AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1994
REGISTRATION NO.: 2-66269
811-2978
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 (X)
PRE-EFFECTIVE AMENDMENT NO.--- ( )
POST-EFFECTIVE AMENDMENT NO. 17 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 ( )
AMENDMENT NO. 18 (X)
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DEAN WITTER AMERICAN VALUE FUND
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN Charter)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copy to:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BCOME EFFECTIVE (CHECK APPROPRIATE BOX)
X
---- immediately upon filing pursuant to paragraph (b)
---- on (date) pursuant to paragraph (b)
---- 60 days after filing pursuant to paragraph (a)
---- on (date) pursuant to paragraph (a) of rule 485.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER
THE SECURITIES ACT OF 1933 PURSUANT TO SECTION (A)(1) OF RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE REGISTRANT FILED THE RULE 24F-2 NOTICE, FOR
ITS FISCAL YEAR ENDED DECEMBER 31, 1993, WITH THE SECURITIES AND EXCHANGE
COMMISSION ON JANUARY 25, 1994.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
===============================================================================
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
CROSS-REFERENCE SHEET
FORM N-1A
ITEM CAPTION
- ---- --------
PART A PROSPECTUS
1. ............ Cover Page
2. ............ Prospectus Summary; Summary of Fund Expenses
3. ............ Financial Highlights; Performance Information
4. ............ Investment Objective and Policies; The Fund and
its Management; Cover Page; Investment
Restrictions; Prospectus Summary
5. ............ The Fund and is Management; Back Cover;
Investment Objective and Policies
6. ............ Dividends, Distributions and Taxes; Additional
Information
7. ............ Purchase of Fund Shares; Shareholder Services
8. ............ Redemptions and Repurchases; Shareholder
Services
9. ............ Not applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10. ............ Cover Page
11. ............ Table of Contents
12. ............ The Fund and its Management
13. ............ Investment Practices and Policies; Investment
Restrictions; Portfolio Transactions and
Brokerage
14. ............ The Fund and its Management; Trustees and
Officers
15. ............ The Fund and its Management; Trustees and
Officers
16. ............ The Fund and its Management; The Distributor;
Shareholder Services; Custodian and Transfer
Agent; Independent Accountants
17. ............ Portfolio Transactions and Brokerage
18. ............ Shares of the Fund
19. ............ The Distributor; Redemptions and Repurchasers;
Financial Statements; Determination of Net
Asset Value; Shareholder Services
20. ............ Dividends, Distributions and Taxes
21. ............ The Distributor
22. ............ Performance Information
23. ............ Experts; Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
FEBRUARY 25, 1994
Dean Witter American Value Fund (the "Fund") is an open-end diversified
management investment company whose investment objective is long-term capital
growth consistent with an effort to reduce volatility. The Fund invests
principally in common stock of companies in industries which, at the time of
the investment, are believed to be undervalued in the market place. (See
"Investment Objective and Policies.")
Shares of the Fund are continuously offered at net asset value without
the imposition of a sales charge. However, redemptions and/or repurchases are
subject in most cases to a contingent deferred sales charge, scaled down from
5% to 1% of the amount redeemed, if made within six 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 Plan
of Distribution at the annual rate of 1.0% of the lesser of (i) the average
daily aggregate net sales or (ii) the average daily net assets of the Fund.
(See "Purchase of Fund Shares--Plan of Distribution.")
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
February 25, 1994, 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.
Dean Witter
American Value Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 526-3143
TABLE OF CONTENTS
Prospectus Summary/ 2
Summary of Fund Expenses/ 3
Financial Highlights/ 4
The Fund and its Management/ 4
Investment Objective and Policies/ 5
Investment Restrictions/ 9
Purchase of Fund Shares/ 9
Shareholder Services/ 11
Redemptions and Repurchases/ 14
Dividends, Distributions and Taxes/ 15
Performance Information/ 16
Additional Information/ 17
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
<PAGE>
PROSPECTUS SUMMARY
===============================================================================
The
Fund
The Fund, a Massachusetts business trust, is an open-end diversified
management investment company investing principally in industries which, at the
time of investment, are believed to be undervalued in the market place (see
page 4).
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Shares Offered
Shares of beneficial interest with $0.01 par value (see page 17).
- -------------------------------------------------------------------------------
Offering
Price
At net asset value (see page 9). Shares redeemed within six years of
purchase are subject to a contingent deferred sales charge under most
circumstances (see page 15).
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Minimum
Purchase
Minimum initial investment, $1,000; minimum subsequent investment, $100
(see page 9).
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Investment
Objective
The investment objective of the Fund is capital growth consistent with
an effort to reduce volatility.
- -------------------------------------------------------------------------------
Investment
Manager
Dean Witter InterCapital Inc., the Investment Manager of the Fund and
its wholly-owned subsidiary, Dean Witter Services Company Inc., serve in
various investment management, advisory, management and administrative
capacities to eighty-one investment companies and other portfolios with assets
of approximately $71.2 billion at December 31, 1993 (see page 4).
- -------------------------------------------------------------------------------
Management
Fee
The Investment Manager receives a monthly fee at an annual rate of
0.625 of 1% of daily net assets up to $250 million in net assets and 0.50 of 1%
of daily net assets over $250 million (see page 5).
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Dividends and
Capital Gains
Distributions
It is anticipated that distributions of income and net short-term
capital gains, if any, will be made semi-annually. Net long-term capital gains,
if any, are distributed at least annually or retained for reinvestment by the
Fund. Dividends and capital gains distributions are automatically reinvested in
additional shares at net asset value unless the shareholder elects to receive
cash (see page 15).
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Distributor and
Distribution Fee
Dean Witter Distributors Inc. (the "Distributor"). For its services as
Distributor, which includes payment of sales commissions to account executives
and various other promotional and sales related expenses, the Distributor
receives from the Fund a distribution fee accrued daily and payable monthly at
the rate of 1.0% per annum of the lesser of (a) the average daily aggregate net
sales or (b) the average daily net assets of the Fund. The fee compensates the
Distributor for 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 page 9).
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Redemption--
Contingent
Deferred
Sales
Charge
At net asset value; redeemable involuntarily if total value of the
account is less than $100. Although no commission or sales charge is imposed
upon the purchase of shares, a contingent deferred sales charge (scaled down
from 5% to 1%) is imposed on any redemption of shares which causes the
aggregate current value of an account with the Fund to fall below the aggregate
amount of the investor's purchase payments made during the preceding six years.
There is no charge imposed on redemption of shares purchased through
reinvestment of dividends or distributions (see page 14).
- -------------------------------------------------------------------------------
Retirement
Plans
<PAGE>
You can take advantage of tax benefits for personal retirement accounts
by investing in the Fund through an IRA (Individual Retirement Account) or
Custodial Account under Section 403(b)(7) of the Internal Revenue Code (see
page 12).
- -------------------------------------------------------------------------------
Risks
Emphasis on "undervalued" industries reflects investment views
frequently contrary to general market assessments and may involve risks
associated with departure from general investment opinions. 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 other investment
companies which do not invest in such instruments (see page 6).
- -------------------------------------------------------------------------------
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 December 31, 1993.
Shareholder Transaction Expenses
- --------------------------------
Maximum Sales Charge Imposed on Purchases....................... None
Maximum Sales Charge Imposed on Reinvested Dividends............ None
Deferred Sales Charge
(as a percentage of the lesser of original purchase price
or redemption proceeds)........................................ 5.0%
A deferred sales charge is imposed at the following declining rates:
Year Since 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
Redemption Fees................................................. None
Exchange Fee.................................................... None
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
- ----------------------------------------------------------------------
Management Fees................................................. 0.55%
12b-1 Fees*..................................................... 0.86%
Other Expenses.................................................. 0.20%
Total Fund Operating Expenses................................... 1.61%
- ----------
* A portion of the 12b-1 fee equal to 0.25% 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.
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.
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------ --------
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:.................... $66 $81 $107 $191
You would pay the following expenses
on the same investment, assuming no
redemption:.......................... $16 $51 $ 87 $191
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."
3
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
===================================================================================================================================
The following per share data and ratios for a share of beneficial interest outstanding throughout each period have been
audited by Price Waterhouse, independent accountants. The financial highlights should be read in conjunction with the financial
statements and notes thereto and the unqualified report of the 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.
<CAPTION>
For the year ended December 31,
------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, be-
ginning of period......... $20.93 $20.66 $14.39 $14.81 $13.19 $12.21 $12.64 $12.67 $10.06 $12.56
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Investment (loss)
income -- net............ (0.09) 0.03 0.05 0 . 24 0.34 0.29 0.19 0.28 0.32 0.28
Realized and
unrealized gain
(loss) on invest-
ments -- net............. 3.94 0.71 7.90 (0.38) 2.99 1.03 0.20 1.76 2.61 (1.23)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations................ 3.85 0.74 7.95 (0.14) 3.33 1.32 0.39 2.04 2.93 (0.95)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less dividends and
distributions:
Dividends from net
investment income........ (0.01) (0.03) (0.03) (0.28) (0.32) (0.33) (0.23) (0.32) (0.32) (0.23)
Distributions from
capital gains............ (1.67) (0.44) (1.65) 0.00 (1.39) (0.00) (0.59) (1.75) 0.00 (1.32)
Distributions from
paid-in-capital......... 0.00 0.00 0.00 0.00 0.00 (0.01) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions............. (1.68) (0.47) (1.68) (0.28) (1.71) (0.34) (0.82) (2.07) (0.32) (1.55)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period.................... $23.10 $20.93 $20.66 $14.39 $14.81 $13.19 $12.21 $12.64 $12.67 $10.06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT
RETURN+.................... 18.70% 3.84% 56.26% (0.90)% 25.39% 10.84% 2.84% 15.82% 29.79% (8.32)%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(in thousands)............ $1,217,978 $458,561 $226,982 $89,165 $99,993 $90,053 $109,425 $78,872 $43,235 $37,946
Ratio of expenses to
average net assets........ 1.61% 1.72% 1.58% 1.70% 1.66% 1.78% 1.62% 1.39% 1.24% 1.17%
Ratio of net investment
(loss) income to
average net assets........ (0.59)% 0.18% 0.29% 1.67% 2.23% 2.15% 1.42% 2.10% 2.85% 2.84%
Portfolio turnover rate.... 276 % 305% 264% 234% 196% 133% 203% 120% 61% 107%
<FN>
- ----------
+ Does not reflect the deduction of sales load.
See Notes to Financial Statements
</TABLE>
THE FUND AND ITS MANAGEMENT
===============================================================================
Dean Witter American Value Fund (the "Fund") is an open-end diversified
management investment company incorporated in Maryland on December 13, 1979.
The Fund was reorganized as a trust of the type commonly known as a
"Massachusetts business trust" on April 30, 1987, at which time its name was
changed from Dean Witter Industry-Valued Securities Inc. to Dean Witter
American Value Fund.
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 Dean Witter,
Discover & Co. ("DWDC") a balanced financial services organization providing a
broad range of nationally marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services
Company, Inc. ("DWSC"), serve in various investment management, advisory,
manage-
4
<PAGE>
ment and administrative capacities to a total of eighty-one investment
companies, twenty-nine of which are listed on the New York Stock Exchange, with
combined total assets of approximately $69.2 billion as of December 31, 1993.
The Investment Manager also manages portfolios of pension plans, other
institutions and individuals which aggregated approximately $2.0 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 DWSC, 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 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 following annual rates to the net assets of the Fund determined as of the
close of each business day: 0.625% of the portion of the daily net assets not
exceeding $250 million and 0.50% of the portion of the daily net assets
exceeding $250 million. For the fiscal year ended December 31, 1993, the Fund
accrued total compensation to the Investment Manager amounting to 0.55% of the
Fund's average daily net assets and the Fund's total expenses amounted to 1.61%
of the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
===============================================================================
The investment objective of the Fund is long-term capital growth
consistent with an effort to reduce volatility. There is no assurance that the
Fund's objective will be achieved. The Fund seeks to achieve its investment
objective by investing in a diversified portfolio of securities consisting
principally of common stocks. The Fund utilizes an investment process that
places primary emphasis on seeking to identify industries, rather than
individual companies, as prospects for capital appreciation and whereby the
Investment Manager seeks to invest assets of the Fund in industries it
considers to be undervalued at the time of purchase and to sell those it
considers overvalued.
After selection of the Fund's target industries, specific company
investments are selected. In this process, the Investment Manager seeks to
identify companies whose prospects are deemed attractive on the basis of an
evaluation of valuation screens and prospective company fundamentals.
Following selection of the Fund's specific investments, the Investment
Manager will attempt to allocate the assets of the Fund so as to reduce the
volatility of its portfolio. In doing so, the Fund may hold a portion of its
portfolio in fixed-income securities in an effort to moderate extremes of price
fluctuations. The Fund may invest up to 35% of its portfolio in common stocks
of non-U.S. companies, in companies in non-classified industries, and in
convertible debt securities, convertible preferred securities, U.S. Government
securities (securities issued or guaranteed as to principal and interest by the
United States or its agencies and instrumentalities) and investment grade
corporate debt securities when, in the opinion of the Investment Manager, the
projected total return on such securities is equal to or greater than the
expected total return on common stocks, or when such holdings might be expected
to reduce the volatility of the portfolio, and in money market instruments
under any one or more of the following circumstances: (i) pending investment of
proceeds of sale of Fund shares or of portfolio securities; (ii) pending
settlement of purchases of portfolio securities; or (iii) to maintain liquidity
for the purpose of meeting anticipated redemptions. Greater than 35% of the
Fund's total assets may be invested in money market instruments to maintain,
temporarily, a "defensive" posture when, in the opinion of the Investment
Manager, it is advisable to do so because of economic or market conditions.
Because prices of stocks fluctuate from day to day, the value of an
investment in the Fund will vary based upon the Fund's investment performance.
The Fund's emphasis on "undervalued" industries reflects
5
<PAGE>
investment views which are frequently contrary to general market assessments
and which may involve risks associated with departure from general investment
opinions.
The Fund may purchase securites on a when- issued or delayed delivery
basis, may purchase or sell securities on a forward commitment basis and may
purchase securities on a "when, as and if issued" basis.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on debt and
equity securities which are listed on Exchanges or are written in over-the-
counter transactions ("OTC Options"). Listed options, which are currently
listed on several different Exchanges, are issued by the Options Clearing
Corporation ("OCC"). 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. The Fund will not write covered options on portfolio
securities exceeding in the aggregate 25% of the value of its total assets.
OTC Options. 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. 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 in order to aid it in achieving its investment
objective. As a writer of a call option, the Fund has the obligation, upon
notice of exercise of the option, to deliver the securityunderlying the option
(certain listed call options written by the Fund will be exercisable by the
purchaser only on a specific date).
Covered Put Writing. As a writer of covered put options, 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. The Fund will write put options for two purposes: (1) to receive
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.
Purchasing Call and Put Options. The Fund may invest up to 10% of its
total assets in the purchase of put and call options on securities and stock
indexes, with a maximum of 5% of the Fund's total assets invested in stock
index options. The Fund may purchase put options on securities 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. The Fund may also purchase put options 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.
Stock Index Options. The Fund may purchase and write options on stock
indexes for hedging purposes. 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.
See "Risks of Options on Indexes" in the Statement of Additional Information.
Futures Contracts. The Fund may purchase and sell interest rate and
stock index futures contracts ("futures contracts") that are traded on U.S.
commodity exchanges on such underlying securities as U.S. Treasury bonds,
notes, and bills and GNMA Certificates ("interest rate" futures) and such
indexes as the S&P
6
<PAGE>
500 Index and the New York Stock Exchange Composite Index ("stock index"
futures) and the Moody's Investment-Grade Corporate Bond Index ("bond 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. 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.
The Fund also 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.
Risks of Options and Futures Transactions. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist. Also,
exchanges may limit the amount by which the price of many futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
The extent to which the Fund may enter into transactions involving
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."
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, causing
bond prices to rise, the Fund would incur a loss on the sale. Another 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. See the Statement of Additional Information for a further
discussion of risks.
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.
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 notmore than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize those risks.
Foreign Securities. The Fund may invest up to 35% of the value of its
total assets, at the time of purchase, in securities issued by foreign issuers.
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. Costs may be incurred in connection
with conversions between various currencies held by the Fund.
7
<PAGE>
SPECIFIC INVESTMENT POLICIES
The Fund has adopted the following specific policies which are not
fundamental investment policies and may be changed by the Board of Trustees.
1. At least 65% of the Fund's total assets will be invested in common
stocks of U.S. companies which, at the time of purchase, were in undervalued or
moderately valued industries as determined by the Investment Manager, except as
stated in Paragraph (3) below.
2. Up to 35% of the value of the Fund's total assets may be invested
in: (a) common stocks of non-U.S. companies, or companies in non-classified
industries, including American Depository Receipts (which are custody receipts
with respect to foreign securities) (the Fund's investments in unlisted foreign
securities are deemed to be illiquid securities, which under the Fund's current
investment policies may not in the aggregate amount to more than 15% of the
Fund's net assets); (b) convertible debt securities (bonds, debentures,
corporate notes, preferred stock and other securities) which are convertible
into common stock; (c) U.S. Government securities and investment grade
corporate debt securities when, in the opinion of the Investment Manager, the
projected total return on such securities is equal to or greater than the
expected total return on equity securities, or when such holdings might be
expected to reduce the volatility of the portfolio; and (d) money market
instruments under any one or more of the following circumstances: (i) pending
investment of proceeds of sale of shares of the Fund or of portfolio
securities; (ii) pending settlement of purchases of portfolio securities; or
(iii) to maintain liquidity for the purpose of meeting anticipated redemptions.
3. Notwithstanding any of the foregoing limitations, the Fund may
invest more than 35% of the Fund's total assets in money market instruments to
maintain, temporarily, a "defensive" posture when, in the opinion of the
Investment Manager, it is advisable to do so because of economic or market
conditions, including, for example, times during which the Investment Manager
believes the risk, or volatility, relative to expected returns of the
securities it monitors, is excessive.
The foregoing limitations apply at the time of acquisition based on the
last determined market value of the Fund's assets, and any subsequent change in
any applicable percentage resulting from market fluctuations or other changes
in total assets will not require elimination of any security from the
portfolio.
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. No particular emphasis is given to investments in securities for the
purpose of earning current income. The Fund's portfolio is managed within
InterCapital's Large Capitalization Equities Group, which manages twenty-four
equity funds and fund portfolios with approximately $16 billion in assets as of
December 31, 1993. Anita H. Koleeny, Senior Vice President of InterCapital and
a member of InterCapital's Large Capitalization Equity Group, has been the
primary portfolio manager of the Fund and a portfolio manager 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 ac- cordance with
the investment policies described earlier. It is anticipated that, under normal
circumstances, the Fund's portfolio turnover rate will not exceed 400% in any
one year. The Fund will incur 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. A more extensive discussion of
the Fund's portfolio brokerage policies is set forth in the Statement of
Additional Information.
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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.
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. 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. Purchase more than 10% of all outstanding voting securities or any
class of securities of any one issuer.
3. Invest more than 25% of the value of its total assets in securities
of issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or to cash equivalents.
4. 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 of the United States Government, its agencies or instrumentalities.
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 which have entered into agreements with the
Distributor ("Selected Broker-Dealers"). The principal executive office of the
Distributor is located at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Subsequent purchases of $100 or
more may be made by sending a check, payable to Dean Witter American Value
Fund, directly to Dean Witter Trust Company (the "Transfer Agent") at P.O. Box
1040, Jersey City, NJ 07303 or by contacting a DWR or other Selected Broker-
Dealer account executive. 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 each account under such
Plans to at least $1,000. Certificates for shares purchased will not be issued
unless requested by the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal five
business day settlement basis; that is, payment is due on the fifth business
day (settlement date) after the order is placed with the Distributor. Shares of
the Fund purchased through the Distributor are entitled to dividends beginning
on the next business day following settlement date. Since DWR and other
Selected Broker-Dealers forward investors' funds on settlement date, they will
benefit from the temporary use of the funds if payment is made prior thereto.
As noted above, orders placed directly with the Transfer
9
<PAGE>
Agent must be accompanied by payment. Investors will be entitled to receive
income dividends and capital gains distributions if their order is received by
the close of business on the day prior to the record date for such
distributions. The offering price will be the net asset value per share next
determined following receipt of an order (see "Determination of Net Asset
Value"). 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"). The Fund and the Distributor reserve the right
to reject any purchase orders.
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 will pay the Distributor a
fee, which is accrued daily and payable monthly, at an annual rate of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's shares
since the inception of the Fund's original plan of distribution on April 30,
1984 (not including reinvestments of dividends or capital gains distributions),
less the average daily aggregate net asset value of the Fund's shares redeemed
since that plan's inception upon which a contingent deferred sales charge has
been imposed or waived, or (b) the average daily net assets of the Fund
attributable to shares issued, net of related shares redeemed, since inception
of the Fund's original plan of distribution. This fee is treated by the Fund as
an expense in the year it is accrued. Amounts paid under the Plan are 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,
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 distribution expenses incurred.
For the fiscal year ended December 31, 1993, the Fund accrued payments
under the Plan amounting to $6,891,780, which amount is equal to 0.86% of the
Fund's average daily net assets for the fiscal year. The payments accrued under
the Plan were calculated pursuant to clause (a) of the compensation formula
under the Plan. Of the amount accrued under the Plan, 0.25% of the Fund's
average daily net assets is characterized as a service fee within the meaning
of NASD guidelines.
At any given time, the Distributor may incur expenses in distributing
shares of the Fund which may be in excess of the total of (i) the payments made
by the Fund pursuant to the Plan and the Fund's original plan of distribution,
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 the Distributor incurred $1 million in
expenses in distributing shares of the Fund and $750,000 had been received by
the Distributor as described in (i) and (ii) above, the excess expense would
amount to $250,000. The Distributor has advised the Fund that such excess
amounts, including the carrying charge described above, totalled $34,972,698 at
December 31, 1993, which was equal to 2.87% of the Fund's net assets on such
date.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all its expenses or any requirement that the Plan be continued
from year to year, this excess amount does not constitute a liability of the
Fund. Although there is no legal obligation for the Fund to pay expenses
incurred by the Distributor 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
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<PAGE>
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 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
is valued at its latest sale price on that exchange (if there were no sales
that day, the security is valued at the latest bid price); (2) an option is
valued at the mean between the latest bid and asked prices); (3) a futures
contract is valued at the latest sales price on the commodities exchange on
which it trades unless the Board determines that such price does not reflect
its market value, in which case it will be valued at its fair value as
determined by the Board of Trustees; (4) all other portfolio securities for
which over-the-counter market quotations are readily available are valued at
the latest bid price; (5) when market quotations are not readily available,
including circumstances under which it is determined by the Investment Manager
that sale or bid prices are not reflective of a security's market value,
portfolio securities are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Fund's
Trustees (valuation of debt securities for which market quotations are not
readily available may be based upon current market prices of securities which
are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (6) the value of short-term debt securities which
mature at a date less than sixty days subsequent to valuation date will be
determined on an amortized cost or amortized value basis; and (7) the value of
other assets will be determined in good faith at fair value under procedures
established by and under the general supervision of the Fund's Trustees.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service utilizes a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
SHAREHOLDER SERVICES
===============================================================================
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 so acquired are not subject to the
imposition of a contingent deferred sales charge upon their redemption (see
"Redemptions and Repurchases").
Investment of Dividends or Distributions Received in Cash. Any
shareholder who receives a cash payment representing a dividend or capital
gains distribution may invest such dividend or distribution 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 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.
Systematic Withdrawal Plan. A systematic withdrawal plan (the
"Withdrawal Plan") is available for
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<PAGE>
shareholders who own or purchase shares of the Fund having a minimum value of
$10,000 based upon the then current net asset value. The Withdrawal Plan
provides for monthly or quarterly (March, June, September and December) checks
in any amount, not less than $25, or in any whole percentage of the account
balance, on an annualized basis. Any applicable 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.
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.
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.
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 Limited Term
Municipal Trust, Dean Witter Short-Term Bond Fund and five Dean Witter Funds
which are money market funds (the foregoing eight non-CDSC funds are
hereinafter collectively referred to in this section 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 any Exchange Fund that is not a
money market fund is on the basis of the next calculated net asset value per
share of each fund after the exchange order is received. When exchanging into a
money market fund from the Fund, shares of the Fund are redeemed out of the
Fund at their next calculated net asset value and the proceeds of the
redemption are used to purchase shares of the money market fund at their net
asset value determined the following day. Subsequent exchanges between any of
the money market funds and any of the 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 acquired in exchange for shares of another CDSC
fund having a different 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 invested in shares of an Exchange Fund
(calculated from the last day of the month in which the shares were acquired)
the holding period (for the purpose of determining the rate of the contingent
deferred sales charge) 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 shares of a CDSC fund (see
"Redemptions and Repurchases--Contingent Deferred Sales Charge"). However, in
the case of shares exchanged for shares of an Exchange Fund on or after April
23, 1990, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount equal
to the Exchange Fund 12b-1 distribution fees, if any, incurred on or after that
date which are attributable to those shares. (Exchange Fund 12b-1 distribution
fees are described in the prospectuses for those funds.)
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
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<PAGE>
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 the shareholder not later than ten days
following such shareholder's most recent exchange.
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 (presently sixty days' prior written notice for termination or
material revision), provided that six months' prior written notice of
termination will be given to shareholders who hold shares of an Exchange Fund
pursuant to the Exchange Privilege, and provided further that the Exchange
Privilege may be terminated or materially revised without notice under certain
unusual circumstances. Shareholders maintaining margin accounts with DWR or
another Selected 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 and any other conditions imposed by each fund. 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
another 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)
526-3143 (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
un-
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<PAGE>
able 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 case
with the Dean Witter Funds in the past.
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. 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, along with
any additional documentation required by the Transfer Agent.
Contingent Deferred Sales Charge. 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 charge upon
redemption. Shares redeemed sooner than six 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:
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A 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
A CDSC will not be imposed on: (i) any amount which represents an
increase in value of shares purchased within the six years preceding the
redemption; (ii) the current net asset value of shares purchased more than six
years prior to the redemption; and (iii) the current net asset 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, no CDSC will be imposed on redemptions of shares
which were purchased by the 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.
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 or self-employed
retirement plan following retirement (or in the case of a "key employee" of a
"top heavy" plan, following attainment of
14
<PAGE>
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 Internal Revenue 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 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 request of the shareholder. The repurchase price is the net
asset value per share next determined (see "Purchase of Fund Shares") after
such purchase order is received by DWR or other Selected Broker-Dealer, reduced
by any applicable CDSC.
The CDSC, if any, will be the only fee imposed upon repurchase by the
Fund, the Distributor, DWR or other Selected Broker-Dealer. The offer by DWR
and other Selected Broker-Dealers to repurchase shares may be suspended without
notice by them at any time. In that event, shareholders may redeem their shares
through the Fund's Transfer Agent as set forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares
presented for repurchase or redemption will be made by check within seven days
after receipt by the Transfer Agent of the certificate and/or written request
in good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances. If the shares to be redeemed have
recently been purchased by check, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent.) Shareholders maintaining margin
accounts with DWR or another Selected Dealer are referred to their account
executive regarding restrictions on redemption of shares of the Fund pledged in
the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 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 the net asset value next determined after a
reinstatement request, together with the proceeds, is received by the Transfer
Agent and receive a pro rata credit for any CDSC paid in connection with such
redemption or repurchase.
Involuntary Redemption. The Fund reserves the right to redeem, upon
sixty days' notice and at net asset value, the shares of any shareholder whose
shares have a value of less than $100 as a result of redemptions or
repurchases, or such lesser amount as may be fixed by the Board of Trustees.
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 $100 and allow the shareholder to make an additional investment in an
amount which will increase the value of the account to $100 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 intends to pay semi-annual
dividends and to distribute substantially all of the Fund's net investment
income and net short-term capital gains, if there are any. The Fund intends to
distribute dividends from 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 any capital gains distributions will be paid in
additional Fund shares and automatically
15
<PAGE>
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.
(See "Shareholder Services--Automatic Investment of Dividends and
Distributions".)
Taxes. Because the Fund intends to distribute all of its net
investment income and net short-term capital gains to shareholders and
otherwise remain qualified as a regulated investment company under Subchapter M
of the Internal Revenue Code, it is not expected that the Fund will be required
to pay any federal income tax. Shareholders who are required to pay taxes on
their income will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from net
investment income or short-term capital gains, are taxable to the shareholder
as ordinary dividend income regardless of whether the shareholder receives such
distributions in additional shares or in cash.
One of the requirements for the Fund to remain qualified as a regulated
investment company is that less than 30% of the Fund's gross income be derived
from gains from the sale or other disposition of securities held for less than
three months. Accordingly, the Fund may be restricted in the writing of options
on securities held for less than three months, in the writing of options which
expire in less than three months, and in effecting closing transactions with
respect to call or put options which have been written or purchased less than
three months prior to such transactions. The Fund may also be restricted in its
ability to engage in transactions involving futures contracts.
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.
At the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income,
the portion taxable as long-term capital gains, and the amount of dividends
eligible for the Federal dividends received deduction available to
corporations. To avoid being subject to a 31% federal backup withholding tax on
taxable dividends, capital gains distributions and the proceeds of redemptions
and repurchases, shareholders' taxpayer identification numbers must be
furnished and certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability
of the foregoing to their current situation.
PERFORMANCE INFORMATION
===============================================================================
From time to time the Fund may quote its "total return" in
advertisements and sales literature. The total return of the Fund is based on
historical earnings and is not intended to indicate future performance. The
"average annual total return" of the Fund refers to a figure reflecting the
average annualized percentage increase (or decrease) in the value of an initial
investment in 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
Fund and all sales charges which would be incurred by redeeming shareholders,
for the stated periods. It also as- sumes 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, 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.,
the S&P 500 Stock Index and the Dow Jones Industrial Average).
16
<PAGE>
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 limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund,
requires that notice of such Fund obligations include such disclaimer, and
provides for indemnification out of the Fund's property for any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, in the opinion of Massachusetts
counsel to the Fund, the risk to Fund shareholders of personal liability is
remote.
Shareholder Inquiries. All inquiries regarding the Fund should be
directed to the Fund at the telephone number or address set forth on the front
cover of this Prospectus.
17
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS
Dean Witter Liquid Asset Fund Inc.
Dean Witter U.S. Government Money
Market Trust
Dean Witter Tax-Free Daily Income Trust
Dean Witter California Tax-Free Daily
Income Trust
Dean Witter New York Municipal Money
Market Trust
EQUITY FUNDS
Dean Witter American Value Fund
Dean Witter Natural Resource Development
Securities Inc.
Dean Witter Dividend Growth Securities Inc.
Dean Witter Developing Growth Securities Trust
Dean Witter World Wide Investment Trust
Dean Witter Equity Income Trust
Dean Witter Value-Added Market Series
Dean Witter Utilities Fund
Dean Witter Capital Growth Securities
Dean Witter European Growth Fund Inc.
Dean Witter Precious Metals and Minerals Trust
Dean Witter Pacific Growth Fund Inc.
Dean Witter Health Sciences Trust
Dean Witter Global Dividend Growth Securities
FIXED-INCOME FUNDS
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities Trust
Dean Witter Federal Securities Trust
Dean Witter Convertible Securities Trust
Dean Witter California Tax-Free Income Fund
Dean Witter New York Tax-Free Income Fund
Dean Witter World Wide Income Trust
Dean Witter Intermediate Income Securities
Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Multi-State Municipal Series Trust
Dean Witter Premier Income Trust
Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal Trust
Dean Witter Short-Term Bond Fund
DEAN WITTER RETIREMENT SERIES
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Strategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
ASSET ALLOCATION FUNDS
Dean Witter Managed Assets Trust
Dean Witter Strategist Fund
ACTIVE ASSETS ACCOUNT PROGRAM
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
<PAGE>
Dean Witter
American Value Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
Jack F. Bennett
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Anita H. Kolleeny
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
110 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
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital, Inc.
DEAN WITTER
AMERICAN
VALUE FUND
(LOGO)
PROSPECTUS
FEBRUARY 25, 1994
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DEAN WITTER
AMERICAN
FEBRUARY 25, 1994 VALUE FUND
(LOGO)
===============================================================================
Dean Witter American Value Fund (the "Fund") is an open-end diversified
management investment company whose investment objective is long-term capital
growth consistent with an effort to reduce volatility. The Fund invests
principally in common stock of companies in industries which, at the time of
investment, are believed to be undervalued in the marketplace. (See "Investment
Practices and Policies".)
A Prospectus for the Fund dated February 25, 1994, which provides the
basic information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone 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
you additional information regarding the activities and operations of the Fund,
and should be read in conjunction with the Prospectus.
Dean Witter American Value Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550
<PAGE>
TABLE OF CONTENTS
===============================================================================
The Fund and its Management........................................ 3
Trustees and Officers.............................................. 6
Investment Practices and Policies.................................. 8
Investment Restrictions............................................ 21
Portfolio Transactions and Brokerage............................... 22
The Distributor.................................................... 24
Shareholder Services............................................... 27
Redemptions and Repurchases........................................ 32
Dividends, Distributions and Taxes................................. 34
Performance Information............................................ 35
Shares of the Fund................................................. 36
Custodian and Transfer Agent....................................... 37
Independent Accountants............................................ 37
Reports to Shareholders............................................ 37
Legal Counsel...................................................... 37
Experts............................................................ 37
Registration Statement............................................. 37
Financial Statements--December 31, 1993............................ 38
Report of Independent Accountants.................................. 46
2
<PAGE>
THE FUND AND ITS MANAGEMENT
===============================================================================
THE FUND
The Fund was incorporated in the State of Maryland on December 13, 1979
under the name InterCapital Industry-Valued 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 Industry-Valued Securities Inc. On April 30, 1987, the
Fund reorganized as a Massachusetts business trust with the name Dean Witter
American Value Fund.
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 Dean Witter, Discover & Co.
("DWDC"), 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 Dean Witter
InterCapital Inc. thereafter.) The daily management of the Fund and research
relating to the Fund's portfolio is conducted by or under the direction of
officers of the Fund and of the Investment Manager, subject to review of
investments by the Fund's Board of Trustees. In addition, the Trustees of the
Fund provide guidance on economic factors and interest rate trends. Information
as to these Trustees and Officers is contained under the caption "Trustees and
Officers."
InterCapital is also the investment manager or investment adviser of
the following investment companies: Dean Witter Liquid Asset Fund Inc.,
InterCapital Income Securities Inc., InterCapital Insured Municipal Bond Trust,
InterCapital Quality Municipal Investment Trust, InterCapital Insured Municipal
Trust, InterCapital Quality Municipal Income Trust, InterCapital Insured
Municipal Income Trust, InterCapital California Insured Municipal Income Trust,
InterCapital Quality Municipal Securities, InterCapital California Quality
Municipal Securities, InterCapital Insured Municipal Securities, InterCapital
Insured California Municipal Securities, InterCapital New York Quality
Municipal Securities, 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 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 Equity Income Trust, 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, Dean Witter Government Income Trust, Dean Witter Utilities Fund, Dean
Witter Managed Assets Trust, High Income Advantage Trust II, High Income
Advantage Trust III, Dean Witter California Tax-Free Daily Income Trust, Dean
Witter Strategist Fund, Dean Witter World Wide Income Trust, Dean Witter
Intermediate Income Securities, Dean Witter Capital Growth Securities, Dean
Witter New York Municipal Money Market Trust, Dean Witter European Growth Fund
Inc., Dean Witter Precious Metals and Minerals Trust, Dean Witter Global Short-
Term Income Fund Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter Multi-
State Municipal Series Trust, Dean Witter Premier Income Trust, Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Diversified Income Trust, Dean
Witter Global Dividend Growth Securities, Dean Witter Retirement Series, Dean
Witter Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Active
Assets Money Trust, Active Assets Tax-Free Trust, Active Assets California Tax-
Free Trust, Active Assets Government Securities 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 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 Term Trust 2000, TCW/DW Term Trust 2002 and TCW/DW
Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves as: (i) sub-
adviser to Templeton Global Opportunities Trust, an open-end investment
company; (ii) administrator of The BlackRock Strategic Term Trust Inc., a
closed-end investment company; and (iii) sub-administrator of MassMutual
Participation Investors and Templeton Global Governments Income Trust, closed-
end investment companies.
The Investment Manager also serves as an investment adviser for Dean
Witter World Wide Investment Fund, an investment company organized under the
laws of Luxembourg, shares of which are not available for purchase in the
United States or by American citizens outside the United States.
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 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, bookkeeping and certain legal services as the Fund
may reasonably require in the conduct of its business, including the
preparation of prospectuses, 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. 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 Management 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. 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 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 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); fees and expenses of
the Fund's independent accountants; membership dues of
4
<PAGE>
industry associations; interest on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Trustees) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
relating thereto); and all other costs of the Fund's operation.
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: 0.625% of the portion of the daily net assets not
exceeding $250 million and 0.50% of the portion of the daily net assets
exceeding $250 million. For the fiscal years ended December 31, 1991, 1992 and
1993, the Fund accrued to the Investment Manager total compensation under the
Agreement in the amounts of $842,083, $2,075,987 and $4,299,335, respectively.
Total operating expenses of the Fund are subject to applicable
limitations under rules and regulations of states where the Fund is authorized
to sell its shares. Therefore, operating expenses are effectively subject to
the most restrictive of such limitations as the same may be amended from time
to time. Presently, the most restrictive limitation is as follows. If, in any
fiscal year, the Fund's total operating expenses, exclusive of taxes, interest,
brokerage fees, distribution fees and extraordinary expenses (to the extent
permitted by applicable state securities laws and regulations), exceed 2 1/2%
of the first $30,000,000 of average daily net assets, 2% of the next
$70,000,000 of average daily net assets and 1 1/2% of any excess over
$100,000,000, the Investment Manager will reimburse and Fund for the amount of
such excess. Such amount, if any, will be calculated daily and credited on a
monthly basis. The Fund did not exceed such limitation or the then existing
expense limitation during the fiscal years ended December 31, 1991, 1992 and
1993.
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 Board of Trustees on
October 30, 1992 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on January 12, 1993. The Agreement is substantially identical
to a prior investment management agreement which was initially approved by the
Trustees on April 15, 1987 and by the Shareholders of the Fund at a Meeting of
Shareholders on April 21, 1987. The Agreement took effect on June 30, 1993 upon
the spin-off by Sears, Roebuck & Co. of its remaining shares of DWDC. Under its
terms, the Agreement will continue in effect until April 30, 1994 and from year
to year thereafter, provided continuance 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 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 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, as
defined in the Investment Company Act of 1940 (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).
The Fund has acknowledged that the name "Dean Witter" is a property
right of DWR. The Fund has agreed that the Investment Manager 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/or its parent is terminated, the Fund
will eliminate the name "Dean Witter" from its name if DWR and/or its parent
company shall so request.
5
<PAGE>
TRUSTEES AND OFFICERS
===============================================================================
The Trustees and Executive Officers of the Fund, their principal
business occupations during the last five years and their affiliations, if any,
with InterCapital, and with the Dean Witter Funds and the TCW/DW Funds, are
shown below.
PRINCIPAL OCCUPATIONS DURING
NAME, POSITION WITH FUND AND ADDRESS LAST FIVE YEARS
- ------------------------------------ ----------------------------
Jack F. Bennett
Trustee
141 Taconic Road
Greenwich, Connecticut
Retired; Director or Trustee of the Dean Witter Funds; formerly
Senior Vice President and Director of Exxon Corporation (1975-January, 1989)
and Under Secretary of the U.S. Treasury for Monetary Affairs (1974-1975);
Director of Philips Electronics N.V.; Tandem Computers Inc. and Massachusetts
Mutual Insurance Company; director or trustee of various not-for-profit and
business organizations.
Charles A. Fiumefreddo*
Chairman, President, Chief Executive
Officer and Trustee
Two World Trade Center
New York, New York
Chairman, Chief Executive Officer and Director of InterCapital,
Distributors and DWSC; Director and Executive Vice President of DWR; Chairman,
Director or Trustee, President and Chief Executive 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; Director and/or officer of
various DWDC subsidiaries; formerly executive Vice President and Director of
DWDC (until February, 1993).
Edwin J. Garn
Trustee
2000 Eagle Gate Tower
Salt Lake City, Utah
Director or Trustee of the Dean Witter Funds; formerly United
States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee
(1980-1986); formerly Mayor of Salt Lake City, Utah (1971-1974); formerly
Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice Chairman, Huntsman
Chemical Corporation (since January, 1993); member of the board of various
civic and charitable organizations.
John R. Haire
Trustee
439 East 51st Street
New York, New York
Chairman of the Audit Committee and Chairman of the Committee
of Independent Directors or Trustees and Director or Trustee of the Dean Witter
Funds; Trustee of the TCW/DW Funds; formerly President, Council for Aid to
Education (1978-October, 1989) and Chairman and Chief Executive Officer of
Anchor Corporation, an Investment Adviser (1964-1978); Director of Washington
National Corporation (insurance) and Bowne & Co., Inc. (printing).
Dr. John E. Jeuck
Trustee
70 East Cedar Street
Chicago, Illinois
Retired; Director or Trustee of the Dean Witter Funds; formerly
Robert Law Professor of Business Administration, Graduate School of Business,
University of Chicago (until July, 1989); Business Consultant.
6
<PAGE>
PRINCIPAL OCCUPATIONS DURING
NAME, POSITION WITH FUND AND ADDRESS LAST FIVE YEARS
- ------------------------------------ ----------------------------
Dr. Manuel H. Johnson
Trustee
7521 Old Dominion Drive
McLean, Virginia
Senior Partner, Johnson Smick International, Inc., a consulting
firm; Koch Professor of International Economics and Director of the Center for
Global Market Studies at George Mason University (since September, 1990); Co-
Chairman and a founder of the Group of Seven Council (G7C), an international
economic commission (since September, 1990); Director or Trustee of the Dean
Witter Funds; Trustee of the TCW/DW Funds; Director of Greenwich Capital
Markets Inc. (broker-dealer); 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).
Paul Kolton
Trustee
9 Hunting Ridge Road
Stamford, Connecticut
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 Chairman of the Financial Accounting
Standards Advisory Council and Chairman and Chief Executive Officer of the
American Stock Exchange; Director of UCC Investors Holding Inc. (Uniroyal
Chemical Company, Inc.); director or trustee of various not-for-profit
organizations.
Michael E. Nugent
Trustee
237 Park Avenue
New York, New York
General Partner, Triumph Capital, L.P., a private investment
partnership (since April, 1988); Director or Trustee of the Dean Witter Funds;
Trustee of the TCW/DW Funds; formerly Vice President, Bankers Trust Company and
BT Capital Corporation (September, 1984-March, 1988); Director of various
business organizations.
Edward R. Telling*
Trustee
Sears Tower
Chicago, Illinois
Retired; Director or Trustee of the Dean Witter Funds; formerly
Chairman of the Board of Directors and Chief Executive Officer (until December
31, 1985) and President (from January, 1981-March, 1982 and from February,
1984-August, 1984) of Sears, Roebuck and Co.; formerly Director of Sears,
Roebuck and Co.
7
<PAGE>
PRINCIPAL OCCUPATIONS DURING
NAME, POSITION WITH FUND AND ADDRESS LAST FIVE YEARS
- ------------------------------------ ----------------------------
Sheldon Curtis
Vice President, Secretary and General Counsel
Two World Trade Center
New York, New York
Senior Vice President, Secretary and General Counsel of
InterCapital; Senior Vice President and Secretary of Dean Witter Trust Company;
Senior Vice President, Assistant Secretary and Assistant General Counsel of
Dean Witter Distributors Inc.; Assistant Secretary of DWDC and DWR and Vice
President, Secretary and General Counsel of the Dean Witter Funds and the
TCW/DW Funds.
Anita H. Kolleeny
Vice President
Two World Trade Center
New York, New York
Senior Vice President of InterCapital; Vice President of Dean
Witter Variable Investment Series.
Thomas F. Caloia
Treasurer
Two World Trade Center
New York, New York
First Vice President (since May, 1991) and Assistant Treasurer
of InterCapital and Treasurer of the Dean Witter Funds and TCW/DW Funds;
previously Vice President of InterCapital.
- ----------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
In addition, Robert M. Scanlan, President of InterCapital and DWSC,
David A. Hughey, Executive Vice President of InterCapital and DWSC, Edmund C.
Puckhaber, Executive Vice President of InterCapital and Thomas H. Connelly,
Kenton J. Hinchliffe and Ira Ross, Senior Vice Presidents of InterCapital, are
Vice Presidents of the Fund. Barry Fink, First Vice President and Assistant
General Counsel of InterCapital and DWSC and Marilyn K. Cranney, Lawrence S.
Lafer, Lou Anne D. McInnis and Ruth Rossi, Vice Presidents and Assistant
General Counsels of InterCapital, are Assistant Secretaries of the Fund.
The Fund pays each Trustee who is not an employee or retired employee
of the Investment Manager or an affiliated company an annual fee of $1,200
($1,600 prior to December 31, 1993) plus $50 for each meeting of the Board of
Trustees, the Audit Committee or the Committee of Independent Trustees,
attended by the Trustee in person (the Fund pays the Chairman of the Audit
Committee an additional annual fee of $1,000 ($1,200 prior to December 31,
1993) and pays the Chairman of the Committee of Independent Trustees an annual
fee of $2,400, in each case inclusive of the Committee meeting fees). The Fund
also reimburses Trustees for travel and other out-of-pocket expenses incurred
by them in connection with attending such meetings. Effective January 1, 1994,
the Fund has adopted a retirement program under which an Independent Trustee
who retires after a minimum required period of service would be entitled to
retirement payments upon reaching the eligible retirement age (normally, after
attaining age 72) based upon length of service and computed as a percentage of
one-fifth of the total compensation earned by such Trustee for service to the
Fund in the five-year period prior to the date of the Trustee's retirement. No
Independent Trustee has retired since the adoption of the program and no
payments by the Fund have been made under the program to any Trustee. For the
fiscal year ended December 31, 1993, the Fund accrued a total of $23,475 for
the Trustees' fees and expenses. As of the date of this Statement of Additional
Information, the aggregate shares of the Fund owned by the officers and
Trustees as a group was less than 1% of the Fund's shares outstanding.
INVESTMENT PRACTICES AND POLICIES
===============================================================================
As discussed in the Prospectus, the Fund offers investors an
opportunity to participate in a diversified portfolio of securities, consisting
principally of common stocks. The portfolio reflects an investment decision-
making process developed by the Fund's Investment Manager.
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INDUSTRY VALUATION APPROACH
As stated in the Prospectus, in managing the Fund's portfolio the
Investment Manager generally seeks to identify industries, rather than
individual companies, as prospects for capital appreciation. This approach is
designed to capitalize on four basic assumptions: (1) industry trends are a
primary force governing company earnings; (2) conventional forecasts by
security analysts of company earnings do not fully reflect underlying industry
conditions or changing economic cycles; (3) the market's perception -of
industry trends is often transitory or exaggerated; and (4) distortions in
relative valuations beyond their normal ranges provide significant buying or
selling opportunities.
The Investment Manager generally seeks to invest assets of the Fund in
industries it considers to be "undervalued" at the time of purchase and to sell
those it considers "overvalued". In so doing, the Investment Manager utilizes a
record of historical price/earnings ratios for each of more than 60 industry
groups (which may be increased or decreased, from time to time) relative to the
Standard & Poor's Index of 500 stocks ("S&P Index"). From this record a range
or band is established in which variations in an industry's price/earnings
multiple, relative to the S&P Index, are considered normal. Based upon a
forecast of industry earnings, an industry is considered "undervalued",
"moderately valued" or "overvalued" depending upon whether the relative
price/earnings multiple is below, within or above the normalized channel.
The Investment Manager also uses models which utilize economic
indicators or other financial variables to evaluate the relative attractiveness
of industries. Economic indicators considered would be specific to particular
industries. Financial variables may include cash flow, asset value, historical
and projected earnings, absolute and relative price/earnings ratios, dividend
discount values, as well as other factors.
A basic tenet of the industry valuation approach is that there is no
certainty of superior performance in any specific industry selection, but
rather that approximately equal weighting of investments in a group of
industries, each of which has been identified as undervalued, can benefit from
the performance probabilities of the total group. The Investment Manager
believes that subjective judgment enters into every investment process no
matter how sophisticated or systematized, but that any adverse impact on
investment performance resulting from errors of judgment may be mitigated by
approximately equal weighting of both the industries and companies within those
industries acquired for the portfolio.
The foregoing represents the main outlines of the industry valuation
approach. The following describes its key features, all of which are subject to
modification as described below or as result of applying the asset allocation
disciplines described later.
1. Equal Industry Weightings.
After determining the industries that it considers to be undervalued,
the Investment Manager generally attempts to invest approximately equal amounts
of the equity portion of the portfolio in securities of companies in each of
such industries, subject to adjustment for company weightings as set forth in
the next paragraph.
2. Equal Company Weightings.
From the total of all companies included in the industry valuation
process, the Investment Manager selects a limited number from each industry as
representative of that industry. Such selections are made on the basis of
various criteria, including size and quality of a company, the visibility of
its earnings and various valuation parameters. Valuation screens may include
dividend discount model values, price-to-book ratios, price-to-cashflow values,
relative and absolute price-to-earnings ratios and ratios of price-earnings
multiples to earnings growth. Price and earnings momentum ratings derived from
external sources are also factored into the stock selection decision. Those
companies which are in undervalued industries and which the Investment Manager
believes to be attractive investments are finally selected for inclusion in the
portfolio. When final selections are made, approximately equal amounts of the
equity portion of the portfolio are invested in each of such companies. This
may vary depending on whether the Investment Manager is in the process of
building or reducing a stock position. Consideration will also be given to
earnings visibility and valuation. Stocks in industries not identified as
undervalued may not be equally weighted. Also, smaller capitalization issues
may not be equally weighted due to liquidity considerations.
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<PAGE>
3. Relative Industry Values.
Industry valuation only attempts to identify industries whose
securities might be expected to perform relatively better than the market as
represented by the S&P Index. It does not seek to identify securities which
will experience an absolute increase in value notwithstanding market
conditions. However, the -process assumes that, despite interim fluctuations in
stock market prices, the long-term trend in equity security values will be up.
4. Industry Coverage.
Industry valuation presently covers securities classified by the
Investment Manager in approximately 60 industries. The classification of
industries in the S&P Index and in the industry valuation group are not
identical and the universe of industry-valued securities includes some which
are not contained in the S&P Index. To provide flexibility for taking advantage
of investment opportunities in "non-classified" industries, that is, the
industries not included in the Investment Manager's industry valuation, the
Investment Manager may invest a portion of the Fund's assets in a limited
number of securities in such non-classified industries which the Investment
Manager identifies as attractive investments. Also, the Investment Manager may
invest, on a selective basis, in stocks of moderately valued industries.
5. Continuity of Industry Trends.
Industry valuation assumes that the trend of industry price/earnings
ratios relative to the price/earnings ratios of all the companies in the S&P
Index will be substantially continuous. It is possible, however, that certain
changes in industry trends may result in a discontinuity that will not be
signaled in advance by the industry valuation process. The Investment Manager
believes that such changes are difficult to predict by any investment decision-
making process and that, at times, the company analysis may provide a useful
corrective mechanism.
6. Practical Applications.
In applying the industry valuation approach to management of the
portfolio of the Fund, the Investment Manager will make adjustments in the
portfolio which reflect modifications of the underlying con- -cepts whenever,
in its opinion, such adjustments are necessary or desirable to achieve the
Fund's objectives. Such adjustments may include, for example, weighting some
industries or companies more or less than others, based upon the Investment
Manager's judgment as to the investment merits of specific companies. In
addition, without specific action by the Investment Manager, adjustments may
result from fluctuations in market prices which distort previously established
industry and company weightings. The portfolio may, at times, include
securities of industries which are considered overvalued due to consideration
of stage-of-cycle analysis or may not include representation in industries
considered undervalued due to considerations such as valuation criteria, stage-
of-cycle analysis or lack of earnings visibility, balance sheet viability or
management quality. Also, independent of the application of the industry
valuation process, the Fund continuously sells and redeems its own shares, and,
as a result, securities may have to be sold at times from the Fund's portfolio
to meet redemptions and monies received upon sale of the Fund's shares must be
used to purchase portfolio securities. Such sales and purchases of portfolio
securities will result in a portfolio that does not completely reflect equal
weighting of investment in industries or companies.
Asset Allocation. Common stocks, particularly those sought for
possible capital appreciation, have historically experienced a great amount of
price fluctuation. The Investment Manager believes it is desirable to attempt
to reduce the risks of extreme price fluctuations even if such an attempt
results, as it likely will at times, in reducing the probabilities of obtaining
greater capital appreciation. Accordingly, the Investment Manager's investment
process incorporates elements which may reduce, although certainly not
eliminate, the volatility of a portfolio. The Fund may hold a portion of its
portfolio in fixed-income securities in an effort to moderate extremes of price
fluctuation. The determination of the appropriate asset allocation as between
equity and fixed-income investments will be made by the Investment Manager in
its discretion, based upon its evaluation of economic and market conditions.
SECURITY LOANS
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, and are at all
times secured by cash or cash equivalents, which are maintained in a segregated
10
<PAGE>
account pursuant to applicable regulations and that are equal to at least 100%
of 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.
A loan may be terminated by the borrower on one business day's notice,
or by the Fund on four business days' notice. If the borrower fails to deliver
the loaned securities within four days after receipt of notice, the Fund could
use the collateral to replace the securities while holding the borrower liable
for any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and, in some cases, even loss of
rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Fund's management to be creditworthy and when the income
which can be earned from such 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.
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.
During the year ended December 31, 1993, the Fund did not loan any of its
portfolio securities.
OPTIONS AND FUTURES TRANSACTIONS
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) by purchasing put and call options on portfolio (or
eligible portfolio) securities and engaging in transactions involving 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 by the Options Clearing Corporation ("OCC"). 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.
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<PAGE>
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 in order to aid in achieving its investment
objective. 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 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 not
later than that of the securities deliverable under the call option. A call
option is also covered if the Fund holds a call on the same security as the
underlying security 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 high grade debt obligations 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 alone. Moreover, the premium
received will offset a portion of the potential loss incurred by the Fund if
the securities underlying the option -are ultimately sold by the Fund at a
loss. The premium received will fluctuate with varying economic market
conditions. If the market value of the portfolio securities 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 call not been written.
During the option period, the Fund may be required, at any time, to
deliver the underlying security against payment of the exercise price on any
calls it has written (exercise of certain listed 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 from
being called, to permit the sale of an underlying security or to enable the
Fund to write another call option on the underlying security 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. 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.
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 during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security equal to the
difference between the purchase price of the underlying security and the
proceeds of the sale of the security plus the premium received on the option
less the commission paid.
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<PAGE>
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 op- -tion may be below,
equal to or above the current market value of the underlying security 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 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 debt obligations in an amount equal to at least
the exercise price of the option, at all times, during the option period.
Similary, 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 high grade debt obligations 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). 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.
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. As stated in the Prospectus, the
Fund may purchase listed and OTC call and put options on securities and stock
indexes in amounts equalling up to 10% of its total assets, with a maximum of
5% of the Fund's assets invested in stock index options. The Fund may purchase
call options only in order to close out a covered call position (see "Covered
Call Writing" above). The purchase of a call option to effect a closing
transaction on a call written over-the-counter may be a listed or OTC option.
In either case, the call purchased is likely to be on the same securities 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 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. If the value of the underlying security 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 addi- -tion,
the Fund may sell a put option which it has previously purchased prior to the
sale of the securities 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. And such gain or loss could be offset in whole or in part by a
change in the market value of the underlying security. 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 increase, but has retained the risk of loss
should the - price of the underlying security decline. The secured put writer
also retains the risk of loss should the
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<PAGE>
market value of the underlying security 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 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,
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
an underlying security at a time when it might otherwise be advantageous to do
so. A secured put option writer who is unable to effect a closing purchase
transaction would continue to bear the risk of decline in the market price of
the underlying security until the option expires or is exercised. In addition,
a secured put writer would be unable to utilize the amount held in cash or U.S.
government or other high grade debt obligations as security for the put option
for other investment purposes until the exercise or expiration of the option.
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. 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 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 excerisable in accordance with
their terms.
In the event of the bankruptcy of a broker through which the Fund
engages in transactions in options, 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.
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
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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 S&P 100 Index and the S&P 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." The Fund
will invest only in broadly based indexes. Options on broad-based 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 high grade debt
obligations equal to the aggregate exercise price of the puts, or by a put
option on the same stock index with a strike price no lower than the strike
price of the put option sold by the Fund, 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 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 had 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
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<PAGE>
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. As stated in the Prospectus, the Fund may purchase
and sell interest rate and stock index futures contracts ("futures contracts")
that are traded on U.S. commodity exchanges on such underlying securities as
U.S. Treasury bonds, notes, bills and GNMA Certificates ("interest rate"
futures) 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 falls, 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 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 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. Stock index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open or
close of the last trading day of the contract and the futures contract price. A
futures contract sale is closed out by effecting a futures contract purchase
for the same aggregate amount of the specific type of equity security and the
same delivery date. If the sales price exceeds the offsetting purchase price,
the seller would be paid the difference and would realize a gain. If the
offsetting purchase price exceeds the sale price, the seller would pay the
difference and would realize a loss. Similarly, a futures contract purchase is
closed out by effecting a futures contract sale for the same aggregate amount
of the specific type of security and the same delivery date. If the offsetting
sale price exceeds the purchase price, the purchaser would realize a gain,
whereas if the purchase price exceeds the offsetting sale price, the purchaser
would realize a loss. There is no assurance that the Fund will be able to enter
into a closing transaction.
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<PAGE>
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
high grade short-term obligations 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 broker's 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 of cash or U.S.
Government securities called "variation margin", with the Fund's futures
contract clearing broker, which are reflective of price fluctuations in the
futures contract. Currently, interest rate 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. As discussed in the Prospectus, 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 requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in the
form of variation margin payments. The Fund may be required to make additional
margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
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 Value Line Stock Index
on the Kansas City Board of Trade and the Moody's Investment-Grade Corporate
Bond Index on the Chicago 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
17
<PAGE>
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 decline in value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree, over
time the value of a diversified portfolio will tend to move in the same
direction as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase
in value of securities it intends to buy, and the value of such securities
decreases, then the Investment Manager may determine not to invest in the
securities as planned and will realize a loss on the futures contract that is
not offset by a reduction in the price of the securities.
If the Fund maintains a short position in a futures contract or has
sold a call option in a futures contract, it will cover this position by
holding, in a segregated account maintained at its Custodian, cash, U.S.
Government securities or other high grade debt obligations 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.
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 high grade debt obligations 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.
18
<PAGE>
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous
to do so. The inability to close out options and futures positions could also
have an adverse impact on the Fund's ability to effectively hedge its
portfolio.
In the event of the bankruptcy of a broker through which the Fund
engages in transactions in futures 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. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Investment Manager.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of the
securities which are the subject of the 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 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 stock price
or interest rate trends by the Investment Manager may still not result in a
successful hedging transaction.
There is no assurance that a liquid secondary market will exist for
futures contracts 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.
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.
FOREIGN SECURITIES
As stated in the Prospectus, the Fund may invest in securities issued
by foreign issuers. Investors should carefully consider the risks of investing
in securities of foreign issuers and securities denominated in non-U.S.
currencies. Fluctuations in the relative rates of exchange between the
currencies of different nations will affect the value of the Fund's
investments. 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
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<PAGE>
other economic and financial conditions, government intervention, speculation
and other factors. Moreover, foreign currency exchange rates may be affected by
the regulatory control of the exchanges on which the currencies trade.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly available
information about such companies. Moreover, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their
American counterparts. Brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S. In
addition, differences in clearance and settlement procedures on foreign markets
may occasion delays in settlements of 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.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by
the Fund in repurchase agreements until such time as it may otherwise be
invested or used for payments of obligations of the Fund. These agreements,
which may be viewed as a type of secured lending by the Fund, typically involve
the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that
the institution will repurchase, the underlying security ("collateral") at a
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The collateral will be maintained in a
segregated account and will be marked to market daily to determine that the
value of the collateral, as specified in the agreement, does not decrease below
the purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to the account to
maintain full collateralization. The Fund will accrue interest from the
institution until the time when the repurchase is to occur. Although such date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of 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 total
assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
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 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
20
<PAGE>
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, their 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 high grade debt portfolio securities
equal in value to commitments to purchase securities on a when-issued, delayed
delivery or forward commitment basis. During the fiscal year ended December 31,
1993, the Fund's commitments to pur- -chase securities on a when-issued,
delayed delivery or forward commitment basis did not exceed 5% of the Fund's
net assets.
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 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 high grade debt portfolio securities
equal in value to recognized commitments for such securities. 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"). 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 Trustees do not believe that the
net asset value of the Fund will be adversely affected by its purchase of
securities on such basis. During the fiscal year ended December 31, 1993, the
Fund's commitments to purchase securities on a "when, as and if issued" basis
did not exceed 5% of the value of the Fund's net assets. 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 sale.
PRIVATE PLACEMENTS
The Fund may invest up to 5% of its total assets in securities which
are subject to restrictions on resale because they have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or which
are otherwise not readily marketable. (Securities eligible for resale pursuant
to Rule 144A 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.) 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 total assets.
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
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<PAGE>
voting securities of the Fund, as defined in the Act. Such a majority is
defined as the lesser of (a) 67% or more of the shares present at a meeting of
Shareholders, if the holders of 50% of the outstanding shares of the Fund are
present or represented by proxy or (b) more than 50% of the outstanding shares
of the Fund. For purposes of the following restrictions: (i) all percentage
limitations apply immediately after a purchase or initial investment; and (ii)
any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in total or net assets does not require
elimination of any -security from the portfolio.
The Fund may not:
1. Invest in securities of any issuer if, to the knowledge
of the Fund, any officer or trustee/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 trustees/directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuer.
2. Purchase or sell real estate or interests therein
(including limited partnership interests), although the Fund may purchase
securities of issuers which engage in real estate operations and securities
secured by real estate or interests therein.
3. Purchase or sell commodities except that the Fund may
purchase or sell (write) futures contracts and related options.
4. 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.
5. Purchase securities of other investment companies, except
in connection with a merger, consolidation, reorganization or acquisition of
assets.
6. 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).
7. Pledge its assets or assign or otherwise encumber them
except to secure borrowings effected within the limitations set forth in
restriction (6). 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.
8. Issue senior securities as defined in the Act except
insofar as the Fund may be deemed to have issued a senior security by reason
of: (a) entering into any repurchase agreement; (b) borrowing money in
accordance with restrictions described above; or (c) lending portfolio
securities.
9. Make loans of money or securities, except: (a) by the
purchase of debt obligations in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase agreements;
or (c) by lending its portfolio securities.
10. Make short sales of securities.
11. 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.
12. 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.
13. Invest for the purpose of exercising control or
management of any other issuer.
In addition, the Fund, as a non-fundamental policy, will not invest
more than 5% of the value of its net assets in warrants, including not more
than 2% of such assets in warrants not listed on the New York or American Stock
Exchange. However, the acquisition of warrants attached to other securities is
not subject to this restriction.
PORTFOLIO TRANSACTIONS AND BROKERAGE
===============================================================================
Subject to the general supervision of the Board of Trustees, the
Investment Manager is responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions, and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on
22
<PAGE>
a stock exchange are effected through brokers who charge a commission for their
services. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. The Fund also expects that securities will be purchased at times
in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or
discount. 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 years ended December
31, 1991, 1992 and 1993 the Fund paid brokerage commissions in the amounts of
$824,390, $2,552,243, and $4,783,760, respectively. The amount of brokerage
commissions paid by the Fund during the fiscal year ended December 31, 1993
were substantially greater than the prior two fiscal years, reflecting the
growth in the assets of the Fund and its 276% portfolio turnover rate.
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,
the main factors considered are 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.
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, as in most cases an
exact dollar value for those services is not ascertainable.
In seeking to implement the Fund's policies, the Investment Manager
effects transactions with those brokers and dealers who the Investment Manager
believes provide the most favorable prices and are capable of providing
efficient executions. If the Investment Manager believes such prices and
executions are obtainable from more than one broker or dealer, it may give
consideration to placing portfolio transactions with those brokers and dealers
who also furnish research and other services to the Fund or the Investment
Manager. Such services may include, but are not limited to, any one or more of
the following: information as to the availability of securities for purchase or
sale; statistical or factual information or opinions pertaining to investment;
wire services; and appraisals or evaluations of portfolio securities. During
the fiscal year ended December 31, 1993, the Fund directed the payment of
$3,404,689 in brokerage commissions in connection with transactions in the
aggregate amount of $2,326,779,243 to brokers because of research services
provided.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager in the
management of accounts of some of its other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of research
or services otherwise performed by the Investment Manager and thereby reduce
its expenses, it is of indeterminable value and the management fee paid to the
Investment Manager is not reduced by any amount that may be attributable to the
value of such services.
Pursuant to an order of the Securities and Exchange Commission, the
Fund may effect principal transactions in certain money market instruments with
DWR. The Fund will limit its transactions with DWR to U.S. Government and
Government Agency Securities, Bank Money Instruments (i.e., Certificates of
Deposit and Bankers' Acceptances) and Commercial Paper. Such transactions will
be effected
23
<PAGE>
with DWR only when the price available from DWR is better than that available
from other dealers. During its fiscal year ended December 31, 1993, 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 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. During the fiscal years
ended December 31, 1991, 1992 and 1993, the Fund paid a total of $169,995,
$673,062 and $864,389, respectively, in brokerage commissions to DWR. 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. During the year ended
December 31, 1993, the brokerage commissions paid to DWR represented
approximately 18.1% of the total brokerage commissions paid by the Fund during
the year and were paid on account of transactions having an aggregate dollar
value equal to approximately 22.4% of the aggregate dollar value of all
portfolio transactions of the Fund during the year for which commissions were
paid.
THE DISTRIBUTOR
===============================================================================
As discussed in the Prospectus, shares of the Fund are distributed by
Dean Witter Distributors Inc. (the "Distributor"). The Distributor has entered
into a selected dealer agreement with DWR, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into selected dealer agreements with other selected broker-dealers. The
Distributor, a Delaware corporation, is a wholly-owned subsidiary of DWDC. The
Board of Trustees of the Fund including a majority of the Trustees who are not,
and were not at the time they voted, interested persons of the Fund, as defined
in the Act ( the "Independent Trustees"), approved, at their meeting held on
October 30, 1992, a Distribution Agreement appointing the Distributor as
exclusive distributor of the Fund's shares and providing for the Distributor to
bear distribution expenses not borne by the Fund. The Distribution Agreement
took effect on June 30, 1993 upon the spin-off by Sears, Roebuck and Co. of its
remaining shares of DWDC. By its terms, the Distribution Agreement has an
initial term ending April 30, 1994, and provides that it will remain in effect
from year to year thereafter if approved by the Board.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive - compensation to
account executives. The Distributor also pays certain expenses in connection
with the -distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears the
costs of initial typesetting, printing and distribution of prospectuses and
supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal 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.
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<PAGE>
PLAN OF DISTRIBUTION
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 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's shares
since the inception of the plan of distribution adopted by the Fund (the "Prior
Plan") on April 30, 1984 (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 Prior Plan's inception upon which a contingent
deferred sales charge has been imposed or upon which such charge has been
waived, or (b) the average daily net assets of the Fund attributable to shares
issued, net of shares redeemed, since the inception of the Prior Plan. The Plan
is substantially identical to the Prior Plan and was adopted by the Fund solely
in connection with its reorganization as a Massachusetts business trust in
April, 1987. The Plan was adopted by a majority vote of the Board of Trustees,
including all of the Independent Trustees, none of whom had or have any direct
or indirect financial interest in the operation of the Plan, (the "Independent
12b-1 Trustees"), cast in person at a meeting called for the purpose of voting
on the Plan, on April 15, 1987, and by the shareholders holding a majority, as
defined in the Act, of the outstanding shares of the Fund, at the Fund's Annual
Meeting of Stockholders held on April 21, 1987, as part of their approval of
the reorganization of the Fund as a Massachusetts business trust. The
Distributor also receives the proceeds of contingent deferred sales charges
imposed on certain redemptions of shares (see "Redemptions and Repurchases--
Contingent Deferred Sales Charge"). The Distributor has informed the Fund that
it and/or DWR received approximately $140,000, $505,000 and $886,500, in
contingent deferred sales charges for the fiscal years ended December 31, 1991,
1992 and 1993.
Under its terms, the Plan remained in effect until December 31, 1987,
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. Most
recent continuance of the Plan for one year, until April 30, 1994, 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 28, 1993. At that meeting, the
Trustees, including a majority of the Independent 12b-1 Trustees, also approved
certain technical amendments to the Plan in connection with recent amendments
adopted by the National Association of Securities Dealers, Inc. to its Rules of
Fair Practice. Prior to approving the continuation of the Plan, the Board
requested and received from the Distributor and reviewed all the information
which it deemed necessary to arrive at an informed determination of whether or
not the Plan should be continued. 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 by DWR to the Fund and its
shareholders. Based upon their review, the Trustees of the Fund, including each
of the Independent 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 therein.
At their meeting held on October 30, 1992, the Trustees of the Fund,
including all of the Independent 12b-1 Trustees, approved certain amendments to
the Plan which took effect in January, 1993 and were designed to reflect the
fact that upon the reorganization described above the share distribution
activities theretofore performed for the Fund by DWR were assumed by the
Distributor and DWR's sales activities are now being performed pursuant to the
terms of a selected dealer agreement between the Distributor and DWR. The
amendments provide that payments under the Plan will be made to the Distributor
rather than to DWR as before the amendment, and that the Distributor in turn is
authorized to make payments to DWR, its affiliates or other selected broker-
dealers (or direct that the Fund pay such entities directly). The Distributor
is also authorized to retain part of such fee as compensation for its own
distribution-related expenses.
The Distributor has informed the Fund that a portion of the fees
payable by the Fund each year pursuant to the Plan equal to 0.25% 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 portion of the fee is a payment made for
personal service and/or the
25
<PAGE>
maintenance of shareholder accounts. The remaining portion of the Plan fees
payable by the Fund is characterized as an "asset-based sales charge" as
defined in the aforementioned Rules of Fair Practice.
Pursuant to the Plan and as required by Rule 12b-1, the Distributor
shall provide the Fund, for review by the Trustees, and the Trustees shall
review, quarterly, a written report of the amounts expended under the Plan and
the purpose for which such expenditures were made.
The Fund accrued $6,891,780 to the Distributor, pursuant to the Plan,
for its fiscal year ended December 31, 1993. This is an accrual at an annual
rate of 1% of the average daily aggregate gross sales of the Fund's shares
since the inception of the Prior Plan on April 30, 1984 (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 Prior
Plan's inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived.
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 six 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 5% of the amount sold
and an annual residual commission of up to .25 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 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 share sales. The distribution fee that the Distributor
receives from the Fund under the Plan, in effect, offsets distribution expenses
the Distributor incurred on behalf of the Fund and its opportunity costs, such
as the gross sales credit and an assumed interest charge thereon ("carrying
charge"). In the Distributor's reporting of its 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
DWR 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 $6,981,780 accrued under the Plan for the
fiscal year ended December 31, 1993 to the Distributor and DWR. The Distributor
and DWR estimate that they have spent, pursuant to the Plan, $52,155,605 on
behalf of the Fund since the inception of the Prior Plan. It is estimated that
this amount was spent in approximately the following ways: (i) 4.45%
($2,322,641)--advertising and promotional expenses; (ii) 0.59% ($305,198)--
printing of prospectuses for distribution to other than current shareholders;
and (iii) 94.96% ($49,527,766)--other expenses, including the gross sales
credit and the carrying charge, of which 4.73% ($2,342,728) represents carrying
charges, 38.17% ($18,902,326) represents commission credits to DWR branch
offices for payments of commissions to account executives and 57.10%
($28,282,712) 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. DWR has advised the Fund that such excess
amount, 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 $34,972,698 as of December 31, 1993. Because there is
no requirement under the Plan that the Distributor be reimbursed for all
expenses or
26
<PAGE>
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
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.
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, had 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 as a result of receiving a portion of the
amounts expended thereunder by the Fund.
The Plan may not be amended to increase materially the amount to be
spent for the services described therein without approval of the shareholders
of the Fund, and all material amendments of the Plan must also be approved by
the Trustees in the manner describe above. The Plan may be terminated at any
time, without payment of any penalty, by vote of a majority of the Trustees who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan, 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 sixty days or less at the time of purchase are valued at
amortized cost, unless the Trustees determine such does not reflect the
securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty days, whereupon they will be valued at
amortized cost using their value on the 61st day unless the Trustees determine
such does not reflect the securities' market value, in which case these
securities will be valued at their fair value as determined by the Trustees.
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 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 suprvision 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 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.
SHAREHOLDER SERVICES
===============================================================================
Upon the purchase of shares of the Fund, a Shareholder Investment
Account is opened for the investor on the books of the Fund and maintained by
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
27
<PAGE>
of issuance of a share certificate. If a share certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the account at any time. There is no
charge to the investor for issuance of a certificate. Whenever a shareholder
instituted transaction takes place in the Shareholder Investment Account, the
shareholder will be mailed a confirmation of the transaction from the Fund or
from DWR or other selected broker-dealer.
Automatic Investment of Dividends and Distributions . As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the 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 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.
Target 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 an open-end Dean Witter Fund other than
Dean Witter American Value Fund. Such investment will be made as described
above for automatic investment 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 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 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 net asset value, 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 then $25, or in any whole percentage of the
account balance, on an annualized basis.
28
<PAGE>
The Transfer Agent acts as agent for the shareholder in tendering to
the Fund for redemption sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment designated in the application. The
shares will be redeemed at their net asset value determined, at the
shareholder's option, on the tenth or twenty-fifth day (or next following
business day) of the relevant month or quarter and normally a check for the
proceeds will be mailed by the Transfer Agent, or amounts credited to a
shareholder's DWR brokerage account, within five business days after the date
of redemption. The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields
or income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the 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 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, 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 American Value Fund, 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 Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund and five Dean Witter Funds which are money market
funds (the foregoing eight non-CDSC Funds are hereinafter referred to as
"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.
29
<PAGE>
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 Fund
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 investment 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
of the Fund exchanged into the Exchange Fund, upon a redemption of shares which
results in a CDSC being imposed, a credit (not to exceed the amount of the
CDSC) will be given in an amount equal to the Exchange Fund 12b-1 distribution
fees, 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 investment
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.
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 CSDC, 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 the 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 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
30
<PAGE>
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 purchaser payment for, or (b) the current net asset value of,
those exchanged in 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.
The Transfer Agent acts as agent for shareholders of the Fund in
effecting redemptions of Fund shares and in applying the proceeds to the
purchase of other fund shares. In the absence of negligence on its part,
neither the Transfer Agent nor the Fund shall be liable for any redemption of
Fund shares caused by unauthorized telephone instructions. Accordingly, in such
event the investor shall bear the risk of loss. The staff of the Securities and
Exchange Commission is currently considering the propriety of such a policy.
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 initial
investment is $10,000 for Dean Witter Short-Term U.S. Treasury Trust, although
that fund, in its discretion, may accept initial purchases of as low as $5,000.
The minimum initial investment for 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 money market 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 for termination or
material revision), provided that six months' prior written notice of
termination will be given to the shareholders who hold shares of Exchange
Funds, pursuant to the Exchange Privilege, and provided further that the
Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, (d)
during any other period when the Securities and Exchange Commission by order so
permits (provided that ap-
31
<PAGE>
plicable 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 certificate, must be sent to the Fund's Transfer
Agent, which will redeem the shares at their net asset value next computed (see
"Purchase of Fund Shares") after it receives the request, and certificate, if
any, in good order. Any redemption request received after such computation will
be redeemed at the next determined net asset value. The term "good order" means
that the share certificate, if any, and request for redemption are properly
signed, accompanied by any documentation required by the Transfer Agent, and
bear signature guarantees when required by the Fund or the Transfer Agent. If
redemption is requested by a corporation, partnership, trust or fiduciary, the
Transfer Agent may require that written evidence of authority acceptable 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 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.
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 six 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 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 years. The CDSC will be paid to the Distributor. In addition, no
CDSC will be imposed on redemptions of shares which were purchased by the
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.
32
<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 six 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 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 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 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 payments 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:
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A 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 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 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 six years and amounts equal to the current value of shares purchased
more than six 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 six years of purchase which are in excess of these amounts
and which redemptions 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 in the Prospectus.
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 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)
33
<PAGE>
when trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or (d) during any other period when
the Securities and Exchange Commission by order so permits; provided that
applicable rules and regulations of the Securities and Exchange Commission
shall govern as to whether the conditions prescribed in (b) or (c) exist. If
the shares to be redeemed have recently been purchased by check, payment of the
redemption proceeds may be delayed for the minimum time needed to verify that
the check used for investment has been honored (not more than fifteen days from
the time of receipt of the check by the Transfer Agent). 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 thirty days after
the date of redemption or repurchase, reinstate any portion or all of the
proceeds of such redemption or repurchase in shares of the Fund 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 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 purposes but will be applied to adjust the cost basis of the shares
acquired upon reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
===============================================================================
As discussed in the Prospectus under "Dividends, Distributions and
Taxes", the Fund will determine either to distribute or to retain all or part
of any net long-term capital gains in any year for reinvestment. If any such
gains are retained, the Fund will pay federal income tax thereon, and
shareholders at year-end will be able to claim their share of the tax paid by
the Fund as a credit against their individual federal income tax.
Because the Fund intends to distribute all of its net investment income
and 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. Shareholders will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from the
net investment income or short-term capital gains, are taxable to the
shareholder as ordinary income regardless of whether the shareholder receives
such payments in additional shares or in cash. Any dividends declared in the
last quarter of any year which are paid in the following year prior to February
1 will be deemed received by the shareholder in the prior year. Dividend
payments will be eligible for the federal dividends received deduction
available to the Fund's corporate shareholders only to the extent the aggregate
dividends received by the Fund would be eligible for the deduction if the Fund
were the shareholder claiming the dividends received deduction. In this regard,
a 46-day holding period generally must be met.
Gains or losses on the Fund's transactions in listed non-equity
options, futures and options on futures generally are treated as 60% long-term
and 40% short-term. When the Fund engages in options
34
<PAGE>
and futures transactions, various tax regulations applicable to the Fund may
have the effect of causing the Fund to recognize a gain or loss for tax
purposes before the gain or loss is realized, or to defer recognition of a
realized loss for tax purposes. Recognition, for taxes purposes, of an
unrealized loss may result in a lesser amount of the Fund's realized gains
being available for annual distribution.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have a tax holding period of more
than twelve months. Gains or losses on the sale of securities with a tax
holding period of twelve months or less will be short-term gains or losses.
One of the requirements for the Fund to remain qualified as a regulated
investment company is that less than 30% of its gross income be derived from
gains from the sale or other disposition of securities held for less than three
months. Accordingly, the Fund may be restricted in the writing of options on
securities held for less than three months, in the writing of options which
expire in less than three months, and in effecting closing transactions with
respect to call or put options which have been written or purchased less than
three months prior to such transactions. The Fund may also be restricted in its
ability to engage in transactions involving futures contracts.
As stated under "Investment Practices and Policies," the Fund may
invest up to 35% of its portfolio in securities other than common stocks,
including U.S. Government securities. Under current federal tax law, the Fund
will receive net investment income in the form of interest by virtue of holding
Treasury bills, notes and bonds, and will recognize income attributable to it
from holding zero coupon Treasury securities. Current federal tax law requires
that a holder (such as the Fund) of a zero coupon security accrue a portion of
the discount at which the security was purchased as income each year even
though the Fund receives no interest payment in cash on the security during the
year. As an investment company, the Fund must pay out substantially all of its
net investment income each year. Accordingly, the Fund, to the extent it
invests in zero coupon Treasury securities, may be required to pay out as an
income distribution each year an amount which is greater than the total amount
of cash receipts of interest the Fund actually received. Such distributions
will be made from the available cash of the Fund or by liquidation of portfolio
securities if necessary. If a distribution of cash necessitates the liquidation
of portfolio securities, the Investment Manager will select which securities to
sell. The Fund may realize a gain or loss from such sales. In the event the
Fund realizes net capital gains from such transactions, its shareholders may
receive a larger capital gain distribution, if any, than they would in the
absence of such transactions.
Any dividend or capital gains distribution received by a shareholder
from any investment company will have the effect of reducing the net asset
value of the shareholder's stock in that company by the exact amount of the
dividend or capital gains distribution. Furthermore, capital gains
distributions and some portion of the dividends are subject to federal income
taxes. If the net asset value of the shares should be reduced below a
shareholder's cost as a result of the payment of dividends or the distribution
of realized long-term capital gains, such payment or distribution would be in
part a return of capital but nonetheless would be taxable to the shareholder.
Therefore, an investor should consider the tax implications of purchasing Fund
shares immediately prior to a distribution record date.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
===============================================================================
As discussed in the Prospectus, from time to time the Fund may quote
its "total return" in advertisements and sales literature. 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 th e date of commencement of 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.
35
<PAGE>
The average annual total returns of the Fund for the one, five and ten
year periods ended December 31, 1993, were 13.70%, 18.87% and 14.16%,
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 to total return figures. Such calculations may or may not reflect
the deduction of the contingent deferred sales charge which, if reflected,
would reduce the performance quoted. For example, the average annual total
return of the Fund may be calculated in the manner described above, but without
deduction for any applicable contingent deferred sales charge. Based on this
calculation, the average annual total returns of the Fund for the one, five and
ten year periods ended December 31, 1993, were 18.70%, 19.07% and 14.16%,
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 reduction for any contingent deferred sales charge) by the
initial $1,000 investment and subtracting 1 from the result. Based on the
foregoing calculation, the Fund's total return for the year ended December 31,
1993 was 18.70%, the total return for the five year period ended December 31,
1993 was 139.33% and the total return for the ten year period ended December
31, 1993 was 275.99%.
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
aggregate total return to date (expressed as a decimal and without taking into
account the effect of any applicable CDSC) and multiplying by $10,000, $50,000
or $100,000, as the case may be. Investments of $10,000, $50,000 and $100,000
in the Fund at inception would have grown to $64,585, $322,925 and $645,850,
respectively, at December 31, 1993.
The Fund from time to time may also advertise its performance relative
to certain performance rankings and indexes compiled by independent
organizations.
SHARES OF THE FUND
===============================================================================
The shareholders of the Fund are entitled to a full vote for each full
share of beneficial interest held. The Fund is authorized to issue an unlimited
number of shares of beneficial interest. In accordance with the Fund's
Declaration of Trust, the Trustees of the Fund have been elected pursuant to a
majority shareholder vote at the meeting of shareholders held immediately prior
to the Fund's reorganization as a Massachusetts business trust in April, 1987.
The Trustees themselves have the power to alter the number and the terms of
office of the Trustees (as provided for in the Declaration of Trust), and they
may at any time lengthen or shorten their own terms or make their terms of
unlimited duration and appoint their own successors, provided that always at
least a majority of the Trustees has been elected by the shareholders of the
Fund. Under certain circumstances the Trustees may be removed by action of the
Trustees. The shareholders also have the right under certain circumstances to
remove the Trustees. The voting rights of shareholders are not cumulative, so
that holders of more than 50 percent of the shares voting can, if they choose,
elect all Trustees being selected, while the holders of the remaining shares
would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation
of additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (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). However, the Trustees have not
authorized any such additional series or classes of shares and the Fund has no
present intention to add additional series or classes of shares.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor is
any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise
from his/her or its -own bad faith, willful misfeasance, gross negligence or
reckless disregard of his/her or its duties. It also provides that all third
persons shall look solely to the Fund property for satisfaction of claims
arising in connection with the affairs of the Fund. With the exceptions stated,
the Declaration of Trust provides that
36
<PAGE>
a Trustee, officer, employee or agent is entitled to be indemnified against all
liability in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of
beneficial interest.
The Fund shall be of unlimited duration subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders
or the Trustees.
CUSTODIAN AND TRANSFER AGENT
===============================================================================
The Bank of New York, 110 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 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 from the Fund.
INDEPENDENT ACCOUNTANTS
===============================================================================
Price Waterhouse, 153 East 53rd Street, New York, New York 10022,
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 is the calendar year. 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
===============================================================================
Sheldon Curtis, 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 the 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, 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.
37
<PAGE>
<TABLE>
DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1993
===================================================================================================================================
<CAPTION>
Number of
Shares Value
- --------- -----
<C> <S> <C>
COMMON STOCKS (95.7%)
AUTO RELATED (8.3%)
150,000 Allied Signal, Inc........................................................................ $ 11,850,000
105,000 China Tire Holdings Ltd................................................................... 2,808,750
140,000 Chrysler Corp............................................................................. 7,455,000
140,000 Dana Corp................................................................................. 8,382,500
80,000 Federal Mogul............................................................................. 2,320,000
275,500 Ford Motor Co............................................................................. 17,769,750
320,000 General Motors Corp....................................................................... 17,560,000
215,000 Gentex Corp.*............................................................................. 7,525,000
290,000 Magna International, Inc.................................................................. 14,427,500
95,000 Mascotech, Inc............................................................................ 2,648,125
85,000 Morton International, Inc................................................................. 7,947,500
-----------
100,694,125
-----------
BANKS (0.6%)
200,000 Citicorp*................................................................................. 7,350,000
-----------
CYCLICAL COMMODITIES (0.4%)
80,000 Rohm and Haas Co.......................................................................... 4,760,000
-----------
COMMUNICATIONS--EQUIPMENT
& SOFTWARE (6.6%)
225,000 Antec Corp.*.............................................................................. 5,400,000
75,000 Cabletron Systems, Inc.*.................................................................. 8,437,500
123,000 Chipcom Corp.*............................................................................ 6,119,250
230,000 Cisco System, Inc.*....................................................................... 14,835,000
40,000 FTP Software, Inc.*....................................................................... 1,040,000
266,000 General Instruments Corp.*................................................................ 14,929,250
50,000 Summa Four, Inc.*......................................................................... 1,937,500
180,000 Tellabs, Inc.*............................................................................ 8,415,000
200,000 ThreeCom Corp.*........................................................................... 9,375,000
155,000 Wellfleet Communications, Inc.*........................................................... 9,958,750
-----------
80,447,250
-----------
COMPUTER SOFTWARE (3.4%)
515,000 Oracle Systems Corp.*..................................................................... 14,806,250
270,000 Parametric Technology Corp.*.............................................................. 10,327,500
150,750 Platinum Software Corp.*.................................................................. 3,768,750
301,000 Sybase, Inc.*............................................................................. 12,642,000
-----------
41,544,500
-----------
CONSUMER/BUSINESS
SERVICES (2.9%)
270,175 CUC International, Inc.*.................................................................. 9,726,300
200,000 First Data Corp........................................................................... 8,150,000
180,000 Reuters Holdings PLC (ADS)++.............................................................. 14,197,500
70,000 Scholastic Corp.*......................................................................... 2,992,500
-----------
35,066,300
-----------
CONSUMER PRODUCTS (1.7%)
64,100 Buenos Aires Embotelladora SA (ADR)+...................................................... 2,884,500
100,000 Coca Cola Femsa SA (ADR)*+................................................................ 3,275,000
245,000 General Nutrition Co. Inc.*............................................................... 6,860,000
140,000 Nature's Bounty*.......................................................................... 2,800,000
142,500 Perrigo Co.*.............................................................................. 4,845,000
-----------
20,664,500
-----------
ELECTRONIC COMPONENTS (4.4%)
277,000 DSC Communications Corp.*................................................................. 17,000,875
730,000 EMC Corp. Mass.*.......................................................................... 12,045,000
220,000 General Motors (Class H).................................................................. 8,552,500
<PAGE>
<CAPTION>
Number of
Shares Value
- --------- -----
<C> <S> <C>
ELECTRONIC COMPONENTS (con't.)
500,000 Silicon Graphics*......................................................................... $ 12,375,000
67,000 Zebra Technologies Corp.*................................................................. 3,785,500
-----------
53,758,875
-----------
ELECTRONICS--
SEMICONDUCTORS (6.7%)
200,000 Altera Corp.*............................................................................. 6,525,000
266,000 Intel Corp................................................................................ 16,492,000
230,000 Linear Technology Corp.................................................................... 8,912,500
400,000 LSI Logic*................................................................................ 6,400,000
150,000 Maxim Integrated Products, Inc.*.......................................................... 7,125,000
105,000 Microchip Technology, Inc.*............................................................... 4,068,750
180,000 Micron Technology, Inc.................................................................... 8,347,500
110,000 Motorola, Inc............................................................................. 10,161,250
190,000 Texas Instruments, Inc.................................................................... 12,065,000
70,000 Zilog, Inc.*.............................................................................. 2,100,000
-----------
82,197,000
-----------
ENERGY (1.5%)
200,000 Anardarko Petroleum....................................................................... 9,075,000
50,000 Landmark Graphics Corp.*.................................................................. 912,500
205,000 Seagull Energy Corp.*..................................................................... 5,201,875
149,500 Snyder Oil Corp........................................................................... 2,653,625
-----------
17,843,000
-----------
ENTERTAINMENT (3.3%)
300,000 Blockbuster Entertainment Corp............................................................ 9,187,500
442,000 Electronic Arts* ......................................................................... 13,260,000
143,000 Gaylord Entertainment Co.
(Class A)................................................................................ 4,021,875
15,200 Marvel Entertainment Group, Inc.*......................................................... 414,200
125,000 Polygram NV (ADR)+ ....................................................................... 4,921,875
190,000 Time Warner, Inc.......................................................................... 8,407,500
-----------
40,212,950
-----------
ENTERTAINMENT/GAMING (3.4%)
64,000 Mikohn Gaming Corp.*...................................................................... 960,000
625,000 Mirage Resorts*........................................................................... 14,921,875
262,500 President Riverboat Casinos*.............................................................. 5,775,000
422,600 Promus Cos. Inc.*......................................................................... 19,333,950
-----------
40,990,825
-----------
FINANCIAL--
MISCELLANEOUS (1.6%)
140,000 BHC Financial, Inc........................................................................ 3,850,000
150,000 First Financial Management Corp........................................................... 8,512,500
187,700 First USA, Inc............................................................................ 6,710,275
-----------
19,072,775
-----------
HEALTH EQUIPMENT &
SERVICES (6.1%)
110,000 Chiron Corp.*............................................................................. 9,185,000
100,000 Elan Corp. (ADS)*++....................................................................... 4,237,500
100,000 Genesis Health Ventures Corp.*............................................................ 2,350,000
800,000 Humana Corp.*............................................................................. 14,100,000
400,000 National Medical Enterprises.............................................................. 5,600,000
200,000 Oxford Health Plans, Inc.*................................................................ 10,600,000
95,000 Pyxis Corp.*.............................................................................. 7,101,250
100,000 Sciclone Pharmaceuticals*................................................................. 2,287,500
250,000 United Healthcare Corp.*.................................................................. 18,968,750
-----------
74,430,000
-----------
38
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1993 (continued)
===================================================================================================================================
<CAPTION>
Number of
Shares Value
- --------- -----
<C> <S> <C>
HOTELS/MOTELS (3.0%)
300,000 Hospitality Franchise
Systems, Inc.*........................................................................... $ 15,937,500
247,250 La Quinta Inns, Inc....................................................................... 8,715,562
425,000 Marriott International, Inc. ............................................................. 12,325,000
-----------
36,978,062
-----------
HOUSING & HOME
FURNISHINGS (3.8%)
296,200 Bed Bath & Beyond*........................................................................ 10,144,850
305,000 Bombay, Inc............................................................................... 13,725,000
300,000 Heilig-Meyers Co.......................................................................... 11,700,000
52,000 TJ International, Inc..................................................................... 1,547,000
140,000 Whirlpool Corp............................................................................ 9,310,000
-----------
46,426,850
-----------
INDUSTRIALS (8.1%)
251,000 Caterpillar, Inc.......................................................................... 22,339,000
115,000 Deere & Co................................................................................ 8,510,000
100,500 Eaton Corp................................................................................ 5,075,250
100,000 Foster Wheeler Corp....................................................................... 3,350,000
225,000 General Electric.......................................................................... 23,596,875
150,000 Grupo Tribasa, S.A. de C.V.*
(ADR)+................................................................................... 5,193,750
110,000 Johnstown America Industries*............................................................. 2,612,500
60,000 Loral Corp................................................................................ 2,265,000
72,000 Titan Wheel International, Inc............................................................ 1,800,000
201,300 Trinity Industries, Inc................................................................... 8,681,064
235,000 Varity Corp.*............................................................................. 10,516,250
125,000 Wabash National Corp...................................................................... 4,250,000
-----------
98,189,689
-----------
MEDIA (9.0%)
30,000 Capital Cities/ABC........................................................................ 18,585,000
35,000 CBS, Inc.................................................................................. 10,097,500
181,975 Clear Channel Communications*............................................................. 8,370,850
250,000 Comcast (Class A)......................................................................... 9,031,250
250,000 Grupo Televisa (GDS)+++*.................................................................. 17,500,000
225,825 Infinity Broadcasting Corp.*.............................................................. 6,774,750
170,000 News Corp. Ltd. (ADR)+.................................................................... 8,967,500
380,000 Tele-Communications, Inc.*................................................................ 11,447,500
200,000 Turner Broadcasting Systems, Inc.......................................................... 5,400,000
150,000 United International Holdings,
Inc. (Class A)*.......................................................................... 5,137,500
42,000 Viacom, Inc. (Class A)*................................................................... 2,052,750
148,000 Viacom, Inc. (Class B)*................................................................... 6,641,500
-----------
110,006,100
-----------
METALS (1.6%)
100,000 American Barrick Res. Corp................................................................ 2,850,000
72,000 Huntco, Inc. (Class A).................................................................... 2,988,000
250,000 Nucor Corp................................................................................ 13,250,000
-----------
19,088,000
-----------
PAPER & FOREST
PRODUCTS (1.4%)
131,000 Georgia Pacific Corp...................................................................... 9,006,250
98,900 Minerals Technologies, Inc................................................................ 2,868,100
115,000 Willamette Industries..................................................................... 5,692,500
-----------
17,566,850
-----------
<PAGE>
<CAPTION>
Number of
Shares Value
- --------- -----
<C> <S> <C>
PUBLISHING (2.0%)
280,000 Enquirer/Star Group, Inc.
(Class A)................................................................................ $ 5,320,000
200,000 Gannett Co................................................................................ 11,450,000
122,500 Tribune Co................................................................................ 7,365,312
-----------
24,135,312
-----------
RESTAURANT (1.0%)
150,000 Brinker International*.................................................................... 6,900,000
210,000 Lone Star Steakhouse & Saloon*............................................................ 5,722,500
-------------
12,622,500
-------------
RETAIL (1.5%)
103,500 Kohl's Corp.*............................................................................. 5,200,875
245,000 Penney (JC)............................................................................... 12,831,875
-------------
18,032,750
-------------
RETAIL -- SPECIALTY (2.5%)
196,000 Callaway Golf Co.......................................................................... 10,461,500
216,200 Fingerhut Cos............................................................................. 6,080,625
200,000 Gap, Inc.................................................................................. 7,875,000
145,000 Mens Warehouse, Inc.*..................................................................... 4,640,000
50,000 Sunglass Hut International*............................................................... 1,562,500
-------------
30,619,625
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (4.0%)
523,000 Applied Materials, Inc.*.................................................................. 20,266,250
165,000 KLA Instruments Corp.*.................................................................... 4,578,750
524,000 LAM Research*............................................................................. 16,899,000
125,000 Novellus Systems, Inc.*................................................................... 4,281,250
50,000 Synopsis, Inc.*........................................................................... 2,237,500
-------------
48,262,750
-------------
TELECOMMUNICATIONS (3.6%)
90,000 IDB Communications Group,
Inc.*.................................................................................... 4,905,000
214,500 Millicom, Inc.*........................................................................... 4,558,125
176,800 PacTel Corp.*............................................................................. 4,397,900
280,000 Telefonos de Mexico SA
Series L (ADR)+.......................................................................... 18,900,000
130,000 Vodafone Group PLC (ADR)+................................................................. 11,602,500
-------------
44,363,525
-------------
TRANSPORTATION
RELATED (2.9%)
170,000 Conrail, Inc.*............................................................................ 11,368,750
100,000 CSX....................................................................................... 8,100,000
150,000 Federal Express*.......................................................................... 10,631,250
100,000 Wisconsin Central Transport*.............................................................. 5,800,000
-------------
35,900,000
-------------
WIRELESS COMMUNICATIONS (0.4%)
150,750 Paging Network, Inc.*..................................................................... 4,522,500
-------------
TOTAL COMMON STOCKS
(Identified Cost
$1,070,561,329) ......................................................................... 1,165,746,613
-------------
NON CONVERTIBLE
PREFERRED STOCK (0.2%)
ENERGY (0.2%)
77,500 Snyder Oil Corp. $1.50 (Identified
Cost $2,095,000)......................................................................... 2,092,500
-------------
</TABLE>
39
<PAGE>
<TABLE>
DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1993 (continued)
===================================================================================================================================
<CAPTION>
Principal
Amount (in
thousands) Value
- ---------- -----
<C> <S> <C>
SHORT-TERM INVESTMENTS (2.9%)
COMMERCIAL PAPER (a) (2.1%)
AUTOMOTIVE FINANCE (0.8%)
$ 9,800 Ford Motor Credit Co. 2.9%
due 1/ 3/94.............................................................................. $ 9,798,421
FINANCE ENERGY (1.3%)
16,000 Chevron Oil Financial Co.
3.28% due 1/ 5/94........................................................................ 15,994,169
-------------
TOTAL COMMERCIAL PAPER
(Amortized Cost $25,792,590)............................................................. 25,792,590
-------------
U.S. GOVERNMENT
AGENCY (a) (0.5%)
6,300 Federal Farm Credit Bank
3.09% due 1/ 5/94 (Amortized
Cost $6,297,837)......................................................................... 6,297,837
-------------
REPURCHASE AGREEMENT (0.3%)
$ 3,307 The Bank of New York 2.75%
due 1/ 3/94 (dated 12/31/93;
proceeds $3,307,397;
collateralized by $3,317,309
U.S. Treasury Note 5.125%
due 3/31/98 valued
at $3,372,772) (Identified
Cost $3,306,639)......................................................................... $ 3,306,639
--------------
TOTAL SHORT-TERM
INVESTMENTS (Identified
Cost $35,397,066)........................................................................ 35,397,066
--------------
<S> <C> <C>
TOTAL INVESTMENTS (Identified
Cost $1,108,053,395).......................................................................... 98.8% 1,203,236,179
OTHER ASSETS IN EXCESS
OF LIABILITIES................................................................................ 1.2 14,742,180
------ --------------
NET ASSETS..................................................................................... 100.0% $1,217,978,359
------ --------------
------ --------------
<FN>
- ---------
* Non-income producing security.
+ American Depository Receipt.
++ American Depository Shares.
+++ Global Depository Shares.
(a) Commercial Paper and U.S. Government Agency were purchased on a discount basis. The interest rates shown have been adjusted
to reflect a bond equivalent yield.
(b) The aggregate cost for federal income tax purposes is $1,119,007,892; the aggregate gross unrealized appreciation is
$105,850,369 and the aggregate gross unrealized depreciation is $21,622,082, resulting in net unrealized appreciation of
$84,228,287.
See Notes to Financial Statements
</TABLE>
===============================================================================
1993 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended December 31, 1993, the Fund paid to shareholders $.379682
per share from long-term capital gains. For such period, 9.5% of the income
dividend qualified for the dividends received deduction available to
corporations.
===============================================================================
40
<PAGE>
<TABLE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL STATEMENTS
===============================================================================
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1993
===============================================================================
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,108,053,395) (Note 1).............. $1,203,236,179
Receivable for:
Investments sold....................................... 20,103,805
Shares of beneficial interest sold..................... 9,010,895
Dividends.............................................. 608,960
Prepaid expenses and other assets....................... 25,258
--------------
TOTAL ASSETS......................................... 1,232,985,097
--------------
LIABILITIES:
Payable for:
Investments purchased.................................. 12,066,783
Shares of beneficial interest repurchased.............. 626,765
Plan of distribution fee payable (Note 3) .............. 906,505
Investment management fee payable (Note 2).............. 521,449
Distributions payable................................... 513,207
Accrued expenses (Note 4)............................... 372,029
--------------
TOTAL LIABILITIES.................................... 15,006,738
--------------
NET ASSETS:
Paid-in-capital......................................... 1,109,773,336
Net accumulated undistributed realized
gain on investments.................................... 13,022,239
Net unrealized appreciation on investments.............. 95,182,784
--------------
NET ASSETS........................................... $1,217,978,359
==============
NET ASSET VALUE PER SHARE, 52,737,735
shares outstanding (unlimited authorized
shares of $.01 par value).............................. $23.10
======
<CAPTION>
===============================================================================
STATEMENT OF OPERATIONS
For the year ended December 31, 1993
===============================================================================
<S> <C>
INVESTMENT INCOME:
INCOME
Dividends (net of $15,149 foreign
withholding tax)..................................... $ 6,258,528
Interest.............................................. 1,850,727
------------
TOTAL INCOME......................................... 8,109,255
------------
EXPENSES
Plan of distribution fee (Note 3)..................... 6,891,780
Investment management fee (Note 2).................... 4,299,335
Transfer agent fees and expenses
(Note 4)............................................. 960,706
Registration fees..................................... 339,276
Custodian fees........................................ 157,438
Shareholder reports and notices....................... 66,967
Professional fees..................................... 42,647
Trustees' fees and expenses........................... 23,475
Other................................................. 10,962
------------
TOTAL EXPENSES....................................... 12,792,586
------------
NET INVESTMENT LOSS................................. (4,683,331)
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (Note 1):
Net realized gain on investments........................ 83,571,143
Net change in unrealized appreciation
on investments......................................... 38,314,852
------------
NET GAIN ON INVESTMENTS............................... 121,885,995
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........................... $117,202,664
============
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
===================================================================================================================================
<CAPTION>
For the year ended For the year ended
December 31, 1993 December 31, 1992
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment (loss) income............................................. $ (4,683,331) $ 618,177
Net realized gain on investments......................................... 83,571,143 13,646,640
Net change in unrealized appreciation on investments..................... 38,314,852 11,104,488
-------------- ------------
Net increase in net assets resulting from operations.................... 117,202,664 25,369,305
-------------- ------------
Dividends and distributions to shareholders from:
Net investment income.................................................... (235,229) (553,254)
Net realized gain on investments......................................... (76,071,042) (8,695,653)
-------------- ------------
(76,306,271) (9,248,907)
-------------- ------------
Net increase from transactions in shares of Beneficial interest (Note 5).. 718,521,196 215,458,713
-------------- ------------
Total increase................................................... 759,417,589 231,579,111
NET ASSETS:
Beginning of period....................................................... 458,560,770 226,981,659
-------------- ------------
END OF PERIOD (including undistributed net investment income of $0
and $235,229, respectively).............................................. $1,217,978,359 $458,560,770
-------------- ------------
-------------- ------------
See Notes to Financial Statements
</TABLE>
41
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. ORGANIZATION AND ACCOUNTING POLICIES--Dean Witter American Value Fund (the
"Fund"), is registered under the Investment Company Act of 1940, as amended
(the "Act"), as a diversified, open-end management investment company and was
originally incorporated in Maryland in 1979 and reorganized as a Massachusetts
business trust on April 30, 1987. The Fund commenced operations on March 27,
1980.
The following is a summary of significant accounting policies:
A. Valuation of Investments--(1) an equity portfolio security listed or
traded on the New York or American Stock Exchange is valued at its latest sale
price on that exchange (if there were no sales that day, the security is valued
at the latest bid price); (2) an option is valued at the mean between the
latest bid and asked prices; (3) a futures contract is valued at the latest
sales price on the commodities exchange on which it trades unless the Board
determines that such price does not reflect its market value, in which case it
will be valued at its fair value as determined by the Trustees; (4) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid price; (5) when market quotations are
not readily available, including circumstances under which it is determined by
the Investment Manager that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Fund's Trustees (valuation of debt securities for which
market quotations are not readily available may be based upon current market
prices of securities which are comparable in coupon, rating and maturity or an
appropriate matrix utilizing similar factors); (6) the value of debt securities
which mature at a date less than sixty days subsequent to valuation date will
be determined on an amortized cost or amortized value basis, and (7) the value
of other assets will be determined in good faith at fair value under procedures
established by and under the general supervision of the Fund's Trustees.
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 on the identified cost
method. Dividend income is recorded on the ex-dividend date. Interest income is
accrued daily.
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 reclassifications. 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.
42
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS (continued)
===============================================================================
E. Repurchase Agreements--The Fund's custodian takes possession on
behalf of the Fund of the collateral pledged for investments in repurchase
agreements. It is the policy of the Fund to value the underlying collateral
daily on a mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price. In the event of default of
the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation.
2. INVESTMENT MANAGEMENT AGREEMENT--Pursuant to an Investment Management
Agreement (the "Agreement") with Dean Witter InterCapital Inc., (the
"Investment Manager"), the Fund pays its 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:
0.625% of the portion of the daily net assets not exceeding $250 million and
0.50% of the portion of the daily net assets exceeding $250 million.
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 office space and 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 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 the annual rate of 1.0% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's shares since the
inception of the plan on April 30, 1984 (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 Plan's inception, upon
which a contingent deferred sales charge has been imposed or waived, or (b) the
average daily net assets of the Fund attributable to shares issued, net of
related shares redeemed, since inception of the Plan. Amounts paid under the
Plan are paid to the Distributor to compensate it for the services it 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 others 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, and its opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unrecovered expenses incurred by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses
incurred by the Distributor, but not yet recovered, may be recovered through
future distribution fees from the Fund and contingent deferred sales charges
from the Fund's shareholders.
The Distributor has informed the Fund that for the year ended December
31, 1993, it received approximately $886,500 in contingent deferred sales
charges from redemptions of the Fund's shares. The Fund's shareholders pay such
charges which are not an expense of the Fund.
43
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS (continued)
===============================================================================
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES--The cost of
purchases and the proceeds from sales of portfolio securities for the year
ended December 31, 1993, excluding short-term investments, aggregated
$2,729,197,178 and $2,136,041,574, respectively, including purchases and sales
of U.S. Government obligations of $92,693,750 and $94,465,781, respectively.
For the year ended December 31, 1993, the Fund incurred brokerage
commissions of $864,389 to Dean Witter Reynolds Inc. for transactions executed
on behalf of the Fund. At December 31, 1993, the Fund's receivables for
investments sold and payables for investments purchased included unsettled
trades with Dean Witter Reynolds Inc. of $886,044 and $7,821,707, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
the Distributor, is the Fund's transfer agent. During the year ended December
31, 1993, the Fund incurred transfer agent fees and expenses of approximately
$961,000 of which approximately $73,000 was payable at December 31, 1993.
<TABLE>
5. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial interest were as follows:
<CAPTION>
For the year ended For the year ended
December 31, 1993 December 31, 1992
--------------------------- -------------------------
Shares Amount Shares Amount
------ ------- ------ -------
<S> <C> <C> <C> <C>
Sold....................................... 34,824,814 $812,736,396 14,702,955 $288,568,432
Reinvestment of dividends and
distributions............................. 3,202,538 72,246,949 462,710 8,747,864
---------- ------------ ---------- ------------
38,027,352 884,983,345 15,165,665 297,316,296
Repurchased................................ (7,200,270) (166,462,149) (4,239,670) (81,857,583)
---------- ------------ ---------- ------------
Net increase............................... 30,827,082 $718,521,196 10,925,995 $215,458,713
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
6. FEDERAL INCOME TAXES--The Fund had temporary book/tax differences which were
primarily attributable to realized capital loss deferrals on wash sales and
permanent book/tax differences primarily attributable to offsetting of net
realized short-term capital gains with the net operating loss and dividend
redesignations. To reflect cumulative reclassifications arising from permanent
book/tax differences as of December 31, 1992, accumulated undistributed net
investment income was credited $136,511, accumulated undistributed net realized
gain on investments was charged $98,808 and paid-in-capital was charged
$37,703. To reflect reclassifications arising from permanent book/tax
differences for the year ended December 31, 1993, accumulated undistributed net
investment income was credited and accumulated undistributed net realized gain
on investments was charged for approximately $4,700,000.
44
<PAGE>
<TABLE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================================
<CAPTION>
Selected data and ratios for a share of beneficial interest outstanding throughout each period:
For the year ended December 31,
------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, be-
ginning of period........ $20.93 $20.66 $14.39 $14.81 $13.19 $12.21 $12.64 $12.67 $10.06 $12.56
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Investment (loss)
income--net............. (0.09) 0.03 0.05 0.24 0.34 0.29 0.19 0.28 0.32 0.28
Realized and
unrealized gain
(loss) on invest-
ments--net.............. 3.94 0.71 7.90 (0.38) 2.99 1.03 0.20 1.76 2.61 (1.23)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............... 3.85 0.74 7.95 (0.14) 3.33 1.32 0.39 2.04 2.93 (0.95)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less dividends and
distributions:
Dividends from net
investment income....... (0.01) (0.03) (0.03) (0.28) (0.32) (0.33) (0.23) (0.32) (0.32) (0.23)
Distributions from
capital gains........... (1.67) (0.44) (1.65) 0.00 (1.39) (0.00) (0.59) (1.75) 0.00 (1.32)
Distributions from
paid-in-capital......... 0.00 0.00 0.00 0.00 0.00 (0.01) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions............ (1.68) (0.47) (1.68) (0.28) (1.71) (0.34) (0.82) (2.07) (0.32) (1.55)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period............ $23.10 $20.93 $20.66 $14.39 $14.81 $13.19 $12.21 $12.64 $12.67 $10.06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Investment
Return+................... 18.70% 3.84% 56.26% (0.90)% 25.39% 10.84% 2.84% 15.82% 29.79% (8.32)%
Ratios/Supplemental
Data:
Net assets, end of period
(in thousands)........... $1,217,978 $458,561 $226,982 $89,165 $99,993 $90,053 $109,425 $78,872 $43,235 $37,946
Ratio of expenses to
average net assets....... 1.61% 1.72% 1.58% 1.70% 1.66% 1.78% 1.62% 1.39% 1.24% 1.17%
Ratio of net investment
(loss) income to
average net assets....... (0.59)% 0.18% 0.29% 1.67% 2.23% 2.15% 1.42% 2.10% 2.85% 2.84%
Portfolio turnover rate... 276 % 305% 264% 234% 196% 133% 203% 120% 61% 107%
<FN>
- ------------
+ Does not reflect the deduction of sales load.
See Notes to Financial Statements
</TABLE>
45
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
===============================================================================
To the Shareholders and Trustees of Dean Witter American Value Fund
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 American Value Fund
(the "Fund") at December 31, 1993, 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 owned at December 31, 1993 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
New York, New York
February 3, 1994
46
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial statements and schedules, included
in Prospectus (Part A): Page in
Prospectus
Financial highlights from the years ended
December 31, 1984, 1985, 1986, 1987, 1988,
1989, 1990, 1991, 1992 and 1993................... 4
(2) Financial statements included in the Statement of
Additional Information (Part B): Page in
SAI
Portfolio of Investments at December 31, 1993 .... 38
Statement of assets and liabilities at
December 31, 1993................................. 41
Statement of operations for the year
ended December 31, 1993........................... 41
Statement of changes in net assets for the years
ended December 31, 1992 and 1993.................. 41
Notes to Financial Statements .................... 42
(3) Financial statements included in Part C:
None
(b) Exhibits:
5. - Investment Management Agreement between
Registrant and Dean Witter InterCapital Inc.
6.(a) - Distribution Agreement between Registrant and
Dean Witter Distributors Inc.
1
<PAGE>
(b) - Form of Selected Dealers Agreement
8. - Amended and Restated Transfer Agency and
Service Agreement
9. - Services Agreement between Dean Witter
InterCapital Inc. and Dean Witter Services
Company Inc.
11. - Consent of Independent Accountants
15. - Amended and Restated Plan of Distribution
pursuant to Rule 12b-1 between the Registrant
and Dean Witter Distributors Inc.
16. - Schedule for Computation of Performance
Quotations
All other exhibits previously filed and incorporated
by reference.
Item 25. Persons Controlled by or Under Common Control With
Registrant.
None
Item 26. Number of Holders of Securities.
(1) (2)
Number of Record Holders
Title of Class at February 7, 1994
Shares of Beneficial Interest 132,173
Item 27. Indemnification
Pursuant to Section 5.3 of the Registrant's Declaration of
Trust and under Section 4.8 of the Registrant's By-Laws, the
indemnification of the Registrant's trustees, officers, employees
and agents is permitted if it is determined that they acted under
the belief that their actions were in or not opposed to the best
interest of the Registrant, and, with respect to any criminal
proceeding, they had reasonable cause to believe their conduct
was not unlawful. In addition, indemnification is permitted only
if it is determined that the actions in question did not render
them liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the
Registrant. Trustees, officers, employees and agents will be
2
<PAGE>
indemnified for the expense of litigation if it is determined
that they are entitled to indemnification against any liability
established in such litigation. The Registrant may also advance
money for these expenses provided that they give their
undertakings to repay the Registrant unless their conduct is
later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of
Trust and paragraph 8 of the Registrant's Investment Management
Agreement, neither the Investment Manager nor any trustee,
officer, employee or agent of the Registrant shall be liable for
any action or failure to act, except in the case of bad faith,
willful misfeasance, gross negligence or reckless disregard of
duties to the Registrant.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of the
Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by
such trustee, officer or controlling person in connection with
the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act, and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that it will apply the
indemnification provision of its by-laws in a manner consistent
with Release 11330 of the Securities and Exchange Commission
under the Investment Company Act of 1940, so long as the
interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager,
Registrant's Trustees, and other registered investment management
companies managed by the Investment Manager, maintains insurance
on behalf of any person who is or was a Trustee, officer,
employee, or agent of Registrant, or who is or was serving at the
request of Registrant as a trustee, director, officer, employee
or agent of another trust or corporation, against any liability
asserted against him and incurred by him or arising out of his
position. However, in no event will Registrant maintain
insurance to indemnify any such person for any act for which
3
<PAGE>
Registrant itself is not permitted to indemnify him.
Item 28. Business and Other Connections of Investment Adviser.
See "The Fund and Its Management" in the Prospectus
regarding the business of the investment adviser. The following
information is given regarding officers of Dean Witter
InterCapital Inc. Information regarding the other officers of
InterCapital is included in Item 29(b) below. The term "Dean
Witter Funds" used below refers to the following Funds: (1)
InterCapital Income Securities Inc., (2) High Income Advantage
Trust, (3) High Income Advantage Trust II, (4) High Income
Advantage Trust III, (5) Municipal Income Trust, (6) Municipal
Income Trust II, (7) Municipal Income Trust III, (8) Dean Witter
Government Income Trust, (9) Municipal Premium Income Trust, (10)
Municipal Income Opportunities Trust, (11) Municipal Income
Opportunities Trust II, (12) Municipal Income Opportunities Trust
III, (13) Prime Income Trust, (14) InterCapital Insured Municipal
Bond Trust, (15) InterCapital Quality Municipal Income Trust,
(16) InterCapital Quality Municipal Investment Trust, (17)
InterCapital Insured Municipal Income Trust, (18) InterCapital
California Insured Municipal Income Trust, (19) InterCapital
Insured Municipal Trust, (20) InterCapital Quality Municipal
Securities Trust (21) InterCapital New York Quality Municipal
Securities, (22) InterCapital California Municipal Securities,
(23) InterCapital Insured Municipal Securities and
(24) InterCapital Insured California
Municipal Securities, registered closed-end investment
companies, and (1) Dean Witter Equity Income Trust, (2) Dean
Witter Tax-Exempt Securities Trust, (3) Dean Witter Tax-Free
Daily Income Trust, (4) Dean Witter Dividend Growth Securities
Inc., (5) Dean Witter Convertible Securities Trust, (6) Dean
Witter Liquid Asset Fund Inc., (7) Dean Witter Developing Growth
Securities Trust, (8) Dean Witter Retirement Series, (9) Dean
Witter Federal Securities Trust, (10) Dean Witter World Wide
Investment Trust, (11) Dean Witter U.S. Government Securities
Trust, (12) Dean Witter Select Municipal Reinvestment Fund, (13)
Dean Witter High Yield Securities Inc., (14) Dean Witter
Intermediate Income Securities, (15) Dean Witter New York Tax-
Free Income Fund, (16) Dean Witter California Tax-Free Income
Fund, (17) Dean Witter Health Sciences Trust, (18) Dean Witter
California Tax-Free Daily Income Trust, (19) Dean Witter Managed
Assets Trust, (20) Dean Witter American Value Fund, (21) Dean
Witter Strategist Fund, (22) Dean Witter Utilities Fund, (23)
Dean Witter World Wide Income Trust, (24) Dean Witter New York
Municipal Money Market Trust, (25) Dean Witter Capital Growth
Securities, (26) Dean Witter Precious Metals and Minerals Trust,
(27) Dean Witter European Growth Fund Inc., (28) Dean Witter
Global Short-Term Income Fund Inc., (29) Dean Witter Pacific
Growth Fund Inc., (30) Dean Witter Multi-State Municipal Series
Trust, (31) Dean Witter Premier Income Trust, (32) Dean Witter
Short-Term U.S. Treasury Trust, (33) Dean Witter Diversified
Income Trust, (34) Dean Witter U.S. Government Money Market
4
<PAGE>
Trust, (35) Dean Witter Global Dividend Growth Securities, (36)
Active Assets California Tax-Free Trust, (37) Dean Witter Natural
Resource Development Securities Inc., (38) Active Assets
Government Securities Trust, (39) Active Assets Money Trust, (40)
Active Assets Tax-Free Trust, (41) Dean Witter Limited Term
Municipal Trust, (42) Dean Witter Variable Investment Series,
(43) Dean Witter Value-Added Market Series and (44) Dean Witter
Short-Term Bond Fund, registered open-end investment companies.
InterCapital is a wholly-owned subsidiary of Dean Witter,
Discover & Co. The principal address of the Dean Witter Funds is
Two World Trade Center, New York, New York 10048. The term
"TCW/DW Funds" refers to the following Funds: (1) TCW/DW Core
Equity Trust, (2) TCW/DW North American Government Income Trust,
(3) TCW/DW Latin American Growth Fund, (4) TCW/DW Income and
Growth Fund, (5) TCW/DW Small Cap Growth Fund, (6) TCW/DW
Balanced Fund, registered open-end investment companies and (7)
TCW/DW Term Trust 2002, (8) TCW/DW Term Trust 2003 and (9) TCW/DW
Term Trust 2000, registered closed-end investment companies.
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ------------- -----------------------
Charles A. Chairman, Chief Executive Vice
Fiumefreddo Executive Officer President and Director
and Director of Dean Witter
Reynolds Inc.
("DWR"); Chairman,
Director or Trustee,
President and
Chief Executive
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");Chairman,
Chief Executive
Officer and Director
of Dean Witter
Distributors
Inc.("Distributors")
and Dean Witter
Services Company
Inc.("DWSC"); Formerly
Executive Vice
President and Director
of Dean Witter,
Discover & Co.
("DWDC"); Director
5
<PAGE>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ------------- -----------------------
Charles A. Fiumefreddo and/or officer of DWDC
(cont'd) subsidiaries.
Philip J. Director Chairman, Chief
Purcell Executive Officer and
Director of DWDC and
DWR; Director of DWSC
and Distributors.
Richard M. Director President and Chief
DeMartini Operating Officer of
Dean Witter Capital
and Director of DWDC,
DWR, DWSC and
Distributors.
James F. Director President and Chief
Higgins Operating Officer of
Dean Witter Financial;
Director of DWDC, DWR,
DWSC and Distributors.
Thomas C. Executive Vice Executive Vice
Schneider President, Chief President, Chief
Financial Officer Financial Officer
and Director and Director of
DWDC, DWR, DWSC and
Distributors.
Christine A. Director Executive Vice
Edwards President, Secretary,
General Counsel and
Director of DWDC, DWR
DWSC and
Distributors.
Robert M. Scanlan President and Vice President of
Chief Operating the Dean Witter Funds
Officer and the TCW/DW Funds;
President of DWSC;
Executive Vice
President of
Distributors;
Executive Vice
President and
Director of DWTC.
6
<PAGE>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ------------- -----------------------
David A. Hughey Executive Vice Vice President of the
President and Dean Witter Funds and
Chief Administrative the TCW/DW Funds;
Officer Executive Vice
President, Chief
Administrative Officer
and Director of DWTC;
Executive Vice
President and Chief
Administrative Officer
of Distributors.
Edmund C. Executive Vice Vice President of the
Puckhaber President Dean Witter Funds.
John Van Heuvelen Executive Vice President and Chief
President Executive Officer of
DWTC.
Sheldon Curtis Senior Vice Vice President,
President, Secretary and
General Counsel General Counsel of the
and Secretary Dean Witter Funds and
the TCW/DW Funds;
Senior Vice
President and
Secretary of
DWTC; Assistant
Secretary
of DWR and DWDC;
Senior Vice
President, General
Counsel and Secretary
of DWSC; Senior Vice
President, Assistant
General Counsel and
Assistant Secretary
of Distributors
Peter M. Avelar Senior Vice Vice President of
President various Dean Witter
Funds.
Mark Bavoso Senior Vice Vice President of
President various Dean Witter
Funds.
7
<PAGE>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ------------- -----------------------
Thomas H. Connelly Senior Vice Vice President of
President various Dean Witter
Funds.
Edward Gaylor Senior Vice Vice President of
President various Dean Witter
Funds.
Rajesh K. Gupta Senior Vice Vice President of
President various Dean Witter
Funds.
Kenton J. Senior Vice Vice President of
Hinchliffe President various Dean Witter
Funds.
John B. Kemp, III Senior Vice Director of the
President Provident Savings
Bank, Jersey City,
New Jersey.
Anita Kolleeny Senior Vice Vice President of
President various Dean Witter
Funds.
Jonathan R. Page Senior Vice Vice President of
President various Dean Witter
Funds.
Ira Ross Senior Vice Vice President of
President various Dean Witter
Funds.
Rochelle G. Siegel Senior Vice Vice President of
President various Dean Witter
Funds.
Paul D. Vance Senior Vice Vice President of
President various Dean Witter
Funds.
Elizabeth A. Senior Vice
Vetell President
James F. Willison Senior Vice Vice President of
President various Dean Witter
Funds.
Ronald Worobel Senior Vice Vice President of
President various Dean Witter
Funds.
8
<PAGE>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ------------- -----------------------
Thomas F. Caloia First Vice Treasurer of the
President and Dean Witter Funds
Assistant Treasurer and the TCW/DW Funds;
Assistant Treasurer
of DWSC; Assistant
Treasurer of
Distributors.
Barry Fink First Vice Assistant Secretary
President of the Dean Witter
Funds and TCW/DW
Funds; First Vice
President and
Assistant Secretary
of DWSC.
Michael First Vice First Vice President
Interrante President and and Controller of
Controller DWSC; Assistant
Treasurer of
Distributors.
Robert Zimmerman First Vice
President
Joseph Arcieri Vice President
Stephen Brophy Vice President
Douglas Brown Vice President
Rosalie Clough Vice President
B. Catherine Vice President
Connelly
Marilyn K. Cranney Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Vice President
and Assistant
Secretary of DWSC;
Assistant Secretary of
DWR and DWDC.
Salvatore DeSteno Vice President Vice President of
DWSC.
Dwight Doolan Vice President
9
<PAGE>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ------------- -----------------------
Bruce Dunn Vice President
Geoffrey D. Flynn Vice President Vice President of
DWSC.
Bette Freedman Vice President
Deborah Genovese Vice President
Peter W. Gurman Vice President
Shant Harootunian Vice President
John Hechtlinger Vice President
David Johnson Vice President
Christopher Jones Vice President
Stanley Kapica Vice President
Paula LaCosta Vice President Vice President of
various Dean Witter
Funds.
Lawrence S. Lafer Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Vice President
Assistant Secretary
of DWSC.
Thomas Lawlor Vice President
Lou Anne D. McInnis Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Vice President
of DWSC.
James Mulcahy Vice President
James Nash Vice President
Hugh Rose Vice President
Ruth Rossi Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Assistant
Secretary of DWSC.
10
<PAGE>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ------------- -----------------------
Howard A. Schloss Vice President
Rose Simpson Vice President
Stuart Smith Vice President
Diane Lisa Sobin Vice President Vice President of
various Dean Witter
Funds.
Kathleen Stromberg Vice President Vice President of
various Dean Witter
Funds.
Vinh Q. Tran Vice President Vice President of
various Dean Witter
Funds.
Alice Weiss Vice President Assistant Vice
President of various
Dean Witter Funds.
Marianne Zalys Vice President
Item 29. Principal Underwriters
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Natural Resource Development Securities Inc.
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Equity Income Trust
(15) Dean Witter Federal Securities Trust
(16) Dean Witter U.S. Government Securities Trust
11
<PAGE>
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Managed Assets Trust
(22) Dean Witter Limited Term Municipal Trust
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Premier Income Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(44) InterCapital Insured Municipal Securities
(45) InterCapital Insured California Municipal Securities
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(b) The following information is given regarding directors and officers
of Distributors not listed in Item 28 above. The principal address of
Distributors is Two World Trade Center, New York, New York 10048. None of
the following persons has any position or office with the Registrant.
Positions and
Office with
Name Distributors
- ---- -------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
Edward C. Oelsner III Vice President of Distributors.
Samuel Wolcott III Vice President of Distributors.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder are maintained by the Investment Manager at its offices,
12
<PAGE>
except records relating to holders of shares issued by the Registrant,
which are maintained by the Registrant's Transfer Agent, at its place
of business as shown in the prospectus.
Item 31. Management Services
Registrant is not a party to any such management-related service
contract.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment 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 24th day of February, 1994.
DEAN WITTER AMERICAN VALUE FUND
By /s/ Sheldon Curtis
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 17 has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 02/24/94
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 02/24/94
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Edward R. Telling
By /s/ Sheldon Curtis 02/24/94
Sheldon Curtis
Attorney-in-Fact
Jack F. Bennett John R. Haire
John E. Jueck Manuel H. Johnson
Paul Kolton Edwin J. Garn
Michael E. Nugent
By /s/ David M. Butowsky 02/24/94
David M. Butowsky
Attorney-in-Fact
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
5. - Investment Management Agreement between
Registrant and Dean Witter InterCapital Inc.
6.(a) - Distribution Agreement between Registrant and
Dean Witter Distributors Inc.
(b) - Form of Selected Dealers Agreement
8. - Amended and Restated Transfer Agency and Service
Agreement
9. - Services Agreement between Dean Witter InterCapital
Inc. and Dean Witter Services Company Inc.
11. - Consent of Independent Accountants
15. - Amended and Restated Plan of Distribution
pursuant to Rule 12b-1 between the Registrant
and Dean Witter Distributors Inc.
16. - Schedule for Computation of Performance
Quotations
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 30th day of June, 1993 by and between Dean
Witter American Value Fund, an unincorporated business trust organized under
the laws of the Commonwealth of Massachusetts (hereinafter called the "Fund"),
and Dean Witter InterCapital Inc., a Delaware corporation (hereinafter called
the "Investment Manager"):
Whereas, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (the "Act"); and
Whereas, The Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, and engages in the business of
acting as investment adviser; and
Whereas, The Fund desires to retain the Investment Manager to render
management and investment advisory services in the manner and on the terms and
conditions hereinafter set forth; and
Whereas, The Investment Manager desires to be retained to perform
services on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as
investment manager of the Fund and, subject to the supervision of the Trustees,
to supervise the investment activities of the Fund as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager shall
obtain and evaluate such information and advice relating to the economy,
securities and commodities markets and securities and commodities as it deems
necessary or useful to discharge its duties hereunder; shall continuously
manage the assets of the Fund in a manner consistent with the investment
objectives and policies of the Fund; shall determine the securities and
commodities to be purchased, sold or otherwise disposed of by the Fund and the
timing of such purchases, sales and dispositions; and shall take such further
action, including the placing of purchase and sale orders on behalf of the
Fund, as the Investment Manager shall deem necessary or appropriate. The
Investment Manager shall also furnish to or place at the disposal of the Fund
such of the information, evaluations, analyses and opinions formulated or
obtained by the Investment Manager in the discharge of its duties as the Fund
may, from time to time, reasonably request.
2. The Investment Manager shall, at its own expense, maintain such
staff and employ or retain such personnel and consult with such other persons
as it shall from time to time determine to be necessary or useful to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Investment Manager
shall be deemed to include persons employed or otherwise retained by the
Investment Manager to furnish statistical and other factual data, advice
regarding economic factors and trends, information with respect to technical
and scientific developments, and such other information, advice and assistance
as the Investment Manager may desire. The Investment Manager shall, as agent
for the Fund, maintain the Fund's records and books of account (other than
those maintained by the Fund's transfer agent, registrar, custodian and other
agencies). All such books and records so maintained shall be the property of
the Fund and, upon request therefor, the Investment Manager shall surrender to
the Fund such of the books and records so requested.
3. The Fund will, from time to time, furnish or otherwise make
available to the Investment Manager such financial reports, proxy statements
and other information relating to the business and affairs of the Fund as the
Investment Manager may reasonably require in order to discharge its duties and
obligations hereunder.
4. The Investment Manager shall bear the cost of rendering the
investment management and supervisory services to be performed by it under this
Agreement, and shall, at its own expense, pay the compensation of the officers
and employees, if any, of the Fund, and provide such office space, facilities
and equipment and such clerical help and bookkeeping services as the Fund shall
reasonably require in the conduct of its
<PAGE>
business, including the preparation of prospectuses, 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). The Investment Manager shall also bear the cost of telephone
service, heat, light, power and other utilities provided to the Fund.
5. The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including without limitation: the charges and expenses of
any registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities or commodities and other
property, and any stock transfer or dividend agent or agents appointed by the
Fund; brokers' commissions chargeable to the Fund in connection with portfolio
transactions to which the Fund is a party; all taxes, including securities or
commodities issuance and transfer taxes, and fees payable by the Fund to
federal, state or other governmental agencies; the cost and expense of
engraving or printing certificates representing shares of the Fund; all costs
and expenses in connection with the registration and maintenance of
registration of the Fund and its shares with the Securities and Exchange
Commission and various states and other jurisdictions (including filing fees
and legal fees and disbursements of counsel); 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 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 the payment of
any dividend, distribution, withdrawal or redemption, whether in shares or in
cash; charges and expenses of any outside service used for pricing of the
Fund's shares; charges and expenses of legal counsel, including counsel to the
Trustees of the Fund who are not interested persons (as defined in the Act) of
the Fund or the Investment Manager, and of independent accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Trustees) of the Fund which
inure to its benefit; extraordinary expenses (including but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation
unless otherwise explicitly provided herein.
6. For the services to be rendered, the facilities furnished, and
the expenses assumed by the Investment Manager, the Fund shall pay to the
Investment Manager monthly compensation determined by applying the following
annual rates to the Fund's daily net assets: 0.625% of daily net assets up to
$250 million; and 0.50% of daily net assets over $250 million. Except as
hereinafter set forth, compensation under this Agreement shall be calculated
and accrued daily and the amounts of the daily accruals shall be paid monthly.
Such calculations shall be made by applying 1/365ths of the annual rates to the
Fund's net assets each day determined as of the close of business on that day
or the last previous business day. If this Agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day
of a month, compensation for that part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as
set forth above.
Subject to the provisions of paragraph 7 hereof, payment of the
Investment Manager's compensation for the preceding month shall be made as
promptly as possible after completion of the computations contemplated by
paragraph 7 hereof.
7. In the event the operating expenses of the Fund, including
amounts payable to the Investment Manager pursuant to paragraph 6 hereof, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund imposed by state securities laws
or regulations thereunder, as such limitations may be raised or lowered from
time to time, the Investment Manager shall reduce its management fee to the
extent of such excess and, if required, pursuant to any such laws or
regulations, will reimburse the Fund for annual operating expenses in excess of
any expense limitation that may be applicable; provided, however, there shall
be excluded from such expenses the amount of any interest, taxes, brokerage
commissions, distribution fees and extraordinary expenses (including but not
limited to legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or
2
<PAGE>
payable by the Fund. Such reduction, if any, shall be computed and accrued
daily, shall be settled on a monthly basis, and shall be based upon the expense
limitation applicable to the Fund as at the end of the last business day of the
month. Should two or more such expense limitations be applicable as at the end
of the last business day of the month, that expense limitation which results in
the largest reduction in the Investment Manager's fee shall be applicable.
For purposes of this provision, should any applicable expense limitation
be based upon the gross income of the Fund, such gross income shall include,
but not be limited to, interest on debt securities in the Fund's portfolio
accrued to and including the last day of the Fund's fiscal year, and dividends
declared on equity securities in the Fund's portfolio, the record dates for
which fall on or prior to the last day of such fiscal year, but shall not
include gains from the sale of securities.
8. The Investment Manager will use its best efforts in the
supervision and management of the investment activities of the Fund, but in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations hereunder, the Investment Manager shall not be
liable to the Fund or any of its investors for any error of judgment or mistake
of law or for any act or omission by the Investment Manager or for any losses
sustained by the Fund or its investors.
9. Nothing contained in this Agreement shall prevent the Investment
Manager or any affiliated person of the Investment Manager from acting as
investment adviser or manager for any other person, firm or corporation and
shall not in any way bind or restrict the Investment Manager or any such
affiliated person from buying, selling or trading any securities or commodities
for their own accounts or for the account of others for whom they may be
acting. Nothing in this Agreement shall limit or restrict the right of any
Trustee, officer or employee of the Investment Manager to engage in any other
business or to devote his or her time and attention in part to the management
or other aspects of any other business whether of a similar or dissimilar
nature.
10. This Agreement shall remain in effect until April 30, 1994 and
from year to year thereafter provided such continuance is approved at least
annually by the vote of holders of a majority, as defined in the Investment
Company Act of 1940, as amended (the "Act"), of the outstanding voting
securities of the Fund or by the Trustees of the Fund; provided that in either
event such continuance is also approved annually by the vote of a majority of
the Trustees of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the Act) of any such party, which vote must be cast in
person at a meeting called for the purpose of voting on such approval;
provided, however, that (a) the Fund may, at any time and without the payment
of any penalty, terminate this Agreement upon thirty days' written notice to
the Investment Manager, either by majority vote of the Trustees of the Fund or
by the vote of a majority of the outstanding voting securities of the Fund; (b)
this Agreement shall immediately terminate in the event of its assignment (to
the extent required by the Act and the rules thereunder) unless such automatic
terminations shall be prevented by an exemptive order of the Securities and
Exchange Commission; and (c) the Investment Manager may terminate this
Agreement without payment of penalty on thirty days' written notice to the
Fund. Any notice under this Agreement shall be given in writing, addressed and
delivered, or mailed post-paid, to the other party at the principal office of
such party.
11. This Agreement may be amended by the parties without the vote or
consent of the shareholders of the Fund to supply any omission, to cure,
correct or supplement any ambiguous, defective or inconsistent provision
hereof, or if they deem it necessary to conform this Agreement to the
requirements of applicable federal laws or regulations, but neither the Fund
nor the Investment Manager shall be liable for failing to do so.
12. This Agreement shall be construed in accordance with the laws of
the State of New York and the applicable provisions of the Act. To the extent
the applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall control.
13. The Investment Manager and the Fund each agree that the name
"Dean Witter", which comprises a component of the Fund's name, is a property
right of Dean Witter Reynolds Inc. The Fund agrees and consents that (i) it
will only use the name "Dean Witter" as a component of its name and for no
other purpose, (ii) it will not purport to grant to any third party the right
to use the name "Dean Witter" for any
3
<PAGE>
purpose, (iii) the Investment Manager or its parent, Dean Witter Reynolds Inc.,
or any corporate affiliate of the Investment Manager's parent, may use or grant
to others the right to use the name "Dean Witter", or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, including a grant of such right to any other
investment company, (iv) at the request of the Investment Manager or its
parent, the Fund will take such action as may be required to provide its
consent to the use of the name "Dean Witter", or any combination or
abbreviation thereof, by the Investment Manager or its parent or any corporate
affiliate of the Investment Manager's parent, or by any person to whom the
Investment Manager or its parent or any corporate affiliate of the Investment
Manager's parent shall have granted the right to such use, and (v) upon the
termination of any investment advisory agreement into which the Investment
Manager and the Fund may enter, or upon termination of affiliation of the
Investment Manager with its parent, the Fund shall, upon request by the
Investment Manager or its parent, cease to use the name "Dean Witter" as a
component of its name, and shall not use the name, or any combination or
abbreviation thereof, as a part of its name or for any other commercial
purpose, and shall cause its officers, Trustees and shareholders to take any
and all actions which the Investment Manager or its parent may request to
effect the foregoing and to reconvey to the Investment Manager or its parent
any and all rights to such name.
14. The Declaration of Trust establishing Dean Witter American Value
Fund, dated April 6, 1987, a copy of which, together with all amendments
thereto (the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Dean Witter American
Value Fund refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of Dean Witter American Value Fund shall be held to
any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim or otherwise, in connection with
the affairs of said Dean Witter American Value Fund, but the Trust Estate only
shall be liable.
In Witness Whereof, the parties hereto have executed and delivered this
Agreement on the day and year first above written in New York, New York.
Dean Witter American Value Fund
By______________________________
Attest:
____________________________
Dean Witter InterCapital Inc.
By____________________________
Attest:
____________________________
DEAN WITTER AMERICAN VALUE FUND
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 30th day of June, 1993, between Dean Witter
American Value Fund, an unincorporated business trust organized under the laws
of the Commonwealth of Massachusetts (the "Trust"), and Dean Witter
Distributors Inc., a Delaware corporation (the "Distributor");
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as a diversified open-end investment company and
it is in the interest of the Trust to offer its shares for sale continuously;
and
WHEREAS, the Trust and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Trust's transferable
shares of beneficial interest, of $.01 par value ("Shares"), in order to
promote the growth of the Trust and facilitate the distribution of its shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Appointment of the Distributor. (a) The Trust hereby appoints the
Distributor as the principal underwriter of the Trust to sell Shares to the
public on the terms set forth in this Agreement and the Trust's Prospectus and
the Distributor hereby accepts such appointment and agrees to act hereunder.
The Trust, during the term of this Agreement, shall sell Shares to the
Distributor upon the terms and conditions set forth herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from the Trust and to sell Shares as principal to investors and
securities dealers, including Dean Witter Reynolds Inc. ("DWR"), an affiliate
of the Distributor, upon the terms described herein and in the Trust's
prospectus (the "Prospectus") and statement of additional information included
in the Trust's registration statement (the "Registration Statement") most
recently filed from time to time with the Securities and Exchange Commission
(the "SEC") and effective under the Securities Act of 1933, as amended (the
"1933 Act"), and 1940 Act or as said Prospectus may be otherwise amended or
supplemented and filed with the SEC pursuant to Rule 497 under the 1933 Act.
SECTION 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive principal underwriter and distributor of the Trust, except that the
exclusive rights granted to the Distributor to sell the Shares shall not apply
to Shares issued by the Trust: (i) in connection with the merger or
consolidation of any other investment company or personal holding company with
the Trust or the acquisition by purchase or otherwise of all (or substantially
all) the assets or the outstanding shares of any such company by the Trust; or
(ii) pursuant to reinvestment of dividends or capital gains distributions; or
(iii) pursuant to the reinstatement privilege afforded redeeming shareholders.
SECTION 3. Purchase of Shares from the Trust. (a) The Distributor shall have
the right to buy from the Trust the Shares needed, but not more than the Shares
needed (except for clerical errors in transmission), to fill unconditional
orders for Shares placed with the Distributor by investors and securities
dealers. The price which the Distributor shall pay for the Shares so purchased
from the Trust shall be the net asset value, determined as set forth in the
Prospectus.
(b) The Shares are to be resold by the Distributor at the net asset value per
share, as set forth in the Prospectus, to investors or to securities dealers,
including DWR, who have entered into selected dealer agreements with the
Distributor pursuant to Section 7 ("Selected Dealers").
(c) The Trust shall have the right to suspend the sale of the Shares at times
when redemption is suspended pursuant to the conditions set forth in Section
4(d) hereof. The Trust shall also have the right to suspend the sale of the
Shares if trading on the New York Stock Exchange shall have been suspended, if
a banking moratorium shall have been declared by federal or New York
authorities, or if there shall have been some other extraordinary event which,
in the judgment of the Trust, makes it impracticable to sell the Shares.
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<PAGE>
(d) The Trust, or any agent of the Trust designated in writing by the Trust,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by the Trust; provided, however, that
the Trust will not arbitrarily or without reasonable cause refuse to accept
orders for the purchase of Shares. The Distributor will confirm orders upon
their receipt, and the Trust (or its agent) upon receipt of payment therefor
and instructions will deliver share certificates for such Shares or a statement
confirming the issuance of Shares. Payment shall be made to the Trust in New
York Clearing House funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Trust (or its agent).
With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct the Trust's transfer agent to receive instructions
directly from the Selected Dealer on behalf of the Distributor as to
registration of Shares in the names of investors and to confirm issuance of the
Shares to such investors. The Distributor is also authorized to instruct the
transfer agent to receive payment directly from the Selected Dealer on behalf
of the Distributor, for prompt transmittal to the Trust's custodian, of the
purchase price of the Shares. In such event the Distributor shall obtain from
the Selected Dealer and maintain a record of such registration instructions and
payments.
SECTION 4. Repurchase or Redemption of Shares. (a) Any of the outstanding
Shares may be tendered for redemption at any time, and the Trust agrees to
redeem the Shares so tendered in accordance with the applicable provisions set
forth in the Prospectus. The price to be paid to redeem the Shares shall be
equal to the net asset value determined as set forth in the Prospectus less any
applicable contingent deferred sales charge. All payments by the Trust
hereunder shall be made in the manner set forth below.
The proceeds of any redemption of Shares shall be paid by the Trust as
follows: (i) any applicable contingent deferred sales charge shall be paid to
the Distributor or to the Selected Dealer, or, when applicable, pursuant to the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
("NASD"), retained by the Fund and (ii) the balance shall be paid to the
redeeming shareholders, in each case in accordance with applicable provisions
of the Prospectus, in New York Clearing House funds. The Distributor is
authorized to direct the Trust to pay directly to any Selected Dealer any
contingent deferred sales charges payable by the Trust to the Distributor in
respect of Shares sold by the Selected Dealer to the redeeming shareholders.
(b) The Distributor is authorized, as agent for the Trust, to repurchase
Shares, represented by a share certificate which is delivered to any office of
the Distributor in accordance with applicable provisions set forth in the
Prospectus. The Distributor shall promptly transmit to the transfer agent of
the Trust for redemption all Shares so delivered. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Trust's
transfer agent in connection with all such repurchases.
(c) The Distributor is authorized, as agent for the Trust, to repurchase
Shares held in a share holder's account with the Trust for which no share
certificate has been issued, upon the telephonic or telegraphic request of the
shareholder, or at the discretion of the Distributor. The Distributor shall
promptly transmit to the transfer agent of the Trust, for redemption, all such
orders for repurchase of shares. Payment for shares repurchased may be made by
the Trust to the Distributor for the account of the shareholder. The
Distributor shall be responsible for the accuracy of instructions transmitted
to the Trust's transfer agent in connection with all such repurchases.
With respect to Shares tendered for redemption or repuchase by any Selected
Dealer on behalf of its customers, the Distributor is authorized to instruct
the transfer agent of the Trust to accept orders for redemption or repurchase
directly from the Selected Dealer on behalf of the Distributor and to instruct
the Trust to transmit payments for such redemptions and repurchases directly to
the Selected Dealer on behalf of the Distributor for the account of the
shareholder. The Distributor shall obtain from the Selected Dealer and maintain
a record of such orders. The Distributor is further authorized to obtain from
the Trust; and shall maintain, a record of payments made directly to the
Selected Dealer on behalf of the Distributor.
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<PAGE>
(d) Redemption of Shares or payment by the Trust may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the Trust
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange Commission, by order,
so permits.
SECTION 5. Duties of the Trust. (a) The Trust shall furnish to the
Distributor copies of all information, financial statements and other papers
which the Distributor may reasonably request for use in connection with the
distribution of the Shares, including one certified copy, upon request by the
Distributor, of all financial statements prepared by the Trust and examined by
independent accountants. The Trust shall, at the expense of the Distributor,
make available to the Distributor such number of copies of the Prospectus as
the Distributor shall reasonably request.
(b) The Trust shall take, from time to time, but subject to the necessary
approval of its share holders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of Shares as investors may
reasonably be expected to purchase.
(c) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of the Shares for sale under the
securities laws of such states as the Distributor and the Trust may approve.
Any such qualification may be withheld, terminated or withdrawn by the Trust at
any time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Trust. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Trust in connection with such
qualification.
(d) The Trust shall, at the expense of the Distributor, furnish, in reasonable
quantities upon request by the Distributor, copies of annual and interim
reports by the Trust.
SECTION 6. Duties of the Distributor. (a) The Distributor shall sell Shares
of the Trust through DWR, and may sell Shares through other securities dealers
and its own Account Executives, if any, and shall devote reasonable time and
effort to promote sales of the Shares, but shall not be obligated to sell any
specific number of Shares. The services of the Distributor hereunder are not
exclusive and it is understood that the Distributor may act as principal
underwriter for other registered investment companies. It is also understood
that Selected Dealers, including DWR, may also sell shares for other registered
investment companies.
(b) The Distributor and any Selected Dealers shall not give any information
or make any representations, other than those contained in the Registration
Statement or related Prospectus and any sales literature specifically approved
by the Trust.
(c) The Distributor agrees that it will comply with the terms and limitations
of the Rules of Fair Practice of the NASD.
SECTION 7. Selected Dealers Agreements. (a) The Distributor shall have the
right to enter into selected dealers agreements with Selected Dealers for the
sale of Shares. In making agreements with Selected Dealers, the Distributor
shall act only as principal and not as agent for the Trust. Shares sold to
Selected Dealers shall be for resale by such dealers only at the public
offering price set forth in the Prospectus.
(b) Within the United States, the Distributor shall offer and sell Shares
only to Selected Dealers that are members in good standing of the NASD.
(c) The Distributor shall adopt and follow procedures, as approved by the
Trust, for the confirmation of sales of Shares to investors and Selected
Dealers, the collection of amounts payable by investors and Selected Dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the NASD, as such requirements may from time
to time exist.
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<PAGE>
SECTION 8. Payment of Expenses. (a) The Distributor shall bear all expenses
incurred by it in connection with its duties and activities under this
Agreement including the payment to Selected Dealers of any sales commissions
service fees, and other expenses for sales of the Trust's shares (except such
expenses as are specifically undertaken herein by the Trust) incurred or paid
by Selected Dealers, including DWR. It is understood and agreed that, so long
as the Trust's Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act
continues in effect, any expenses incurred by the Distributor hereunder and by
DWR under the Distribution Agreement previously in effect between DWR and the
Trust may be paid from amounts the Distributor and DWR are entitled to receive
from the Trust under such Plan. It is further understood and agreed that
expenses for which the Distributor and DWR or any other Selected Dealer may be
paid under said Plan include opportunity costs, which may be calculated as a
carrying charge on the excess of distribution expenses, incurred by the
Distributor and/or the Selected Dealer over distribution revenues received by
each of them, respectively, under this Agreement and the Distribution Agreement
previously in effect with DWR.
(b) The Trust shall bear all costs and expenses of the Trust, including
payment of contingent deferred sales charges, fees and disbursements of legal
counsel including counsel to the Trustees of the Trust who are not interested
persons (as defined in the 1940 Act) of the Trust or the Distributor, and
independent accountants, in connection with the preparation and filing of any
required Registration Statements and Prospectuses and all amendments and
supplements thereto, and the expense of preparing, printing, mailing and
otherwise distributing prospectuses and statements of additional information,
annual or interim reports or proxy materials to shareholders.
(c) The Trust shall bear the cost and expenses of qualification of the Shares
for sale, and, if necessary or advisable in connection therewith, of qualifying
the Trust as a broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Trust and the Distributor pursuant to
Section 5(c) hereof and the cost and expenses payable to each such state for
continuing qualification therein until the Trust decides to discontinue such
qualification pursuant to Section 5(c) hereof.
SECTION 9. Indemnification. (a) The Trust shall indemnify and hold harmless
the Distributor and each person, if any, who controls the Distributor against
any loss, liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), arising
by reason of any person acquiring any Shares, which may be based upon the 1933
Act, or on any other statute or at common law, on the ground that the
Registration Statement or related Prospectus and Statements of Additional
Information, as from time to time amended and supplemented, or the annual or
interim reports to shareholders of the Trust, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, unless
such statement or omission was made in reliance upon, and in conformity with,
information furnished to the Trust in connection therewith by or on behalf of
the Distributor; provided, however, that in no case (i) is the indemnity of the
Trust in favor of the Distributor and any such controlling persons to be deemed
to protect the Distributor or any such controlling persons thereof against any
liability to the Trust or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under this
Agreement; or (ii) is the Trust to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or any such
controlling persons, as the case may be, shall have notified the Trust in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve it from any liability which it may have to the person against whom such
action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Trust will be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the defense, of any
suit brought to enforce any such liability, but if the Trust elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to
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the Distributor or such controlling person or persons, defendant or defendants
in the suit. In the event the Trust elects to assume the defense of any such
suit and retain such counsel, the Distributor or such controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, but, in case the Trust does not
elect to assume the defense of any such suit, it will reimburse the Distributor
or such controlling person or persons, defendant or defendants in the suit, for
the reasonable fees and expenses of any counsel retained by them. The Trust
shall promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or trustees in connection with
the issuance or sale of the Shares.
(b) (i) The Distributor shall indemnify and hold harmless the Trust and each
of its trustees and officers and each person, if any, who controls the Trust
against any loss, liability, claim, damage, or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Trust in writing by or on behalf of the
Distributor for use in connection with the Registration Statement or related
Prospectus and Statement of Additional Information, as from time to time
amended, or the annual or interim reports to shareholders.
(ii) The Distributor shall indemnify and hold harmless the Trust and the
Trust's transfer agent, individually and in its capacity as the Trust's
transfer agent, from and against any claims, damages and liabilities which
arise as a result of actions taken pursuant to instructions from, or on behalf
of, the Distributor to: (1) redeem all or a part of shareholder accounts in the
Trust pursuant to subsection 4(c) hereof and pay the proceeds to, or as
directed by, the Distributor for the account of each shareholder whose Shares
are so redeemed; and (2) register Shares in the names of investors, confirm the
issuance thereof and receive payment therefor pursuant to subsection 3(d).
(iii) In case any action shall be brought against the Trust or any person so
indemnified by this subsection 9(b) in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties given
to the Trust, and the Trust and each person so indemnified shall have the
rights and duties given to the Distributor by the provisions of subsection (a)
of this Section 8.
(c) If the indemnification provided for in this Section 9 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each indemnifiying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by the Trust on the one hand and the Distributor on the other
from the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Trust on the one hand and
the Distributor on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Trust on the one hand and
the Distributor on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received
by the Trust bear to the total compensation received by the Distributor, in
each case as set forth in the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Trust or the
Distributor and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Trust and
the Distributor agree that it would not be just and equitable if contribution
were determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) referred to above shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such claim. Notwithstanding the provisions of
this subsection (c), the Distributor shall not be required to contribute any
amount in excess of the amount by which the total price at which the Shares
distributed by it to the public were
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<PAGE>
offered to the public exceeds the amount of any damages which it has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
SECTION 10. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until April 30, 1994, and thereafter, but only so long as such
continuance is specifically approved at least annually by (i) the Board of
Trustees of the Trust, or by the vote of a majority of the outstanding voting
securities of the Trust, cast in person or by proxy, and (ii) a majority of
those Trustees who are not parties to this Agreement or interested persons of
any such party and who have no direct or indirect financial interest in this
Agreement or in the operation of the Trust's Rule 12b-1 Plan or in any
agreement related thereto, cast in person at a meeting called for the purpose
of voting upon such approval.
This Agreement may be terminated at any time without the payment of any
penalty, by the Trus tees of the Trust, by a majority of the Trustees of the
Trust who are not interested persons of the Trust and who have no direct or
indirect financial interest in this Agreement, or by vote of a majority of the
outstanding voting securities of the Trust, or by the Distributor, on sixty
days' written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person," when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
SECTION 11. Amendments of this Agreement. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the Trustees
of the Trust, or by the vote of a majority of outstanding voting securities of
the Trust, and (ii) a majority of those Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party and who have
no direct or indirect financial interest in this Agreement or in any Agreement
related to the Trust's Plan of Distribution pursuant to Rule 12b-1 under the
1940 Act, cast in person at a meeting called for the purpose of voting on such
approval.
SECTION 12. Governing Law. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the 1940
Act. To the extent the applicable law of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the 1940 Act, the
latter shall control.
SECTION 13. Personal Liability. The Declaration of the Trust establishing
Dean Witter American Value Fund, dated April 6, 1987, a copy of which, together
with all amendments thereto (the "Declaration"), is on file in the office of
the Secretary of the Commonwealth of Massachusetts, provides that the name Dean
Witter American Value Fund refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of Dean Witter American Value Fund
shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise,
in connection with the affairs of said Dean Witter American Value Fund, but the
Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first written in New York, New York.
DEAN WITTER AMERICAN VALUE FUND
By: __________________________________
DEAN WITTER DISTRIBUTORS INC.
By: __________________________________
6
DEAN WITTER DISTRIBUTORS INC.
Gentlemen:
Dean Witter Distributors Inc. (the "Distributor") has a distribution
agreement (the "Distribution Agreement") with Dean Witter American Value Fund,
a Massachusetts business trust (the "Fund"), pursuant to which it acts as the
Distributor for the sale of the Fund's shares of beneficial interest, par value
$0.01 per share (the "Shares"). Under the Distribution Agreement, the
Distributor has the right to distribute Shares for resale.
The Fund is an open-end management investment company registered under
the Investment Company Act of 1940, as amended, and the Shares being offered to
the public are registered under the Securities Act of 1933, as amended. You
have received a copy of the Distribution Agreement between us and the Fund and
reference is made herein to certain provisions of such Distribution Agreement.
The terms used herein, including "Prospectus" and "Registration Statement" of
the Fund and "Selected Dealer" shall have the same meaning in this Agreement as
in the Distribution Agreement. As principal, we offer to sell shares to your
customers, upon the following terms and conditions:
1. In all sales of Shares to the public you shall act on behalf of your
customers, and in no transaction shall you have any authority to act as agent
for the Fund, for us or for any Selected Dealer.
2. Orders received from you will be accepted through us or on our behalf
only at the net asset value applicable to each order, as set forth in the
current Prospectus. The procedure relating to the handling of orders shall be
subject to instructions which we or the Fund shall forward from time to time to
you. All orders are subject to acceptance or rejection by the Distributor or
the Fund in the sole discretion of either.
3. You shall not place orders for any Shares unless you have already
received purchase orders for such Shares at the applicable net asset values and
subject to the terms hereof and of the Distribution Agreement and the
Prospectus. You agree that you will not offer or sell any of the Shares except
under circumstances that will result in compliance with the applicable Federal
and state securities laws and that in connection with sales and offers to sell
Shares you will furnish to each person to whom any such sale or offer is made a
copy of the Prospectus (as then amended or supplemented) and will not furnish
to any person any information relating to the Shares, which is inconsistent in
any respect with the information contained in the Prospectus (as then amended
or supplemented) or cause any advertisement to be published by radio or
television or in any newspaper or posted in any public place or use any sales
promotional material without our consent and the consent of the Fund.
4. The Distributor will compensate you for sales of shares of the Fund
and personal services to Fund shareholders by paying you a sales charge and/or
other commission (which may be in the form of a gross sales credit and/or an
annual residual commission) and/or a service fee, under the terms as are set
forth in the Fund's Prospectus.
5. If any Shares sold to your customers under the terms of this
Agreement are repurchased by us for the account of the Fund or are tendered for
redemption within seven business days after the date of the confirmation of the
original purchase by you, it is agreed that you shall forfeit your right to,
and refund to us, any commission received by you with respect to such Shares.
6. No person is authorized to make any representations concerning the
Shares or the Fund except those contained in the current Prospectus and in such
printed information subsequently issued by us or the Fund as information
supplemental to such Prospectus. In selling Shares, you shall rely solely on
the representations contained in the Prospectus and supplemental information
mentioned above. Any printed information which we furnish you other than the
Prospectus and the Fund's periodic reports and proxy solicitation material are
our sole responsibility and not the responsibility of the Fund, and you agree
that the Fund shall have no liability or responsibility to you in these
respects unless expressly assumed in connection therewith.
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<PAGE>
7. You agree to deliver to each of the purchasers making purchases a
copy of the then current Prospectus at or prior to the time of offering or
sale, and you agree thereafter to deliver to such purchasers copies of the
annual and interim reports and proxy solicitation materials of the Fund. You
further agree to endeavor to obtain proxies from such purchasers. Additional
copies of the Prospectus, annual or interim reports and proxy solicitation
materials of the Fund will be supplied to you in reasonable quantities upon
request.
8. You are hereby authorized (i) to place orders directly with the Fund
or its agent for shares of the Fund to be sold by us subject to the applicable
terms and conditions governing the placement of orders for the purchase of Fund
shares, as set forth in the Distribution Agreement, and (ii) to tender shares
directly to the Fund or its agent for redemption subject to the applicable
terms and conditions set forth in the Distribution Agreement.
9. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Shares entirely. Each party hereto has the
right to cancel this agreement upon notice to the other party.
10. I. You shall indemnify and hold harmless the Distributor, from and
against any claims, damages and liabilities which arise as a result of action
taken pursuant to instructions from you, or on your behalf to: a)(i) place
orders for Shares of the Fund with the Fund's transfer agent or direct the
transfer agent to receive instructions for the order of Shares, and (ii) accept
monies or direct that the transfer agent accept monies as payment for the order
of such Shares, all as contemplated by and in accordance with Section 3 of the
Distribution Agreement; b)(i) place orders for the redemption of Shares of the
Fund with the Fund's transfer agent or direct the transfer agent to receive
instruction for the redemption of Shares and (ii) to pay redemption proceeds or
to direct that the transfer agent pay redemption proceeds in connection with
orders for the redemption of Shares, all as contemplated by and in accordance
with Section 4 of the Distribution Agreement; provided, however, that in no
case, (i) is this indemnity in favor of the Distributor and any such
controlling persons to be deemed to protect the Distributor or any such
controlling persons thereof against any liability to which the Distributor or
any such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under this
Agreement or the Distribution Agreement; or (ii) are you to be liable under the
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any such controlling persons, unless the Distributor
or any such controlling persons, as the case may be, shall have notified you in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any
designated agent), but failure to notify you of any such claim shall not
relieve you from any liability which you may have to the person against whom
such action is brought otherwise than on account of the indemnity agreement
contained in this paragraph. You will be entitled to participate at your own
expense in the defense, or, if you so elect, to assume the defense, of any suit
brought to enforce any such liability, but if you elect to assume the defense,
such defense shall be conducted by counsel chosen by you and satisfactory to
the Distributor or such controlling person or persons, defendant or defendants
in the suit. In the event you elect to assume the defense of any such suit and
retain such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them, but, in case you do not elect to assume
the defense of any such suit, you will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. You shall
promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issuance or sale of the Shares.
II. If the indemnification provided for in this Section 10 is
unavailable or insufficient to hold harmless the Distributor, as provided above
in respect of any losses, claims, damages, liabilities or expenses (or actions
in respect thereof) referred to herein, then you shall contribute to the amount
paid or payable by the Distributor as a result of such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by you on the one hand
and the
2
<PAGE>
Distributor on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then you shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also your relative fault on the one hand and the
relative fault of the Distributor on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations. You and the Distributor agree that it would
not be just and equitable if contribution were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to above. The amount paid or
payable by the Distributor as a result of the losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to above shall
be deemed to include any legal or other expenses reasonably incurred by the
Distributor in connection with investigating or defending any such claim.
Notwithstanding the provisions of this subsection (II), you shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Shares distributed by it to the public were offered to the
public exceeds the amount of any damages which it has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act of 1933 Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the distribution and
redemption of Fund shares. We shall be under no liability to you except for
lack of good faith and for obligations expressly assumed by us herein. Nothing
contained in this paragraph is intended to operate as, and the provisions of
this paragraph shall not in any way whatsoever constitute, a waiver by you of
compliance with any provision of the Securities Act of 1933, as amended, or of
the rules and regulations of the Securities and Exchange Commission issued
thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.
13. Upon application to us, we will inform you as to the states in which
we believe the Shares have been qualified for sale under, or are exempt from
the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Shares in any
jurisdiction.
14. All communications to us should be sent to the address shown below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
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<PAGE>
15. This Agreement shall become effective as of the date of your
acceptance hereof, provided that you return to us promptly a signed and dated
copy.
Dean Witter Distributors Inc.
By __________________________
(Authorized Signature)
Please return one signed copy
of this agreement to:
Dean Witter Distributors Inc.
Two World Trade Center
New York, New York 10048
Accepted:
Firm Name: ______________________________
By: ______________________________________
Address: _________________________________
__________________________________________
Date: ____________________________________
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
with
DEAN WITTER TRUST COMPANY
DWR
(open-end)
<PAGE>
TABLE OF CONTENTS
Page
Article 1 Terms of Appointment; Duties of DWTC . . . 2
Article 2 Fees and Expenses. . . . . . . . . . . . . 6
Article 3 Representations and Warranties of DWTC . . 7
Article 4 Representations and Warranties of the
Fund . . . . . . . . . . . . . . . . . . . 8
Article 5 Duty of Care and Indemnification . . . . . 9
Article 6 Documents and Covenants of the Fund and
DWTC . . . . . . . . . . . . . . . . . . . 12
Article 7 Duration and Termination of Agreement. . . 16
Article 8 Assignment . . . . . . . . . . . . . . . . 16
Article 9 Affiliations . . . . . . . . . . . . . . . 17
Article 10 Amendment. . . . . . . . . . . . . . . . . 18
Article 11 Applicable Law . . . . . . . . . . . . . . 18
Article 12 Miscellaneous. . . . . . . . . . . . . . . 18
Article 13 Merger of Agreement. . . . . . . . . . . . 20
Article 14 Personal Liability . . . . . . . . . . . . 21
i
<PAGE>
AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 1st
day of August, 1993 by and between each of the Dean Witter
Funds listed on the signature pages hereof, each of such Funds
acting severally on its own behalf and not jointly with any of
such other Funds (each such Fund hereinafter referred to as
the "Fund"), each such Fund having its principal office and
place of business at Two World Trade Center, New York, New
York, 10048, and DEAN WITTER TRUST COMPANY, a trust company
organized under the laws of New Jersey, having its principal
office and place of business at Harborside Financial Center,
Plaza Two, Jersey City, New Jersey 07311 ("DWTC").
WHEREAS, the Fund desires to appoint DWTC as its
transfer agent, dividend disbursing agent and shareholder
servicing agent and DWTC desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual
covenants herein contained, the parties hereto agree as
follows:
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Article 1 Terms of Appointment; Duties of DWTC
1.1 Subject to the terms and conditions set
forth in this Agreement, the Fund hereby employs and appoints
DWTC to act as, and DWTC agrees to act as, the transfer agent
for each series and class of shares of the Fund, whether now
or hereafter authorized or issued ("Shares"), dividend
disbursing agent and shareholder servicing agent in connection
with any accumulation, open-account or similar plans provided
to the holders of such Shares ("Shareholders") and set out in
the currently effective prospectus and statement of additional
information ("prospectus") of the Fund, including without
limitation any periodic investment plan or periodic withdrawal
program.
1.2 DWTC agrees that it will perform the fol-
lowing services:
(a) In accordance with procedures established
from time to time by agreement between the Fund and DWTC, DWTC
shall:
(i) Receive for acceptance, orders for the
purchase of Shares, and promptly deliver payment and
appropriate documentation therefor to the custodian of the
assets of the Fund (the "Custodian");
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<PAGE>
(ii) Pursuant to purchase orders, issue the
appropriate number of Shares and issue certificates therefor
or hold such Shares in book form in the appropriate
Shareholder account;
(iii) Receive for acceptance redemption
requests and redemption directions and deliver the appropriate
documentation therefor to the Custodian;
(iv) At the appropriate time as and when it
receives monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over in the
appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) Effect transfers of Shares by the
registered owners thereof upon receipt of appropriate
instructions;
(vi) Prepare and transmit payments for divi-
dends and distributions declared by the Fund;
(vii) Calculate any sales charges payable by
a Shareholder on purchases and/or redemptions of Shares of the
Fund as such charges may be reflected in the prospectus;
(viii) Maintain records of account for and
advise the Fund and its Shareholders as to the foregoing; and
3
<PAGE>
(ix) Record the issuance of Shares of the Fund
and maintain pursuant to Rule 17Ad-10(e) under the Securities
Exchange Act of 1934 ("1934 Act") a record of the total number
of Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. DWTC
shall also provide to the Fund on a regular basis the total
number of Shares which are authorized, issued and outstanding
and shall notify the Fund in case any proposed issue of Shares
by the Fund would result in an overissue. In case any issue
of Shares would result in an overissue, DWTC shall refuse to
issue such Shares and shall not countersign and issue any
certificates requested for such Shares. When recording the
issuance of Shares, DWTC shall have no obligation to take
cognizance of any Blue Sky laws relating to the issue of sale
of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and not in lieu of the
services set forth in the above paragraph (a), DWTC shall: (i)
perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, shareholder ser-
vicing agent in connection with dividend reinvestment,
accumulation, open-account or similar plans (including without
limitation any periodic investment plan or periodic withdrawal
program), including but not limited to, maintaining all
Shareholder accounts, preparing Shareholder meeting lists,
4
<PAGE>
mailing proxies, receiving and tabulating proxies, mailing
shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing appropriate forms required with
respect to dividends and distributions by federal tax
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders
for all purchases and redemptions of Shares and other confirm-
able transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders and providing
Shareholder account information; (ii) open any and all bank
accounts which may be necessary or appropriate in order to
provide the foregoing services; and (iii) provide a system
which will enable the Fund to monitor the total number of
Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall (i) identify
to DWTC in writing those transactions and assets to be treated
as exempt from Blue Sky reporting for each State and (ii)
verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of DWTC for the
Fund's registration status under the Blue Sky or securities
laws of any State or other jurisdiction is solely limited to
the initial establishment of transactions subject to Blue Sky
compliance by the Fund and the reporting of such transactions
5
<PAGE>
to the Fund as provided above and as agreed from time to time
by the Fund and DWTC.
(d) DWTC shall provide such additional
services and functions not specifically described herein as
may be mutually agreed between DWTC and the Fund. Procedures
applicable to such services may be established from time to
time by agreement between the Fund and DWTC.
Article 2 Fees and Expenses
2.1 For performance by DWTC pursuant to this
Agreement, each Fund agrees to pay DWTC an annual maintenance
fee for each Shareholder account and certain transactional
fees, if applicable, as set out in the respective fee schedule
attached hereto as Schedule A. Such fees and out-of-pocket
expenses and advances identified under Section 2.2 below may
be changed from time to time subject to mutual written
agreement between the Fund and DWTC.
2.2 In addition to the fees paid under Section
2.1 above, the Fund agrees to reimburse DWTC in connection
with the services rendered by DWTC hereunder. In addition,
any other expenses incurred by DWTC at the request or with the
consent of the Fund will be reimbursed by the Fund.
2.3 The Fund agrees to pay all fees and
reimbursable expenses within a reasonable period of time
6
<PAGE>
following the mailing of the respective billing notice.
Postage for mailing of dividends, proxies, Fund reports and
other mailings to all Shareholder accounts shall be advanced
to DWTC by the Fund upon request prior to the mailing date of
such materials.
Article 3 Representations and Warranties of DWTC
DWTC represents and warrants to the Fund that:
3.1 It is a trust company duly organized and
existing and in good standing under the laws of New Jersey and
it is duly qualified to carry on its business in New Jersey.
3.2 It is and will remain registered with the
U.S. Securities and Exchange Commission ("SEC") as a Transfer
Agent pursuant to the requirements of Section 17A of the 1934
Act.
3.3 It is empowered under applicable laws and
by its charter and By-Laws to enter into and perform this
Agreement.
3.4 All requisite corporate proceedings have
been taken to authorize it to enter into and perform this
Agreement.
3.5 It has and will continue to have access to
the necessary facilities, equipment and personnel to perform
its duties and obligations under this Agreement.
7
<PAGE>
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to DWTC that:
4.1 It is a corporation duly organized and
existing and in good standing under the laws of Delaware or
Maryland or a trust duly organized and existing and in good
standing under the laws of Massachusetts, as the case may be.
4.2 It is empowered under applicable laws and
by its Articles of Incorporation or Declaration of Trust, as
the case may be, and under its By-Laws to enter into and
perform this Agreement.
4.3 All corporate proceedings necessary to
authorize it to enter into and perform this Agreement have
been taken.
4.4 It is an investment company registered
with the SEC under the Investment Company Act of 1940, as
amended (the "1940 Act").
4.5 A registration statement under the
Securities Act of 1933 (the "1933 Act") is currently effective
and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
8
<PAGE>
Article 5 Duty of Care and Indemnification
5.1 DWTC shall not be responsible for, and the
Fund shall indemnify and hold DWTC harmless from and against,
any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or
attributable to:
(a) All actions of DWTC or its agents or
subcontractors required to be taken pursuant to this
Agreement, provided that such actions are taken in good faith
and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with
the terms of this Agreement, or which arise out of the Fund's
lack of good faith, negligence or willful misconduct or which
arise out of breach of any representation or warranty of the
Fund hereunder.
(c) The reliance on or use by DWTC or its agents or
subcontractors of information, records and documents which (i)
are received by DWTC or its agents or subcontractors and
furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or maintained by the Fund or any other
person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by DWTC or
its agents or subcontractors of, any instructions or requests
of the Fund.
9
<PAGE>
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations
or the securities or Blue Sky laws of any State or other
jurisdiction that such Shares be registered in such State or
other jurisdiction or in violation of any stop order or other
determination or ruling by any federal agency or any State or
other jurisdiction with respect to the offer or sale of such
Shares in such State or other jurisdiction.
5.2 DWTC shall indemnify and hold the Fund
harmless from or against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability
arising out of or attributable to any action or failure or
omission to act by DWTC as a result of the lack of good faith,
negligence or willful misconduct of DWTC, its officers,
employees or agents.
5.3 At any time, DWTC may apply to any officer
of the Fund for instructions, and may consult with legal
counsel to the Fund, with respect to any matter arising in
connection with the services to be performed by DWTC under
this Agreement, and DWTC and its agents or subcontractors
shall not be liable and shall be indemnified by the Fund for
any action taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel. DWTC, its
10
<PAGE>
agents and subcontractors shall be protected and indemnified
in acting upon any paper or document furnished by or on behalf
of the Fund, reasonably believed to be genuine and to have
been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided
to DWTC or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any
change of authority of any person, until receipt of written
notice thereof from the Fund. DWTC, its agents and
subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed
to bear the proper manual or facsimile signature of the
officers of the Fund, and the proper countersignature of any
former transfer agent or registrar, or of a co-transfer agent
or co-registrar.
5.4 In the event either party is unable to
perform its obligations under the terms of this Agreement
because of acts of God, strikes, equipment or transmission
failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be
liable for damages to the other for any damages resulting from
such failure to perform or otherwise from such causes.
11
<PAGE>
5.5 Neither party to this Agreement shall be
liable to the other party for consequential damages under any
provision of this Agreement or for any act or failure to act
hereunder.
5.6 In order that the indemnification
provisions contained in this Article 5 shall apply, upon the
assertion of a claim for which either party may be required to
indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall
keep the other party advised with respect to all developments
concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party
seeking indemnification in the defense of such claim. The
party seeking indemnification shall in no case confess any
claim or make any compromise in any case in which the other
party may be required to indemnify it except with the other
party's prior written consent.
Article 6 Documents and Covenants of the Fund and DWTC
6.1 The Fund shall promptly furnish to DWTC
the following:
(a) If a corporation:
(i) A certified copy of the resolution of the Board
of Directors of the Fund authorizing the appointment of DWTC
and the execution and delivery of this Agreement;
12
<PAGE>
(ii) A certified copy of the Articles of
Incorporation and By-Laws of the Fund and all amendments
thereto;
(iii) Certified copies of each vote of the Board
of Directors designating persons authorized to give
instructions on behalf of the Fund and signature cards bearing
the signature of any officer of the Fund or any other person
authorized to sign written instructions on behalf of the Fund;
(iv) A specimen of the certificate for Shares of the
Fund in the form approved by the Board of Directors, with a
certificate of the Secretary of the Fund as to such approval;
(b) If a business trust:
(i) A certified copy of the resolution of the Board
of Trustees of the Fund authorizing the appointment of DWTC
and the execution and delivery of this Agreement;
(ii) A certified copy of the Declaration of Trust
and By-laws of the Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board
of Trustees designating persons authorized to give
instructions on behalf of the Fund and signature cards bearing
the signature of any officer of the Fund or any other person
authorized to sign written instructions on behalf of the Fund;
13
<PAGE>
(iv) A specimen of the certificate for Shares of the
Fund in the form approved by the Board of Trustees, with a
certificate of the Secretary of the Fund as to such approval;
(c) The current registration statements and any
amendments and supplements thereto filed with the SEC pursuant
to the requirements of the 1933 Act or the 1940 Act;
(d) All account application forms or other
documents relating to Shareholder accounts and/or relating to
any plan, program or service offered or to be offered by the
Fund; and
(e) Such other certificates, documents or opinions
as DWTC deems to be appropriate or necessary for the proper
performance of its duties.
6.2 DWTC hereby agrees to establish and
maintain facilities and procedures reasonably acceptable to
the Fund for safekeeping of Share certificates, check forms
and facsimile signature imprinting devices, if any; and for
the preparation or use, and for keeping account of, such
certificates, forms and devices.
6.3 DWTC shall prepare and keep records
relating to the services to be performed hereunder, in the
form and manner as it may deem advisable and as required by
applicable laws and regulations. To the extent required by
14
<PAGE>
Section 31 of the 1940 Act, and the rules and regulations
thereunder, DWTC agrees that all such records prepared or
maintained by DWTC relating to the services performed by DWTC
hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section
31 of the 1940 Act, and the rules and regulations thereunder,
and will be surrendered promptly to the Fund on and in
accordance with its request.
6.4 DWTC and the Fund agree that all books,
records, information and data pertaining to the business of
the other party which are exchanged or received pursuant to
the negotiation or the carrying out of this Agreement shall
remain confidential and shall not be voluntarily disclosed to
any other person except as may be required by law or with the
prior consent of DWTC and the Fund.
6.5 In case of any request or demands for the
inspection of the Shareholder records of the Fund, DWTC will
endeavor to notify the Fund and to secure instructions from an
authorized officer of the Fund as to such inspection. DWTC
reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the
Shareholder records to such person.
15
<PAGE>
Article 7 Duration and Termination of Agreement
7.1 This Agreement shall remain in full force
and effect until July 31, 1996 and from year-to-year
thereafter unless terminated by either party as provided in
Section 7.2 hereof.
7.2 This Agreement may be terminated by the
Fund on 60 days written notice, and by DWTC on 90 days written
notice, to the other party without payment of any penalty.
7.3 Should the Fund exercise its right to
terminate, all out-of-pocket expenses associated with the
movement of records and other materials will be borne by the
Fund. Additionally, DWTC reserves the right to charge for any
other reasonable fees and expenses associated with such
termination.
Article 8 Assignment
8.1 Except as provided in Section 8.3 below,
neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the written consent of
the other party.
8.2 This Agreement shall inure to the benefit
of and be binding upon the parties and their respective
permitted successors and assigns.
16
<PAGE>
8.3 DWTC may, in its sole discretion and
without further consent by the Fund, subcontract, in whole or
in part, for the performance of its obligations and duties
hereunder with any person or entity including but not limited
to companies which are affiliated with DWTC; provided,
however, that such person or entity has and maintains the
qualifications, if any, required to perform such obligations
and duties, and that DWTC shall be as fully responsible to the
Fund for the acts and omissions of any agent or subcontractor
as it is for its own acts or omissions under this Agreement.
Article 9 Affiliations
9.1 DWTC may now or hereafter, without the
consent of or notice to the Fund, function as transfer agent
and/or shareholder servicing agent for any other investment
company registered with the SEC under the 1940 Act and for any
other issuer, including without limitation any investment
company whose adviser, administrator, sponsor or principal
underwriter is or may become affiliated with Dean Witter,
Discover & Co. or any of its direct or indirect subsidiaries
or affiliates.
9.2 It is understood and agreed that the
Directors or Trustees (as the case may be), officers,
employees, agents and shareholders of the Fund, and the
directors, officers, employees, agents and shareholders of the
17
<PAGE>
Fund's investment adviser and/or distributor, are or may be
interested in DWTC as directors, officers, employees, agents
and shareholders or otherwise, and that the directors,
officers, employees, agents and shareholders of DWTC may be
interested in the Fund as Directors or Trustees (as the case
may be), officers, employees, agents and shareholders or
otherwise, or in the investment adviser and/or distributor as
directors, officers, employees, agents, shareholders or
otherwise.
Article 10 Amendment
10.1 This Agreement may be amended or modified
by a written agreement executed by both parties and authorized
or approved by a resolution of the Board of Directors or the
Board of Trustees (as the case may be) of the Fund.
Article 11 Applicable Law
11.1 This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with
the laws of the State of New York.
Article 12 Miscellaneous
12.1 In the event that one or more additional
investment companies managed or administered by Dean Witter
InterCapital Inc. or any of its affiliates ("Additional
Funds") desires to retain DWTC to act as transfer agent,
dividend disbursing agent and/or shareholder servicing agent,
18
<PAGE>
and DWTC desires to render such services, such services shall
be provided pursuant to a letter agreement, substantially in
the form of Exhibit A hereto, between DWTC and each Additional
Fund.
12.2 In the event of an alleged loss or
destruction of any Share certificate, no new certificate shall
be issued in lieu thereof, unless there shall first be
furnished to DWTC an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been
lost or destroyed, supported by an appropriate bond
satisfactory to DWTC and the Fund issued by a surety company
satisfactory to DWTC, except that DWTC may accept an affidavit
of loss and indemnity agreement executed by the registered
holder (or legal representative) without surety in such form
as DWTC deems appropriate indemnifying DWTC and the Fund for
the issuance of a replacement certificate, in cases where the
alleged loss is in the amount of $1000 or less.
12.3 In the event that any check or other order for
payment of money on the account of any Shareholder or new
investor is returned unpaid for any reason, DWTC will (a) give
prompt notification to the Fund's distributor ("Distributor")
(or to the Fund if the Fund acts as its own distributor) of
such non-payment; and (b) take such other action, including
imposition of a reasonable processing or handling fee, as DWTC
19
<PAGE>
may, in its sole discretion, deem appropriate or as the Fund
and, if applicable, the Distributor may instruct DWTC.
12.4 Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Fund
or to DWTC shall be sufficiently given if addressed to that
party and received by it at its office set forth below or at
such other place as it may from time to time designate in
writing.
To the Fund:
(Name of Fund)
Two World Trade Center
New York, New York 10048
Attention: General Counsel
To DWTC:
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
Attention: President
Article 13 Merger of Agreement
13.1 This Agreement constitutes the entire
agreement between the parties hereto and supersedes any prior
agreement with respect to the subject matter hereof whether
oral or written.
20
<PAGE>
Article 14 Personal Liability
14.1 In the case of a Fund organized as a
Massachusetts business trust, a copy of the Declaration of
Trust of the Fund is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Board of Trustees
of the Fund as Trustees and not individually and that the
obligations of this instrument are not binding upon any of the
Trustees or shareholders individually but are binding only
upon the assets and property of the Fund; provided, however,
that the Declaration of Trust of the Fund provides that the
assets of a particular Series of the Fund shall under no
circumstances be charged with liabilities attributable to any
other Series of the Fund and that all persons extending credit
to, or contracting with or having any claim against, a
particular Series of the Fund shall look only to the assets of
that particular Series for payment of such credit, contract or
claim.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Amended and Restated Agreement to be executed in their
names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Natural Resource Development Securities Inc.
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Equity Income Trust
(15) Dean Witter Federal Securities Trust
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Managed Assets Trust
(22) Dean Witter Limited Term Municipal Trust
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Premier Income Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
22
<PAGE>
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Value-Added Market Series
(43) Dean Witter Select Municipal Reinvestment Fund
(44) Dean Witter Variable Investment Series
By:/s/ Sheldon Curtis
------------------------------------
Sheldon Curtis
Vice President and General Counsel
ATTEST:
/s/ Barry Fink
- -------------------------
Barry Fink
Assistant Secretary
DEAN WITTER TRUST COMPANY
By:/s/ Charles A. Fiumefreddo
----------------------------------
Charles A. Fiumefreddo
Chairman
ATTEST:
/s/ David A. Hughey
- --------------------------
David A. Hughey
Executive Vice President
f:\transfer.dw
23
<PAGE>
EXHIBIT A
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned,( Name of Fund )
a (Massachusetts business trust/Maryland Corporation) (the
"Fund"), desires to employ and appoint Dean Witter Trust
Company ("DWTC") to act as transfer agent for each series and
class of shares of the Fund, whether now or hereafter
authorized or issued ("Shares"), dividend disbursing agent and
shareholder servicing agent, registrar and agent in connection
with any accumulation, open-account or similar plan provided
to the holders of Shares, including without limitation any
periodic investment plan or periodic withdrawal plan.
The Fund hereby agrees that, in consideration for
the payment by the Fund to DWTC of fees as set out in the fee
schedule attached hereto as Schedule A, DWTC shall provide
such services to the Fund pursuant to the terms and conditions
set forth in the Transfer Agency and Service Agreement annexed
hereto, as if the Fund was a signatory thereto.
24
<PAGE>
Please indicate DWTC's acceptance of employment and
appointment by the Fund in the capacities set forth above by
so indicating in the space provided below.
Very truly yours,
( Name of the Fund )
By:..................................
Sheldon Curtis
Vice President and General Counsel
ACCEPTED AND AGREED TO:
DEAN WITTER TRUST COMPANY
By:.......................
Its:......................
Date:.....................
f:\transfer.dw
25
<PAGE>
SCHEDULE A
Fund: Dean Witter American Value Fund
Fees: (1) Annual maintenance fee of $11.00 per
shareholder account, payable monthly.
(2) A fee equal to 1/12 of the fee set forth in
(1) above, for providing Forms 1099 for accounts
closed during the year, payable following the end
of the calendar year.
(3) Out-of-pocket expenses in accordance with
Section 2.2 of the Agreement.
(4) Fees for additional services not set forth in
this Agreement shall be as negotiated between the
parties.
f:\schedA\40
SERVICES AGREEMENT
AGREEMENT made as of the 31st day of December, 1993 by and between Dean
Witter InterCapital Inc., a Delaware corporation (herein referred to as
"InterCapital"), and Dean Witter Services Company Inc., a New Jersey
corporation (herein referred to as "DWS").
WHEREAS, InterCapital has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement")
with certain investment companies as set forth on Schedule A (each such
investment company being herein referred to as a "Fund" and, collectively, as
the "Funds") pursuant to which InterCapital is to perform, or supervise the
performance of, among other services, administrative services for the Funds
(and, in the case of Funds with multiple portfolios, the Series or Portfolios
of the Funds (such Series and Portfolio being herein individually referred to
as "a Series" and, collectively, as "the Series"));
WHEREAS, InterCapital desires to retain DWS to perform the administrative
services as described below; and
WHEREAS, DWS desires to be retained by InterCapital to perform such
administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DWS agrees to provide administrative services to each Fund as hereinafter
set forth. Without limiting the generality of the foregoing, DWS shall (i)
administer the Fund's business affairs and supervise the overall day-to-day
operations of the Fund (other than rendering investment advice); (ii) provide
the Fund with full administrative services, including the maintenance of
certain books and records, such as journals, ledger accounts and other records
required under the Investment Company Act of 1940, as amended (the"Act"), the
notification to the Fund and InterCapital of available funds for investment,
the reconciliation of account information and balances among the Fund's
custodian, transfer agent and dividend disbursing agent and InterCapital, and
the calculation of the net asset value of the Fund's shares; (iii) provide the
Fund with the services of persons competent to perform such supervisory,
administrative and clerical functions as are necessary to provide effective
operation of the Fund; (iv) oversee the performance of administrative and
professional services rendered to the Fund by others, including its custodian,
transfer agent and dividend disbursing agent, as well as accounting, auditing
and other services; (v) provide the Fund with adequate general office space and
facilities; (vi) assist in the preparation and the printing of the periodic
updating of the Fund's registration statement and prospectus (and, in the case
of an open-end Fund, the statement of additional information), tax returns,
proxy statements, and reports to its shareholders and the Securities and
Exchange Commission; and (vii) monitor the compliance of the Fund's investment
policies and restrictions.
In the event that InterCapital enters into an Investment Management Agreement
with another investment company, and wishes to retain DWS to perform
administrative services hereunder, it shall notify DWS in writing. If DWS is
willing to render such services, it shall notify InterCapital in writing,
whereupon such other Fund shall become a Fund as defined herein.
2. DWS shall, at its own expense, maintain such staff and employ or retain
such personnel and consult with such other persons as it shall from time to
time determine to be necessary or useful to the performance of its obligations
under this Agreement. Without limiting the generality of the foregoing, the
staff and personnel of DWS shall be deemed to include officers of DWS and
persons employed or otherwise retained by DWS (including officers and employees
of InterCapital, with the consent of InterCapital) to furnish services,
statistical and other factual data, information with respect to technical and
scientific developments, and such other information, advice and assistance as
DWS may desire. DWS shall maintain each Fund's records and books of account
(other than those maintained by the Fund's transfer agent, registrar, custodian
and other agencies). All such books and records so maintained shall be the
property of the Fund and, upon request therefor, DWS shall surrender to
InterCapital or to the Fund such of the books and records so requested.
3. InterCapital will, from time to time, furnish or otherwise make available
to DWS such financial reports, proxy statements and other information relating
to the business and affairs of the Fund as DWS may
1
<PAGE>
reasonably require in order to discharge its duties and obligations to the Fund
under this Agreement or to comply with any applicable law and regulation or
request of the Board of Directors/Trustees of the Fund.
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by DWS, InterCapital shall pay to DWS monthly compensation
calculated daily (in the case of an open-end Fund) or
weekly (in the case of a closed-end Fund) by applying the annual rate or rates
set forth on Schedule B to the net assets of each Fund. Except as hereinafter
set forth, (i) in the case of an open-end Fund, compensation under this
Agreement shall be calculated by applying 1/365th of the annual rate or rates
to the Fund's or the Series' daily net assets determined as of the close of
business on that day or the last previous business day and (ii) in the case of
a closed-end Fund, compensation under this Agreement shall be calculated by
applying the annual rate or rates to the Fund's average weekly net assets
determined as of the close of the last business day of each week. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth on Schedule B. Subject to the
provisions of paragraph 5 hereof, payment of DWS' compensation for the
preceding month shall be made as promptly as possible after completion of the
computations contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any Series
thereof, or of InterCapital Income Securities Inc., including amounts payable
to InterCapital pursuant to the Investment Management Agreement, for any fiscal
year ending on a date on which this Agreement is in effect, exceed the expense
limitations applicable to the Fund and/or any Series thereof imposed by state
securities laws or regulations thereunder, as such limitations may be raised or
lowered from time to time, or, in the case of InterCapital Income Securities
Inc. or Dean Witter Variable Investment Series or any Series thereof, the
expense limitation specified in the Fund's Investment Management Agreement, the
fee payable hereunder shall be reduced on a pro rata basis in the same
proportion as the fee payable by the Fund under the Investment Management
Agreement is reduced.
6. DWS shall bear the cost of rendering the administrative services to be
performed by it under this Agreement, and shall, at its own expense, pay the
compensation of the officers and employees, if any, of the Fund employed by
DWS, and such clerical help and bookkeeping services as DWS shall reasonably
require in performing its duties hereunder.
7. DWS will use its best efforts in the performance of administrative
activitives on behalf of each Fund, but in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations hereunder,
DWS shall not be liable to the Fund or any of its investors for any error of
judgment or mistake of law or for any act or omission by DWS or for any losses
sustained by the Fund or its investors. It is understood that, subject to the
terms and conditions of the Investment Management Agreement between each Fund
and InterCapital, InterCapital shall retain ultimate responsibility for all
services to be performed hereunder by DWS. DWS shall indemnify InterCapital and
hold it harmless from any liability that InterCapital may incur arising out of
any act or failure to act by DWS in carrying out its responsibilities
hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, DWS, and in any person controlling,
controlled by or under common control with DWS, and that DWS and any person
controlling, controlled by or under common control with DWS may have an
interest in the Fund. It is also understood that DWS and any affiliated persons
thereof or any persons controlling, controlled by or under common control with
DWS have and may have advisory, management, administration service or other
contracts with other organizations and persons, and may have other interests
and businesses, and further may purchase, sell or trade any securities or
commodities for their own accounts or for the account of others for whom they
may be acting.
9. This Agreement shall continue until April 30, 1994, and thereafter shall
continue automatically for successive periods of one year unless terminated by
either party by written notice delivered to the other party within 30 days of
the expiration of the then-existing period. Notwithstanding the foregoing, this
Agreement may be terminated at any time, by either party on 30 days' written
notice delivered to the other party. In the
2
<PAGE>
event that the Investment Management Agreement between any Fund and
InterCapital is terminated, this Agreement will automatically terminate with
respect to such Fund.
10. This Agreement may be amended or modified by the parties in any manner by
mutual written agreement executed by each of the parties hereto.
11. This Agreement shall be construed and interpreted in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
DEAN WITTER INTERCAPITAL INC.
By: _______________________________
Attest:
_________________________________________
DEAN WITTER SERVICES COMPANY INC.
By: _______________________________
Attest:
________________________________________
C 65500
3
<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
AT DECEMBER 31, 1993
OPEN-END FUNDS
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Dean Witter American Value Fund
6. Dean Witter California Tax-Free Daily Income Trust
7. Dean Witter California Tax-Free Income Fund
8. Dean Witter Capital Growth Securities
9. Dean Witter Convertible Securities Trust
10. Dean Witter Developing Growth Securities Trust
11. Dean Witter Diversified Income Trust
12. Dean Witter Dividend Growth Securities Inc.
13. Dean Witter Equity Income Trust
14. Dean Witter European Growth Fund Inc.
15. Dean Witter Federal Securities Trust
16. Dean Witter Global Dividend Growth Securities
17. Dean Witter Global Short-Term Income Fund Inc.
18. Dean Witter Health Sciences Trust
19. Dean Witter High Yield Securities Inc.
20. Dean Witter Intermediate Income Securities
21. Dean Witter Limited Term Municipal Trust
22. Dean Witter Liquid Asset Fund Inc.
23. Dean Witter Managed Assets Trust
24. Dean Witter Multi-State Municipal Series Trust
25. Dean Witter Natural Resource Development Securities Inc.
26. Dean Witter New York Municipal Money Market Trust
27. Dean Witter New York Tax-Free Income Fund
28. Dean Witter Pacific Growth Fund Inc.
29. Dean Witter Precious Metals and Minerals Trust
30. Dean Witter Premier Income Trust
31. Dean Witter Retirement Series
32. Dean Witter Select Municipal Reinvestment Fund
33. Dean Witter Short-Term U.S. Treasury Trust
34. Dean Witter Strategist Fund
35. Dean Witter Tax-Exempt Securities Trust
36. Dean Witter Tax-Free Daily Income Trust
37. Dean Witter U.S. Government Money Market Trust
38. Dean Witter U.S. Government Securities Trust
39. Dean Witter Utilities Fund
40. Dean Witter Value-Added Market Series
41. Dean Witter Variable Investment Series
42. Dean Witter World Wide Income Trust
43. Dean Witter World Wide Investment Trust
CLOSED-END FUNDS
44. High Income Advantage Trust
45. High Income Advantage Trust II
46. High Income Advantage Trust III
47. InterCapital Income Securities Inc.
48. Dean Witter Government Income Trust
49. InterCapital Insured Municipal Bond Trust
50. InterCapital Insured Municipal Trust
51. InterCapital Insured Municipal Income Trust
52. InterCapital California Insured Municipal Income Trust
53. InterCapital Quality Municipal Investment Trust
54. InterCapital Quality Municipal Income Trust
55. InterCapital Quality Municipal Securities
56. InterCapital California Quality Municipal Securities
57. InterCapital New York Quality Municipal Securities
4
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994
Monthly compensation calculated daily by applying the following annual
rates to the fund's net assets.
Dean Witter American 0.0625% of the portion of the daily net
Value Fund assets not exceeding $250 million and 0.050%
of the portion of the daily net assets exceeding
$250 million.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
February 3, 1994, relating to the financial statements and financial highlights
of Dean Witter American Value Fund, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report
into the Prospectus which constitutes part of this Registration Statement. We
also consent to the references to us under the heading "Financial Highlights"
in the Prospectus and under the headings "Independent Accountants" and
"Experts" in the Statement of Additional Information.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
February 18, 1994
AMENDED AND RESTATED PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
DEAN WITTER AMERICAN VALUE FUND
Whereas, Dean Witter American Value Fund (the "Fund") is engaged in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act"); and
Whereas, on April 30, 1987, the Fund amended and restated a Plan of
Distribution pursuant to Rule 12b-1 under the Act which had initially been
adopted on April 30, 1984, and the Trustees then determined that there was a
reasonable likelihood that adoption of the Plan of Distribution, as then
amended and restated, would benefit the Fund and its shareholders; and
Whereas, the Trustees believe that continuation of said Plan of
Distribution, as amended and restated herein, is reasonably likely to continue
to benefit the Fund and its shareholders; and
Whereas, on April 30, 1987, the Fund and Dean Witter Reynolds Inc. ("DWR")
entered into a Distribution Agreement pursuant to which the Fund employed DWR
as distributor of the Fund's shares; and
Whereas, on January 4, 1993, the Fund and DWR substituted Dean Witter
Distributors Inc. (the "Distributor") in the place of DWR as distributor of the
Fund's shares; and
Whereas, the Fund, DWR and the Distributor intend that DWR will continue
to promote the sale of Fund shares and provide personal services to Fund
shareholders with respect to their holdings of Fund shares; and
Whereas, the Fund and the Distributor have entered into a separate
Distribution Agreement dated as of January 4, 1993, pursuant to which the Fund
has employed the Distributor in such capacity during the continuous offering of
shares of the Fund.
Now, Therefore, the Fund hereby amends the Plan of Distribution previously
adopted and amended and restated, and the Distributor hereby agrees to the
terms of said Plan of Distribution (the "Plan"), as amended herein, in
accordance with Rule 12b-1 under the Act on the following terms and conditions:
1. The Fund shall pay to the Distributor, as the distributor of
securities of which the Fund is the issuer, compensation for distribution of
its shares at the rate of the lesser of (i) 1.0% per annum of the average daily
aggregate sales of the shares of the Fund since inception of the Plan (not
including reinvestment of dividends and capital gains distributions from the
Fund) less the average daily aggregate net asset value of the shares of the
Fund redeemed since the inception of the Plan upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived, or
(ii) 1.0% per annum of the Fund's average daily net assets attributable to
shares issued since the inception of the Plan. Such compensation shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Trustees shall determine. The Distributor may direct that all or any part of
the amounts receivable by it under this Plan be paid directly to DWR, its
affiliates or other broker-dealers who provide distribution and shareholder
services. All payments made hereunder pursuant to the Plan shall be in
accordance with the terms and limitations of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
2. The amount set forth in paragraph 1 of this Plan shall be paid for
services of the Distributor, DWR, its affiliates and other broker-dealers it
may select in connection with the distribution of the Fund's shares, including
personal services to shareholders with respect to their holdings of Fund
shares, and may be spent by the Distributor, DWR, its affiliates and such
broker-dealers on any activities or expenses related to the distribution of the
Fund's shares or services to shareholders, including, but not limited to:
compensation to, and expenses of, account executives or other employees of the
Distributor, DWR, its affiliates or other broker-dealers; overhead and other
branch office distribution-related expenses and telephone expenses of persons
who engage in or support distribution of shares or who provide personal
services to shareholders; printing of prospectuses and reports for other than
existing shareholders; preparation, printing and distribution of sales
literature and advertising materials and opportunity costs in incurring the
foregoing expenses (which may be calculated as a carrying charge on the excess
of the distribution expenses incurred by the Distributor, DWR, its affiliates
or other broker-dealers over distribution revenues received by them). The
overhead and other branch office distribution-related expenses referred to in
this paragraph 2 may include: (a) the expenses of operating the branch offices
of the Distributor or other broker-dealers, including DWR, 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.
1
<PAGE>
3. This Plan, as amended and restated, shall not take effect until it
has been approved, together with any related agreements, by votes of a majority
of the Board of Trustees of the Fund and of the Trustees who are not
"interested persons" of the Fund (as defined in the Act) and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Trustees"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
4. This Plan shall continue in effect until April 30, 1993, and from
year to year thereafter, provided such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph 3
hereof.
5. The Distributor shall provide to the Trustees of the Fund and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made. In this
regard, the Trustees shall request the Distributor to specify such items of
expenses as the Trustees deem appropriate. The Trustees shall consider such
items as they deem relevant in making the determinations required by paragraph
4 hereof.
6. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees, or by vote of a majority of the outstanding voting
securities of the Fund. In the event of any such termination or in the event of
nonrenewal, the Fund shall have no obligation to pay expenses which have been
incurred by the Distributor, DWR, its affiliates or other broker-dealers in
excess of payments made by the Fund pursuant to this Plan. However, this shall
not preclude consideration by the Trustees of the manner in which such excess
expenses shall be treated.
7. This Plan may not be amended to increase materially the amount the
Fund may spend for distribution provided in paragraph 1 hereof unless such
amendment is approved by a vote of at least a majority (as defined in the Act)
of the outstanding voting securities of the Fund, and no material amendment to
the Plan shall be made unless approved in the manner provided for approval in
paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Trustees who are not interested
persons.
9. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
10. The Declaration of the Trust establishing Dean Witter American Value
Fund, dated April 6, 1987, a copy of which, together with all amendments
thereto (the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Dean Witter American
Value Fund refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of Dean Witter American Value Fund shall be held to
any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim or otherwise, in connection with
the affairs of said Dean Witter American Value Fund, but the Trust Estate only
shall be liable.
In Witness Whereof, the Fund, the Distributor and DWR have executed this
amended and restated Plan of Distribution, as amended, as of the day and year
set forth below in New York, New York.
Date: April 30, 1984
As amended on April 30, 1987, January 4,
1993 and April 28, 1993
Dean Witter American Value Fund
By______________________________
Attest:________________________
Dean Witter Distributors Inc.
By______________________________
Attest:________________________
Dean Witter Reynolds Inc.
By______________________________
Attest:________________________
FINAL DATE: 31-Dec-93
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
AMERICAN VALUE FUND
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ________________________|
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------ | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
(A)
$1,000 ERV AS OF NUMBER OF AVERAGE ANNUAL
INVESTED-P 31-DEC-93 YEARS - n TOTAL RETURN - T
- ---------- --------- --------- -------------------
31-Dec-92 $1,137.00 1 13.70%
31-Dec-88 $2,373.30 5 18.87%
31-Dec-83 $3,759.90 10 14.16%
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ________________________|
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------ | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED-P 31-Dec-93 RETURN-TR YEARS - n TOTAL RETURN - t
- ---------- --------- --------- --------- -------------------
31-Dec-92 $1,187.00 18.70% 1 18.70%
31-Dec-88 $2,393.30 139.33% 5 19.07%
31-Dec-83 $3,759.90 275.99% 10 14.16%
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
$10,000 TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED-P RETURN-TR $10,000 INVESTMENT-(G) $50,000 INVESTMENT-(G) $100,000 INVESTMENT-G
- ---------- --------- ---------------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
27-Mar-80 545.85 $64,585 $322,925 $645,850
</TABLE>
