Independent Trustees and the
Audit Committee of the TCW/DW Funds. The current Committee Chairman has had more
than 35 years experience as a senior executive in the investment company
industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS FOR ALL DEAN
WITTER FUNDS
The Independent Directors and the Funds' management believe that having the
same Independent Directors for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Directors for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Directors of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Directors arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Directors serve on all Fund
9
<PAGE>
Boards enhances the ability of each Fund to obtain, at modest cost to each
separate Fund, the services of Independent Directors, and a Chairman of their
Committees, of the caliber, experience and business acumen of the individuals
who serve as Independent Directors of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT DIRECTORS
The Fund pays each Independent Director an annual fee of $1,000 plus a per
meeting fee of $50 for meetings of the Board of Directors or committees of the
Board of Directors attended by the Director (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee of
the Independent Directors an additional annual fee of $1,200). The Fund also
reimburses such Directors for travel and other out-of-pocket expenses incurred
by them in connection with attending such meetings. Directors and officers of
the Fund who are or have been employed by the Investment Manager or an
affiliated company receive no compensation or expense reimbursement from the
Fund.
The following table illustrates the compensation paid to the Fund's
Independent Directors by the Fund for the fiscal year ended August 31, 1996.
FUND COMPENSATION
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT DIRECTOR FROM THE FUND
- ---------------------------- -------------
Michael Bozic.................................................. $1,750
Edwin J. Garn.................................................. 1,850
John R. Haire.................................................. 3,963
Dr. Manuel H. Johnson.......................................... 1,800
Michael E. Nugent.............................................. 1,750
John L. Schroeder.............................................. 1,800
The following table illustrates the compensation paid to the Fund's
Independent Directors for the calendar year ended December 31, 1996 for services
to the 82 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 14 TCW/DW Funds that were in operation at December 31, 1995.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Dean Witter Money Market Funds.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF FOR SERVICE AS
COMMITTEES OF CHAIRMAN OF
INDEPENDENT COMMITTEES OF TOTAL CASH
FOR SERVICE DIRECTORS/ INDEPENDENT COMPENSATION
AS DIRECTOR OR FOR SERVICE AS TRUSTEES AND TRUSTEES AND FOR SERVICES TO
TRUSTEE AND TRUSTEE AND AUDIT AUDIT 82 DEAN WITTER
COMMITTEE MEMBER COMMITTEE MEMBER COMMITTEES OF COMMITTEES OF FUNDS AND
NAME OF OF 82 DEAN WITTER OF 14 TCW/DW 82 DEAN WITTER 14 TCW/DW 14 TCW/DW
INDEPENDENT DIRECTOR FUNDS FUNDS FUNDS FUNDS FUNDS
- -------------------- ----------------- --------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael Bozic........ $138,850 _ _ _ $138,850
Edwin J. Garn........ 140,900 _ _ _ 140,900
John R. Haire........ 106,400 $64,283 $195,450 $12,187 378,320
Dr. Manuel H. Johnson 137,100 66,483 _ _ 203,583
Michael E. Nugent.... 138,850 64,283 _ _ 203,133
John L. Schroeder.... 137,150 69,083 _ _ 206,233
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have adopted a retirement program under which
an Independent Director who retires after serving for at least five years (or
such lesser period as may be determined by the Board) as an Independent Director
or Trustee of any Dean Witter Fund that has adopted the retirement program (each
such Fund referred to as an "Adopting Fund" and each such Director referred to
as an "Eligible Director") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Director
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing
10
<PAGE>
for the remainder of his or her life, an annual retirement benefit (the
"Regular Benefit") equal to 25.0% of his or her Eligible Compensation plus
0.4166666% of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years
up to a maximum of 50.0% after ten years of service. The foregoing percentages
may be changed by the Board."(1)" "Eligible Compensation" is one-fifth of the
total compensation earned by such Eligible Director for service to the
Adopting Fund in the five year period prior to the date of the Eligible
Director's retirement. Benefits under the retirement program are not secured
or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Directors by the Fund for the fiscal year ended August 31,
1996 and by the 57 Dean Witter Funds (including the Fund) as of December 31,
1996, and the estimated retirement benefits for the Fund's Independent
Directors, to commence upon their retirement, from the Fund as of August 31,
1996 and from the 57 Dean Witter Funds as of December 31, 1996.
<TABLE>
<CAPTION>
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
FOR ALL ADOPTING FUNDS
------------------------------- ESTIMATED ANNUAL
ESTIMATED RETIREMENT BENEFITS BENEFITS
CREDITED ACCRUED AS EXPENSES UPON RETIREMENT(2)
YEARS ESTIMATED ------------------- -----------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT DIRECTOR (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ---------------------------- ------------- ------------ ------ -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic .............. 10 50.0% $405 $20,147 $950 $51,325
Edwin J. Garn .............. 10 50.0 601 27,772 950 51,325
John R. Haire .............. 10 50.0 1,026 46,952 2,343 129,550
Dr. Manuel H. Johnson ...... 10 50.0 248 10,926 950 51,325
Michael E. Nugent .......... 10 50.0 430 19,217 950 51,325
John L. Schroeder .......... 8 41.7 789 38,700 792 42,771
</TABLE>
- ----------------------------
(1) An Eligible Director may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Director
and his or her spouse on the date of such Eligible Director's retirement.
The amount estimated to be payable under this method, through the remainder
of the later of the lives of such Eligible Director and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Director may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Director's elections described in Footnote (1)
above.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Directors as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- -------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will invest principally in
fixed-income securities rated Baa or lower by Moody's Investor's Service Inc.
("Moody's"), or BBB or lower by Standard & Poor's Corporation ("Standard &
Poor's"). The ratings of fixed-income securities by Moody's and Standard &
Poor's are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint.
Such limitations include the following: the rating of an issuer is heavily
weighted by past developments and does not necessarily reflect probable future
conditions; there is frequently a lag between the time a rating is assigned and
the time it is updated; and there may be varying degrees of difference in credit
risk of securities in each rating category. The Investment Manager will attempt
to reduce the overall portfolio credit risk through diversification and
selection of portfolio securities based on considerations mentioned below.
11
<PAGE>
While the ratings provide a generally useful guide to credit risks, they do
not, nor do they purport to, offer any criteria for evaluating the interest rate
risk. Changes in the general level of interest rates cause fluctuations in the
prices of fixed-income securities already outstanding and will therefore result
in fluctuation in net asset value of the Fund's shares. The extent of the
fluctuation is determined by a complex interaction of a number of factors. The
Investment Manager will evaluate those factors it considers relevant and will
make portfolio changes when it deems it appropriate in seeking to reduce the
risk of depreciation in the value of the Fund's portfolio. However, in seeking
to achieve the Fund's primary objective, there will be times, such as during
periods of rising interest rates, when depreciation and realization of capital
losses on securities in the portfolio will be unavoidable. Moreover, medium and
lower-rated securities and non-rated securities of comparable quality tend to be
subject to wider fluctuations in yield and market values than higher rated
securities. Such fluctuations after a security is acquired do not affect the
cash income received from that security but are reflected in the net asset value
of the Fund's portfolio.
PORTFOLIO CHARACTERISTICS
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements and subject to Investment Restriction 8 below, the Fund may lend
its portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund (subject to notice
provisions described below), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least the market value, determined daily,
of the loaned securities. The advantage of such loans is that the Fund continues
to receive the income on the loaned securities while at the same time earning
interest on the cash amounts deposited as collateral, which will be invested in
short-term obligations. The Fund will not lend its portfolio securities if such
loans are not permitted by the laws or regulations of any state in which its
shares are qualified for sale and will not lend more than 25% of the value of
its total assets.
A loan may be terminated by the borrower on one business day's notice, or
by the Fund on four business days' notice. If the borrower fails to deliver the
loaned securities within four days after receipt of notice, the Fund could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over the value of the collateral. As with any
extensions of credit, there are risks of delay in recovery and, in some cases,
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Fund's management to be creditworthy and when the income
which can be earned from such loans justifies the attendant risks. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss in the market price during the loan period would
inure to the Fund. The creditworthiness of firms to which the Fund lends its
portfolio securities will be monitored on an ongoing basis by the Investment
Manager pursuant to procedures adopted and reviewed, on an ongoing basis, by the
Board of Directors of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, in
whole or in part as may be appropriate, to be delivered within one day after
notice, to permit the exercise of such rights if the matters involved would have
a material effect on the Fund's investment in such loaned securities. The Fund
will pay reasonable finder's, administrative and custodial fees in connection
with a loan of its securities. The Fund did not lend any of its portfolio
securities during its fiscal year ended August 31, 1996.
Repurchase Agreements. When cash may be available for only a few days, it
may be invested by the Fund in repurchase agreements until such time as it may
otherwise be invested or used for payments of obligations of the Fund. These
agreements, which may be viewed as a type of secured lending by the Fund,
typically involve the acquisition by the Fund of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying security
("collateral"), which is held by the Fund's Custodian, at a specified price and
at a fixed time in the future, usually not more than seven days from the date of
purchase. The Fund will accrue interest from the institution until the time when
the repurchase is to occur. Although such date is deemed by the Fund to be the
12
<PAGE>
maturity date of a repurchase agreement, the maturities of securities subject to
repurchase agreements are not subject to any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions, whose
financial condition will be continually monitored by the Investment Manager
subject to procedures established by the Board of Directors of the Fund. In
addition, the value of the collateral underlying the repurchase agreement will
always be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss. It is the current policy of the Fund not to
invest in repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Fund, amounts to
more than 10% of its total assets. The Fund's investments in repurchase
agreements may at times be substantial when, in the view of the Investment
Manager, liquidity or other considerations warrant. During the fiscal year ended
August 31, 1996, the Fund's investments in repurchase agreements did not exceed
5% of its total net assets.
Securities of Foreign Issuers. The Fund may invest up to 20% of its total
assets in fixed-income securities issued by foreign governments and other
foreign issuers and in foreign currency issues of domestic issuers, but not more
than 10% of its total assets in such securities, whether issued by a foreign or
domestic issuer, which are denominated in foreign currency. The Fund believes
that in many instances such foreign fixed-income securities may provide higher
yields than similar securities of domestic issuers. With the expiration of the
Interest Equalization Tax in 1974, many of these investments currently enjoy
increased liquidity, although such securities are generally less liquid than the
securities of United States corporations, and are certainly less liquid than
securities issued by the United States Government or its agencies.
Foreign investments involve certain risks, including 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. Such securities may also be subject to greater fluctuations
in price than securities of United States corporations or of the United States
Government. In addition, there may be less publicly available information about
a foreign company than about a domestic company. Foreign companies generally are
not subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the United States, and with respect to certain foreign countries, there
is a possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Finally, in the
event of a default of any such foreign debt obligations, it may be more
difficult for the Fund to obtain or to enforce a judgment against the issuers of
such securities. In addition to the above-mentioned risks, securities
denominated in foreign currency, whether issued by a foreign or a domestic
issuer, may be affected favorably or unfavorably by changes in currency rates
and in exchange control regulations, and costs may be incurred in connection
with conversions between various currencies. It may not be possible to hedge
against the risks of currency fluctuation.
Public Utilities. As stated in the Prospectus, the Fund's investments in
public utilities, if any, may be subject to certain risks. Such utilities may
have difficulty meeting environmental standards and obtaining satisfactory fuel
supplies at reasonable costs. During an inflationary period, public utilities
also face increasing fuel, construction and other costs and may have difficulty
realizing an adequate return on invested capital. There is no assurance that
regulatory authorities will grant sufficient rate increases to cover expenses
associated with the foregoing difficulties as well as debt service requirements.
In addition, with respect to utilities engaged in nuclear power generation,
there is the possibility that
13
<PAGE>
Federal, State or municipal governmental authorities may from time to time
impose additional regulations or take other governmental action which might
cause delays in the licensing, construction, or operation of nuclear power
plants, or suspension of operation of such plants which have been or are being
financed by proceeds of the fixed income securities in the Fund's portfolio.
When-Issued and Delayed Delivery Securities. As discussed in the
Prospectus, from time to time, in the ordinary course of business, the Fund may
purchase securities on a when-issued or delayed delivery basis, i.e., delivery
and payment can take place a month or more after the date of the transactions.
The securities so purchased are subject to market fluctuation and no interest
accrues to the purchaser during this period. At the time the Fund makes the
commitment to purchase securities on a when-issued, delayed delivery basis or
forward commitment basis with the intention of acquiring the securities, it will
record the transaction and thereafter reflect the value, each day, of such
security in determining the net asset value of the Fund. At the time of delivery
of the securities, the value may be more or less than the purchase price. The
Fund will also establish a segregated account with its custodian bank in which
it will maintain cash or U.S. Government Securities or other liquid portfolio
securities equal in value to commitments for such when-issued or delayed
delivery securities; subject to this requirement, the Fund may purchase
securities on such basis without limit. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a when-issued or
delayed delivery basis may increase the volatility of the Fund's net asset
value. The Investment Manager and the Board of Directors do not believe that the
Fund's net asset value or income will be adversely affected by its purchase of
securities on such basis. The Fund may sell securities on a when-issued or
delayed delivery basis provided that the Fund owns the security at the time of
the sale. During the fiscal year ended August 31, 1996, the Fund did not
purchase any when-issued and delayed delivery securities.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buy-out or debt restructuring. The
commitment for the purchase of any such security will not be recognized in the
portfolio of the Fund until the Investment Manager determines that issuance of
the security is probable. At such time, the Fund will record the transaction
and, in determining its net asset value, will reflect the value of the security
daily. At such time, the Fund will also establish a segregated account with its
custodian bank in which it will maintain cash or U.S. Government Securities or
other liquid portfolio securities equal in value to recognized commitments for
such securities. Once a segregated account has been established, if the
anticipated event does not occur and the securities are not issued the Fund will
have lost an investment opportunity. The value of the Fund's commitments to
purchase the securities of any one issuer, together with the value of all
securities of such issuer owned by the Fund, may not exceed 5% of the value of
the Fund's total assets at the time the initial commitment to purchase such
securities is made (see "Investment Restrictions" in the Prospectus). Subject to
the foregoing restrictions, the Fund may purchase securities on such basis
without limit. An increase in the percentage of the Fund's assets committed to
the purchase of securities on a "when, as and if issued" basis may increase the
volatility of its net asset value. The Investment Manager and the Board of
Directors do not believe that the net asset value of the Fund will be adversely
affected by its purchase of securities on such basis. The Fund may also sell
securities on a "when, as and if issued" basis provided that the issuance of the
security will result automatically from the exchange or conversion of a security
owned by the Fund at the time of the sale. During the fiscal year ended
August 31, 1996, the Fund did not purchase securities on a when, as and if
issued basis in an amount which exceeded 5% of its total net assets.
Futures Contracts and Options On Futures. As discussed in the Prospectus,
the Fund may invest in financial futures contracts ("futures contracts") and
related options thereon. These futures contracts and related options thereon
will be used only as a hedge against anticipated interest rate changes. A
futures contract sale creates an obligation by the Fund, as seller, to deliver
the specific type of instrument called for in the contract at a specified future
time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument
14
<PAGE>
at a specified future time at a specified price. The specific securities
delivered or taken, respectively, at settlement date, would not be determined
until or near that date. The determination would be in accordance with the
rules of the exchange on which the futures contract sale or purchase was
effected.
The Fund may sell a futures contract or a call option thereon or purchase a
put option on such futures contract, if the Investment Manager anticipates
interest rates to rise, as a hedge against a decrease in the value of the Fund's
portfolio securities. If the Investment Manager anticipates that interest rates
will decline, the Fund may purchase a futures contract or a call option thereon
or sell a put option on such futures contract to protect against an increase in
the price of the securities the Fund intends to purchase. These futures
contracts and related options thereon will be used only as a hedge against
anticipated interest rate changes.
The Fund may not enter into futures contracts or purchase related options
thereon if immediately thereafter the amount committed to margin plus the amount
paid for premiums for unexpired options on futures contracts exceeds 5% of the
value of the Fund's total assets. The Fund may not purchase or sell futures
contracts or related options thereon if, immediately thereafter, more than
one-third of its net assets would be hedged. The Fund did not enter into any
futures transactions during its fiscal year ended August 31, 1996.
Although the terms of futures contracts specify actual delivery or receipt
of securities, in most instances the contracts are closed out before the
settlement date without the making or taking of delivery of the securities.
Closing out of a futures contract is usually effected by entering into an
offsetting transaction. An offsetting transaction for a futures contract sale is
effected by the Fund entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument and same delivery
date. If the price in the sale exceeds the price in the offsetting purchase, the
Fund is immediately paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by the Fund entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the Fund realizes a gain, and if the
offsetting sale price is less than the purchase price, the Fund realizes a loss.
Unlike a futures contract, which requires the parties to buy and sell a
security on a set date, an option on a futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the contract
is lost. Since the price of the option is fixed at the point of sale, there are
no daily payments of cash to reflect the change in the value of the underlying
contract, as discussed below for futures contracts. The value of the option does
change and is reflected in the net asset value of the Fund.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects futures contracts and options thereon. The initial
margin requirements vary according to the type of the underlying security. In
addition, due to current industry practice, daily variations in gains and losses
on open contracts are required to be reflected in cash in the form of variation
margin payments. The Fund may be required to make additional margin payments
during the term of the contract.
Currently, futures contracts can be purchased on debt securities such as
U.S. Treasury Bills and Bonds, U.S. Treasury Notes with maturities between
6 and 10 years, Certificates of the Government National Mortgage Association and
Bank Certificates of Deposit. The Fund may invest in interest rate futures
contracts covering these types of financial instruments as well as in new types
of such contracts that become available in the future.
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<PAGE>
Financial futures contracts are traded in an auction environment on the
floors of several Exchanges _ principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. Each Exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the Exchange membership which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities subject to
futures contracts may correlate imperfectly with the behavior of the cash prices
of the Fund's portfolio securities. The correlation may be distorted by the fact
that the futures market is dominated by short-term traders seeking to profit
from the difference between a contract or security price objective and their
cost of borrowed funds. This would reduce their value for hedging purposes over
a short time period. Such distortions are generally minor and would diminish as
the contract approached maturity.
Another risk is that the Fund's manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements or
the time span within which the movements take place. For example, if the Fund
sold futures contracts for the sale of securities in anticipation of an increase
in interest rates, and then interest rates went down instead, causing bond
prices to rise, the Fund would lose money on the sale.
Put and call options on financial futures have similar characteristics as
Exchange traded options. For a further description of options, see below and
page 12 of the Prospectus.
In addition to the risks associated in investing in options on securities,
there are particular risks associated with investing in options on futures. In
particular, the ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop.
A substantial majority (i.e., approximately 75%) of all anticipatory hedge
transactions (transactions in which the Fund does not own at the time of the
transaction, but expects to acquire, the securities underlying the relevant
futures contract) involving the purchase of futures contracts, call options or
written put options thereon will be completed by the purchase of securities
which are the subject of the hedge.
The Fund may not enter into futures contracts or related options thereon
if, immediately thereafter, the amount committed to margin plus the amount paid
for option premiums exceeds 5% of the value of the Fund's total assets. In
instances involving the purchase of futures contracts by the Fund, an amount
equal to the market value of the futures contract will be deposited in a
segregated account of cash and cash equivalents to collateralize the position
and thereby ensure that the use of such futures contract is unleveraged. The
Fund may not purchase or sell futures contracts or related options if,
immediately thereafter, more than one-third of its net assets would be hedged.
Options. As discussed in the Prospectus, the Fund may purchase or sell
options on debt securities. The Fund would only buy options listed on national
securities exchanges, except for agreements, sometimes called cash puts, which
may accompany the purchase of a new issue of bonds from a dealer.
A call option is a contract that gives the holder of the option the right
to buy from the writer (seller) of the call option, in return for a premium, the
security underlying the option at a specified exercise price at any time during
the term of the option. The writer of the call option has the obligation upon
exercise of the option to deliver the underlying security upon payment of the
exercise price during the option period. A put option is a contract that gives
the holder of the option the right to sell to the writer, in return for a
premium, the underlying security at a specified price during the term of the
option. The writer of the put has the obligation to buy the underlying security
upon exercise, at the exercise price during the option period. The Fund did not
enter into any options transactions during its fiscal year ended August 31,
1996, and it has no intention of doing so during the forseeable future.
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<PAGE>
The Fund will only write covered call or covered put options. The Fund may
only write covered options which are listed on national securities exchanges.
The Fund may not write covered options in an amount exceeding 20% of the value
of its total assets. A call option is "covered" if the Fund owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds, on a share-for-share basis, a call on the same
security as the call written where the exercise price of the call held is
(i) equal to or less than the exercise price of the call written or (ii) greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash, Treasury bills or other liquid portfolio securities in a
segregated account with its custodian. A put option is "covered" if the Fund
maintains cash, Treasury bills or other liquid portfolio securities with a value
equal to the exercise price in a segregated account with its custodian, or else
holds, on a share-for-share basis, a put on the same security as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written.
If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. Similarly, if the Fund is the holder of an option
it may liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same series as the option previously
purchased. There can be no assurance that either a closing purchase or sale
transaction can be effected when the Fund so desires. The Fund may only buy
options which are listed on national securities exchanges. The Fund will not
purchase options if, as a result, the aggregate cost of all outstanding options
exceeds 10% of the Fund's total assets.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in the
price of the underlying security, any loss resulting from the repurchase of a
call option may also be wholly or partially offset by unrealized appreciation of
the underlying security. If a put option written by the Fund is exercised, the
Fund may incur a loss equal to the difference between the exercise price of the
option and the sum of the sale price of the underlying security plus the premium
received from the sale of the option. Other principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price and price volatility of the underlying security
and the time remaining until the expiration date.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option. In such event, it might not be
possible to effect closing transactions in particular options, so that the Fund
would have to exercise its options in order to realize any profit and would
incur brokerage commissions upon the exercise of call options and upon the
subsequent disposition of underlying securities for the exercise of put options.
If the Fund as a covered call option writer is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise.
The Fund now qualifies and intends to remain qualified as a "regulated
investment company" under the Internal Revenue Code (see "Dividends,
Distributions and Taxes"). One requirement for such qualification is that less
than 30% of the Fund's gross income must be derived from the gains from the sale
or other disposition of securities held for less than three months. Therefore,
the Fund may be limited in its ability to engage in futures and options
transactions.
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<PAGE>
INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, which may not be changed without the vote of a majority of
the outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% of the shares present at a meeting
of shareholders, if the holders of more than 50% of the outstanding shares of
the Fund are present or represented by proxy, or (b) more than 50% of the
outstanding shares of the Fund.
The Fund may not:
1. Make short sales of securities;
2. Purchase securities on margin, except for such short-term loans
as are necessary for the clearance of purchases of portfolio securities;
3. Pledge its assets or assign or otherwise encumber them in excess
of 4.5% of its net assets (taken at market value at the time of pledging)
and then only to secure borrowings effected within the limitations set
forth in Restriction 14. For the purpose of this restriction, collateral
arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures are not deemed to
be pledges of assets;
4. Engage in the underwriting of securities except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security;
5. Purchase or sell real estate or interests therein, although it
may purchase securities of issuers which engage in real estate operations
and securities which are secured by real estate or interests therein;
6. Purchase or sell commodities except that the Fund may purchase
financial futures contracts and related options;
7. Make loans of money or securities, except (a) by the purchase of
debt obligations in which the Fund may invest consistent with its
investment objectives and policies; (b) by investment in repurchase
agreements (see "Portfolio Characteristics _ Repurchase Agreements"); or
(c) by lending its portfolio securities, subject to limitations described
elsewhere in this Statement of Additional Information. See "Portfolio
Characteristics _ Lending of Portfolio Securities";
8. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which invest in or sponsor such
programs;
9. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;
10. Invest for the purpose of exercising control or management of
another company;
11. Invest in securities of any company if, to the knowledge of
the Fund, any officer or director of the Fund or of the Investment
Manager owns more than 1/2 of 1% of the outstanding securities of such
company, and such officers and directors who own more than 1/2 of 1% own
in the aggregate more than 5% of the outstanding securities of such
company; and
12. Write, purchase or sell puts, calls, or combinations thereof
except options on futures contracts or options on debt securities.
13. Borrow money, except that the Fund may borrow for temporary
purposes in amounts not exceeding 5% (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed).
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<PAGE>
As regards the above investment restrictions and those disclosed in the
Prospectus, if a percentage restriction is addressed at the time of investment,
a later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objectives by investing all or substantially all
of its assets in another investment company having substantially the same
investment objectives and policies as the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- -------------------------------------------------------------------------------
Subject to the general supervision by the Board of Directors, the
Investment Manager is responsible for decisions to buy and sell securities and
futures contracts for the Fund, the selection of brokers and dealers to effect
the transactions, and the negotiation of brokerage commissions, if any.
Purchases and sales of securities on a stock exchange are effected through
brokers who charge a commission for their services. The Fund expects that the
primary market for the securities in which it intends to invest will generally
be the over-the-counter market. Securities are generally traded in the
over-the-counter market on a "net" basis with dealers acting as principal for
their own accounts without charging a stated commission, although the price of
the security usually includes a profit to the dealer. Options and futures
transactions will usually be effected through a broker and a commission will be
charged. The Fund also expects that securities will be purchased at times in
underwritten offerings where the price includes a fixed amount of compensation,
generally referred to as the underwriter's concession or discount. On occasion,
the Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid. The Fund paid
$95,014, $179,154 and $301,392 in brokerage commissions during the fiscal years
ended August 31, 1994, 1995 and 1996, respectively.
The Investment Manager currently serves as investment manager to a number
of clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors may be considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain initial
and secondary public offerings, the Investment Manager may utilize a pro rata
allocation process based on the size of the Dean Witter Funds involved and the
number of shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities and
futures contracts for its portfolio is that primary consideration will be given
to obtaining the most favorable prices and efficient executions of transactions.
In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and who are capable of providing efficient
executions. If the Investment Manager believes such prices and executions are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Investment Manager. Such services
may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager in the
management of accounts of some of its other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services is
useful in varying degrees and would generally reduce the amount of research or
services otherwise performed by
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<PAGE>
the Investment Manager and thus reduce its expenses, it is of indeterminable
value and the management fee paid to the Investment Manager is not reduced by
any amount that may be attributable to the value of such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund
may effect principal transactions in certain money market instruments with DWR.
The Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper (not including Tax-Exempt Municipal
Paper). Such transactions will be effected with DWR only when the price
available from DWR is better than that available from other dealers. During the
fiscal years ended August 31, 1994, 1995 and 1996, the Fund did not effect any
principal transactions with DWR.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect portfolio transactions for the Fund, the
commissions, fees or other remuneration received by the affiliated broker or
dealer must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on an exchange during a
comparable period of time. This standard would allow the affiliated broker or
dealer to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker in a commensurate arm's-length transaction.
Furthermore, the Directors of the Fund, including a majority of the Directors
who are not "interested" Directors, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to an
affiliated broker or dealer are consistent with the foregoing standard. The Fund
does not reduce the management fee it pays to the Investment Manager by the
amount of the brokerage commissions it may pay to an affiliated broker or
dealer. During the fiscal years ended August 31, 1994, 1995 and 1996, the Fund
paid no brokerage commissions to any affiliated brokers or dealers.
THE DISTRIBUTOR
- -------------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund. In addition, the Distributor may enter into agreements
with other selected broker-dealers. The Distributor, a Delaware corporation, is
a wholly-owned subsidiary of MSDWD. The Directors of the Fund, including a
majority of the Directors who are not, and were not at the time they voted,
interested persons of the Fund, as defined in the Act (the "Independent
Directors"), approved, at their meeting held on June 30, 1997, the current
Distribution Agreement appointing the Distributor exclusive distributor of the
Fund's shares and providing for the Distributor to bear distribution expenses
not borne by the Fund. By its terms, the Distribution Agreement has an initial
term ending April 30, 1998 and will remain in effect from year to year
thereafter if approved by the Board.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal securities laws and pays filing fees in accordance with
state securities laws. The Fund and the Distributor have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. Under the Distribution Agreement, the
Distributor uses its best efforts in rendering services to
20
<PAGE>
the Fund, but in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations, the Distributor is not
liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for losses sustained by the Fund
or its shareholders.
PLAN OF DISTRIBUTION
Effective July 28, 1997, the Fund has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the Act (the "Plan") pursuant to which each Class,
other than Class D, pays the Distributor compensation accrued daily and payable
monthly at the following annual rates: 0.25%, 0.75% and 0.85% of the average
daily net assets of Class A, Class B and Class C, respectively. The Distributor
also receives the proceeds of front-end sales charges and of contingent deferred
sales charges imposed on certain redemptions of shares, which are separate and
apart from payments made pursuant to the Plan (see "Purchase of Fund Shares" in
the Prospectus). The Distributor has informed the Fund that it and/or DWR
received approximately $2,208,000, $611,000 and $1,594,948 in front-end sales
charges for the fiscal years ended August 31, 1994, 1995 and 1996, respectively.
The Distributor has informed the Fund that the entire fee payable by
Class A and a portion of the fees payable by each of Class B and Class C each
year pursuant to the Plan equal to 0.20% of the average daily net assets of
Class B and 0.25% of the average daily net assets of Class C are currently each
characterized as a "service fee" under the Rules of the Association of the
National Association of Securities Dealers, Inc. (of which the Distributor is a
member). The "service fee" is a payment made for personal service and/or the
maintenance of shareholder accounts. The remaining portion of the Plan fees
payable by a Class, if any, is characterized as an "asset-based sales charge" as
such is defined by the aforementioned Rules of the Association.
The Plan was adopted by a majority vote of the Board of Directors,
including all of the Directors of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan (the "Independent 12b-1 Directors"), cast
in person at a meeting called for the purpose of voting on the Plan, on June 30,
1997.
Under its terms, the Plan has an initial term ending April 30, 1998 and
will continue from year to year thereafter, provided such continuance is
approved annually by a vote of the Directors in the manner described above.
Under the Plan and as required by Rule 12b-1, the Directors receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set forth
in the Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 4.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.20% of the current value of
the respective accounts for which they are the account executives or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by 401(k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code for which Dean Witter Trust Company ("DWTC") or Dean Witter Trust FSB
("DWTFSB") serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper, the Investment Manager compensates DWR's account executives by
paying them, from its own funds, a gross sales credit of 1.0% of the amount
sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 4.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission,
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<PAGE>
currently a residual of up to 0.20% of the current value of the respective
accounts for which they are the account executives of record in all cases. In
the case of retirement plans qualified under Section 401(k) of the Internal
Revenue Code and other employer-sponsored plans qualified under Section 401(a)
of the Internal Revenue Code for which DWTC or DWTFSB serves as Trustee or the
401(k) Support Services Group of DWR serves as recordkeeper, and which plans
are opened on or after July 28, 1997, DWR compensates its account executives
by paying them, from its own funds, a gross sales credit of 3.0% of the amount
sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 0.85% of the current value of
the respective accounts for which they are the account executives of record.
With respect to Class D shares other than shares held by participants in
InterCapital's mutual fund asset allocation program, the Investment Manager
compensates DWR's account executives by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of up
to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid if
the Class D shares are redeemed in the first year and a chargeback of 50% of the
amount paid if the Class D shares are redeemed in the second year after
purchase. The Investment Manager also compensates DWR's account executives by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the account executives of record (not including accounts of
participants in the InterCapital mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR
to its account executives and DWR's Fund-associated distribution-related
expenses, including sales compensation, and overhead and other branch office
distribution-related expenses including (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares and (d) other
expenses relating to branch promotion of Fund sales. The distribution fee that
the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred under the Plan on behalf of the Fund and, in the
case of Class B shares, opportunity costs, such as the gross sales credit and an
assumed interest charge thereon ("carrying charge"). In the Distributor's
reporting of the distribution expenses to the Fund, in the case of Class B
shares, such assumed interest (computed at the "broker's call rate") has been
calculated on the gross credit as it is reduced by amounts received by the
Distributor under the Plan and any contingent deferred sales charges received by
the Distributor upon redemption of shares of the Fund. No other interest charge
is included as a distribution expense in the Distributor's calculation of its
distribution costs for this purpose. The broker's call rate is the interest rate
charged to securities brokers on loans secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of Class
A, and 0.85%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C will
be reimbursable under the Plan. With respect to Class A, in the case of all
expenses other than expenses representing the service fee, and, with respect to
Class C, in the case of all expenses other than expenses representing a gross
sales credit or a residual to account executives, such amounts shall be
determined at the beginning of each calendar quarter by the Directors, including
a majority of the Independent 12b-1 Directors. Expenses representing the service
fee (for Class A) or a gross sales credit or a residual to account executives
(for Class C) may be reimbursed without prior determination. In the event that
the Distributor proposes that monies shall be reimbursed for other than such
expenses,
22
<PAGE>
then in making quarterly determinations of the amounts that may be reimbursed
by the Fund, the Distributor will provide and the Directors will review a
quarterly budget of projected distribution expenses to be incurred on behalf
of the Fund, together with a report explaining the purposes and anticipated
benefits of incurring such expenses. The Directors will determine which
particular expenses, and the portions thereof, that may be borne by the Fund,
and in making such a determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the Fund's Class A
and Class C shares.
At any given time, the expenses of distributing shares of the Fund may be
more or less than the total of (i) the payments made by the Fund pursuant to the
Plan and (ii) the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares. Because there is no requirement under the
Plan that the Distributor be reimbursed for all distribution expenses with
respect to Class B shares or any requirement that the Plan be continued from
year to year, this excess amount does not constitute a liability of the Fund.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Directors will consider at that
time the manner in which to treat such expenses. Any cumulative expenses
incurred, but not yet recovered through distribution fees or contingent deferred
sales charges, may or may not be recovered through future distribution fees or
contingent deferred sales charges.
No interested person of the Fund nor any Director of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct financial
interest in the operation of the Plan except to the extent that the Distributor,
InterCapital, DWR, DWSC or certain of their employees may be deemed to have such
an interest as a result of benefits derived from the successful operation of the
Plan or as a result of receiving a portion of the amounts expended thereunder by
the Fund.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of the Fund, and all material amendments to the Plan
must also be approved by the Directors in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) on not more
than thirty days' written notice to any other party to the Plan. So long as the
Plan is in effect, the election and nomination of Independent 12b-1 Directors
shall be committed to the discretion of the Independent 12b-1 Directors.
DETERMINATION OF NET ASSET VALUE
- -------------------------------------------------------------------------------
As discussed in the Prospectus, the net asset value per share for each
Class of shares of the Fund is determined once daily at 4:00 p.m., New York time
(or, on days when the New York Stock Exchange closes prior to 4:00 p.m., at such
earlier time) on each day that the New York Stock Exchange is open. The New York
Stock Exchange currently observes the following holidays: New Year's Day;
President's Day; Good Friday; Memorial Day; Independence Day; Labor Day;
Thanksgiving Day; and Christmas Day.
PURCHASE OF FUND SHARES
- -------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE-CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
23
<PAGE>
Right of Accumulation. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other Dean Witter Funds that are multiple class funds
("Dean Witter Multi-Class Funds") or shares of other Dean Witter Funds sold with
a front-end sales charge purchased at a price including a front-end sales charge
having a current value of $5,000, and purchases $20,000 of additional shares of
the Fund, the sales charge applicable to the $20,000 purchase would be 4.0% of
the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Distributor or Dean Witter Trust Company (the "Transfer
Agent") fails to confirm the investor's represented holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges
are available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation," but
there will be no retroactive reduction of sales charges on previous purchases.
For the purpose of determining whether the investor is entitled to a further
reduced sales charge applicable to purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other Dean Witter Funds
held by the shareholder which were previously purchased at a price including a
front-end sales charge (including shares of the Fund and other Dean Witter Funds
acquired in exchange for those shares, and including in each case shares
acquired through reinvestment of dividends and distributions) will be added to
the cost or net asset value of shares of the Fund owned by the investor.
However, shares of "Exchange Funds" (see "Shareholder Services_Exchange
Privilege") and the purchase of shares of other Dean Witter Funds will not be
included in determining whether the stated goal of a Letter of Intent has been
reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction. The
5% escrow and minimum purchase requirements will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to a Letter of
Intent should carefully read such Letter of Intent.
24
<PAGE>
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE-CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As stated
in the Prospectus, a CDSC will be imposed on any redemption by an investor if
after such redemption the current value of the investor's Class B shares of the
Fund is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain employer-sponsored benefit plans, three years). However,
no CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption, plus
(b) the current net asset value of shares purchased through reinvestment of
dividends or distributions of the Fund or another Dean Witter Fund (see
"Shareholder Services_Targeted Dividends"), plus (c) the current net asset value
of shares acquired in exchange for (i) shares of Dean Witter front-end sales
charge funds, or (ii) shares of other Dean Witter Funds for which shares of
front-end sales charge funds have been exchanged (see "Shareholder
Services_Exchange Privilege"), plus (d) increases in the net asset value of the
investor's shares above the total amount of payments for the purchase of Fund
shares made during the preceding six (three) years. The CDSC will be paid to the
Distributor.
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years (or, in the case of shares held by certain employer-sponsored
benefit plans, three years) will be redeemed first. In the event the redemption
amount exceeds such increase in value, the next portion of the amount redeemed
will be the amount which represents the net asset value of the investor's shares
purchased more than six (three) years prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Dean Witter front-end sales charge funds, or
for shares of other Dean Witter funds for which shares of front-end sales charge
funds have been exchanged. A portion of the amount redeemed which exceeds an
amount which represents both such increase in value and the value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption and/or
shares purchased through reinvestment of dividends or distributions and/or
shares acquired in the above-described exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last day
of the month. The following table sets forth the rates of the CDSC applicable to
most Class B shares of the Fund:
CDSC AS A
PERCENTAGE OF
YEAR SINCE PURCHASE PAYMENT MADE AMOUNT REDEEMED
- -------------------------------- ---------------
First.................................................. 5.0%
Second................................................. 4.0%
Third.................................................. 3.0%
Fourth................................................. 2.0%
Fifth.................................................. 2.0%
Sixth.................................................. 1.0%
Seventh and thereafter................................. None
25
<PAGE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund held by 401(k) plans or other employer-sponsored plans
qualified under Section 401(a) of the Internal Revenue Code for which DWTC or
DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves as
recordkeeper and whose accounts are opened on or after July 28, 1997:
CDSC AS A
PERCENTAGE OF
YEAR SINCE PURCHASE PAYMENT MADE AMOUNT REDEEMED
- -------------------------------- ---------------
First.................................................. 2.0%
Second................................................. 2.0%
Third.................................................. 1.0%
Fourth and thereafter.................................. None
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain employer-sponsored benefit plans, three
years) of purchase which are in excess of these amounts and which redemptions do
not qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE-CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE-CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- -------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund, maintained by the Transfer
Agent. This is an open account in which shares owned by the investor are
credited by the Transfer Agent in lieu of issuance of a stock certificate. If a
stock certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares and may be redeposited
in the account at any time. There is no charge to the investor for issuance of a
certificate. Whenever a shareholder instituted transaction takes place in the
Shareholder Investment Account, the shareholder will be mailed a confirmation of
the transaction from the Fund or from DWR or other selected broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of the
Fund, unless the shareholder requests that they be paid in cash. Each purchase
of shares of the Fund is made upon the condition that the Transfer Agent is
thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares owned by the investor. Such
dividends and distributions will be paid, at the net asset value per share, in
shares of the applicable Class of the Fund (or in cash if the shareholder so
requests) as of the close of business on the record date. At any time an
investor may request the Transfer Agent, in writing, to have subsequent
dividends and/or capital gains distributions paid to him or her in cash rather
than shares. To assure sufficient time to process the change, such request
should be received by the Transfer Agent at least five business days prior to
the record date of the dividend or distribution. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payments will be made to DWR or other selected
broker-dealer, and will be forwarded to the shareholder, upon the receipt of
proper instructions.
Targeted Dividends.(sm) In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an
26
<PAGE>
open-end Dean Witter Fund other than Dean Witter High Yield Securities Inc. or
in another Class of Dean Witter High Yield Securities Inc. Such investment
will be made as described above for automatic investment in shares of the
applicable Class of the Fund, at the net asset value per share of the selected
Dean Witter Fund as of the close of business on the payment date of the
dividend or distribution and will begin to earn dividends, if any, in the
selected Dean Witter Fund the next business day. To participate in the
Targeted Dividends program, shareholders should contact their DWR or other
selected broker-dealer account executive or the Transfer Agent. Shareholders
of the Fund must be shareholders of the selected Class of the Dean Witter Fund
targeted to receive investments from dividends at the time they enter the
Targeted Dividends program. Investors should review the prospectus of the
targeted Dean Witter Fund before entering the program.
EasyInvest.(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. Shares purchased through EasyInvest will be added to the shareholder's
existing account at the net asset value calculated the same business day the
transfer of funds is effected. For further information or to subscribe to
EasyInvest, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent.
Investment of Distributions Received in Cash. As discussed in the
Prospectus, any shareholder who receives a cash payment representing a dividend
or capital gains distribution may invest such dividend or distribution in shares
of the applicable Class at net asset value, without the imposition of a CDSC
upon redemption, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset value
per share next determined after receipt of the check or the proceeds by the
Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current offering price. The plan provides for monthly or quarterly (March,
June, September and December) checks in any amount, not less than $25, or in any
whole percentage of the account balance, on an annualized basis. Any applicable
CDSC will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase
of Fund Shares"). Therefore, any shareholder participating in the Withdrawal
Plan will have sufficient shares redeemed from his or her account so that the
proceeds (net of any applicable CDSC) to the shareholder will be the designated
monthly or quarterly amount.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent, or amounts credited to a shareholder's DWR or other
selected broker-dealer brokerage account, within five business days after the
date of redemption. The Withdrawal Plan may be terminated at any time by the
Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the 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. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").
27
<PAGE>
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is an eligible guarantor). A shareholder may,
at any time, change the amount and interval of withdrawal payments through his
or her account executive or by written notification to the Transfer Agent. In
addition, the party and/or the address to which checks are mailed may be changed
by written notification to the Transfer Agent, with signature guarantees
required in the manner described above. The shareholder may also terminate the
Withdrawal Plan at any time by written notice to the Transfer Agent. In the
event of such termination, the account will be continued as a regular
shareholder investment account. The shareholder may also redeem all or part of
the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to Dean Witter High Yield Securities Inc., and indicating the
selected Class, directly to the Fund's Transfer Agent. In the case of Class A
shares, after deduction of any applicable sales charge, the balance will be
applied to the purchase of Fund shares, and, in the case of shares of the other
Classes, the entire amount will be applied to the purchase of Fund shares, at
the net asset value per share next computed after receipt of the check or
purchase payment by the Transfer Agent. The shares so purchased will be credited
to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of each Class of shares
of the Fund may exchange their shares for shares of the same Class of shares of
any other Dean Witter Multi-Class Fund without the imposition of any exchange
fee. Shares may also be exchanged for shares of any of the following funds: Dean
Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust,
Dean Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury
Trust and five Dean Witter Funds which are money market funds (the foregoing
nine funds are hereinafter referred to as the "Exchange Funds"). Class A shares
may also be exchanged for shares of Dean Witter Multi-State Municipal Series
Trust and Dean Witter Hawaii Municipal Trust, which are Dean Witter Funds sold
with a front-end sales charge ("FSC Funds"). Class B shares may also be
exchanged for shares of Dean Witter Global Short-Term Income Fund Inc., Dean
Witter High Income Securities and Dean Witter National Municipal Trust, which
are Dean Witter Funds offered with a CDSC ("CDSC Funds"). Exchanges may be made
after the shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment. An exchange
will be treated for federal income tax purposes the same as a repurchase or
redemption of shares, on which the shareholder may realize a capital gain or
loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a Dean Witter
Multi-Class Fund or any CDSC Fund are exchanged for shares of an Exchange Fund,
the exchange is executed at no charge to the shareholder, without the imposition
of the CDSC at the time of the exchange. During the period of time the
shareholder remains in the Exchange Fund (calculated from
28
<PAGE>
the last day of the month in which the Exchange Fund shares were acquired),
the holding period or "year since purchase payment made" is frozen. When
shares are redeemed out of the Exchange Fund, they will be subject to a CDSC
which would be based upon the period of time the shareholder held shares in a
Dean Witter Multi-Class Fund or in a CDSC Fund. However, in the case of shares
exchanged into an Exchange Fund on or after April 23, 1990, upon a redemption
of shares which results in a CDSC being imposed, a credit (not to exceed the
amount of the CDSC) will be given in an amount equal to the Exchange Fund
12b-1 distribution fees incurred on or after that date which are attributable
to those shares. Shareholders acquiring shares of an Exchange Fund pursuant to
this exchange privilege may exchange those shares back into a Dean Witter
Multi-Class Fund or a CDSC Fund from the Exchange Fund, with no CDSC being
imposed on such exchange. The holding period previously frozen when shares
were first exchanged for shares of the Exchange Fund resumes on the last day
of the month in which shares of a Dean Witter Multi-Class Fund or of a CDSC
Fund are reacquired. A CDSC is imposed only upon an ultimate redemption, based
upon the time (calculated as described above) the shareholder was invested in
a Dean Witter Multi-Class Fund or in a CDSC Fund. In the case of exchanges of
Class A shares which are subject to a CDSC, the holding period also includes
the time (calculated as described above) the shareholder was invested in a FSC
Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or in a
CDSC Fund are exchanged for shares of a Dean Witter Multi-Class Fund, shares of
a CDSC Fund, shares of a FSC Fund, or shares of an Exchange Fund, the date of
purchase of the shares of the fund exchanged into, for purposes of the CDSC upon
redemption, will be the last day of the month in which the shares being
exchanged were originally purchased. In allocating the purchase payments between
funds for purposes of the CDSC, the amount which represents the current net
asset value of shares at the time of the exchange which were (i) purchased more
than one, three or six years (depending on the CDSC schedule applicable to the
shares) prior to the exchange, (ii) originally acquired through reinvestment of
dividends or distributions and (iii) acquired in exchange for shares of FSC
Funds, or for shares of other Dean Witter Funds for which shares of FSC Funds
have been exchanged (all such shares called "Free Shares"), will be exchanged
first. After an exchange, all dividends earned on shares in an Exchange Fund
will be considered Free Shares. If the exchanged amount exceeds the value of
such Free Shares, an exchange is made, on a block-by-block basis, of non-Free
Shares held for the longest period of time (except that, with respect to Class B
shares, if shares held for identical periods of time but subject to different
CDSC schedules are held in the same Exchange Privilege account, the shares of
that block that are subject to a lower CDSC rate will be exchanged prior to the
shares of that block that are subject to a higher CDSC rate). Shares equal to
any appreciation in the value of non-Free Shares exchanged will be treated as
Free Shares, and the amount of the purchase payments for the non-Free Shares of
the fund exchanged into will be equal to the lesser of (a) the purchase payments
for, or (b) the current net asset value of, the exchanged non-Free Shares. If an
exchange between funds would result in exchange of only part of a particular
block of non-Free Shares, then shares equal to any appreciation in the value of
the block (up to the amount of the exchange) will be treated as Free Shares and
exchanged first, and the purchase payment for that block will be allocated on a
pro rata basis between the non-Free Shares of that block to be retained and the
non-Free Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount of purchase payment for the exchanged non-Free
Shares will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the Prospectus under the caption
"Purchase of Fund Shares," any applicable CDSC will be imposed upon the ultimate
redemption of shares of any fund, regardless of the number of exchanges since
those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
29
<PAGE>
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
Dealer for any transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Dean Witter Liquid Asset
Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter New York
Municipal Money Market Trust and Dean Witter California Tax-Free Daily Income
Trust although those funds may, at their discretion, accept initial investments
of as low as $1,000. The minimum initial investment for the Exchange Privilege
account of each Class is $10,000 for Dean Witter Short-Term U.S. Treasury Trust,
although that fund may, at its discretion, accept initial investments of as low
as $5,000. The minimum initial investment for the Exchange Privilege account of
each Class is $5,000 for Dean Witter Special Value Fund. The minimum initial
investment for the Exchange Privilege account of each Class of all other Dean
Witter Funds for which the Exchange Privilege is available is $1,000.) Upon
exchange into an Exchange Fund the shares of that fund will be held in a special
Exchange Privilege Account separately from accounts of those shareholders who
have acquired their shares directly from that fund. As a result, certain
services normally available to shareholders of those funds, including the check
writing feature, will not be available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory authorities (presently sixty days' prior written notice
for termination or material revision), provided that six months' prior written
notice of termination will be given to the shareholders who hold shares of
Exchange Funds pursuant to this Exchange Privilege, and provided further that
the Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, (d) during any
other period when the Securities and Exchange Commission by order so permits
(provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or
(c) exist), or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective(s), policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -------------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption. The share certificate, or an accompanying
stock power, and the request for redemption, must be signed by the shareholder
or shareholders exactly as the shares are registered. Each request for
redemption, whether or not accompanied by a share certificate, must be sent to
the Fund's Transfer Agent, which will redeem the shares at
30
<PAGE>
their net asset value next computed (see "Purchase of Fund Shares" in the
Prospectus) after it receives the request, and certificate, if any, in good
order. Any redemption request received after such computation will be redeemed
at the next determined net asset value.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular Institution is
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a new
prospectus.
Repurchase. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by DWR
and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares of any Class presented for repurchase or
redemption will be made by check within seven days after receipt by the Transfer
Agent of the certificate and/or written request in good order. The term good
order means that the share certificate, if any, and request for redemption are
properly signed, accompanied by any documentation required by the Transfer
Agent, and bear signature guarantees when required by the Fund or the Transfer
Agent. Such payment may be postponed or the right of redemption suspended at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) during any
other period when the Securities and Exchange Commission by order so permits;
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist. If the shares to be redeemed have recently been purchased by check
(including a certificate or bank cashier's check), payment of 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.
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.
Reinstatement Privilege. As described in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 35 days after the 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 at the net
asset value next determined after a reinstatement request, together with such
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in
31
<PAGE>
a loss and reinstatement is made in shares of the Fund, some or all of the
loss, depending on the amount reinstated, will not be allowed as a deduction
for federal income tax purposes but will be applied to adjust the cost basis
of the shares acquired upon reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to
distribute or to retain all or part of any net long-term capital gains in any
year for reinvestment. If any such gains are retained, the Fund will pay federal
income tax thereon, and will notify shareholders that following an election by
the Fund, the shareholders will be required to include such undistributed gains
in determining their taxable income and may claim their share of the tax paid by
the Fund as a credit against their individual federal income tax.
In computing net investment income, the Fund will not amortize premiums or
accrue discounts on fixed-income securities in the portfolio, except those
original issue discounts for which amortization is required for federal income
tax purposes. Additionally, with respect to market discounts on tax-exempt bonds
issued after July 18, 1984, and all bonds purchased after April 30, 1993, a
portion of any capital gain realized upon disposition may be re-characterized as
taxable ordinary income in accordance with the provisions of the Internal
Revenue Code. Realized gains and losses on security transactions are determined
on the identified cost method. Dividend income is recorded on the ex-dividend
date.
Gains or losses on the sales of securities by the Fund will be long-term
capital gains or losses if the securities have been held by the Fund for more
than twelve months. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses. In determining
amounts to be distributed, capital gains will be offset by any capital loss
carryovers incurred in prior years.
Any dividend or capital gains distribution received by a shareholder from
an investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and some
portion of the dividends are subject to federal income taxes. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
the payment of dividends or realized long-term capital gains, such payment would
be in part a return of the shareholder's investment to the extent of such
reduction below the shareholder's cost, but nonetheless would be taxable to the
shareholder. Therefore, an investor should consider the tax implications of
purchasing Fund shares immediately prior to a distribution record date.
Shareholders should consult their attorneys or tax advisers regarding
specific questions as to state or local taxes and as to the applicability of the
foregoing to their current federal tax situation.
PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature. These
figures are computed separately for Class A, Class B, Class C and Class D
shares.
Prior to July 28, 1997, the Fund offered only one Class of shares. Because
the distribution arrangement for Class A most closely resembles the distribution
arrangement applicable prior to the implementation of multiple classes (i.e.,
Class A is sold with a front-end sales charge), historical performance
information has been restated to reflect the actual maximum sales charge
applicable to Class A (i.e., 4.25%) as compared to the 5.5% sales charge in
effect prior to July 28, 1997. In addition, because all shares of the Fund held
prior to July 28, 1997 have been designated Class D shares, the Fund's
historical performance has also been restated to reflect the absence of any
sales charge in the case of Class D shares. In addition, Class A shares are now
subject to an ongoing 12b-1 fee which is not reflected in the restated
performance for that Class and would reduce the performance quoted below.
32
<PAGE>
Following the restated performance information is the actual performance of the
Fund as of its last fiscal year (prior to the implementation of multiple
classes) without taking into effect the new fee and sales charge structure.
Yield is calculated for any 30-day period as follows: the amount of
interest and/or dividend income for each security in the Fund's portfolio is
determined in accordance with regulatory requirements; the total for the entire
portfolio constitutes the Fund's gross income for the period. Expenses accrued
during the period are subtracted to arrive at "net investment income" of each
Class. The resulting amount is divided by the product of the maximum offering
price per share on the last day of the period multiplied by the average number
of shares of the applicable Class outstanding during the period that were
entitled to dividends. This amount is added to 1 and raised to the sixth power.
1 is then subtracted from the result and the difference is multiplied by 2 to
arrive at the annualized yield. For the 30-day period ended August 31, 1996, the
Fund's restated yield for the Class A and Class D shares, calculated pursuant to
this formula was 11.88% and 12.43%, respectively.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. The ending redeemable value is
reduced by any CDSC at the end of the one, five or ten year or other period. For
the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing the average annual total
return involves a percentage obtained by dividing the ending redeemable value by
the amount of the initial investment, taking a root of the quotient (where the
root is equivalent to the number of years in the period) and subtracting 1 from
the result. The restated average annual total returns of the Class A and Class D
shares of the Fund for the year ended August 31, 1996 were 6.35% and 11.07%,
respectively; for the five years ended August 31, 1996 were 14.77% and 15.77%,
respectively; and for the ten years ended August 31, 1996 were 6.06% and 6.53%,
respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculation may or may
not reflect the imposition of the maximum front end sales charge for Class A or
the deduction of the CDSC for each of Class B and Class C which, if reflected,
would reduce the performance quoted. For example, the average annual total
return of the Fund in the manner described in the preceding paragraph, but
without the deduction for any applicable sales charge. Based on the foregoing
calculation, the Fund's total return for Class A shares for the year ended
August 31, 1996 was 11.07%, the total return for the five years ended August 31,
1996 was 15.77% and the total return for the ten years ended August 31, 1996 was
6.53%. Because the Class D shares are not subject to any sales charge, the Fund
would only advertise average annual total returns as calculated in the previous
paragraph.
In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without reduction for any sales charge) by the initial $1,000 investment
and subtracting 1 from the result. Based on the foregoing calculation, the
Fund's restated total return for both Class A and Class D shares for the year
ended August 31, 1996 was 11.07%; the restated total return for the five years
ended August 31, 1996 was 107.95%; and the restated total return for the ten
years ended August 31, 1996 was 88.16%.
The Fund may advertise the growth of hypothetical investments of $10,000,
$50,000 and $100,000 in each Class of shares of the Fund by adding 1 to the
Fund's aggregate total return to date (expressed as a decimal and without taking
into account the effect of any applicable CDSC) and multiplying by $9,575,
$48,250 and $97,250 in the case of Class A (investments of $10,000, $50,000 and
$100,000 adjusted for the initial sales charge) or by $10,000, $50,000 and
$100,000 in the case of each of Class B,
33
<PAGE>
Class C and Class D, as the case may be. Investments of $10,000, $50,000 and
$100,000 in the Fund at inception would have grown to $45,959, $231,595 and
$466,790, respectively, in the case of Class A, and $47,999, $239,995 and
$479,990, respectively, in the case of Class D, at August 31, 1996.
For the 30-day period ended August 31, 1996, the Fund's actual yield,
calculated pursuant to the formula described above, was 11.73%. The average
annual total returns of the Fund, calculated pursuant to the formula described
above, for the year ended August 31, 1996, for the five years ended August 31,
1996, and for the ten years ended August 31, 1996, were 4.96%, 14.47% and 5.92%,
respectively. The average annual total returns of the Fund calculated without
the deduction for any applicable sales charge for the year ended August 31,
1996, for the five years ended August 31, 1996, and for the ten years ended
August 31, 1996, were 11.07%, 15.77% and 6.53%, respectively. The Fund's
aggregate total return, calculated pursuant to the formula described above, for
the year ended August 31, 1996 was 11.07%, the total return for the five years
ended August 31, 1996 was 107.95% and the total return for the ten years ended
August 31, 1996 was 88.16%. Investments of $10,000, $50,000 and $100,000,
adjusted for the sales charges in effect at such time (5.5%, 4.25% or 3.25%,
respectively), in the Fund at inception would have grown to $45,359, $229,795
and $464,390, respectively, at August 31, 1996.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF COMMON STOCK
- -------------------------------------------------------------------------------
The Fund is authorized to issue 2 billion shares of common stock of $0.01
par value (500 million shares for each Class). Shares of the Fund, when issued,
are fully paid, non-assessable, fully transferable and redeemable at the option
of the holder. There are no conversion, preemptive or other subscription rights.
In the event of liquidation, each share of common stock of the Fund is entitled
to its portion of all of the Fund's assets after all debts and expenses have
been paid. Except for agreements entered into by the Fund in its ordinary course
of business within the limitations of the Fund's fundamental investment policies
(which may be modified only by shareholder vote), the Fund will not issue any
securities other than common stock.
The shares of the Fund do not have cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so, and in such
event, the holders of the remaining less than 50% of the shares voting for the
election of directors will not be able to elect any person or persons to the
Board of Directors.
CUSTODIAN AND TRANSFER AGENT
- -------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager, and of Dean Witter Distributors Inc, the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services
Dean Witter Trust Company receives a per shareholder account fee.
34
<PAGE>
INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- -------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report, containing
financial statements, together with a report by its independent accountants,
will be sent to shareholders each year.
The Fund's fiscal year ends on August 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Directors.
LEGAL COUNSEL
- -------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -------------------------------------------------------------------------------
The financial statements of the Fund for the year ended August 31, 1996
included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- -------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
35
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (87.6%)
AEROSPACE (1.6%)
$ 9,000 Sabreliner Corp. (Series B)................. 12.50 % 04/15/03 $ 7,515,000
---------------
AUTOMOTIVE (3.5%)
4,000 APS, Inc.................................... 11.875 01/15/06 4,260,000
7,700 Envirotest Systems, Inc..................... 9.125 03/15/01 6,930,000
6,018 Envirotest Systems, Inc..................... 9.625 04/01/03 4,694,040
---------------
15,884,040
---------------
BROADCAST MEDIA (2.9%)
4,000 Adams Outdoor Advertising................... 10.75 03/15/06 4,090,000
4,000 Paxson Communications Corp.................. 11.625 10/01/02 4,190,000
5,000 Spanish Broadcasting System, Inc............ 7.50 06/15/02 5,150,000
---------------
13,430,000
---------------
BUSINESS SERVICES (4.1%)
4,072 Anacomp, Inc................................ 13.00+ 06/04/02 4,010,920
2,000 Pierce Leahy Corp. - 144A*.................. 11.125 07/15/06 2,085,000
12,000 Xerox Corp.................................. 15.00 06/10/97 12,788,280
---------------
18,884,200
---------------
CABLE & TELECOMMUNICATIONS (13.0%)
9,180 Adelphia Communications Corp. (Series B).... 9.50+ 02/15/04 7,561,987
5,000 American Communications Services, Inc....... 12.75++ 04/01/06 2,600,000
12,000 AT&T Capital Corp........................... 15.00 05/05/97 12,680,640
5,000 Charter Communication South East L.P.
(Series B)................................ 11.25 03/15/06 4,975,000
5,373 Falcon Holdings Group L.P. (Series B)....... 11.00+ 09/15/03 4,875,624
5,000 Hyperion Communication - 144A*.............. 13.00++ 04/15/03 2,775,000
28,500 In-Flight Phone Corp. (Series B)............ 14.00++ 05/15/02 10,687,500
4,000 IXC Communications Inc. (Series B).......... 12.50 10/01/05 4,120,000
5,050 Peoples Telephone Co., Inc.................. 12.25 07/15/02 5,087,875
4,000 Rifkin Acquisition Partners L.P............. 11.125 01/15/06 4,015,000
---------------
59,378,626
---------------
COMPUTER EQUIPMENT (3.9%)
4,000 Advanced Micro Devices...................... 11.00 08/01/03 4,070,000
5,000 Unisys Corp................................. 15.00 07/01/97 5,300,000
7,900 Unisys Corp. (Conv.)........................ 8.25 03/15/06 8,770,738
---------------
18,140,738
---------------
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS (1.2%)
$ 5,500 J.B Williams Holdings, Inc.................. 12.00 % 03/01/04 $ 5,527,500
---------------
CONTAINERS (3.3%)
8,000 Ivex Holdings Corp. (Series B).............. 13.25++ 03/15/05 5,040,000
5,000 Mail-Well Corp.............................. 10.50 02/15/04 4,900,000
5,000 Packaging Resources Inc. - 144A*............ 11.625 05/01/03 5,075,000
---------------
15,015,000
---------------
ELECTRICAL & ALARM SYSTEMS (2.0%)
11,000 Mosler, Inc................................. 11.00 04/15/03 9,295,000
---------------
ENTERTAINMENT/GAMING & LODGING (8.5%)
4,000 AMF Group Inc. - 144A*...................... 10.875 03/15/06 4,000,000
9,000 Fitzgeralds Gaming Corp. (Units)++.......... 13.00 12/31/02 6,750,000
5,000 Lady Luck Gaming Finance Corp............... 11.875 03/01/01 4,925,000
8,000 Motels of America, Inc. (Series B).......... 12.00 04/15/04 7,200,000
4,000 Players International, Inc.................. 10.875 04/15/05 3,940,000
4,000 Plitt Theaters, Inc. (Canada)............... 10.875 06/15/04 4,040,000
41,950 Spectravision, Inc. (a)..................... 11.65 12/01/02 4,213,778
4,000 Station Casinos, Inc........................ 9.625 06/01/03 3,820,000
---------------
38,888,778
---------------
FOODS & BEVERAGES (8.1%)
21,271 Envirodyne Industries, Inc.................. 10.25 12/01/01 18,931,190
42,650 Specialty Foods Acquisition Corp. (Series B) 13.00++ 08/15/05 18,339,550
---------------
37,270,740
---------------
HEALTHCARE (1.4%)
8,250 Unilab Corp................................. 11.00 04/01/06 6,517,500
---------------
MANUFACTURING (5.5%)
4,150 Alpine Group, Inc........................... 12.25 07/15/03 4,305,625
5,000 Berry Plastics Corp......................... 12.25 04/15/04 5,350,000
4,000 Exide Electronics Group, Inc. (Series B).... 11.50 03/15/06 4,040,000
5,000 International Wire Group, Inc............... 11.75 06/01/05 5,118,750
7,000 Uniroyal Technology Corp.................... 11.75 06/01/03 6,650,000
---------------
25,464,375
---------------
MANUFACTURING - DIVERSIFIED (6.5%)
4,000 Foamex L.P.................................. 11.875 10/01/04 4,200,000
5,000 Interlake Corp.............................. 12.125 03/01/02 5,112,500
5,000 J.B. Poindexter & Co., Inc.................. 12.50 05/15/04 4,775,000
6,030 Jordan Industries, Inc...................... 10.375 08/01/03 5,834,025
13,420 Jordan Industries, Inc...................... 11.75++ 08/01/05 9,930,800
5,000 Starcraft Industrial Corp. (a).............. 16.50 01/15/98 --
---------------
29,852,325
---------------
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
OIL & GAS (1.0%)
$ 5,500 Empire Gas Corp............................. 7.00 % 07/15/04 $ 4,785,000
---------------
PUBLISHING (4.4%)
8,000 Affiliated Newspapers Investments, Inc...... 13.25++ 07/01/06 5,920,000
4,000 American Media Operations, Inc.............. 11.625 11/15/04 4,160,000
10,600 United States Banknote Corp................. 10.375 06/01/02 10,070,000
---------------
20,150,000
---------------
RESTAURANTS (8.3%)
26,057 American Restaurant Group Holdings, Inc..... 14.00++ 12/15/05 9,575,948
5,000 Boston Chicken Inc. (Conv.)................. 4.50 02/01/04 6,350,000
4,000 Carrols Corp................................ 11.50 08/15/03 4,140,000
27,500 Flagstar Corp............................... 11.25 11/01/04 18,081,250
---------------
38,147,198
---------------
RETAIL (2.3%)
4,997 Cort Furniture Rental Corp.................. 12.00 09/01/00 5,196,880
10,450 County Seat Stores Co....................... 12.00 10/01/02 5,538,500
---------------
10,735,380
---------------
RETAIL - FOOD CHAINS (2.8%)
4,000 Jitney-Jungle Stores........................ 12.00 03/01/06 4,170,000
4,000 Pathmark Stores, Inc........................ 9.625 05/01/03 3,790,000
5,000 Ralphs Grocery Co........................... 11.00 06/15/05 4,862,500
---------------
12,822,500
---------------
TEXTILES (3.3%)
1,638 Farley Inc. (Conv.)......................... 0.00 01/01/12 173,988
14,219 JPS Textile Group, Inc...................... 10.85 06/01/99 8,815,780
7,950 U.S. Leather, Inc........................... 10.25 07/31/03 6,399,750
---------------
15,389,518
---------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $459,074,347)....................................... 403,093,418
---------------
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
COMMON STOCKS (b) (4.4%)
AUTOMOTIVE (0.0%)
709 Northern Holdings Industrial Corp. (Restricted) (c)..................... $ --
---------------
COMPUTER EQUIPMENT (0.1%)
477,769 Memorex Telex NV (ADR) (Netherlands) (c)................................ 582,281
---------------
ENTERTAINMENT/GAMING & LODGING (0.1%)
7,500 Motels of America, Inc. - 144A*......................................... 525,000
781,421 Vagabond Inns, Inc. (Class D) (a)....................................... --
---------------
525,000
---------------
FOODS & BEVERAGES (1.0%)
489,055 Seven-Up/RC Bottling Co. Southern California, Inc. (c).................. 4,156,969
273,750 Specialty Foods Acquisition Corp. - 144A*............................... 410,625
---------------
4,567,594
---------------
MANUFACTURING - DIVERSIFIED (3.0%)
671,263 Thermadyne Holdings Corp. (c)........................................... 14,013,516
---------------
PUBLISHING (0.1%)
15,000 Affiliated Newspapers Investments, Inc. (Class B)....................... 525,000
---------------
RESTAURANTS (0.1%)
26,057 American Restaurant Group Holdings, Inc. - 144A*........................ 260,570
---------------
TEXTILES (0.0%)
12,000 JPS Textile Group, Inc. (Class A)....................................... --
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $85,779,555)........................................... 20,473,961
---------------
PREFERRED STOCKS (b) (0.4%)
ENTERTAINMENT/GAMING & LODGING (0.4%)
80,000 Fitzgeralds Gaming Corp. (Units)++...................................... 1,620,000
---------------
OIL & GAS PRODUCTS (0.0%)
113,955 TGX Corp. (Series A) (c)................................................ 1,139
---------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $2,830,000)............................................ 1,621,139
---------------
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ----------------------------------------------------------------------------------------------------
WARRANTS (b) (0.2%)
AEROSPACE (0.0%)
9,000 Sabreliner Corp. - 144A*................................. 04/15/03 $ 90,000
---------------
CABLE & TELECOMMUNICATIONS (0.1%)
5,000 Hyperion Communication - 144A*........................... 04/01/01 50,000
27,600 In-Flight Phone Corp. - 144A*............................ 08/31/02 276,281
---------------
326,281
---------------
CONTAINERS (0.0%)
10,000 Crown Packaging Holdings, Ltd. (Canada) - 144A*.......... 11/01/03 --
---------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
5,000 Boomtown, Inc. - 144A*................................... 11/01/98 --
13,052 Casino America, Inc...................................... 11/15/96 --
8,312 Fitzgeralds Gaming Corp.................................. 12/19/98 37,407
3,500 Fitzgeralds South Inc. - 144A*........................... 03/15/99 --
---------------
37,407
---------------
MANUFACTURING (0.1%)
4,000 Exide Electronics Group, Inc. - 144A*.................... 03/15/06 80,000
70,000 Uniroyal Technology Corp................................. 06/01/03 96,250
---------------
176,250
---------------
OIL & GAS (0.0%)
15,180 Empire Gas Corp.......................................... 07/15/04 151,800
---------------
RETAIL (0.0%)
10,000 County Seat Holdings Co.................................. 10/15/98 100,000
---------------
TOTAL WARRANTS
(IDENTIFIED COST $2,992,791).......................................... 881,738
---------------
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (5.2%)
U.S. GOVERNMENT AGENCIES (d) (5.0%)
$ 12,900 Federal Home Loan Banks..................... 5.16 % 09/03/96 $ 12,896,302
10,000 Federal National Mortgage Assoc............. 5.20 09/06/96 9,992,778
---------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $22,889,080)......................................... 22,889,080
---------------
REPURCHASE AGREEMENT (0.2%)
999 The Bank of New York (dated 08/30/96;
proceeds $999,231; collateralized by
$1,134,189 Federal National Mortgage
Assoc. 6.50% due 03/25/23 valued at
$1,018,635) (Identified Cost $998,662).... 5.125 09/03/96 998,662
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $23,887,742)........................................ 23,887,742
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST $574,564,435) (E)........... 97.8% 449,957,998
OTHER ASSETS IN EXCESS OF LIABILITIES........ 2.2 10,244,841
----- ------------
NET ASSETS................................... 100.0% $460,202,839
----- ------------
----- ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Resale is restricted to qualified institutional investors.
++ Consists of one or more class of securities traded together as a unit;
generally bonds with attached stocks/warrants.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified date.
(a) Non-income producing security; issuer in bankruptcy.
(b) Non-income producing securities.
(c) Acquired through exchange offer.
(d) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(e) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation was $16,754,848 and the
aggregate gross unrealized depreciation was $141,361,285, resulting in net
unrealized depreciation of $124,606,437.
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
ASSETS:
Investments in securities, at value
(identified cost $574,564,435)............................ $ 449,957,998
Receivable for:
Interest................................................ 11,041,222
Capital stock sold...................................... 609,887
Prepaid expenses and other assets........................... 30,020
--------------
TOTAL ASSETS........................................... 461,639,127
--------------
LIABILITIES:
Payable for:
Dividends to shareholders............................... 926,442
Investment management fee............................... 194,706
Capital stock repurchased............................... 145,004
Accrued expenses and other payables......................... 170,136
--------------
TOTAL LIABILITIES...................................... 1,436,288
--------------
NET ASSETS:
Paid-in-capital............................................. 1,528,089,659
Net unrealized depreciation................................. (124,606,437)
Accumulated undistributed net investment income............. 10,337,288
Accumulated net realized loss............................... (953,617,671)
--------------
NET ASSETS............................................. $ 460,202,839
--------------
--------------
NET ASSET VALUE PER SHARE,
68,542,004 shares outstanding (400,000,000 shares
authorized of $.01 par value).............................
$6.71
--------------
--------------
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.82% of net asset value)*..........
$7.10
--------------
--------------
- ---------------------
* On sales of $25,000 or more, the offering price is reduced.
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 58,749,969
------------
EXPENSES
Investment management fee................................... 2,271,578
Transfer agent fees and expenses............................ 539,994
Custodian fees.............................................. 59,401
Shareholder reports and notices............................. 57,480
Professional fees........................................... 35,218
Registration fees........................................... 34,963
Directors' fees and expenses................................ 16,072
Other....................................................... 13,132
------------
TOTAL EXPENSES......................................... 3,027,838
------------
NET INVESTMENT INCOME.................................. 55,722,131
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (17,329,860)
Net change in unrealized depreciation....................... 9,730,771
------------
NET LOSS............................................... (7,599,089)
------------
NET INCREASE................................................ $ 48,123,042
------------
------------
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1996 AUGUST 31, 1995
- -----------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income....................................... $ 55,722,131 $ 54,062,648
Net realized loss........................................... (17,329,860) (20,016,987)
Net change in unrealized depreciation....................... 9,730,771 15,205,812
--------------- ---------------
NET INCREASE........................................... 48,123,042 49,251,473
Dividends from net investment income........................ (51,517,938) (54,031,376)
Net increase (decrease) from capital stock transactions..... 8,152,392 (17,637,501)
--------------- ---------------
TOTAL INCREASE (DECREASE).............................. 4,757,496 (22,417,404)
NET ASSETS:
Beginning of period......................................... 455,445,343 477,862,747
--------------- ---------------
END OF PERIOD
(Including undistributed net investment income of
$10,337,288 and $6,133,095, respectively)............... $ 460,202,839 $ 455,445,343
--------------- ---------------
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter High Yield Securities Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's primary investment objective is to
earn a high level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective. The Fund was
incorporated in Maryland on June 14, 1979.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS - (1) an equity security listed or traded on the New
York or American Stock Exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued; if there were no sales that
day, the security is valued at the latest bid price; (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation; (3)
when market quotations are not readily available, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Directors (valuation of
debt securities for which market quotations are not readily available may be
based upon current market prices of securities which are comparable in coupon,
rating and maturity or an appropriate matrix utilizing similar factors); (4)
certain portfolio securities may be valued by an outside pricing service
approved by the Directors. The pricing service utilizes a matrix system
incorporating security quality, maturity and coupon as the evaluation model
parameters, and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service; and (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS - Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily except where collection is not expected.
45
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996, CONTINUED
C. FEDERAL INCOME TAX STATUS - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), the Fund pays the Investment Manager a
management fee, calculated daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.50% to the portion of daily net assets not exceeding $500
million; 0.425% to the portion of daily net assets exceeding $500 million but
not exceeding $750 million; 0.375% to the portion of daily net assets exceeding
$750 million but not exceeding $1 billion; 0.35% to the portion of daily net
assets exceeding $1 billion but not exceeding $2 billion; 0.325% to the portion
of daily net assets exceeding $2 billion but not exceeding $3 billion; and 0.30%
to the portion of daily net assets exceeding $3 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
46
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996, CONTINUED
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended August 31, 1996, aggregated
$393,514,207 and $415,856,430, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the Fund's
transfer agent. At August 31, 1996, the Fund had transfer agent fees and
expenses payable of approximately $57,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors/Trustees for at least five years at the time of retirement. Benefits
under this plan are based on years of service and compensation during the last
five years of service. Aggregate pension costs for the year ended August 31,
1996 included in Directors' fees and expenses in the Statement of Operations
amounted to $1,274. At August 31, 1996, the Fund had an accrued pension
liability of $49,856 which is included in accrued expenses in the Statement of
Assets and Liabilities.
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Distributor has
informed the Fund that for the year ended August 31, 1996, it received
approximately $1,595,000 in commissions from the sale of shares of the Fund's
capital stock. Such commissions are deducted from the proceeds of the capital
stock shares and are not an expense of the Fund.
4. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1996 AUGUST 31, 1995
---------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Sold .................... 7,479,221 $50,396,628 4,185,702 $27,764,909
Reinvestment of dividends 3,993,442 26,742,126 4,187,296 27,351,637
----------- ----------- ---------- ------------
11,472,663 77,138,754 8,372,998 55,116,546
Repurchased ............. (10,236,571) (68,986,362) (10,983,714) (72,754,047)
----------- ----------- ---------- ------------
Net increase (decrease).. 1,236,092 $8,152,392 (2,610,716) $(17,637,501)
=========== =========== ========== ============
</TABLE>
47
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996, CONTINUED
5. FEDERAL INCOME TAX STATUS
At August 31, 1996, the Fund had an approximate net capital loss carryover, to
offset future capital gains to the extent provided by regulations, which is
available through August 31 in the following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- ----------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 TOTAL
- ------- ------- -------- -------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$94,246 $82,210 $292,752 $182,732 $45,208 $166,406 $50,598 $23,294 $937,446
======= ======= ======== ======== ======= ======== ======= ======= ========
</TABLE>
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $13,146,000 during fiscal 1996.
At August 31, 1996, the Fund had temporary book/tax differences primarily
attributable to post-October losses, capital loss deferrals on wash sales and
dividend payable and permanent book/tax differences primarily attributable to an
expired capital loss carryover. To reflect reclassifications arising from
permanent book/tax differences for the year ended August 31, 1996,
paid-in-capital was charged and accumulated net realized loss was credited
$37,795,049.
48
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31
---------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE
OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period... $6.77 $6.83 $7.58 $7.23 $5.92 $6.78 $10.40 $11.99 $13.72 $14.16
----- ----- ----- ----- ----- ----- ------ ------ ------ ------
Net investment income... 0.83 0.80 0.79 0.89 0.95 0.94 1.48 1.67 1.84 1.82
Net realized and
unrealized gain (loss) (0.12) (0.06) (0.68) 0.54 1.04 (0.86) (3.78) (1.48) (1.77) (0.46)
----- ----- ----- ----- ----- ----- ------ ------ ------ ------
Total from investment
operations............. 0.71 0.74 0.11 1.43 1.99 0.08 (2.30) 0.19 0.07 1.36
----- ----- ----- ----- ----- ----- ------ ------ ------ ------
Less dividends and
distributions from:
Net investment income... (0.77) (0.80) (0.86) (1.08) (0.68) (0.94) (1.32) (1.75) (1.80) (1.80)
Paid-in-capital......... _ _ _ _ _ _ _ (0.03) _ _
----- ----- ----- ----- ----- ----- ------ ------ ------ ------
Total dividends and
distributions......... (0.77) (0.80) (0.86) (1.08) (0.68) (0.94) (1.32) (1.78) (1.80) (1.80)
----- ----- ----- ----- ----- ----- ------ ------ ------ ------
Net asset value, end
of period.............. $6.71 $6.77 $6.83 $7.58 $7.23 $5.92 $6.78 $10.40 $11.99 $13.72
===== ===== ===== ===== ===== ===== ===== ====== ====== ======
TOTAL INVESTMENT
RETURN+................ 11.07% 11.98% 0.93% 22.29% 35.46% 4.67% (23.28)% 1.39% 0.97% 10.07%
RATIOS TO
AVERAGE NET ASSETS:
Expenses................ 0.66% 0.79% 0.69% 0.67% 0.77% 0.87% 0.60% 0.49% 0.49% 0.51%
Net investment income... 12.27% 12.06% 10.40% 12.14% 13.96% 16.47% 17.67% 14.61% 14.79% 12.83%
SUPPLEMENTAL DATA:
Net assets, end of
period, in millions.... $460 $455 $478 $540 $512 $436 $690 $1,794 $2,140 $2,034
Portfolio turnover rate. 49% 74% 127% 173% 113% 93% 21% 55% 107% 176%
</TABLE>
+ Does not reflect the deduction of sales load. Calculated based on the net
asset value as of the last business day of the period.
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DEAN WITTER HIGH YIELD SECURITIES INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter High Yield Securities
Inc. (the "Fund") at August 31, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the ten years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
August 31, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 11, 1996
50
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (92.5%)
AEROSPACE (1.6%)
$ 8,000 Sabreliner Corp. (Series B)...................... 12.50 % 04/15/03 $ 7,760,000
---------------
AUTOMOTIVE (4.5%)
4,000 APS, Inc......................................... 11.875 01/15/06 4,280,000
6,800 Envirotest Systems, Inc.......................... 9.125 03/15/01 6,417,500
10,000 Toyota Motor Credit Corp......................... 15.00 09/26/97 10,505,500
---------------
21,203,000
---------------
BROADCAST MEDIA (4.0%)
4,000 Adams Outdoor Advertising L.P.................... 10.75 03/15/06 4,300,000
7,000 Capstar Broadcasting Partners - 144A*............ 12.75++ 02/01/09 4,060,000
4,000 Paxson Communications Corp....................... 11.625 10/01/02 4,290,000
6,000 Spanish Broadcasting System, Inc................. 7.50 06/15/02 6,360,000
---------------
19,010,000
---------------
BUSINESS SERVICES (4.6%)
9,052 Anacomp, Inc..................................... 13.00+ 06/04/02 9,458,863
12,000 Xerox Credit Corp................................ 15.00 06/10/97 12,292,320
---------------
21,751,183
---------------
CABLE & TELECOMMUNICATIONS (15.8%)
7,116 Adelphia Communications Corp. (Series B)......... 9.50+ 02/15/04 6,439,981
3,500 Adelphia Communications, Inc. - 144A*............ 9.875 03/01/07 3,408,125
5,000 American Communications Services, Inc............ 13.00++ 11/01/05 3,287,500
5,000 American Communications Services, Inc............ 12.75++ 04/01/06 3,087,500
12,000 AT&T Capital Corp................................ 15.00 05/05/97 12,184,920
4,000 Cablevision Systems Corp......................... 10.50 05/15/16 4,210,000
5,000 Charter Communication South East L.P. (Series B). 11.25 03/15/06 5,375,000
10,627 Falcon Holdings Group L.P. (Series B)............ 11.00+ 09/15/03 9,617,054
5,000 Frontiervision, Inc.............................. 11.00 10/15/06 5,225,000
11,000 Hyperion Telecommunication, Inc. (Series B)...... 13.00++ 04/15/03 6,407,500
13,400 In-Flight Phone Corp. (Series B)(a).............. 14.00++ 05/15/02 1,005,000
4,000 IXC Communications, Inc. (Series B).............. 12.50 10/01/05 4,530,000
5,050 Peoples Telephone Co., Inc....................... 12.25 07/15/02 5,390,875
4,000 Rifkin Acquisition Partners L.P.................. 11.125 01/15/06 4,235,000
---------------
74,403,455
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMPUTER EQUIPMENT (3.1%)
$ 5,000 Unisys Corp...................................... 15.00 % 07/01/97 $ 5,231,250
8,000 Unisys Corp. (Conv.)............................. 8.25 03/15/06 9,620,000
---------------
14,851,250
---------------
CONSUMER PRODUCTS (2.2%)
5,500 J.B. Williams Holdings, Inc...................... 12.00 03/01/04 5,692,500
4,500 Renaissance Cosmetics, Inc. - 144A*.............. 11.75 02/15/04 4,640,625
---------------
10,333,125
---------------
CONTAINERS (2.2%)
5,000 Mail-Well Corp................................... 10.50 02/15/04 5,150,000
5,000 Packaging Resources, Inc......................... 11.625 05/01/03 5,318,750
---------------
10,468,750
---------------
ELECTRICAL & ALARM SYSTEMS (2.2%)
11,000 Mosler, Inc...................................... 11.00 04/15/03 10,505,000
---------------
ENTERTAINMENT/GAMING & LODGING (9.3%)
4,000 AMF Group Inc. (Series B)........................ 10.875 03/15/06 4,365,000
9,750 Fitzgeralds Gaming Corp. (Units)++............... 13.00 12/31/02 8,531,250
8,000 Lady Luck Gaming Finance Corp.................... 11.875 03/01/01 7,870,000
8,000 Motels of America, Inc. (Series B)............... 12.00 04/15/04 6,960,000
4,000 Players International, Inc....................... 10.875 04/15/05 4,200,000
4,000 Plitt Theaters, Inc. (Canada).................... 10.875 06/15/04 4,100,000
4,000 Station Casinos, Inc............................. 9.625 06/01/03 4,060,000
4,000 Stuart Entertainment, Inc. - 144A*............... 12.50 11/15/04 4,070,000
---------------
44,156,250
---------------
FINANCIAL (4.4%)
9,500 General Electric Capital Corp.................... 13.50 01/20/98 10,113,795
10,000 Household Finance Corp........................... 15.00 09/25/97 10,505,400
---------------
20,619,195
---------------
FOODS & BEVERAGES (7.4%)
9,621 Envirodyne Industries, Inc....................... 10.25 12/01/01 9,621,000
4,000 Fleming Companies Inc............................ 10.625 12/15/01 4,225,000
4,000 General Mills, Inc............................... 13.50 01/21/98 4,253,680
42,650 Specialty Foods Acquisition Corp. (Series B)..... 13.00++ 08/15/05 17,060,000
---------------
35,159,680
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTHCARE (2.9%)
$ 11,750 Unilab Corp...................................... 11.00 % 04/01/06 $ 8,401,250
5,000 Unison Healthcare Corp. - 144A*.................. 12.25 11/01/06 5,362,500
---------------
13,763,750
---------------
MANUFACTURING (4.3%)
5,000 Berry Plastics Corp.............................. 12.25 04/15/04 5,556,250
4,000 Exide Electronics Group, Inc. (Series B)......... 11.50 03/15/06 4,345,000
5,000 International Wire Group, Inc.................... 11.75 06/01/05 5,425,000
5,000 Uniroyal Technology Corp......................... 11.75 06/01/03 5,037,500
---------------
20,363,750
---------------
MANUFACTURING - DIVERSIFIED (6.5%)
4,000 Foamex L.P....................................... 11.875 10/01/04 4,320,000
5,000 Interlake Corp................................... 12.125 03/01/02 5,250,000
5,000 J.B. Poindexter & Co., Inc....................... 12.50 05/15/04 5,100,000
6,030 Jordan Industries, Inc........................... 10.375 08/01/03 6,060,150
11,420 Jordan Industries, Inc........................... 11.75++ 08/01/05 9,906,900
5,000 Starcraft Industrial Corp. (a)................... 16.50 01/15/98 --
---------------
30,637,050
---------------
OIL & GAS (2.1%)
4,000 Petro Stopping Centers L.P. - 144A*.............. 10.50 02/01/07 4,220,000
5,000 TransTexas Gas Corp.............................. 11.50 06/15/02 5,562,500
---------------
9,782,500
---------------
PUBLISHING (4.2%)
5,000 Affiliated Newspapers Investments, Inc........... 13.25++ 07/01/06 4,250,000
4,000 American Media Operations, Inc................... 11.625 11/15/04 4,350,000
3,000 MDC Communications Corp.......................... 10.50 12/01/06 3,172,500
3,000 Petersen Publishing, Inc. - 144A*................ 11.125 11/15/06 3,262,500
5,000 United States Banknote Corp...................... 10.375 06/01/02 5,018,750
---------------
20,053,750
---------------
RESTAURANTS (4.9%)
25,072 American Restaurant Group Holdings, Inc.......... 14.00++ 12/15/05 11,470,440
3,000 Ameriking, Inc................................... 10.75 12/01/06 3,127,500
4,000 Carrols Corp..................................... 11.50 08/15/03 4,280,000
4,000 FRD Acquisition Corp. (Series B)................. 12.50 07/15/04 4,185,000
---------------
23,062,940
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RETAIL (0.9%)
$ 10,450 County Seat Stores Co. (b)....................... 12.00 % 10/01/02 $ 4,180,000
---------------
RETAIL - FOOD CHAINS (2.1%)
4,000 Jitney-Jungle Stores............................. 12.00 03/01/06 4,480,000
5,500 Pathmark Stores, Inc............................. 9.625 05/01/03 5,376,250
---------------
9,856,250
---------------
TEXTILES (2.4%)
4,000 Reeves Industries, Inc........................... 11.00 07/15/02 3,800,000
8,117 U.S. Leather, Inc................................ 10.25 07/31/03 7,386,470
---------------
11,186,470
---------------
TRANSPORTATION (0.9%)
4,000 Atlantic Express - 144A*......................... 10.75 02/01/04 4,120,000
---------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $454,451,511)............................................ 437,227,348
---------------
NUMBER OF
SHARES
- -----------
COMMON STOCKS (c)(3.7%)
AUTOMOTIVE (0.0%)
709 Northern Holdings Industrial Corp. (d).................................... --
---------------
ENTERTAINMENT/GAMING & LODGING (0.1%)
7,500 Motels of America, Inc. - 144A*........................................... 262,500
781,421 Vagabond Inns, Inc. (Class D)(a).......................................... 781
---------------
263,281
---------------
FOODS & BEVERAGES (1.0%)
408,055 Seven-Up/RC Bottling Co. Southern California, Inc. (d).................... 4,539,612
273,750 Specialty Foods Acquisition Corp. - 144A*................................. 273,750
---------------
4,813,362
---------------
MANUFACTURING - DIVERSIFIED (2.6%)
451,613 Thermadyne Holdings Corp. (d)............................................. 12,419,359
---------------
RESTAURANTS (0.0%)
26,057 American Restaurant Group Holdings, Inc. - 144A*.......................... 26,057
---------------
TEXTILES (0.0%)
12,000 JPS Textile Group, Inc. (Class A)......................................... 120
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $69,873,804)............................................. 17,522,179
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C>
PREFERRED STOCKS (0.4%)
ENTERTAINMENT/GAMING & LODGING (0.4%)
80,000 Fitzgeralds Gaming Corp. (Units)++...................................... $ 1,830,000
---------------
OIL & GAS PRODUCTS (0.0%)
113,955 TGX Corp. (Series A) (c) (d)............................................ 1,140
---------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $2,830,000)............................................ 1,831,140
---------------
NUMBER OF EXPIRATION
WARRANTS DATE
- ----------- -----------
WARRANTS (c) (0.1%)
AEROSPACE (0.0%)
9,000 Sabreliner Corp. - 144A*................................. 04/15/03 90,000
---------------
CABLE & TELECOMMUNICATIONS (0.0%)
8,000 Hyperion Telecommunication, Inc. (Series B) - 144A*...... 04/01/01 240,000
---------------
CONTAINERS (0.0%)
10,000 Crown Packaging Holdings, Ltd. - 144A*................... 11/01/03 100
---------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
5,000 Boomtown, Inc. - 144A*................................... 11/01/98 --
8,312 Fitzgeralds Gaming Corp.................................. 12/19/98 8,397
3,500 Fitzgeralds South Inc. - 144A*........................... 03/15/99 --
---------------
8,397
---------------
MANUFACTURING (0.1%)
4,000 Exide Electronics Group, Inc. - 144A*.................... 03/15/06 191,000
70,000 Uniroyal Technology Corp................................. 06/01/03 70,000
---------------
261,000
---------------
RETAIL (0.0%)
10,000 County Seat Holdings Co.................................. 10/15/98 100
---------------
TOTAL WARRANTS
(IDENTIFIED COST $1,383,529).......................................... 599,597
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (2.9%)
U.S. GOVERNMENT AGENCY (e) (2.4%)
$ 11,000 Federal Home Loan Banks (Amortized Cost
$10,996,761).............................. 5.30 % 03/03/97 $ 10,996,761
---------------
REPURCHASE AGREEMENT (0.5%)
2,474 The Bank of New York (dated 02/28/97;
proceeds $2,475,352; collateralized by
$461,122 Federal National Mortgage Assoc.
7.36% due 02/07/07 valued at $464,063 and
$1,646,467 U.S. Treasury Bond 9.25% due
02/15/16 valued at $2,059,693) (Identified
Cost $2,474,270).......................... 5.25 03/03/97 2,474,270bs
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $13,471,031)........................................ 13,471,031
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST $542,009,875) (f)........... 99.6 470,651,295
OTHER ASSETS IN EXCESS OF LIABILITIES........ 0.4 1,916,313
----- ------------
NET ASSETS................................... 100.0% $472,567,608
----- ------------
----- ------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
++ Consists of one or more classes of securities traded together as a unit;
bonds or preferred stocks with attached warrants.
+ Payment-in-kind securities.
++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified date.
(a) Non-income producing security; issuer in bankruptcy.
(b) Non-income producing security; bond in default.
(c) Non-income producing securities.
(d) Acquired through exchange offer.
(e) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(f) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $28,233,135 and the
aggregate gross unrealized depreciation is $99,591,715, resulting in net
unrealized depreciation of $71,358,580.
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997 (UNAUDITED)
ASSETS:
Investments in securities, at value
(identified cost $542,009,875)............................ $ 470,651,295
Receivable for:
Interest................................................ 10,960,585
Investments sold........................................ 3,176,250
Capital stock sold...................................... 514,802
Prepaid expenses and other assets........................... 66,220
---------------
TOTAL ASSETS........................................... 485,369,152
---------------
LIABILITIES:
Payable for:
Investments purchased................................... 11,341,083
Dividends to shareholders............................... 908,454
Capital stock repurchased............................... 220,229
Investment management fee............................... 180,368
Accrued expenses and other payables......................... 151,410
---------------
TOTAL LIABILITIES...................................... 12,801,544
---------------
NET ASSETS:
Paid-in-capital............................................. 1,543,860,051
Net unrealized depreciation................................. (71,358,580)
Accumulated undistributed net investment income............. 1,931,583
Accumulated net realized loss............................... (1,001,865,446)
---------------
NET ASSETS............................................. $ 472,567,608
---------------
---------------
NET ASSET VALUE PER SHARE,
70,909,927 shares outstanding (400,000,000 shares
authorized of $.01 par value).............................
$6.66
---------------
---------------
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.82% of net asset value)*..........
$7.05
---------------
---------------
- ---------------------
* On sales of $25,000 or more, the offering price is reduced.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
(UNAUDITED)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 27,883,411
------------
EXPENSES
Investment management fee................................... 1,160,316
Transfer agent fees and expenses............................ 266,965
Professional fees........................................... 47,250
Shareholder reports and notices............................. 32,044
Custodian fees.............................................. 23,006
Registration fees........................................... 18,338
Directors' fees and expenses................................ 6,202
Other....................................................... 4,590
------------
TOTAL EXPENSES......................................... 1,558,711
------------
NET INVESTMENT INCOME.................................. 26,324,700
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (48,247,775)
Net change in unrealized depreciation....................... 53,247,857
------------
NET GAIN............................................... 5,000,082
------------
NET INCREASE................................................ $ 31,324,782
------------
------------
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
YEAR
FOR THE SIX ENDED
MONTHS ENDED AUGUST 31,
FEBRUARY 28, 1997 1996
- ---------------------------------------------------------------------------------------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C>
Net investment income....................................... $ 26,324,700 $55,722,131
Net realized loss........................................... (48,247,775) (17,329,860)
Net change in unrealized depreciation....................... 53,247,857 9,730,771
----------------- -----------
NET INCREASE........................................... 31,324,782 48,123,042
Dividends from net investment income........................ (34,730,405) (51,517,938)
Net increase from capital stock transactions................ 15,770,392 8,152,392
----------------- -----------
NET INCREASE........................................... 12,364,769 4,757,496
NET ASSETS:
Beginning of period......................................... 460,202,839 455,445,343
----------------- -----------
END OF PERIOD
(Including undistributed net investment income of
$1,931,583 and $10,337,288, respectively)............... $472,567,608 $460,202,839
----------------- -----------
----------------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter High Yield Securities Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's primary investment objective is to
earn a high level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective. The Fund was
incorporated in Maryland on June 14, 1979 and commenced operations on September
26, 1979.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -(1) an equity security listed or traded on the New
York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Directors); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Dean Witter InterCapital Inc. (the "Investment Manager") that sale
or bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Directors
(valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Directors. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the portfolio securities
valued by such pricing service; and (5) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
59
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997 (UNAUDITED) CONTINUED
B. ACCOUNTING FOR INVESTMENTS - Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily except where collection is not expected.
C. FEDERAL INCOME TAX STATUS - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.50% to the portion of daily net assets not exceeding
$500 million; 0.425% to the portion of daily net assets exceeding $500 million
but not exceeding $750 million; 0.375% to the portion of daily net assets
exceeding $750 million but not exceeding $1 billion; 0.35% to the portion of
daily net assets exceeding $1 billion but not exceeding $2 billion; 0.325% to
the portion of daily net assets exceeding $2 billion but not exceeding $3
billion; and 0.30% to the portion of daily net assets exceeding $3 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of
60
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997 (UNAUDITED) CONTINUED
all personnel, including officers of the Fund who are employees of the
Investment Manager. The Investment Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended February 28, 1997, aggregated
$237,747,854 and $220,427,940, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the Fund's
transfer agent. At February 28, 1997, the Fund had transfer agent fees and
expenses payable of approximately $56,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended February 28, 1997
included in Directors' fees and expenses in the Statement of Operations amounted
to $635. At February 28, 1997, the Fund had an accrued pension liability of
$48,911 which is included in accrued expenses in the Statement of Assets and
Liabilities.
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Distributor has
informed the Fund that for the six months ended February 28, 1997, it received
approximately $963,000 in commissions from the sale of shares of the Fund's
capital stock. Such commissions are deducted from the proceeds of the capital
stock shares and are not an expense of the Fund.
4. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 1997 AUGUST 31, 1996
--------------------------- ------------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sold........................... 4,443,983 $29,891,249 7,479,221 $50,396,628
Reinvestment of dividends...... 2,738,144 18,229,841 3,993,442 26,742,126
---------- ----------- ----------- -----------
7,182,127 48,121,090 11,472,663 77,138,754
Repurchased.................... (4,814,204) (32,350,698) (10,236,571) (68,986,362)
---------- ----------- ----------- -----------
Net increase................... 2,367,923 $15,770,392 1,236,092 $8,152,392
========== =========== =========== ===========
</TABLE>
61
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997 (UNAUDITED) CONTINUED
5. FEDERAL INCOME TAX STATUS
At August 31, 1996, the Fund had an approximate net capital loss carryover,
which may be used to offset future capital gains to the extent provided by
regulations, which is available through August 31 in the following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1998 1999 2000 2001 2002 2003 2004 TOTAL
- -------- -------- -------- -------- -------- -------- -------- -------- ---------
$94,246 $82,210 $292,752 $182,732 $45,208 $166,406 $50,598 $23,294 $937,446
======== ======== ======== ======== ======== ======== ======== ======== =========
</TABLE>
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $13,146,000 during fiscal 1996.
At August 31, 1996, the Fund had temporary book/tax differences primarily
attributable to post-October losses, capital loss deferrals on wash sales and
dividends payable.
62
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED AUGUST 31
FEBRUARY 28, 1997 -------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....... $6.71 $6.77 $6.83 $7.58 $7.23 $5.92
----- ----- ----- ----- ----- -----
Net investment income ...................... 0.38 0.83 0.80 0.79 0.89 0.95
Net realized and unrealized gain (loss) .... 0.07 (0.12) (0.06) (0.68) (0.54) 1.04
----- ----- ----- ----- ----- -----
Total from investment operations ........... 0.45 0.71 0.74 0.11 1.43 1.99
----- ----- ----- ----- ----- -----
Less dividends from net investment income .. (0.50) (0.77) (0.80) (0.86) (1.08) (0.68)
----- ----- ----- ----- ----- -----
Net asset value, end of period ............. $6.66 $6.71 $6.77 $6.83 $7.58 $7.23
===== ===== ===== ===== ===== =====
TOTAL INVESTMENT RETURN+ ................... 6.92%(1) 11.07% 11.98% 0.93% 22.29% 35.46%
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................... 0.67%(2) 0.66% 0.79% 0.69% 0.67% 0.77%
Net investment income ...................... 11.34%(2) 12.27% 12.06% 10.40% 12.14% 13.96%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions ..... $473 $460 $455 $478 $540 $512
Portfolio turnover rate .................... 50%(1) 49% 74% 127% 173% 113%
</TABLE>
- ----------------------
+ Does not reflect the deduction of sales load. Calculated based on the net
asset value as of the last business day of the period
(1) Not annualized
(2) Annualized
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DEAN WITTER
JUNE 16, 1997 HIGH INCOME
SECURITIES
- --------------------------------------------------------------------------------
Dean Witter High Income Securities (the "Fund") is an open-end diversified
management investment company whose investment objective 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. The Fund
seeks high current income by investing principally in fixed-income securities
which are rated in the lower categories by established rating services (Baa or
lower by Moody's Investors Service, Inc. or BBB or lower by Standard & Poor's
Corporation) or are non-rated securities of comparable quality. Such securities
are commonly known as junk bonds.
A Prospectus for the Fund, dated June 16, 1997, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge by request of the Fund at its address or telephone number listed
below or from the Fund's Distributor, Dean Witter Distributors Inc., or from
Dean Witter Reynolds Inc. at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in addition
to and more detailed than that set forth in the Prospectus. It is intended to
provide additional information regarding the activities and operations of the
Fund, and should be read in conjunction with the Prospectus.
Dean Witter High Income Securities
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management....................... 3
Trustees and Officers............................. 5
Investment Practices and Policies................. 11
Investment Restrictions........................... 29
Portfolio Transactions and Brokerage.............. 30
Purchase of Fund Shares........................... 32
Shareholder Services.............................. 35
Redemptions and Repurchases....................... 40
Dividends, Distributions and Taxes................ 42
Performance Information........................... 44
Description of Shares............................. 45
Custodian and Transfer Agent...................... 45
Independent Accountants........................... 46
Reports to Shareholders........................... 46
Legal Counsel..................................... 46
Experts........................................... 46
Registration Statement............................ 46
Report of Independent Accountants................. 47
Financial Statements -- March 31, 1997............ 48
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts business
trust" and was organized under the laws of the Commonwealth of Massachusetts on
March 23, 1994.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
a Delaware corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. InterCapital is a wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"), a Delaware
corporation. In an internal reorganization which took place in January, 1993,
InterCapital assumed the advisory, administrative and management activities
previously performed by the InterCapital Division of Dean Witter Reynolds Inc.
("DWR"), a broker-dealer affiliate of InterCapital. (As hereinafter used in this
Statement of Additional Information, the terms "InterCapital" and "Investment
Manager" refer to DWR's InterCapital Division prior to the internal
reorganization and to Dean Witter InterCapital Inc. thereafter.) The daily
management of the Fund and research relating to the Fund's portfolio are
conducted by or under the direction of officers of the Fund and of the
Investment Manager, subject to review by the Fund's Trustees. Information as to
these Trustees and officers is contained under the caption "Trustees and
Officers".
InterCapital is also the investment manager or investment adviser of the
following management investment companies: Active Assets Money Trust, Active
Assets Tax-Free Trust, Active Assets California Tax-Free Trust, Active Assets
Government Securities Trust, Dean Witter Liquid Asset Fund Inc., InterCapital
Income Securities Inc., InterCapital California Insured Municipal Income Trust,
InterCapital Insured Municipal Income Trust, Dean Witter High Yield Securities
Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter Developing Growth
Securities Trust, Dean Witter Tax-Exempt Securities Trust, Dean Witter Natural
Resource Development Securities Inc., Dean Witter Dividend Growth Securities
Inc., Dean Witter American Value Fund, Dean Witter U.S. Government Money Market
Trust, Dean Witter Variable Investment Series, Dean Witter World Wide Investment
Trust, Dean Witter Select Municipal Reinvestment Fund, Dean Witter U.S.
Government Securities Trust, Dean Witter California Tax-Free Income Fund, Dean
Witter New York Tax-Free Income Fund, Dean Witter Convertible Securities Trust,
Dean Witter Federal Securities Trust, Dean Witter Value-Added Market Series,
High Income Advantage Trust, High Income Advantage Trust II, High Income
Advantage Trust III, Dean Witter Government Income Trust, InterCapital Insured
Municipal Bond Trust, InterCapital Quality Municipal Investment Trust, Dean
Witter Utilities Fund, Dean Witter Strategist Fund, Dean Witter California
Tax-Free Daily Income Trust, Dean Witter World Wide Income Trust, Dean Witter
Intermediate Income Securities, Dean Witter Capital Growth Securities, Dean
Witter European Growth Fund Inc., Dean Witter Precious Metals and Minerals
Trust, Dean Witter New York Municipal Money Market Trust, Dean Witter Global
Short-Term Income Fund Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter
Short-Term U.S. Treasury Trust, InterCapital Insured Municipal Trust,
InterCapital Quality Municipal Income Trust, Dean Witter Diversified Income
Trust, Dean Witter Health Sciences Trust, Dean Witter Global Dividend Growth
Securities, InterCapital California Quality Municipal Securities, InterCapital
Quality Municipal Securities, InterCapital New York Quality Municipal
Securities, InterCapital Insured Municipal Securities, InterCapital Insured
California Municipal Securities, Dean Witter Limited Term Municipal Trust, Dean
Witter Global Utilities Fund, Dean Witter National Municipal Trust, Dean Witter
Short-Term Bond Fund, Dean Witter Retirement Series, Dean Witter International
SmallCap Fund, Dean Witter Mid-Cap Growth Fund, Dean Witter Select Dimensions
Investment Series, Dean Witter Global Asset Allocation Fund, Dean Witter
Balanced Growth Fund, Dean Witter Balanced Income Fund, Dean Witter Hawaii
Municipal Trust, Dean Witter Capital Appreciation Fund, Dean Witter Information
Fund, Dean Witter Intermediate Term U.S. Treasury Trust, Dean Witter Japan Fund,
Dean Witter Income Builder Fund, Dean Witter Special Value Fund, Dean Witter
Financial Services Trust, Dean Witter Market Leader Trust, Municipal Income
Trust, Municipal Income Trust II, Municipal Income Trust III, Municipal Income
Opportunities Trust, Municipal Income Opportunities Trust II, Municipal Income
Opportunities Trust III, Prime Income Trust and Municipal Premium Income Trust.
The foregoing investment companies, together with the Fund, are collectively
referred to as the Dean Witter Funds.
3
<PAGE>
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies, for which TCW Funds Management, Inc. is the investment adviser:
TCW/DW Core Equity Trust, TCW/DW North American Government Income Trust, TCW/ DW
Latin American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap
Growth Fund, TCW/DW Balanced Fund, TCW/DW Emerging Markets Opportunities Trust,
TCW/DW Total Return Trust, TCW/DW Mid-Cap Equity Trust, TCW/DW Global Telecom
Trust, TCW/DW Strategic Income Fund, TCW/DW Term Trust 2000, TCW/DW Term Trust
2002 and TCW/DW Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves
as: (1) (i) administrator of the BlackRock Strategic Term Trust Inc., a
closed-end investment company; and (ii) sub-administrator of Mass Mutual
Participation Investors and Templeton Global Governments Income Trust,
closed-end investment companies.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and certain legal services as the Fund
may reasonably require in the conduct of its business, including the preparation
of prospectuses, statements of additional information, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone service, heat,
light, power and other utilities provided to the Fund. The Investment Manager
has retained DWSC to perform its administrative services under the Agreement.
The Fund pays all expenses incurred in its operation. Expenses not expressly
assumed by the Investment Manager under the Agreement or by the Distributor of
the Fund's shares, Dean Witter Distributors Inc. ("Distributors" or the
"Distributor") (see "Purchase of Fund Shares"), will be paid by the Fund. The
expenses borne by the Fund include, but are not limited to: charges and expenses
of any registrar; custodian, stock transfer and dividend disbursing agent;
brokerage commissions; taxes; engraving and printing of share certificates;
registration costs of the Fund and its shares under federal and state securities
laws; the cost and expense of printing, including typesetting, and distributing
Prospectuses and Statements of Additional Information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and trustees' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of trustees or
members of any advisory board or committee who are not employees of the
Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to any dividend, withdrawal or redemption options; charges and
expenses of any outside service used for pricing of the Fund's shares; fees and
expenses of legal counsel, including counsel to the trustees who are not
interested persons of the Fund or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager) and independent accountants; membership dues of industry associations;
interest on the Fund's borrowings; postage; insurance premiums on property or
personnel (including officers and trustees) of the Fund which inure to its
benefit; extraordinary expenses including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto
(depending upon the nature of the legal claim, liability or lawsuit) and all
other costs of the Fund's operations properly payable by the Fund.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the annual
rate of 0.50% to the daily net assets of the Fund up to $500 million and 0.425%
to the Fund's daily net assets over $500 million. Total compensation accrued to
the Investment Manager for the period June 2, 1994 (commencement of the Fund's
operations) through March 31, 1995
4
<PAGE>
pursuant to the Agreement amounted to $350,117. This compensation reflects the
waiver of the investment management fee during a portion of the period. Had the
fee not been waived, compensation payable to the Investment Manager for the
period pursuant to the Agreement would have amounted to $374,452. For the fiscal
years ended March 31, 1996 and March 31, 1997, the Fund accrued total
compensation to the Investment Manager in the amounts of $1,650,429 and
$3,685,133, respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or adviser to others.
The Investment Manager paid the organizational expenses of the Fund incurred
prior to the offering of the Fund's shares. The Fund reimbursed the Investment
Manager for such expenses. The Fund will defer and will amortize the reimbursed
expenses on the straight line method over a period not to exceed five years from
the date of commencement of the Fund's operations.
The Agreement was initially approved by the Trustees on February 21, 1997
and by the shareholders of the Fund at a Special Meeting of Shareholders held on
May 21, 1997. The Agreement is substantially identical to a prior investment
management agreement which was initially approved by the Trustees on May 10,
1994 and by InterCapital as the then sole shareholder on May 10, 1994. The
Agreement may be terminated at any time, without penalty, on thirty days' notice
by the Trustees of the Fund, by the holders of a majority of the outstanding
shares of the Fund, as defined in the Investment Company Act of 1940, as amended
(the "Act"), or by the Investment Manager. The Agreement will automatically
terminate in the event of its assignment (as defined in the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999,
and will continue in effect from year to year thereafter, provided continuance
of the Agreement is approved at least annually by the vote of the holders of a
majority of the outstanding shares of the Fund, as defined in the Act, or by the
Trustees of the Fund; provided that in either event such continuance is approved
annually by the vote of a majority of the Trustees of the Fund who are not
parties to the Agreement or "interested persons" (as defined in the Act) of any
such party (the "Independent Trustees"), which vote must be cast in person at a
meeting called for the purpose of voting on such approval.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use, or at any time
permit others to use, the name "Dean Witter". The Fund has also agreed that in
the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate the
name "Dean Witter" from its name if DWR or its parent company shall so request.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital, and with the 83 Dean Witter Funds and the 14 TCW/DW Funds are
shown below:
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael Bozic (56) ................................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee
Levitz Furniture Corporation of the Dean Witter Funds; formerly President and Chief
6111 Broken Sound Parkway, N.W. Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial Services,
Inc., the United Negro College Fund, and Weirton Steel
Corporation.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Charles A. Fiumefreddo* (64) ......................... Chairman, Chief Executive Officer and Director of
Chairman, President, InterCapital, DWSC and Distributors; Executive Vice
Chief Executive Officer and Trustee President and Director of DWR; Chairman, Director or
Two World Trade Center Trustee, President and Chief Executive Officer of the Dean
New York, New York Witter Funds; Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Chairman and Director of Dean
Witter Trust Company ("DWTC"); Director and/or officer of
various MSDWD subsidiaries; formerly Executive Vice
President and Director of Dean Witter, Discover & Co.
(until February, 1993).
Edwin J. Garn (64) ................................... Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah) (1974-1992) and Chairman,
c/o Huntsman Chemical Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way Salt Lake City, Utah (1971-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Chemical Corporation (since January,
1993); Director of Franklin Quest (time management
systems) and John Alden Financial Corp. (health
insurance); member of the board of various civic and
charitable organizations.
John R. Haire (72) ................................... Chairman of the Audit Committee and Chairman of the
Trustee Committee of Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Chairman of
New York, New York the Audit Committee and Chairman of the Committee of the
Independent Trustees and Trustee of the TCW/DW Funds;
formerly President, Council for Aid to Education
(1978-1989) and formerly Chairman and Chief Executive
Officer of Anchor Corporation, an Investment Adviser
(1964-1978); Director of Washington National Corporation
(insurance).
Wayne E. Hedien** (63) ............................... Retired; Director or Trustee of the Dean Witter Funds
Trustee (commencing on September 1, 1997); Director of The PMI
c/o Gordon Altman Butowsky Group, Inc. (private mortgage insurance); Trustee and Vice
Weitzen Shalov & Wein Chairman of The Field Museum of Natural History; formerly
Counsel to the Independent Trustees associated with the Allstate Companies (1966-1994), most
114 West 47th Street recently as Chairman of The Allstate Corporation (March,
New York, New York 1993-December, 1994) and Chairman and Chief Executive
Officer of its wholly-owned subsidiary, Allstate Insurance
Company (July, 1989-December, 1994); director of various
other business and charitable organizations.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (48) ........................... Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group of
c/o Johnson Smick International, Inc. Seven Counsel (G7C), an international economic commission
1133 Connecticut Avenue, N.W. (since September, 1990); Director or Trustee of the Dean
Washington, DC Witter Funds; Trustee of the TCW/DW Funds; Director of
NASDAQ (since June, 1995); Director of Greenwich Capital
Markets Inc. (broker-dealer); Trustee of the Financial
Accounting Foundation (oversight organization for the
FASB) formerly Vice Chairman of the Board of Governors of
the Federal Reserve System (February, 1986-August, 1990)
and Assistant Secretary of the U.S. Treasury (1982-1986).
Michael E. Nugent (61) ............................... General Partner, Triumph Capital, LP., a private
Trustee investment partnership (since April, 1988); Director or
c/o Triumph Capital, L.P. Trustee of the Dean Witter Funds; Trustee of the TCW/ DW
237 Park Avenue Funds; formerly Vice President, Bankers Trust Company and
New York, New York BT Capital Corporation (1984-1988); Director of various
business organizations.
Philip J. Purcell* (53) .............................. Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDWD, DWR and Novus Credit Services Inc.;
Two World Trade Center Director of InterCapital, DWSC and Distributors; Director
New York, New York or Trustee of the Dean Witter Funds; Director and/or
officer of various MSDWD subsidiaries.
John L. Schroeder (66) ............................... Retired; Director or Trustee of the Dean Witter Funds;
Trustee Director of Citizens Utilities Company; formerly Executive
c/o Gordon Altman Butowsky Vice President and Chief Investment Officer of the Home
Weitzen Shalov & Wein Insurance Company (August, 1991- September, 1995) and
Counsel to the Independent Trustees formerly Chairman and Chief Investment Officer of
114 West 47th Street Axe-Houghton Management and the Axe-Houghton Funds
New York, New York (1983-1991).
Barry Fink (42) Senior Vice President (since March, 1997) and Secretary
Vice President, Secretary and General Counsel (since February, 1997) of InterCapital
and General Counsel and DWSC; Senior Vice President (since March, 1997) and
Two World Trade Center Assistant Secretary and Assistant General Counsel (since
New York, New York February, 1997) of Distributors; Assistant Secretary of
DWR (since August, 1996); Vice President, Secretary and
General Counsel of the Dean Witter Funds and the TCW/DW
Funds (since February, 1997); previously First Vice
President (June, 1993-February, 1997), Vice President
(until June, 1993) and Assistant Secretary and Assistant
General Counsel of InterCapital and DWSC and Assistant
Secretary of the Dean Witter Funds and the TCW/DW Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Peter M. Avelar (38) ................................. Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (51) ................................ First Vice President and Assistant Treasurer (since
Treasurer January, 1993) of InterCapital and DWSC; Treasurer of the
Two World Trade Center Dean Witter Funds and the TCW/DW Funds.
New York, New York
<FN>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
** Mr. Hedien's term as Trustee will commence on September 1, 1997.
</TABLE>
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Executive Vice President and Director of DWR, Director of SPS
Transaction Services, Inc. and various other MSDWD subsidiaries, Joseph J.
McAlinden, Executive Vice President and Chief Investment Officer of
InterCapital, and Director of DWTC, Robert S. Giambrone, Senior Vice President
of InterCapital, DWSC, Distributors and DWTC and a Director of DWTC, and
Jonathan R. Page and James F. Willison, Senior Vice Presidents of InterCapital,
are Vice Presidents of the Fund, and Marilyn K. Cranney, First Vice President
and Assistant General Counsel of InterCapital and DWSC, and Lou Anne D. McInnis
and Ruth Rossi, Vice Presidents and Assistant General Counsels of InterCapital
and DWSC, and Frank Bruttomesso and Carsten Otto, Staff Attorneys with
InterCapital, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of eight (8) trustees; as noted above, Mr.
Hedien's term will commence on September 1, 1997. These same individuals also
serve as directors or trustees for all of the Dean Witter Funds, and are
referred to in this section as Trustees. As of the date of this Statement of
Additional Information, there are a total of 83 Dean Witter Funds, comprised of
126 portfolios. As of May 31, 1997, the Dean Witter Funds had total net assets
of approximately $86.4 billion and more than five million shareholders.
Six Trustees and Mr. Hedlien (77% of the total number) have no affiliation
or business connection with InterCapital or any of its affiliated persons and do
not own any stock or other securities issued by InterCapital's parent company,
MSDWD. These are the "disinterested" or "independent" Trustees. The other two
Trustees (the "management Trustees") are affiliated with InterCapital. Four of
the six independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Dean Witter Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the current Independent Trustees serve as members of the Audit
Committee and the Committee of the Independent Trustees. Three of them also
serve as members of the Derivatives Committee. During the calendar year ended
December 31, 1996, the three Committees held a combined total of sixteen
meetings. The Committees hold some meetings at InterCapital's offices and some
outside InterCapital. Management Trustees or officers do not attend these
meetings unless they are invited for purposes of furnishing information or
making a report.
8
<PAGE>
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Dean Witter Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Trustees to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees will need to form a judgment on various issues,
and arranges to have that information furnished to Committee members. He also
arranges for the services of independent experts and consults with them in
advance of meetings to help refine reports and to focus on critical issues.
Members of the Committees believe that the person who serves as Chairman of both
Committees and guides their efforts is pivotal to the effective functioning of
the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment advisory, management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Manager and other service providers. In effect,
the Chairman of the Committees serves as a combination of chief executive and
support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and, since July
1, 1996, as Chairman of the Committee of the Independent Trustees and the Audit
Committee of the TCW/DW Funds. The current Committee Chairman has had more than
35 years experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees
9
<PAGE>
arriving at conflicting decisions regarding operations and management of the
Funds and avoids the cost and confusion that would likely ensue. Finally, having
the same Independent Trustees serve on all Fund Boards enhances the ability of
each Fund to obtain, at modest cost to each separate Fund, the services of
Independent Trustees, and a Chairman of their Committees, of the caliber,
experience and business acumen of the individuals who serve as Independent
Trustees of the Dean Witter Funds.
CASH COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee of
the Independent Trustees an additional annual fee of $1,200). The Fund also
reimburses such Trustees for travel and other out-of-pocket expenses incurred by
them in connection with attending such meetings. Trustees and officers of the
Fund who are or have been employed by the Investment Manager or an affiliated
company receive no compensation or expense reimbursement from the Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended March 31, 1997.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,800
Edwin J. Garn................................................. 1,900
John R. Haire................................................. 3,550
Dr. Manuel H. Johnson......................................... 1,850
Michael E. Nugent............................................. 1,900
John L. Schroeder............................................. 1,900
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1996 for services
to the 82 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 14 TCW/DW Funds that were in operation at December 31, 1996.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Dean Witter Money Market Funds.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS FOR SERVICE
CHAIRMAN OF AS TOTAL CASH
COMMITTEES OF CHAIRMAN OF COMPENSATION
FOR SERVICE INDEPENDENT COMMITTEES OF FOR SERVICES
AS DIRECTOR OR DIRECTORS/ INDEPENDENT TO
TRUSTEE AND FOR SERVICE AS TRUSTEES AND TRUSTEES AND 82 DEAN
COMMITTEE MEMBER TRUSTEE AND AUDIT AUDIT WITTER
OF 82 DEAN COMMITTEE MEMBER COMMITTEES OF COMMITTEES OF FUNDS AND
NAME OF WITTER OF 14 TCW/DW 82 DEAN WITTER 14 TCW/DW 14 TCW/DW
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS FUNDS FUNDS
- --------------------------- ---------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $138,850 -- -- -- $138,850
Edwin J. Garn.............. 140,900 -- -- -- 140,900
John R. Haire.............. 106,400 $64,283 $195,450 $ 12,187 378,320
Dr. Manuel H. Johnson...... 137,100 66,483 -- -- 203,583
Michael E. Nugent.......... 138,850 64,283 -- -- 203,133
John L. Schroeder.......... 137,150 69,083 -- -- 206,233
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, not including the Fund, have adopted a retirement program under
which an Independent Trustee who retires after serving for at least five years
(or such lesser period as may be determined by the Board) as an Independent
Director or Trustee of any Dean Witter Fund that has adopted the retirement
program (each
10
<PAGE>
such Fund referred to as an "Adopting Fund" and each such Trustee referred to as
an "Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Trustee
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing for the remainder of his or her life, an annual
retirement benefit (the "Regular Benefit") equal to 25.0% of his or her Eligible
Compensation plus 0.4166666% of such Eligible Compensation for each full month
of service as an Independent Director or Trustee of any Adopting Fund in excess
of five years up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the Board.(1) "Eligible Compensation" is one-fifth
of the total compensation earned by such Eligible Trustee for service to the
Adopting Fund in the five year period prior to the date of the Eligible
Trustee's retirement. Benefits under the retirement program are not secured or
funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Dean Witter Funds (not including the Fund)
for the year ended December 31, 1996, and the estimated retirement benefits for
the Fund's Independent Trustees, to commence upon their retirement, from the 57
Dean Witter Funds as of December 31, 1996.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
BENEFITS BENEFITS
ESTIMATED ACCRUED AS UPON
CREDITED YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- ----------------------------------------------------- ------------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Michael Bozic........................................ 10 50.0% $ 20,147 $ 51,325
Edwin J. Garn........................................ 10 50.0 27,772 51,325
John R. Haire........................................ 10 50.0 46,952 129,550
Dr. Manuel H. Johnson................................ 10 50.0 10,926 51,325
Michael E. Nugent.................................... 10 50.0 19,217 51,325
John L. Schroeder.................................... 8 41.7 38,700 42,771
</TABLE>
- ------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) above.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. As discussed in the Prospectus, when cash may be
available for only a few days, it may be invested by the Fund in repurchase
agreements until such time as it may otherwise be invested or used for payments
of obligations of the Fund. These agreements, which may be viewed as a type of
secured lending by the Fund, typically involve the acquisition by the Fund of
debt securities from a selling financial institution such as a bank, savings and
loan association or broker-dealer. The agreement provides that the Fund will
sell back to the institution, and that the institution will repurchase, the
underlying security ("collateral") at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The
collateral will be maintained in a segregated account and will be marked to
market daily to determine that the value of the collateral, as specified in the
11
<PAGE>
agreement, does not decrease below the purchase price plus accrued interest. If
such decrease occurs, additional collateral will be requested and, when
received, added to the account to maintain full collateralization. The Fund will
accrue interest from the institution until the time when the repurchase is to
occur. Although such date is deemed by the Fund to be the maturity date of a
repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Investment Manager
subject to procedures established by the Board of Trustees of the Fund. In
addition, as described above, the value of the collateral underlying the
repurchase agreement will be at least equal to the repurchase price, including
any accrued interest earned on the repurchase agreement. In the event of a
default or bankruptcy by a selling financial institution, the Fund will seek to
liquidate such collateral. However, the exercising of the Fund's right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss. It
is the current policy of the Fund not to invest in repurchase agreements that do
not mature within seven days if any such investment, together with any other
illiquid assets held by the Fund, amounts to more than 15% of its net assets.
The Fund's investments in repurchase agreements may at times be substantial
when, in the view of the Investment Manager, liquidity, tax or other
considerations warrant. For the fiscal year ended March 31, 1997, the Fund did
not enter into any repurchase agreements in an amount exceeding 5% of its total
net assets.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to notice provisions described below), and are at all times
secured by cash or cash equivalents, which are maintained in a segregated
account pursuant to applicable regulations and that are equal to at least the
market value, determined daily, of the loaned securities. The advantage of such
loans is that the Fund continues to receive the income on the loaned securities
while at the same time earning interest on the cash amounts deposited as
collateral, which will be invested in short-term obligations. The Fund will not
lend its portfolio securities if such loans are not permitted by the laws or
regulations of any state in which its shares are qualified for sale and will not
lend more than 25% of the value of its total assets. A loan may be terminated by
the borrower on one business days' notice, or by the Fund on four business days'
notice. If the borrower fails to deliver the loaned securities within four days
after receipt of notice, the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund's management to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during
the loan period would inure to the Fund. The creditworthiness of firms to which
the Fund lends its portfolio securities will be monitored on an ongoing basis by
the Investment Manager pursuant to procedures adopted and reviewed, on an
ongoing basis, by the Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. As
discussed in the Prospectus, from time to time the Fund may purchase securities
on a when-issued or delayed delivery basis or may purchase or sell securities on
a forward commitment basis. When such transactions are negotiated, the price is
fixed at the time of the commitment, but delivery and payment can take place a
12
<PAGE>
month or more after the date of commitment. While the Fund will only purchase
securities on a when-issued, delayed delivery or forward commitment basis with
the intention of acquiring the securities, the Fund may sell the securities
before the settlement date, if it is deemed advisable. The securities so
purchased or sold are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date. At the time the Fund makes
the commitment to purchase or sell securities on a when-issued, delayed delivery
or forward commitment basis, it will record the transaction and thereafter
reflect the value, each day, of such security purchased, or if a sale, the
proceeds to be received, in determining its net asset value. At the time of
delivery of the securities, the value may be more or less than the purchase or
sale price. The Fund will also establish a segregated account with its custodian
bank in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase securities
on a when-issued, delayed delivery or forward commitment basis. Subject to the
foregoing restrictions, the Fund may purchase securities on such basis without
limit. During the fiscal year ended March 31, 1997, the Fund did not purchase
any securities on a when-issued and delayed delivery basis.
WHEN, AS AND IF ISSUED SECURITIES. As discussed in the Prospectus, the Fund
may purchase securities on a "when, as and if issued" basis under which the
issuance of the security depends upon the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization, leveraged buyout or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until the Investment Manager determines
that issuance of the security is probable. At such time, the Fund will record
the transaction and, in determining its net asset value, will reflect the value
of the security daily. At such time, the Fund will also establish a segregated
account with its custodian bank in which it will maintain cash or cash
equivalents or other liquid portfolio securities equal in value to recognized
commitments for such securities. Once a segregated account has been established,
if the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. The value of the Fund's
commitments to purchase the securities of any one issuer, together with the
value of all securities of such issuer owned by the Fund, may not exceed 5% of
the value of the Fund's total assets at the time the initial commitment to
purchase such securities is made (see "Investment Restrictions"). Subject to the
foregoing restrictions, the Fund may purchase securities on such basis without
limit. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a "when, as and if issued" basis may increase the
volatility of its net asset value. The Fund may also sell securities on a "when,
as and if issued" basis provided that the issuance of the security will result
automatically from the exchange or conversion of a security owned by the Fund at
the time of the sale. During the fiscal year ended March 31, 1997, the Fund did
not purchase any securities on a when, as and if issued basis in an amount which
exceeded 5% of its total net assets.
PRIVATE PLACEMENTS. As discussed in the Prospectus, the Fund may invest up
to 10% of its total assets in securities which are subject to restrictions on
resale because they have not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), or which are otherwise not readily
marketable. (Securities eligible for resale pursuant to Rule 144A of the
Securities Act, and determined to be liquid pursuant to the procedures discussed
in the following paragraph, are not subject to the foregoing restriction.)
Limitations on the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
The Securities and Exchange Commission ("SEC") has adopted Rule 144A under
the Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. The procedures require that the following factors be taken into account in
making a liquidity determination: (1) the frequency of trades and price quotes
for the security; (2) the number of dealers and other potential purchasers who
have issued quotes on the security; (3) any dealer undertakings to make a market
in the
13
<PAGE>
security; and (4) the nature of the security and the nature of the marketplace
trades (the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). If a restricted security is determined
to be "liquid", such security will not be included within the category "illiquid
securities", which under the SEC's current policies may not exceed 15% of the
Fund's net assets, and will not be subject to the 10% limitation set out in the
preceding paragraph.
The Rule 144A marketplace of sellers and qualified institutional buyers is
new and still developing and may take a period of time to develop into a mature
liquid market. As such, the market for certain private placements purchased
pursuant to Rule 144A may be initially small or may, subsequent to purchase,
become illiquid. Furthermore, the Investment Manager may not posses all the
information concerning an issue of securities that it wishes to purchase in a
private placement to which it would normally have had access, had the
registration statement necessitated by a public offering been filed with the
Securities and Exchange Commission.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. As discussed in the
Prospectus, the Fund may also use reverse repurchase agreements and dollar rolls
as part of its investment strategy. Reverse repurchase agreements involve sales
by the Fund of portfolio assets concurrently with an agreement by the Fund to
repurchase the same assets at a later date at a fixed price. Generally, the
effect of such a transaction is that the Fund can recover all or most of the
cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
The Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current months and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish a segregated account with its custodian bank in
which it will maintain cash, U.S. Government Securities or other liquid
portfolio securities equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements and dollar
rolls involve the risk that the market value of the securities the Fund is
obligated to repurchase under the agreement may decline below the repurchase
price. In the event the buyer of securities under a reverse repurchase agreement
or dollar roll files for bankruptcy or becomes insolvent, the Fund's use of
proceeds of the agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. Reverse repurchase agreements and dollar rolls are
speculative techniques involving leverage, and are considered borrowings by the
Fund.
ZERO COUPON SECURITIES. As discussed in the Prospectus, a portion of the
U.S. Government Securities purchased by the Fund may be "zero coupon" Treasury
securities. These are U.S. Treasury bills, notes and bonds which have been
stripped of their unmatured interest coupons and receipts or which are
certificates representing interests in such stripped debt obligations and
coupons. In addition, a portion of the fixed-income securities purchased by such
Fund may be "zero coupon" securities. "Zero coupon" securities are purchased at
a discount from their face amount, giving the purchaser the right to receive
their full value at maturity. A zero coupon security pays no interest to its
holder during at least a portion of its life. Its value to an investor consists
of the difference between its face value at the time of maturity and the price
for which it was acquired, which is generally an amount significantly less than
its face value (sometimes referred to as a "deep discount" price).
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
14
<PAGE>
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as the Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the securities during the year.
Currently, the only U.S. Treasury security issued without coupons is the
Treasury bill. However, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account).
RIGHTS AND WARRANTS. As stated in the Prospectus, the Fund may acquire
rights and 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. Warrants are, in effect, an option 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. The Fund does not anticipate acquiring any warrants
during its fiscal year ending March 31, 1997.
CONVERTIBLE SECURITIES. As stated in the Prospectus, certain of the
fixed-income securities purchased by the Fund may be convertible into common
stock of the issuer. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function of
its "investment value" (its value as if it did not have a conversion privilege),
and its "conversion value" (the security's worth if it were to be exchanged for
the underlying security, at market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security. Convertible securities may be purchased by the Fund
at varying price levels above their investments values and/ or their conversion
values in keeping with the Fund's objective.
FOREIGN SECURITIES. As stated in the Prospectus, foreign securities
investments may be affected by changes in currency rates or exchange control
regulations, changes in governmental administration or economic or monetary
policy (in the United States and abroad) or changed circumstances in dealings
between nations. Fluctuations in the relative rates of exchange between the
currencies of different nations will affect the value of the Fund's investments
denominated in foreign currency. Changes in foreign currency exchange rates
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and thereby impact upon the Fund's total
return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of
the Fund will be conducted on a spot basis or through forward contracts or
futures contracts (described in the Statement of Additional Information). The
Fund will incur certain costs in connection with these currency transactions.
15
<PAGE>
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to the more
rigorous uniform accounting, auditing and financial reporting standards and
requirements applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Fund trades effected in such markets. Inability to dispose of
portfolio securities due to settlement delays could result in losses to the Fund
due to subsequent declines in value of such securities and the inability of the
Fund to make intended security purchases due to settlement problems could result
in a failure of the Fund to make potentially advantageous investments. To the
extent the Fund purchases Eurodollar certificates of deposit issued by foreign
branches of domestic United States banks, consideration will be given to their
domestic marketability, the lower reserve requirements normally mandated for
overseas banking operations, the possible impact of interruptions in the flow of
international currency transactions, and future international political and
economic developments which might adversely affect the payment of principal or
interest.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. As stated in the Prospectus,
the Fund may enter into forward foreign currency exchange contracts ("forward
contracts") as a hedge against fluctuations in future foreign exchange rates.
The Fund will conduct its foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into forward contracts to purchase or sell
foreign currencies. A forward contract involves an obligation to purchase or
sell a specific 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. These contracts are traded in the interbank market
conducted directly between currency traders (usually large, commercial and
investment banks) and their customers. Such forward contracts will only be
entered into with United States banks and their foreign branches or foreign
banks, insurance companies and other dealers whose assets total $1 billion or
more. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
When management of the Fund believes that the currency of a particular
foreign country may suffer a substantial movement against the U.S. dollar, it
may enter into a forward contract to purchase or 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 portfolio securities denominated in such
foreign currency.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase (by the Fund or the
counterparty) and the foreign currency in which the security is denominated
during the period between the date on which the security is purchased or sold
and the date on which payment is made or received.
At other times, when, for example, the Fund's Investment Manager believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar or some other foreign currency, the Fund may
enter into a forward contract to sell, for a fixed amount of dollars or other
16
<PAGE>
currency, the amount of foreign currency approximating the value of some or all
of the Fund's securities holdings (or securities which the Fund has purchased
for its portfolio) denominated in such foreign currency. Under identical
circumstances, the Fund may enter into a forward contract to sell, for a fixed
amount of U.S. dollars or other currency, an amount of foreign currency other
than the currency in which the securities to be hedged are denominated
approximating the value of some or all of the portfolio securities to be hedged.
This method of hedging, called "cross-hedging," will be selected by the
Investment Manager when it is determined that the foreign currency in which the
portfolio securities are denominated has insufficient liquidity or is trading at
a discount as compared with some other foreign currency with which it tends to
move in tandem.
In addition, when the Fund's Investment Manager anticipates purchasing
securities at some time in the future, and wishes to lock in the current
exchange rate of the currency in which those securities are denominated against
the U.S. dollar or some other foreign currency, the Fund may enter into a
forward contract to purchase an amount of currency equal to some or all of the
value of the anticipated purchase, for a fixed amount of U.S. dollars or other
currency. The Fund may, however, close out the forward contract without
purchasing the security which was the subject of the "anticipatory" hedge.
The Fund will not enter into forward contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate the Fund
to deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, the management of the Fund believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Fund will be served.
The Fund's custodian bank will place cash, U.S. Government securities or other
appropriate liquid portfolio securities in a segregated account of the Fund in
an amount equal to the value of the Fund's total assets committed to the
consummation of forward contracts entered into under the circumstances set forth
above. If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account on a daily basis so
that the value of the account will equal the amount of the Fund's commitments
with respect to such contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign securities denominated in a foreign currency against adverse exchange
rate moves vis-a-vis the U.S. dollar, at the maturity of the forward contract
for delivery by the Fund of a foreign currency, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency (however, the ability of the Fund to terminate a contract is
contingent upon the willingness of the currency trader with whom the contract
has been entered into to permit an offsetting transaction). It is impossible to
forecast the market value of portfolio securities at the expiration of the
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of the foreign currency. Conversely, it may be necessary to sell
on the spot market some of the foreign currency received upon the sale of the
portfolio securities if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has
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agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Fund will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Fund has written a call option on a security or the
currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a greater
extent than the value of the premium received for the option. The Fund will
maintain with its Custodian at all times, cash, U.S. Government securities, or
other liquid portfolio securities in a segregated account equal in value to all
forward contract obligations and option contract obligations entered into in
hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at which they are buying and selling various currencies. Thus
a dealer may offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
In all of the above circumstances, if the currency in which the Fund
securities holdings (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager. The Fund generally will not enter into a forward
contract with a term of greater than one year, although it may enter into
forward contracts for periods of up to five years. The Fund may be limited in
its ability to enter into hedging transactions involving forward contracts by
the Internal Revenue Code (the "Code") requirements relating to qualifications
as a regulated investment company (see "Dividends, Distributions and Taxes").
OPTIONS AND FUTURES TRANSACTIONS
As stated in the Prospectus, the Fund may write covered call options against
securities held in its portfolio and covered put options on eligible portfolio
securities and stock indexes and purchase options of the same series to effect
closing transactions, and may hedge against potential changes in the market
value of investments (or anticipated investments) and facilitate the
reallocation of the Fund's assets into and out of equities and fixed-income
securities by purchasing put and call options on portfolio (or eligible
portfolio) securities and engaging in transactions involving futures contracts
and options on such contracts. The Fund may also hedge against potential changes
in the market value of the currencies in which its investments (or anticipated
investments) are denominated by purchasing put and call options on currencies
and engage in transactions involving currency futures contracts and options on
such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and equity
securities are listed on Exchanges and are written in over-the-counter
transactions ("OTC options"). Listed options are issued
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by the Options Clearing Corporation ("OCC") and other clearing entities
including foreign exchanges. Ownership of a listed call option gives the Fund
the right to buy from the OCC the underlying security covered by the option at
the stated exercise price (the price per unit of the underlying security) by
filing an exercise notice prior to the expiration date of the option. The writer
(seller) of the option would then have the obligation to sell to the OCC the
underlying security at that exercise price prior to the expiration date of the
option, regardless of its then current market price. Ownership of a listed put
option would give the Fund the right to sell the underlying security to the OCC
at the stated exercise price. Upon notice of exercise of the put option, the
writer of the put would have the obligation to purchase the underlying security
from the OCC at the exercise price.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges on which such securities trade will not continue indefinitely to
introduce options with new expirations to replace expiring options on particular
issues. Instead, the expirations introduced at the commencement of options
trading on a particular issue will be allowed to run their course, with the
possible addition of a limited number of new expirations as the original ones
expire. Options trading on each issue of bonds or notes will thus be phased out
as new options are listed on more recent issues, and options representing a full
range of expirations will not ordinarily be available for every issue on which
options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian, so that they will
be treated as being covered.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Fund may purchase call options on foreign currencies
in which securities it anticipates purchasing are denominated to secure a set
U.S. dollar price for such securities and protect against a decline in the value
of the U.S. dollar against such foreign currency. The Fund may also purchase
call and put options to close out written option positions.
The Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which a
security is denominated and the U.S. dollar, then a loss to the Fund occasioned
by such value decline would be ameliorated by receipt of the premium on the
option sold. At the same time, however, the Fund gives up the benefit of any
rise in value of the relevant portfolio securities above the exercise price of
the option and, in fact, only receives a benefit from the writing of the option
to the extent that the value of the portfolio securities falls below the price
of the premium received. The Fund may also write options to close out long call
option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase or
write such options unless and until, in the opinion of the management of the
Fund, the market for them has developed sufficiently to ensure that the risks in
connection with such
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options are not greater than the risks in connection with the underlying
currency, there can be no assurance that a liquid secondary market will exist
for a particular option at any specific time. In addition, options on foreign
currencies are affected by all of those factors which influence foreign exchange
rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
OTC OPTIONS. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with the Fund. With OTC options, such variables
as expiration date, exercise price and premium will be agreed upon between the
Fund and the transacting dealer, without the intermediation of a third party
such as the OCC. If the transacting dealer fails to make or take delivery of the
securities underlying an option it has written, in accordance with the terms of
that option, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction. The Fund will engage in OTC option
transactions only with primary U.S. Government securities dealers recognized by
the Federal Reserve Bank of New York.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities and the U.S. dollar and foreign currencies, without
limit. Generally, a call option is "covered" if the Fund owns, or has the right
to acquire, without additional cash consideration (or for additional cash
consideration held for the Fund by its Custodian in a segregated account) the
underlying security (currency) subject to the option except that in the case of
call options on U.S. Treasury Bills, the Fund might own U.S. Treasury Bills of a
different series from those underlying the call option, but with a principal
amount and value corresponding to the exercise price and a maturity date no
later than that of the securities (currency) deliverable under the call option.
A call option is also covered if the Fund holds a call on the same security
(currency) as the underlying security (currency) of the written option, where
the exercise price of the call used for coverage is equal to or less than the
exercise price of the call written or greater than the exercise price of the
call written if the mark to market difference is maintained by the Fund in cash,
U.S. Government securities or other liquid portfolio securities which the Fund
holds in a segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to achieve a greater total return than would be
realized from holding the underlying securities (currency) alone. Moreover, the
income received from the premium will offset a portion of the potential loss
incurred by the Fund if the securities (currency) underlying the option are
ultimately sold (exchanged) by the Fund at a loss. The premium received will
fluctuate with varying economic market conditions. If the market value of the
portfolio
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securities (or the currencies in which they are denominated) upon which call
options have been written increases, the Fund may receive less total return from
the portion of its portfolio upon which calls have been written than it would
have had such calls not been written.
As regards listed options and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Fund to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. Also, effecting a closing purchase transaction will
permit the cash or proceeds from the concurrent sale of any securities subject
to the option to be used for other investments by the Fund. The Fund may realize
a net gain or loss from a closing purchase transaction depending upon whether
the amount of the premium received on the call option is more or less than the
cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be wholly or partially offset by unrealized
appreciation in the market value of the underlying security (currency).
Conversely, a gain resulting from a closing purchase transaction could be offset
in whole or in part or exceeded by a decline in the market value of the
underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security
(currency) during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security (currency)
equal to the difference between the purchase price of the underlying security
(currency) and the proceeds of the sale of the security (currency) plus the
premium received for on the option less the commission paid.
Options written by a Fund normally have expiration dates of from up to nine
months (equity securities) to eighteen months (fixed-income securities) from the
date written. The exercise price of a call option may be below, equal to or
above the current market value of the underlying security (currency) at the time
the option is written. See "Risks of Options and Futures Transactions," below.
COVERED PUT WRITING. As a writer of a covered put option, the Fund incurs
an obligation to buy the security 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 (certain listed and OTC put options written by the Fund
will be exercisable by the purchaser only on a specific date). A put is
"covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other high grade obligations in an amount equal to at least the
exercise price of the option, at all times during the option period. Similarly,
a short put position could be covered by the Fund by its purchase of a put
option on the same security as the underlying security of the written option,
where the exercise price of the purchased option is equal to or more than the
exercise price of the put written or less than the exercise price of the put
written if the mark to market difference is maintained by the Fund in cash, U.S.
Government securities or other liquid portfolio securities which the Fund holds
in a segregated account maintained at its Custodian. In writing puts, the Fund
assumes the risk of loss should the market value of the underlying security
decline below the exercise price of the option (any loss being decreased by the
receipt of the premium on the option written). In the case of listed options,
during the option period, the Fund may be required, at any time, to make payment
of the exercise price against delivery of the underlying security. The operation
of and limitations on covered put options in other respects are substantially
identical to those of call options.
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The Fund will write put options for two purposes: (1) to receive the income
derived from the premiums paid by purchasers; and (2) when the Investment
Manager wishes to purchase the security underlying the option at a price lower
than its current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought. The potential gain on
a covered put option is limited to the premium received on the option (less the
commissions paid on the transaction) while the potential loss equals the
difference between the exercise price of the option and the current market price
of the underlying securities when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options in order to close out a covered call position (see
"Covered Call Writing" above) or purchase call options on securities they intend
to purchase. The Fund may also purchase a call option on foreign currency to
hedge against an adverse exchange rate move of the currency in which the
security it anticipates purchasing is denominated vis-a-vis the currency in
which the exercise price is denominated. The purchase of the call option to
effect a closing transaction or a call written over-the-counter may be a listed
or an OTC option. In either case, the call purchased is likely to be on the same
securities (currencies) and have the same terms as the written option. If
purchased over-the-counter, the option would generally be acquired from the
dealer or financial institution which purchased the call written by the Fund.
The Fund may purchase put options on securities (currency) which it holds
(or has the right to acquire) in its portfolio only to protect itself against a
decline in the value of the security (currency). If the value of the underlying
security (currency) were to fall below the exercise price of the put purchased
in an amount greater than the premium paid for the option, the Fund would incur
no additional loss. The Fund may also purchase put options to close out written
put positions in a manner similar to call options closing purchase transactions.
In addition, the Fund may sell a put option which it has previously purchased
prior to the sale of the securities (currency) underlying such option. Such a
sale would result in a net gain or loss depending on whether the amount received
on the sale is more or less than the premium and other transaction costs paid on
the put option which is sold. Any such gain or loss could be offset in whole or
in part by a change in the market value of the underlying security (currency).
If a put option purchased by the Fund expired without being sold or exercised,
the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security (or the currency in which it is denominated) increase, but
has retained the risk of loss should the price of the underlying security
(currency) decline. The covered put writer also retains the risk of loss should
the market value of the underlying security (currency) decline below the
exercise price of the option less the premium received on the sale of the
option. In both cases, the writer has no control over the time when it may be
required to fulfill its obligation as a writer of the option. Once an option
writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver or receive the underlying securities (currency) at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting over-the-counter option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell (exchange) an underlying security
(currency) at a time when it might otherwise be advantageous to do so. A covered
put option writer who is unable to effect a closing purchase transaction or to
purchase an offsetting over-the-counter option would continue to bear the risk
of decline in the market price of the underlying security (currency) until the
option expires or is exercised. In addition, a coveredput writer would be unable
to utilize the amount held in cash or U.S. Government or other liquid portfolio
securities as security for the put option for other investment purposes until
the exercise or expiration of the option.
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The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option Exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. However, the Fund may
be able to purchase an offsetting option which does not close out its position
as a writer but constitutes an asset of equal value to the obligation under the
option written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more Exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as a result of trades on that Exchange would generally continue to be
exercisable in accordance with their terms.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through the
broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by the Investment Manager.
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written on
one or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which the Fund may write.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities is that the prices of securities
and indexes subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Fund's portfolio securities. Another such risk is that prices of interest rate
futures contracts may not move in tandem with the changes in prevailing interest
rates against which the Fund
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seeks a hedge. A correlation may also be distorted by the fact that the futures
market is dominated by short-term traders seeking to profit from the difference
between a contract or security price objective and their cost of borrowed funds.
Such distortions are generally minor and would diminish as the contract
approached maturity.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
STOCK INDEX OPTIONS. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The multiplier for an index option
performs a function similar to the unit of trading for a stock option. It
determines the total dollar value per contract of each point in the difference
between the exercise price of an option and the current level of the underlying
index. A multiplier of 100 means that a one-point difference will yield $100.
Options on different indexes may have different multipliers. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Unlike stock options, all settlements are in cash and a gain or
loss depends on price movements in the stock market generally (or in a
particular segment of the market) rather than the price movements in individual
stocks. Currently, options are traded on the Standard & Poor's 100 Index and the
Standard & Poor's 500 Index on the Chicago Board Options Exchange, the Major
Market Index and the Computer Technology Index, Oil Index and Institutional
Index on the American Stock Exchange and the NYSE Index and NYSE Beta Index on
the New York Stock Exchange, The Financial News Composite Index on the Pacific
Stock Exchange and the Value Line Index, National O-T-C Index and Utilities
Index on the Philadelphia Stock Exchange, each of which and any similar index on
which options are traded in the future which include stocks that are not limited
to any particular industry or segment of the market is referred to as a "broadly
based stock market index." Options on stock indexes provide the Fund with a
means of protecting the Fund against the risk of market wide price movements. If
the Investment Manager anticipates a market decline, the Fund could purchase a
stock index put option. If the expected market decline materialized, the
resulting decrease in the value of the Fund's portfolio would be offset to the
extent of the increase in the value of the put option. If the Investment Manager
anticipates a market rise, the Fund may purchase a stock index call option to
enable the Fund to participate in such rise until completion of anticipated
common stock purchases by the Fund. Purchases and sales of stock index options
also enable the Investment Manager to more speedily achieve changes in the
Fund's equity positions.
The Fund will write put options on stock indexes only if such positions are
covered by cash, U.S. Government securities or other liquid portfolio securities
equal to the aggregate exercise price of the puts, which cover is held for the
Fund in a segregated account maintained for it by the Fund's Custodian. All call
options on stock indexes written by the Fund will be covered either by a
portfolio of stocks substantially replicating the movement of the index
underlying the call option or by holding a separate call option on the same
stock index with a strike price no higher than the strike price of the call
option sold by the Fund.
RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, call writers such as the Fund cannot provide in advance for
their potential settlement obligations by acquiring and holding the underlying
securities. A call writer can offset some of the risk of its writing position by
holding a diversified portfolio of stocks similar to those on which the
underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary from the value of the index. Even if an index call writer could
assemble a stock portfolio that exactly
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reproduced the composition of the underlying index, the writer still would not
be fully covered from a risk standpoint because of the "timing risk" inherent in
writing index options. When an index option is exercised, the amount of cash
that the holder is entitled to receive is determined by the difference between
the exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the writer will not learn that it has
been assigned until the next business day, at the earliest. The time lag between
exercise and notice of assignment poses no risk for the writer of a covered call
on a specific underlying security, such as a common stock, because there the
writer's obligation is to deliver the underlying security, not to pay its value
as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds stocks that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those stocks against payment of the exercise price. Instead, it will be required
to pay cash in an amount based on the closing index value on the exercise date;
and by the time it learns that it has been assigned, the index may have
declined, with a corresponding decrease in the value of its stock portfolio.
This "timing risk" is an inherent limitation on the ability of index call
writers to cover their risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
FUTURES CONTRACTS. The Fund may purchase and sell interest rate and stock
index futures contracts ("futures contracts") that are traded on U.S. and
foreign commodity exchanges on such underlying securities as U.S. Treasury
bonds, notes and bills ("interest rate" futures), on the U.S. dollar and foreign
currencies, and such indexes as the S&P 500 Index, the Moody's Investment-Grade
Corporate Bond Index and the New York Stock Exchange Composite Index ("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 interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) securities against changes in prevailing interest
rates. If the Investment Manager anticipates that interest rates may rise and,
concomitantly, the price of fixed-income securities fall, the Fund may sell an
interest rate futures contract or a bond index futures contract. If declining
interest rates are anticipated, the Fund may purchase an interest rate futures
contract to protect against a potential increase in the price of U.S. Government
securities the Fund intends to purchase. Subsequently, appropriate fixed-income
securities may be purchased by the Fund in an orderly fashion; as securities are
purchased, corresponding futures positions would be terminated by offsetting
sales of contracts.
The Fund will purchase or sell futures contracts on the U.S. dollar and on
foreign currencies to hedge against an anticipated rise or decline in the value
of the U.S. dollar or foreign currency in which a portfolio security of the Fund
is denominated vis-a-vis another currency.
The Fund will purchase or sell stock index futures contracts for the purpose
of hedging its equity portfolio (or anticipated portfolio) securities against
changes in their prices. If the Investment Manager
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anticipates that the prices of stock held by the Fund may fall, the Fund may
sell a stock index futures contract. Conversely, if the Investment Manager
wishes to hedge against anticipated price rises in those stocks which the Fund
intends to purchase, the Fund may purchase stock index futures contracts. In
addition, interest rate and stock index futures contracts will be bought or sold
in order to close out a short or long position in a corresponding futures
contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open or
close of the last trading day of the contract and the futures contract price. A
futures contract sale is closed out by effecting a futures contract purchase for
the same aggregate amount of the specific type of equity security and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of equity security and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that the Fund will be able to enter into a closing
transaction.
INTEREST RATE FUTURES CONTRACTS. When the Fund enters into an interest rate
futures contract, it is initially required to deposit with the Fund's Custodian,
in a segregated account in the name of the broker performing the transaction, an
"initial margin" of cash or U.S. Government securities or other liquid portfolio
securities equal to approximately 2% of the contract amount. Initial margin
requirements are established by the Exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits called "variation margin", with
the Fund's Custodian, in the account in the name of the broker, which are
reflective of price fluctuations in the futures contract. Currently, interest
rates futures contracts can be purchased on debt securities such as U.S.
Treasury Bills and Bonds, U.S. Treasury Notes with maturities between 6 1/2 and
10 years, GNMA Certificates and Bank Certificates of Deposit.
INDEX FUTURES CONTRACTS. The Fund may invest in index futures contracts. An
index futures contract sale creates an obligation by the Fund, as seller, to
deliver cash at a specified future time. An index futures contract purchase
would create an obligation by the Fund, as purchaser, to take delivery of cash
at a specified future time. Futures contracts on indexes do not require the
physical delivery of securities, but provide for a final cash settlement on the
expiration date which reflects accumulated profits and losses credited or
debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirement is approximately 5% of the contract amount for index futures.
In addition, due to current industry practice, daily variations in gains and
losses on open contracts are required to be reflected in cash in the form of
variation margin payments. The Fund may be required to make additional margin
payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
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<PAGE>
Currently, index futures contracts can be purchased or sold with respect to,
among others, the Standard & Poor's 500 Stock Price Index and the Standard &
Poor's 100 Stock Price Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Index on the New York Futures Exchange, the Major
Market Index on the American Stock Exchange, the Moody's Investment-Grade
Corporate Bond Index on the Chicago Board of Trade and the Value Line Stock
Index on the Kansas City Board of Trade.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts and enter into closing transactions with respect to
such options to terminate an existing position. An option on a futures contract
gives the purchaser the right (in return for the premium paid), and the writer
the obligation, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option is accompanied by delivery of the accumulated balance in
the writer's futures margin account, which represents the amount by which the
market price of the futures contract at the time of exercise exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the Investment
Manager wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Investment Manager seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, augment the total return of the
Fund and thereby provide a further hedge against losses resulting from price
declines in portions of the Fund's portfolio.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the Fund's assets
which may be subject to a hedge position. In addition, in accordance with the
regulations of the Commodity Futures Trading Commission ("CFTC") under which the
Fund is exempted from registration as a commodity pool operator, the Fund may
only enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that the Fund would be permitted to write options on futures
contracts for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of futures
and options thereon by the Fund.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The Fund
may sell a futures contract to protect against the decline in the value of
securities held by the Fund. However, it is possible that the futures market may
advance and the value of securities held in the portfolio of the Fund may
decline. If this occurred, the Fund would lose money on the futures contract and
also experience a
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<PAGE>
decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Fund may determine not to invest in the securities as
planned and will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities.
In addition, if the Fund holds a long position in a futures contract or has
sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained for the Fund
by its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Fund.
If the Fund maintains a short position in a futures contract or has sold a
call option on a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government securities
or other liquid portfolio securities equal in value (when added to any initial
or variation margin on deposit) to the market value of the securities underlying
the futures contract or the exercise price of the option. Such a position may
also be covered by owning the securities underlying the futures contract (in the
case of a stock index futures contract a portfolio of securities substantially
replicating the relevant index), or by holding a call option permitting the Fund
to purchase the same contract at a price no higher than the price at which the
short position was established.
Exchanges may limit the amount by which the price of futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Internal Revenue Code's requirements
for qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Dividends, Distributions and Taxes" in the Prospectus and
the Statement of Additional Information.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of the
securities which are the subject of the hedge. If participants in the futures
market elect to close out their contracts through offsetting transactions rather
than meet margin deposit requirements, distortions in the normal relationship
between the debt securities and futures markets could result. Price distortions
could also result if investors in futures contracts opt to make or take delivery
of underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the futures market. In addition, due to
the fact that, from the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of interest rate trends by the Investment Manager may still not result
in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which the Fund may invest. In the event a
liquid market does not exist, it may not be possible to close out a futures
position, and in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures contracts
are traded may compel or prevent the Fund from closing out a contract which may
result in reduced gain or increased loss to the Fund. The absence of a liquid
market in futures contracts might cause the Fund to make or take delivery of the
underlying securities at a time when it may be disadvantageous to do so.
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<PAGE>
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities.
The Investment Manager has substantial experience in the use of the
investment techniques described above under the heading "Options and Futures
Transactions," which techniques require skills different from those needed to
select the portfolio securities underlying various options and futures
contracts.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate will not exceed
200%. A 200% turnover rate would occur, for example, if 200% of the securities
held in the Fund's portfolio (excluding all securities whose maturities at
acquisition were one year or less) were sold and replaced within one year.
During the fiscal years ended March 31, 1996 and March 31, 1997, the Fund's
portfolio turnover rates were 69% and 42%, respectively.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.
The Fund may not:
1. Purchase or sell real estate or interests therein, although the Fund
may purchase securities of issuers which engage in real estate operations
and securities secured by real estate or interests therein.
2. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
3. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
4. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(3). For the purpose of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect
to initial or variation margin for futures are not deemed to be pledges of
assets.
5. Issue senior securities as defined in the Act, except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase or reverse repurchase agreement; (b) purchasing
any securities on a when-issued or delayed delivery basis; (c) purchasing or
selling futures contracts, forward foreign exchange contracts or options;
(d) borrowing money in accordance with restrictions described above; or (e)
lending portfolio securities.
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<PAGE>
6. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objective and policies; (b) by investment in
repurchase agreements; or (c) by lending its portfolio securities.
7. Make short sales of securities.
8. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the purchase
of a security on margin.
9. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
10. Invest for the purpose of exercising control or management of any
other issuer.
11. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets or in accordance with the provisions of Section 12(d) of the Act and
any Rules promulgated thereunder.
12. Purchase or sell commodities or commodities contracts except that
the Fund may purchase or sell futures contracts or options on futures.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective as the Fund.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. The Fund expects that the primary market for the securities in which
it intends to invest will generally be the over-the-counter market. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. The
Fund expects that securities will be purchased at times in underwritten
offerings where the price includes a fixed amount of compensation, generally
referred to as the underwriter's concession or discount. Options and futures
transactions will usually be effected through a broker and a commission will be
charged. On occasion, the Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid. For the fiscal period June 2, 1994 through March 31, 1995 and for the
fiscal years ended March 31, 1996 and March 31, 1997, the Fund paid a total of
$19,845, $71,918 and $46,074, respectively, in brokerage commissions.
The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors may be considered including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client
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<PAGE>
accounts. In the case of certain initial and secondary public offerings, the
Investment Manager may utilize a pro-rata allocation process based on the size
of the Dean Witter Funds involved and the number of shares available from the
public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager from obtaining a high quality of
brokerage and research services. In seeking to determine the reasonableness of
brokerage commissions paid in any transaction, the Investment Manager relies
upon its experience and knowledge regarding commissions generally charged by
various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. Such determinations
are necessarily subjective and imprecise, and in most cases an exact dollar
value for those services is not ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on foreign securities exchanges. Fixed commissions
on such transactions are generally higher than negotiated commissions on
domestic transactions. There is also generally less government supervision and
regulation of foreign securities exchanges and brokers than in the United
States.
In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes such prices and executions are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Investment Manager. Such services
may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities.
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Fund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the management fee paid to the Investment
Manager is not reduced by any amount that may be attributable to the value of
such services. For the fiscal year ended March 31, 1997, the Fund did not direct
the payment of any brokerage commissions to brokers because of research services
provided.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers. During the fiscal year ended March 31, 1997, the Fund did
not effect any principal transactions with DWR.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR. In order for DWR to effect any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by DWR must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. This standard would allow DWR to receive no more than the remuneration
which would be expected to be received by an unaffiliated broker in a
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<PAGE>
commensurate arm's-length transaction. Furthermore, the Board of Trustees of the
Fund, including a majority of the Trustees who are not "interested" persons of
the Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to DWR
are consistent with the foregoing standard. The Fund does not reduce the
management fee it pays to the Investment Manager by any amount of the brokerage
commissions it may pay to DWR.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
dealer agreement with DWR, which through its own sales organization sells shares
of the Fund. In addition, the Distributor may enter into agreements with other
selected dealers ("Selected Broker-Dealers"). The Distributor, a Delaware
corporation, is an indirect wholly-owned subsidiary of MSDWD. The Trustees of
the Fund, including a majority of the Trustees who are not, and were not at the
time they voted, interested persons of the Fund, as defined in the Act (the
"Independent Trustees"), approved, at their meeting held on April 24, 1997, the
current Distribution Agreement (the "Distribution Agreement") appointing the
Distributor exclusive distributor of the Fund's shares and providing for the
Distributor to bear distribution expenses not borne by the Fund. By its terms,
the Distribution Agreement has an initial term ending April 30, 1998 and will
remain in effect from year to year thereafter if approved by the Board. The
current Distribution Agreement took effect on May 31, 1997 upon the consummation
of the merger of Dean Witter, Discover & Co. with Morgan Stanley Group Inc. and
is substantially identical to the Fund's previous distribution agreement except
for its dates of effectiveness and termination.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws. The Fund and the Distributor
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the Distribution
Agreement, the Distributor uses its best efforts in rendering services to the
Fund, but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations, the Distributor is not liable to the Fund
or any of its shareholders for any error of judgment or mistake of law or for
any act or omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
To compensate the Distributor for the services it or any selected dealer
provides and for the expenses it bears under the Distribution Agreement, the
Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Act
(the "Plan") pursuant to which the Fund pays the Distributor compensation
accrued daily and payable monthly at the annual rate of 0.80% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's shares since the
inception of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived; or (b)
the Fund's average daily net assets. The Distributor receives the proceeds of
contingent deferred sales charges imposed on certain redemptions of shares,
which are separate and apart from payments made pursuant to the Plan (see
"Redemptions and Repurchases -- Contingent Deferred Sales Charge" in the
Prospectus). The Distributor has informed the Fund that it received
approximately $160,000, $655,000 and $1,408,132,
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<PAGE>
respectively in contingent deferred sales charges for the period June 2, 1994
through March 31, 1995 and for the fiscal years ended March 31, 1996 and March
31, 1997, none of which was retained by the Distributor.
The Distributor has informed the Fund that an amount of the fees payable by
the Fund each year pursuant to the Plan of Distribution equal to 0.20% of the
Fund's average daily net assets is characterized as a "service fee" under the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
(of which the Distributor is a member). Such fee is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion of
the Plan of Distribution fee payments made by the Fund is characterized as an
"asset-based sales charge" as such is defined by the aforementioned Rules of
Fair Practice. At their meeting held on October 26, 1995, the Directors of the
Fund, including all of the independent 12b-1 Directors, approved an amendment to
the Plan to permit payments to be made under the Plan with respect to certain
distribution expenses incurred in connection with the distribution of shares,
including personal services to shareholders with respect to holdings of such
shares, of an investment company whose assets are acquired by the Fund in a
tax-free reorganization.
The Plan was adopted by a vote of the Trustees of the Fund on May 10, 1994,
at a meeting of the Trustees called for the purpose of voting on such Plan. The
vote included the vote of a majority of the Trustees of the Fund who are not
"interested persons" of the Fund (as defined in the Act) and who have no direct
or indirect financial interest in the operation of the Plan (the "Independent
12b-1 Trustees"). In making their decision to adopt the Plan, the Trustees
requested from the Distributor and received such information as they deemed
necessary to make an informed determination as to whether or not adoption of the
Plan was in the best interests of the shareholders of the Fund. After due
consideration of the information received, the Trustees, including the
Independent 12b-1 Trustees, determined that adoption of the Plan would benefit
the shareholders of the Fund. InterCapital, as the then sole shareholder of the
Fund, approved the Plan on May 10, 1994, whereupon the Plan went into effect.
Under the Plan and as required by Rule 12b-1, the Trustees will receive and
review promptly after the end of each fiscal quarter a written report provided
by the Distributor of the amounts expended by the Distributor under the Plan and
the purpose for which such expenditures were made. The Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended March
31, 1997, of $6,228,452. This amount is equal to payments required to be paid
monthly by the Fund which were computed at the annual rate of 0.80% of the
average daily net assets of the Fund for the fiscal period and was calculated
pursuant to clause (b) of the compensation formula under the Plan. This amount
is treated by the Fund as an expense in the year it is accrued.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method shares of the Fund are
sold without a sales load being deducted at the time of purchase, so that the
full amount of an investor's purchase payment will be invested in shares without
any deduction for sales charges. Shares of the Fund may be subject to a
contingent deferred sales charge, payable to the Distributor, if redeemed during
the five years after their purchase. DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of the Fund's shares,
currently a gross sales credit of up to 4% of the amount sold and an annual
residual commission of up to 0.20 of 1% of the current value (not including
reinvested dividends or distributions) of the amount sold. The gross sales
credit is a charge which reflects commissions paid by DWR to its account
executives and Fund associated distribution-related expenses, including sales
compensation and overhead and other branch office distribution-related expenses
including: (a) the expenses of operating DWR's branch offices in connection with
the sale of Fund shares, including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares and (d) other expenses relating to branch
promotion of Fund sales. The distribution fee that the Distributor receives from
the Fund under the Plan, in effect, offsets distribution expenses incurred on
behalf of the Fund and opportunity costs, such as the gross sales credit and an
assumed interest charge thereon ("carrying charge"). In the
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Distributor's reporting of the distribution expenses to the Fund, such assumed
interest (computed at the "broker's call rate") has been calculated on the gross
sales credit as it is reduced by amounts received by the Distributor under the
Plan and any contingent deferred sales charges received by the Distributor upon
redemption of shares of the Fund. No other interest charge is included as a
distribution expense in the Distributor's calculation of its distribution costs
for this purpose. The broker's call rate is the interest rate charged to
securities brokers on loans secured by exchange-listed securities.
The Fund paid 100% of the $6,228,452 accrued under the Plan for the year
ended March 31, 1997 to the Distributor. The Distributor and DWR estimate that
they have spent, pursuant to the Plan, $40,579,469 on behalf of the Fund since
the inception of the Fund. It is estimated that this amount was spent in
approximately the following ways: (i) 4.59% ($1,863,204) -- advertising and
promotional expenses; (ii) 0.31% ($125,929) printing of prospectuses for
distribution to other than current shareholders; and (iii) 95.10% ($38,590,336)
- -- other expenses, including the gross sales credit and the carrying charge, of
which 3.72% ($1,434,274) represents carrying charges, 38.66% ($14,918,159)
represents commission credits to DWR branch offices for payments of commissions
to account executives and 57.62% ($22,237,903) represents overhead and other
branch office distribution-related expenses.
At any given time, the expenses of distributing shares of the Fund may be
more or less than the total of (i) the payments made by the Fund pursuant to the
Plan and (ii) the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares. The Distributor has advised the Fund that
the excess expenses, including the carrying charge designed to approximate the
opportunity costs incurred by DWR which arise from it having advanced monies
without having received the amount of any sales charges imposed at the time of
sale of the Fund's shares, totalled $28,870,822 as of March 31, 1997. Because
there is no requirement under the Plan that the Distributor be reimbursed for
all distribution expenses or any requirement that the Plan be continued from
year to year, this excess amount does not constitute a liability of the Fund.
Although there is no legal obligation for the Fund to pay distribution expenses
in excess of payments made under the Plan and the proceeds of contingent
deferred sales charges paid by investors upon redemption of shares, if for any
reason the Plan is terminated, the Trustees will consider at that time the
manner in which to treat such expenses. Any cumulative expenses incurred, but
not yet recovered through distribution fees or contingent deferred sales
charges, may or may not be recovered through future distribution fees or
contingent deferred sales charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial interest in the operation of the Plan except to the extent that the
Distributor, InterCapital, DWR or certain of their employees may be deemed to
have such an interest as a result of benefits derived from the successful
operation of the Plan or as a result of receiving a portion of the amounts
expended thereunder by the Fund.
Under its terms, the Plan remained in effect until April 30, 1995 and will
continue from year to year thereafter, provided such continuance is approved
annually by a vote of the Trustees in the manner described above. The most
recent continuance of the Plan for one year, until April 30, 1998, was approved
by the Board of Trustees of the Fund, including a majority of the Independent
12b-1 Trustees, at a Board meeting held on April 24, 1997. Prior to approving
the continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated; (2)
the benefits the Fund had obtained, was obtaining and would be likely to obtain
under the Plan; and (3) what services had been provided and were continuing to
be provided under the Plan to the Fund and its shareholders. Based upon their
review, the Trustees of the Fund, including each of the Independent 12b-1
Trustees, determined that continuation of the Plan would be in the best interest
of the Fund and would have a reasonable likelihood of continuing to benefit the
Fund and its shareholders. In the Trustees' quarterly review of the Plan, they
will consider its continued appropriateness and the level of compensation
provided herein.
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The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
Fund, and all material amendments of the Plan must also be approved by the
Trustees in the manner described above. The Plan may be terminated at any time,
without payment of any penalty, by vote of a majority of the Independent 12b-1
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the Act) on not more than thirty days' written notice to any
other party to the Plan. So long as the Plan is in effect, the election and
nomination of Independent Trustees shall be committed to the discretion of the
Independent Trustees.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term securities with remaining maturities
of 60 days or less at the time of purchase are valued at amortized cost, unless
the Trustees determine such does not reflect the securities' market value, in
which case these securities will be valued at their fair value as determined by
the Trustees. Other short-term debt securities will be valued on a
mark-to-market basis until such time as they reach a remaining maturity of 60
days, whereupon they will be valued at amortized cost using their value on the
61st day unless the Trustees determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. Listed options on debt securities are valued at
the latest sale price on the exchange on which they are listed unless no sales
of such options have taken place that day, in which case they will be valued at
the mean between their latest bid and asked prices. Unlisted options on debt
securities and all options on equity securities are valued at the mean between
their latest bid and asked prices. Futures are valued at the latest sale price
on the commodities exchange on which they trade unless the Trustees determine
that such price does not reflect their market value, in which case they will be
valued at their fair value as determined by the Trustees. All other securities
and other assets are valued at their fair value as determined in good faith
under procedures established by and under the supervision of the Trustees.
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time, on each day that the New York Stock Exchange is open (or,
on days when the New York Stock Exchange closes prior to 4:00 p.m., at such
earlier time) by taking the value of all assets of the Fund, subtracting its
liabilities, dividing by the number of shares outstanding and adjusting to the
nearest cent. The New York Stock Exchange currently observes the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange and will therefore not be reflected in
the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees.
SHAREHOLDER SERVICES
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Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by Dean Witter
Trust Company (the "Transfer Agent"). This is an open account in which shares
owned by the investor are credited by the Transfer Agent in lieu of issuance of
a share certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares and
may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder instituted
transaction takes place in the Shareholder Investment Account, the shareholder
will be mailed a confirmation of the transaction from the Fund or from DWR or
other selected broker-dealer.
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AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the Fund, unless the
shareholder requests that they be paid in cash. Each purchase of shares of the
Fund is made upon the condition that the Transfer Agent is thereby automatically
appointed as agent of the investor to receive all dividends and capital gains
distributions on shares owned by the investor. Such dividends and distributions
will be paid, at the net asset value per share, in shares of the Fund (or in
cash if the shareholder so requests) as of the close of business on the record
date. At any time an investor may request the Transfer Agent, in writing, to
have subsequent dividends and/or capital gains distributions paid to him or her
in cash rather than shares. To assure sufficient time to process the charge,
such request should be received by the Transfer Agent at least five business
days prior to the record date of the dividend or distribution. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payments will be made to the Distributor,
which will be forwarded to the shareholder, upon the receipt of proper
instructions.
TARGETED DIVIDENDS.(SM) In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of a Dean Witter Fund other than Dean Witter
High Income Securities. Such investment will be made as described above for
automatic investment in shares in shares of the Fund, at the net asset value per
share of the selected Dean Witter Fund as of the close of business on the
payment date of the dividend or distribution. Shareholders of Dean Witter High
Income Securities must be shareholders of the Dean Witter Fund targeted to
receive investments from dividends at the time they enter the Targeted Dividends
program. Investors should review the prospectus of the targeted Dean Witter Fund
before entering the program.
EASYINVEST.(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, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing account at the net asset value calculated the same business day the
transfer of funds is effected. For further information or to subscribe to
EasyInvest, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution at the net
asset value next determined after receipt by the Transfer Agent, without the
imposition of a contingent deferred sales charge upon redemption, by returning
the check or the proceeds to the Transfer Agent within 30 days after the payment
date. If the shareholder returns the proceeds of a dividend or distribution,
such funds must be accompanied by a signed statement indicating that the
proceeds constitute a dividend or distribution to be invested. Such investment
will be made at the net asset value per share next determined after receipt of
the check or proceeds by the Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount, not
less than $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable contingent deferred sales charge will be
imposed on shares redeemed under the Withdrawal Plan (see "Redemptions and
Repurchases--Contingent Deferred Sales Charge" in the Prospectus). 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
deferred sales charge) to the shareholder will be the designated monthly or
quarterly amount.
The Transfer Agent acts as an agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
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<PAGE>
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent within five business days after the date of redemption.
The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the 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. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the contingent deferred sales charge
applicable to the redemption of shares purchased during the preceding six years
(see "Redemptions and Repurchases -- Contingent Deferred Sales Charge").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her Account Executive or by written nomination to the Transfer Agent. In
addition, the party and/or the address to which the checks are mailed may be
changed by written notification to the Transfer Agent, with signature guarantees
required in the manner described above. The shareholder may also terminate the
Withdrawal Plan at any time by written notice to the Transfer Agent. In the
event of such termination, the account will be continued as a regular
shareholder investment account. The shareholder may also redeem all or part of
the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
a shareholder may make additional investments in Fund shares at any time by
sending a check in any amount, not less than $100, payable to Dean Witter High
Income Securities, directly to the Fund's Transfer Agent. Such amounts will be
applied to the purchase of Fund shares at the net asset value per share next
computed after receipt of the check or purchase payment by the Transfer Agent.
The shares so purchased will be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of the Fund may exchange their shares
for shares of other Dean Witter Funds sold with a contingent deferred sales
charge ("CDSC funds"), and for shares of Dean Witter Short-Term U.S. Treasury
Trust, Dean Witter Intermediate Term U.S. Treasury Trust, Dean Witter Limited
Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter Balanced
Growth Fund, Dean Witter Balanced Income Fund and five Dean Witter Funds which
are money market funds (the foregoing eleven non-CDSC funds are hereinafter
referred to as the "Exchange Funds"). Exchanges may be made after the shares of
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares, on
which the shareholder may realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
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Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the captions "Exchange
Privilege" and "Contingent Deferred Sales Charge", a contingent deferred sales
charge ("CDSC") may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of the Fund or any
other CDSC fund are exchanged for shares of an Exchange Fund, the exchange is
executed at no charge to the shareholder, without the imposition of the CDSC at
the time of the exchange. During the period of time the shareholder remains in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired), the holding period or "year since purchase
payment made" is frozen. When shares are redeemed out of the Exchange Fund, they
will be subject to a CDSC which would be based upon the period of time the
shareholder held shares in a CDSC fund. However, in the case of shares exchanged
into an Exchange Fund on or after April 23, 1990, upon a redemption of shares
which results in a CDSC being imposed, a credit (not to exceed the amount of the
CDSC) will be given in an amount equal to the Exchange Fund 12b-1 distribution
fees, if any, incurred on or after that date which are attributable to those
shares. Shareholders acquiring shares of an Exchange Fund pursuant to this
exchange privilege may exchange those shares back into a CDSC fund from the
Exchange Fund, with no CDSC being imposed on such exchange. The holding period
previously frozen when shares were first exchanged for shares of the Exchange
Fund resumes on the last day of the month in which shares of a CDSC fund are
reacquired. A CDSC is imposed only upon an ultimate redemption, based upon the
time (calculated as described above) the shareholder was invested in a CDSC
fund.
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds"), but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter Funds for which shares of a front-end sales charge fund
have been exchanged) are not subject to any CDSC upon their redemption.
If shares of the Fund are exchanged for shares of another CDSC fund having a
CDSC which is imposed at a higher rate or is subject to a different time
schedule than the CDSC imposed upon a redemption of a share of the Fund, the
higher CDSC will be imposed upon redemption of shares of the fund exchanged
into. Likewise, if shares of another CDSC fund are exchanged for shares of the
Fund, upon rdemption of shares of the Fund, a CDSC will be imposed in accordance
with the CDSC schedule applicable to the fund with the higher CDSC. Moreover, if
shares of the Fund are exchanged for shares of another CDSC fund with a
different CDSC schedule imposing a higher CDSC and are subsequently exchanged
again for shares of the Fund, the higher CDSC will still apply upon ultimate
redemption of shares of the Fund.
When shares initially purchased in a CDSC fund are exchanged for shares of
another CDSC fund, or for shares of an Exchange Fund, the date of purchase of
the shares of the fund exchanged into, for purposes of the CDSC upon redemption,
will be the last day of the month in which the shares being exchanged were
originally purchased. In allocating the purchase payments between funds for
purposes of the CDSC, the amount which represents the current net asset value of
shares at the time of the exchange which were (i) purchased more than three or
six years (depending on the CDSC schedule applicable to the shares) prior to the
exchange, (ii) originally acquired through reinvestment of dividends or
distributions and (iii) acquired in exchange for shares of front-end sales
charge funds, or for shares of other Dean Witter Funds for which shares of
front-end sales charge funds have been exchanged (all such shares called "Free
Shares"), will be exchanged first. Shares of Dean Witter American Value Fund
acquired prior to April 30, 1984, shares of Dean Witter Dividend Growth
Securities Inc. and Dean Witter Natural Resource Development Securities Inc.
acquired prior to July 2, 1984, and shares of Dean Witter Strategist Fund
acquired prior to November 8, 1989, are also considered Free Shares and will be
the first Free Shares to be exchanged. After an exchange, all dividends earned
on shares in an Exchange Fund
38
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will be considered Free Shares. If the exchanged amount exceeds the value of
such Free Shares, an exchange is made, on a block-by-block basis, of non-Free
Shares held for the longest period of time (except that if shares held for
identical periods of time but subject to different CDSC schedules are held in
the same Exchange Privilege account, the shares of that block that are subject
to a lower CDSC rate will be exchanged prior to the shares of that block that
are subject to a higher CDSC rate). Shares equal to any appreciation in the
value of non-Free Shares exchanged will be treated as Free Shares, and the
amount of the purchase payments for the non-Free Shares of the fund exchanged
into will be equal to the lesser of (a) the purchase payments for, or (b) the
current net asset value of, the exchanged non-Free Shares. If an exchange
between funds would result in exchange of only part of a particular block of
non-Free Shares, then shares equal to any appreciation in the value of the block
(up to the amount of the exchange) will be treated as Free Shares and exchanged
first, and the purchase payment for that block will be allocated on a pro rata
basis between the non-Free Shares of that block to be retained and the non-Free
Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount of purchase payment for the exchanged non-Free
Shares will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the Prospectus under the caption
"Contingent Deferred Sales Charge," any applicable CDSC will be imposed upon the
ultimate redemption of shares of any fund, regardless of the number of exchanges
since those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000 for
Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust,
Dean Witter California Tax-Free Daily Income Trust and Dean Witter New York
Municipal Money Market Trust, although those funds may, at their discretion,
accept initial investments of as low as $1,000. The minimum investment is
$10,000 for Dean Witter Short-Term U.S. Treasury Trust, although that fund, in
its discretion, may accept initial purchases as low as $5,000. The minimum
initial investment is $5,000 for Dean Witter Special Value Fund. The minimum
initial investment for all other Dean Witter Funds for which the Exchange
Privilege is available is $1,000.) Upon exchange into an Exchange Fund, the
shares of that fund will be held in a special Exchange Privilege Account
separately from accounts of those shareholders who have acquired their shares
directly from that fund. As a result, certain services normally available to
shareholders of those funds, including the check writing feature, will not be
available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days' prior written notice for
termination or material revision), provided that six months' prior written
notice of termination will be given to the shareholders who hold shares of
Exchange Funds, pursuant to the Exchange Privilege, and provided further that
the Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is
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<PAGE>
closed for other than customary weekends and holidays, (b) when trading on that
Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, (d) during any other period when the Securities and Exchange
Commission by order so permits (provided that applicable rules and regulations
of the Securities and Exchange Commission shall govern as to whether the
conditions prescribed in (b) or (c) exist) or (e) if the Fund would be unable to
invest amounts effectively in accordance with its investment objective, policies
and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of the Fund can be redeemed
for cash at any time at the net asset value per share next determined; however,
such redemption proceeds may be reduced by the amount of any applicable
contingent deferred sales charges (see below). If shares are held in a
shareholder's account without a share certificate, a written request for
redemption to the Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303
is required. If certificates are held by the shareholder, the shares may be
redeemed by surrendering the certificates with a written request for redemption.
The share certificate, or an accompanying stock power, and the request for
redemption, must be signed by the shareholder or shareholders exactly as the
shares are registered. Each request for redemption, whether or not accompanied
by a share certificates, must be sent to the Fund's Transfer Agent, which will
redeem the shares at their net asset value next computed (see "Purchase of Fund
Shares") after it receives the request, and certificate, if any, in good order.
Any redemption request received after such computation will be redeemed at the
next determined net asset value. The term "good order" means that the share
certificate, if any, and request for redemption are properly signed, accompanied
by any documentation required by the Transfer Agent, and bear signature
guarantees when required by the Fund or the Transfer Agent. If redemption is
requested by a corporation, partnership, trust or fiduciary, the Transfer Agent
may require that written evidence of authority acceptance to the Transfer Agent
be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor. A stock power may be obtained from any dealer or commercial bank. The
Fund may change the signature guarantee requirements from time to time upon
notice to shareholders, which may be a means of a new prospectus.
CONTINGENT DEFERRED SALES CHARGE. As stated in the Prospectus, a contingent
deferred sales charge ("CDSC") will be imposed on any redemption by an investor
if after such redemption the current value of the investor's shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Fund shares during the preceding five years. However, no CDSC will
be imposed to the extent that the net asset value of the shares redeemed does
not exceed: (a) the current net asset value of shares purchased more than five
years prior to the redemption, plus (b) the current net asset value of shares
purchased through reinvestment of dividends or distributions of the Fund or
another Dean Witter Fund (see "Shareholder Services -- Targeted Dividends"),
plus (c) the current net asset value of shares acquired in exchange for (i)
shares of Dean Witter front-end sales charge funds, or (ii) shares of other Dean
Witter Funds for which shares of front-end sales charge funds have been
exchanged (see "Shareholder Services -- Exchange Privilege"), plus (d) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of Fund shares made during the preceding five years.
The CDSC will be paid to the Distributor.
40
<PAGE>
In determining the applicability of a CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last five years will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than five years prior to the redemption and/or shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of Dean Witter front-end sales charge funds, or for shares
of other Dean Witter Funds for which shares of front-end sales charge funds have
been exchanged. Any portion of the amount redeemed which exceeds an amount which
represents both such increase in value and the value of shares purchased more
than five years prior to the redemption and/or shares purchased through
reinvestment of dividends or distributions and/or shares acquired in the
above-described exchanges will be subject to a CDSC.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of: (i) 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 or Custodial Account under Section 403(b)(7) of the Internal Revenue
Code, provided in either case that the redemption is requested within one year
of the death or initial determination of disability, and (ii) redemptions in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate of self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an Individual
Retirement Account or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code following attainment of age 59 1/2; and (c) a tax-free return of an
excess contribution to an IRA. For the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Code, which relates to the inability to engage in gainful employment. All
waivers will be granted only following receipt by the Distributor of
confirmation of the investor's entitlement.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Fund shares until the time of
redemption of such shares. For purposes of determining the number of years from
the time of any payment for the purchase of shares, all payments made during a
month will be aggregated and deemed to have been made on the last day of the
month. The following table sets forth the rates of the CDSC:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ------------------------------------------------------------ --------------------
<S> <C>
First....................................................... 4.0%
Second...................................................... 3.0%
Third....................................................... 2.0%
Fourth...................................................... 2.0%
Fifth....................................................... 1.0%
Sixth and thereafter........................................ None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable five-year period. This will result in any such CDSC being imposed at
the lowest possible rate. Accordingly, shareholders may redeem, without
incurring any CDSC, amounts equal to any net increase in the value of their
shares above the amount of their purchase payments made within the past five
years and amounts equal to the current value of shares purchased more than five
years prior to the redemption and shares purchased through reinvestment of
dividends or distributions or acquired in exchange for shares of Dean Witter
front-end sales charge funds, or for shares of other Dean Witter Funds for which
shares of front-end sales charge funds have been exchanged. The CDSC will be
imposed, in accordance with the table shown above, on any redemptions within
five years of purchase which are in excess of these amounts and which
redemptions
41
<PAGE>
are not (a) requested within one year of death or initial determination of
disability of a shareholder, or (b) made pursuant to certain taxable
distributions from retirement plans or retirement accounts, as described above.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
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. The term "good order" means that the share
certificate, if any, and request for redemption, are properly signed,
accompanied by any documentation required by the Transfer Agent, and bear
signature guarantees when required by the Fund or the Transfer Agent. Such
payment may be postponed or the right of redemption suspended at times (a) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on that Exchange is restricted, (c) when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (d) during any period when
the Securities and Exchange Commission by order so permits; provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist. If the
shares to be redeemed have recently been purchased by check, payment of the
redemption proceeds may be delayed for the minimum time needed to verify that
the check used for investment has been honored (not more than fifteen days from
the time of receipt of the check by the Transfer Agent). Shareholders
maintaining margin accounts with DWR or another selected broker-dealer are
referred to their account executive regarding restrictions on redemption of
shares of the Fund pledged in the margin account.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the contingent deferred sales charge or free of such charge
(and with regard to the length of time shares subject to the charge have been
held), any transfer involving less than all of the shares in an account will be
made on a pro-rata basis (that is, by transferring shares in the same proportion
that the transferred shares bear to the total shares in the account immediately
prior to the transfer). The transferred shares will continue to be subject to
any applicable contingent deferred sales charge as if they had not been so
transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 30 days after the redemption
or repurchase, reinstate any portion or all of the proceeds of such redemption
or repurchase in shares of the Fund held by the shareholder at the net asset
value next determined after a reinstatement request, together with the proceeds,
is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax and state income tax treatment of any gain or loss realized upon the
redemption or repurchase, except that if the redemption or repurchase resulted
in a loss and reinstatement is made in shares of the Fund, some or all of the
loss, depending on the amount reinstated, will not be allowed as a deduction for
federal income tax and state personal income tax purposes but will be applied to
adjust the cost basis of the shares acquired upon reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and will notify shareholders that following an election by the
Fund, the shareholders will be required to include such undistributed gains in
determining their taxable income and may claim their share of the tax paid by
the Fund as a credit against their individual federal income tax. In computing
net investment income, the Fund will not amortize premiums or accrue discounts
on fixed-income securities in the portfolio, except those original issue
discounts for which amortization is
42
<PAGE>
required for federal income tax purposes. Additionally, with respect to market
discounts on bonds issued after July 18, 1984, and all bonds purchased after
April 30, 1993, a portion of any capital gain realized upon disposition may be
re-characterized as taxable ordinary income in accordance with the provisions of
the Internal Revenue Code. Realized gains and losses on security transactions
are determined on the identified cost method. Dividend income is recorded on the
ex-dividend date. Gains or losses on the sales of securities by the Fund will be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be short-term capital gains or losses. In determining
amounts to be distributed, capital gains will be offset by any capital loss
carryovers incurred in prior years. The Fund incurred and will elect to defer
net capital losses of approximately $6,272,000 during fiscal year 1997.
Any dividend or capital gains distribution received by a shareholder from an
investment company will have the effect of reducing the net asset value of the
shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and some
portion of the dividends are subject to federal income taxes. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
the payment of dividends or realized long-term capital gains, such payment would
be in part a return of the shareholder's investment to the extent of such
reduction below the shareholder's cost, but nonetheless would be taxable to the
shareholder. Therefore, an investor should consider the tax implications of
purchasing Fund shares immediately prior to a distribution record date.
Shareholders should consult their attorneys or tax advisers regarding
specific questions as to state or local taxes and as to the applicability of the
foregoing to their current federal tax situation.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies are currently considered to be qualifying
income for purposes of determining whether the Fund qualifies as a regulated
investment company. It is currently unclear, however, who will be treated as the
issuer of certain foreign currency instruments or how foreign currency options,
futures, or forward foreign currency contracts will be valued for purposes of
the regulated investment company diversification requirements applicable to the
Fund. The Fund may request a private letter ruling from the Internal Revenue
Service on some or all of these issues.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (I.E.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts", and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund would
not be able to make any ordinary dividend distributions.
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of certain
technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the Fund
level which could not be eliminated by distributions to shareholders. The U.S.
Treasury issued proposed regulation section 1.1291- 8 which establishes a
mark-to-market regime which allows investment companies investing in PFIC's to
avoid most, if not all, of the difficulties posed by the PFIC rules. In any
event, it is not anticipated that any taxes on the Fund with respect to
investments in PFIC's would be significant.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
43
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature. Yield
is calculated for any 30-day period as follows: the amount of interest and/or
dividend income for each security in the Fund's portfolio is determined in
accordance with regulatory requirements; the total for the entire portfolio
constitutes the Fund's gross income for the period. Expenses accrued during the
period are subtracted to arrive at "net investment income". The resulting amount
is divided by the product of the net asset value per share on the last day of
the period multiplied by the average number of Fund shares outstanding during
the period that were entitled to dividends. This amount is added to 1 and raised
to the sixth power. 1 is then subtracted from the result and the difference is
multipled by 2 to arrive at the annualized yield. For the thirty-day period
ended March 31, 1997, the Fund's yield, calculated pursuant to the formula
described above, was 8.59%.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. The ending redeemable value is
reduced by any contingent deferred sales charge at the end of the one, five or
ten year or other period. For the purpose of this calculation, it is assumed
that all dividends and distributions are reinvested. The formula for computing
the average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment, taking a root
of the quotient (where the root is equivalent to the number of years in the
period) and subtracting 1 from the result. The average annual total returns of
the Fund for the fiscal year ended March 31, 1997 and for the period June 2,
1994 through March 31, 1997 were 6.76% and 9.56%, respectively.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. Such calculations may or may not reflect the
deduction of the contingent deferred charge which, if reflected, would reduce
the performance quoted. For example, the average annual total returns of the
Fund may be calculated in the manner described above, but without deduction for
any applicable contingent deferred sales charge. Based upon this calculation,
the average annual total return of the Fund for the fiscal year ended March 31,
1997 and for the period June 2, 1994 through March 31, 1997 were 10.71% and
31.43%, respectively.
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without the
reduction for any contingent deferred sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based upon the foregoing
calculation, the aggregate total return of the Fund for the fiscal year ended
March 31, 1997 and for the period June 2, 1994 through March 31, 1997 were
10.71% and 10.14%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of the Fund by adding 1 to the Fund's
total aggregate total return to date (expressed as a decimal and without taking
into account the effect of applicable CDSC) and multiplying by $10,000, $50,000
or $100,000 as the case may be. Investments of $10,000, $50,000 or $100,000 in
the Fund at the commencement of its operations would have grown to $13,143,
$65,715 and $131,430, respectively, by March 31, 1997.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
44
<PAGE>
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. All of the Trustees have been elected by the shareholders of the Fund,
most recently at a Special Meeting of Shareholders held on May 21, 1997. On that
date, Wayne E. Hedien was also elected as a Trustee of the Fund with his term to
commence on September 1, 1997. The Trustees themselves have the power to alter
the number and the terms of office of the Trustees, and they may at any time
lengthen their own terms or make their terms of unlimited duration and appoint
their own successors, provided that always at least a majority of the Trustees
has been elected by the shareholders of the Fund. Under certain circumstances
the Trustees may be removed by action of the Trustees. The shareholders also
have the right to remove the Trustees following a meeting called for that
purpose requested in writing by the record holders of not less than ten percent
of the Fund's outstanding shares. The voting rights of shareholders are not
cumulative, so that holders of more than 50 percent of the shares voting can, if
they choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances). The Trustees presently have not authorized
any such additional series or classes of shares.
The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, nor is any Trustee,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, except as such liability may arise from his or her own bad
faith, willful misfeasance, gross negligence, or reckless disregard of his or
her duties. It also provides that all third persons shall look solely to the
Fund's property for satisfaction of claims arising in connection with the
affairs of the Fund. With the exceptions stated, the Declaration of Trust
provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liabilities in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York is the Custodian of the Fund's assets. The Custodian
has contracted with various foreign banks and depositaries to hold portfolio
securities of non-U.S. issuers on behalf of the Fund. Any of the Fund's cash
balances with the Custodian in excess of $100,000 are unprotected by federal
deposit insurance. Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager, and of Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services
Dean Witter Trust Company receives a per shareholder account fee.
45
<PAGE>
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on March 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund included in this Statement of
Additional Information and incorporated by reference in the Prospectus has been
so included and incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
46
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER HIGH INCOME SECURITIES
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter High Income Securities
(the "Fund") at March 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the two years in the period
then ended and for the period June 2, 1994 (commencement of operations) through
March 31, 1995, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at March
31, 1997 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
MAY 9, 1997
1997 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended March 31, 1997, the Fund paid to its
shareholders $0.01 per share from long-term capital gains.
47
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (93.2%)
AEROSPACE (0.8%)
$ 9,000 Sabreliner Corp. (Series B).............. 12.50 % 04/15/03 $ 8,685,000
-----------------
AUTOMOTIVE (6.9%)
8,950 APS, Inc................................. 11.875 01/15/06 9,039,500
13,505 Envirotest Systems, Inc.................. 9.125 03/15/01 12,694,700
30,000 General Motors Acceptance Corp........... 15.00 03/17/98 32,346,000
23,000 Toyota Motor Credit Corp................. 15.00 09/26/97 23,990,150
-----------------
78,070,350
-----------------
BROADCAST MEDIA (3.9%)
9,350 Adams Outdoor Advertising L.P............ 10.75 03/15/06 9,887,625
9,750 Capstar Broadcasting Partners - 144A*.... 12.75++ 02/01/09 5,167,500
11,500 Paxson Communications Corp............... 11.625 10/01/02 12,132,500
9,749 Spanish Broadcasting System, Inc......... 7.50 06/15/02 10,480,175
7,000 STC Broadcasting, Inc. - 144A*........... 11.00 03/15/07 6,930,000
-----------------
44,597,800
-----------------
BUSINESS SERVICES (5.2%)
21,365 Anacomp, Inc............................. 13.00+ 06/04/02 22,219,553
20,000 Anacomp, Inc. - 144A*.................... 10.875 04/01/04 19,794,000
16,000 Xerox Credit Corp........................ 15.00 06/10/97 16,273,920
-----------------
58,287,473
-----------------
CABLE & TELECOMMUNICATIONS (15.5%)
10,828 Adelphia Communications Corp. (Series
B)..................................... 9.50+ 02/15/04 9,284,766
10,500 Adelphia Communications, Inc. - 144A*.... 9.875 03/01/07 9,843,750
11,050 American Communications Services, Inc.... 13.00++ 11/01/05 6,685,250
10,050 American Communications Services, Inc.... 12.75++ 04/01/06 5,678,250
14,000 AT&T Capital Corp........................ 15.00 05/05/97 14,112,980
13,500 Cablevision Systems Corp................. 10.50 05/15/16 13,601,250
4,599 Cablevision Systems Corp................. 9.875 04/01/23 4,392,045
10,750 Charter Communication South East L.P.
(Series B)............................. 11.25 03/15/06 11,180,000
22,306 Falcon Holdings Group L.P. (Series B).... 11.00+ 09/15/03 20,409,950
10,000 FrontierVision Operating Partners,
L.P.................................... 11.00 10/15/06 9,975,000
24,800 Hyperion Telecommunication, Inc. (Series
B)..................................... 13.00++ 04/15/03 13,516,000
20,400 In-Flight Phone Corp. (Series B) (b)..... 14.00++ 05/15/02 1,734,000
10,000 IXC Communications, Inc. (Series B)...... 12.50 10/01/05 10,900,000
10,750 Paging Network, Inc...................... 10.125 08/01/07 9,701,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,000 Paging Network, Inc...................... 10.00 % 10/15/08 $ 4,437,500
10,000 Peoples Telephone Co., Inc............... 12.25 07/15/02 10,625,000
10,000 Rifkin Acquisition Partners L.P.......... 11.125 01/15/06 10,050,000
10,500 Shared Technology/Fairchild, Inc......... 12.25++ 03/01/06 8,610,000
-----------------
174,737,616
-----------------
COMPUTER EQUIPMENT (6.8%)
14,000 Advanced Micro Devices, Inc.............. 11.00 08/01/03 15,330,000
31,500 IBM Credit Corp.......................... 15.00 03/04/98 33,936,840
7,000 Unisys Corp.............................. 15.00 07/01/97 7,157,500
17,500 Unisys Corp. (Conv.)..................... 8.25 03/15/06 20,017,550
-----------------
76,441,890
-----------------
CONSUMER PRODUCTS (1.3%)
5,500 J.B. Williams Holdings, Inc.............. 12.00 03/01/04 5,678,750
8,750 Renaissance Cosmetics, Inc. - 144A*...... 11.75 02/15/04 8,837,500
-----------------
14,516,250
-----------------
CONTAINERS (2.8%)
7,500 Mail-Well Corp........................... 10.50 02/15/04 7,725,000
9,475 Packaging Resources, Inc................. 11.625 05/01/03 9,759,250
13,500 Silgan Corp.............................. 11.75 06/15/02 14,360,625
-----------------
31,844,875
-----------------
ELECTRICAL & ALARM SYSTEMS (0.9%)
11,000 Mosler, Inc.............................. 11.00 04/15/03 10,340,000
-----------------
ENTERTAINMENT/GAMING & LODGING (9.5%)
9,850 AMF Group Inc. (Series B)................ 10.875 03/15/06 10,268,625
12,000 Fitzgeralds Gaming Corp. (Units)++....... 13.00 12/31/02 10,230,000
14,250 Lady Luck Gaming Finance Corp............ 11.875 03/01/01 13,929,375
6,377 MGM Grand Hotels Corp. (Series A)........ 11.75 05/01/99 6,528,454
19,730 MGM Grand Hotels Corp.................... 12.00 05/01/02 20,889,137
8,000 Motels of America, Inc. (Series B)....... 12.00 04/15/04 6,960,000
9,925 Players International, Inc............... 10.875 04/15/05 10,272,375
9,900 Plitt Theaters, Inc. (Canada)............ 10.875 06/15/04 10,098,000
10,100 Station Casinos, Inc. (Series B)......... 9.625 06/01/03 9,595,000
8,750 Stuart Entertainment, Inc. - 144A*....... 12.50 11/15/04 8,050,000
-----------------
106,820,966
-----------------
FINANCIAL (4.8%)
29,000 General Electric Capital Corp............ 13.50 01/20/98 30,654,160
23,000 Household Finance Corp................... 15.00 09/25/97 23,988,540
-----------------
54,642,700
-----------------
FOODS & BEVERAGES (8.1%)
21,961 Envirodyne Industries, Inc............... 10.25 12/01/01 21,741,390
11,221 Fleming Companies, Inc................... 10.625 12/15/01 11,249,052
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 23,750 General Mills, Inc....................... 13.50 % 01/21/98 $ 25,078,813
72,425 Specialty Foods Acquisition Corp. (Series
B)..................................... 13.00++ 08/15/05 33,315,500
-----------------
91,384,755
-----------------
HEALTHCARE (1.5%)
11,975 Unilab Corp.............................. 11.00 04/01/06 9,101,000
10,000 Unison Healthcare Corp. - 144A*.......... 12.25 11/01/06 8,100,000
-----------------
17,201,000
-----------------
MANUFACTURING (7.2%)
7,900 Berry Plastics Corp...................... 12.25 04/15/04 8,690,000
9,075 Cabot Safety Corp........................ 12.50 07/15/05 9,755,625
11,000 Exide Electronics Group, Inc. (Series
B)..................................... 11.50 03/15/06 11,742,500
11,500 International Wire Group, Inc............ 11.75 06/01/05 12,161,250
30,000 John Deere Capital Corp.................. 15.00 02/24/98 32,264,400
7,230 Uniroyal Technology Corp................. 11.75 06/01/03 7,230,000
-----------------
81,843,775
-----------------
MANUFACTURING - DIVERSIFIED (5.0%)
9,650 Foamex L.P............................... 11.875 10/01/04 10,397,875
10,000 Interlake Corp........................... 12.125 03/01/02 10,450,000
8,350 J.B. Poindexter & Co., Inc............... 12.50 05/15/04 8,527,438
7,000 Jordan Industries, Inc................... 10.375 08/01/03 6,965,000
35,500 Jordan Industries, Inc. - 144A*.......... 11.75++ 04/01/09 20,103,650
-----------------
56,443,963
-----------------
OIL & GAS (1.9%)
3,000 Petro Stopping Centers L.P. - 144A*...... 10.50 02/01/07 3,030,000
17,000 TransTexas Gas Corp...................... 11.50 06/15/02 18,742,500
-----------------
21,772,500
-----------------
PUBLISHING (3.4%)
11,175 Affiliated Newspapers Investments,
Inc.................................... 13.25++ 07/01/06 9,219,375
8,200 American Media Operations, Inc........... 11.625 11/15/04 8,856,000
4,500 MDC Communications Corp.................. 10.50 12/01/06 4,657,500
5,000 Petersen Publishing, Inc. (Series B)..... 11.125 11/15/06 5,350,000
10,100 United States Banknote Corp.............. 10.375 06/01/02 10,074,750
-----------------
38,157,625
-----------------
RESTAURANTS (3.1%)
12,000 American Restaurant Group Holdings,
Inc.................................... 14.00++ 12/15/05 5,250,000
17,000 American Restaurant Group Holdings, Inc.
- 144A*................................ 14.00++ 12/15/05 7,437,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 3,000 Ameriking, Inc........................... 10.75 % 12/01/06 $ 3,105,000
10,437 Carrols Corp............................. 11.50 08/15/03 10,958,850
7,647 FRD Acquisition Corp. (Series B)......... 12.50 07/15/04 7,991,115
-----------------
34,742,465
-----------------
RETAIL (0.4%)
10,450 County Seat Stores Co. (a)............... 12.00 10/01/02 4,754,750
-----------------
RETAIL - FOOD CHAINS (2.1%)
9,000 Jitney-Jungle Stores of America, Inc..... 12.00 03/01/06 9,540,000
14,200 Pathmark Stores, Inc..................... 9.625 05/01/03 13,383,500
1,000 Ralphs Grocery Co........................ 10.45 06/15/04 1,030,000
-----------------
23,953,500
-----------------
TEXTILES (1.9%)
10,030 Reeves Industries, Inc................... 11.00 07/15/02 9,403,125
13,400 U.S. Leather, Inc........................ 10.25 07/31/03 11,524,000
-----------------
20,927,125
-----------------
TRANSPORTATION (0.2%)
1,750 Atlantic Express - 144A*................. 10.75 02/01/04 1,789,375
-----------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $1,065,113,290).................................. 1,051,955,753
-----------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<S> <C> <C>
COMMON STOCKS (c) (2.6%)
FOODS & BEVERAGES (0.5%)
490,000 Seven-Up/RC Bottling Co. Southern California, Inc (d)................ 5,787,880
300,975 Specialty Foods Acquisition Corp. - 144A*............................ 300,975
-----------------
6,088,855
-----------------
HEALTHCARE (0.1%)
1,358,200 Unilab Corp.......................................................... 933,763
-----------------
MANUFACTURING - DIVERSIFIED (2.0%)
835,689 Thermadyne Holdings Corp. (d)........................................ 22,668,064
-----------------
RESTAURANTS (0.0%)
12,000 American Restaurant Group Holdings, Inc. - 144A*..................... 12,000
-----------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $21,786,775)........................................ 29,702,682
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK (0.2%)
ENTERTAINMENT/GAMING & LODGING
80,000 Fitzgeralds Gaming Corp. (Units) ++
(Identified Cost $2,000,000)....................................... $ 1,840,000
-----------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- ----------- -----------
<S> <C> <C> <C>
WARRANTS (c) (0.1%)
CABLE & TELECOMMUNICATIONS (0.1%)
17,000 Hyperion Telecommunication, Inc. (Series B) - 144A*... 04/01/01 510,000
-----------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
9,000 Fitzgeralds Gaming Corp............................... 12/19/98 9,035
3,500 Fitzgeralds South Inc. - 144A*........................ 03/15/99 --
-----------------
9,035
-----------------
MANUFACTURING (0.0%)
6,000 Exide Electronics Group, Inc. - 144A*................. 03/15/06 240,000
20,000 Uniroyal Technology Corp.............................. 06/01/03 20,000
-----------------
260,000
-----------------
TOTAL WARRANTS
(IDENTIFIED COST $626,644)......................................... 779,035
-----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ----------- ----------- ----------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (2.3%)
U.S. GOVERNMENT AGENCY (e) (0.7%)
$ 8,000 Federal Home Loan Banks (Amortized Cost
$7,998,800)............................ 5.40 % 04/02/97 7,998,800
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT (1.6%)
$ 18,084 The Bank of New York (dated 03/31/97;
proceeds $18,086,441; collateralized by
$18,811,006 U.S. Treasury Note 6.25%
due 02/15/03 valued at $18,445,416)
(Identified Cost $18,083,741).......... 5.375 % 04/01/97 $ 18,083,741
-----------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $26,082,541)..................................... 26,082,541
-----------------
TOTAL INVESTMENTS
(IDENTIFIED COST $1,115,609,250) (F)...................... 98.4% 1,110,360,011
OTHER ASSETS IN EXCESS OF LIABILITIES..................... 1.6 18,720,866
------ ----------------
NET ASSETS................................................ 100.0% $ 1,129,080,877
------ ----------------
------ ----------------
<FN>
- ---------------------
* Resale is restricted to qualified institutional investors.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified date.
++ Consists of one or more class of securities traded together as a unit;
bonds or preferred stocks with attached warrants.
(a) Non-income producing security; bond in default.
(b) Non-income producing security; issuer in bankruptcy.
(c) Non-income producing securities.
(d) Acquired through exchange offer.
(e) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(f) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $35,594,566 and the
aggregate gross unrealized depreciation is $40,843,805, resulting in net
unrealized depreciation of $5,249,239.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,115,609,250).......................... $1,110,360,011
Receivable for:
Interest................................................ 22,160,555
Investments sold........................................ 20,135,679
Shares of beneficial interest sold...................... 6,622,760
Deferred organizational expenses............................ 70,539
Prepaid expenses............................................ 26,377
--------------
TOTAL ASSETS........................................... 1,159,375,921
--------------
LIABILITIES:
Payable for:
Investments purchased................................... 25,503,561
Shares of beneficial interest repurchased............... 1,785,316
Dividends to shareholders............................... 1,505,306
Plan of distribution fee................................ 752,441
Investment management fee............................... 431,584
Accrued expenses............................................ 316,836
--------------
TOTAL LIABILITIES...................................... 30,295,044
--------------
NET ASSETS:
Paid-in-capital............................................. 1,144,188,118
Net unrealized depreciation................................. (5,249,239)
Accumulated undistributed net investment income............. 1,795,238
Accumulated net realized loss............................... (11,653,240)
--------------
NET ASSETS............................................. $1,129,080,877
--------------
--------------
NET ASSET VALUE PER SHARE,
115,231,451 SHARES OUTSTANDING (UNLIMITED SHARES
AUTHORIZED OF $.01 PAR VALUE).............................
$9.80
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 92,540,476
------------
EXPENSES
Plan of distribution fee.................................... 6,228,452
Investment management fee................................... 3,685,133
Transfer agent fees and expenses............................ 406,387
Registration fees........................................... 286,221
Professional fees........................................... 56,237
Shareholder reports and notices............................. 54,942
Custodian fees.............................................. 45,434
Organizational expenses..................................... 32,000
Trustees' fees and expenses................................. 14,811
Other....................................................... 13,809
------------
TOTAL EXPENSES......................................... 10,823,426
------------
NET INVESTMENT INCOME.................................. 81,717,050
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (10,135,805)
Net change in unrealized depreciation....................... 1,728,943
------------
NET LOSS............................................... (8,406,862)
------------
NET INCREASE................................................ $ 73,310,188
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE YEAR
MARCH 31, ENDED
1997 MARCH 31, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 81,717,050 $ 37,030,684
Net realized gain (loss).................................... (10,135,805) 8,183,189
Net change in unrealized depreciation....................... 1,728,943 (6,754,811)
------------- --------------
NET INCREASE........................................... 73,310,188 38,459,062
------------- --------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (82,972,651) (34,585,105)
Net realized gain........................................... (6,935,617) (1,424,003)
------------- --------------
TOTAL.................................................. (89,908,268) (36,009,108)
------------- --------------
Net increase from transactions in shares of beneficial
interest.................................................. 640,188,381 334,159,446
------------- --------------
NET INCREASE........................................... 623,590,301 336,609,400
NET ASSETS:
Beginning of period......................................... 505,490,576 168,881,176
------------- --------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$1,795,238 AND $3,050,651, RESPECTIVELY)................ $1,129,080,877 $ 505,490,576
------------- --------------
------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter High Income Securities (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's primary investment objective
is to earn a high level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective. The Fund
seeks to achieve its objective by investing primarily in lower-rated fixed
income securities. The Fund was organized as a Massachusetts business trust on
March 23, 1994 and commenced operations on June 2, 1994.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued, if
there were no sales that day, the security is valued at the latest bid price (in
cases where a security is traded on more than one exchange, the security is
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Dean Witter InterCapital Inc. (the "Investment Manager") that sale
and bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees
(valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the portfolio securities
valued by such pricing service; and (5) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued
57
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997, CONTINUED
on a mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily except where collection is not expected.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-date. The amount of dividends and
distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $154,000 which haven been
reimbursed for the full amount thereof. Such expenses have been deferred and are
being amortized on the straight-line method over a period not to exceed five
years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying the
annual rate of 0.50% to the net assets of the Fund determined as of the close of
each business day. Effective May 1, 1996, the annual rate was reduced to 0.425%
for net assets in excess of $500 million.
58
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997, CONTINUED
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 0.80% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived; or (b) the Fund's average daily net
assets. Amounts paid under the Plan are paid to the Distributor to compensate it
for the services provided and the expenses borne by it and others in the
distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to, and expenses of, the
account executives of Dean Witter Reynolds Inc., an affiliate of the Investment
Manager and Distributor, and other employees or selected broker-dealers who
engage in or support distribution of the Fund's shares or who service
shareholder accounts, including overhead and telephone expenses, printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's shares to other than current shareholders and preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may be compensated under the Plan for its opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses incurred by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by
59
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997, CONTINUED
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Fund that such excess amounts,
including carrying charges, totaled $28,870,822 at March 31, 1997.
The Distributor has informed the Fund that for the year ended March 31, 1997, it
received approximately $1,408,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended March 31, 1997 aggregated
$882,695,717 and $301,847,787, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and the
Distributor, is the Fund's transfer agent. At March 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $66,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 92,034,373 $915,772,428 41,085,242 $408,356,512
Reinvestment of dividends and distributions...................... 3,505,097 34,682,684 1,336,198 13,186,801
----------- ------------ ----------- ------------
95,539,470 950,455,112 42,421,440 421,543,313
Repurchased...................................................... (31,220,883) (310,266,731) (8,797,583) (87,383,867)
----------- ------------ ----------- ------------
Net increase..................................................... 64,318,587 $640,188,381 33,623,857 $334,159,446
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $6,272,000 during fiscal 1997.
As of March 31, 1997, the Fund had temporary book/tax differences attributable
to post-October losses and capital loss deferrals on wash sales.
60
<PAGE>
DEAN WITTER HIGH INCOME SECURITIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE JUNE 2, 1994*
YEAR ENDED YEAR ENDED THROUGH
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 9.93 $ 9.77 $ 10.00
----- ------ ------
Net investment income.............. 0.99 1.03 0.75
Net realized and unrealized gain
(loss)............................ 0.02 0.18 (0.26)
----- ------ ------
Total from investment operations... 1.01 1.21 0.49
----- ------ ------
Less dividends and distributions
from:
Net investment income........... (1.03) (1.01) (0.72)
Net realized gain............... (0.11) (0.04) --
----- ------ ------
Total dividends and
distributions..................... (1.14) (1.05) (0.72)
----- ------ ------
Net asset value, end of period..... $ 9.80 $ 9.93 $ 9.77
----- ------ ------
----- ------ ------
TOTAL INVESTMENT RETURN+........... 10.71% 12.85% 5.19%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.39% 1.49% 1.55%(2)(3)
Net investment income.............. 10.50% 11.22% 10.85%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions.......................... $ 1,129 $ 505 $ 169
Portfolio turnover rate............ 42% 69% 53%(1)
<FN>
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all the expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment ratios
would have been 1.65% and 10.75%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated by reference to Item 27 of, and
Exhibits 1 and 2 to, Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A ("Post-Effective Amendment No. 21") as an
amendment to Registrant's Registration Statement on Form N-1A (File Nos.
2-64782; 811-2932), filed on June 18, 1979 (the "Registration Statement").
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
(1) (a) Articles of Incorporation dated June 14, 1979 (incorporated by reference to Exhibit 1 to
Post-Effective Amendment No. 19 to the Registration Statement ("Post-Effective Amendment
No. 19"))
(b) Amendment to Articles of Incorporation (incorporated by reference to Exhibit 1 to
Post-Effective Amendment No. 21)
(c) Articles Supplementary (incorporated by reference to Exhibit 1 to Post-Effective
Amendment No. 21)
(2) Bylaws of Registrant dated June 18, 1979, as amended on January 25, 1995 and October 25,
1996 (incorporated by reference to Exhibit 2 to Post-Effective Amendment No. 20 to the
Registration Statement)
(3) Not Applicable
(4) Copy of Agreement and Plan of Reorganization (filed herewith as Exhibit A to the Proxy
Statement and Prospectus)
(5) Not Applicable
(6) Investment Management Agreement (incorporated by reference to Exhibit 5 to Post-Effective
Amendment No. 21)
(7) (a) Distribution Agreement between Registrant and Dean Witter Distributors Inc.
(incorporated by reference to Exhibit 6 to Post-Effective Amendment No. 21)
(b) Multiple-Class Distribution Agreement between the Registrant and Dean Witter
Distributors Inc. (incorporated by reference to Exhibit 6 to Post-Effective Amendment
No. 21)
(c) Form of Selected Dealers Agreement (incorporated by reference to Exhibit 6(b) to
Post-Effective Amendment No. 17)
(d) Form of Selected Dealers Agreement (incorporated by reference to Exhibit 6(c) to
Post-Effective Amendment No. 17)
(8) Not Applicable
(9) (a) Custody Agreement dated September 20, 1991 (incorporated by reference to Exhibit 8 to
Post-Effective Amendment No. 19)
(b) Transfer Agency and Services Agreement between Registrant and Dean Witter Trust Company
(incorporated by reference to Exhibit 8 to Post-Effective Amendment No. 17 to the
Registration Statement)
(10) (a) Plan of Distribution pursuant to Rule 12b-1, dated July 28, 1997 (incorporated by
reference to Exhibit 15 to Post-Effective Amendment No. 21)
C-1
<PAGE>
(b) Dean Witter Funds Multiple Class Plan pursuant to Rule 18f-3 (incorporated by reference
to Exhibit 18 to Post-Effective Amendment No. 21)
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein (incorporated by
reference to Registrant's Registration Statement on Form N-14 filed electroncially with
the Commission on July 3, 1997 (the "Initial Registration Statement on Form N-14")
(b) Opinion and consent of Piper & Marbury LLP (incorporated by reference to the Initial
Registration Statement on Form N-14)
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein regarding tax matters
(incorporated by reference to the Initial Registration Statement on Form N-14)
(13) Form of Services Agreement between Dean Witter InterCapital Inc. and Dean Witter Services
Company Inc. (incorporated by reference to Exhibit 9 to Post-Effective Amendment No. 19)
(14) Consent of Independent Accountants
(15) Not Applicable
(16) Powers of Attorney (incorporated by reference to the Initial Registration Statement on Form
N-14)
(17) (a) Registrant's Rule 24f-2 Notice pursuant to Rule 24f-2 under the Investment Company Act
of 1940, for its fiscal year ended August 31, 1996 (incorporated by reference to Form
24f-2 filed with the Securities and Exchange Commission on October 4, 1996)
(b) Form of Proxy (incorporated by reference to the Initial Registration Statement on From
N-14)
</TABLE>
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of the prospectus which is a
part of this registration statement on Form N-14 by any person or party who
is deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, the reoffering prospectus will contain the
information called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to this
registration statement on Form N-14 and will not be used until the amendment
is effective, and that, in determining any liability under the Securities Act
of 1933, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the offering
of the securities at that time shall be deemed to be the initial bona fide
offering of them.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this Pre-Effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York and State of New York, on the 28th day of
July 1997.
DEAN WITTER HIGH YIELD SECURITIES INC.
By: /s/ Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
1.Principal Executive Officer
/s/ Charles A. Fiumefreddo President, Chief July 28, 1997
Executive Officer,
Director and Chairman
2.Principal Financial Officer
/s/ Thomas F. Caloia Treasurer and Principal July 28, 1997
Accounting Officer
3.Majority of Directors
Michael Bozic Director
Edwin J. Garn* Director July 28, 1997
John R. Haire* Director July 28, 1997
Manuel H. Johnson* Director July 28, 1997
Michael E. Nugent* Director July 28, 1997
John L. Schroeder* Director July 28, 1997
Charles A. Fiumefreddo* Director July 28, 1997
Philip J. Purcell Director
*By:/s/Stuart M. Strauss, Esq.
Attorney-in-fact
Dated: July 28, 1997
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
------- ------- ------
<S> <C> <C>
(14) CONSENT OF INDEPENDENT ACCOUNTANTS
</TABLE>
I-1
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement and
Prospectus and the Statement of Additional Information constituting parts of
this registration statement on Form N-14 (the "Registration Statement") of our
report dated October 11, 1996, relating to the August 31, 1996 financial
statements and financial highlights of Dean Witter High Yield Securities Inc.
("the Fund") and to the reference to us under the heading "Financial Statements
and Experts" in such Proxy Statement and Prospectus. We also consent to the
references to us under the headings "Independent Accountants" and "Experts" in
the Fund's Statement of Additional Information dated July 28, 1997 and to the
reference to us under the heading "Financial Highlights" in the Fund's
Prospectus dated July 28, 1997, which Statement of Additional Information and
Prospectus have been incorporated by reference into this Registration Statement.
We also consent to the incorporation by reference in the Proxy Statement and
Prospectus of our report dated May 9, 1997, relating to the March 31, 1997
financial statements and financial highlights of Dean Witter High Income
Securitites, which appears in that fund's Statement of Additional Information
dated June 16, 1997 which is included in this Registration Statement and to the
incorporation by reference of our report into that fund's Prospectus dated June
16, 1997 which is incorporated by reference into this Registration Statement.
We also consent to the references to us under the headings "Independent
Accountants" and "Experts" in that fund's Statement of Additional Information
and to the reference to us under the heading "Financial Highlights" in that
fund's Prospectus.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 30, 1997
