<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1998
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
----------------
DEAN WITTER AMERICAN VALUE FUND
(Exact Name of Registrant as Specified in Charter)
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(Address of Principal Executive Offices)
212-392-1600
(Registrant's Telephone Number)
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(Name and Address of Agent for Service)
---------------------
COPY TO:
STUART M. STRAUSS, ESQ.
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON THE THIRTIETH DAY
AFTER THE DATE OF FILING, PURSUANT TO RULE 488.
The Exhibit Index is located on page [ ]
No filing fee is due because the Registrant has previously registered an
indefinite number of shares pursuant to Section (a)(1) of Rule 24f-2 under the
Investment Company Act of 1940, as amended. The Registrant filed the Rule 24f-2
Notice, for its fiscal year ended December 31, 1997, with the Securities and
Exchange Commission on March 2, 1998.
Pursuant to Rule 429, this Registration Statement relates to shares previously
registered by the Registrant on Form N-1A (Registration Nos. 2-66269;
811-2978).
- --------------------------------------------------------------------------------
<PAGE>
FORM N-14
DEAN WITTER AMERICAN VALUE FUND
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PART A OF FORM N-14
ITEM NO. PROXY STATEMENT AND PROSPECTUS HEADING
- -------------------- -------------------------------------------------------
<S> <C>
1 (a) Cross Reference Sheet
(b) Front Cover Page
(c) *
2 (a) *
(b) Table of Contents
3 (a) Fee Table
(b) Synopsis
(c) Principal Risk Factors
4 (a) The Reorganization
(b) The Reorganization -- Capitalization Table (Unaudited)
5 (a) Registrant's Prospectus
(b) *
(c) *
(d) *
(e) Available Information
(f) Available Information
6 (a) Prospectus of American Value Series
(b) Available Information
(c) *
(d) *
7 (a) Introduction -- Proxies
(b) *
(c) Introduction; The Reorganization -- Appraisal Rights
8 (a) The Reorganization
(b) *
9 *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B OF FORM N-14
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- -------------------- -------------------------------------------------------------------------------
<S> <C>
10 (a) Cover Page
(b) *
11 Table of Contents
12 (a) Additional Information about Dean Witter American Value Fund
(b) *
(c) *
13 (a) Additional Information about American Value Series
(b) *
(c) *
14 Registrant's Annual Report for the fiscal year ended December 31, 1997; Annual
Report for American Value Series for the fiscal year ended July 31, 1997;
Semi-Annual Report for American Value Series for the six-month period ended
January 31, 1998.
</TABLE>
<TABLE>
<CAPTION>
PART C OF FORM N-14
ITEM NO. OTHER INFORMATION HEADING
- -------------------- --------------------------
<S> <C>
15 Indemnification
16 Exhibits
17 Undertakings
</TABLE>
- ----------
* Not Applicable or negative answer
<PAGE>
DEAN WITTER RETIREMENT SERIES
AMERICAN VALUE SERIES
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-1600
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 19, 1998
TO SHAREHOLDERS OF THE AMERICAN VALUE SERIES,
A SERIES OF DEAN WITTER RETIREMENT SERIES:
Notice is hereby given of a Special Meeting of the Shareholders of the
American Value Series ("American Value"), one of eleven portfolios of Dean
Witter Retirement Series ("Retirement Series"), to be held at the Career
Development Room, 61st Floor, Two World Trade Center, New York, New York 10048,
at 9:00 A.M., New York time, on August 19, 1998, and any adjournments thereof
(the "Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization,
dated April 30, 1998 (the "Reorganization Agreement"), between Retirement
Series, on behalf of American Value, and Dean Witter American Value Fund
(the "Acquiring Fund"), pursuant to which substantially all of the assets
of American Value would be combined with those of the Acquiring Fund and
shareholders of American Value would become shareholders of the Acquiring
Fund receiving Class D shares of the Acquiring Fund with a value equal to
the value of their holdings in American Value (the "Reorganization"); and
2. To act upon such other matters as may properly come before the
Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is attached
as Exhibit A thereto. Shareholders of record at the close of business on June
2, 1998 are entitled to notice of, and to vote at, the Meeting. Please read the
Proxy Statement and Prospectus carefully before telling us, through your proxy
or in person, how you wish your shares to be voted. The Board of Trustees of
Retirement Series recommends you vote in favor of the Reorganization. WE URGE
YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of
Trustees,
BARRY FINK,
Secretary
June , 1998
- ------------------------------------------------------------------------------
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS
TO ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE
UNABLE TO BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED
PROXY IN ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE
ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
- ------------------------------------------------------------------------------
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(212) 392-1600
ACQUISITION OF THE ASSETS OF
THE AMERICAN VALUE SERIES, A SERIES OF
DEAN WITTER RETIREMENT SERIES
BY AND IN EXCHANGE FOR SHARES OF
DEAN WITTER AMERICAN VALUE FUND
This Proxy Statement and Prospectus is being furnished to shareholders of
the American Value Series ("American Value"), one of eleven portfolios of Dean
Witter Retirement Series ("Retirement Series"), in connection with an Agreement
and Plan of Reorganization, dated April 30, 1998 (the "Reorganization
Agreement"), pursuant to which substantially all the assets of American Value
will be combined with those of Dean Witter American Value Fund (the "Acquiring
Fund") in exchange for shares of the Acquiring Fund. As a result of this
transaction, shareholders of American Value will become shareholders of the
Acquiring Fund and will receive Class D shares of the Acquiring Fund with a
value equal to the value of their holdings in American Value. The terms and
conditions of this transaction are more fully described in this Proxy Statement
and Prospectus and in the Reorganization Agreement between Retirement Series,
on behalf of American Value, and the Acquiring Fund, attached hereto as Exhibit
A. The address of American Value is that of the Acquiring Fund set forth above.
This Proxy Statement also constitutes a Prospectus of the Acquiring Fund, which
is dated June , 1998, filed by the Acquiring Fund with the Securities and
Exchange Commission (the "Commission") as part of its Registration Statement on
Form N-14 (the "Registration Statement").
The Acquiring 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 Acquiring Fund seeks to achieve its
investment objective by investing at least 65% of its total assets in common
stock of companies in industries which, at the time of the investment, are
believed to be attractively valued given their above average relative earnings
growth potential at that time.
This Proxy Statement and Prospectus sets forth concisely information about
the Acquiring Fund that shareholders of American Value should know before
voting on the Reorganization Agreement. A copy of the Prospectus for the
Acquiring Fund, dated May 1, 1998, is attached as Exhibit B and is
incorporated herein by reference. Also enclosed and incorporated herein by
reference is the Acquiring Fund's Annual Report for the fiscal year ended
December 31, 1997. A Statement of Additional Information relating to the
Reorganization, described in this Proxy Statement and Prospectus, dated June ,
1998, has been filed with the Commission and is also incorporated herein by
reference. Also incorporated herein by reference are the Prospectus for
Retirement Series, dated October 31, 1997, the Annual Report for Retirement
Series for its fiscal year ended July 31, 1997 and the Semi-Annual Report for
Retirement Series for the six-month period ended January 31, 1998. Such
documents are available without charge by calling Nina Maceda at Dean Witter
Trust Company at (800) 869-NEWS (TOLL FREE).
Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This Proxy Statement and Prospectus is dated June , 1998.
i
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION ............................................................................. 2
General ................................................................................. 2
Record Date; Share Information .......................................................... 2
Proxies ................................................................................. 3
Expenses of Solicitation ................................................................ 3
Vote Required ........................................................................... 4
SYNOPSIS ................................................................................. 5
The Reorganization ...................................................................... 5
Fee Table ............................................................................... 5
Tax Consequences of the Reorganization .................................................. 7
Comparison of American Value and the Acquiring Fund ..................................... 7
PRINCIPAL RISK FACTORS ................................................................... 8
THE REORGANIZATION ....................................................................... 9
The Proposal ............................................................................ 9
The Board's Consideration ............................................................... 9
The Reorganization Agreement ............................................................ 10
Tax Aspects of the Reorganization ....................................................... 12
Description of Shares ................................................................... 13
Capitalization Table (unaudited) ........................................................ 13
Appraisal Rights ........................................................................ 13
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS ........................... 13
Investment Objectives and Policies ...................................................... 13
Investment Restrictions ................................................................. 14
ADDITIONAL INFORMATION ABOUT AMERICAN VALUE AND THE ACQUIRING
FUND .................................................................................... 15
General ................................................................................. 15
Financial Information ................................................................... 15
Management .............................................................................. 15
Description of Securities and Shareholder Inquiries ..................................... 15
Dividends, Distributions and Taxes ...................................................... 15
Purchases, Repurchases and Redemptions .................................................. 15
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE .............................................. 15
FINANCIAL STATEMENTS AND EXPERTS ......................................................... 16
LEGAL MATTERS ............................................................................ 16
AVAILABLE INFORMATION .................................................................... 16
OTHER BUSINESS ........................................................................... 16
Exhibit A--Agreement and Plan of Reorganization, dated as of April 30, 1998, by and
between Dean Witter American Value Fund and Dean Witter Retirement Series, on behalf of
American Value Series ................................................................... A-1
Exhibit B--Prospectus of Dean Witter American Value Fund, dated May 1, 1998 .............. B-1
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES
AMERICAN VALUE SERIES
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-1600
PROXY STATEMENT AND PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 19, 1998
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of the American Value Series ("American Value"), one of eleven portfolios of
Dean Witter Retirement Series ("Retirement Series"), an open-end diversified
management investment company, in connection with the solicitation by the Board
of Trustees of Retirement Series (the "Board") of proxies to be used at the
Special Meeting of Shareholders of American Value to be held at the Career
Development Room, 61st Floor, Two World Trade Center, New York, New York 10048
at 9:00 A.M., New York time, on August 19, 1998, and any adjournments thereof
(the "Meeting"). It is expected that the mailing of this Proxy Statement and
Prospectus will be made on or about June , 1998.
At the Meeting, American Value shareholders ("Shareholders") will consider
and vote upon an Agreement and Plan of Reorganization, dated April 30, 1998
(the "Reorganization Agreement"), between Retirement Series, on behalf of
American Value, and Dean Witter American Value Fund (the "Acquiring Fund")
pursuant to which substantially all of the assets of American Value will be
combined with those of the Acquiring Fund in exchange for shares of the
Acquiring Fund. As a result of this transaction, Shareholders will become
shareholders of the Acquiring Fund and will receive Class D shares of the
Acquiring Fund equal to the value of their holdings in American Value on the
date of such transaction (the "Reorganization"). The shares to be issued by the
Acquiring Fund pursuant to the Reorganization will be Class D shares of the
Acquiring Fund which will be issued at net asset value without any sales charge
(the "Acquiring Fund Shares"). Further information relating to the Acquiring
Fund, its Class D shares as well as the other three classes of shares (each, a
"Class" and collectively, the "Classes") offered by the Acquiring Fund, is set
forth herein and in the Acquiring Fund's current Prospectus, dated , 1998
(the "Acquiring Fund's Prospectus"), attached to this Proxy Statement and
Prospectus and incorporated herein by reference.
The information concerning American Value contained herein has been
supplied by Retirement Series and the information concerning the Acquiring Fund
contained herein has been supplied by the Acquiring Fund.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on June 2, 1998 as the record
date (the "Record Date") for the determination of the Shareholders entitled to
notice of, and to vote at, the Meeting. As of the Record Date, there were
shares of American Value issued and outstanding. Shareholders on the
Record Date are entitled to one vote per share on each matter submitted to a
vote at the Meeting. A majority of the outstanding shares entitled to vote,
represented in person or by proxy, will constitute a quorum at the Meeting.
2
<PAGE>
[To the knowledge of the Board, as of the Record Date, no person owned of
record or beneficially 5% or more of the outstanding shares of American Value.
As of the Record Date, the trustees and officers of American Value, as a group,
owned less than 1% of the outstanding shares of American Value.]
[Include 5% owners of Acquiring Fund] [As of the Record Date, the trustees
and officers of the Acquiring Fund, as a group, owned less than 1% of the
outstanding shares of the Acquiring Fund.]
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be voted
in favor of the Reorganization Agreement unless a choice is indicated to vote
against or to abstain from voting on the Reorganization Agreement. The Board
knows of no business, other than that set forth in the Notice of Special
Meeting of Shareholders, to be presented for consideration at the Meeting.
However, the proxy confers discretionary authority upon the persons named
therein to vote as they determine on other business, not currently
contemplated, which may come before the Meeting. Abstentions and, if
applicable, broker "non-votes" will not count as votes in favor of the
Reorganization Agreement, and broker "non-votes" will not be deemed to be
present at the Meeting for purposes of determining whether the Reorganization
Agreement has been approved. Broker "non-votes" are shares held in street name
for which the broker indicates that instructions have not been received from
the beneficial owners or other persons entitled to vote and for which the
broker does not have discretionary voting authority. The proxy may be revoked
at any time prior to the voting thereof by: (i) delivering written notice of
revocation to the Secretary of Retirement Series at Two World Trade Center, New
York, New York 10048; (ii) attending the Meeting and voting in person; or (iii)
signing and returning a new proxy (if returned and received in time to be
voted). Attendance at the Meeting will not in and of itself revoke a proxy.
In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of the holders of a majority of American
Value's shares present in person or by proxy at the Meeting. The persons named
as proxies will vote in favor of such adjournment those proxies which they are
entitled to vote in favor of the Reorganization Agreement and will vote against
any such adjournment those proxies required to be voted against the
Reorganization Agreement.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by Dean Witter
InterCapital Inc. (the "Investment Manager" or "InterCapital"). In addition to
the solicitation of proxies by mail, proxies may be solicited by officers of
Retirement Series including officers and regular employees of InterCapital
and/or Dean Witter Trust FSB ("DWTFSB"), personally or by mail, telephone,
telegraph or otherwise, without compensation other than regular compensation.
Brokerage houses, banks and other fiduciaries may be requested to forward
soliciting material to the beneficial owners of shares and to obtain
authorization for the execution of proxies.
DWTFSB may call Shareholders to ask if they would be willing to have their
votes recorded by telephone. The telephone voting procedure is designed to
authenticate Shareholders' identities, to allow Shareholders to authorize the
voting of their shares in accordance with their instructions and to confirm
that their instructions have been recorded properly. No recommendation will be
made as to how a Shareholder should vote on the Reorganization Agreement other
than to refer to the recommendation of the Board. Retirement Series, on behalf
of American Value, has been advised by counsel that these procedures are
consistent with the
3
<PAGE>
requirements of applicable law. Shareholders voting by telephone will be asked
for their social security number or other identifying information and will be
given an opportunity to authorize proxies to vote their shares in accordance
with their instructions. To ensure that the Shareholders' instructions have
been recorded correctly they will receive a confirmation of their instructions
in the mail. A special toll-free number will be available in case the
information contained in the confirmation is incorrect. Although a
Shareholder's vote may be taken by telephone, each Shareholder will receive a
copy of this Proxy Statement and Prospectus and may vote by mail using the
enclosed proxy card.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (i.e., more than 50%) of the outstanding shares
of American Value represented in person or by proxy and entitled to vote at the
Meeting, provided a quorum is present at the Meeting. If the Reorganization
Agreement is not approved by Shareholders, American Value will continue in
existence and the Board will consider alternative actions.
4
<PAGE>
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. This synopsis
is only a summary and is qualified in its entirety by the more detailed
information contained or incorporated by reference in this Proxy Statement and
Prospectus and the Reorganization Agreement. Shareholders should carefully
review this Proxy Statement and Prospectus and the Reorganization Agreement in
their entirety and, in particular, the Acquiring Fund's Prospectus, which is
attached to this Proxy Statement and incorporated herein by reference.
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially
all the assets of American Value, subject to stated liabilities, to the
Acquiring Fund in exchange for the Acquiring Fund Shares. The aggregate net
asset value of the Acquiring Fund Shares issued in the exchange will equal the
aggregate value of the net assets of American Value received by the Acquiring
Fund. On or after the closing date scheduled for the Reorganization (the
"Closing Date"), American Value will distribute the Acquiring Fund Shares
received by American Value to Shareholders as of the Valuation Date (as defined
below under "The Reorganization Agreement") in complete liquidation of American
Value. If all other portfolios of Retirement Series effect similar
reorganizations or otherwise liquidate, Retirement Series will take all
necessary steps to dissolve and deregister under the Investment Company Act of
1940, as amended (the "1940 Act"). As a result of the Reorganization, each
Shareholder will receive that number of full and fractional Acquiring Fund
Shares equal in value to such Shareholder's pro rata interest in the net assets
transferred to the Acquiring Fund. Shareholders holding certificates
representing their shares will not be required to surrender their certificates
in connection with the Reorganization. However, such Shareholders will have to
surrender such certificates in order to receive certificates representing the
Acquiring Fund Shares or to redeem, transfer or exchange the Acquiring Fund
Shares received. The Board has determined that the interests of Shareholders
will not be diluted as a result of the Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION--THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED
PERSONS" OF AMERICAN VALUE ("INDEPENDENT TRUSTEES"), AS THAT TERM IS DEFINED IN
THE 1940 ACT, HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST INTERESTS OF
AMERICAN VALUE AND ITS SHAREHOLDERS AND RECOMMENDS APPROVAL OF THE
REORGANIZATION AGREEMENT.
FEE TABLE
American Value and the Acquiring Fund each pay expenses for management of
their assets and other services. Neither American Value nor Class D shares of
the Acquiring Fund pay distribution-related fees; however, the other three
Classes offered by the Acquiring Fund pay fees for the distribution of their
shares. The expenses paid by American Value and the Acquiring Fund are
reflected in the net asset value per share of each such fund. The following
table illustrates expenses and fees incurred during American Value's fiscal
year ended July 31, 1997. On July 28, 1997, the Acquiring Fund began offering
its shares in multiple classes, each with different distribution arrangements
and sales charges. Class D shares of the Acquiring Fund will be issued to
American Value Shareholders in connection with the Reorganization. Accordingly,
expenses of Class D shares of the Acquiring Fund for the fiscal year ended
December 31, 1997 ("Class D Fees and Expenses") are set forth in the table. The
table below also sets forth pro forma fees for the surviving combined fund (the
Acquiring Fund) reflecting what the fee schedule would have been at December
31, 1997, if the Reorganization had been consummated twelve (12) months prior
to that date and assuming Class D Fees and Expenses. Further information on the
fees and expenses applicable to the Acquiring Fund's Class D shares, as well as
the other three Classes of the Acquiring Fund shares, is set forth herein and
in the Acquiring Fund's Prospectus, attached hereto and incorporated herein by
reference.
5
<PAGE>
Shareholder Transaction Expenses
- --------------------------------
<TABLE>
<CAPTION>
ACQUIRING PRO FORMA
AMERICAN FUND COMBINED
VALUE (CLASS D) (CLASS D)
---------- ----------- ----------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ............................. None None None
Maximum Sales Charge Imposed on Reinvested Dividends ....... None None None
Maximum Contingent Deferred Sales Charge (as a
percentage of the lesser of original purchase price or
redemption proceeds) ...................................... None None None
Redemption Fees ............................................ None None None
Exchange Fee ............................................... None None None
</TABLE>
Annual Fund Operating Expenses (As a Percentage of Average Net Assets)
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
ACQUIRING PRO FORMA
AMERICAN FUND COMBINED
VALUE (CLASS D) (CLASS D)
--------------- ----------- ----------
<S> <C> <C> <C>
Management ............................ 0.85% 0.50% 0.50%
12b-1 Fees ............................ 0.00% 0.00% 0.00%
Other Expenses ........................ 0.36% 0.13% 0.13%
Total Fund Operating Expenses ......... 1.21%(1) 0.63% 0.63%
</TABLE>
- ----------
(1) Pursuant to an undertaking, InterCapital has agreed to assume all
expenses relating to the operations of American Value (except for any
brokerage fees and a portion of organizational expenses) and has agreed
to waive the compensation provided for in its Management Agreement with
respect to American Value until June 30, 1998 to the extent that such
expenses and compensation on an annualized basis exceed 1.00% of the
daily net assets of American Value. Taking such waiver into effect,
American Value's total fund operating expenses were 1.00%. After June 30,
1998, American Value, if it continues in operation, will bear all fees
and expenses. The actual expenses (before any waiver) of American Value
for the period ended July 31, 1997 are set forth in the table.
6
<PAGE>
Example
- -------
To attempt to show the effect of these expenses on an investment over
time, the hypotheticals shown below have been created. Assuming that an
investor makes a $1,000 investment in either American Value or Class D Shares
of the Acquiring Fund or the new combined fund, that the annual return is 5%
and that the operating expenses for each fund are the ones shown in the chart
above; if the investment was redeemed at the end of each period shown below,
the investor would incur the following expenses by the end of each period
shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
American Value ........................ $12 $38 $66 $147
Acquiring Fund (Class D) .............. $ 6 $20 $35 $ 79
Pro Forma Combined (Class D) .......... $ 6 $20 $35 $ 79
</TABLE>
The above example should not be considered a representation of past or
future expenses or performance. Actual operating expenses may be greater or
less than those shown.
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, American Value will receive an
opinion of Gordon Altman Butowsky Weitzen Shalov & Wein to the effect that the
Reorganization will constitute a tax-free reorganization for federal income tax
purposes, and that no gain or loss will be recognized by American Value or the
shareholders of American Value for Federal income tax purposes as a result of
the transactions included in the Reorganization. For further information about
the tax consequences of the Reorganization, see "The Reorganization--Tax
Aspects of the Reorganization" below.
COMPARISON OF AMERICAN VALUE AND THE ACQUIRING FUND
INVESTMENT OBJECTIVES AND POLICIES. American Value and the Acquiring Fund
have identical investment objectives which is to seek long-term capital growth
consistent with an effort to reduce volatility. Both funds seek to achieve
their investment objectives by investing at least 65% of their respective total
assets in common stocks of companies in industries which, at the time of the
investment, are believed to be attractively valued given their above average
relative earnings growth potential.
The investment policies of both funds are essentially the same; the
principal differences between them are described under "Comparison of
Investment Objectives, Policies and Restrictions" below.
The investment policies of both American Value and the Acquiring Fund are
not fundamental and may be changed by their respective Boards of Trustees.
INVESTMENT MANAGEMENT AND DISTRIBUTION-RELATED FEES. American Value and
the Acquiring Fund obtain investment management services from InterCapital.
With respect to American Value, the fund pays InterCapital monthly compensation
calculated daily by applying the annual rate of 0.85% to the fund's net assets.
With respect to the Acquiring Fund, the fund pays InterCapital monthly
compensation calculated daily by applying the annual rate of 0.625% to the
daily net assets of the fund not exceeding $250 million, scaled down at various
asset levels to 0.45% to the portion of daily net assets over $3.5 billion.
Neither American Value nor Class D shares of the Acquiring Fund pay
distribution-related fees; however, in accordance with the terms of a
distribution plan adopted by the Acquiring Fund pursuant to Rule 12b-1 under
the 1940 Act, the other three Classes of the Acquiring Fund do pay
distribution-related expenses. For further information relating to the 12b-1
fees applicable to each of the other Classes, see the section entitled
"Purchase of Fund Shares" in the Acquiring Fund's Prospectus, attached hereto.
7
<PAGE>
OTHER SIGNIFICANT FEES. Both American Value and the Acquiring Fund pay
additional fees in connection with their operations, including legal, auditing,
transfer agent and custodial fees. See "Synopsis--Fee Table" above for the
percentage of average net assets represented by such "Other Expenses."
PURCHASES, EXCHANGES AND REDEMPTIONS. American Value continuously issues
its shares to investors at a price equal to net asset value at the time of such
issuance. Shares of American Value may be redeemed for cash without redemption
or other charge at any time at the net asset value per share next determined.
Likewise, Class D shares of the Acquiring Fund are currently offered at net
asset value and such shares may be redeemed for cash without redemption or
other charge. Subsequent to the Reorganization, Shareholders who continuously
hold Class D shares of the Acquiring Fund may purchase additional Class D
shares of the fund for the same account. The Acquiring Fund may, on sixty days'
notice, redeem involuntarily, at net asset value, shares (other than shares
held in an Individual Retirement Account or custodial account under Section
403(b)(7) of the Internal Revenue Code) having a value of less than $100 or
such lesser amount as may be fixed by the fund's board or, in the case of an
account opened through EasyInvestSM, if after twelve months the shareholder has
invested less than $1,000 in the account; American Value does not involuntarily
redeem accounts.
Shares of American Value may be exchanged only for shares of the other
portfolios of Retirement Series. However, Class D shares of the Acquiring Fund
may be exchanged for Class D shares of any other Dean Witter fund that offers
its shares in more than one Class or any of Dean Witter Short-Term U.S.
Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean Witter
Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust and
five Dean Witter funds which are money market funds, without the imposition of
an exchange fee. Both American Value and the Acquiring Fund provide telephone
exchange privileges to their shareholders. For greater details relating to
exchange privileges applicable to the Acquiring Fund, see the section entitled
"Shareholder Services--Exchange Privilege" in the Acquiring Fund's Prospectus.
DIVIDENDS. American Value declares and pays all dividends from net
investment income and net short-term capital gains, if any, annually. The
Acquiring Fund declares dividends separately for each of its Classes and
intends to pay semi-annual dividends and to distribute substantially all of its
net investment income and net short-term capital gains, if there are any. In
addition, the Acquiring Fund intends to distribute dividends from net long-term
capital gains, if any, at least once each year. Dividends and capital gains
distributions of both American Value and the Acquiring Fund are automatically
reinvested in additional shares at net asset value unless the shareholder
elects to receive cash.
SHAREHOLDER SERVICES. The shareholder services provided by both funds are
similar. The material difference is that: shareholders of the Acquiring Fund
may subscribe to EasyInvestSM, an automatic purchase plan which provides for
the automatic transfer of funds from a checking or savings account to DWTFSB
for the purchase of fund shares and American Value does not offer this
arrangement. The Acquiring Fund has a Targeted Dividends arrangement whereby,
in states where it is legally permissible, shareholders may elect to have all
shares of the fund earned as a result of dividends paid in any given month
redeemed as of the end of the month and invested in shares of other Dean Witter
funds, subject to certain conditions; American Value does not offer this
arrangement. For additional information about the Acquiring Fund's shareholder
services, see the section entitled "Shareholder Services" in the Acquiring
Fund's Prospectus.
PRINCIPAL RISK FACTORS
The net asset value of shares of American Value and the Acquiring Fund
will fluctuate with changes in the market value of each fund's respective
portfolio securities. Both funds' emphasis on attractive industries may run
contrary to general market assessments and may involve risks associated with
departure from typical Standard & Poor's 500 Composite Stock Price Index
industry weightings. Both funds' investments in small and medium-capitalization
companies involve greater risk than is customarily associated with investing in
larger,
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<PAGE>
more established companies. Both funds may also invest in the securities of
foreign issuers, which present certain special risks, and options and futures,
which may be considered speculative in nature. In addition, both funds may
enter into repurchase agreements and may purchase securities on a when-issued,
delayed delivery and when, as and if issued, basis, each of which presents
other special risks. The overall risks of investments in both funds are
substantially similar.
The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each fund, see "Investment Objectives
and Policies--General Investment Techniques and Risk Considerations" in the
Prospectus for Retirement Series and "Investment Objective and Policies--Risk
Considerations" in the Acquiring Fund's Prospectus.
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of Retirement Series, on behalf of American Value,
including the Independent Trustees, having reviewed American Value's economic
position, determined that the Reorganization is in the best interests of
American Value and its Shareholders and that the interests of American Value's
Shareholders will not be diluted as a result thereof, recommends approval of
the Reorganization by American Value Shareholders.
THE BOARD'S CONSIDERATION
At a meeting held on April 30, 1998, the Board, including all of the
Independent Trustees, unanimously approved the Reorganization Agreement and
determined to recommend that Shareholders of American Value approve the
Reorganization Agreement. At a meeting on January 29, 1998, the Board made an
extensive inquiry into a number of factors, particularly the comparative
expenses to be incurred in the operations of American Value and Class D shares
of the Acquiring Fund. The Board also considered other factors, including, but
not limited to: the comparative investment performance and past growth in
assets of American Value and the Acquiring Fund; the compatibility of the
investment objectives, policies, restrictions and portfolios of American Value
and the Acquiring Fund; the terms and conditions of the Reorganization which
would affect the price of shares to be issued in the Reorganization; the
tax-free nature of the Reorganization; and any direct or indirect costs to be
incurred by American Value and the Acquiring Fund in connection with the
Reorganization. At its meeting on April 30, 1998, the Board was informed and
considered that there had been no material changes to the factors considered by
it at the January 29, 1998 meeting.
In recommending the Reorganization to Shareholders, the Board of
Retirement Series, on behalf of American Value, considered that the
Reorganization would have the following benefits for Shareholders:
1. Once the Reorganization is consummated, the expenses which would be
borne by Class D shareholders of the "combined fund" should be substantially
lower on a percentage basis than the actual expenses per share of American
Value. In part, this is because the rate of the investment management fee
payable by the surviving Acquiring Fund is lower than the fees currently paid
by American Value. Furthermore, to the extent that the Reorganization would
result in Shareholders becoming shareholders of a combined larger fund, further
economies of scale could be achieved since various fixed expenses (e.g.,
auditing and legal) can be spread over a larger number of shares. The Board
noted that American Value's actual expense ratio, for its fiscal year ended
July 31, 1997, was 1.21% (absent fee waivers), whereas the expense ratio for
Class D shares of the Acquiring Fund was [0.65%] (based on the fiscal year
ended December 31, 1997).
2. The investment objectives of American Value and the Acquiring Fund are
identical. The principal reason for having two funds with identical investment
objectives was to address different marketing needs:
9
<PAGE>
American Value is a no-load fund and prior to July 28, 1997 (when the Acquiring
Fund began offering its shares in multiple classes), the Acquiring Fund was
sold with a back-end sales charge. Maintaining two separate funds for marketing
purposes is no longer necessary since the Acquiring Fund has converted to a
multi-class structure and, consequently, separate classes of a single fund
(i.e., the Acquiring Fund) will satisfy the different marketing needs.
3. Shareholders would have expanded exchange privileges. Rather than being
able to exchange their shares of American Value only among the various
portfolios of Retirement Series, Shareholders will be permitted to exchange
their shares of the Acquiring Fund for Class D shares of any other Dean Witter
Fund and any Dean Witter money market fund for which the Dean Witter Funds
exchange privilege is available (the exchange privilege is subject to
termination or revision at any time.)
4. The Reorganization will constitute a tax-free reorganization for
federal income tax purposes, and no gain or loss will be recognized by American
Value or its Shareholders for federal income tax purposes as a result of
transactions included in the Reorganization.
The Board of Trustees of the Acquiring Fund, including a majority of such
Trustees who are not "interested persons" of the Acquiring Fund, also have
determined that the Reorganization is in the best interests of the Acquiring
Fund and its shareholders and that the interests of existing shareholders of
the Acquiring Fund will not be diluted as a result thereof. The transaction
will enable the Acquiring Fund to acquire investment securities which are
consistent with the Acquiring Fund's investment objective, without the
brokerage costs attendant to the purchase of such securities in the market.
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization
Agreement. This summary is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached as Exhibit A to this
Proxy Statement and Prospectus.
The Reorganization Agreement provides that (i) American Value will
transfer all of its assets, including portfolio securities, cash (other than
cash amounts retained by American Value as a "Cash Reserve" in the amount
sufficient to discharge its liabilities not discharged prior to the Valuation
Date (as defined below) and for expenses of the liquidation), cash equivalents
and receivables to the Acquiring Fund on the Closing Date in exchange for the
assumption by the Acquiring Fund of American Value's stated liabilities,
including all expenses, costs, charges and reserves, as reflected on an
unaudited statement of assets and liabilities of American Value prepared by the
Treasurer of Retirement Series as of the Valuation Date (as defined below) in
accordance with generally accepted accounting principles consistently applied
from the prior audited period, and the delivery of the Acquiring Fund Shares,
(ii) such Acquiring Fund Shares would be distributed to the Shareholders of
American Value on the Closing Date or as soon as practicable thereafter, (iii)
American Value would be dissolved and (iv) the outstanding shares of American
Value would be canceled.
The number of Acquiring Fund Shares to be delivered to American Value will
be determined by dividing the value of American Value assets acquired by the
Acquiring Fund (net of stated liabilities assumed by the Acquiring Fund) by the
net asset value of an Acquiring Fund Share; these values will be calculated as
of 4:00 p.m. New York City time on the third day that the New York Stock
Exchange is open for business following the receipt of the requisite approval
by the shareholders of American Value of the Reorganization Agreement or at
such other time as American Value and the Acquiring Fund may agree (the
"Valuation Date"). As an illustration, if on the Valuation Date, American Value
were to have securities with a market value of $95,000 and cash in the amount
of $10,000 (of which $5,000 was to be retained by it as the Cash Reserve), the
value of the assets which would be transferred to the Acquiring Fund would be
$100,000. If the net asset value per share
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<PAGE>
of Class D of the Acquiring Fund were $10 per share at the close of business on
the Valuation Date, the number of shares to be issued would be 10,000 ($100,000
(divided by) $10). These 10,000 Class D shares of the Acquiring Fund would be
distributed to the former shareholders of American Value. This example is given
for illustration purposes only and does not bear any relationship to the dollar
amounts or shares expected to be involved in the Reorganization.
On the Closing Date or as soon as practicable thereafter, American Value
will distribute pro rata to its Shareholders of record as of the close of
business on the Valuation Date, the Acquiring Fund Shares it receives. The
Acquiring Fund will cause its transfer agent to credit and confirm an
appropriate number of Acquiring Fund Shares to each Shareholder. Certificates
for the Acquiring Fund Shares will be issued upon written request of a
Shareholder but only for whole shares, with fractional shares credited to the
name of the Shareholder on the books of the Acquiring Fund. Such Shareholders
who wish certificates representing their Acquiring Fund Shares must, after
receipt of their confirmations, make a written request to the Acquiring Fund's
transfer agent, Dean Witter Trust FSB, Harborside Financial Center, Plaza Two,
Jersey City, New Jersey 07311. Shareholders holding certificates representing
their shares will not be required to surrender their certificates in connection
with the Reorganization. However, such Shareholders will have to surrender such
certificates (or provide indemnities reasonably acceptable to the Acquiring
Fund in respect of lost certificates) in order to receive certificates
representing the Acquiring Fund Shares or to redeem, transfer or exchange the
Acquiring Fund Shares received.
The Closing Date will be the next business day following the Valuation
Date. The consummation of the Reorganization is contingent upon the approval of
the Reorganization by the shareholders of American Value and the receipt of the
other opinions and certificates set forth in Sections 6, 7 and 8 of the
Reorganization Agreement and the occurrence of the events described in those
Sections, certain of which may be waived by American Value or the Acquiring
Fund. The Reorganization Agreement may be amended in any mutually agreeable
manner, except that no amendment may be made subsequent to the Meeting which
would detrimentally affect the value of the shares of the Acquiring Fund to be
distributed. InterCapital will bear all of the expenses associated with the
Reorganization. Management estimates that such expenses associated with the
Reorganization will not exceed $ .
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by American Value's
Shareholders by mutual consent of Retirement Series, on behalf of American
Value, and the Acquiring Fund. In addition, either party may terminate the
Reorganization Agreement upon the occurrence of a material breach of the
Reorganization Agreement by the other party or if, by December 31, 1998, any
condition set forth in the Reorganization Agreement has not been fulfilled or
waived by the party entitled to its benefits.
Under the Reorganization Agreement, within one year after the Closing
Date, Retirement Series, on behalf of American Value, shall: either pay or make
provision for all of its liabilities and distribute any remaining amount of the
Cash Reserve (after paying or making provision for such liabilities and the
estimated cost of making the distribution) to former shareholders of American
Value that received the Acquiring Fund Shares. American Value shall be
liquidated promptly following the distributions of shares of the Acquiring Fund
to Shareholders of record of American Value.
The effect of the Reorganization is that Shareholders who vote their
shares in favor of the Reorganization Agreement are electing to sell their
shares of American Value (at net asset value on the Valuation Date calculated
after subtracting the Cash Reserve) and reinvest the proceeds in the Acquiring
Fund Shares at net asset value and without recognition of taxable gain or loss
for federal income tax purposes. See "Tax Aspects of the Reorganization" below.
As noted in "Tax Aspects of the Reorganization" below, if American Value
recognizes net gain from the sale of securities prior to the Closing Date, such
gain, to the extent not offset by capital loss carryovers, will be distributed
to Shareholders prior to the Closing Date.
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<PAGE>
Shareholders will continue to be able to redeem their shares of American
Value at net asset value next determined after receipt of the redemption
request until the close of business on the business day next preceding the
Closing Date. Redemption requests received by Retirement Series, on behalf of
American Value, thereafter will be treated as requests for redemption of shares
of the Acquiring Fund.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation
Date, American Value will declare and pay a dividend or dividends which,
together with all previous such dividends, will have the effect of distributing
to Shareholders all of American Value's investment company taxable income for
all periods since inception of American Value through and including the
Valuation Date (computed without regard to any dividends paid deduction), and
all of American Value's net capital gain, if any, realized in such periods
(after reduction for any capital loss carryforward).
The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code"). Retirement Series, on behalf of American
Value, and the Acquiring Fund have represented that, to their best knowledge,
there is no plan or intention by Shareholders to redeem, sell, exchange or
otherwise dispose of a number of the Acquiring Fund Shares received in the
transaction that would reduce Shareholders' ownership of the Acquiring Fund
Shares to a number of shares having a value, as of the Closing Date, of less
than 50% of the value of all of the formerly outstanding American Value shares
as of the same date. Retirement Series, on behalf of American Value, and the
Acquiring Fund have each further represented that, as of the Closing Date,
American Value and the Acquiring Fund will qualify as regulated investment
companies.
As a condition to the Reorganization, Retirement Series, on behalf of
American Value, and the Acquiring Fund will receive an opinion of Gordon Altman
Butowsky Weitzen Shalov & Wein that, based on certain assumptions, facts, the
terms of the Reorganization Agreement and additional representations set forth
in the Reorganization Agreement or provided by Retirement Series, on behalf of
American Value, and the Acquiring Fund:
1. The transfer of substantially all of American Value's assets in
exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund
of certain stated liabilities of American Value followed by the distribution by
American Value of the Acquiring Fund Shares to Shareholders in exchange for
their American Value shares will constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code, and American Value and the
Acquiring Fund will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
2. No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of American Value solely in exchange for the Acquiring
Fund Shares and the assumption by the Acquiring Fund of the stated liabilities
of American Value;
3. No gain or loss will be recognized by American Value upon the transfer
of the assets of American Value to the Acquiring Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the stated
liabilities or upon the distribution of the Acquiring Fund Shares to
Shareholders in exchange for their American Value shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of American Value for the Acquiring Fund Shares;
5. The aggregate tax basis for the Acquiring Fund Shares received by each
of the Shareholders pursuant to the reorganization will be the same as the
aggregate tax basis of the shares in American Value held by each such
Shareholder immediately prior to the reorganization;
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6. The holding period of the Acquiring Fund Shares to be received by each
Shareholder will include the period during which the shares in American Value
surrendered in exchange therefor were held (provided such shares in American
Value were held as capital assets on the date of the Reorganization);
7. The tax basis of the assets of American Value acquired by the Acquiring
Fund will be the same as the tax basis of such assets to American Value
immediately prior to the Reorganization; and
8. The holding period of the assets of American Value in the hands of the
Acquiring Fund will include the period during which those assets were held by
American Value.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF
ANY, OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
BECAUSE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT
THEIR TAX ADVISORS AS TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE
PROPOSED TRANSACTION.
DESCRIPTION OF SHARES
Class D Shares of the Acquiring Fund to be issued pursuant to the
Reorganization Agreement will, when issued, be fully paid and non-assessable by
the Acquiring Fund and transferable without restrictions and will have no
preemptive rights. As stated above, Class D shares of the Acquiring Fund are
not subject to any sales charge on purchase or redemption or any 12b-1 fee.
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of the Acquiring Fund
and American Value as of March 31, 1998 and on a pro forma combined basis as if
the Reorganization had occurred on that date:
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
-------------- ------------- ----------
<S> <C> <C> <C>
American Value .............................. $ 59,664,104 3,674,270 $ 16.24
Acquiring Fund (Class D) .................... $ 62,600,932 1,863,984 $ 33.58
Combined Fund (pro forma) (Class D) ......... $122,265,036 3,640,759 $ 33.58
</TABLE>
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
The Acquiring Fund and American Value have identical investment objectives
which is to seek long-term capital growth consistent with an effort to reduce
volatility. Both funds seek to achieve their investment objectives by investing
at least 65% of their respective total assets in common stocks of companies in
industries which, at the time of the investment, are believed to be
attractively valued given their above average relative earnings growth
potential. Both funds employ substantially similar processes and policies in
allocating their respective assets.
The material differences are as follows: (a) the Acquiring Fund may invest
up to 35% of its total assets in foreign securities; whereas, American Value
has no limitation on investments in foreign securities other than
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<PAGE>
that such investments will be less than "extensive"; (b) American Value may
invest up to 15% of its net assets in securities which are subject to
restrictions on resale; whereas, the Acquiring Fund is subject to a 5% (of
total assets) limitation on purchases of such securities. (Securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, and
determined to be liquid pursuant to procedures adopted by the boards of
trustees, are not subject to the foregoing limitations.); (c) the Acquiring
Fund may purchase call and put positions in amounts equaling up to 10% of its
total assets with a maximum of 5% of the fund's total assets invested in stock
index options; whereas, American Value has a 10% overall limit on option
purchases; (d) American Value may purchase stock index options for any purpose;
whereas, the Acquiring Fund may purchase such options solely for hedging
purposes; (e) the Acquiring Fund is subject to an overall limitation that it
will not write covered options on portfolio securities exceeding in the
aggregate 25% of its total assets; whereas, American Value has a limitation
applicable to only writing covered puts, i.e., that the aggregate value of the
obligations underlying the puts will not exceed 50% of the fund's net assets;
(f) American Value may invest in warrants attached to other securities and up
to 5% of its total assets in warrants not attached to other securities;
whereas, the Acquiring Fund has no limitations on investments in warrants; and
(g) American Value will not lend its portfolio securities if such loans have a
value of more than 10% of its total assets, whereas, the Acquiring Fund does
not have any such quantitative limitation on securities lending.
The investment policies of both the Acquiring Fund and American Value are
not fundamental and may be changed by their respective Boards. The foregoing
discussion is a summary of the principal differences between the investment
policies of the funds. For a more complete discussion of each fund's policies,
see "Investment Objective and Policies" in each fund's respective Prospectus
and "Investment Practices and Policies" in each fund's respective Statement of
Additional Information.
INVESTMENT RESTRICTIONS
The investment restrictions adopted by American Value and the Acquiring
Fund as fundamental are substantially similar and are summarized under the
caption "Investment Restrictions" in their respective Prospectuses and
Statements of Additional Information. A fundamental investment restriction
cannot be changed without the vote of the majority of the outstanding voting
securities of a fund as defined in the 1940 Act. The material differences are
as follows: (a) the Acquiring Fund has a fundamental restriction that, as to
100% of its assets, it may not invest more than 5% of the value of its total
assets in the securities of any one issuer (other than obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities);
whereas, American Value is subject to a similar 5% fundamental limitation with
respect to only 75% of its total assets; (b) the Acquiring Fund has a
fundamental restriction that, as to 100% of its assets, it may not purchase
more than 10% of all outstanding voting securities or any class of securities
of any one issuer; whereas, American Value is subject to a similar 10%
fundamental limitation with respect to only 75% of its total assets; and (c)
neither fund may purchase securities of other companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets; however,
American Value carves out an additional exception for purchases made in
accordance with Section 12(d) of the 1940 Act.
Notwithstanding any other investment policy or restriction, the Acquiring
Fund reserves the right to seek to achieve its investment objective by
investing all or substantially all of its assets in another investment company
having substantially the same investment objective and policies as those of the
Acquiring Fund; American Value does not have this investment flexibility.
Finally, the Acquiring Fund has a fundamental restriction that it may not
invest in securities of any issuer if, to the knowledge of such fund, any
officer or director of the fund or of the Investment Manager, owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers and
directors who own more than 1/2 if 1% own in the aggregate more than 5% of the
outstanding securities of such issuer; whereas, American Value is subject to
such limitation on a non-fundamental basis.
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<PAGE>
For a more complete discussion of each fund's investment restrictions see
"Investment Restrictions" in each fund's respective Prospectus and Statement of
Additional Information.
ADDITIONAL INFORMATION ABOUT AMERICAN VALUE
AND THE ACQUIRING FUND
GENERAL
For a discussion of the organization and operation of the Acquiring Fund
and American Value, see "The Fund and its Management," "Investment Objective
and Policies," "Investment Restrictions" and "Prospectus Summary" in their
respective Prospectuses.
FINANCIAL INFORMATION
For certain financial information about the Acquiring Fund and American
Value, see "Financial Highlights" and "Performance Information" in their
respective Prospectuses.
MANAGEMENT
For information about the Acquiring Fund's and American Value's Board of
Trustees, the Investment Manager and the Distributor, see "The Fund and its
Management" and "Investment Objective and Policies" in their respective
Prospectuses.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares
of American Value and the Acquiring Fund, and information regarding shareholder
inquiries, see "Additional Information" in their respective Prospectuses.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of the Acquiring Fund's and American Value's policies
with respect to dividends, distributions and taxes, see "Dividends,
Distributions and Taxes" in their respective Prospectuses as well as the
discussion herein under "Synopsis--Dividends," "Synopsis--Investment Management
and Distribution-Related Fees" and "Tax Aspects of the Reorganization."
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how the Acquiring Fund's and American Value's shares
may be purchased, repurchased and redeemed, see "Purchase of Fund Shares,"
"Shareholder Services" and "Redemptions and Repurchases" in their respective
Prospectuses.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For a discussion of the Acquiring Fund's performance, see management's
letter to shareholders in its Annual Report for its fiscal year ended December
31, 1997 accompanying this Proxy Statement and Prospectus. For a discussion of
American Value's performance, see its Annual Report for its fiscal year ended
July 31, 1997 and its unaudited Semi-Annual Report for the six-month period
ended January 31, 1998.
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<PAGE>
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of the Acquiring Fund and American Value as of
December 31, 1997 and July 31, 1997, respectively, which are incorporated by
reference in the Statement of Additional Information relating to the
Registration Statement on Form N-14 of which this Proxy Statement and
Prospectus forms a part, have been audited by Price Waterhouse LLP, independent
accountants, for the periods indicated in its respective reports thereon. Such
financial statements have been incorporated by reference in reliance upon such
reports given upon the authority of Price Waterhouse LLP as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the Acquiring
Fund will be passed upon by Gordon Altman Butowsky Weitzen Shalov & Wein, New
York, New York. Such firm will rely on Lane Altman & Owens LLP as to matters of
Massachusetts law.
AVAILABLE INFORMATION
Additional information about the Acquiring Fund and American Value is
available, as applicable, in the following documents which are incorporated
herein by reference: (i) the Acquiring Fund's Prospectus dated May 1, 1998,
attached to this Proxy Statement and Prospectus, which Prospectus forms a part
of Post-Effective Amendment No. 22 to the Acquiring Fund's Registration
Statement on Form N-1A (File Nos. 811-2978; 2-66269); (ii) the Acquiring Fund's
Annual Report for its fiscal year ended December 31, 1997 accompanying this
Proxy Statement and Prospectus; (iii) the Prospectus for Retirement Series
dated October 31, 1997, which Prospectus forms a part of Post-Effective
Amendment No. 6 to American Value's Registration Statement on Form N-1A (File
Nos. 33-48172; 811-6682); and (iv) the Annual Report for Retirement Series for
the fiscal year ended July 31, 1997, and its unaudited Semi-Annual Report for
the six-month period ended January 31, 1998. The foregoing documents may be
obtained without charge by calling Nina Maceda at Dean Witter Trust Company at
(800) 869-NEWS.
American Value and the Acquiring Fund are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, file reports and other information with the Commission.
Proxy material, reports and other information about American Value and the
Acquiring Fund which are of public record can be inspected and copied at public
reference facilities maintained by the Commission at Room 1204, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and certain of its
regional offices, and copies of such materials can be obtained at prescribed
rates from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C.
20549.
OTHER BUSINESS
Management of American Value knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not known
at the time of the solicitation may come before the Meeting, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Board of
Trustees,
BARRY FINK,
Secretary
June , 1998
16
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
30th day of April, 1998, by and between DEAN WITTER AMERICAN VALUE FUND, a
Massachusetts business trust (the "Acquiring Fund") and DEAN WITTER RETIREMENT
SERIES, a Massachusetts business trust ("Retirement Series"), on behalf of its
series, AMERICAN VALUE SERIES ("American Value").
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a) (1) of the Internal Revenue Code of 1986,
as amended (the "Code"). The reorganization ("Reorganization") will consist of
the transfer to the Acquiring Fund of substantially all of the assets of
American Value in exchange for the assumption by the Acquiring Fund of all
stated liabilities of American Value and the issuance by the Acquiring Fund of
Class D shares of common stock (the "Acquiring Fund Shares"), to be
distributed, after the Closing Date hereinafter referred to, to the
shareholders of American Value in liquidation of American Value as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF AMERICAN VALUE
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, American Value agrees
to assign, deliver and otherwise transfer the American Value Assets (as defined
in paragraph 1.2) to the Acquiring Fund and the Acquiring Fund agrees in
exchange therefor to assume all of American Value's stated liabilities on the
Closing Date as set forth in paragraph 1.3(a) and to deliver to American Value
the number of Acquiring Fund Shares, including fractional Acquiring Fund
Shares, determined by dividing the value of the American Value Assets, net of
such stated liabilities, computed as of the Valuation Date (as defined in
paragraph 2.1) in the manner set forth in paragraph 2.1, by the net asset value
of an Acquiring Fund Share, computed at the time and date and in the manner set
forth in paragraph 2.2. Such transactions shall take place at the closing
provided for in paragraph 3.1 ("Closing").
1.2 (a) The "American Value Assets" shall consist of all property,
including without limitation, all cash (other than the "Cash Reserve" (as
defined in paragraph 1.3(b)), cash equivalents, securities and dividend and
interest receivables owned by American Value, and any deferred or prepaid
expenses shown as an asset on American Value's books on the Valuation Date.
(b) On or prior to the Valuation Date, Retirement Series will provide the
Acquiring Fund with a list of all of American Value's assets to be assigned,
delivered and otherwise transferred to the Acquiring Fund and of the stated
liabilities to be assumed by the Acquiring Fund pursuant to this Agreement.
American Value reserves the right to sell any of the securities on such list
but will not, without the prior approval of the Acquiring Fund, acquire any
additional securities other than securities of the type in which the Acquiring
Fund is permitted to invest and in amounts agreed to in writing by the
Acquiring Fund. The Acquiring Fund will, within a reasonable time prior to the
Valuation Date, furnish American Value with a statement of the Acquiring Fund's
investment objectives, policies and restrictions and a list of the securities,
if any, on the list referred to in the first sentence of this paragraph that do
not conform to the Acquiring Fund's investment objective, policies and
restrictions. In the event that American Value holds any investments that the
Acquiring Fund is not permitted to hold, American Value will dispose of such
securities on or prior to the Valuation Date. In addition, if it is determined
that the portfolios of American Value and the Acquiring Fund, when aggregated,
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would contain investments exceeding certain percentage limitations imposed upon
the Acquiring Fund with respect to such investments, American Value, if
requested by the Acquiring Fund will, on or prior to the Valuation Date,
dispose of and/or reinvest a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of the Closing Date (as
defined in paragraph 3.1).
1.3 (a) American Value will endeavor to discharge all of its liabilities
and obligations on or prior to the Valuation Date. The Acquiring Fund will
assume all stated liabilities, which includes, without limitation, all
expenses, costs, charges and reserves reflected on an unaudited Statement of
Assets and Liabilities of American Value prepared by the Treasurer of American
Value as of the Valuation Date in accordance with generally accepted accounting
principles consistently applied from the prior audited period.
(b) On the Valuation Date, American Value may establish a cash reserve,
which shall not exceed 5% of American Value's net assets as of the close of
business on the Valuation Date ("Cash Reserve") to be retained by American
Value and used for the payment of its liabilities not discharged prior to the
Valuation Date and for the expenses of liquidation.
1.4 In order for American Value to comply with Section 852(a)(1) of the
Code and to avoid having any investment company taxable income or net capital
gain (as defined in Sections 852(b)(2) and 1222(11) of the Code, respectively)
in the short taxable year ending with its liquidation, American Value will on
or before the Valuation Date (a) declare a dividend in an amount large enough
so that it will have declared dividends of all of its investment company
taxable income and net capital gain, if any, for such taxable year (determined
without regard to any deduction for dividends paid) and (b) distribute such
dividend.
1.5 On the Closing Date or as soon as practicable thereafter, American
Value will distribute the Acquiring Fund Shares received by American Value
pursuant to paragraph 1.1 pro rata to its shareholders of record determined as
of the close of business on the Valuation Date ("American Value Shareholders").
Such distribution will be accomplished by an instruction, signed by the
Secretary of Retirement Series, to transfer the Acquiring Fund Shares then
credited to American Value's account on the books of the Acquiring Fund to open
accounts on the books of the Acquiring Fund in the names of the American Value
Shareholders and representing the respective pro rata number of Acquiring Fund
Shares due such American Value Shareholders. All issued and outstanding shares
of American Value simultaneously will be canceled on American Value's books;
however, share certificates representing interests in American Value will
represent a number of the Acquiring Fund Shares after the Closing Date as
determined in accordance with paragraph 2.3. The Acquiring Fund will issue
certificates representing the Acquiring Fund Shares in connection with such
exchange only upon the written request of a American Value Shareholder.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. The Acquiring Fund Shares will be issued in
the manner described in the Acquiring Fund's current Prospectus and Statement
of Additional Information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquiring Fund Shares on
American Value's books as of the close of business on the Valuation Date shall,
as a condition of such issuance and transfer, be paid by the person to whom the
Acquiring Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of Retirement Series, on behalf of
American Value, is and shall remain the responsibility of Retirement Series up
to and including the date on which Retirement Series is dissolved and
deregistered pursuant to paragraph 1.9.
1.9 Within one year after the Closing Date, American Value shall pay or
make provision for the payment of all its liabilities and taxes, and distribute
to the shareholders of American Value as of the close of business
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on the Valuation Date any remaining amount of the Cash Reserve (as reduced by
the estimated cost of distributing it to shareholders). American Value shall be
liquidated and Retirement Series shall be dissolved as a Massachusetts business
trust and deregistered as an investment company under the Investment Company
Act of 1940, as amended ("1940 Act"), promptly following the making of all
distributions pursuant to paragraph 1.5 and the reorganization or liquidation
of each of its portfolios.
1.10 Copies of all books and records maintained on behalf of American
Value in connection with its obligations under the 1940 Act, the Code, state
blue sky laws or otherwise in connection with this Agreement will promptly
after the Closing be delivered to officers of the Acquiring Fund or their
designee and the Acquiring Fund or its designee shall comply with applicable
record retention requirements to which American Value is subject under the 1940
Act.
2. VALUATION
2.1 The value of the American Value Assets shall be the value of such
assets computed as of 4:00 p.m. New York City time on the third day that the
New York Stock Exchange is open for business following the receipt of the
requisite approval by shareholders of American Value of this Agreement or at
such time on such earlier or later date after such approval as may be mutually
agreed upon in writing (such time and date being hereinafter called the
"Valuation Date"), using the valuation procedures set forth in the Acquiring
Fund's then current Prospectus and Statement of Additional Information.
2.2 The net asset value of an Acquiring Fund Share shall be the net asset
value per share computed on the Valuation Date, using the valuation procedures
set forth in the Acquiring Fund's then current Prospectus and Statement of
Additional Information.
2.3 The number of the Acquiring Fund Shares (including fractional shares,
if any) to be issued hereunder shall be determined by dividing the value of the
American Value Assets, net of the liabilities of American Value assumed by the
Acquiring Fund pursuant to paragraph 1.1, determined in accordance with
paragraph 2.1, by the net asset value of an Acquiring Fund Share determined in
accordance with paragraph 2.2.
2.4 All computations of value shall be made by Dean Witter Services
Company Inc. ("Services") in accordance with its regular practice in pricing
the Acquiring Fund. The Acquiring Fund shall cause Services to deliver a copy
of its valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the next business day following the
Valuation Date (the "Closing Date"). The Closing shall be held as of 9:00 a.m.
Eastern time, or at such other time as the parties may agree. The Closing shall
be held in a location mutually agreeable to the parties hereto. All acts taking
place at the Closing shall be deemed to take place simultaneously as of 9:00
a.m. Eastern time on the Closing Date unless otherwise provided.
3.2 Portfolio securities held by American Value and represented by a
certificate or other written instrument shall be presented by it or on its
behalf to The Bank of New York (the "Custodian"), as custodian for the
Acquiring Fund, for examination no later than five business days preceding the
Valuation Date. Such portfolio securities (together with any cash or other
assets) shall be delivered by American Value to the Custodian for the account
of the Acquiring Fund on or before the Closing Date in conformity with
applicable custody provisions under the 1940 Act and duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof in
accordance with the custom of brokers. The portfolio securities shall be
accompanied by all necessary federal and state stock transfer stamps or a check
for the appropriate purchase
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price of such stamps. Portfolio securities and instruments deposited with a
securities depository (as defined in Rule 17f-4 under the 1940 Act) shall be
delivered on or before the Closing Date by book-entry in accordance with
customary practices of such depository and the Custodian. The cash delivered
shall be in the form of a Federal Funds wire, payable to the order of "The Bank
of New York, Custodian for Dean Witter American Value Fund".
3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall be
disrupted so that, in the judgment of both the Acquiring Fund and American
Value, accurate appraisal of the value of the net assets of the Acquiring Fund
or the American Value Assets is impracticable, the Valuation Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed without restriction or disruption and reporting shall have
been restored.
3.4 If requested, Retirement Series shall deliver to the Acquiring Fund or
its designee (a) at the Closing, a list, certified by its Secretary, of the
names, addresses and taxpayer identification numbers of the American Value
Shareholders and the number and percentage ownership of outstanding American
Value shares owned by each such American Value Shareholder, all as of the
Valuation Date, and (b) as soon as practicable after the Closing, all original
documentation (including Internal Revenue Service forms, certificates,
certifications and correspondence) relating to the American Value Shareholders'
taxpayer identification numbers and their liability for or exemption from
back-up withholding. The Acquiring Fund shall issue and deliver to such
Secretary a confirmation evidencing delivery of the Acquiring Fund Shares to be
credited on the Closing Date to American Value or provide evidence satisfactory
to American Value that such the Acquiring Fund Shares have been credited to
American Value's account on the books of the Acquiring Fund. At the Closing,
each party shall deliver to the other such bills of sale, checks, assignments,
share certificates, if any, receipts or other documents as such other party or
its counsel may reasonably request.
4. COVENANTS OF THE ACQUIRING FUND AND AMERICAN VALUE
4.1 Except as otherwise expressly provided herein with respect to American
Value, the Acquiring Fund and American Value each will operate its business in
the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and other distributions.
4.2 The Acquiring Fund will prepare and file with the Securities and
Exchange Commission ("Commission") a registration statement on Form N-14 under
the Securities Act of 1933, as amended ("1933 Act"), relating to the Acquiring
Fund Shares ("Registration Statement"). Retirement Series will provide the
Acquiring Fund with the Proxy Materials as described in paragraph 4.3 below,
for inclusion in the Registration Statement. Retirement Series will further
provide the Acquiring Fund with such other information and documents relating
to American Value as are reasonably necessary for the preparation of the
Registration Statement.
4.3 Retirement Series will call a meeting of the American Value
shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
Retirement Series will prepare the notice of meeting, form of proxy and proxy
statement (collectively, "Proxy Materials") to be used in connection with such
meeting; provided that the Acquiring Fund will furnish Retirement Series with
its currently effective prospectus for inclusion in the Proxy Materials and
with such other information relating to the Acquiring Fund as is reasonably
necessary for the preparation of the Proxy Materials.
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4.4 Retirement Series will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of American Value shares.
4.5 Subject to the provisions of this Agreement, the Acquiring Fund and
Retirement Series, on behalf of American Value, will each take, or cause to be
taken, all action, and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
4.6 Retirement Series shall furnish or cause to be furnished to the
Acquiring Fund within 30 days after the Closing Date a statement of American
Value's assets and liabilities as of the Closing Date, which statement shall be
certified by the Treasurer of Retirement Series and shall be in accordance with
generally accepted accounting principles consistently applied. As promptly as
practicable, but in any case within 60 days after the Closing Date, American
Value shall furnish the Acquiring Fund, in such form as is reasonably
satisfactory to the Acquiring Fund, a statement certified by the Treasurer of
Retirement Series of American Value's earnings and profits for federal income
tax purposes that will be carried over to the Acquiring Fund pursuant to
Section 381 of the Code.
4.7 As soon after the Closing Date as is reasonably practicable,
Retirement Series (a) shall prepare and file all federal and other tax returns
and reports on behalf of American Value required by law to be filed with
respect to all periods ending on or before the Closing Date but not theretofore
filed and (b) shall pay all federal and other taxes shown as due thereon and/or
all federal and other taxes that were unpaid as of the Closing Date, including
without limitation, all taxes for which the provision for payment was made as
of the Closing Date (as represented in paragraph 5.2(k)).
4.8 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act and to
make such filings required by the state Blue Sky and securities laws as it may
deem appropriate in order to continue its operations after the Closing Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 The Acquiring Fund represents and warrants to Retirement Series, on
behalf of American Value, as follows:
(a) The Acquiring Fund is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) The Acquiring Fund is a duly registered, open-end, management
investment company, and its registration with the Commission as an
investment company under the 1940 Act and the registration of its shares
under the 1933 Act are in full force and effect;
(c) All of the issued and outstanding shares of the Acquiring Fund have
been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities
laws. Shares of the Acquiring Fund are registered in all jurisdictions in
which they are required to be registered under state securities laws and
other laws, and said registrations, including any periodic reports or
supplemental filings, are complete and current, all fees required to be
paid have been paid, and the Acquiring Fund is not subject to any stop
order and is fully qualified to sell its shares in each state in which its
shares have been registered;
(d) The current Prospectus and Statement of Additional Information of the
Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the
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regulations thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(e) The Acquiring Fund is not in, and the execution, delivery and
performance of this Agreement will not result in a, material violation of
any provision of the Acquiring Fund's Declaration of Trust or By-Laws or of
any agreement, indenture, instrument, contract, lease or other undertaking
to which the Acquiring Fund is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against the Acquiring Fund or any of its properties
or assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and the
Acquiring Fund knows of no facts that might form the basis for the
institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects, or is reasonably likely to
materially and adversely effect, its business or its ability to consummate
the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights as of December
31, 1997, and for the year then ended, of the Acquiring Fund certified by
Price Waterhouse LLP (copies of which have been furnished to American
Value), fairly present, in all materials respects, the Acquiring Fund's
financial condition as of such date in accordance with generally accepted
accounting principles, and its results of such operations, changes in its
net assets and financial highlights for such period, and as of such date
there were no known liabilities of the Acquiring Fund (contingent or
otherwise) not disclosed therein that would be required in accordance with
generally accepted accounting principles to be disclosed therein;
(h) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
the Acquiring Fund's current Prospectus incorporated by reference in the
Registration Statement. The Acquiring Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares;
(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Acquiring Fund,
and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors rights and to general equity
principles. No other consents, authorizations or approvals are necessary in
connection with the Acquiring Fund's performance of this Agreement;
(j) The Acquiring Fund Shares to be issued and delivered to Retirement
Series, for the account of the American Value Shareholders, pursuant to the
terms of this Agreement will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued
Acquiring Fund Shares, and will be fully paid and non-assessable with no
personal liability attaching to the ownership thereof, except as set forth
under the caption "Additional Information" in the Acquiring Fund's current
Prospectus incorporated by reference in the Registration Statement;
(k) All material Federal and other tax returns and reports of the
Acquiring Fund required by law to be filed on or before the Closing Date
have been filed and are correct, and all Federal and other taxes shown as
due or required to be shown as due on said returns and reports have been
paid or provision has been made for the payment thereof, and to the best of
the Acquiring Fund's knowledge, no such return is currently under audit and
no assessment has been asserted with respect to any such return;
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(l) For each taxable year since its inception, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of nor the performance of its obligations under this Agreement
will adversely affect, and no other events are reasonably likely to occur
which will adversely affect the ability of the Acquiring Fund to continue
to meet the requirements of Subchapter M of the Code;
(m) Since December 31, 1997 there has been no change by the Acquiring
Fund in accounting methods, principles, or practices, including those
required by generally accepted accounting principles;
(n) The information furnished or to be furnished by the Acquiring Fund
for use in registration statements, proxy materials and other documents
which may be necessary in connection with the transactions contemplated
hereby shall be accurate and complete in all material respects and shall
comply in all material respects with Federal securities and other laws and
regulations applicable thereto; and
(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to the Acquiring Fund) will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading.
5.2 Retirement Series, on behalf of American Value, represents and
warrants to the Acquiring Fund as follows:
(a) Retirement Series is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) Retirement Series is a duly registered, open-end, management
investment company, and its registration with the Commission as an
investment company under the 1940 Act and the registration of its shares
under the 1933 Act are in full force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
American Value have been offered and sold in compliance in all material
respects with applicable requirements of the 1933 Act and state securities
laws. Shares of American Value are registered in all jurisdictions in which
they are required to be registered and said registrations, including any
periodic reports or supplemental filings, are complete and current, all
fees required to be paid have been paid, and Retirement Series is not
subject to any stop order and is fully qualified to sell its shares in each
state in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
Retirement Series conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(e) Retirement Series is not, and the execution, delivery and performance
of this Agreement will not result, in a material violation of any provision
of the Declaration of Trust or By-Laws of Retirement Series or of any
agreement, indenture, instrument, contract, lease or other undertaking to
which Retirement Series is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against American Value or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and
Retirement Series knows of no facts that might form the basis
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for the institution of such proceedings and is not a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects, or is reasonably
likely to materially and adversely effect, its business or its ability to
consummate the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of Retirement
Series as of July 31, 1997 and for the year then ended, certified by Price
Waterhouse LLP (copies of which have been or will be furnished to the
Acquiring Fund) fairly present, in all material respects, American Value's
financial condition as of such date, and its results of operations, changes
in its net assets and financial highlights for such period in accordance
with generally accepted accounting principles, and as of such date there
were no known liabilities of American Value (contingent or otherwise) not
disclosed therein that would be required in accordance with generally
accepted accounting principles to be disclosed therein;
(h) Retirement Series has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it
prior to the Closing Date;
(i) All issued and outstanding shares of American Value are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
American Value's current Prospectus incorporated by reference in the
Registration Statement. American Value does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares, nor is there outstanding any security convertible to any of its
shares. All such shares will, at the time of Closing, be held by the
persons and in the amounts set forth in the list of shareholders submitted
to the Acquiring Fund pursuant to paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of Retirement Series, and subject to the approval of American
Value's shareholders, this Agreement constitutes a valid and binding
obligation of Retirement Series, enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors rights and to
general equity principles. No other consents, authorizations or approvals
are necessary in connection with the performance of this Agreement by
Retirement Series, on behalf of American Value;
(k) All material federal and other tax returns and reports of American
Value required by law to be filed on or before the Closing Date shall have
been filed and are correct and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of
American Value's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, American Value has met all
the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of nor the performance of its obligations under this Agreement
will adversely affect, and no other events are reasonably likely to occur
which will adversely affect the ability of American Value to continue to
meet the requirements of Subchapter M of the Code;
(m) At the Closing Date, Retirement Series will have good and valid title
to the American Value Assets, subject to no liens (other than the
obligation, if any, to pay the purchase price of portfolio securities
purchased by American Value which have not settled prior to the Closing
Date), security interests or other encumbrances, and full right, power and
authority to assign, deliver and otherwise transfer such assets
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hereunder, and upon delivery and payment for such assets, the Acquiring
Fund will acquire good and marketable title thereto, subject to no
restrictions on the full transfer thereof, including any restrictions as
might arise under the 1933 Act;
(n) On the effective date of the Registration Statement, at the time of
the meeting of American Value's shareholders and on the Closing Date, the
Proxy Materials (exclusive of the currently effective Acquiring Fund's
Prospectus contained therein) will (i) comply in all material respects with
the provisions of the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act") and the 1940 Act and the regulations thereunder
and (ii) not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading. Any other information furnished by
Retirement Series for use in the Registration Statement or in any other
manner that may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply in all
material respects with applicable federal securities and other laws and
regulations thereunder;
(o) American Value will, on or prior to the Valuation Date, declare one
or more dividends or other distributions to shareholders that, together
with all previous dividends and other distributions to shareholders, shall
have the effect of distributing to the shareholders all of its investment
company taxable income and net capital gain, if any, through the Valuation
Date (computed without regard to any deduction for dividends paid);
(p) Retirement Series has maintained or has caused to be maintained on
its behalf all books and accounts as required of a registered investment
company in compliance with the requirements of Section 31 of the 1940 Act
and the Rules thereunder; and
(q) American Value is not acquiring the Acquiring Fund Shares to be
issued hereunder for the purpose of making any distribution thereof other
than in accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMERICAN VALUE
The obligations of Retirement Series to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
6.2 The Acquiring Fund shall have delivered to American Value a
certificate of its President and Treasurer, in a form reasonably satisfactory
to Retirement Series and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquiring Fund made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other
matters as Retirement Series shall reasonably request;
6.3 American Value shall have received a favorable opinion from Gordon
Altman Butowsky Weitzen Shalov & Wein, counsel to the Acquiring Fund, dated as
of the Closing Date, to the effect that:
(a) The Acquiring Fund is a validly existing Massachusetts business
trust, and has the power to own all of its properties and assets and to
carry on its business as presently conducted (Massachusetts counsel may be
relied upon in delivering such opinion); (b) the Acquiring Fund is a duly
registered, open-end, management investment company, and its registration
with the Commission as an investment company
A-9
<PAGE>
under the 1940 Act is in full force and effect; (c) this Agreement has been
duly authorized, executed and delivered by the Acquiring Fund and, assuming
that the Registration Statement complies with the 1933 Act, the 1934 Act
and the 1940 Act and regulations thereunder and assuming due authorization,
execution and delivery of this Agreement by American Value, is a valid and
binding obligation of the Acquiring Fund enforceable against the Acquiring
Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors rights and to general equity principles; (d) the
Acquiring Fund Shares to be issued to American Value Shareholders as
provided by this Agreement are duly authorized and upon such delivery will
be validly issued and outstanding and fully paid and non-assessable (except
as set forth under the caption "Additional Information" in the Acquiring
Fund's Prospectus), and no shareholder of the Acquiring Fund has any
preemptive rights to subscription or purchase in respect thereof
(Massachusetts counsel may be relied upon in delivering such opinion); (e)
the execution and delivery of this Agreement did not, and the consummation
of the transactions contemplated hereby will not, violate the Acquiring
Fund's Declaration of Trust or By-Laws; and (f) to the knowledge of such
counsel, no consent, approval, authorization or order of any court or
governmental authority of the United States or any state is required for
the consummation by the Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934 Act
and the 1940 Act and such as may be required under state securities laws;
and
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any increase in the
investment management fees from those described in the Acquiring Fund's then
current Prospectus and Statement of Additional Information.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by
Retirement Series of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of Retirement Series contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
7.2 Retirement Series shall have delivered to the Acquiring Fund at the
Closing a certificate of its President and its Treasurer, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing Date, to the
effect that the representations and warranties of Retirement Series made in
this Agreement are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated by this Agreement, and as
to such other matters as the Acquiring Fund shall reasonably request;
7.3 Retirement Series shall have delivered to the Acquiring Fund a
statement of the American Value Assets and its liabilities, together with a
list of American Value's portfolio securities and other assets showing the
respective adjusted bases and holding periods thereof for income tax purposes,
as of the Closing Date, certified by the Treasurer of Retirement Series;
7.4 Retirement Series shall have delivered to the Acquiring Fund within
three business days after the Closing a letter from Price Waterhouse LLP dated
as of the Closing Date stating that (a) such firm has performed a limited
review of the federal and state income tax returns of Retirement Series for
each of the last three taxable years and, based on such limited review, nothing
came to their attention that caused them to believe that such returns did not
properly reflect, in all material respects, the federal and state income tax
A-10
<PAGE>
liabilities of American Value for the periods covered thereby, (b) for the
period from July 31, 1997 to and including the Closing Date, such firm has
performed a limited review (based on unaudited financial data) to ascertain the
amount of applicable federal, state and local taxes and has determined that
same either have been paid or reserves have been established for payment of
such taxes, and, based on such limited review, nothing came to their attention
that caused them to believe that the taxes paid or reserves set aside for
payment of such taxes were not adequate in all material respects for the
satisfaction of all federal, state and local tax liabilities for the period
from July 31, 1997 to and including the Closing Date and (c) based on such
limited reviews, nothing came to their attention that caused them to believe
that American Value would not qualify as a regulated investment company for
federal income tax purposes for any such year or period;
7.5 The Acquiring Fund shall have received at the Closing a favorable
opinion from Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to
Retirement Series, dated as of the Closing Date to the effect that:
(a) Retirement Series is a validly existing Massachusetts business trust
and has the power to own all of its properties and assets and to carry on
its business as presently conducted (Massachusetts counsel may be relied
upon in delivering such opinion); (b) Retirement Series is a duly
registered, open-end, management investment company under the 1940 Act, and
its registration with the Commission as an investment company under the
1940 Act is in full force and effect; (c) this Agreement has been duly
authorized, executed and delivered by Retirement Series and, assuming that
the Registration Statement complies with the 1933 Act, the 1934 Act and the
1940 Act and the regulations thereunder and assuming due authorization,
execution and delivery of this Agreement by the Acquiring Fund, is a valid
and binding obligation of Retirement Series enforceable against Retirement
Series in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors rights and to general equity principles; (d) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate the Declaration of
Trust or By-Laws of Retirement Series; and (e) to the knowledge of such
counsel, no consent, approval, authorization or order of any court or
governmental authority of the United States or any state is required for
the consummation by Retirement Series of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934 Act
and the 1940 Act and such as may be required under state securities laws;
and
7.6 On the Closing Date, the American Value Assets shall include no assets
that the Acquiring Fund, by reason of limitations of the fund's Declaration of
Trust or otherwise, may not properly acquire.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND AMERICAN VALUE
The obligations of Retirement Series and the Acquiring Fund hereunder are
each subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
American Value in accordance with the provisions of the Declaration of Trust of
Retirement Series, and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities,
A-11
<PAGE>
including "no-action" positions of and exemptive orders from such federal and
state authorities) deemed necessary by the Acquiring Fund or Retirement Series
to permit consummation, in all material respects, of the transactions
contemplated herein shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve risk of a material adverse
effect on the assets or properties of the Acquiring Fund or American Value;
8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5 American Value shall have declared and paid a dividend or dividends
and/or other distribution or distributions that, together with all previous
such dividends or distributions, shall have the effect of distributing to the
American Value Shareholders all of American Value's investment company taxable
income (computed without regard to any deduction for dividends paid) and all of
its net capital gain (after reduction for any capital loss carry-forward and
computed without regard to any deduction for dividends paid) for all taxable
years ending on or before the Closing Date; and
8.6 The parties shall have received a favorable opinion of the law firm of
Gordon Altman Butowsky Weitzen Shalov & Wein (based on such representations as
such law firm shall reasonably request), addressed to the Acquiring Fund and
American Value, which opinion may be relied upon by the shareholders of
American Value, substantially to the effect that, for federal income tax
purposes:
(a) The transfer of substantially all of American Value's assets in
exchange for the Acquiring Fund Shares and the assumption by the Acquiring
Fund of certain stated liabilities of American Value followed by the
distribution by American Value of the Acquiring Fund Shares to the American
Value Shareholders in exchange for their American Value shares will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of
the Code, and American Value and the Acquiring Fund will each be a "party
to a reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of American Value solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
stated liabilities of American Value;
(c) No gain or loss will be recognized by American Value upon the
transfer of the assets of American Value to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
the stated liabilities or upon the distribution of the Acquiring Fund
Shares to the American Value Shareholders in exchange for their American
Value shares;
(d) No gain or loss will be recognized by the American Value Shareholders
upon the exchange of the American Value shares for the Acquiring Fund
Shares;
(e) The aggregate tax basis for the Acquiring Fund Shares received by
each American Value Shareholder pursuant to the reorganization will be the
same as the aggregate tax basis of the American Value Shares held by each
such American Value Shareholder immediately prior to the Reorganization;
(f) The holding period of the Acquiring Fund Shares to be received by
each American Value Shareholder will include the period during which the
American Value Shares surrendered in exchange therefor were held (provided
such American Value Shares were held as capital assets on the date of the
Reorganization);
(g) The tax basis of the assets of American Value acquired by the
Acquiring Fund will be the same as the tax basis of such assets to American
Value immediately prior to the Reorganization; and
A-12
<PAGE>
(h) The holding period of the assets of American Value in the hands of
the Acquiring Fund will include the period during which those assets were
held by American Value.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor American Value may waive the conditions set forth in this paragraph
8.6.
9. FEES AND EXPENSES
9.1 (a) Dean Witter InterCapital Inc. ("InterCapital"), the investment
manager to both American Value and the Acquiring Fund, shall bear all expenses
incurred in connection with the carrying out of the provisions of this
Agreement, including legal, accounting, Commission registration fees and Blue
Sky expenses, printing, filing and portfolio transfer taxes (if any) incurred
in connection with the consummation of the transactions contemplated herein.
(b) In the event the transactions contemplated herein are not consummated
by reason of the Acquiring Fund's or American Value's being either unwilling or
unable to go forward, the funds' only respective obligations hereunder shall be
to reimburse InterCapital for all reasonable out-of-pocket fees and expenses
incurred by InterCapital in connection with those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein, except that the representations, warranties and covenants of Retirement
Series hereunder shall not survive the complete liquidation of American Value
in accordance with Section 1.9.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of Retirement Series, on behalf of
American Value, and the Acquiring Fund;
(b) by either the Acquiring Fund or Retirement Series, on behalf of
American Value, by notice to the other, without liability to the
terminating party on account of such termination (providing the termination
party is not otherwise in material default or breach of this Agreement) if
the Closing shall not have occurred on or before December 31, 1998; or
(c) by either the Acquiring Fund or Retirement Series, on behalf of
American Value, in writing without liability to the terminating party on
account of such termination (provided the terminating party is not
otherwise in material default or breach of this Agreement), if (i) the
other party shall fail to perform in any material respect its agreements
contained herein required to be performed on or prior to the Closing Date,
(ii) the other party materially breaches any of its representations,
warranties or covenants contained herein, (iii) the American Value
shareholders fail to approve this Agreement at any meeting called for such
purpose at which a quorum was present or (iv) any other condition herein
expressed to be precedent to the obligations of the terminating party has
not been met and it reasonably appears that it will not or cannot be met.
A-13
<PAGE>
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of the Acquiring Fund or Retirement Series
or the trustees or officers of the Acquiring Fund or Retirement Series, to any
other party or its trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of the Acquiring Fund or Retirement Series or
the trustees or officers of the Acquiring Fund or Retirement Series, except
that any party in breach of this Agreement shall, upon demand, reimburse
InterCapital for all reasonable out-of-pocket fees and expenses incurred in
connection with the transactions contemplated by this Agreement, including
legal, accounting and filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties; provided, however, that
following the meeting of American Value's shareholders called by Retirement
Series pursuant to paragraph 4.3, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the American Value Shareholders under this Agreement to the
detriment of such American Value Shareholders without their further approval.
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 The obligations and liabilities of the Acquiring Fund hereunder are
solely those of the Acquiring Fund. It is expressly agreed that no shareholder,
nominee, director, officer, agent, or employee of the Acquiring Fund shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the directors of the Acquiring Fund and signed by authorized
officers of the Acquiring Fund acting as such, and neither such authorization
by such directors nor such execution and delivery by such officers shall be
deemed to have been made by any of them individually or to impose any liability
on any of them personally.
13.6 The obligations and liabilities of Retirement Series hereunder are
solely those of Retirement Series. lt is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of American Value shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the trustees of Retirement Series and signed by authorized
officers of Retirement Series acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally.
A-14
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer.
DEAN WITTER AMERICAN VALUE FUND
By: /s/ Charles A. Fiumefreddo
.............................
Name: Charles A. Fiumefreddo
Title: Chairman
DEAN WITTER RETIREMENT SERIES,
on behalf of American Value Series
By: /s/ Barry Fink
.............................
Name: Barry Fink
Title: Vice President
A-15
<PAGE>
Exhibit B
DEAN WITTER
AMERICAN VALUE
PROSPECTUS -- MAY 1, 1998
- ------------------------------------------------------------------------------
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 attractively valued given their above
average relative earnings growth potential at that time. (See "Investment
Objective and Policies.")
The Fund offers four classes of shares (each, a "Class"), each with a
different combination of sales charges, ongoing fees and other features. The
different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated May 1, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
DEAN WITTER
AMERICAN VALUE FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 OR
(800) 869-NEWS (TOLL-FREE)
TABLE OF CONTENTS
Prospectus Summary..................................................... 2
Summary of Fund Expenses............................................... 4
Financial Highlights................................................... 6
The Fund and its Management............................................ 9
Investment Objective and Policies...................................... 10
Risk Considerations................................................... 14
Investment Restrictions................................................ 17
Purchase of Fund Shares................................................ 18
Shareholder Services................................................... 29
Redemptions and Repurchases............................................ 32
Dividends, Distributions and Taxes..................................... 33
Performance Information................................................ 34
Additional Information................................................. 34
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 SECURI TIES 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
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
------------------- ------------------------------------------------------------------
THE The Fund, a Massachusetts business trust, is an open-end
FUND diversified management investment company investing principally in
industries which, at the time of investment, are believed to be
attractively valued given their above average relative earnings
growth potential at that time (see page 9).
- ------------------- ------------------------------------------------------------------
SHARES OFFERED Shares of beneficial interest with $0.01 par value (see page 34).
The Fund offers four Classes of shares, each with a different
combination of sales charges, ongoing fees and other features (see
pages 18-28).
- ------------------- ------------------------------------------------------------------
MINIMUM The minimum initial investment for each Class is $1,000 ($100 if
PURCHASE the account is opened through EasyInvest (Service Mark) ). Class D
shares are only available to persons investing $5 million ($25
million for certain qualified plans) or more and to certain other
limited categories of investors. For the purpose of meeting the
minimum $5 million (or $25 million) investment for Class D shares,
and subject to the $1,000 minimum initial investment for each
Class of the Fund, an investor's existing holdings of Class A
shares and shares of funds for which Dean Witter InterCapital Inc.
serves as investment manager ("Dean Witter Funds") that are sold
with a front-end sales charge, and concurrent investments in Class
D shares of the Fund and other Dean Witter Funds that are multiple
class funds, will be aggregated. The minimum subsequent investment
is $100 (see page 18).
- ------------------- ------------------------------------------------------------------
INVESTMENT The investment objective of the Fund is capital growth consistent
OBJECTIVE with an effort to reduce volatility.
- ------------------- ------------------------------------------------------------------
INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the Fund,
MANAGER and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management
and administrative capacities to 101 investment companies and
other portfolios with assets of approximately $113.6 billion at
March 31, 1998 (see page 9).
- ------------------- ------------------------------------------------------------------
MANAGEMENT The Investment Manager receives a monthly fee at an annual rate of
FEE 0.625 of 1% of daily net assets up to $250 million in net assets;
0.50 of 1% of daily net assets over $250 million but not exceeding
$2.5 billion; 0.475 of 1% of daily net assets exceeding $2.5
billion but not exceeding $3.5 billion; 0.45 of 1% of daily net
assets exceeding $3.5 billion but not exceeding $4.5 billion; and
0.425 of 1% of the daily net assets exceeding $4.5 billion (see
page 9).
- ------------------- ------------------------------------------------------------------
DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor"). The Fund has
DISTRIBUTION FEE adopted a distribution plan pursuant to Rule 12b-1 under the
Investment Company Act (the "12b-1 Plan") with respect to the
distribution fees paid by the Class A, Class B and Class C shares
of the Fund to the Distributor. The entire 12b-1 fee payable by
Class A and a portion of the 12b-1 fee payable by each of Class B
and Class C equal to 0.25% of the average daily net assets of the
Class are currently each characterized as a service fee within the
meaning of the National Association of Securities Dealers, Inc.
guidelines. The remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge (see pages 18 and
27).
- ------------------- ------------------------------------------------------------------
ALTERNATIVE Four classes of shares are offered: o Class A shares are offered
PURCHASE with a front-end sales charge, starting at 5.25% and reduced for
ARRANGEMENTS larger purchases. Investments of $1 million or more (and
investments by certain other limited categories of investors) are
not subject to any sales charge at the time of purchase but a
contingent deferred sales charge ("CDSC") of 1.0% may be imposed
on redemptions within one year of purchase. The Fund is authorized
to reimburse the Distributor for specific expenses incurred in
promoting the distribution of the Fund's Class A shares and
servicing shareholder accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to payments
at an annual rate of 0.25% of average daily net assets of the
Class (see pages 18, 21 and 27).
2
<PAGE>
- ---------------------------------------------------------------------------------------
o Class B shares are offered without a front-end sales charge, but
will in most cases be subject to a CDSC (scaled down from 5.0% to
1.0%) if redeemed within six years after purchase. The CDSC will
be imposed on any redemption of shares if after such redemption
the aggregate current value of a Class B account with the Fund
falls below the aggregate amount of the investor's purchase
payments made during the six years preceding the redemption. A
different CDSC schedule applies to investments by certain
qualified plans. Class B shares are also subject to a 12b-1 fee
assessed at the annual rate of 1.0% of the lesser of: (a) the
average daily aggregate net sales of the Fund's Class B shares
since implementation of the 12b-1 Plan on April 30, 1984 or (b)
the average daily net assets of Class B attributable to shares
issued since implementation of the 12b-1 Plan. All shares of the
Fund held prior to July 28, 1997, other than shares which were
purchased prior to April 30, 1984 (and, with respect to such
shares, certain shares acquired through reinvestment of dividends
and capital gains distributions), have been designated Class B
shares. Shares which were purchased prior to April 30, 1984 (and,
with respect to such shares, certain shares acquired through
reinvestment of dividends and capital gains distributions) have
been designated Class D shares. Shares held before May 1, 1997
that have been designated Class B shares will convert to Class A
shares in May, 2007. In all other instances, Class B shares
convert to Class A shares approximately ten years after the date
of the original purchase (see pages 18, 23 and 27).
o Class C shares are offered without a front-end sales charge, but
will in most cases be subject to a CDSC of 1.0% if redeemed within
one year after purchase. The Fund is authorized to reimburse the
Distributor for specific expenses incurred in promoting the
distribution of the Fund's Class C shares and servicing
shareholder accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to payments
at an annual rate of 1.0% of average daily net assets of the Class
(see pages 18, 26 and 27).
o Class D shares are offered only to investors meeting an initial
investment minimum of $5 million ($25 million for certain qualified
plans) and to certain other limited categories of investors. Class D
shares are offered without a front-end sales charge or CDSC and are
not subject to any 12b-1 fee (see pages 18, 26 and 27).
- -------------------------------------------------------------------------------------
DIVIDENDS AND It is anticipated that distributions of income and net short-term
CAPITAL GAINS capital gains, if any, will be made semi-annually. Net long-term
DISTRIBUTIONS capital gains, if any, are distributed at least annually. The Fund
may, however, determine to retain all or part of any net long-term
capital gains in any year for reinvestment. Dividends and capital
gains distributions paid on shares of a Class are automatically
reinvested in additional shares of the same Class at net asset
value unless the shareholder elects to receive cash. Shares
acquired by dividend and distribution reinvestment will not be
subject to any sales charge or CDSC (see pages 29 and 33).
- ---------------------------------------------------------------------------------------
REDEMPTION Shares are redeemable by the shareholder at net asset value less
any applicable CDSC on Class A, Class B or Class C shares. An
account may be involuntarily redeemed if the total value of the
account is less than $100 or, if the account was opened through
EasyInvest (Service Mark), if after twelve months the shareholder
has invested less than $1,000 in the account (see page 32).
- ---------------------------------------------------------------------------------------
RISKS The net asset value of the Fund's shares will fluctuate with
changes in the market value of its portfolio securities. Emphasis
on attractive industries may run contrary to general market
assessments and may involve risks associated with departure from
typical S&P 500 industry weightings. It should be recognized that
the Fund's investments in small and medium-capitalization
companies involve greater risk than is customarily associated with
investing in larger, more established companies. The Fund may
invest in the securities of foreign issuers which entails
additional risks.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 pages
11-16).
- ---------------------------------------------------------------------------------------
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in the Prospectus and in the Statement of Additional Information.
3
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. The expenses and fees set forth in the table are
based on the expenses and fees for the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
- ---------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ..................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments .... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds)............................... None(2) 5.00%(3) 1.00%(4) None
Redemption Fees..................................... None None None None
Exchange Fee........................................ None None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
- ----------------------------------------------------------------------
Management Fees .................................... 0.50% 0.50% 0.50% 0.50%
12b-1 Fees (5)(6)................................... 0.25% 0.83% 1.00% None
Other Expenses ..................................... 0.13% 0.13% 0.13% 0.13%
Total Fund Operating Expenses (7)................... 0.88% 1.46% 1.63% 0.63%
</TABLE>
- ------------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1
fee payable by Class A and a portion of the 12b-1 fee payable by each
of Class B and Class C equal to 0.25% of the average daily net assets
of the Class are currently each characterized as a service fee within
the meaning of National Association of Securities Dealers, Inc.
("NASD") guidelines and are payments made for personal service and/or
maintenance of shareholder accounts. The remainder of the 12b-1 fee, if
any, is an asset-based sales charge, and is a distribution fee paid to
the Distributor to compensate it for the services provided and the
expenses borne by the Distributor and others in the distribution of the
Fund's shares (see "Purchase of Fund Shares--Plan of Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will
be subject to the lower 12b-1 fee applicable to Class A shares. No
sales charge is imposed at the time of conversion of Class B shares to
Class A shares. Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing 1.00% distribution fee (see
"Purchase of Fund Shares--Alternative Purchase Arrangements").
(7) There were no outstanding shares of Class A, Class C or Class D prior
to July 28, 1997. Accordingly, "Total Fund Operating Expenses," as
shown above with respect to those Classes, are estimates based upon the
sum of 12b-1 Fees, Management Fees and estimated "Other Expenses."
4
<PAGE>
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------- -------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
Class A ...................................................... $61 $79 $ 99 $155
Class B ...................................................... $65 $76 $100 $175
Class C....................................................... $27 $51 $ 89 $193
Class D ...................................................... $ 6 $20 $ 35 $ 79
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ...................................................... $61 $79 $ 99 $155
Class B ...................................................... $15 $46 $ 80 $175
Class C ...................................................... $17 $51 $ 89 $193
Class D ...................................................... $ 6 $20 $ 35 $ 79
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER
OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares--Plan of
Distribution" and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of the
maximum front-end sales charges permitted by the NASD.
5
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following per share data and ratios for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in
conjunction with the financial statements 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.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1997*++ 1996 1995 1994
- -------------------------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period ................ $27.01 $27.16 $21.21 $23.10
---------- ---------- -------- ---------
Net investment income
(loss) ................... (0.10) (0.08) 0.01 --
Net realized and
unrealized gain (loss) .. 8.34 2.86 8.87 (1.57)
---------- ---------- -------- ---------
Total from investment
operations ............... 8.24 2.78 8.88 (1.57)
---------- ---------- -------- ---------
Less dividends and
distributions from:
Net investment income .... -- (0.01) -- --
Net realized gain ........ (5.74) (2.92) (2.93) (0.32)
Paid-in-capital .......... -- -- -- --
---------- ---------- -------- ---------
Total dividends and
distributions ............ (5.74) (2.93) (2.93) (0.32)
---------- ---------- -------- ---------
Net asset value, end of
period ................... $29.51 $27.01 $27.16 $21.21
========== ========== ======== =========
TOTAL INVESTMENT RETURN+ . 31.55% 10.53% 42.20% (6.75)%
RATIOS TO AVERAGE NET
ASSETS:
Expenses................... 1.46% 1.53% 1.61% 1.71%
Net investment income
(loss) ................... (0.34)% (0.33)% 0.06% 0.01%
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions............... $4,078 $3,099 $2,389 $1,490
Portfolio turnover rate .. 275% 279% 256% 295%
Average commission rate --
paid ..................... $0.0563 $0.0590 --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988
- -------------------------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period ................ $20.93 $20.66 $14.39 $14.81 $13.19 $12.21
--------- -------- -------- --------- -------- --------
Net investment income
(loss) ................... (0.09) 0.03 0.05 0.24 0.34 0.29
Net realized and
unrealized gain (loss) .. 3.94 0.71 7.90 (0.38) 2.99 1.03
--------- -------- -------- --------- -------- --------
Total from investment
operations ............... 3.85 0.74 7.95 (0.14) 3.33 1.32
--------- -------- -------- --------- -------- --------
Less dividends and
distributions from:
Net investment income .... (0.01) (0.03) (0.03) (0.28) (0.32) (0.33)
Net realized gain ........ (1.67) (0.44) (1.65) -- (1.39) --
Paid-in-capital .......... -- -- -- -- -- (0.01)
--------- -------- -------- --------- -------- --------
Total dividends and
distributions ............ (1.68) (0.47) (1.68) (0.28) (1.71) (0.34)
--------- -------- -------- --------- -------- --------
Net asset value, end of
period ................... $23.10 $20.93 $20.66 $14.39 $14.81 $13.19
========= ======== ======== ========= ======== ========
TOTAL INVESTMENT RETURN+ . 18.70% 3.84% 56.26% (0.90)% 25.39% 10.84%
RATIOS TO AVERAGE NET
ASSETS:
Expenses................... 1.61% 1.72% 1.58% 1.70% 1.66% 1.78%
Net investment income
(loss) ................... (0.59)% 0.18% 0.29% 1.67% 2.23% 2.15%
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions............... $1,218 $459 $227 $89 $100 $90
Portfolio turnover rate .. 276% 305% 264% 234% 196% 133%
Average commission rate
paid ..................... -- -- -- -- -- --
</TABLE>
- ------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date, other than shares
which were purchased prior to April 30, 1984 (and with respect to such
shares, certain shares acquired through reinvestment of
dividends and capital gains distributions (collectively the "Old
Shares")), have been designated Class B shares. The Old
Shares have been designated Class D shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
6
<PAGE>
FINANCIAL HIGHLIGHTS, continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
DECEMBER 31,
1997++
- ------------------------------------------ ------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $31.87
------------------
Net investment income ..................... 0.05
Net realized and unrealized gain .......... 2.32
------------------
Total from investment operations .......... 2.37
------------------
Less distributions from net realized gain (4.65)
------------------
Net asset value, end of period ............ $29.59
==================
TOTAL INVESTMENT RETURN+ .................. 7.70%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 0.92%(2)
Net investment income ..................... 0.38%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $15,844
Portfolio turnover rate ................... 275%
Average commission rate paid .............. $0.0563
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $31.87
------------------
Net investment loss ....................... (0.05)
Net realized and unrealized gain .......... 2.32
------------------
Total from investment operations .......... 2.27
------------------
Less distributions from net realized gain . (4.65)
------------------
Net asset value, end of period ............ $29.49
==================
TOTAL INVESTMENT RETURN+ .................. 7.39%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.66%(2)
Net investment loss ....................... (0.36)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $12,204
Portfolio turnover rate ................... 275%
Average commission rate paid .............. $0.0563
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
7
<PAGE>
FINANCIAL HIGHLIGHTS, continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
DECEMBER 31,
1997++
- ------------------------------------------ ------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $31.87
------------------
Net investment income ..................... 0.07
Net realized and unrealized gain .......... 2.34
------------------
Total from investment operations .......... 2.41
------------------
Less distributions from net realized gain (4.65)
------------------
Net asset value, end of period ............ $29.63
==================
TOTAL INVESTMENT RETURN+ .................. 7.83%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 0.64%(2)
Net investment income ..................... 0.50%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $49,772
Portfolio turnover rate ................... 275%
Average commission rate paid .............. $0.0563
</TABLE>
- ------------
* The date shares were first issued. Shareholders who held shares of the
Fund prior to July 28, 1997 (the date the Fund converted
to a multiple class share structure) should refer to the Financial
Highlights of Class B to obtain the historical per share data and ratio
information of their shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
8
<PAGE>
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 Morgan Stanley
Dean Witter & Co. a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses --
securities, asset management and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services
Company, Inc. ("DWSC"), serve in various investment management, advisory,
management and administrative capacities to a total of 101 investment
companies, 28 of which are listed on the New York Stock Exchange, with
combined total assets of approximately $109.5 billion as of March 31, 1998.
The Investment Manager also manages portfolios of pension plans, other
institutions and individuals which aggregated approximately $4.1 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 daily net assets not
exceeding $250 million; 0.50% of the portion of daily net assets exceeding
$250 million but not exceeding $2.5 billion; 0.475% of the portion of daily
net assets exceeding $2.5 billion but not exceeding $3.5 billion; 0.45% of
the portion of daily net assets exceeding $3.5 billion but not exceeding $4.5
billion; and 0.425% of the portion of daily net assets exceeding $4.5
billion. For the fiscal year ended December 31, 1997, the Fund accrued total
compensation to the Investment Manager amounting to 0.50% of the Fund's
average daily net assets and the total expenses of Class B amounted to 1.46%
of the Fund's average daily net assets of Class B. Shares of Class A, Class C
and Class D were first issued on July 28, 1997. The expenses of the Fund
include: the fee of the Investment Manager; the fee pursuant to the Plan of
Distribution (see "Purchase of Fund Shares"); taxes, transfer agent,
custodian and auditing fees; certain legal fees; and printing and other
expenses relating to the Fund's operations which are not expressly assumed by
the Investment Manager under its Investment Management Agreement with the
Fund.
9
<PAGE>
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 investment objective may not be
changed without the approval of the shareholders of the Fund. The investment
policies discussed below may be changed without shareholder approval.
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. The Investment Manager seeks to invest
the assets of the Fund in those industries that, at the time of investment,
are attractively valued given their above average relative earnings growth
potential at that time. Therefore, the Fund is typically over-weighted in
those sectors deemed to be attractive given their potential for above average
earnings growth.
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.
The Investment Manager seeks to identify what stage of the business cycle
the economy is in and which industry groups have historically outperformed
the overall market during that stage of the cycle, i.e., typically, groups
that tend to have the highest relative earnings growth at that point in the
cycle. The Investment Manager also analyzes secular trends such as
demographics, international trade, etc., that could cause the current cycle
to differ from prior cycles and attempts to weight the portfolio
appropriately, given those factors.
Following selection of the Fund's specific investments, the Investment
Manager will attempt to allocate the assets of the Fund so as to reduce the
volatility of its portfolio. In doing so, the Fund may hold a portion of its
portfolio in fixed-income securities (including zero coupon securities) in an
effort to moderate extremes of price fluctuations. The Fund may invest up to
35% of its portfolio in common stocks of non-U.S. companies, including
American Depository Receipts (which are custody receipts with respect to
foreign securities), in companies in industries which have not been
determined to be attractively valued or moderately attractively valued by the
Investment Manager, and in convertible debt securities and warrants,
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 the 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 is intended for long-term investors who can accept the
risks involved in seeking long-term growth of capital through investment in
the securities of large, medium and small-capitalization companies. Emphasis
on attractive industries may run contrary to general market assessments and
may
10
<PAGE>
involve risks associated with departure from typical S&P 500 industry
weightings. It should be recognized that investing in small and
medium-capitalization companies involves greater risk than is customarily
associated with investing in more established companies.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for
a prescribed amount of common stock of the same or a different issuer within
a particular period of time at a specified price or formula. Convertible
securities rank senior to common stocks in a corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The
value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion privilege), and its "conversion
value" (the security's worth if it were to be exchanged for the underlying
security, at market value, pursuant to its conversion privilege). For a
discussion of the risks of investing in convertible securities, see "Risk
Considerations" below.
The Fund may purchase securities on a when-issued or delayed delivery
basis, may purchase or sell securities on a forward commitment basis and may
purchase securities on a "when, as and if issued" basis as discussed under
"Risk Considerations" below.
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 security underlying the
option (certain listed and OTC 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
11
<PAGE>
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 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 securities (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 securities (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 con-
12
<PAGE>
tinue 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.
Investment in Real Estate Investment Trusts. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in a real estate investment trust,
the Fund would bear its ratable share of the real estate investment trust's
expenses, including its advisory and administration fees. At the same time
the Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will
be absorbing duplicate levels of fees with respect to investments in real
estate investment trusts.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Fund, and which
typically involve the acquisition by the Fund of debt securities from a
selling financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase the underlying security
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. While repurchase agreements involve
certain risks not associated with direct investments in debt securities,
including the risks of default or bankruptcy of the selling financial
institution, the Fund follows procedures designed to minimize those 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.
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 under the Securities Act, and determined to
be liquid pursuant to the procedures discussed in the following paragraph,
are not subject to the foregoing restriction.) These securities are generally
referred to as private placements or restricted securities. Limitations on
the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
Rule 144A under the Securities Act permits the Fund to sell restricted
securities to qualified institutional buyers without limitation. The
Investment Manager, pursuant to procedures adopted by the Trustees of the
Fund, will make a determination as to the liquidity of each restricted
security purchased by the Fund. If a restricted security is determined to be
"liquid," such security will not be included within the category "illiquid
securities," which under current policy may not exceed 15% of the Fund's net
assets. However, investing in Rule 144A securities could have the effect of
increasing the level of Fund illiquidity to the extent the Fund, at a
particular point in time, may be unable to find qualified institutional
buyers interested in purchasing such securities.
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. For a discussion of the risks of investing in foreign securities,
see "Risk Considerations" below.
13
<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.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in
the market value of its portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted. The Fund is intended
for long-term investors who can accept the risks involved in seeking
long-term growth of capital through investment primarily in the securities of
small and medium-sized growth companies. It should be recognized that
investing in such companies involves greater risk than is customarily
associated with investing in more established companies.
Foreign Securities. Foreign securities investments may be affected by
changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United
States and abroad) or changed circumstances in dealings between nations.
Fluctuations in the relative rates of exchange between the currencies of
different nations will affect the value of the Fund's investments denominated
in foreign currency. Changes in foreign currency exchange rates relative to
the U.S. dollar will affect the U.S. dollar value of the Fund's assets
denominated in that currency and thereby impact upon the Fund's total return
on such assets. When purchasing foreign securities, the Fund will generally
enter into foreign currency exchange transactions or forward foreign exchange
contracts to facilitate settlement. The Fund will utilize forward foreign
exchange contracts in these instances as an attempt to limit the effect of
changes in the relationship between the U.S. dollar and the foreign currency
during the period between the trade date and settlement date for the
transaction.
14
<PAGE>
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected
by the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade. The Fund will incur costs in
connection with conversions between various currencies.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer
of Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly available
information about such companies. Moreover, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies. Finally, in
the event of a default of any foreign debt obligations, it may be more
difficult for the Fund to obtain or enforce a judgment against the issuers of
such securities.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their
American counterparts. Brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S. In
addition, differences in clearance and settlement procedures on foreign
markets may occasion delays in settlements of the Fund's trades effected in
such markets. As such, the inability to dispose of portfolio securities due
to settlement delays could result in losses to the Fund due to subsequent
declines in value of such securities and the inability of the Fund to make
intended security purchases due to settlement problems could result in a
failure of the Fund to make potentially advantageous investments. Investments
in certain issuers may be speculative due to certain political risks and may
be subject to substantial price fluctuations.
Convertible Securities. To the extent that a convertible security's
investment value is greater than its conversion value, its price will be
primarily a reflection of such investment value and its price will be likely
to increase when interest rates fall and decrease when interest rates rise,
as with a fixed-income security (the credit standing of the issuer and other
factors may also have an effect on the convertible security's value). If the
conversion value exceeds the investment value, the price of the convertible
security will rise above its investment value and, in addition, the
convertible security will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
Zero Coupon Securities. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities
15
<PAGE>
are subject to substantially greater price fluctuations during periods of
changing prevailing interest rates than are comparable securities which pay
interest on a current basis. Current federal tax law requires that a holder
(such as the Fund) of a zero coupon security accrue a portion of the discount
at which the security was purchased as income each year even though the Fund
receives no interest payments in cash on the security during the year.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of the commitment.
There is no overall limit on the percentage of the Fund's assets which may be
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis may increase the volatility of the Fund's net asset
value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. There is no overall limit on
the percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of the Fund's net asset
value.
Year 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the
Distributor and the Transfer Agent depend on the smooth functioning of their
computer systems. Many computer software systems in use today cannot
recognize the year 2000, but revert to 1900 or some other date, due to the
manner in which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing and account
services. The Investment Manager, the Distributor and the Transfer Agent have
been actively working on necessary changes to their own computer systems to
prepare for the year 2000 and expect that their systems will be adapted
before that date, but there can be no assurance that they will be successful,
or that interaction with other non-complying computer systems will not impair
their services at that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout
the financial services industry beginning January 1, 2000. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S.
and foreign financial statements. Accordingly, the Fund's investments may be
adversely affected.
PORTFOLIO MANAGEMENT
The Fund's portfolio is 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"), Morgan Stanley & Co. Incorporated and other
broker-dealer affiliates of InterCapital, and others regarding economic
developments and interest rate trends, and the Investment Manager's own
16
<PAGE>
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 Sector Rotation Group,
which manages 7 equity funds and fund portfolios with approximately $7.1
billion in assets as of March 31, 1998. Anita H. Kolleeny, Senior Vice
President of InterCapital and head of InterCapital's Sector Rotation Group,
has been the primary portfolio manager of the Fund for over five years and is
assisted by Michelle Kaufman, Vice President of InterCapital. Ms. Kolleeny
has been a portfolio manager at InterCapital for over five years. Ms. Kaufman
is a member of InterCapital's Sector Rotation Group and, prior to joining
InterCapital in September 1993, was a securities analyst with Woodward and
Associates (March-August, 1993) and JRO and Associates (December, 1992).
Although the Fund does not engage in substantial short-term trading as a
means of achieving its investment objective, it may sell portfolio securities
without regard to the length of time they have been held, in accordance with
the investment policies described earlier. 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.
Orders for transactions in portfolio securities and commodities are placed
for the Fund with a number of brokers and dealers, including DWR, Morgan
Stanley & Co. Incorporated and other brokers and dealers that are affiliates
of the Investment Manager. The Fund may incur brokerage commissions on
transactions conducted through such affiliates. Pursuant to an order of the
Securities and Exchange Commission the Fund may effect principal transactions
in certain money market instruments with DWR.
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.
17
<PAGE>
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially
all of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and
Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the
Investment Manager, shares of the Fund are distributed by the Distributor and
offered by DWR and other 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 Fund offers four classes of shares (each, a "Class"). Class A shares
are sold to investors with an initial sales charge that declines to zero for
larger purchases; however, Class A shares sold without an initial sales
charge are subject to a contingent deferred sales charge ("CDSC") of 1.0% if
redeemed within one year of purchase, except for certain specific
circumstances. Class B shares are sold without an initial sales charge but
are subject to a CDSC (scaled down from 5.0% to 1.0%) payable upon most
redemptions within six years after purchase. (Class B shares purchased by
certain qualified plans are subject to a CDSC scaled down from 2.0% to 1.0%
if redeemed within three years after purchase.) Class C shares are sold
without an initial sales charge but are subject to a CDSC of 1.0% on most
redemptions made within one year after purchase. Class D shares are sold
without an initial sales charge or CDSC and are available only to investors
meeting an initial investment minimum of $5 million ($25 million for certain
qualified plans), and to certain other limited categories of investors. At
the discretion of the Board of Trustees of the Fund, Class A shares may be
sold to categories of investors in addition to those set forth in this
prospectus at net asset value without a front-end sales charge, and Class D
shares may be sold to certain other categories of investors, in each case as
may be described in the then current prospectus of the Fund. See "Alternative
Purchase Arrangements--Selecting a Particular Class" for a discussion of
factors to consider in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25
million for certain qualified plans) or more and to certain other limited
categories of investors. For the purpose of meeting the minimum $5 million
(or $25 million) initial investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of the Fund, an investor's
existing holdings of Class A shares of the Fund and other Dean Witter Funds
that are multiple class funds ("Dean Witter Multi-Class Funds") and shares of
Dean Witter Funds sold with a front-end sales charge ("FSC Funds") and
concurrent investments in Class D shares of the Fund and other Dean Witter
Multi-Class Funds will be aggregated. Subsequent purchases of $100 or more
may be made by sending a check, payable to Dean Witter American Value Fund,
directly to Morgan Stanley Dean Witter Trust FSB (the "Transfer Agent" or
"MSDW Trust") at P.O. Box 1040, Jersey City, NJ 07303 or by contacting an
account executive of DWR or other Selected Broker-Dealer. When purchasing
shares of the Fund, investors must specify whether the purchase is for Class
A, Class B, Class C or Class D shares. If no Class is specified, the Transfer
Agent will not process the transaction until the proper Class is identified.
The minimum initial purchase in the case of investments through EasyInvest
(Service Mark), an automatic purchase plan (see "Shareholder Services"), is
$100, provided that the schedule of automatic investments will result in
investments totalling $1,000 within the first twelve
18
<PAGE>
months. The minimum initial purchase in the case of an "Education IRA" is
$500, if the Distributor has reason to believe that additional investments
will increase the investment in the account to $1,000 within three years. In
the case of investments pursuant to (i) Systematic Payroll Deduction Plans
(including Individual Retirement Plans), (ii) the InterCapital mutual fund
asset allocation program and (iii) fee-based programs approved by the
Distributor, pursuant to which participants pay an asset based fee for
services in the nature of investment advisory, administrative and/or
brokerage services, the Fund, in its discretion, may accept investments
without regard to any minimum amounts which would otherwise be required,
provided, in the case of Systematic Payroll Deduction Plans, that the
Distributor has reason to believe that additional investments will increase
the investment in all accounts under such Plans to at least $1,000.
Certificates for shares purchased will not be issued unless requested by the
shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is
made prior thereto. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment. Investors will be entitled to receive
income dividends and capital gains distributions if their order is received
by the close of business on the day prior to the record date for such
distributions. Sales personnel of a Selected Broker-Dealer are compensated
for selling shares of the Fund at the time of their sale by the Distributor
or any of its affiliates and/or the Selected Broker-Dealer. In addition, some
sales personnel of the Selected Broker-Dealer will receive various types of
non-cash compensation as special sales incentives, including trips,
educational and/or business seminars and merchandise. The Fund and the
Distributor reserve the right to reject any purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their
needs. The general public is offered three Classes of shares: Class A shares,
Class B shares and Class C shares, which differ principally in terms of sales
charges and rate of expenses to which they are subject. A fourth Class of
shares, Class D shares, is offered only to limited categories of investors
(see "No Load Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class
A, Class B and Class C shares bear the expenses of the ongoing shareholder
service fees, Class B and Class C shares bear the expenses of the ongoing
distribution fees and Class A, Class B and Class C shares which are redeemed
subject to a CDSC bear the expense of the additional incremental distribution
costs resulting from the CDSC applicable to shares of those Classes. The
ongoing distribution fees that are imposed on Class A, Class B and Class C
shares will be imposed directly against those Classes and not against all
assets of the Fund and, accordingly, such charges against one Class will not
affect the net asset value of any other Class or have any impact on investors
choosing another sales charge option. See "Plan of Distribution" and
"Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and
the factors an investor should consider when selecting a particular Class.
This summary is qualified in its entirety by the detailed discussion of each
Class that follows this summary.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain
other limited categories of investors) are not subject to any sales charges
at the time of purchase but are subject to a CDSC of 1.0% on redemptions made
within one year after purchase,
19
<PAGE>
except for certain specific circumstances. Class A shares are also subject to
a 12b-1 fee of up to 0.25% of the average daily net assets of the Class. See
"Initial Sales Charge Alternative--Class A Shares."
Class B Shares. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to
1.0%) if redeemed within six years of purchase. (Class B shares purchased by
certain qualified plans are subject to a CDSC scaled down from 2.0% to 1.0%
if redeemed within three years after purchase.) This CDSC may be waived for
certain redemptions. Class B shares are also subject to an annual 12b-1 fee
of 1.0% of the lesser of: (a) the average daily aggregate gross sales of the
Fund's Class B shares since the inception of the 12b-1 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 Class B shares
redeemed since the inception of the 12b-1 Plan upon which a CDSC has been
imposed or waived, or (b) the average daily net assets of Class B
attributable to shares issued, net of related shares redeemed, since
inception of the 12b-1 Plan. The Class B shares' distribution fee will cause
that Class to have higher expenses and pay lower dividends than Class A or
Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition,
a certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time.
See "Contingent Deferred Sales Charge Alternative--Class B Shares."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They
are subject to an annual 12b-1 fee of up to 1.0% of the average daily net
assets of the Class C shares. The Class C shares' distribution fee may cause
that Class to have higher expenses and pay lower dividends than Class A or
Class D shares. See "Level Load Alternative--Class C Shares."
Class D Shares. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are
not subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
Selecting a Particular Class. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any
other relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are
not available with respect to Class B or Class C shares. Moreover, Class A
shares are subject to lower ongoing expenses than are Class B or Class C
shares over the term of the investment. As an alternative, Class B and Class
C shares are sold without any initial sales charge so the entire purchase
price is immediately invested in the Fund. Any investment return on these
additional investment amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to
an ongoing 12b-1 fee
20
<PAGE>
of 1.0% (rather than the 0.25% fee applicable to Class A shares) for an
indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example,
they determine that they do not wish to be subject to a front-end sales
charge and they are uncertain as to the length of time they intend to hold
their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all Dean
Witter Multi-Class Funds, shares of FSC Funds and shares of Dean Witter Funds
for which such shares have been exchanged will be included together with the
current investment amount.
Sales personnel may receive different compensation for selling each Class
of shares. Investors should understand that the purpose of a CDSC is the same
as that of the initial sales charge in that the sales charges applicable to
each Class provide for the financing of the distribution of shares of that
Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- --------- ------------------------- ------------- ----------------------
<S> <C> <C> <C>
MAXIMUM 5.25%
INITIAL SALES CHARGE
REDUCED FOR
PURCHASES OF
$25,000 AND OVER;
SHARES SOLD WITHOUT
AN INITIAL SALES
CHARGE GENERALLY
SUBJECT TO A 1.0%
CDSC DURING FIRST
A year. 0.25% No
- --------- ------------------------- ------------- ----------------------
B shares convert
to A shares
Maximum 5.0% automatically
CDSC during the first after
year decreasing to 0 approximately
B after six years 1.0% ten years
- --------- ------------------------- ------------- -----------------------
1.0% CDSC during
C first year 1.0% No
- --------- ------------------------- ------------- -----------------------
D None None No
- --------- ------------------------- ------------- -----------------------
- --------- ------------------------- ------------- -----------------------
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees
for each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge.
In some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase (calculated from the last day of the month in which the
shares were purchased), except for certain specific circumstances. The CDSC
will be assessed on an amount equal to the lesser of the current market value
or the cost of the shares being redeemed. The CDSC will not be imposed (i) in
the circumstances set forth below in the section "Contingent Deferred Sales
Charge Alternative--Class B Shares--CDSC Waivers," except that the references
to six years in the first paragraph of that section shall mean one year in
the case of Class A shares, and (ii) in the circumstances identified in the
section "Additional Net Asset Value Purchase Options" below. Class A shares
are also subject to an annual 12b-1 fee of up to 0.25% of the average daily
net assets of the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
21
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE
--------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- -------------------- --------------- ---------------
<S> <C> <C>
Less than $25,000 .. 5.25% 5.54%
$25,000 but less
than $50,000 ...... 4.75% 4.99%
$50,000 but less
than $100,000 ..... 4.00% 4.17%
$100,000 but less
than $250,000 ..... 3.00% 3.09%
$250,000 but less
than $1 million .. 2.00% 2.04%
$1 million and over.. 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the
sales charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or
her spouse and their children under the age of 21 purchasing shares for his,
her or their own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified
under Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue
Code of a single employer or of employers who are "affiliated persons" of
each other within the meaning of Section 2(a)(3)(c) of the Act; and for
investments in Individual Retirement Accounts of employees of a single
employer through Systematic Payroll Deduction plans; or (g) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
Combined Purchase Privilege. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class
A shares of other Dean Witter Multi-Class Funds and shares of FSC Funds. The
sales charge payable on the purchase of the Class A shares of the Fund, the
Class A shares of the other Dean Witter Multi-Class Funds and the shares of
the FSC Funds will be at their respective rates applicable to the total
amount of the combined concurrent purchases of such shares.
Right of Accumulation. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single
transaction, together with shares of the Fund and other Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Dean Witter Funds acquired in exchange for those
shares, and including in each case shares acquired through reinvestment of
dividends and distributions), which are held at the time of such transaction,
amounts to $25,000 or more. If such investor has a cumulative net asset value
of shares of FSC Funds and Class A and Class D shares that, together with the
current investment amount, is equal to at least $5 million ($25 million for
certain qualified plans), such investor is eligible to purchase Class D
shares subject to the $1,000 minimum initial investment requirement of that
Class of the Fund. See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Selected Broker-Dealer or the Transfer Agent
fails to confirm the investor's represented holdings.
22
<PAGE>
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from DWR or other Selected Broker-Dealers. The cost of Class A
shares of the Fund or shares of other Dean Witter Funds which were previously
purchased at a price including a front-end sales charge during the 90-day
period prior to the date of receipt by the Distributor of the Letter of
Intent, or of Class A shares of the Fund or shares of other Dean Witter Funds
acquired in exchange for shares of such funds purchased during such period at
a price including a front-end sales charge, which are still owned by the
shareholder, may also be included in determining the applicable reduction.
Additional Net Asset Value Purchase Options. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value
by the following:
(1) trusts for which MSDW Trust (an affiliate of the Investment Manager)
provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for
services in the nature of investment advisory, administrative and/or
brokerage services (such investments are subject to all of the terms and
conditions of such programs, which may include termination fees, mandatory
redemption upon termination and such other circumstances as specified in the
programs' agreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") with at
least 200 eligible employees and for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class
A shares, regardless of the plan's asset size or number of eligible
employees;
(5) investors who are clients of a Dean Witter account executive who
joined Dean Witter from another investment firm within six months prior to
the date of purchase of Fund shares by such investors, if the shares are
being purchased with the proceeds from a redemption of shares of an open-end
proprietary mutual fund of the account executive's previous firm which
imposed either a front-end or deferred sales charge, provided such purchase
was made within sixty days after the redemption and the proceeds of the
redemption had been maintained in the interim in cash or a money market fund;
and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase
payment may be immediately invested in the Fund. A CDSC, however, will be
imposed on most Class B shares redeemed within six years after purchase. The
CDSC will be imposed on any redemption of shares if after such redemption the
aggregate current value of a Class B account with the Fund falls below the
aggregate amount of the investor's purchase payments for Class B shares made
during the six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) preceding the redemption. In addition, Class B
shares are subject to
23
<PAGE>
an annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate
gross sales of the Fund's Class B shares since the implementation of the
12b-1 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 Class B shares redeemed since the implementation of the
12b-1 Plan upon which a CDSC has been imposed or waived, or (b) the average
daily net assets of Class B attributable to shares issued, net of related
shares redeemed, since implementation of the 12b-1 Plan.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may,
however, be subject to a CDSC which will be a percentage of the dollar amount
of shares redeemed and will be assessed on an amount equal to the lesser of
the current market value or the cost of the shares being redeemed. The size
of this percentage will depend upon how long the shares have been held, as
set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First...................... 5.0%
Second..................... 4.0%
Third...................... 3.0%
Fourth..................... 2.0%
Fifth...................... 2.0%
Sixth...................... 1.0%
Seventh and thereafter .... None
</TABLE>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject
to any CDSC upon redemption. However, shares redeemed earlier than three
years after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First ..................... 2.0%
Second .................... 2.0%
Third ..................... 1.0%
Fourth and thereafter .... None
</TABLE>
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or,
in the case of shares held by certain Qualified Retirement Plans, three
years) preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
Qualified Retirement Plans, three years) prior to the redemption; and (iii)
the current net asset value of shares purchased through reinvestment of
dividends or distributions and/or shares acquired in exchange for shares of
FSC Funds or of other Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held
in a qualified corporate or self-employed retirement plan, Individual
Retirement Account ("IRA") or Custodial Account under Section 403(b)(7) of
the Internal Revenue Code ("403(b) Custodial Account"), provided in either
case that the redemption is requested within one year of the death or initial
determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other
24
<PAGE>
distributions from a qualified corporate or self-employed retirement plan
following retirement (or, in the case of a "key employee" of a "top heavy"
plan, following attainment of age 59 1/2); (B) distributions from an IRA or
403(b) Custodial Account following attainment of age 59 1/2; or (C) a
tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which MSDW Trust serves as
Trustee or DWR's Retirement Plan Services serves as recordkeeper pursuant to
a written Recordkeeping Services Agreement ("Eligible Plan"), provided that
either: (A) the plan continues to be an Eligible Plan after the redemption;
or (B) the redemption is in connection with the complete termination of the
plan involving the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to
engage in gainful employment. With reference to (2) above, the term
"distribution" does not encompass a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee. All
waivers will be granted only following receipt by the Distributor of
confirmation of the shareholder's entitlement.
Conversion to Class A Shares. All shares of the Fund held prior to July
28, 1997, other than shares which were purchased prior to April 30, 1984
(and, with respect to such shares, including such proportion of shares
acquired through reinvestment of dividends and capital gains distributions as
the total number of shares acquired prior to such date bears to the total
number of Fund shares purchased and owned by the shareholder (collectively,
the "Old Shares"), have been designated Class B shares. Shares held before
May 1, 1997 that have been designated Class B shares will convert to Class A
shares in May, 2007. In all other instances Class B shares will convert
automatically to Class A shares, based on the relative net asset values of
the shares of the two Classes on the conversion date, which will be
approximately ten (10) years after the date of the original purchase. The ten
year period is calculated from the last day of the month in which the shares
were purchased or, in the case of Class B shares acquired through an exchange
or a series of exchanges, from the last day of the month in which the
original Class B shares were purchased, provided that shares originally
purchased before May 1, 1997 will convert to Class A shares in May, 2007. The
conversion of shares purchased on or after May 1, 1997 will take place in the
month following the tenth anniversary of the purchase. There will also be
converted at that time such proportion of Class B shares acquired through
automatic reinvestment of dividends and distributions owned by the
shareholder as the total number of his or her Class B shares converting at
the time bears to the total number of outstanding Class B shares purchased
and owned by the shareholder. In the case of Class B shares held by a
Qualified Retirement Plan for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, the plan is treated as a single investor
and all Class B shares will convert to Class A shares on the conversion date
of the first shares of a Dean Witter Multi-Class Fund purchased by that plan.
In the case of Class B shares previously exchanged for shares of an "Exchange
Fund" (see "Shareholder Services--Exchange Privilege"), the period of time
the shares were held in the Exchange Fund (calculated from the last day of
the month in which the Exchange Fund shares were acquired) is excluded from
the holding period for conversion. If those shares are subsequently
re-exchanged for Class B shares of a Dean Witter Multi-Class Fund, the
holding period resumes on the last day of the month in which Class B shares
are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior
to
25
<PAGE>
the date for conversion. Class B shares evidenced by share certificates that
are not received by the Transfer Agent at least one week prior to any
conversion date will be converted into Class A shares on the next scheduled
conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions
made within one year after purchase (calculated from the last day of the
month in which the shares were purchased). The CDSC will be assessed on an
amount equal to the lesser of the current market value or the cost of the
shares being redeemed. The CDSC will not be imposed in the circumstances set
forth above in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case
of Class C shares. Class C shares are subject to an annual 12b-1 fee of up to
1.0% of the average daily net assets of the Class. Unlike Class B shares,
Class C shares have no conversion feature and, accordingly, an investor that
purchases Class C shares will be subject to 12b-1 fees applicable to Class C
shares for an indefinite period subject to annual approval by the Fund's
Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million
for Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement) and the following categories of investors:
(i) investors participating in the InterCapital mutual fund asset allocation
program pursuant to which such persons pay an asset based fee; (ii) persons
participating in a fee-based program approved by the Distributor, pursuant to
which such persons pay an asset based fee for services in the nature of
investment advisory, administrative and/or brokerage services (subject to all
of the terms and conditions of such programs, referred to in (i) and (ii)
above, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares); (iii) 401(k)
plans established by DWR and SPS Transaction Services, Inc. (an affiliate of
DWR) for their employees; (iv) certain Unit Investment Trusts sponsored by
DWR; (v) certain other open-end investment companies whose shares are
distributed by the Distributor; and (vi) other categories of investors, at
the discretion of the Board, as disclosed in the then current prospectus of
the Fund. The Old Shares have been designated Class D shares. Investors who
require a $5 million (or $25 million) minimum initial investment to qualify
to purchase Class D shares may satisfy that requirement by investing that
amount in a single transaction in Class D shares of the Fund and other Dean
Witter Multi-Class Funds, subject to the $1,000 minimum initial investment
required for that Class of the Fund. In addition, for the purpose of meeting
the $5 million (or $25 million) minimum investment amount, holdings of Class
A shares in all Dean Witter Multi-Class Funds, shares of FSC Funds and shares
of Dean Witter Funds for which such shares have been exchanged will be
included together with the current investment amount. If a shareholder
redeems Class A shares and purchases Class D shares, such redemption may be a
taxable event.
26
<PAGE>
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act with respect to the distribution of Class A, Class B and Class C
shares of the Fund. In the case of Class A and Class C shares, the Plan
provides that the Fund will reimburse the Distributor and others for the
expenses of certain activities and services incurred by them specifically on
behalf of those shares. Reimbursements for these expenses will be made in
monthly payments by the Fund to the Distributor, which will in no event
exceed amounts equal to payments at the annual rates of 0.25% and 1.0% of the
average daily net assets of Class A and Class C, respectively. In the case of
Class B shares, the Plan provides that the Fund will pay the Distributor a
fee, which is accrued daily and paid monthly, at the annual rate of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's
Class B shares since the implementation of the 12b-1 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 Class B shares
redeemed since that Plan's implementation upon which a CDSC has been imposed
or waived, or (b) the average daily net assets of Class B attributable to
shares issued, net of related shares redeemed, since implementation of the
Fund's 12b-1 Plan. The fee is treated by the Fund as an expense in the year
it is accrued. In the case of Class A shares, the entire amount of the fee
currently represents a service fee within the meaning of the NASD guidelines.
In the case of Class B and Class C shares, a portion of the fee payable
pursuant to the Plan, equal to 0.25% of the average daily net assets of each
of these Classes, is currently characterized as a service fee. A service fee
is a payment made for personal service and/or the maintenance of shareholder
accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses
borne by the Distributor and others in the distribution of the shares of
those Classes, including the payment of commissions for sales of the shares
of those Classes and incentive compensation to and expenses of DWR's account
executives and others who engage in or support distribution of shares or who
service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan in the case of Class B shares to compensate DWR and other Selected
Broker-Dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
For the fiscal year ended December 31, 1997, Class B shares of the Fund
accrued payments under the Plan amounting to $30,004,099, which amount is
equal to 0.83% of the average daily net assets of Class B for the fiscal
year. These payments were calculated pursuant to clause (a) of the
compensation formula under the Plan. All shares held prior to July 28, 1997
(other than the Old Shares) have been designated Class B shares. For the
fiscal period July 28 through December 31, 1997, Class A and Class C shares
of the Fund accrued payments under the Plan amounting to $7,380 and $26,712,
respectively, which amounts on an annualized basis are equal to 0.25% and
1.00% of the average daily net assets of Class A and Class C, respectively,
for such period.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i)
the payments made by the Fund pursuant to the Plan, and (ii) the proceeds of
CDSCs paid by investors upon the redemption of Class B shares. For example,
if $1 million in expenses in distributing Class B shares of the Fund had been
incurred and $750,000 had been received as described in (i) and (ii) above,
the excess expense would amount to $250,000. The Distributor has advised the
Fund that such excess amounts, including the carrying charge described above,
totalled $72,540,376 at December
27
<PAGE>
31, 1997, which was equal to 1.78% of the net assets of Class B on such date.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses or any requirement that the Plan be
continued from year to year, such excess amount does not constitute a
liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to the Distributor under the
Plan, and the proceeds of CDSCs paid by investors upon redemption of shares,
if for any reason the Plan is terminated the Trustees will consider at that
time the manner in which to treat such expenses. Any cumulative expenses
incurred, but not yet recovered through distribution fees or CDSCs, may or
may not be recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund in any subsequent year, except that expenses representing a gross sales
commission credited to account executives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the
Fund that unreimbursed expenses representing a gross sales commission
credited to account executives at the time of sale totalled $92,652 in the
case of Class C at December 31, 1997, which amount was equal to 0.76% of the
net assets of Class C on such date, and that there were no such expenses that
may be reimbursed in the subsequent year in the case of Class A on such date.
No interest or other financing charges will be incurred on any Class A or
Class C distribution expenses incurred by the Distributor under the Plan or
on any unreimbursed expenses due to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), by taking the net assets of the Fund, dividing
by the number of shares outstanding and adjusting to the nearest cent. The
assets belonging to the Class A, Class B, Class C and Class D shares will be
invested together in a single portfolio. The net asset value of each Class,
however, will be determined separately by subtracting each Class's accrued
expenses and liabilities. The net asset value per share will not be
determined on Good Friday and on such other federal and non-federal holidays
as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
stock exchange is valued at its latest sale price on that exchange, prior to
the time when assets are valued; if there were no sales that day, the
security is valued at the latest bid price (in cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market pursuant to procedures adopted by the
Trustees); and (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest bid price.
When market quotations are not readily available, including circumstances
under which it is determined by the Investment Manager that sale 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. For
valuation purposes, quotations of foreign portfolio securities, other assets
and liabilities and forward contracts stated in foreign currency are
translated into U.S. dollar equivalents at the prevailing market rates prior
to the close of the New York Stock Exchange. Dividends receivable are accrued
as of the ex-dividend date or as of the time that the relevant ex-dividend
date and amounts become known.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
28
<PAGE>
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon
as the evaluation model parameters, and/or research evaluations by its staff,
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 applicable Class of the Fund (or, if specified by the
shareholder, in shares of any other open-end Dean Witter Fund), unless the
shareholder requests that they be paid in cash. Shares so acquired are
acquired at net asset value and are not subject to the imposition of a
front-end sales charge or CDSC (see "Redemptions and Repurchases").
EasyInvest. (Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Redemptions and Repurchases --
Involuntary Redemption").
Investment of Dividends or Distributions Received in Cash. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value next determined after receipt by the
Transfer Agent, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. Shares so acquired are acquired at
net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any amount, not less than $25, or in any
whole percentage of the account balance, on an annualized basis. Any
applicable CDSC will be imposed on shares redeemed under the Withdrawal Plan
(see "Purchase of Fund Shares"). Therefore, any shareholder participating in
the Withdrawal Plan will have sufficient shares redeemed from his or her
account so that the proceeds (net of any applicable CDSC) to the shareholder
will be the designated monthly or quarterly amount. Withdrawal plan payments
should not be considered as dividends, yields or income. If periodic
withdrawal plan payments continuously exceed net investment income and net
capital gains, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted. Each withdrawal constitutes a redemption of
shares and any gain or loss realized must be recognized for federal income
tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of
the above services.
Tax-Sheltered Retirement Plans. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of
such plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the
Transfer Agent.
29
<PAGE>
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Dean Witter Multi-Class Fund without the imposition of any exchange
fee. Shares may also be exchanged for shares of the following funds: Dean
Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S.
Treasury Trust and five Dean Witter funds which are money market funds (the
"Exchange Funds"). Class A shares may also be exchanged for shares of Dean
Witter Multi-State Municipal Series Trust and Dean Witter Hawaii Municipal
Trust, which are Dean Witter Funds sold with a front-end sales charge ("FSC
Funds"). Class B shares may also be exchanged for shares of Dean Witter
Global Short-Term Income Fund Inc. ("Global Short-Term"), which is a Dean
Witter Fund offered with a CDSC. Exchanges may be made after the shares of
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, Global
Short-Term or any Exchange Fund that is not a money market fund is on the
basis of the next calculated net asset value per share of each fund after the
exchange order is received. When exchanging into a money market fund from the
Fund, shares of the Fund are redeemed out of the Fund at their next
calculated net asset value and the proceeds of the redemption are used to
purchase shares of the money market fund at their net asset value determined
the following business day. Subsequent exchanges between any of the money
market funds and any of the Dean Witter Multi-Class Funds, FSC Funds, Global
Short-Term or any Exchange Fund that is not a money market fund can be
effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period
of time the shareholder remains in an Exchange Fund (calculated from the last
day of the month in which the Exchange Fund shares were acquired), the
holding period (for the purpose of determining the rate of the CDSC) is
frozen. If those shares are subsequently re-exchanged for shares of a Dean
Witter Multi-Class Fund or shares of Global Short-Term, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a Dean Witter Multi-Class Fund or shares of
Global Short-Term are reacquired. Thus, the CDSC is based upon the time
(calculated as described above) the shareholder was invested in shares of a
Dean Witter Multi-Class Fund or in shares of Global Short-Term (see "Purchase
of Fund Shares"). In the case of exchanges of Class A shares which are
subject to a CDSC, the holding period also includes the time (calculated as
described above) the shareholder was invested in shares of a FSC Fund. In the
case of shares exchanged into an Exchange Fund on or after April 23, 1990,
upon a redemption of shares which results in a CDSC being imposed, a credit
(not to exceed the amount of the CDSC) will be given in an amount equal to
the Exchange Fund 12b-1 distribution fees incurred on or after that date
which are attributable to those shares. (Exchange Fund 12b-1 distribution
fees are described in the prospectuses for those funds.) Class B shares of
the Fund acquired in exchange for shares of Global Short-Term or Class B
shares of another Dean Witter Multi-Class Fund having a different CDSC
schedule than that of this Fund will be subject to the higher CDSC schedule,
even if such shares are subsequently re-exchanged for shares of the fund with
the lower CDSC schedule.
Additional Information Regarding Exchanges. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional
purchases and/or exchanges from the investor. Although the Fund does not have
any specific definition of what consti-
30
<PAGE>
tutes a pattern of frequent exchanges, and will consider all relevant factors
in determining whether a particular situation is abusive and contrary to the
best interests of the Fund and its other shareholders, investors should be
aware that the Fund and each of the other Dean Witter Funds may in their
discretion limit or otherwise restrict the number of times this Exchange
Privilege may be exercised by any investor. Any such restriction will be made
by the Fund on a prospective basis only, upon notice to the shareholder not
later than ten days following such shareholder's most recent exchange. Also,
the Exchange Privilege may be terminated or revised at any time by the Fund
and/or any of such Dean Witter Funds for which shares of the Fund have been
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another
Selected Dealer are referred to their account executive regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
of each Class of shares and any other conditions imposed by each fund. In the
case of a shareholder holding a share certificate or certificates, no
exchanges may be made until all applicable share certificates have been
received by the Transfer Agent and deposited in the shareholder's account. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean
Witter Funds (for which the Exchange Privilege is available) pursuant to this
Exchange Privilege by contacting their DWR or other Selected Broker-Dealer
account executive (no Exchange Privilege Authorization Form is required).
Other shareholders (and those shareholders who are clients of DWR or 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) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name,
mailing address, social security or other tax identification number and DWR
or other Selected Broker-Dealer account number (if any). Telephone
instructions may also be recorded. If such procedures are not employed, the
Fund may be liable for any losses due to unauthorized or fraudulent
instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her DWR or other
Selected Broker-Dealer account executive, if appropriate, or make a written
exchange request. Shareholders are advised that during periods of drastic
economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the
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.
31
<PAGE>
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. Shares of each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of
any applicable CDSC in the case of Class A, Class B or Class C shares (see
"Purchase of Fund Shares"). If shares are held in a shareholder's account
without a share certificate, a written request for redemption sent to the
Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along
with any additional documentation required by the Transfer Agent.
Repurchase. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to
any of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic 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
or the Distributor. The offer by DWR and other Selected Broker-Dealers to
repurchase shares may be suspended without notice by them at any time. In
that event, shareholders may redeem their shares through the Fund's Transfer
Agent as set forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances. If the shares to be redeemed have
recently been purchased by check, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent.) Shareholders maintaining margin
accounts with DWR or another Selected Dealer are referred to their account
executive regarding restrictions on redemption of shares of the Fund pledged
in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase
in shares of the Fund in the same Class from which such shares were redeemed
or repurchased, at their net asset value next determined after a
reinstatement request, together with the proceeds, is received by the
Transfer Agent and receive a pro rata credit for any CDSC paid in connection
with such redemption or repurchase.
Involuntary Redemption. The Fund reserves the right, on sixty days'
notice, to redeem, at net asset value, the shares of any shareholder (other
than shares held in an Individual Retirement Account or Custodial Account
under Section 403(b)(7) of the Internal Revenue Code) whose shares due to
redemptions by the shareholder have a value of less than $100, or such lesser
amount as may be fixed by the Board of Trustees or, in the case of an account
opened through EasyInvest (Service Mark), if after twelve months the
shareholder has invested less than $1,000 in the account. However, before the
Fund redeems such shares and sends the proceeds to the shareholder, it will
notify the shareholder that the value of the shares is less than the
applicable amount and allow him or her sixty days to make an additional
investment in an amount which will increase the value of his or her account
to at least the applicable amount before the redemption is processed. No CDSC
will be imposed on any involuntary redemption.
32
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Dividends and Distributions. The Fund declares dividends separately for
each Class of shares and intends to pay semi-annual dividends and to
distribute substantially all of the Fund's net investment income and net
short-term and long-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 to retain all or part of any
long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional shares of the same Class and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends be paid in cash. Shares
acquired by dividend and distribution reinvestments will not be subject to
any front-end sales charge or CDSC. Class B shares acquired through dividend
and distribution reinvestments will become eligible for conversion to Class A
shares on a pro rata basis. Distributions paid on Class A and Class D shares
will be higher than for Class B and Class C shares because distribution fees
paid by Class B and Class C shares are higher. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise remain
qualified as a regulated investment company under Subchapter M of the
Internal Revenue Code, it is not expected that the Fund will be required to
pay any federal income tax. Shareholders who are required to pay taxes on
their income will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from
net investment income or short-term capital gains, are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash. Any dividends
declared in the last quarter of any calendar year which are paid in the
following year prior to February 1 will be deemed, for tax purposes, to have
been received by the shareholder in the prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources would, in effect, represent a
return of a portion of each shareholder's investment. All, or a portion, of
such payments will not be taxable to shareholders.
After the end of the year, shareholders will be sent full information on
their dividends and capital gains distributions for tax purposes.
Shareholders will also be notified of their proportionate share of long-term
capital gains distributions that are eligible for a reduced rate of tax under
the Taxpayer Relief Act of 1997. To avoid being subject to a 31% federal
backup withholding tax on taxable dividends, capital gains distributions and
the proceeds of redemptions and repurchases, shareholders' taxpayer
identification numbers must be furnished and certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
33
<PAGE>
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A,
Class B, Class C and Class D shares. The total return of the Fund is based on
historical earnings and is not intended to indicate future performance. The
"average annual total return" of the Fund refers to a figure reflecting the
average annualized percentage increase (or decrease) in the value of an
initial investment in a Class of the Fund of $1,000 over periods of one, five
and ten years. Average annual total return reflects all income earned by the
Fund, any appreciation or depreciation of the Fund's assets, all expenses
incurred by the applicable Class and all sales charges which will be incurred
by shareholders, for the stated periods. It also assumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc., the S&P 500 Stock Index and the Dow Jones
Industrial Average).
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges except
that each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other
matter in which the interests of one Class differ from the interests of any
other Class. In addition, Class B shareholders will have the right to vote on
any proposed material increase in Class A's expenses, if such proposal is
submitted separately to Class A shareholders. Also, as discussed herein,
Class A, Class B and Class C bear the expenses related to the distribution of
their respective shares.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by
the Shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Fund, requires that notice of such Fund obligations include such disclaimer,
and provides for indemnification out of the Fund's property for any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be
unable to meet its obligations. Given the above limitations on shareholder
personal liability, and the nature of the Fund's assets and operations, the
possibility of the Fund being unable to meet its obligations is remote and
thus, in the opinion of Massachusetts counsel to the Fund, the risk to Fund
shareholders of personal liability is remote.
Code of Ethics. Directors, officers and employees of InterCapital, Dean
Witter Services Company
34
<PAGE>
Inc. and the Distributor are subject to a strict Code of Ethics adopted by
those companies. The Code of Ethics is intended to ensure that the interests
of shareholders and other clients are placed ahead of any personal interest,
that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided.
To achieve these goals and comply with regulatory requirements, the Code of
Ethics requires, among other things, that personal securities transactions by
employees of the companies be subject to an advance clearance process to
monitor that no Dean Witter Fund is engaged at the same time in a purchase or
sale of the same security. The Code of Ethics bans the purchase of securities
in an initial public offering, and also prohibits engaging in futures and
options transactions and profiting on short-term trading (that is, a purchase
within sixty days of a sale or a sale within sixty days of a purchase) of a
security. In addition, investment personnel may not purchase or sell a
security for their personal account within thirty days before or after any
transaction in any Dean Witter Fund managed by them. Any violations of the
Code of Ethics are subject to sanctions, including reprimand, demotion or
suspension or termination of employment. The Code of Ethics comports with
regulatory requirements and the recommendations in the 1994 report by the
Investment Company Institute Advisory Group on Personal Investing.
Master/Feeder Conversion. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Fund.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover
of this Prospectus.
35
<PAGE>
Dean Witter DEAN WITTER
American Value Fund AMERICAN
Two World Trade Center VALUE FUND
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
Anita H. Kolleeny
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER PROSPECTUS--MAY 1, 1998
Dean Witter InterCapital Inc.
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS December 31, 1997
DEAR SHAREHOLDER:
The past year proved to be eventful for investors. During the first half of
1997 the market was led exclusively by blue-chip companies -- only index
funds and blue chip equity funds performed well. Market leadership was very
narrow at this time, with the 25 largest stocks on the S&P 500 contributing
to an inordinate share of the index's 20 percent gain. During that period,
Dean Witter American Value Fund was up only 12 percent.
In mid summer, the U.S. dollar broke out of 6 and 10-year trading ranges.
This change led to a rotation of the Fund, out of industries with substantial
foreign exposure and into domestically oriented ones. This process was
initiated by reducing the portfolio's weightings in such sectors as
technology, aerospace, agriculture, energy service, and global consumer
stocks, and increasing its exposure to such domestic industries as retail and
financial services.
Additionally, the Fund significantly increased its weighting in
mid-capitalization stocks. This was done because mid-cap stocks generally
have minimal exposure to foreign currencies and economies, the capital gains
tax rate favors this sector and because the Fund's portfolio manager
anticipates attractive relative earnings for mid-caps in a still robust
domestic economy. By July, the Fund's mid-cap weighting totaled 40 percent of
net assets. As a result, the Fund's year-to-date performance nearly doubled
between June and July, from 12.24 percent for the six months ended June 30,
1997, to 25.29 percent for the seven months ended July 30, 1997.
By September it had become clear that the U.S. dollar's sharp appreciation
carried greater repercussions than had been expected initially. For example,
many emerging-market countries had pegged their currencies to the dollar. As
a result, many Asian and Latin American countries suddenly found their
exports to be uncompetitive. For many of these countries, exports are the
main engine of economic growth. In response to these developments, currency
devaluations began to occur in Southeast Asia and quickly spread to other
emerging markets. This turbulence induced the
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
LETTER TO THE SHAREHOLDERS December 31, 1997, continued
Fund to exit industries with Asian exposure. Additionally, evidence began to
mount that U.S. corporate earnings could come under pressure as wage costs
accelerate and pricing flexibility decline in the face of inexpensive Asian
imports. As a result, the Fund further shifted to domestically oriented
industries characterized by steady-growth and high earnings visibility.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
GROWTH OF $10,000 -- CLASS B
($ IN THOUSANDS)
Lipper
Date Total S&P 500 IX(4) Growth Funds IX(5)
- ------------------------------------------------------------------------------
December 31, 1987 $10,000 $10,000 $10,000
December 31, 1988 $11,084 $11,655 $11,413
December 31, 1989 $13,899 $15,343 $14,548
December 31, 1990 $13,774 $14,869 $13,761
December 31, 1991 $21,522 $19,390 $18,761
December 31, 1992 $22,348 $20,886 $20,192
December 31, 1993 $26,528 $22,965 $22,611
December 31, 1994 $24,738 $23,268 $22,256
December 31, 1995 $35,178 $32,003 $29,522
December 31, 1996 $38,883 $39,347 $34,683
December 31, 1997 $51,149(3) $52,469 $44,422
Average Annual Total Returns
1 year 5 Years 10 Years
- --------------------------------------
31.55(1) 18.01(1) 17.73(1)
26.55(2) 17.80(2) 17.73(2)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS
1.) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
2.) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable contingent deferred sales charge (CDSC)
(1 year-5%, 5 years-2%, 10 years-0%). See the Fund's current prospectus
for complete details on fees and sales charges.
3.) Closing value assuming a complete redemption on December 31, 1997.
4.) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the Index
does not include any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
5.) The Lipper Growth Funds Index is an equally-weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Growth
Funds objective. The Index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in
this Index.
PERFORMANCE
For the fiscal year ended December 31, 1997, the Fund's Class B shares
produced a total return of 31.55 percent compared to 33.35 percent for the
Standard & Poor's 500 Composite Stock Price Index (S&P 500) and 28.08 percent
for the Lipper Growth Funds Index. The accompanying chart illustrates the
performance of a $10,000 investment in the Fund for the 10-year period ended
December 31, 1997, versus the performance of similar hypothetical investments
in the S&P 500 and the Lipper Growth Funds Index.
THE PORTFOLIO
Based on recent analysis, the Fund's portfolio manager expects U.S. economic
growth to slow to the 2.25 percent range in 1998, with earnings in the
vicinity of 5 percent. When earnings growth slips below 10 percent, market
leadership typically shifts from economically sensitive issues to steady
growth ones. In response, the Fund has been tilted in this direction so that
steady growth stocks currently represent 60 percent of net assets.
On the cyclical side, the Fund's 12 percent weighting in technology
emphasizes software and services, which are more stable than other technology
sectors during economic slowdowns. Holdings in this area include Computer
Associates International, Inc. and BMC Software, Inc. As of December 31,
1997, the Fund had a 7 percent weighting in retail, which is expected to be
bolstered by a low
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
LETTER TO THE SHAREHOLDERS December 31, 1997, continued
unemployment level below 5 percent and by real wage growth and lower sourcing
costs. Retail positions include Wal-Mart, Inc., Dayton Hudson Corp. and
Barnes & Noble, Inc.
On the growth side, the Fund has increased its consumer staples weighting to
11 percent of net assets, emphasizing industries and companies with little or
no South American or Asian exposure. This sector includes food chains such as
Safeway Inc., drugstores like Rite Aid Corp., and such selected food
companies as Nabisco Holdings Corp. In the consumer/business services area,
the Fund continues to hold 12 percent of its net assets in the radio/cable
and newspaper industries. Commitments in these sectors include Clear Channel
Communications Inc., CBS Corp., Comcast Corp. and Gannett Co., Inc.
Health care, which remains overweighted in the Fund at 14 percent, reflects
an emphasis on drugs, biotechnology and medical devices -- all industries
with patent protection and pricing power. Companies in these areas include
Eli Lilly & Co., Pfizer, Inc., Centocor Inc. and Guidant Corp. The Fund has
also maintained an overweighted position in interest-rate sensitive stocks,
as evidenced by its 25 percent commitment to the financial sector, where the
focus is on regional banks, brokerage, government agencies and utilities. A
sample of some of these holdings includes Summit Bancorp, Norwest Corp.,
Travelers Group, Inc., Fannie Mae and Bell Atlantic Corp.
Because an economic backdrop that is typically associated with falling
interest rates and more difficult corporate earnings is expected to remain in
place, we have established a 6 percent position in long-term U.S. Treasuries
and a 3 percent weighting in 30-year zero-coupon bonds.
OUTLOOK
To sum up, 1997 saw the Fund shift away from industries tilted toward foreign
markets and cyclical growth, and began to focus on steady, reliable, domestic
growth. These related rotations served the Fund well in 1997. This new focus
will likely remain in place throughout much of 1998.
We appreciate your support of the Dean Witter American Value Fund and look
forward to continuing to serve your investment needs and objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (86.0%)
Agriculture Related (1.3%)
400,000 Dekalb Genetics Corp. (Class B) ................................. $ 15,700,000
516,667 Delta & Pine Land Co. .......................................... 15,758,343
200,000 Pioneer Hi-Bred International, Inc. ............................ 21,450,000
--------------
52,908,343
--------------
Auto Related (0.1%)
127,900 Budget Group, Inc. (Class A)* ................................... 4,420,544
--------------
Banks (9.8%)
350,000 Ahmanson (H.F.) & Co. .......................................... 23,428,125
105,000 AmSouth Bancorporation .......................................... 5,702,812
75,000 City National Corp. ............................................ 2,770,312
130,000 Comerica, Inc. ................................................. 11,732,500
17,450,000 Credito Italiano SpA (Italy) .................................... 53,823,613
275,000 Crestar Financial Corp. ........................................ 15,675,000
687,000 Dime Bancorp, Inc. ............................................. 20,781,750
205,000 First Security Corp. ........................................... 8,584,375
150,000 First Tennessee National Corp. ................................. 10,012,500
205,000 First Union Corp. .............................................. 10,506,250
340,000 Mellon Bank Corp. .............................................. 20,612,500
200,000 Northern Trust Corp. ........................................... 13,950,000
1,200,000 Norwest Corp. .................................................. 46,350,000
360,000 PNC Bank Corp. ................................................. 20,542,500
185,000 Southtrust Corp. ............................................... 11,701,250
200,000 Summit Bancorp .................................................. 10,650,000
245,000 U.S. Bancorp .................................................... 27,424,687
100,000 Union Planters Corp. ............................................ 6,793,750
410,000 Washington Mutual, Inc. ........................................ 26,137,500
170,000 Wells Fargo & Co. .............................................. 57,704,375
93,200 Zions Bancorporation ............................................ 4,194,000
--------------
409,077,799
--------------
Beverages - Soft Drinks (0.1%)
41,900 Coca Cola Co. ................................................... 2,791,587
--------------
Biotechnology (2.2%)
350,000 Alkermes, Inc.* ................................................. 6,868,750
870,000 Biochem Pharma, Inc. (Canada)* .................................. 18,106,875
881,000 Centocor, Inc.* ................................................. 29,293,250
300,000 Genzyme Corp. General Division* ................................ 8,287,500
375,000 Gilead Sciences, Inc.* .......................................... 14,343,750
385,000 IDEC Pharmaceuticals Corp.* ..................................... 13,234,375
--------------
90,134,500
--------------
Cable & Telecommunications (2.2%)
324,000 Comcast Corp. (Class A) ......................................... $ 10,287,000
1,090,000 Comcast Corp. (Class A Special) ................................. 34,335,000
550,000 Cox Communications, Inc. (Class A)* ............................. 22,034,375
900,000 Tele-Communications, Inc. (Class A)* ............................ 25,087,500
--------------
91,743,875
--------------
Cable Television Equipment (0.4%)
300,000 CIENA Corp.* .................................................... 18,337,500
--------------
Capital Goods (0.6%)
325,000 General Electric Co. ............................................ 23,846,875
--------------
Communications Equipment (0.2%)
180,000 Cisco Systems, Inc.* ............................................ 10,035,000
--------------
Computer Services (0.5%)
400,000 Paychex, Inc. ................................................... 20,250,000
--------------
Computer Software (4.5%)
320,000 BMC Software, Inc.* ............................................. 20,960,000
69,000 Citrix Systems, Inc.* ........................................... 5,244,000
800,000 Computer Associates International, Inc. ........................ 42,300,000
730,000 Compuware Corp.* ................................................ 23,360,000
117,500 Manugistics Group, Inc.* ........................................ 5,214,062
1,000,000 PeopleSoft, Inc.* ............................................... 38,750,000
510,000 Platinum Technology, Inc.* ...................................... 14,407,500
40,000 SAP AG (Pref.)(Germany) ......................................... 13,092,325
440,500 Veritas Software Corp.* ......................................... 22,300,312
--------------
185,628,199
--------------
Consumer Business Services (2.2%)
700,000 Automatic Data Processing, Inc. ................................. 42,962,500
500,000 Corrections Corp. of America* ................................... 18,531,250
635,000 Sysco Corp. ..................................................... 28,932,187
--------------
90,425,937
--------------
<PAGE>
Consumer - Products (10.5%)
385,000 Alberto-Culver Co. (Class B) .................................... 12,344,062
875,000 Albertson's, Inc. ............................................... 41,453,125
400,000 Clorox Co. ...................................................... 31,625,000
600,000 CVS Corp. ....................................................... 38,437,500
1,020,000 Fred Meyer, Inc.* ............................................... 37,102,500
500,000 Heinz (H.J.) Co. ................................................ 25,406,250
1,000,000 Kroger Co.* ..................................................... 36,937,500
920,000 Nabisco Holdings Corp. (Class A) ................................ 44,562,500
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1997, continued
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
100,000 Procter & Gamble Co. ........................................... $ 7,981,250
475,000 Quaker Oats Company (The) ....................................... 25,056,250
700,000 Rite Aid Corp. ................................................. 41,081,250
699,000 Safeway, Inc.* .................................................. 44,211,750
200,000 Sara Lee Corp. .................................................. 11,262,500
1,300,000 Walgreen Co. .................................................... 40,787,500
--------------
438,248,937
--------------
Drugs (6.1%)
425,000 Bristol-Myers Squibb Co. ....................................... 40,215,625
240,000 Cardinal Health, Inc. .......................................... 18,030,000
215,000 Dura Pharmaceuticals, Inc.* ..................................... 9,863,125
620,000 Lilly (Eli) & Co. .............................................. 43,167,500
200,000 Medicis Pharmaceutical Corp. (Class A)* ......................... 10,250,000
12,000 Novartis AG (Switzerland) ....................................... 19,459,459
530,000 Pfizer, Inc. .................................................... 39,518,125
645,000 Schering-Plough Corp. .......................................... 40,070,625
271,000 Warner-Lambert Co. ............................................. 33,604,000
--------------
254,178,459
--------------
Finance (1.1%)
800,000 Fannie Mae ...................................................... 45,650,000
--------------
Financial - Miscellaneous (6.0%)
205,000 American Express Co. ........................................... 18,296,250
190,000 Associates First Capital Corp. (Class A) ........................ 13,513,750
300,000 Donaldson, Lufkin & Jenrette, Inc. .............................. 23,850,000
504,050 Edwards (A.G.), Inc. ........................................... 20,035,987
965,000 Freddie Mac ..................................................... 40,469,687
700,000 Hambrecht & Quist Group* ........................................ 25,550,000
2,800 Legg Mason, Inc. ............................................... 156,625
400,000 Lehman Brothers Holdings, Inc. .................................. 20,400,000
650,000 Merrill Lynch & Co., Inc. ...................................... 47,409,375
605,500 Paine Webber Group, Inc. ........................................ 20,927,594
91,500 Price (T. Rowe) Associates, Inc. ............................... 5,753,063
274,600 Providian Financial Corp. ....................................... 12,408,488
--------------
248,770,819
--------------
Healthcare - Diversified (0.4%)
470,000 General Nutrition Companies, Inc.* ............................. 15,921,250
--------------
Healthcare Products & Services (3.7%)
1,000,000 HBO & Co. ...................................................... 47,937,500
1,650,000 Health Management Associates, Inc. (Class A)* ................... 41,662,500
1,200,000 Healthsouth Corp.* .............................................. $ 33,300,000
398,100 Renal Treatment Centers, Inc.* .................................. 14,381,363
583,333 Total Renal Care Holdings, Inc.* ................................ 16,041,658
--------------
153,323,021
--------------
Hotels/Motels (1.1%)
1,393,798 Cendant Corp.* .................................................. 47,911,806
--------------
Household Products (0.4%)
360,000 Sunbeam Corporation, Inc. ...................................... 15,165,000
--------------
Insurance (3.7%)
441,000 Allstate Corp. .................................................. 40,075,875
120,000 Hartford Financial Services Group Inc. .......................... 11,227,500
250,000 Lincoln National Corp. .......................................... 19,531,250
133,470 Marsh & McLennan Companies, Inc. ................................ 9,951,857
401,000 SunAmerica Inc. ................................................. 17,142,750
125,000 Torchmark Corp. ................................................ 5,257,813
950,000 Travelers Group, Inc. ........................................... 51,181,250
--------------
154,368,295
--------------
Internet (2.3%)
600,000 America Online, Inc.* ........................................... 53,512,500
300,000 Check Point Software Technologies Ltd. (Israel)* ................ 12,225,000
260,000 CheckFree Holdings Corp.* ....................................... 7,020,000
345,000 Yahoo! Inc.* .................................................... 23,891,250
--------------
96,648,750
--------------
Machinery - Diversified (0.2%)
164,800 Thermo Electron Corp.* ......................................... 7,333,600
--------------
Media Group (9.3%)
1,610,000 CBS Corp. ....................................................... 47,394,375
689,500 Chancellor Media Corp.* ......................................... 51,453,938
450,000 Clear Channel Communications, Inc.* ............................. 35,746,875
701,000 Gannett Co., Inc. ............................................... 43,330,563
300,000 HSN, Inc.* ...................................................... 15,450,000
438,000 Jacor Communications, Inc.* ..................................... 23,268,750
400,000 News Corp., Ltd. (ADR)(Australia) ............................... 8,925,000
650,000 Outdoor Systems, Inc.* .......................................... 24,943,750
760,000 Time Warner, Inc. ............................................... 47,120,000
483,100 Tribune Co. .................................................... 30,072,975
325,000 Universal Outdoor Holdings, Inc.* .............................. 16,900,000
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1997, continued
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
306,600 Univision Communications, Inc. (Class A)* .......................$ 21,404,513
500,000 Viacom, Inc. (Class B)* ......................................... 20,718,750
--------------
386,729,489
--------------
Medical Supplies (1.9%)
450,000 Guidant Corp. ................................................... 28,012,500
500,000 Medtronic, Inc. ................................................. 26,156,250
200,000 Mentor Corp. .................................................... 7,300,000
285,300 Sofamor Danek Group, Inc.* ...................................... 18,562,331
--------------
80,031,081
--------------
Miscellaneous (0.7%)
480,000 Equitable Companies, Inc. ....................................... 23,880,000
169,000 Excite, Inc.* ................................................... 5,070,000
--------------
28,950,000
--------------
Recreation (0.5%)
205,000 Walt Disney Co. ................................................. 20,307,813
--------------
Restaurants (0.3%)
385,000 Cracker Barrel Old Country Store, Inc. .......................... 12,849,375
--------------
Retail (7.0%)
401,000 Barnes & Noble, Inc.* ........................................... 13,383,375
1,500,000 Costco Companies, Inc.* ......................................... 66,843,750
646,000 Dayton-Hudson Corp. ............................................. 43,605,000
527,500 Dollar General Corp. ............................................ 19,121,875
295,000 Family Dollar Stores, Inc. ...................................... 8,647,188
600,000 Gap, Inc. ....................................................... 21,262,500
700,000 Home Depot, Inc. ............................................... 41,212,500
361,100 Lowe's Companies, Inc. ......................................... 17,219,956
543,000 Mattel, Inc. ................................................... 20,226,750
350,000 Proffitt's, Inc.* ............................................... 9,953,125
740,000 Wal-Mart Stores, Inc. ........................................... 29,183,750
--------------
290,659,769
--------------
Telecommunications (1.6%)
750,000 LCI International, Inc.* ........................................ 23,062,500
800,000 Teleport Communications Group Inc.* ............................. 43,900,000
--------------
66,962,500
--------------
Transportation (0.9%)
500,000 OMI Corp.* ...................................................... 4,593,750
557,000 US Airways Group Inc.* .......................................... 34,812,500
--------------
39,406,250
--------------
Utilities (3.9%)
400,000 Ameritech Corp. .................................................$ 32,200,000
386,000 Bell Atlantic Corp. ............................................ 35,126,000
550,000 Consolidated Edison Co. of New York, Inc. ....................... 22,550,000
400,000 FPL Group, Inc. ................................................ 23,675,000
400,000 GTE Corp. ....................................................... 20,900,000
150,000 New York State Electric & Gas Corp. ............................ 5,325,000
455,000 U.S. West Communications Group, Inc. ............................ 20,531,875
--------------
160,307,875
--------------
Utilities - Electric (0.2%)
200,000 Pinnacle West Capital Corp. ..................................... 8,475,000
--------------
Utilities - Telecommunications (0.1%)
51,500 Intermedia Communications Inc.* ................................ 3,116,286
--------------
TOTAL COMMON STOCKS
(Identified Cost $3,070,263,608) ................................ 3,574,915,534
--------------
<PAGE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (9.0%)
$242,000 U.S. Treasury Bond 6.375% due 08/15/27 .......................... 255,317,260
342,000 U.S. Treasury Strip 0.00% due 05/15/20 .......................... 88,916,580
107,000 U.S. Treasury Strip 0.00% due 11/15/19 .......................... 28,658,880
-------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $356,519,055) .................................. 372,892,720
-------------
SHORT-TERM INVESTMENTS (7.1%)
U.S. GOVERNMENT AGENCY (a)(7.0%)
293,000 Federal Home Loan Mortgage Corp. 6.00% due 01/02/98
(Amortized Cost $292,951,167) 292,951,167
-------------
REPURCHASE AGREEMENT (0.1%)
The Bank of New York 3.875% due 01/02/98 (dated 12/31/97,
4,377 proceeds $4,377,721)(b) (Identified Cost $4,376,779) ............ 4,376,779
-------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $297,327,946) .................................. 297,327,946
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1997, continued
<TABLE>
<CAPTION>
VALUE
- ------------------------------------ -------- --------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $3,724,110,609)(c) . 102.1% $4,245,136,200
LIABILITIES IN EXCESS OF OTHER
ASSETS .............................. (2.1) (89,244,700)
-------- --------------
NET ASSETS .......................... 100.0% $4,155,891,500
======== ==============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $4,016,966 U.S. Treasury Note 7.00% due 07/15/06
valued at $4,464,314.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$537,652,888 and the aggregate gross unrealized depreciation is
$16,627,297, resulting in net unrealized appreciation of
$521,025,591.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $3,724,110,609)......................... $4,245,136,200
Receivable for:
Investments sold........................................ 29,647,388
Shares of beneficial interest sold...................... 8,751,357
Interest................................................ 5,827,705
Dividends............................................... 2,138,596
Prepaid expenses and other assets......................... 122,713
--------------
TOTAL ASSETS............................................ 4,291,623,959
--------------
LIABILITIES:
Payable for:
Investments purchased................................... 124,542,641
Distributions to shareholders .......................... 3,767,120
Plan of distribution fee................................ 2,946,023
Shares of beneficial interest repurchased............... 2,219,241
Investment management fee............................... 1,808,423
Accrued expenses and other payables....................... 449,011
--------------
TOTAL LIABILITIES....................................... 135,732,459
--------------
NET ASSETS ............................................. $4,155,891,500
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital........................................... $3,481,928,047
Net unrealized appreciation .............................. 521,025,591
Accumulated net investment loss........................... (42,030)
Accumulated undistributed net realized gain............... 152,979,892
--------------
NET ASSETS ............................................. $4,155,891,500
==============
CLASS A SHARES:
Net Assets................................................ $15,843,639
Shares Outstanding (unlimited authorized, $.01 par value) 535,374
NET ASSET VALUE PER SHARE............................... $29.59
==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ....... $31.23
==============
CLASS B SHARES:
Net Assets................................................ $4,078,071,882
Shares Outstanding (unlimited authorized, $.01 par value) 138,185,565
NET ASSET VALUE PER SHARE............................... $29.51
==============
CLASS C SHARES:
Net Assets................................................ $12,204,456
Shares Outstanding (unlimited authorized, $.01 par
value)................................................... 413,867
NET ASSET VALUE PER SHARE............................... $29.49
==============
CLASS D SHARES:
Net Assets................................................ $49,771,523
Shares Outstanding (unlimited authorized, $.01 par
value)................................................... 1,679,836
NET ASSET VALUE PER SHARE............................... $29.63
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended December 31, 1997*
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $103,775 foreign
withholding tax)......................... $ 24,992,865
Interest.................................. 15,881,254
--------------
TOTAL INCOME............................ 40,874,119
--------------
EXPENSES
Plan of distribution fee (Class A
shares).................................. 7,380
Plan of distribution fee (Class B
shares).................................. 30,004,099
Plan of distribution fee (Class C
shares).................................. 26,712
Investment management fee................. 18,075,407
Transfer agent fees and expenses.......... 3,788,836
Registration fees......................... 359,919
Custodian fees............................ 228,926
Shareholder reports and notices........... 222,511
Professional fees......................... 61,757
Trustees' fees and expenses............... 15,729
Other..................................... 37,222
--------------
TOTAL EXPENSES.......................... 52,828,498
--------------
NET INVESTMENT LOSS..................... (11,954,379)
--------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ........................ 738,335,473
Net change in unrealized appreciation .... 251,384,827
--------------
NET GAIN................................ 989,720,300
--------------
NET INCREASE.............................. $977,765,921
==============
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1997* DECEMBER 31, 1996
- ------------------------------------------------------ ------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................................... $ (11,954,379) $ (9,041,376)
Net realized gain...................................... 738,335,473 275,397,900
Net change in unrealized appreciation.................. 251,384,827 13,163,448
------------------ -----------------
NET INCREASE......................................... 977,765,921 279,519,972
------------------ -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -Class B shares.................. -- (1,126,313)
Net realized gain
Class A shares........................................ (1,747,209) --
Class B shares........................................ (680,450,520) (299,891,577)
Class C shares........................................ (1,454,608) --
Class D shares........................................ (6,581,680) --
------------------ -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.................... (690,234,017) (301,017,890)
------------------ -----------------
Net increase from transactions in shares of beneficial
interest.............................................. 769,509,113 731,461,022
------------------ -----------------
NET INCREASE......................................... 1,057,041,017 709,963,104
NET ASSETS:
Beginning of period.................................... 3,098,850,483 2,388,887,379
------------------ -----------------
END OF PERIOD
(Including net investment losses of $42,030 and
$43,257, respectively)................................ $4,155,891,500 $3,098,850,483
================== =================
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1997
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. The Fund's investment objective is
capital growth consistent with an effort to reduce volatility. The Fund seeks
to achieve its objective by investing in a diversified portfolio of
securities consisting principally of common stocks. The Fund was incorporated
in Maryland in 1979, commenced operations on March 27, 1980 and was
reorganized as a Massachusetts business trust on April 30, 1987. On July 28,
1997, the Fund commenced offering three additional classes of shares, with
the then current shares, other than shares which were purchased prior to
April 30, 1984 (and with respect to such shares, certain shares acquired
through reinvestment of dividends and capital gains distributions
(collectively the "Old Shares")), designated as Class B shares. The Old
Shares have been designated Class D shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where a security is traded on more than one exchange, the
security is valued on the exchange designated as the primary market pursuant
to procedures adopted by the Trustees); (2) all other portfolio securities
for which over-the-counter market quotations are readily available are valued
at the latest available bid price prior to the time of valuation; (3) when
market quotations are not readily available, including circumstances under
which it is determined by Dean Witter InterCapital Inc. (the "Investment
Manager") that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in
good faith under procedures established by and under the general supervision
of the Trustees (valuation of debt securities for which market quotations are
not
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1997, continued
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); and (4) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date. Discounts are accreted over the life of the respective
securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with the Investment Manager,
the Fund pays a management fee, accrued daily and payable monthly, by
applying the following annual rates to the net
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1997, continued
assets of the Fund determined at the close of each business day: 0.625% to
the portion of daily net assets not exceeding $250 million; 0.50% to the
portion of daily net assets exceeding $250 million but not exceeding $2.5
billion and 0.475% to the portion of daily net assets exceeding $2.5 billion
but not exceeding $3.5 billion. Effective May 1, 1997, the Agreement was
amended to reduce the annual rate to 0.45% of the portion of daily net assets
in excess of $3.5 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A - up to
0.25% of the average daily net assets of Class A; (ii) Class B - 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value
of the Class B shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the
average daily net assets of Class B; and (iii) Class C - up to 1.0% of the
average daily net assets of Class C. In the case of Class A shares, amounts
paid under the Plan are paid to the Distributor for services provided. In the
case of Class B and Class C shares, amounts paid under the Plan are paid to
the Distributor for services provided and the expenses borne by it and others
in the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, the account executives of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor, and others who engage in
or support distribution of the shares or who service shareholder accounts,
including overhead and telephone expenses; printing and distribution of
prospectuses and reports used in connection with the offering of these shares
to other than current shareholders; and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan, in the case of Class
B
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1997, continued
shares, to compensate DWR and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in
the form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. The Distributor has advised the Fund that such
excess amounts, including carrying charges, totaled $72,540,376 at December
31, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant
to the Plan in any calendar year in excess of 0.25% or 1.0% of the average
daily net assets of Class A or Class C, respectively, will not be reimbursed
by the Fund through payments in any subsequent year, except that expenses
representing a gross sales credit to account executives may be reimbursed in
the subsequent calendar year. For the period ended December 31, 1997, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the year ended December 31,
1997, it received contingent deferred sales charges from certain redemptions
of the Fund's Class B shares and Class C shares of $4,721,534 and $3,192,
respectively and received $202,038 in front-end sales charges from sales of
the Fund's Class A shares. The respective shareholders pay such charges which
are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended December 31, 1997
aggregated $9,245,904,533 and $9,254,551,447, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$410,926,244 and $180,464,206, respectively.
For the year ended December 31, 1997, the Fund incurred $1,122,089 in
brokerage commissions with DWR for portfolio transactions executed on behalf
of the Fund.
At December 31, 1997, the Fund's payable for investments purchased included
unsettled trades with DWR of $8,367,064.
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1997, continued
For the period May 31, 1997 through December 31, 1997, the Fund incurred
brokerage commissions of $551,901 with Morgan Stanley & Co., Inc., an
affiliate of the Investment Manager since May 31, 1997, for portfolio
transactions executed on behalf of the Fund. At December 31, 1997 the Fund's
payable for investments purchased and receivable for investments sold
included unsettled trades with Morgan Stanley & Co., Inc., of $4,206,932 and
$4,914,567, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At December 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $54,000.
The Fund has an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Fund who will have served as
independent Trustees for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five years of service. Aggregate pension costs for the year
ended December 31, 1997 included in Trustees' fees and expenses in the
Statement of Operations amounted to $4,301. At December 31, 1997, the Fund
had an accrued pension liability of $42,030 which is included in accrued
expenses in the Statement of Assets and Liabilities.
5. FEDERAL INCOME TAX STATUS
As of December 31, 1997, the Fund had temporary book/tax differences
primarily attributable to capital loss deferrals on wash sales and permanent
book/tax differences primarily attributable to a net operating loss. To
reflect reclassifications arising from permanent differences accumulated net
realized gain was charged $11,955,606 and accumulated net investment loss was
credited $11,955,606.
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1997, continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1997+ DECEMBER 31, 1996
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold ....................................... 539,039 $ 17,439,944 -- --
Reinvestment of distributions............... 57,321 1,665,172 -- --
Redeemed.................................... (60,986) (2,023,896) -- --
-------------- --------------- -------------- ---------------
Net increase - Class A...................... 535,374 17,081,220 -- --
-------------- --------------- -------------- ---------------
CLASS B SHARES
Sold ....................................... 26,893,089 818,085,006 36,925,212 $1,016,961,498
Reinvestment of dividends and
distributions.............................. 22,224,675 644,669,591 10,599,054 286,147,878
Redeemed ................................... (24,498,814) (739,128,498) (20,736,856) (571,648,354)
-------------- --------------- -------------- ---------------
Net increase - Class B...................... 24,618,950 723,626,099 26,787,410 731,461,022
-------------- --------------- -------------- ---------------
CLASS C SHARES*
Sold ....................................... 387,776 12,691,589 -- --
Reinvestment of distributions............... 46,319 1,340,948 -- --
Redeemed ................................... (20,228) (667,646) -- --
-------------- --------------- -------------- ---------------
Net increase - Class C...................... 413,867 13,364,891 -- --
-------------- --------------- -------------- ---------------
CLASS D SHARES*
Sold ....................................... 332,349 10,839,979 -- --
Reinvestment of distributions............... 208,632 6,067,022 -- --
Redeemed ................................... (45,049) (1,470,098) -- --
-------------- --------------- -------------- ---------------
Net increase - Class D...................... 495,932 15,436,903 -- --
-------------- --------------- -------------- ---------------
Net increase in Fund ....................... 26,064,123 $ 769,509,113 26,787,410 $ 731,461,022
============== =============== ============== ===============
</TABLE>
- ------------
+ On July 28, 1997, 1,183,904 shares representing $37,731,024 were
transferred to Class D.
* For the period July 28, 1997 (issue date) through December 31, 1997.
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1997*++ 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------- --------- --------- -------- --------- --------- -------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ...................... $27.01 $27.16 $21.21 $23.10 $20.93 $20.66 $14.39 $14.81 $13.19 $12.21
--------- --------- -------- --------- --------- -------- -------- --------- -------- --------
Net investment income (loss) . (0.10) (0.08) 0.01 -- (0.09) 0.03 0.05 0.24 0.34 0.29
Net realized and unrealized
gain (loss) ................. 8.34 2.86 8.87 (1.57) 3.94 0.71 7.90 (0.38) 2.99 1.03
--------- --------- -------- --------- --------- -------- -------- --------- -------- --------
Total from investment
operations .................. 8.24 2.78 8.88 (1.57) 3.85 0.74 7.95 (0.14) 3.33 1.32
--------- --------- -------- --------- --------- -------- -------- --------- -------- --------
Less dividends and
distributions from:
net investment income ...... -- (0.01) -- -- (0.01) (0.03) (0.03) (0.28) (0.32) (0.33)
Net realized gain ........... (5.74) (2.92) (2.93) (0.32) (1.67) (0.44) (1.65) -- (1.39) --
Paid-in-capital ............. -- -- -- -- -- -- -- -- -- (0.01)
--------- --------- -------- --------- --------- -------- -------- --------- -------- --------
Total dividends and
distributions ............... (5.74) (2.93) (2.93) (0.32) (1.68) (0.47) (1.68) (0.28) (1.71) (0.34)
--------- --------- -------- --------- --------- -------- -------- --------- -------- -------
Net asset value, end of
period ...................... $29.51 $27.01 $27.16 $21.21 $23.10 $20.93 $20.66 $14.39 $14.81 $13.19
========= ========= ======== ========= ========= ======== ======== ========= ======== ========
TOTAL INVESTMENT RETURN+ .... 31.55% 10.53% 42.20% (6.75)% 18.70% 3.84% 56.26% (0.90)% 25.39% 10.84%
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 1.46% 1.53% 1.61% 1.71% 1.61% 1.72% 1.58% 1.70% 1.66% 1.78%
Net investment income (loss) . (0.34)% (0.33)% 0.06% 0.01% (0.59)% 0.18% 0.29% 1.67% 2.23% 2.15%
SUPPLEMENTAL DATA:
net assets, end of period, in
millions..................... $4,078 $3,099 $2,389 $1,490 $1,218 $459 $227 $89 $100 $90
Portfolio turnover rate ..... 275% 279% 256% 295% 276% 305% 264% 234% 196% 133%
Average commission rate paid . $0.0563 $0.0590 -- -- -- -- -- -- -- --
</TABLE>
- ------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date, other than shares which were
purchased prior to April 30, 1984 (and with respect to such shares,
certain shares acquired through reinvestment of dividends and capital
gains distributions (collectively the "Old Shares")), have been
designated Class B shares. The Old Shares have been designated Class D
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
DECEMBER 31,
1997++
- ------------------------------------------ ------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $31.87
------------------
Net investment income ..................... 0.05
Net realized and unrealized gain .......... 2.32
------------------
Total from investment operations .......... 2.37
------------------
Less distributions from net realized gain (4.65)
------------------
Net asset value, end of period ............ $29.59
==================
TOTAL INVESTMENT RETURN+ .................. 7.70%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 0.92%(2)
Net investment income ..................... 0.38%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $15,844
Portfolio turnover rate ................... 275%
Average commission rate paid .............. $0.0563
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $31.87
------------------
Net investment loss ....................... (0.05)
Net realized and unrealized gain .......... 2.32
------------------
Total from investment operations .......... 2.27
------------------
Less distributions from net realized gain . (4.65)
------------------
Net asset value, end of period ............ $29.49
==================
TOTAL INVESTMENT RETURN+ .................. 7.39%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.66%(2)
Net investment loss ....................... (0.36)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $12,204
Portfolio turnover rate ................... 275%
Average commission rate paid .............. $0.0563
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
DECEMBER 31,
1997++
- ------------------------------------------ ------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $31.87
------------------
Net investment income ..................... 0.07
Net realized and unrealized gain .......... 2.34
------------------
Total from investment operations .......... 2.41
------------------
Less distributions from net realized gain (4.65)
------------------
Net asset value, end of period ............ $29.63
==================
TOTAL INVESTMENT RETURN+ .................. 7.83%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 0.64%(2)
Net investment income ..................... 0.50%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $49,772
Portfolio turnover rate ................... 275%
Average commission rate paid .............. $0.0563
</TABLE>
- ------------
* The date shares were first issued. Shareholders who held shares of the
Fund prior to July 28, 1997 (the date the Fund converted to a multiple
class share structure) should refer to the Financial Highlights of Class
B to obtain the historical per share data and ratio information of their
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
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, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at December 31, 1997 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 6, 1998
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FEDERAL TAX NOTICE (unaudited)
1997 FEDERAL TAX NOTICE
For the year ended December 31, 1997, the Fund paid to shareholders the
following per share amounts from long-term capital gains. These distributions
are taxable as 28% rate gains or 20% rate gains, as indicated below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Portion of long-term capital gains taxable as:
28% rate gain ................................ $0.48 $0.72 $0.48 $0.48
20% rate gain ................................ 0.46 0.46 0.46 0.46
--------- --------- --------- ---------
Total.......................................... $0.94 $1.18 $0.94 $0.94
========= ========= ========= =========
</TABLE>
For the year ended December 31, 1997, 5.08% of the income dividends
qualified for the dividends received deduction available to corporations.
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Anita H. Kolleeny
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER
AMERICAN
VALUE FUND
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE>
[DEAN WITTER LOGO]
D E A N W I T T E R
-------------------------------------
R E T I R E M E N T S E R I E S
-------------------------------------
O C T O B E R 3 1 , 1 9 9 7
-------------------------------------
P R O S P E C T U S E N C L O S E D
-------------------------------------
<PAGE>
DEAN WITTER RETIREMENT SERIES
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
ITEM CAPTION PROSPECTUS
- ---- ------------------
<S> <C>
1. .............. Cover Page
2. .............. Summary of Fund Expenses; Prospectus Summary
3. .............. Performance Information; Financial Highlights
4. .............. Investment Objectives and Policies; The Fund and its
Management; Cover Page; Investment Restrictions;
Prospectus Summary; Financial Highlights
5. .............. The Fund and Its Management; Back Cover;
Investment Objectives and Policies
6. .............. Dividends, Distributions and Taxes; Additional
Information
7. .............. Purchase of Fund Shares; Shareholder
Services; Repurchases and Redemptions;
Determination of Net Asset Value; Prospectus Summary
8. .............. Repurchases and Redemptions; Shareholder Services
9. .............. Not Applicable
PART B
ITEM 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; Custodian and
Transfer Agent; Independent Accountants
17. .............. Portfolio Transactions and Brokerage
18. .............. Description of Shares; Principal Securities Holders
19. .............. Repurchases and Redemptions; Shareholder Services;
Determination of Net Asset Value; Financial Statements
20. .............. Dividends, Distributions and Taxes; Financial Statements
21. .............. Purchase of Fund Shares
22. .............. Performance Information
23. .............. Experts; Financial Statements
</TABLE>
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 DATED OCTOBER 31, 1997
DEAN WITTER RETIREMENT SERIES
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048 (212) 392-2550 OR (800)
869-NEWS (TOLL-FREE)
DEAN WITTER RETIREMENT SERIES (the "Fund") is an open-end, no-load,
management investment company which provides a selection of investment
portfolios for institutional and individual investors participating in
various employee benefit plans and Individual Retirement Account rollover
plans. Each Series has its own investment objective and policies. Shares of
the Fund are sold and redeemed at net asset value without the imposition of a
sales charge. Dean Witter Distributors Inc., the Fund's Distributor (the
"Distributor"), and any of its affiliates are authorized, in accordance with
a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended, entered into by the Fund with the Distributor and
Dean Witter Reynolds Inc., to make payments, out of their own resources, for
expenses incurred in connection with the promotion of distribution of shares
of the Fund.
The LIQUID ASSET SERIES seeks high current income, preservation of capital
and liquidity by investing in corporate and government money market
instruments.
The U.S. GOVERNMENT MONEY MARKET SERIES seeks security of principal, high
current income and liquidity by investing primarily in money market
instruments which are issued and/or guaranteed, as to principal and interest,
by the U.S. Government, its agencies or instrumentalities.
The U.S. GOVERNMENT SECURITIES SERIES seeks high current income consistent
with safety of principal by investing in a diversified portfolio of
obligations issued and/or guaranteed by the U.S. Government or its
instrumentalities.
The INTERMEDIATE INCOME SECURITIES SERIES seeks high current income
consistent with safety of principal by investing primarily in intermediate
term, investment grade fixed-income securities.
The AMERICAN VALUE SERIES seeks long-term growth consistent with an effort
to reduce volatility by investing principally in common stock of companies in
industries which, at the time of the investment, are believed to be
attractively valued given their above average relative earnings growth
potential at that time.
The CAPITAL GROWTH SERIES seeks long-term capital growth by investing
primarily in common stocks selected through utilization of a computerized
screening process.
The DIVIDEND GROWTH SERIES seeks to provide reasonable current income and
long-term growth of income and capital by investing primarily in the common
stock of companies with a record of paying dividends and the potential for
increasing dividends.
The STRATEGIST SERIES seeks to maximize its total return by actively
allocating its assets among the major asset categories of equity securities,
fixed-income securities and money market instruments.
The UTILITIES SERIES seeks to provide current income and long-term growth
of income and capital by investing in equity and fixed-income securities of
companies in the public utilities industry.
The VALUE-ADDED MARKET SERIES' investment objective is to achieve a high
level of total return on its assets through a combination of capital
appreciation and current income. It seeks to achieve this objective by
investing, on an equally-weighted basis, in a diversified portfolio of common
stocks of the companies which are represented in the Standard & Poor's 500
Composite Stock Price Index.
The GLOBAL EQUITY SERIES' investment objective is to achieve a high level
of total return on its assets, primarily through long-term capital growth
and, to a lesser extent, from income. It seeks to achieve this objective
through investments in all types of common stocks and equivalents, preferred
stocks and bonds and other debt obligations of domestic and foreign companies
and governments and international organizations.
AN INVESTMENT IN THE LIQUID ASSET, U.S. GOVERNMENT MONEY MARKET AND/OR
U.S. GOVERNMENT SECURITIES SERIES IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE LIQUID ASSET OR U.S.
GOVERNMENT MONEY MARKET SERIES WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
SHARES OF SERIES 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.
The availability of the various methods of purchase and redemption of
shares of the Fund and other shareholder services will be governed by the
parameters set forth in the investor's employee benefit plan.
This Prospectus sets forth concisely the information you should know
before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the
Statement of Additional Information, dated October 31, 1997, which has been
filed with the Securities and Exchange Commission, and which is available at
no charge upon request of the Fund at the address or telephone numbers listed
above. The Statement of Additional Information is incorporated herein by
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/6
Financial Highlights/8
The Fund and its Management/12
Investment Objectives and Policies/13
Liquid Asset Series/13
U.S. Government Money Market Series/15
U.S. Government Securities Series/16
Intermediate Income Securities Series/19
American Value Series/20
Capital Growth Series/21
Dividend Growth Series/22
Strategist Series/23
Utilities Series/24
Value-Added Market Series/26
Global Equity Series/27
General Investment Techniques and Risk Considerations/28
Investment Restrictions/37
Determination of Net Asset Value/39
Purchase of Fund Shares/40
Shareholder Services/41
Redemptions and Repurchases/43
Dividends, Distributions and Taxes/45
Performance Information/46
Additional Information/47
<TABLE>
<CAPTION>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------------------------------------
<S> <C>
The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an
Fund open-end management investment company. The Fund is comprised of eleven separate Series: the
Liquid Asset Series, the U.S. Government Money Market Series, the U.S. Government Securities
Series, the Intermediate Income Securities Series, the American Value Series, the Capital Growth
Series, the Dividend Growth Series, the Strategist Series, the Utilities Series, the Value-Added
Market Series, and the Global Equity Series (see page 12). The Trustees of the Fund may establish
additional Series at any time.
- -----------------------------------------------------------------------------------------------------------------
Shares Each Series is managed for investment purposes as if it were a separate fund issuing a separate
Offered class of shares of beneficial interest, with $0.01 par value. The assets of each Series are
segregated, so that an interest in the Fund is limited to the assets of the Series in which shares
are held and shareholders are each entitled to a pro rata share of all dividends and distributions
arising from the net income and capital gains, if any, on the investments of such Series (see page
47).
- -----------------------------------------------------------------------------------------------------------------
Offering The price of the shares of each Series of the Fund offered by this Prospectus is determined once
Price daily as of 4:00 p.m., New York time (or, on days when the New York Stock Exchange closes prior to
4:00 p.m., at such earlier time), on each day that the New York Stock Exchange is open, and is
equal to the net asset value per share without a sales charge (see page 39). Purchases are limited
to institutional and individual investors participating in various employee benefit plans and
Individual Retirement Account ("IRA") rollover plans; there is no minimum initial or subsequent
purchase. The Fund and/or the Distributor reserve the right to permit purchases by non-employee
benefit plan investors (see page 12).
2
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
Investment Each Series has distinct investment objectives and policies, and is subject to various investment
Objectives and restrictions, some of which apply to all Series. The Liquid Asset Series seeks high current
Policies income, preservation of capital and liquidity by investing in the following money market
instruments: U.S. Government securities, obligations of U.S. regulated banks and savings
institutions having total assets of more than $1 billion, or less than $1 billion if such are
fully federally insured as to principal (the interest may not be insured) and high grade corporate
debt obligations maturing in thirteen months or less (see pages 13-15). The U.S. Government Money
Market Series seeks security of principal, high current income and liquidity by investing
primarily in money market instruments maturing in thirteen months or less which are issued and/or
guaranteed, as to principal and interest, by the U.S. Government, its agencies or
instrumentalities (see pages 15-16). The U.S. Government Securities Series seeks high current
income consistent with safety of principal by investing in a diversified portfolio of obligations
issued and/or guaranteed by the U.S. Government or its instrumentalities (see pages 16-19). The
Intermediate Income Securities Series seeks high current income consistent with safety of
principal by investing primarily in intermediate term, investment grade fixed-income securities
(see pages 19-20). The American Value Series seeks long-term growth consistent with an effort to
reduce volatility by investing primarily in common stock of companies in industries which, at the
time of the investment, are believed to be attractively valued given their above average relative
earnings growth potential at that time (see pages 20-21). The Capital Growth Series seeks
long-term capital growth by investing primarily in common stocks selected through utilization of a
computerized screening process (see pages 21-22). The Dividend Growth Series seeks to provide
reasonable current income and long-term growth of income and capital by investing primarily in the
common stock of companies with a record of paying dividends and the potential for increasing
dividends (see pages 22-23). The Strategist Series seeks to maximize its total return by actively
allocating its assets among the major asset categories of equity securities, fixed-income
securities and money market instruments (see pages 23-24). The Utilities Series seeks to provide
current income and long-term growth of income and capital by investing in equity and fixed-income
securities of companies in the public utilities industry. The Utilities Series will concentrate
its investments in the electric utilities industry (see pages 24-26). The Value-Added Market
Series' investment objective is to achieve a high level of total return on its assets through a
combination of capital appreciation and current income. It seeks to achieve this objective by
investing, on an equally-weighted basis, in a diversified portfolio of common stocks of the
companies which are represented in the Standard & Poor's 500 Composite Stock Price Index (see
pages 26-27). The Global Equity Series' investment objective is a high level of total return on
its assets primarily through long-term capital growth and, to a lesser extent, from income. It
seeks to achieve this objective through investments in all types of common stocks and equivalents
(such as convertible securities and warrants), preferred stocks and bonds and other debt
obligations of domestic and foreign companies and governments and international organizations
(see pages 27-28).
- -----------------------------------------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"), the Investment Manager
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 one hundred and two
investment companies and other portfolios with assets of approximately $102.3 billion at September
30, 1997 (see page 12).
- -----------------------------------------------------------------------------------------------------------------
Management The Investment Manager receives monthly fees at the following annual rates of the daily net assets
Fees of the respective Series of the Fund: Liquid Asset Series--0.50%; U.S. Government Money Market
Series--0.50%; U.S. Government Securities Series--0.65%; Intermediate Income Securities
Series--0.65%; American Value Series--0.85%; Capital Growth Series--0.85%; Dividend Growth
Series--0.75%; Strategist Series--0.85%; Utilities Series--0.75%; Value-Added Market
Series--0.50%; and Global Equity Series--1.0%. The management fees for the American Value, Capital
Growth, Dividend Growth, Strategist, Utilities and Global Equity Series are higher than those paid
by most investment companies (see page 12).
3
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
Dividends and The Liquid Asset Series and the U.S. Government Money Market Series declare and reinvest all
Capital Gains dividends daily and pay cash dividends monthly; the U.S. Government Securities Series and the
Distributions Intermediate Income Securities Series declare dividends from net investment income daily and pay
such dividends monthly; the Dividend Growth Series and the Utilities Series declare and pay
dividends from net investment income quarterly; the American Value Series, the Capital Growth
Series, the Strategist Series, the Value-Added Market Series and the Global Equity Series declare
and pay dividends from net investment income at least once each year. Each Series of the Fund
makes capital gains distributions, if any, at least annually. All dividends and distributions are
automatically reinvested in additional shares at net asset value unless the shareholder elects to
receive cash (see pages 45-46).
- -----------------------------------------------------------------------------------------------------------------
Distributor Dean Witter Distributors Inc. is the distributor of the Fund's shares. The Distributor and Dean
Witter Reynolds Inc. have entered into a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Act"), with the Fund, authorizing the Distributor
and any of its affiliates to make payments, out of their resources, for expenses incurred in
connection with the promotion of distribution of the Fund's shares (see pages 40-41).
- -----------------------------------------------------------------------------------------------------------------
Redemption Shares of the Fund may be redeemed at their net asset value (see pages 43-45).
- -----------------------------------------------------------------------------------------------------------------
Shareholder Automatic Investment of Dividends and Distributions (unless otherwise requested); Systematic
Services Payroll Deduction Plan; Exchange Privilege; Systematic Withdrawal Plan (see pages 41-43).
- -----------------------------------------------------------------------------------------------------------------
Risks The Liquid Asset Series invests solely in U.S. Government securities, high quality corporate debt
obligations and obligations of banks and savings and loan associations having assets of $1 billion
or more and certificates of deposit which are fully insured as to principal; consequently, the
portfolio securities of the Series are subject to minimal risk of loss of income and principal.
However, the investor is directed to the discussions of "repurchase agreements" (page 28) and
"reverse repurchase agreements" (page 28) concerning any risks associated with these investment
techniques. The U.S. Government Money Market Series invests principally in high quality,
short-term fixed-income securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. Such securities are subject to minimal risk of loss
of income and principal. However, shareholders should also refer to the discussions of "repurchase
agreements" (page 28), "when-issued and delayed delivery securities and forward commitments" (page
28) and "reverse repurchase agreements" (page 28). The U.S. Government Securities Series invests
only in obligations issued or guaranteed by the U.S. Government which are subject to minimal risk
of loss of income and principal. The value of the securities holdings of the U.S. Government
Securities Series and, thereby, the net asset value of its shares, may increase or decrease due to
various factors, principally changes in prevailing interest rates. Generally, a rise in interest
rates will result in a decrease in the net asset value per share. In addition, the average life of
certain of the securities held in the U.S. Government Securities Series (e.g., GNMA Certificates)
may be shortened by prepayments or refinancings of the mortgage pools underlying such securities
(pages 16-19). Such prepayments may have an impact on dividends paid by the U.S. Government
Securities Series. Shareholders should also refer to the discussions of "repurchase agreements,"
"when-issued and delayed delivery securities and forward commitments" and "zero coupon securities"
(pages 28-29). The net asset value of the shares of the Intermediate Income Securities Series will
fluctuate with changes in the market value of its securities holdings. The Series may invest in
securities rated "BBB" by Standard & Poor's Corporation or "Baa" by Moody's Investors Service,
Inc., which securities have speculative characteristics. Shareholders should also refer to the
discussions of "when-issued and delayed delivery securities and forward commitments" (page 28),
"when, as and if issued securities" (page 29), "zero coupon securities" (page 29) and "reverse
repurchase agreements" (page 28). The American Value Series' emphasis on attractive industries may
run contrary to general market assessments and may involve risks associated with departure from
typical S&P 500 industry weightings. It should be recognized that the American Value Series'
investments in small and medium-capitalization companies involves greater risk than is customarily
associated with
4
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
investing in larger, more established companies. Shareholders should also refer to the discussions
of "repurchase agreements" (page 28), "when, as and if issued securities" (page 29) and "warrants"
(page 29). The net asset value of the shares of the Capital Growth Series will fluctuate with
changes in the market value of its portfolio securities. The Capital Growth Series may purchase
foreign, when-issued and delayed delivery, and when, as and if issued securities, and 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 (pages
28-36). The net asset value of the shares of the Dividend Growth Series will fluctuate with
changes in the market value of its securities holdings. Dividends payable by the Dividend Growth
Series will vary in relation to the amounts of dividends and interest paid by its securities
holdings. Shareholders should also refer to the discussions of "repurchase agreements" (page 28),
"when, as and if issued securities" (page 29) and "warrants" (page 29). The net asset value of the
shares of Strategist Series will fluctuate with changes in the market value of its portfolio
securities. The level of income payable to the investor will vary depending upon the market
allocation determined by the Investment Manager and with various market determinants such as
interest rates. The Series may make various investments and may engage in various investment
strategies including options and futures transactions (pages 28-36), when-issued and delayed
delivery securities and forward commitments (page 28), when, as and if issued securities (page 28)
and repurchase agreements (page 28). The Strategist Series is "non-diversified" and is therefore
not subject to the diversification requirements of the Act. This non-diversified status allows the
Strategist Series to increase its investment in the securities of an individual issuer, and,
thereby, subjects the Series to greater exposure to any risks pertaining to investment in the
issuer's securities (page 23). The net asset value of the shares of the Utilities Series
fluctuates with changes in the market value of its securities holdings. The public utilities
industry has certain characteristics and risks, and developments within that industry will have an
impact on the Utilities Series. The value of public utility debt securities (and, to a lesser
extent, equity securities) tends to have an inverse relationship to the movement of interest
rates. Shareholders should also refer to the discussions of "repurchase agreements" (page 28),
"when-issued and delayed delivery securities and forward commitments" (page 28), "when, as and if
issued securities" (page 28), "zero coupon securities" (page 29), and "foreign securities" (pages
31-32). The net asset value of the shares of the Value-Added Market Series will fluctuate with
changes in the market value of its securities holdings. Dividends payable by the Value-Added
Market Series will vary in relation to the amounts of income paid by its securities holdings.
Shareholders should also refer to the discussion of "repurchase agreements" (page 28) and "options
and futures transactions" (pages 33-36). The Global Equity Series is intended for long-term
investors who can accept the risks involved in investments in the securities of companies and
countries located throughout the world. It should be recognized that investing in such securities
involves different and perhaps greater risks than are customarily associated with securities of
domestic companies or trading in domestic markets. In addition, shareholders should consider risks
inherent in an international portfolio, including exchange fluctuations and exchange controls, and
certain of the investment policies which the Global Equity Series may employ, including
transactions in forward foreign currency exchange contracts (see pages 31-33). Moreover, the
expenses of the Global Equity Series are likely to be greater than those incurred by other Series
in the Fund and other investment companies which invest primarily in securities of domestic
issuers. The Intermediate Income Securities, American Value, Capital Growth, Strategist,
Utilities, Value-Added Market and Global Equity Series may write call options on securities held
in their portfolios without limit (see pages 33-35). Certain of the Series of the Fund may
experience high portfolio turnover rates with corresponding higher transaction expenses and
potentially adverse tax consequences. See "Portfolio Trading" (pages 36-37).
</TABLE>
5
<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 July 31, 1997.
Shareholder Transaction Expenses (for each Series)
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases................ None
Maximum Sales Charge Imposed on Reinvested Dividends .... None
Deferred Sales Charge.................................... None
Redemption Fees.......................................... None
Exchange Fee............................................. None
</TABLE>
Annual Operating Expenses (as a Percentage of Average Net Assets for the year
ended July 31, 1997)*
<TABLE>
<CAPTION>
Intermediate
U.S. Government U.S. Government Income American Capital
Liquid Asset Money Market Securities Securities Value Growth
Series Series Series Series Series Series
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Management Fees*
(after fee waiver) ... 0.46% 0.30% 0.10% 0.00% 0.64% 0.0 %
12b-1 Fees............. 0.0 0.0 0.0 0.0 0.0 0.0
Other Expenses*
(after expense
assumption)........... 0.54 0.70 0.90 1.00 0.36 1.00
Total Series Operating
Expenses.............. 1.00 1.00 1.00 1.00 1.00 1.00
</TABLE>
<TABLE>
<CAPTION>
Dividend Value-Added
Growth Strategist Utilities Market Global Equity
Series Series Series Series Series
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Management Fees*
(after fee waiver) ... 0.75% 0.45% 0.00% 0.48% 0.15%
12b-1 Fees............. 0.0 0.0 0.0 0.0 0.0
Other Expenses*
(after expense
assumption)........... 0.22 0.55 1.00 0.52 0.85
Total Series Operating
Expenses.............. 0.97 1.00 1.00 1.00 1.00
</TABLE>
*Pursuant to an undertaking, the Investment Manager assumed all expenses
relating to each Series' operations (except for any brokerage fees and a
portion of organizational expenses) and waived the compensation provided for
in its Management Agreement with respect to each Series until December 31,
1995. The Investment Manager has undertaken to continue to assume, until
December 31, 1997, such expenses and to waive the compensation provided for
in its Management Agreement with respect to each Series to the extent that
such expenses and compensation on an annualized basis exceed 1.00% of the
daily net assets of the Series.
6
<PAGE>
Example
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:
<TABLE>
<CAPTION>
Intermediate
U.S. Government U.S. Government Income American Capital
Liquid Asset Money Market Securities Securities Value Growth
Series Series Series Series Series Series
-------------- --------------- --------------- -------------- ---------- ---------
<C> <C> <C> <C> <C> <C> <C>
1 year..... $ 10 $ 10 $ 10 $ 10 $ 10 $ 10
3 years.... 32 32 32 32 32 32
5 years.... 55 55 55 55 55 55
10 years .. 122 122 122 122 122 122
</TABLE>
<TABLE>
<CAPTION>
Dividend Value-Added
Growth Strategist Utilities Market Global Equity
Series Series Series Series Series
---------- ------------ ----------- ------------- ---------------
<C> <C> <C> <C> <C> <C>
1 year..... $ 10 $ 10 $ 10 $ 10 $ 10
3 years.... 31 32 32 32 32
5 years.... 54 55 55 55 55
10 years .. 119 122 122 122 122
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR LESS
THAN THOSE SHOWN.
"Management Fees" (after fee waiver) and "Other Expenses" (after expense
assumption) have been restated to reflect current fees and expenses.
If administrative services are performed by Dean Witter Trust FSB ("DWT"),
the Fund's Transfer and Dividend Disbursing Agent and an affiliate of the
Investment Manager, on behalf of an employee benefit plan, it may charge fees
for such services which are negotiated between each employee benefit plan and
DWT.
It is estimated that total operating expenses for each Series for the
fiscal year ending July 31, 1998, assuming no waiver of management fees or
assumption of expenses, and calculated using average net assets for the year
ended July 31, 1997, would be:
<TABLE>
<CAPTION>
Intermediate
U.S. Government U.S. Government Income American Capital
Liquid Asset Money Market Securities Securities Value Growth
Series Series Series Series Series Series
-------------- --------------- --------------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees........ 0.50% 0.50% 0.65% 0.65% 0.85% 0.85%
12b-1 Fees............. 0.0 0.0 0.0 0.0 0.0 0.0
Other Expenses......... 0.54 0.70 0.90 1.35 0.36 2.31
Total Series Operating
Expenses.............. 1.04 1.20 1.55 2.00 1.21 3.16
</TABLE>
<TABLE>
<CAPTION>
Dividend Value-Added
Growth Strategist Utilities Market Global Equity
Series Series Series Series Series
---------- ------------ ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Management Fees........ 0.75% 0.85% 0.75% 0.50% 1.00%
12b-1 Fees............. 0.0 0.0 0.0 0.0 0.0
Other Expenses......... 0.22 0.55 1.03 0.52 0.85
Total Series Operating
Expenses.............. 0.97 1.40 1.78 1.02 1.85
</TABLE>
The purpose of these tables 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."
7
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in
conjunction with the financial statements, notes thereto, and the unqualified
report of independent accountants which are contained in the Statement of
Additional Information. Further information about the performance of the
Fund's Series is contained in the Fund's Annual Report to Shareholders, which
may be obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
NET
NET ASSET REALIZED TOTAL
YEAR VALUE NET AND TOTAL FROM DIVIDENDS DISTRIBUTIONS DIVIDENDS
ENDED BEGINNING INVESTMENT UNREALIZED INVESTMENT TO TO AND
JULY 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ---------- ----------- ------------ ------------ ------------ -------------- --------------- ---------------
<C> <C> <C> <C> <C> <C> <C>
LIQUID ASSET
1993 (1) $ 1.00 $0.02 -- $ 0.02 $(0.02) -- $(0.02)
1994 1.00 0.03 -- 0.03 (0.03) -- (0.03)
1995 1.00 0.06 -- 0.06 (0.06) -- (0.06)
1996 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1997 1.00 0.05 -- 0.05 (0.05) -- (0.05)
U.S. GOVERNMENT MONEY MARKET
1993 (2) 1.00 --++ -- -- -- -- --
1994 1.00 0.03 -- 0.03 (0.03) -- (0.03)
1995 1.00 0.06 -- 0.06 (0.06) -- (0.06)
1996 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1997 1.00 0.04 -- 0.04 (0.04) -- (0.04)
U.S. GOVERNMENT SECURITIES
1993 (3) 10.00 0.19 $ 0.07 0.26 (0.20) -- (0.20)
1994 10.06 0.44 (0.50) (0.06) (0.44) -- (0.44)
1995 9.56 0.56 0.15 0.71 (0.56) -- (0.56)
1996 9.71 0.55 (0.12) 0.43 (0.55) -- (0.55)
1997 9.59 0.56 0.34 0.90 (0.56) $(0.02) (0.58)
INTERMEDIATE INCOME SECURITIES
1993 (4) 10.00 0.19 (0.02) 0.17 (0.19) -- (0.19)
1994 9.98 0.60 (0.57) 0.03 (0.60) -- (0.60)
1995 9.41 0.61 0.22 0.83 (0.61) -- (0.61)
1996 9.63 0.59 (0.21) 0.38 (0.59) (0.01) (0.60)
1997 9.41 0.53 0.26 0.79 (0.53) -- (0.53)
AMERICAN VALUE
1993 (5) 10.00 0.06 (0.01) 0.05 -- -- --
1994 10.05 0.03 (0.09) (0.06) (0.02) (0.04) (0.06)
1995 9.93 0.14 3.15 3.29 (0.12) -- (0.12)
1996 13.10 0.09 1.17 1.26 (0.15) (1.13) (1.28)
1997 13.08 0.02 5.12 5.14 (0.04) (1.22) (1.26)
</TABLE>
- ------------
* After application of the Fund's expense limitation.
+ Calculated based on the net asset value as of the last business day
of the period.
++ Includes dividends from net investment income of $0.004 per share.
(a) Not annualized.
(b) Annualized.
Commencement of operations:
(1) December 30, 1992. (4) January 12, 1993.
(2) January 20, 1993. (5) February 1, 1993.
(3) January 8, 1993.
8
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE RATIOS TO AVERAGE NET
NETASSETS ASSETS
(BEFORE EXPENSES WERE (AFTER EXPENSES WERE
ASSUMED) ASSUMED)
-------------------------- --------------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO AVERAGE
END OF INVESTMENT PERIOD INVESTMENT INVESTMENT TURNOVER COMMISSION
PERIOD RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS) RATE RATE PAID
- ----------- ------------ ------------ ----------- ------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 1.77%(a) $ 1,081 1.30%(b) 0.53%(b) 0.14%(b) 3.02%(b) N/A N/A
1.00 3.48 1,524 2.50* 0.99 -- 3.49 N/A N/A
1.00 5.90 35,631 1.16 4.96 -- 6.12 N/A N/A
1.00 5.44 42,753 0.65 5.05 0.33 5.37 N/A N/A
1.00 4.57 21,213 1.04 4.43 1.00 4.47 N/A N/A
1.00 0.42 (a) 125 2.50* (b) (0.95)(b) 2.13 (b) 0.83 (b) N/A N/A
1.00 3.52 555 2.50* 0.82 -- 3.32 N/A N/A
1.00 5.86 10,695 2.50* 3.62 -- 6.12 N/A N/A
1.00 5.23 6,628 0.82 4.75 0.37 5.21 N/A N/A
1.00 4.51 4,041 1.20 4.17 1.00 4.37 N/A N/A
10.06 2.60 (a) 1,756 1.81 (b) 0.33 (b) 0.18 (b) 3.66 (b) -- N/A
9.56 (0.69) 2,954 2.50* 1.96 -- 4.46 29 % N/A
9.71 7.72 4,209 2.36 3.49 -- 5.85 14 N/A
9.59 4.49 8,651 1.48 4.70 0.63 5.55 47 N/A
9.91 9.70 10,496 1.55 5.24 1.00 5.79 89 N/A
9.98 1.67 (a) 182 2.50* (b) 1.00 (b) 1.62 (b) 3.50 (b) -- N/A
9.41 0.26 460 2.50* 3.64 -- 6.14 40 N/A
9.63 9.22 994 2.50* 4.08 -- 6.58 37 N/A
9.41 3.95 4,172 1.58 5.01 0.72 5.87 142 N/A
9.67 8.63 2,456 2.00 4.50 1.00 5.50 132 N/A
10.05 0.50 (a) 308 2.50*(b) (0.66)(b) 0.74 (b) 1.10 (b) 121 (a) --
9.93 (0.59) 6,841 2.50* (0.81) -- 1.69 136 --
13.10 33.48 22,581 1.42 0.39 -- 1.81 234 --
13.08 9.83 40,321 1.18 0.23 0.65 0.76 301 $0.0543
16.96 41.62 54,214 1.21 (0.11) 1.00 0.10 261 0.0552
</TABLE>
9
<PAGE>
FINANCIAL HIGHLIGHTS Continued
- -----------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in
conjunction with the financial statements, notes thereto, and the unqualified
report of independent accountants which are contained in the Statement of
Additional Information. Further information about the performance of the
Fund's Series is contained in the Fund's Annual Report to Shareholders, which
may be obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
NET
NET ASSET REALIZED TOTAL
YEAR VALUE NET AND TOTAL FROM DISTRIBUTIONS DIVIDENDS
ENDED BEGINNING INVESTMENT UNREALIZED INVESTMENT DIVIDENDS TO TO AND
JULY 31 OF PERIOD INCOME (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ---------- ----------- ------------- ------------ ------------ -------------- --------------- ---------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
1993 (4) $10.00 $(0.02) $(1.10) $(1.12) -- -- --
1994 8.88 0.13 0.45 0.58 $(0.04) -- $(0.04)
1995 9.42 0.10 1.77 1.87 (0.12) -- (0.12)
1996 11.17 0.07 1.55 1.62 (0.11) $(0.07) (0.18)
1997 12.61 (0.03) 5.41 5.38 (0.01) (0.32) (0.33)
DIVIDEND GROWTH
1993 (1) 10.00 0.13 0.58 0.71 (0.10) -- (0.10)
1994 10.61 0.28 0.37 0.65 (0.23) (0.01) (0.24)
1995 11.02 0.34 2.13 2.47 (0.31) (0.10) (0.41)
1996 13.08 0.32 1.76 2.08 (0.36) (0.19) (0.55)
1997 14.61 0.33 5.60 5.93 (0.33) (0.52) (0.85)
UTILITIES
1993 (2) 10.00 0.19 1.30 1.49 (0.14) -- (0.14)
1994 11.35 0.37 (0.95) (0.58) (0.34) (0.01) (0.35)
1995 10.42 0.42 0.80 1.22 (0.37) (0.02) (0.39)
1996 11.25 0.38 0.61 0.99 (0.45) -- (0.45)
1997 11.79 0.41 1.90 2.31 (0.32) -- (0.32)
VALUE-ADDED MARKET
1993 (3) 10.00 0.05 0.02 0.07 (0.04) -- (0.04)
1994 10.03 0.24 0.65 0.89 (0.11) -- (0.11)
1995 10.81 0.21 2.16 2.37 (0.26) (0.12) (0.38)
1996 12.80 0.25 1.17 1.42 (0.22) (0.07) (0.29)
1997 13.93 0.21 5.58 5.79 (0.25) (0.63) (0.88)
GLOBAL EQUITY
1993 (2) 10.00 0.07 (0.03) 0.04 -- -- --
1994 10.04 0.08 0.58 0.66 (0.05) -- (0.05)
1995 10.65 0.14 0.49 0.63 (0.11) -- (0.11)
1996 11.17 0.09 0.71 0.80 (0.18) -- (0.18)
1997 11.79 0.09 2.98 3.07 (0.06) (0.32) (0.38)
STRATEGIST
1993 (1) 10.00 0.06 (0.23) (0.17) -- -- --
1994 9.83 0.23 (0.20) 0.03 (0.13) -- (0.13)
1995 9.73 0.24 1.49 1.73 (0.18) -- (0.18)
1996 11.28 0.25 1.63 1.88 (0.34) (0.22) (0.56)
1997 12.60 0.37 2.96 3.33 (0.28) (0.48) (0.76)
</TABLE>
- ------------
* After application of the Fund's expense limitation.
+ Calculated based on the net asset value as of the last business day
of the period.
(a) Not annualized.
(b) Annualized.
Commencement of operations:
(1) January 7, 1993.
(2) January 8, 1993.
(3) February 1, 1993.
(4) February 2, 1993.
10
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS ASSETS
(BEFORE EXPENSES WERE (AFTER EXPENSES WERE
ASSUMED) ASSUMED)
-------------------------- -------------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO AVERAGE
END OF INVESTMENT PERIOD INVESTMENT INVESTMENT TURNOVER COMMISSION
PERIOD RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS) RATE RATE PAID
- ----------- ------------- ------------ ----------- ------------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8.88 (11.20)%(a) $ 135 2.50%*(b) (1.01)%(b) 1.97%(b) (0.47)%(b) 2%(a) --
9.42 6.57 215 2.50* (0.98) -- 1.52 11 --
11.17 20.08 678 2.50* (1.07) -- 1.43 20 --
12.61 14.58 1,988 2.50* (1.24) 0.76 0.50 68 $0.0536
17.66 43.46 3,670 3.16 (2.38) 1.00 (0.22) 147 0.0575
10.61 7.11 (a) 2,417 2.50* (b) 0.61 (b) 0.16 (b) 2.89 (b) 7 (a) --
11.02 6.13 12,821 1.51 1.78 -- 3.29 13 --
13.08 23.07 35,404 1.14 2.34 -- 3.48 29 --
14.61 16.09 69,763 1.00 2.07 0.63 2.44 18 0.0526
19.69 41.92 115,312 0.97 1.92 0.97 1.92 31 0.0537
11.35 14.98 (a) 1,334 2.50* (b) 1.59 (b) 0.30 (b) 3.79 (b) 8 (a) --
10.42 (5.23) 3,860 2.50* 1.62 -- 4.14 5 --
11.25 12.16 5,380 1.91 2.41 -- 4.32 24 --
11.79 8.76 7,593 1.52 2.31 0.62 3.20 17 0.0508
13.78 19.87 5,391 1.78 1.85 1.00 2.63 89 0.0508
10.03 0.71 (a) 640 2.50* (b) (0.16) (b) 0.92 (b) 1.42 (b) 1 (a) --
10.81 8.89 5,133 1.82 0.70 -- 2.53 8 --
12.80 22.65 14,080 1.22 1.33 -- 2.55 7 --
13.93 11.19 20,379 0.78 1.58 0.47 1.89 8 0.0300
18.84 43.12 23,780 1.02 1.04 1.00 1.07 23 0.0300
10.04 0.40 (a) 322 2.50* (b) (0.90) (b) 1.00 (b) 1.77 (b) -- --
10.65 6.54 2,020 2.50* 0.09 -- 2.41 8 --
11.17 6.08 7,286 2.25 0.48 -- 2.73 55 --
11.79 7.26 11,685 1.73 (0.15) 0.66 0.92 95 0.0500
14.48 26.66 19,797 1.85 (0.01) 1.00 0.84 80 0.0348
9.83 (1.70) (a) 551 2.50* (b) (0.19) (b) 0.64 (b) 1.67 (b) 26 (a) --
9.73 0.12 1,276 2.50* 0.70 -- 3.20 57 --
11.28 18.21 6,759 2.14 1.97 -- 4.11 115 --
12.60 16.97 17,496 1.61 1.92 0.66 2.86 113 0.0525
15.17 27.35 26,459 1.40 2.50 1.00 2.90 90 0.0535
</TABLE>
11
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter Retirement Series (the "Fund") is an open-end, no-load,
management investment company consisting of eleven separate Series: the
Liquid Asset Series, the U.S. Government Money Market Series, the U.S.
Government Securities Series, the Intermediate Income Securities Series, the
American Value Series, the Capital Growth Series, the Dividend Growth Series,
the Strategist Series, the Utilities Series, the Value-Added Market Series,
and the Global Equity Series. All of the Series, with the exception of the
Strategist Series, are diversified. The Fund is a trust of the type commonly
known as a "Massachusetts business trust" and was organized under the laws of
Massachusetts on May 14, 1992. The Distributor and any of its affiliates are
authorized, pursuant to a Plan of Distribution entered into by the Fund with
the Distributor and Dean Witter Reynolds Inc. ("DWR") in accordance with Rule
12b-1 of the Investment Company Act of 1940, as amended (the "Act"), to make
payments for expenses, out of their own resources, incurred in connection
with the promotion of distribution of shares of the 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 Morgan Stanley,
Dean Witter, Discover & Co., a preeminent global financial services firm that
maintains leading market positions in each of its three primary
businesses--securities, asset management and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to a total of one hundred and two investment
companies (the "Dean Witter Funds"), thirty of which are listed on the New
York Stock Exchange, with combined assets of approximately $98.6 billion as
of September 30, 1997. The Investment Manager also manages portfolios of
pension plans, other institutions and individuals which aggregated
approximately $3.7 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of
portfolio securities. Inter-Capital has retained Dean Witter Services Company
Inc. to perform the aforementioned administrative services for the Fund.
The Fund's Board of Trustees review the various services provided by or
under the direction of the Investment Manager to ensure that the Fund's general
investment policies and programs are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory
manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.50% to the net assets of the Liquid Asset Series; 0.50% to
the net assets of the U.S. Government Money Market Series; 0.65% to the net
assets of the U.S. Government Securities Series; 0.65% to the net assets of
the Intermediate Income Securities Series; 0.85% to the net assets of the
American Value Series; 0.85% to the net assets of the Capital Growth Series;
0.75% to the net assets of the Dividend Growth Series; 0.85% to the net
assets of the Strategist Series; 0.75% to the net assets of the Utilities
Series; 0.50% to the net assets of the Value-Added Market Series; and 1.0% to
the Global Equity Series, each business day. The management fees set forth
above for the American Value, Capital Growth, Dividend Growth, Strategist,
Utilities and Global Equity Series are higher than those paid by most
investment companies. Until December 31, 1995, the Investment Manager assumed
all expenses relating to each Series' operations (except for any brokerage
fees and a portion of organizational expenses) and waived the compensation
provided for in its Management Agreement with respect to each Series. The
Investment Manager has undertaken to continue to assume, until December 31,
1997, such expenses and to waive the compensation provided for in its
Management Agreement with respect to each Series to the extent that such
expenses and compensation on an annualized basis exceed 1.00% of the daily
net assets of the Series.
For the fiscal year ended July 31, 1997, the Series accrued total
compensation to the Investment Manager and incurred total expenses, after
assumption of expenses by the Investment Manager, each as a percentage of
average daily net assets, as follows:
COMPENSATION TO TOTAL
INVESTMENT MANAGER EXPENSES
------------------ ----------
Liquid Asset................. 0.46% 1.00%
U.S. Government Money
Market...................... 0.30 1.00
U.S. Government Securities .. 0.10 1.00
Intermediate Income.......... 0.00 1.00
American Value............... 0.64 1.00
Capital Growth............... 0.00 1.00
Dividend Growth.............. 0.75 0.97
Strategist................... 0.45 1.00
Utilities.................... 0.00 1.00
Value-Added Market........... 0.48 1.00
Global Equity................ 0.15 1.00
12
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
LIQUID ASSET SERIES
The investment objectives of the Liquid Asset Series are high current
income, preservation of capital and liquidity. The investment objectives may
not be changed without approval of the Series' shareholders. The Series seeks
to achieve its objectives by investing in the following money market
instruments:
U.S. Government Securities. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration, and
Government National Mortgage Association) or its instrumentalities (such as
the Federal Home Loan Bank, Federal Intermediate Credit Banks and Federal
Land Bank), including Treasury bills, notes and bonds;
Bank Obligations. Obligations (including certificates of deposit, bank
notes and bankers' acceptances) of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more, and instruments
secured by such obligations, not including obligations of foreign branches of
domestic banks;
Obligations of Savings Institutions. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more;
Fully Insured Certificates of Deposit. Certificates of deposit of banks
and savings institutions having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered
by the Federal Deposit Insurance Corporation), limited to $100,000 principal
amount per certificate and to 10% or less of the Series' total assets in all
such obligations and in all illiquid assets, in the aggregate;
Commercial Paper and Corporate Obligations. Commercial paper and corporate
debt obligations maturing in thirteen months or less which are rated in one
of the two highest rating categories for short-term debt obligations or, if
not rated, have been issued by issuers which have another short-term debt
obligation that is comparable in priority and security to such non-rated
securities and is so rated, by at least two nationally recognized statistical
rating organizations ("NRSROs") (or one NRSRO if the instrument was rated by
only one such organization) or which, if unrated, are of comparable quality
as determined in accordance with procedures established by the Trustees. The
NRSROs currently rating instruments of the type the Series may purchase are
Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff and
Phelps, Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc., and
Thomson BankWatch, Inc. Their rating criteria are described in the Appendix
to the Fund's Statement of Additional Information.
The foregoing rating limitations apply at the time of acquisition of a
security. Any subsequent change in any rating by a rating service will not
require elimination of any security from the Series' portfolio. However, in
accordance with procedures adopted by the Fund's Trustees pursuant to federal
securities regulations governing money market funds, if the Investment
Manager becomes aware that a portfolio security has received a new rating
from an NRSRO that is below the second highest rating, then, unless the
security is disposed of within five days, the Investment Manager will perform
a creditworthiness analysis of any such downgraded securities, which analysis
will be reported to the Trustees who will, in turn, determine whether the
securities continue to present minimal credit risks to the Liquid Asset
Series.
The ratings assigned by the NRSROs represent their opinions as to the
quality of the securities they undertake to rate. It should be emphasized,
however, that the ratings are general and not absolute standards of quality.
Subject to the foregoing requirements, the Liquid Asset Series may invest
in commercial paper which has been issued pursuant to the "private placement"
exemption afforded by Section 4(2) of the Securities Act of 1933 (the
"Securities Act") and which may be sold to institutional investors pursuant
to Rule 144A under the Securities Act. Management considers such legally
restricted, but readily marketable, commercial paper to be liquid. However,
pursuant to procedures approved by the Trustees of the Fund, if a particular
investment in such commercial paper is determined to be illiquid, that
investment will be included within the 10% limitation on illiquid investments
(see "Investment Restrictions"). If at any time the Liquid Asset Series'
investments in
13
<PAGE>
illiquid securities exceed 10% of the Series' total assets, the Series will
dispose of illiquid securities in an orderly fashion to reduce the Series'
holdings in such securities to less than 10% of its total assets.
Variable Rate and Floating Rate Obligations. Certain of the types of
investments described above may be variable rate or floating rate
obligations. The interest rates payable on variable rate or floating rate
obligations are not fixed and may fluctuate based upon changes in market
rates. The interest rate payable on a variable rate obligation may be
adjusted at pre-designated periodic intervals and on a floating rate
obligation whenever there is a change in the market rate of interest on which
the interest rate payable is based.
Although the Liquid Asset Series will generally not seek profits through
short-term trading, it may dispose of any portfolio security prior to its
maturity if, on the basis of a revised credit evaluation of the issuer or
other circumstances or considerations, it believes such disposition
advisable.
The Liquid Asset Series will attempt to balance its objectives of high
income, capital preservation and liquidity by investing in securities of
varying maturities and risks. The Liquid Asset Series will not, however,
invest in securities that mature in more than thirteen months from the date
of purchase. The amounts invested in obligations of various maturities of
thirteen months or less will depend on management's evaluation of the risks
involved. Longer-term issues, while generally paying higher interest rates,
are subject, as a result of general changes in interest rates, to greater
fluctuations in value than shorter-term issues. Thus, when rates on new debt
securities increase, the value of outstanding securities may decline, and
vice versa. Such changes may also occur, but to a lesser degree, with
short-term issues. These changes, if realized, may cause fluctuations in the
amount of daily dividends and, in extreme cases, could cause the net asset
value per share to decline (see "Determination of Net Asset Value").
Longer-term issues also increase the risk that the issuer may be unable to
pay an installment of interest or principal at maturity. Also, in the event
of unusually large redemption demands, such securities may have to be sold at
a loss prior to maturity, or the Liquid Asset Series might have to borrow
money and incur interest expense. Either occurrence would adversely impact
the amount of daily dividend and could result in a decline in the daily net
asset value per share. The Liquid Asset Series will attempt to minimize these
risks by investing in longer-term securities when it appears to management
that interest rates on such securities are not likely to increase
substantially during the period of expected holding, and then only in
securities of high quality which are readily marketable. However, there can
be no assurance that the Series will be successful in achieving this or its
other objectives.
Private Placements. As stated above, the Liquid Asset Series may invest in
commercial paper issued in reliance on the so-called "private placement"
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 (the "Securities Act") and which may be sold to other institutional
investors pursuant to Rule 144A under the Securities Act. The adoption by the
Securities and Exchange Commission of Rule 144A, which permits the resale of
certain restricted securities to institutional investors, had the effect of
broadening and increasing the liquidity of the institutional trading market
for securities subject to restrictions on resale to the general public.
Section 4(2) commercial paper sold pursuant to Rule 144A is restricted in
that it can be resold only to qualified institutional investors. However,
since institutions constitute virtually the entire market for such commercial
paper, the market for such Section 4(2) commercial paper is, in reality, as
liquid as that for other commercial paper. While the Liquid Asset Series
generally holds to maturity commercial paper in its portfolio, the advent of
Rule 144A has greatly simplified the ability to sell Section 4(2) commercial
paper to other institutional investors.
Under procedures adopted by the Trustees of the Fund, the Liquid Asset
Series may purchase Section 4(2) commercial paper without being subject to
its limitation on illiquid investments and will be able to utilize Rule 144A
to sell that paper to other institutional investors. The procedures require
that the Investment Manager consider the following factors in determining
that any restricted security eligible for sale pursuant to Rule 144A be
considered liquid: (1) the frequency of trades and quotes for the security,
(2) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers, (3) dealer undertakings to make a
market in the security, and (4) the nature of the security and the nature of
the marketplace trades (i.e., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The Investment
Manager will report to the Trustees on a quarterly basis on all restricted
securities held by the Liquid Asset Series
14
<PAGE>
with regard to their ongoing liquidity. In the event any Section 4(2)
commercial paper or restricted security held by the Liquid Asset Series is
determined to be illiquid by the Trustees and the Investment Manager, that
investment would be included as an illiquid security subject to the
limitation on illiquid investments referred to above. Investing in Rule 144A
securities could have the effect of increasing the level of illiquidity to
the extent a Series, at a particular point in time, may be unable to find
qualified institutional buyers interested in purchasing such securities.
The foregoing investment policies are not fund amental and may be changed
by the Trustees without shareholder vote.
U.S. GOVERNMENT MONEY MARKET SERIES
The investment objectives of the U.S. Government Money Market Series are
security of principal, high current income and liquidity. There is no
assurance that the investment objectives will be achieved. These investment
objectives may not be changed without the approval of the shareholders of the
U.S. Government Money Market Series. The investment policies discussed below
may be changed without shareholder approval.
The U.S. Government Money Market Series seeks to achieve its objectives by
investing in U.S. Government securities, including a variety of securities
which are issued and/or guaranteed, as to principal and interest, by the
United States Treasury, by various agencies of the United States Government,
and by various instrumentalities which have been established or sponsored by
the United States Government, and in certain interests in the foregoing
securities. Except for U.S. Treasury securities, these obligations, even
those which are guaranteed by Federal agencies or instrumentalities, may or
may not be backed by the "full faith and credit" of the United States. In the
case of securities not backed by the full faith and credit of the United
States, they may be backed, in part, by a line of credit with the U.S.
Treasury (such as the Federal National Mortgage Association), or the U.S.
Government Money Market Series must look to the agency issuing or
guaranteeing the obligation for ultimate repayment (such as securities of the
Federal Farm Credit System), in which case the U.S. Government Money Market
Series may not be able to assert a claim against the United States itself in
the event the agency or instrumentality does not meet its commitments. The
assumption of the liabilities of these agencies or instrumentalities by the
U.S. Government is discretionary and is not a lawful obligation.
Treasury securities include Treasury bills, Treasury notes, and Treasury
bonds. Some of the government agencies and instrumentalities which issue or
guarantee securities include the Federal Farm Credit System, the Federal Home
Loan Banks, the Federal Home Loan Mortgage Corporation, the Government
National Mortgage Association, the Federal National Mortgage Association, the
Farmers Home Administration, the Federal Land Banks, the Small Business
Administration, the Student Loan Marketing Association, the Export-Import
Bank, the Federal Intermediate Credit Banks and the Banks for Cooperatives.
The U.S. Government Money Market Series may invest in securities issued or
guaranteed, as to principal and interest, by any of the foregoing entities or
by any other agency or instrumentality established or sponsored by the United
States Government. Such investments may take the form of participation
interests in, and may be evidenced by deposit or safekeeping receipts for,
any of the foregoing. Participation interests are pro rata interests in U.S.
Government securities such as interests in pools of mortgages sold by the
Government National Mortgage Association; instruments evidencing deposit or
safekeeping are documentary receipts for such original securities held in
custody by others.
The Federal Deposit Insurance Corporation is the administrative authority
over the Bank Insurance Fund and the Savings Association Insurance Fund,
which are the agencies of the U.S. Government which insure (including both
principal and interest) the deposits of certain banks and savings and loan
associations up to $100,000 per deposit. Current federal regulations also
permit such institutions to issue insured negotiable certificates of deposit
("CDs") in principal amounts of $100,000 or more without regard to the
interest rate ceilings on other deposits. To remain fully insured as to
principal, these investments must currently be limited to $100,000 per bank
or savings and loan association. The interest on such investments is not
insured. The U.S. Government Money Market Series may invest in such CDs of
banks and savings and loan institutions limited to the insured amount of
principal ($100,000) in each case and limited with regard to all such CDs and
all illiquid assets, in the aggregate, to 10% of the U.S. Government Money
Market Series' total assets.
15
<PAGE>
The U.S. Government Money Market Series intends normally to hold its
portfolio securities to maturity. Historically, securities issued or
guaranteed by the U.S. Government or its agencies and instrumentalities have
involved minimal risk of loss of principal or interest, if held to maturity.
The U.S. Government Money Market Series will generally not seek profits
through short-term trading, although it may dispose of any portfolio security
prior to maturity if, on the basis of a revised evaluation or other
circumstance or consideration, the Investment Manager deems such disposition
advisable.
The U.S. Government Money Market Series will attempt to balance its
objectives of security of principal, high current income and liquidity by
investing in securities of varying maturities and risks. The U.S. Government
Money Market Series will not, however, invest in securities with an effective
maturity of more than thirteen months from the date of purchase. The amounts
invested in obligations of various maturities of thirteen months or less will
depend on management's evaluation of the risks involved. Longer-term U.S.
Government issues, while generally paying higher interest rates, are subject
to greater fluctuations in value resulting from general changes in interest
rates than shorter-term issues. Thus, when rates on new securities increase,
the value of outstanding securities may decline, and vice versa. Such changes
may also occur, to a lesser degree, with short-term issues.
These changes, if realized, may cause fluctuations in the amount of daily
dividends and, in extreme cases, could cause the net asset value per share to
decline (see "Determination of Net Asset Value"). In the event of unusually
large redemption demands, such securities may have to be sold at a loss prior
to maturity, or the U.S. Government Money Market Series might have to borrow
money and incur interest expenses. Either occurrence would adversely impact
upon the amount of daily dividend and could result in a decline in daily net
asset value per share or the redemption by the U.S. Government Money Market
Series of shares held in a shareholder's account. The U.S. Government Money
Market Series will attempt to minimize these risks by investing in relatively
longer-term securities when it appears to management that yields on such
securities are not likely to increase substantially during the period of
expected holding, and then only in securities which are readily marketable.
However, there can be no assurance that the U.S. Government Money Market
Series will be successful in achieving this objective.
U.S. GOVERNMENT SECURITIES SERIES
The investment objective of the U.S. Government Securities Series is high
current income consistent with safety of principal. There is no assurance
that the investment objective will be achieved. The investment objective may
not be changed without approval of the U.S. Government Securities Series'
shareholders. The investment policies discussed below may be changed without
shareholder approval.
The U.S. Government Securities Series seeks to achieve its objective by
investing in obligations issued and/or guaranteed by the U.S. Government or
its instrumentalities ("U.S. Government Securities"). All such obligations
are backed by the "full faith and credit" of the United States. Investments
may be made in obligations of instrumentalities of the U.S. Government only
where such obligations are guaranteed by the U.S. Government.
U.S. Government securities include U.S. Treasury securities consisting of
Treasury bills, Treasury notes and Treasury bonds. Some of the other U.S.
Government securities in which the U.S. Government Securities Series may
invest include securities of the Federal Housing Administration, the
Government National Mortgage Association, the Department of Housing and Urban
Development, the Export-Import Bank, the Farmers Home Administration, the
General Services Administration, the Maritime Administration, Resolution
Funding Corporation and the Small Business Administration. The maturities of
such securities usually range from three months to thirty years.
The Series is not limited as to the maturities of the U.S. Government
securities in which it may invest, except that the Series will not purchase
zero coupon securities with remaining maturities of longer than ten years.
For a discussion of the risks of investing in U.S. Government securities
(including such securities purchased on a when-issued, delayed delivery or
forward commitment basis and zero coupon securities), see "General Investment
Techniques" below.
While the U.S. Government Securities Series has the ability to invest in
any securities backed by the full faith and credit of the United States, it
is currently anticipated that a substantial portion of the U.S. Government
Securities Series' assets will be invested in Certificates of the Government
National Mortgage Association ("GNMA"). Should market or economic conditions
warrant, this policy is subject to change at any time at the discretion of
the Investment Manager.
16
<PAGE>
GNMA Certificates. GNMA Certificates are mortgage-backed securities. Each
Certificate evidences an interest in a specific pool of mortgages insured by
the Federal Housing Administration or the Farmers Home Administration (FHA)
or guaranteed by the Veterans Administration (VA). Scheduled payments of
principal and interest are made to the registered holders of GNMA
Certificates. The GNMA Certificates that the U.S. Government Securities
Series will invest in are of the modified pass-through type. GNMA guarantees
the timely payment of monthly installments of principal and interest on
modified pass-through certificates at the time such payments are due, whether
or not such amounts are collected by the issuer on the underlying mortgages.
The National Housing Act provides that the full faith and credit of the
United States is pledged to the timely payment of principal and interest by
GNMA of amounts due on these GNMA Certificates.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments with maximum maturities of 30 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as a result of prepayments or
refinancing of such mortgages or foreclosure. Any prepayments are passed
through to the registered holder with the regular monthly payments of
principal and interest, which has the effect of reducing future payments. Due
to the GNMA guarantee, foreclosures impose no risk to investment principal.
The occurrence of mortgage prepayments is affected by factors including the
level of interest rates, general economic conditions, the location and age of
the mortgage and other social and demographic conditions. As prepayment rates
vary widely, it is not possible to accurately predict the average life of a
particular pool. However, statistics indicate that the average life of the
type of mortgages backing the majority of GNMA Certificates is approximately
twelve years. For this reason, it is standard practice to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year. Pools of mortgages with other maturities or different
characteristics will have varying assumptions for average life. The assumed
average life of pools of mortgages having terms of less than 30 years is less
than twelve years, but typically not less than five years.
The coupon rate of interest of GNMA Certificates is lower than the
interest rate paid on the VA-guaranteed or FHA-insured mortgages underlying
the Certificates, but only by the amount of the fees paid to GNMA and the
issuer.
The U.S. Government Securities Series will invest in mortgage pass-through
securities representing participation interests in pools of residential
mortgage loans originated by United States governmental or private lenders
such as banks, broker-dealers and financing corporations and guaranteed, to
the extent provided in such securities, by the United States Government or
one of its agencies or instrumentalities. Such securities, which are
ownership interests in the underlying mortgage loans, differ from
conventional debt securities, which provide for periodic payment of interest
in fixed amounts (usually semi-annually) and principal payments at maturity
or on specified call dates. Mortgage pass-through securities provide for
monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees paid to the guarantor
of such securities and the servicer of the underlying mortgage loans. The
guaranteed mortgage pass-through securities in which the U.S. Government
Securities Series may invest include those issued or guaranteed by GNMA or
other entities which securities are backed by the full faith and credit of
the United States.
Certificates for mortgage-backed securities evidence an interest in a
specific pool of mortgages. These certificates are, in most cases, "modified
pass-through" instruments, wherein the issuing agency guarantees the payment
of principal and interest on mortgages underlying the certificates, whether
or not such amounts are collected by the issuer on the underlying mortgages.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and
the associated average life assumption. In periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the actual
average life of a pool of mortgage-related securities. Conversely, in periods
of rising rates the rate of prepayment tends to decrease, thereby lengthening
the actual average life of the pool. Reinvestment by the U.S. Government
Securities Series of prepayments may occur at higher or lower interest rates
than the original investment. Historically, actual average life has been
consistent with the twelve-year assumption referred to above. The actual
yield of each GNMA Certificate is influenced by the prepayment experience of
the mortgage pool underlying the Certificates. Interest on GNMA Certificates
is paid monthly rather than semi-annually as for traditional bonds.
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Adjustable Rate Mortgage Securities. The U.S. Government Securities Series
may also invest in adjustable rate mortgage securities ("ARMs"), which are
pass-through mortgage securities collateralized by mortgages with adjustable
rather than fixed rates. ARMs eligible for inclusion in a mortgage pool
generally provide for a fixed initial mortgage interest rate for either the
first three, six, twelve or thirteen scheduled monthly payments. Thereafter,
the interest rates are subject to periodic adjustment based on changes to a
designated benchmark index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain
ARMs provide for additional limitations on the maximum amount by which the
mortgage interest rate may adjust for any single adjustment period.
Alternatively, certain ARMs contain limitations on changes in the required
monthly payment. In the event that a monthly payment is not sufficient to pay
the interest accruing on an ARM, any such excess interest is added to the
principal balance of the mortgage loan, which is repaid through future
monthly payments. If the monthly payment for such an instrument exceeds the
sum of the interest accrued at the applicable mortgage interest rate and the
principal payment required at such point to amortize the outstanding
principal balance over the remaining term of the loan, the excess is utilized
to reduce the then outstanding principal balance of the ARM.
Collateralized Mortgage Obligations and Multiclass Pass-Through
Securities. The U.S. Government Securities Series may also invest in
collateralized mortgage obligations or "CMOs," which are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC Certificates, but
also may be collateralized by whole loans or private mortgage pass-through
securities (such collateral collectively hereinafter referred to as "Mortgage
Assets"). Multiclass pass-through securities are equity interests in a trust
composed of Mortgage Assets. Payments of principal of and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to
pay debt service on the CMOs or make scheduled distributions on the
multiclass pass-through securities. CMOs may be issued by agencies or
instrumentalities of the United States Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. However, the U.S. Government Securities Series
will only invest in CMOs which are backed by the full faith and credit of the
United States.
The issuer of a series of CMOs may elect to be treated as a Real Estate
Mortgage Investment Conduit ("REMIC"). REMICs include governmental and/or
private entities that issue a fixed pool of mortgages secured by an interest
in real property. REMICs are similar to CMOs in that they issue multiple
classes of securities, but unlike CMOs, which are required to be structured
as debt securities, REMICs may be structured as indirect ownership interests
in the underlying assets of the REMICs themselves. However, there are no
effects on the Series from investing in CMOs issued by entities that have
elected to be treated as REMICs, and all future references to CMOs shall also
be deemed to include REMICs. The Fund may invest without limitation in CMOs.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semi-annual basis. Certain CMOs may have variable or
floating interest rates and others may be stripped (securities which provide
only the principal or interest feature of the underlying security).
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of a CMO series in a number of different ways.
Generally, the purpose of the allocation of the cash flow of a CMO to the
various classes is to obtain a more predictable cash flow to the individual
tranches than exists with the underlying collateral of the CMO. As a general
rule, the more predictable the cash flow is on a CMO tranche, the lower the
anticipated yield will be on the tranche at the time of issuance relative to
prevailing market yields on mortgage-backed securities. As part of the
process of creating more predictable cash flows on most of the tranches in a
series of CMOs, one or more tranches generally must be created that absorb
most of the volatility in the cash flows on the underlying mortgage loans.
The yields on these
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tranches are generally higher than prevailing market yields on
mortgage-backed securities with similar maturities. As a result of the
uncertainty of the cash flows of these tranches, the market prices of and
yield on these tranches generally are more volatile.
The U.S. Government Securities Series also may invest in, among other
things, parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bond").
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution
date of each class, which, as with other CMO structures, must be retired by
its stated maturity date or final distribution date, but may be retired
earlier. PAC Bonds generally require payments of a specified amount of
principal on each payment date. PAC Bonds always are parallel pay CMOs with
the required principal payment on such securities having the highest priority
after interest has been paid to all classes.
INTERMEDIATE INCOME SECURITIES SERIES
The investment objective of the Intermediate Income Securities Series is
high current income consistent with safety of principal. This investment
objective may not be changed without approval of the Intermediate Income
Securities Series' shareholders. There is no assurance that the investment
objective will be achieved. The investment policies discussed below may be
changed without shareholder approval.
The Intermediate Income Securities Series seeks to achieve its objective
by investing at least 65% of its total assets in intermediate term,
investment grade fixed-income securities. Such securities have a minimum
remaining maturity of three years and a maximum remaining maturity of ten
years. The Intermediate Income Securities Series will maintain an average
dollar-weighted maturity of approximately seven years or less and may not
invest in securities with remaining maturities greater than twelve years.
Under normal conditions, the Intermediate Income Securities Series' average
weighted maturity will not be less than three years.
Under normal circumstances, the Intermediate Income Securities Series will
invest primarily in corporate debt securities and preferred stock of
investment grade, which consists of securities which are rated at the time of
purchase Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB
or better by Standard & Poor's Corporation ("S&P"), or which, if unrated, are
determined to be of comparable quality by the Fund's Trustees. While
fixed-income securities rated Baa by Moody's and BBB by S&P are considered
investment grade, they have speculative characteristics. (A more detailed
description of bond ratings is contained in the Appendix to the Statement of
Additional Information.) The Intermediate Income Securities Series may also
purchase U.S. Government securities (securities guaranteed as to principal
and interest by the United States or its agencies or instrumentalities) and
investment grade securities, denominated in U.S. dollars, issued by foreign
governments or issuers. U.S. Government securities in which the Intermediate
Income Securities Series may invest include zero coupon securities and
mortgage backed securities, such as securities issued by the Government
National Mortgage Association, the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation. There can be no assurance that
the investment objective of the Intermediate Income Securities Series will be
achieved.
The Investment Manager believes that the Intermediate Income Securities
Series' policies of purchasing intermediate term securities will reduce the
volatility of the Intermediate Income Securities Series' net asset value over
the long term. Although the values of fixed-income securities generally
increase during periods of declining interest rates and decrease during
periods of increasing interest rates, the extent of these fluctuations has
historically generally been smaller for intermediate term securities than for
securities with longer maturities. Conversely, the yield available on
intermediate term securities has also historically been lower than those
available from long term securities.
Investment by the Intermediate Income Securities Series in U.S. dollar
denominated fixed-income securities issued by foreign governments and other
foreign issuers may involve certain risks not associated with U.S. issued
securities (see "Foreign Securities" under "General Portfolio Techniques"
below). The Investment Manager believes that those risks are substantially
lessened because the foreign securities in which the Intermediate Income
Securities Series may invest are investment grade.
While the Intermediate Income Securities Series will invest primarily in
investment grade fixed-income securities, under ordinary circumstances it may
invest up to 35% of its total assets in money market instruments and
repurchase agreements, as well as, with respect to up to 5% of its net
assets,
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lower-rated fixed-income securities. No more than 5% of the Intermediate
Income Securities Series' net assets may be invested in lower-rated
fixed-income securities.
Lower-rated fixed-income securities, which are those rated from Ba or BB
to C by Moody's or S&P, respectively, are considered to be speculative
investments. Such lower-rated securities, while producing a higher yield than
investment grade securities, are subject to credit risk to a greater extent
than investment grade securities. The Intermediate Income Securities Series
does not have any minimum quality rating standard with respect to the portion
(up to 5%) of its net assets which may be invested in lower-rated securities.
See the Statement of Additional Information for a description of the special
risks and characteristics of lower-rated fixed-income securities.
There may be periods during which, in the opinion of the Investment
Manager, market conditions warrant reduction of some or all of the
Intermediate Income Securities Series' securities holdings. During such
periods, the Intermediate Income Securities Series may adopt a temporary
"defensive" posture in which greater than 35% of its total assets are
invested in cash or money market instruments. Money market instruments in
which the Intermediate Income Securities Series may invest are securities
issued or guaranteed by the U.S. Government (Treasury bills, notes and bonds,
including zero coupon securities); bank obligations; Eurodollar certificates
of deposit; obligations of savings institutions; fully insured certificates
of deposit; and commercial paper rated within the two highest grades by
Moody's or Standard & Poor's or, if not rated, are issued by a company having
an outstanding debt issue rated at least AA by S&P or Aa by Moody's.
AMERICAN VALUE SERIES
The investment objective of the American Value Series is long-term capital
growth consistent with an effort to reduce volatility. There is no assurance
that the American Value Series' objective will be achieved. The investment
objective may not be changed without the approval of the shareholders of the
American Value Series. The investment policies discussed below may be changed
without shareholder approval.
The American Value Series seeks to achieve its investment objective by
investing in a diversified portfolio of securities consisting principally of
common stocks. The American Value Series utilizes an investment process that
places primary emphasis on seeking to identify industries, rather than
individual companies, as prospects for capital appreciation. The Investment
Manager seeks to invest the assets of the Series in those industries that, at
the time of investment, are attractively valued given their above average
relative earnings growth potential at that time. Therefore, the Series is
typically over-weighted in those sectors deemed to be attractive given their
potential for above average earnings growth.
After selection of the American Value Series' 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.
The Investment Manager seeks to identify what stage of the business cycle
the economy is in and which industry groups have historically outperformed
the overall market during that stage of the cycle, i.e., typically, groups
that tend to have the highest relative earnings growth at that point in the
cycle. The Investment Manager also analyzes secular trends such as
demographics, international trade, etc., that could cause the current cycle
to differ from prior cycles and attempts to weight the portfolio
appropriately, given those factors.
Following selection of the American Value Series' specific investments,
the Investment Manager will attempt to allocate the assets of the American
Value Series so as to reduce the volatility of its portfolio. In doing so,
the American Value Series may hold a portion of its portfolio in fixed-income
securities in an effort to moderate extremes of price fluctuations. The
American Value Series may invest up to 35% of its total assets in common
stocks of non-U.S. companies, including American Depository Receipts (which
are custody receipts with respect to foreign securities) (see "Foreign
Securities" under "General Portfolio Techniques" below), in companies in
industries which have not been determined to be attractively valued or
moderately attractively valued by the Investment Manager, and in convertible
debt securities and warrants, 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
Invest-
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ment 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 shares of the
American Value Series 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 American
Value Series' 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. The term investment grade consists of fixed-income securities
rated Baa or higher by Moody's Investors Service Inc. or BBB or higher by
Standard and Poor's Corporation, or, if not rated, determined to be of
comparable quality by the Investment Manager.
Because prices of stocks fluctuate from day to day, the value of an
investment in the American Value Series will vary based upon the Series'
investment performance. The American Value Series is intended for long-term
investors who can accept the risks involved in seeking long-term growth of
capital through investment in the securities of large, medium and
small-capitalization companies. Emphasis on attractive industries may run
contrary to general market assessments and may involve risks associated with
departure from typical S&P 500 industry weightings. It should be recognized
that investing in small and medium-capitalization companies involves greater
risk than is customarily associated with investing in more established
companies.
Under normal circumstances, at least 65% of the American Value Series'
total assets will be invested in common stocks of U.S. companies in
industries which, at the time of purchase, were determined to be attractively
valued or moderately attractively valued given their above average relative
earnings growth potential.
The American Value Series may enter into repurchase agreements, invest in
zero coupon securities, invest in real estate investment trusts, lend its
portfolio securities, engage in futures contracts and options transactions,
purchase securities which are issued in private placements or are otherwise
not readily marketable, and purchase securities on a when-issued or delayed
delivery basis or a "when, as and if issued" basis, and purchase or sell
securities on a forward commitment basis, in each case in accordance with the
description of these investments and techniques (and subject to the risks)
set forth under "General Portfolio Techniques" below and in the Statement of
Additional Information.
The foregoing limitations apply at the time of acquisition based on the
last determined market value of the American Value Series' 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.
CAPITAL GROWTH SERIES
The investment objective of the Capital Growth Series is long-term capital
growth. There is no assurance that the objective will be achieved. The
investment objective may not be changed without the approval of the majority
of the shareholders of the Capital Growth Series. The following policies may
be changed by the Trustees without approval by the shareholders of the
Capital Growth Series.
The Capital Growth Series seeks to achieve its investment objective by
investing, under normal circumstances, at least 65% of its total assets in
common stocks. As part of its management of the Capital Growth Series, the
Investment Manager utilizes a screening process designed to Find companies
which have demonstrated a history of consistent growth in earnings and
revenues for the past several years. Additionally, several companies will
have solid future earnings growth characteristics and attractive valuations.
Companies meeting these requirements will be potential candidates for
investment within the Capital Growth portfolio. Subject to the Capital Growth
Series' investment objective, the Investment Manager, without notice, may
modify the foregoing screening process and/or may utilize additional or
different screening processes in connection with the investment of the
Series' assets. Dividend income will not be a consideration in the selection
of stocks for purchase.
Although the Capital Growth Series invests primarily in common stocks, the
Series may invest up to 35% of its total assets (taken at current value and
subject to any restrictions appearing elsewhere in this Prospectus), in any
combination of the following: (a) U.S. Government securities (securities
issued or guaranteed as to principal and interest by the U.S. Government or
its agencies or instrumentalities) and investment grade fixed-income
securities; (b) convertible securities; (c) money market
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instruments; (d) options on equity and debt securities; and (e) futures
contracts and related options thereon, as described below. The Capital Growth
Series may also purchase unit offerings (where corporate debt securities are
offered as a unit with convertible securities, preferred or common stocks,
warrants, or any combination thereof). U.S. Government securities in which
the Capital Growth Series may invest include zero coupon securities.
Convertible securities in which the Capital Growth Series may invest include
bonds, debentures, corporate notes, preferred stock and other securities. The
Capital Growth Series may also purchase securities on a when-issued or
delayed delivery basis, may purchase or sell securities on a forward
commitment basis, and may purchase securities on a "when, as and if issued"
basis.
There may be periods during which, in the opinion of the Investment
Manager, market conditions warrant reduction of some or all of the Capital
Growth Series' securities holdings. During such periods, the Series may adopt
a temporary "defensive" posture in which greater than 35% of its total assets
are invested in cash or money market instruments. Money market instruments in
which the Capital Growth Series may invest are securities issued or
guaranteed by the U.S. Government (Treasury bills, notes and bonds, including
zero coupon securities); obligations of banks (such as certificates of
deposit and banker's acceptances) subject to regulation by the U.S.
Government and having total assets of $1 billion or more; Eurodollar
certificates of deposit; obligations of savings banks and savings and loan
associations having total assets of $1 billion or more; fully insured
certificates of deposit; and commercial paper rated within the two highest
grades by Moody's or S&P or, if not rated, are issued by a company having an
outstanding debt issue rated at least AA by S&P or Aa by Moody's.
DIVIDEND GROWTH SERIES
The investment objective of the Dividend Growth Series is to provide
reasonable current income and long-term growth of income and capital. There
is no assurance that the objective will be achieved. The investment objective
may not be changed without the approval of the shareholders of the Dividend
Growth Series.
The Dividend Growth Series seeks to achieve its investment objective
primarily by investing at least 65% of its total assets in common stock of
companies with a record of paying dividends and the potential for increasing
dividends. The net asset value of the Dividend Growth Series' shares will
fluctuate with changes in market values of portfolio securities. The Dividend
Growth Series will attempt to avoid investing in securities with speculative
characteristics.
The Dividend Growth Series may also invest in securities of foreign
issuers in the form of American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or
trust company evidencing ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. Generally, ADRs, in
registered form, are designed for use in the United States securities markets
and EDRs, in bearer form, are designed for use in European securities
markets.
The following investment policies may be changed without the approval of
the Dividend Growth Series' shareholders:
(1) Up to 35% of the value of the Dividend Growth Series' total assets
may be invested in: (a) convertible debt securities, convertible pre
ferred securities, U.S. Government securities (securities issued or
guaranteed as to principal and interest by the United States or its
agencies and instrumentalities), investment grade corporate debt
securities and/or money market instruments when, in the opinion of the
Investment Manager, the projected total return on such securities is equal
to or greater than the expected total return on equity securities or when
such holdings might be expected to reduce the volatility of the portfolio
(for purposes of this provision, the term "total return" means the
difference between the cost of a security and the aggregate of its market
value and dividends received); or (b) in money market instruments under
any one or more of the following circumstances: (i) pending investment of
proceeds of sale of Dividend Growth Series' shares or of portfolio
securities; (ii) pending settlement of purchases of portfolio securities;
or (iii) to maintain liquidity for the purpose of meeting anticipated
redemptions.
(2) Notwithstanding any of the foregoing limitations, the Dividend Growth
Series may invest more than 35% in money market in struments to maintain,
temporarily, a "defen-
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sive" posture when, in the opinion of the Investment Manager, it is
advisable to do so because of economic or market conditions.
The foregoing limitations will apply at the time of acquisition based on
the last determined value of the Dividend Growth Series' assets. Any
subsequent change in any applicable percentage resulting from fluctuations in
value or other changes in total assets will not require elimination of any
security from the portfolio. The Dividend Growth Series may purchase
securities on a when-issued or delayed delivery basis, may purchase or sell
securities on a forward commitment basis and may purchase securities on a
"when, as and if issued" basis.
STRATEGIST SERIES
The investment objective of the Strategist Series is to maximize the total
return on its investments. This is a fundamental policy and cannot be changed
without the approval of the Strategist Series' shareholders. In seeking to
achieve its objective, the Series will actively allocate assets among the
major asset categories of equity securities, fixed-income securities and
money market instruments. Total return consists of current income (including
dividends, interest and, in the case of discounted instruments, discount
accruals) and capital appreciation (including realized and unrealized capital
gains and losses). There can be no assurance that the investment objective of
the Strategist Series will be achieved.
The achievement of the Strategist Series' investment objective depends
upon the ability of the Investment Manager to correctly assess the effects of
economic and market trends on different sectors of the market. The Investment
Manager believes that superior investment returns at lower risk are
achievable by actively allocating resources to the equity, debt and money
market sectors of the market as opposed to relying solely on just one market.
At times, the equity market may hold a higher potential return than the debt
market and would warrant a higher asset allocation. The reverse would be true
when the bond market's potential return is higher. Investments in the money
market sector can be used to soften market declines when both bonds and
equities are fully priced. Conserving capital during declining markets can
contribute to maximizing total return over a longer period of time. In
addition, the securities of companies within various economic sectors may at
times offer higher returns than other sectors and can thus contribute to
superior returns. Finally, the Investment Manager believes that superior
stock selection can also contribute to superior total return.
To facilitate reallocation of the Strategist Series' assets in accordance
with the Investment Manager's views as to shifts in the marketplace, the
Investment Manager will employ transactions in futures contracts and options
thereon. For example, if the Investment Manager believes that a ten percent
increase in that portion of the Strategist Series' assets invested in fixed
income securities and a concomitant decrease in that portion of the
Strategist Series' assets invested in equity securities is timely, the
Strategist Series might purchase interest rate futures, such as Treasury bond
futures, and sell stock index futures, such as the Standard & Poor's 500
Stock Index futures, in equivalent amounts. The utilization of futures
transactions, rather than the purchase and sale of equity and fixed-income
securities, increases the speed and efficacy of the Strategist Series' asset
reallocations.
Within the equity sector, the Investment Manager will actively allocate
funds to those economic sectors expected to benefit from major trends and to
individual stocks which are deemed to have superior investment potential. The
Strategist Series may purchase equity securities (including convertible debt
obligations and convertible preferred stock) sold on the New York, American
and other stock exchanges and in the over-the-counter market. In addition,
the Strategist Series may purchase and sell warrants and purchase and write
listed and over-the-counter options on individual stocks and stock indexes to
hedge against adverse price movements in its equity portfolio and to increase
its total return through the receipt of premium income. The Strategist Series
may also purchase and sell stock index futures and options thereon to hedge
against adverse price movements in its equity portfolio and to facilitate
asset reallocations into and out of the equity area.
Within the fixed-income sector of the market, the Investment Manager will
seek to maximize the return on its investments by adjusting maturities and
coupon rates as well as by exploiting yield differentials among different
types of investment grade bonds. Fixed-income securities in which the
Strategist Series may invest may have maturities ranging from one year to
greater than five years and may include debt securities, including U.S.
Government securities (securities issued or guaranteed as to principal and
interest by the United States or its agencies and instrumentalities) and
corporate securities which are rated at the time of purchase Baa or
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better by Moody's Investors Service, Inc. ("Moody's") or BBB or better by
Standard & Poor's Corporation ("S&P"), or which, if unrated, are deemed to be
of comparable quality by the Fund's Trustees (a description of corporate bond
ratings is contained in the Appendix to the Statement of Additional
Information). While bonds rated Baa by Moody's or BBB by S&P are considered
investment grade, they have speculative characteristics as well. U.S.
Government securities which may be purchased include zero coupon securities.
In addition, the Strategist Series may purchase and write listed and
over-the-counter options on fixed-income securities to hedge against adverse
price movements in its fixed-income portfolio and to increase its total
return through the receipt of premium income. The Strategist Series may also
purchase and sell interest rate futures and options thereon to hedge against
adverse price movements in its fixed-income portfolio and to facilitate asset
reallocations into and out of the fixed-income area.
Within the money market sector of the market, the Investment Manager will
seek to maximize returns by seeking out those short-term instruments with the
highest yields. The money market portion of the Strategist Series will
contain short-term (maturities of up to one year) fixed-income securities,
issued by private and governmental institutions. Such securities may include:
U.S. Government securities; bank obligations (such as certificates of deposit
and banker's acceptances); Eurodollar certificates of deposit issued by
foreign branches of domestic banks; obligations of savings institutions;
fully insured certificates of deposit; and commercial paper rated within the
two highest grades by S&P or the highest grade by Moody's or, if not rated,
issued by a company having an outstanding debt issue rated at least AA by S&P
or Aa by Moody's. To the extent the Strategist Series purchases Eurodollar
certificates of deposit issued by foreign branches of domestic banks,
consideration will be given to any risks attendant to their domestic
marketability, the lower reserve requirements normally mandated for overseas
banking operations, the possible impact of interruptions in the flow of
international currency transactions, and future international political and
economic developments which might adversely affect the payment of principal
or interest.
Non-Diversified Status. The Strategist Series is a non-diversified
investment company and, as such, is not subject to the diversification
requirements of the Act. As a non-diversified investment company, the
Strategist Series may invest a greater portion of its assets in the
securities of a single issuer and thus is subject to greater exposure to
risks such as a decline in the credit rating of that issuer. However, the
Strategist Series has qualified and expects to continue to qualify as a
regulated investment company under the federal income tax laws and, as such,
is subject to the applicable diversification requirements of the Internal
Revenue Code, as amended (the "Code"). As a regulated investment company
under the Code, the Strategist Series may not, as of the end of any of its
fiscal quarters, have invested more than 25% of its total assets in the
securities of any one issuer (including a foreign government), or as to 50%
of its total assets, have invested more than 5% of its total assets in the
securities of a single issuer.
UTILITIES SERIES
The investment objective of the Utilities Series is to provide current
income and long-term growth of income and capital. There can be no assurance
that the investment objective will be achieved. This objective is fundamental
and may not be changed without shareholder approval. The investment policies
discussed below may be changed without shareholder approval.
The Utilities Series seeks to achieve its invest ment objective by
investing in equity and fixed-income securities of companies engaged in the
public utilities industry. The term "public utilities industry" consists of
companies engaged in the manufacture, production, generation, transmission,
sale and distribution of gas and electric energy, as well as companies
engaged in the communications field, including telephone, telegraph,
satellite, microwave and other companies providing communication facilities
for the public, but excluding public broadcasting companies. For purposes of
the Utilities Series, a company will be considered to be in the public
utilities industry if, during the most recent twelve month period, at least
50% of the company's gross revenues, on a consolidated basis, are derived
from the public utilities industry. Under ordinary circumstances, at least
65% of the Utilities Series' total assets will be invested in securities of
companies in the public utilities industry.
The Investment Manager believes the Utilities Series' investment policies
are suited to benefit from certain characteristics and historical performance
of the securities of public utility companies. Many of these companies have
historically set a pattern of paying regular dividends and increasing their
common stock dividends over time, and the average
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common stock dividend yield of utilities historically has substantially
exceeded that of industrial stocks. The Investment Manager believes that
these factors may not only provide current income but also generally tend to
moderate risk and thus may enhance the opportunity for appreciation of
securities owned by the Utilities Series, although the potential for capital
appreciation has historically been lower for many utility stocks compared
with most industrial stocks. There can be no assurance that the historical
investment performance of the public utilities industry will be indicative of
future events and performance.
The Utilities Series invests in both equity securities (common stocks and
securities convertible into common stock) and fixed-income securities (bonds
and preferred stock) in the public utilities industry. The Utilities Series
will shift its asset allocation without restriction between types of
utilities and between equity and fixed-income securities based upon the
Investment Manager's determination of how to achieve the Utilities Series'
investment objective in light of prevailing market, economic and financial
conditions.
Criteria utilized by the Investment Manager in the selection of equity
securities include the following screens: earnings and dividend growth; book
value; dividend discount; and price/earnings relationships. In addition, the
Investment Manager makes continuing assessments of management, the prevailing
regulatory framework and industry trends. The Investment Manager may also
utilize computer-based equity selection models. In keeping with the Utilities
Series' objective, if in the opinion of the Investment Manager favorable
conditions for capital growth of equity securities are not prevalent at a
particular time, the Utilities Series may allocate its assets predominantly
or exclusively in debt securities with the aim of obtaining current income as
well as preserving capital and thus benefiting long term growth of capital.
The Utilities Series may purchase equity securities sold on the New York,
American and other stock exchanges and in the over-the-counter market.
Fixed-income securities in which the Utilities Series may invest are debt
securities and preferred stocks, which are rated at the time of purchase Baa
or better by Moody's Investors Service, Inc. ("Moody's") or BBB or better by
Standard & Poor's Corporation ("S&P"), or which, if unrated, are deemed to be
of comparable quality by the Fund's Trustees. The Utilities Series may also
purchase equity and fixed-income securities issued by foreign issuers
(including American Depository Receipts, European Depositary Receipts or
other similar securities convertible into securities of foreign issuers).
Under normal circumstances the average weighted maturity of the fixed-income
securities held by the Utilities Series is expected to be in excess of seven
years. A description of corporate bond ratings is contained in the Appendix
to the Statement of Additional Information.
Investments in fixed-income securities rated either BBB by S&P or Baa by
Moody's (the lowest credit ratings designated "investment grade") have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make
principal and interest payments than would be the case with investments in
securities with higher credit ratings. If a fixed-income security held by the
Utilities Series is rated BBB or Baa and is subsequently downgraded by a
rating agency, the Utilities Series will retain such security in its
portfolio until the Investment Manager determines that it is practicable to
sell the security without undue market or tax consequences to the Utilities
Series. In the event that such downgraded securities constitute 5% or more of
the Series' total assets, the Investment Manager will immediately sell
securities sufficient to reduce the total to below 5%.
While the Utilities Series will invest primarily in the securities of
public utility companies, under ordinary circumstances it may invest up to
35% of its total assets in U.S. Government securities (securities issued or
guaranteed as to principal and interest by the United States or its agencies
and instrumentalities), money market instruments, repurchase agreements, and
options and futures, as described below. U.S. Government securities in which
the Utilities Series may invest include zero coupon securities.
There may be periods during which, in the opinion of the Investment
Manager, market conditions warrant reduction of some or all of the Utilities
Series' securities holdings. During such periods, the Utilities Series may
adopt a temporary "defensive" posture in which greater than 35% of its net
assets are invested in cash or money market instruments. Money market
instruments in which the Utilities Series may invest are securities issued or
guaranteed by the U.S. Government (Treasury bills, notes and bonds, including
zero coupon securities); bank obligations (such as certificates of deposit
and bank-
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ers' acceptances); Eurodollar certificates of deposit; obligations of savings
institutions; fully insured certificates of deposit; and commercial paper
rated within the two highest grades by Moody's or S&P or, if not rated, are
issued by a company having an outstanding debt issue rated at least AA by S&P
or Aa by Moody's.
Electric Utilities Industry. Under normal circumstances, the Utilities
Series will invest at least 25% of its total assets in debt and equity
securities issued by companies in the electric utilities industry. For
temporary defensive purposes, however, the Series may reduce its investments
in the electric utilities industry to less than 25% of its total assets. The
Utilities Series' policy of concentrating its investments in the electric
utilities industry is fundamental and may not be changed without the approval
of a majority of the Utilities Series' voting securities.
The electric utilities industry as a whole has certain characteristics and
risks particular to that industry. Unlike industrial companies, the rates
which utility companies may charge their customers generally are subject to
review and limitation by governmental regulatory commissions. Although rate
changes of a utility usually fluctuate in approximate correlation with
financing costs, due to political and regulatory factors, rate changes
ordinarily occur only following a delay after the changes in financing costs.
This factor will tend to favorably affect a utility company's earnings and
dividends in times of decreasing costs, but conversely will tend to adversely
affect earnings and dividends when costs are rising. In addition, the value
of electric utility debt securities (and, to a lesser extent, equity
securities) tends to have an inverse relationship to the movement of interest
rates.
Among the risks affecting the utilities industry are the following: risks
of increases in fuel and other operating costs; the high cost of borrowing to
finance capital construction during inflationary periods; restrictions on
operations and increased costs and delays associated with compliance with
environmental and nuclear safety regulations; the difficulties involved in
obtaining natural gas for resale or fuel for generating electricity at
reasonable prices; the risks in connection with the construction and
operation of nuclear power plants; the effects of energy conservation,
non-regulated competition, open access to transmission, and the effects of
regulatory changes, such as linking future rate increases to inflation or
other factors not directly related to the actual operating profits of the
enterprise.
VALUE-ADDED MARKET SERIES
The investment objective of the Value-Added Market Series is to achieve a
high level of total return on its assets through a combination of capital
appreciation and current income. This is a fundamental policy and cannot be
changed without the approval of the shareholders of the Value-Added Market
Series. There can be no assurance that the Value-Added Market Series'
investment objective will be achieved. The investment policies discussed
below may be changed without shareholder approval.
The Value-Added Market Series will seek to attain its investment objective
by investing, on an equally-weighted basis, in a diversified portfolio of
common stocks of the companies which are included in the Standard & Poor's
500 Composite Stock Price Index (the "S&P Index"). Standard & Poor's 500 is a
trademark of Standard & Poor's Corporation ("S&P") and has been licensed for
use by the Fund. The Value-Added Market Series is not sponsored, endorsed,
sold or promoted by S&P and S&P makes no representation regarding the
advisability of investing in the Value-Added Market Series. The S&P Index
consists of 500 common stocks selected by S&P, most of which are listed on
the New York Stock Exchange. Inclusion of a stock in the S&P Index implies no
opinion by S&P as to the quality of the stock as an investment. The S&P Index
is determined, composed and calculated by S&P without regard to the
Value-Added Market Series. S&P is neither a sponsor of, nor in any way
affiliated with, the Value-Added Market Series, and S&P makes no
representation or warranty, express or implied, on the advisability of
investing in the Value-Added Market Series or as to the ability of the S&P
Index to track general stock market performance, and S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the S&P Index or any data included therein. S&P has no connection
with the Value-Added Market Series other than the licensing to the Investment
Manager of the use of the S&P Index in connection with the Value-Added Market
Series.
The Value-Added Market Series invests in the stocks included in the S&P
Index on an equally-weighted basis; that is, to the extent practicable and
subject to the specific investment policies and restrictions described below,
an equal portion of the Value-Added Market Series' assets is invested in each
of the 500 securities in the S&P Index. This differs from the S&P Index and
nearly all other major
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indexes, which generally are weighted on a market-capitalization basis. For
example, the 50 largest capitalization issuers in the S&P Index represent
approximately 45% of the S&P Index. However, in accordance with its
investment policies, the Value-Added Market Series will strive to maintain
each stockholding equally, so that, subject to the specific investment
policies and investment restrictions described below, approximately 0.20 of
1% of the Value-Added Market Series' total invested assets will be invested
in each of the 500 companies included in the S&P Index. The equal weighting
technique is based on the Investment Manager's statistical analysis that most
portfolio performance is usually generated by only one-quarter to one-third
of the portfolio. Since there is no certainty that any specific company or
industry selection, even within a broad-based index such as the S&P Index,
will achieve superior performance, the Investment Manager believes
equal-weighting may benefit the Value-Added Market Series in seeking to
attain its investment objective.
The holdings of the Value-Added Market Series will be adjusted by the
Investment Manager not less than quarterly to reflect changes in the
Value-Added Market Series' asset levels and in the relative values of the
common stocks held by the Value-Added Market Series so that following each
adjustment the value of the Value-Added Market Series' investment in each
security will be equal to the extent practicable. In addition, whenever a
company is eliminated from or added to the S&P Index, the Value-Added Market
Series will sell or purchase the stock of such company, as the case may be,
as soon as practicable. Accordingly, securities may be purchased and sold by
the Value-Added Market Series when such purchases and sales would not be made
under traditional investment criteria.
In addition, while the Investment Manager will not actively manage the
portfolio other than to follow the guidelines set forth above for following
an equally-weighted S&P Index, it may eliminate one or more securities (or
elect not to increase the Value-Added Market Series' position in such
securities), notwithstanding the continued listing of such securities in the
S&P Index, in the following circumstances: (a) the stock is no longer
publicly traded, such as in the case of a leveraged buyout or merger; (b) an
unexpected adverse development with respect to a company, such as bankruptcy
or insolvency; (c) in the view of the Investment Manager, there is a high
degree of risk with respect to a company that bankruptcy or insolvency will
occur; or (d) in the view of the Investment Manager, based on its
consideration of the price of a company's securities, the depth of the market
in those securities and the amount of those securities held or to be held by
the Value-Added Market Series, retaining shares of a company or making any
additional purchases would be inadvisable because of liquidity risks. The
Investment Manager will monitor on an ongoing basis all companies falling
within any of the circumstances described in this paragraph, and will return
such company's shares to the Value-Added Market Series' holdings, or
recommence purchases, when and if those conditions cease to exist.
The Value-Added Market Series may purchase futures contracts on stock
indexes at a time when it is not fully invested on account of additional cash
invested in the Series or income received by the Series. Purchase of a
futures contract in those circumstances serves as a temporary substitute for
the purchase of individual stocks which may then be purchased in orderly
fashion.
A portion of the Value-Added Market Series' assets, not exceeding 25% of
its total assets, may be invested temporarily in money market instruments
under any one or more of the following circumstances: (a) pending investment
of proceeds of sale of shares of the Value-Added Market Series; (b) pending
settlement of purchases of portfolio securities; or (c) to maintain liquidity
for the purposes of meeting anticipated redemptions. The money market
instruments in which the Value-Added Market Series may invest are
certificates of deposit of U.S. domestic banks with assets of $1 billion or
more; bankers' acceptances; time deposits; U.S. Government and U.S.
Government agency securities; or commercial paper rated within the two
highest grades by S&P or Moody's Investors Service, Inc., or, if not rated,
are of comparable quality as determined by the Fund's Trustees, and which
mature within one year from the date of purchase.
GLOBAL EQUITY SERIES
The investment objective of the Global Equity Series is to seek to obtain
total return on its assets primarily through long-term capital growth and to
a lesser extent from income. There can be no assurance that the Global Equity
Series will achieve its objective. The investment objective is a fundamental
policy and cannot be changed without the approval of the shareholders of the
Global Equity Series. The investment policies discussed below may be changed
without shareholder approval.
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The Global Equity Series will invest at least 65% of its total assets in
equity securities issued by issuers located in various countries around the
world. The Series' investment portfolio will, thereby, be invested in at
least three separate countries.
The Global Equity Series will seek to achieve such objective through
investments in all types of common stocks and equivalents (such as
convertible debt securities and warrants), preferred stocks and bonds and
other debt obligations of domestic and foreign companies and governments and
international organizations. There is no limitation on the percent or amount
of the Global Equity Series' assets which may be invested for growth or
income.
The Global Equity Series will maintain a flexible investment policy and,
based on a worldwide investment strategy, will invest in a diversified
portfolio of securities of companies and governments located throughout the
world. Such securities will generally be those with a record of paying
dividends and the potential for increasing dividends. The percentage of the
Global Equity Series' assets invested in particular geographic sectors will
shift from time to time in accordance with the judgment of the Investment
Manager.
Notwithstanding the Global Equity Series' investment objective of seeking
total return, the Global Equity Series may, for defensive purposes, without
limitation, invest in: obligations of the United States Government, its
agencies or instrumentalities; cash and cash equivalents in major currencies;
repurchase agreements; money market instruments; and commercial paper.
The Global Equity Series may also invest in securities of foreign issuers
in the form of American Depository Receipts (ADRs), European Depository
Receipts (EDRs) or other similar securities convertible into securities of
foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying securities. EDRs are European receipts evidencing
a similar arrangement. Generally, ADRs, in registered form, are designed for
use in the United States securities markets and EDRs, in bearer form, are
designed for use in European securities markets.
The Global Equity Series may purchase securities on a when-issued or
delayed delivery basis, may purchase or sell securities on a forward
commitment basis and may purchase securities on a "when, as and if issued"
basis.
GENERAL INVESTMENT TECHNIQUES
Repurchase Agreements. Each Series of the Fund may enter into repurchase
agreements, which may be viewed as a type of secured lending by the Series,
and which typically involve the acquisition by a Series of debt securities
from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Series will
sell back to the institution, and that the institution will repurchase, the
underlying security at a specified price and at a fixed time in the future,
usually not more than seven days from the date of purchase. While repurchase
agreements involve certain risks not associated with direct investments in
debt securities, including the risks of default or bankruptcy of the selling
financial institution, the Fund follows procedures designed to minimize those
risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions and
maintaining adequate collateralization.
Reverse Repurchase Agreements. The Liquid Asset, U.S. Government Money
Market and Intermediate Income Securities Series may also use reverse
repurchase agreements as part of their investment strategy. Reverse
repurchase agreements involve sales by the Series of assets concurrently with
an agreement by the Series to repurchase the same assets at a later date at a
fixed price. Such transactions are only advantageous if the interest cost to
the Series of the reverse repurchase transaction is less than the cost of
otherwise obtaining the cash. Opportunities to achieve this advantage may not
always be available, and the Series intend to use the reverse repurchase
technique only when it will be to their advantage to do so. Reverse
repurchase agreements are considered borrowings by the Series and for
purposes other than meeting redemptions may not exceed 5% of the Series'
total assets.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, each Series of 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
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at the time of the commitment, but delivery and payment can take place a month
or more after the date of the commitment. While a Series will only purchase
securities on a when-issued, delayed delivery or forward commitment basis with
the intention of acquiring the securities, a Series may sell the securities
before the settlement date, if it is deemed advisable. The securities so
purchased or sold are subject to market fluctuation and no interest accrues to
the purchaser during this period. At the time a Series 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. A
Series will also establish a segregated account with its custodian bank in
which it will continually maintain cash or cash equivalents or other high grade
portfolio securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis. An increase in the
percentage of a Series' assets committed to the purchase of securities on a
when-issued, delayed delivery or forward commitment basis may increase the
volatility of a Series' net asset value.
When, As and If Issued Securities. Each Series (other than the U.S.
Government Money Market Series) 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 until the Investment
Manager determines that the issuance of the security is probable, whereupon
the accounting treatment for such commitment will be the same as for a
commitment to purchase a security on a when-issued, delayed delivery or
forward commitment basis, described above and in the Statement of Additional
Information. An increase in the percentage of a Series' assets committed to
the purchase of securities on a "when, as and if issued" basis may increase
the volatility of its net asset value.
Zero Coupon Securities. A portion of the fixed-income securities purchased
by each Series may be zero coupon securities. Such securities are purchased
at a discount from their face amount, giving the purchaser the right to
receive their full value at maturity. The interest earned on such securities
is, implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent a Series invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as a Series) of a zero coupon security
accrue a portion of the discount at which the security was purchased as
income each year even though the Series receives no interest payments in cash
on the security during the year.
Warrants. Each Series (other than the Liquid Asset Series, the U.S.
Government Money Market Series and the U.S. Government Securities Series) may
acquire warrants attached to other securities and, in addition, each of the
Dividend Growth Series, the American Value Series, Strategist Series,
Utilities Series and Global Equity Series may invest up to 5% of the value of
its total assets in warrants not attached to other securities, including up
to 2% of such assets in warrants not listed on either the New York or
American Stock Exchange. Warrants are, in effect, an option to purchase
equity securities at a specific price, generally valid for a specific period
of time, and have no voting rights, pay no dividends and have no rights with
respect to the corporation issuing them. If warrants remain unexercised at
the end of the exercise period, they will lapse and the Series' investment in
them will be lost. The prices of warrants do not necessarily move parallel to
the prices of the underlying securities.
Private Placements. The Liquid Asset, Intermediate Income Securities,
American Value, Capital Growth, Dividend Growth, Strategist, Utilities,
Value-Added Market and Global Equity Series may invest up to 15% (10% with
respect to the Liquid Asset Series) of their net assets in securities which
are subject to restrictions on resale because they have not been registered
under the Securities Act or which are otherwise not readily marketable
("illiquid securities"). These securities are generally referred
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<PAGE>
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 Series from disposing of them promptly at reasonable prices. The
Series may have to bear the expense of registering such securities for resale
and the risk of substantial delays in effecting such registration. The above
policy on purchase of illiquid securities may be changed by the Fund's
Trustees.
Rule 144A under the Securities Act permits the Series to sell restricted
securities to qualified institutional buyers without limitation. The Trustees
of the Fund have adopted procedures for the Investment Manager to utilize in
determining the liquidity of securities which may be sold pursuant to Rule
144A. In addition, the Trustees have determined that, where such securities
are determined to be liquid under these procedures, investment in such
securities by the Series shall not be subject to the limitation on
investments in illiquid securities referred to above. Investing in Rule 144A
securities could have the effect of increasing the level of illiquidity to
the extent a Series, at a particular point in time, may be unable to find
qualified institutional buyers interested in purchasing such securities.
Investments in Securities Rated Baa by Moody's or BBB by S&P. The
Intermediate Income Securities Series, American Value Series, Capital Growth
Series, Dividend Growth Series, Strategist Series and Utilities Series may
invest a portion of their assets in fixed-income securities rated at the time
of purchase Baa or better by Moody's Investors Service, Inc. ("Moody's") or
BBB or better by Standard & Poor's Corporation ("S&P"). Investments in
fixed-income securities rated either Baa by Moody's or BBB by S&P (the lowest
credit ratings designated "investment grade") may have speculative
characteristics and, therefore, changes in economic conditions or other
circumstances are more likely to weaken their capacity to make principal and
interest payments than would be the case with investments in securities with
higher credit ratings. If a bond held by a Series is downgraded by a rating
agency to a rating of below Baa or BBB, the Series will retain such security
in its portfolio until the Investment Manager determines that it is
practicable to sell the security without undue market or tax consequences to
the Series.
Convertible Securities. The American Value Series, Capital Growth Series,
Dividend Growth Series, Strategist Series, Utilities Series and Global Equity
Series may invest a portion of their assets in convertible securities. A
convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, entail
less risk than the corporation's common stock. The value of a convertible
security is a function of its "investment value" (its value as if it did not
have a conversion privilege), and its "conversion value" (the security's
worth if it were to be exchanged for the underlying security, at market
value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security
(the credit standing of the issuer and other factors may also have an effect
on the convertible security's value). If the conversion value exceeds the
investment value, the price of the convertible security will rise above its
investment value and, in addition, will sell at some premium over its
conversion value. (This premium represents the price investors are willing to
pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the conversion privilege.) At such
times the price of the convertible security will tend to fluctuate directly
with the price of the underlying equity security.
Because of the special nature of certain of the Series' permitted
investments in lower rated convertible securities, the Investment Manager
must take account of certain special considerations in assessing the risks
associated with such investments. The prices of lower rated securities have
been found to be less sensitive to changes in prevailing interest rates than
higher rated investments, but are likely to be more sensitive to adverse
economic changes or individual corporate developments. During an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress which would adversely affect their
ability to service their principal and interest payment obligations, to meet
their projected business goals or to obtain additional financing. If the
issuer of a lower rated convertible security owned by a Series defaults, such
Series may incur additional expenses to seek recovery. In addition, periods
of economic
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uncertainty and change can be expected to result in an increased volatility of
market prices of lower rated securities and a corresponding volatility in the
net asset value of a share of the Series.
Real Estate Investment Trusts. Each Series, except the Liquid Asset
Series, U.S. Government Money Market Series, U.S. Government Securities
Series and Intermediate Income Securities Series may invest in real estate
investment trusts, which pool investors' funds for investments primarily in
commercial real estate properties. Investment in real estate investment
trusts may be the most practical available means for the Series to invest in
the real estate industry (the Series are prohibited from investing in real
estate directly). As a shareholder in a real estate investment trust, a
Series would bear its ratable share of the real estate investment trust's
expenses, including its advisory and administration fees. At the same time
the Series would continue to pay its own investment management fees and other
expenses, as a result of which the Series and its shareholders in effect will
be absorbing duplicate levels of fees with respect to investments in real
estate investment trusts. Real estate investment trusts are not diversified
and are subject to the risk of financing projects. They are also subject to
heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation, and the possibility of failing to qualify for tax-free
status under the Internal Revenue Code and failing to maintain exemption from
the Investment Company Act of 1940, as amended.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, each Series of 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 Series (subject to certain notice provisions
described in the Statement of Additional Information), and are at all times
secured by cash or money market instruments, which are maintained in a
segregated account pursuant to applicable regulations and that are equal to
at least the market value, determined daily, of the loaned securities. As
with any extensions of credit, there are risks of delay in recovery and in
some cases even loss of rights in the collateral should the borrower of the
securities fail financially. However, loans of portfolio securities will only
be made to firms deemed by the Investment Manager to be creditworthy and when
the income which can be earned from such loans justifies the attendant risks.
Foreign Securities. The Global Equity Series will invest extensively in
foreign securities. In addition, the American Value, Capital Growth,
Strategist, Utilities and Intermediate Income Securities Series may, to a
considerably lesser extent, invest in foreign securities.
Foreign securities investments may be affected by changes in currency
rates or exchange control regulations, changes in governmental administration
or economic or monetary policy (in the United States and abroad) or changed
circumstances in dealings between nations. Fluctuations in the relative rates
of exchange between the currencies of different nations will affect the value
of a Series' investments denominated in foreign currency. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S.
dollar value of a Series' assets denominated in that currency and thereby
impact upon the Series' total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected
by the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade. The foreign currency
transactions of a Series will be conducted on a spot basis or, in the case of
the Global Equity Series, through forward contracts or futures contracts
(described below under "Options and Futures Transactions"). The Series will
incur certain costs in connection with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer
of Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly available
information about such companies. Moreover, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers
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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 a Series' trades effected in such
markets. Inability to dispose of portfolio securities due to settlement delays
could result in losses to a Series due to subsequent declines in value of such
securities and the inability of the Series to make intended security purchases
due to settlement problems could result in a failure of the Series to make
potentially advantageous investments. To the extent a Series purchases
Eurodollar certificates of deposit issued by foreign branches of domestic
United States banks, consideration will be given to their domestic
marketability, the lower reserve requirements normally mandated for overseas
banking operations, the possible impact of interruptions in the flow of
international currency transactions, and future international political and
economic developments which might adversely affect the payment of principal or
interest.
Mortgage-Backed Securities. The U.S. Government Securities Series may
invest in mortgage-backed securities. Mortgage-backed securities have certain
different characteristics than traditional debt securities. Among the major
differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if the Series purchases such a security at
a premium, a prepayment rate that is faster than expected may reduce yield to
maturity, while a prepayment rate that is slower than expected may have the
opposite effect of increasing yield to maturity. Alternatively, if the Series
purchases these securities at a discount, faster than expected prepayments
will increase, while slower than expected prepayments may reduce, yield to
maturity.
Mortgage-backed securities, like all fixed-income securities, generally
decrease in value as a result of increases in interest rates. In addition,
although generally the value of fixed-income securities increases during
periods of falling interest rates, mortgage-backed securities may benefit
less than other fixed-income securities from declining interest rates because
of the risk of prepayments. As discussed above under "GNMA Certificates," the
assumed average life of mortgages backing the majority of GNMA Certificates
is twelve years. This average life is likely to be substantially shorter than
the original maturity of the mortgage pools underlying the certificates, as a
pool's duration may be shortened by unscheduled or early payments of
principal on the underlying mortgages. As prepayment rates vary widely, it is
not possible to accurately predict the average life of a particular pool.
Although the extent of prepayments or a pool of mortgage loans depends on
various factors, including the prevailing level of interest rates, general
economic conditions, the location and age of the mortgage and other social
and demographic conditions, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. If the Series has
purchased securities backed by pools containing mortgages whose yields exceed
the prevailing interest rate any premium paid for such securities may be
lost. As a result, the net asset value of shares of the U.S. Government
Securities Series and the Series' ability to achieve its investment objective
may be adversely affected by mortgage prepayments. Amounts available for
reinvestment by the Series are likely to be greater during a period of
declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates.
There are certain risks associated specifically with CMOs. A number of
different factors, including the extent of prepayment of principal of the
Mortgage Assets, affect the availability of cash for principal payments by
the CMO issuer on any payment date and, accordingly, affect the timing of
principal payments on each CMO class.
Forward Foreign Currency Exchange Contracts. The American Value, Capital
Growth, Strategist, Utilities and Global Equity Series may enter into forward
foreign currency exchange contracts ("forward contracts") to facilitate
settlement of foreign currency denominated portfolio securities. In addition,
the Global Equity Series may enter into forward contracts in connection with
its foreign securities investments under various other circumstances.
A forward contract involves an obligation to purchase or sell a currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. A Series may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
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When a Series enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may, for example, desire to
"lock in" the price of the security in U.S. dollars or some other foreign
currency which the Series is temporarily holding in its portfolio. By
entering into a forward contract for the purchase or sale, for a fixed amount
of dollars or other currency, of the amount of foreign currency involved in
the underlying security transactions, the Series will be able to protect
itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar or other currency which is being used
for the security purchase and the foreign currency in which the security is
denominated during the period between the date on which the security is
purchased or sold and the date on which payment is made or received.
Other circumstances under which the Global Equity Series may enter into
forward contracts are as follows. At times, when, for example, the Global
Equity Series' Investment Manager believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar or
some other foreign currency, the Global Equity Series may enter into a
forward contract to sell, for a fixed amount of dollars or other currency,
the amount of foreign currency approximating the value of some or all of the
Series' securities holdings (or securities which the Series has purchased for
its portfolio) denominated in such foreign currency. Under identical
circumstances, the Series may enter into a forward contract to sell, for a
fixed amount of U.S. dollars or other currency, an amount of foreign currency
other than the currency in which the securities to be hedged are denominated
approximating the value of some or all of the portfolio securities to be
hedged. This method of hedging, called "cross-hedging," will be selected by
the Investment Manager when it is determined that the foreign currency in
which the portfolio securities are denominated has insufficient liquidity or
is trading at a discount as compared with some other foreign currency with
which it tends to move in tandem.
In addition, when the Global Equity Series' Investment Manager anticipates
purchasing securities at some time in the future, and wishes to lock in the
current exchange rate of the currency in which those securities are
denominated against the U.S. dollar or some other foreign currency, the
Series may enter into a forward contract to purchase an amount of currency
equal to some or all of the value of the anticipated purchase, for a fixed
amount of U.S. dollars or other currency. The Series may, however, close out
the forward contract without purchasing the security which was the subject of
the "anticipatory" hedge.
Lastly, the Global Equity Series is permitted to enter into forward
contracts with respect to currencies in which certain of its portfolio
securities are denominated and on which options have been written (see
"Options and Futures Transactions").
In all of the above circumstances, if the currency in which the Series'
securities holdings (or anticipated portfolio securities) are denominated
rises in value with respect to the currency which is being purchased (or
sold), then the Series will have realized fewer gains than had the Series not
entered into the forward contracts. Moreover, the precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible, since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and
the date it matures. The Series are not required to enter into such
transactions with regard to their foreign currency-denominated securities and
will not do so unless deemed appropriate by the Investment Manager.
The Global Equity Series generally will not enter into a forward contract
with a term of greater than one year, although it may enter into forward
contracts for periods of up to five years. To the extent that the Global
Equity Series enters into forward foreign currency contracts to hedge against
a decline in the value of portfolio holdings denominated in a particular
foreign currency resulting from currency fluctuations, there is a risk that
the Series may nevertheless realize a gain or loss as a result of currency
fluctuations after such portfolio holdings are sold if the Series is unable
to enter into an "offsetting" forward foreign currency contract with the same
party or another party. The Global Equity Series may be limited in its
ability to enter into hedging transactions involving forward contracts by the
Internal Revenue Code's requirements relating to qualifications as a
regulated investment company (see "Dividends, Distributions and Taxes").
OPTIONS AND FUTURES TRANSACTIONS
As noted above, each of the American Value, Capital Growth, Strategist,
Utilities, Global Equity and Intermediate Income Securities Series may write
covered call options and covered put options
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on eligible portfolio securities and on stock and bond indexes and purchase
options of the same or similar series to effect closing transactions, and may
hedge against potential changes in the market value of its investments (or
anticipated investments) by purchasing put and call options on securities
which it holds (or has the right to acquire) in its portfolio and engaging in
transactions involving interest rate futures contracts and index futures
contracts and options on such contracts. The Value-Added Market Series may
purchase stock index futures as a temporary substitute for the purchase of
individual stocks. The Global Equity Series may also hedge against potential
changes in the market value of the currencies in which its investments (or
anticipated investments) are denominated by purchasing put and call options
on currencies and engaging in transactions involving currency futures
contracts and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills, on various
foreign currencies and on equity securities are listed on Exchanges and are
written in over-the-counter transactions ("OTC options"). Listed options are
issued or guaranteed by the exchange on which they trade or by a clearing
corporation such as the Options Clearing Corporation ("OCC"). Ownership of a
listed call option gives the Series the right to buy from the OCC (in the
U.S.) or other clearing corporation or exchange 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 of
the option. The writer (seller) of the option would then have the obligation
to sell to the OCC (in the U.S.) or other clearing corporation or exchange
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 Series the right to sell the underlying
security to the OCC (in the U.S.) or other clearing corporation or exchange
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 (in the U.S.) or other clearing corporation or exchange
at the exercise price.
Exchange-listed options are issued by the OCC (in the U.S.) or other
clearing corporation or exchange 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 Series. With OTC options, such variables as expiration
date, exercise price and premium will be agreed upon between the Series 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 or currency underlying an option it has written, in accordance
with the terms of that option, the Series would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Series will
engage in OTC option transactions only with member banks of the Federal
Reserve System or primary dealers in U.S. Government securities or with
affiliates of such banks or dealers which have capital of at least $50
million or whose obligations are guaranteed by an entity having capital of at
least $50 million.
Covered Call Writing. Series are permitted to write covered call options
on portfolio securities, without limit, in order to aid them in achieving
their investment objectives. In the case of the Global Equity Series, such
options may be denominated in either U.S. dollars or foreign currencies and
may be on the U.S. dollar and foreign currencies. As a writer of a call
option, the Series has the obligation, upon notice of exercise of the option,
to deliver the security (or amount of currency) underlying the option prior
to the expiration date of the option (certain listed and OTC put options
written by a Series will be exercisable by the purchaser only on a specific
date).
Covered Put Writing. As a writer of covered put options, a Series incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period,
at the purchaser's election (certain listed and OTC put options written by a
Series will be exercisable by the purchaser only on a specific date). Series
will write put options for two purposes: (1) to receive the income derived
from the premiums paid by purchasers; and (2) when the Series' management
wishes to purchase the security underlying the option at a price lower than
its current market price, in which case the Series will write the covered put
at an exercise price reflecting the lower purchase price sought. The
aggregate value of the obligations underlying the puts determined as of the
date the options are sold will not exceed 50% of a Series' net assets.
Purchasing Call and Put Options. Series may purchase listed and OTC call
and put options in amounts equalling up to 10% of their total assets. These
Series may purchase call options either to
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close out a covered call position or to protect against an increase in the
price of a security a Series anticipates purchasing or, in the case of call
options on a foreign currency, to hedge against an adverse exchange rate
change of the currency in which the security the Global Equity Series
anticipates purchasing is denominated vis-a-vis the currency in which the
exercise price is denominated. The Series 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. Similarly,
the Global Equity Series may purchase put options on currencies in which
securities it holds are denominated only to protect itself against a decline
in value of such currency vis-a-vis the currency in which the exercise price
is denominated. The Series 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 ability of these Series to
purchase call and put options.
Stock Index Options. Series may invest in options on stock indexes, which
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.
Futures Contracts. The Intermediate Income Securities, American Value,
Capital Growth, Strategist, Utilities, Value-Added Market and Global Equity
Series may purchase and sell interest rate futures contracts that are
currently traded, or may in the future be traded, on U.S. commodity exchanges
on such underlying securities as U.S. Treasury bonds, notes, and bills and
GNMA Certificates and stock and bond index futures contracts that are traded
on U.S. commodity exchanges on such indexes as the Moody's Investment-Grade
Corporate Bond Index, the Standard & Poor's 500 Index and the New York Stock
Exchange Composite Index. The Global Equity Series may also purchase and sell
futures contracts that are currently traded, or may in the future be traded,
on foreign commodity exchanges on such underlying securities as common stocks
or any foreign government fixed-income security, on various currencies
("currency futures") and on various indexes of foreign equity and
fixed-income securities as may exist or come into being. As a futures
contract purchaser, a Series incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified
time in the future for a specified price. As a seller of a futures contract,
a Series incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
Series will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging their fixed-income
portfolio (or anticipated portfolio) securities against changes in prevailing
interest rates or, in the case of the Strategist and Utilities Series to
alter the Series' asset allocations. Series will, generally, purchase or sell
stock index futures contracts for the purpose of hedging their equity
portfolio (or anticipated portfolio) securities against changes in their
prices. The Value-Added Market Series will purchase stock index futures as a
temporary substitute for the purchase or sale of individual stocks, which may
then be purchased or sold in an orderly fashion. The Global Equity Series
will purchase or sell currency futures on currencies in which its portfolio
securities (or anticipated portfolio securities) are denominated for the
purposes of hedging against anticipated changes in currency exchange rates.
When, for example, either the Strategist or Utilities Series wishes to
increase its allocation in fixed-income securities, it may purchase a futures
contract on a bond index or on a U.S. Treasury bond, or a call option on such
futures contract, thereby increasing its exposure to the fixed-income sector.
Options on Futures Contracts. The Intermediate Income Securities, American
Value, Capital Growth, Strategist, Utilities and Global Equity Series may
purchase and write call and put options on futures contracts which are traded
on an exchange and enter into closing transactions with respect to such
options to terminate an existing position. An option on a futures contract
gives the purchaser the right, in return for the premium paid, 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. Series will only purchase and write
options on futures contracts for identical purposes to those set forth above
for the purchase of a futures contract (purchase of a call option or sale of
a put option) and the sale of a futures contract (purchase of a put option or
sale of a call option), or to close out a long or short position in futures
contracts.
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Risks of Options and Futures Transactions. A Series may close out its
position as writer of an option, or as a buyer or seller of a futures
contract, only if a liquid secondary market exists for options or futures
contracts of that series. There is no assurance that such a market will
exist, particularly in the case of OTC options, as such options will
generally only be closed out by entering into a closing purchase transaction
with the purchasing dealer. Also, 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.
The extent to which a Series may enter into transactions involving options
and futures contracts may be limited by the Internal Revenue Code's
requirements for qualification of each Series as a regulated investment
company and the Fund's intention to qualify each Series as such. See
"Dividends, Distributions and Taxes."
Futures contracts and options transactions may be considered speculative
in nature and may involve greater risks than those customarily assumed by
other investment companies which do not invest in such instruments. One such
risk is that a Series' management could be incorrect in its expectations as
to the direction or extent of various interest rate movements or the time
span within which the movements take place. For example, if a Series sold
interest rate futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Series would lose money 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,
currencies and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the U.S.
dollar cash prices of the portfolio securities (and, in the case of the
Global Equity Series, the securities' denominated currencies). Another such
risk is that prices of interest rate futures contracts may not move in tandem
with the changes in prevailing interest rates against which the Series seeks
a hedge. A correlation may also be distorted by the fact that the futures
market is dominated by short-term traders seeking to profit from the
difference between a contract or security price objective and their cost of
borrowed funds. Such distortions are generally minor and would diminish as
the contract approached maturity.
The Global Equity Series, by entering into transactions in foreign futures
and options markets, will incur risks similar to those discussed above under
"Foreign Securities."
New options and futures contracts and other financial products and various
combinations thereof continue to be developed. The Series may invest in any
such options, futures and other products as may be developed to the extent
consistent with their investment objectives and applicable regulatory
requirements, and will make any and all pertinent disclosures relating to
such investments in its Prospectus and/or Statement of Additional
Information. Except as otherwise noted above, and as set forth in other
investment policies and investment restrictions, there are no limitations on
any Series' ability to invest in options, futures or options on futures.
PORTFOLIO TRADING
Although each Series does not intend to engage in short-term trading of
portfolio securities as a means of achieving the investment objectives of the
respective Series, each Series may sell portfolio securities without regard
to the length of time they have been held whenever such sale will in the
opinion of the Investment Manager strengthen the Series' position and
contribute to its investment objectives. In determining which securities to
purchase for the Series or hold in a Series, the Investment Manager will rely
on information from various sources, including research, analysis and
appraisals of brokers and dealers, the views of Trustees of the Fund and
others regarding economic developments and interest rate trends, and the
Investment Manager's own analysis of factors it deems relevant.
Personnel of the Investment Manager have substantial experience in the use
of the investment techniques described above under the heading "Options and
Futures Transactions," which techniques require skills different from those
needed to select the portfolio securities underlying various options and
futures contracts.
Brokerage commissions are not normally charged on the purchase or sale of
money market instruments and U.S. Government obligations, or on currency
conversions, but such transactions will involve costs in the form of spreads
between bid and asked prices. Orders for transactions in portfolio securities
and commodities may be placed for the Fund with a number of brokers and
dealers, including DWR and other broker-dealer affiliates of the
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Investment Manager. 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.
The Liquid Asset and U.S. Government Money Market Series are expected to
have high portfolio turnovers due to the short-term maturities of securities
purchased, but this should not affect income or net asset value as brokerage
commissions are not normally charged on the purchase or sale of money market
instruments. It is not anticipated that the portfolio turnover rates of the
Series will exceed the following percentages in any year: U.S. Government
Securities Series, Capital Growth Series, Dividend Growth Series, Utilities
Series, Value-Added Market Series and Global Equity Series: 100%;
Intermediate Income Securities Series and Strategist Series: 200%; American
Value Series: 400%. A portfolio turnover rate exceeding 100% in any one year
is greater than that of many other investment companies. Each Series of the
Fund will incur underwriting discount costs (on underwritten securities)
and/or brokerage costs commensurate with its portfolio turnover rate.
Short-term gains and losses may result from such portfolio transactions. See
"Dividends, Distribution and Taxes" for a discussion of the tax implications
of these trading policies.
The expenses of the Global Equity Series relating to its portfolio
management are likely to be greater than those incurred by other investment
companies investing primarily in securities issued by domestic issuers as
custodial costs, brokerage commissions and other transaction charges related
to investing in foreign markets are generally higher than in the United
States. Short-term gains and losses may result from portfolio transactions.
See "Dividends, Distributions and Taxes" for a discussion of the tax
implications of the Series' trading policies. A more extensive discussion of
the Series' brokerage policies is set forth in the Statement of Additional
Information.
PORTFOLIO MANAGEMENT
The following individuals are primarily responsible for the day-to-day
management of certain of the Series of the Fund: Rajesh K. Gupta, Senior Vice
President of InterCapital, has been the primary portfolio manager of the U.S.
Government Securities Series since its inception; Mr. Gupta has been managing
portfolios comprised of U.S. Government and other securities at InterCapital
for over five years. Rochelle G. Siegel, Senior Vice President of
InterCapital, has been the primary portfolio manager of the Intermediate
Income Securities Series since its inception; Ms. Siegel has been managing
portfolios comprised of fixed-income securities at InterCapital for over five
years. Anita H. Kolleeny, Senior Vice President of InterCapital, has been the
primary portfolio manager of the American Value Series since its inception;
Ms. Kolleeny has been managing portfolios comprised of equity and other
securities at InterCapital for over five years. Paul D. Vance, Senior Vice
President of InterCapital, has been the primary portfolio manager of the
Dividend Growth Series since its inception; Mr. Vance has been managing
portfolios comprised of equity and other securities at InterCapital for over
five years. Peter Hermann, Vice President of InterCapital, has been the
primary portfolio manager of the Capital Growth Series since April, 1996;
prior to joining InterCapital in March, 1994, Mr. Hermann was a portfolio
manager at The Bank of New York. Mark Bavoso, Senior Vice President of
InterCapital, has been the primary portfolio manager of the Strategist Series
since January, 1994 and of the Global Equity Series since August, 1995; Mr.
Bavoso has been a portfolio manager at InterCapital for over five years.
Edward F. Gaylor, Senior Vice President of InterCapital, has been the primary
portfolio manager of the Utilities Series since its inception; Mr. Gaylor has
been managing portfolios comprised of equity and other securities at
InterCapital for over five years. Kenton J. Hinchliffe, Senior Vice President
of InterCapital; and Alice Weiss, Vice President of InterCapital, have been
the primary portfolio managers of the Value-Added Market Series since its
inception and September, 1997, respectively; Mr. Hinchliffe and Ms. Weiss
have been managing portfolios comprised of equity and other securities at
InterCapital for over five years.
INVESTMENT RESTRICTIONS
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The investment restrictions listed below are among the restrictions that
have been adopted as fundamental policies of the Intermediate Income
Securities, American Value, Capital Growth, Dividend Growth, Utilities,
Value-Added Market and Global Equity Series. In addition, the Liquid Asset
Series has adopted restrictions two and five as fundamental policies and the
Strategist Series has
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adopted restrictions three, four and five as fundamental policies. Under the
Investment Company Act of 1940, as amended (the "Act"), a fundamental policy
may not be changed with respect to a Series without the vote of a majority of
the outstanding voting securities of that Series, as defined in the Act.
Each Series of the Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations
issued, or guaranteed by, the United States Government, its agencies or
instrumentalities).
2. As to 75% of its total assets, purchase more than 10% of all
outstanding voting securities or any class of securities of any one
issuer. (All of the Series of the Fund may, collectively, purchase more
than 10% of all outstanding voting securities or any class of securities
of any one issuer.)
3. With the exception of the Utilities Series, invest 25% or more of the
value of its total assets in securities of issuers in any one industry.
This restriction does not apply to obligations issued or guaranteed by the
United States Government or its agencies or instrumentalities.
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 issued or guaranteed by the United States Government, its
agencies or instrumentalities.
5. Invest more than 15% (10% with respect to the Liquid Asset and U.S.
Government Money Market Series) of its total assets in "illiquid
Securities" (securities for which market quota tions are not readily
available) and repurchase agreements which have a maturity of longer than
seven days.
Generally, OTC options and the assets used as "cover" for written OTC
options are illiquid securities. However, a Series is permitted to treat
the securities it uses as cover for written OTC options as liquid provided
it follows a procedure whereby it will sell OTC options only to qualified
dealers who agree that the Series may repurchase such options at a maximum
price to be calculated pursuant to a predetermined formula set forth in
the option agreement. The formula set forth in the option agreement may
vary from agreement to agreement, but is generally based on a multiple of
the premium received by the Series for writing the option plus the amount,
if any, of the option's intrinsic value. An OTC option is considered an
illiquid asset only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option.
The Liquid Asset Series has also adopted the following restrictions as
fundamental policies:
1. With respect to 75% of its total assets, purchase any securities,
other than obligations of the U.S. Government, or its agencies or in
strumentalities, if, immediately after such purchase, more than 5% of the
value of the Liquid Asset Series' total assets would be invested in
securities of any one issuer. (However, as a non-fundamental policy, the
Liquid Asset Series will not invest more than 10% of its total assets in
the securities of any one issuer. Furthermore, pursuant to current
regulatory requirements, the Liquid Asset Series may only invest more than
5% of its total assets in the securities of a single issuer (and only with
respect to one issuer at a time) for a period of not more than three
business days and only if the securities have received the highest quality
rating by at least two NRSROs.)
2. Purchase any securities, other than obligations of domestic banks or
of the U.S. Government, or its agencies or instrumentalities, if,
immediately after such purchase, more than 25% of the value of the Liquid
Asset Series' total assets would be invested in the securities of issuers
in the same industry; however, there is no limitation as to investments in
domestic bank obligations or in obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
All percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting
from market fluctuations or other changes in the amount of total assets does
not require elimination of any security from the Series.
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DETERMINATION OF NET ASSET VALUE
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The net asset value per share is calculated separately for each Series. In
general, the net asset value per share is computed by taking the value of all
the assets of the Series, subtracting all liabilities, dividing by the number
of shares outstanding and adjusting the result to the nearest cent. The Fund
will compute the net asset value per share of each Series once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes
prior to 4:00 p.m., at such earlier time), on each day the New York Stock
Exchange is open for trading. 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.
The Liquid Asset and U.S. Government Money Market Series utilize the
amortized cost method in valuing their portfolio securities, which method
involves valuing a security at its cost adjusted by a constant amortization
to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. The purpose
of this method of calculation is to facilitate the maintenance of a constant
net asset value per share of $1.00. However, there can be no assurance that
the $1.00 net asset value will be maintained.
In the calculation of the net asset value of the Series other than the
Liquid Asset and U.S. Government Money Market Series: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time assets are valued (if there were no sales that
day, the security is valued at the closing bid price and in cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated as the primary market pursuant to procedures adopted
by the Trustees); and (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation. 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
securities for which market quotations are not readily available may also be
based upon current market prices of securities which are comparable in
coupon, rating and maturity or an appropriate matrix utilizing similar
factors. For valuation purposes, quotations of foreign portfolio securities,
other assets and liabilities and forward contracts stated in foreign currency
are translated into U.S. dollar equivalents at the prevailing market rates
prior to the close of the New York Stock Exchange. Dividends receivable are
accrued as of the ex-dividend date except for certain dividends from foreign
securities which are accrued as soon as the Fund is informed of such
dividends after the ex-dividend date.
Certain of the portfolio securities of each Series may be valued by an
outside pricing service approved by the Fund's Trustees. The pricing service
may utilize a matrix system incorporating security quality, maturity and
coupon as the evaluation model parameters, and/or research evaluations by its
staff, 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.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. 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. Options are valued at the mean between
their latest bid and asked prices. Futures are valued at the latest sale
price on the commodities exchange on which they trade unless the Trustees
determine that such price does not reflect their market value, in which case
they will be valued at their fair value as determined by the Trustees. All
other securities and other assets are valued at their fair value as
determined in good faith under procedures established by and under the
general supervision of the Trustees.
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Generally, trading in foreign securities, as well as corporate bonds,
United States government securities and money market instruments, is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of a Series' shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of
the New York Stock Exchange. Occasionally, events which affect the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange and will
therefore not be reflected in the computation of a Series' net asset value.
If events materially affecting the value of such securities occur during such
period, then those securities will be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
Shares of the Fund are offered for sale to investors participating in
various employee benefit plans and Individual Retirement Account ("IRA")
rollover plans on a continuous basis, without a sales charge, at the net
asset value per share of each Series. There is no minimum initial or
subsequent purchase of shares of the Fund.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of InterCapital, shares
of the Fund are distributed by the Distributor and offered by DWR and other
dealers who have entered into selected dealer agreements with the Distributor
("Selected Broker-Dealers"). The principal executive office of the
Distributor is located at Two World Trade Center, New York, New York 10048.
Initial and subsequent purchases may be made by contacting Dean Witter
Trust FSB at P.O. Box 1040, Jersey City, NJ 07303, or by contacting an
account executive of DWR or another Selected Broker-Dealer. The Fund and/or
the Distributor reserve the right to permit purchases by non-employee benefit
plan investors.
All shares of the Fund, with the exception of shares of the Liquid Asset
and U.S. Government Money Market Series, are sold through the Distributor on
a normal three business day settlement basis; that is, payment is due on the
third business day (settlement date) after the order is placed with the
Distributor. The offering price of such shares will be the net asset value
per share next determined following receipt of an order (see "Determination
of Net Asset Value"). Shares of the U.S. Government Securities and
Intermediate Income Securities Series which are purchased through the
Distributor are entitled to dividends beginning on the next business day
following settlement date and shares of these Series purchased through the
Transfer Agent are entitled to dividends beginning on the next business day
following receipt of a purchase order. Shares of the U.S. Government
Securities Series and the Intermediate Income Securities Series will be
entitled to receive capital gains distributions if the order is received by
the close of business on the date prior to the record date for such
distribution. Investors in the American Value, Capital Growth, Dividend
Growth, Strategist, Utilities, Value-Added Market and Global Equity Series of
the Fund 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. Since the Distributor
forwards investors' funds on settlement date, it will benefit from the
temporary use of the funds if payment is made prior thereto. As noted above,
orders placed directly with the Transfer Agent must be accompanied by
payment. The Fund and the Distributor reserve the right to reject any
purchase orders.
Sales personnel of a Selected Broker-Dealer are compensated for shares of
the Fund sold by them by the Distributor or any of its affiliates and/or by a
Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive non-cash compensation as special sales incentives,
including trips, educational and/or business seminars and merchandise. The
Fund and the Distributor reserve the right to reject any purchase orders.
Liquid Asset and U.S. Government Money Market Series. The offering price
of the shares of the Liquid Asset and U.S. Government Money Market Series
will be at their net asset value next determined after receipt of a purchase
order and acceptance by the Transfer Agent in proper form and accompanied by
payment in Federal Funds (i.e., monies of member banks within the Federal
Reserve System held on deposit at a Federal Reserve Bank) available to the
Fund for investment. Shares commence earning income on the day fol-
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<PAGE>
lowing the date of purchase. Share certificates will not be issued unless
requested in writing by the shareholder.
To initiate purchase by mail or wire, the investor should contact Dean
Witter Trust FSB, at P.O. Box 1040, Jersey City, NJ 07303. Purchases by wire
must be preceded by a call to the Transfer Agent advising it of the purchase
and must be wired to Dean Witter Retirement Series: (name of Series), The
Bank of New York, for credit to the Account of Dean Witter Trust FSB,
Harborside Financial Center, Plaza Two, Jersey City, New Jersey, Account No.
8900188413. Wire purchase instructions must include the name of the Fund and
Series and the shareholder's account number. Purchases made by check are
normally effective within two business days for checks drawn on Federal
Reserve System member banks, and longer for most other checks. Wire purchases
received by the Transfer Agent prior to 12 noon New York time are normally
effective that day and wire purchases received after 12 noon New York time
are normally effective the next business day. The Fund reserves the right to
reject any purchase order.
Orders for the purchase of Liquid Asset and U.S. Government Money Market
Series shares placed by customers through the Distributor with payment in
clearing house funds will be transmitted by the Distributor to the Fund with
payment in Federal Funds on the business day following the day the order is
placed by the customer with the Distributor. Investors desiring same day
effectiveness should wire Federal Funds directly to the Transfer Agent.
For further information concerning purchases of the Fund's shares, contact
the Distributor or consult the Statement of Additional Information. The Fund
and the Distributor reserve the right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has entered into a Plan of Distribution pursuant to Rule 12b-1
under the Act with the Distributor and DWR whereby the Distributor and any of
its affiliates are authorized to utilize their own resources to finance
certain activities in connection with the distribution of the Fund's shares.
Among the activities and services which may be provided by the Distributor
under the Plan are: (1) compensation to, and expenses of, account executives
and other employees of the Distributor and others, including overhead and
telephone expenses; (2) sales incentives and bonuses to sales representatives
and to marketing personnel in connection with promoting sales of the Fund's
shares; (3) expenses incurred in connection with promoting sales of the
Fund's shares; (4) preparing and distributing sales literature; and (5)
providing advertising and promotional activities, including direct mail
solicitation and tele vision, radio, newspaper, magazine and other media
advertisements.
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 shareholders selected Series, 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 in shares, at the net asset value per share, each
day on which the Series' shares are valued (for the Liquid Asset and U.S.
Government Money Market Series) and in shares of the U.S. Government
Securities and Intermediate Income Securities Series on the monthly payment
date, which will be no later than the last business day of the month for
which the dividend or distribution is payable. Shareholders of the Liquid
Asset, U.S. Government Money Market, U.S. Government Securities and
Intermediate Income Securities Series who have requested to receive dividends
in cash will normally receive their monthly dividend check during the first
ten days of the following month. Dividends and distributions of the American
Value, Capital Growth, Dividend Growth, Utilities, Strategist, Value-Added
Market and Global Equity Series will be paid, at the net asset values per
share of each Series, in shares of the Series (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 the investor in cash
rather than shares. To assure sufficient time to process the change, such
request must be received by the Transfer Agent at least five business days
prior to the payment date for which it commences to take effect. In case of
recently purchased shares for which registration instructions have not been
re-
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ceived on the record date, cash payments will be made to DWR or other
Selected Broker-Dealers through whom shares were purchased.
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any dollar amount, not less than $25, or in
any whole percentage of the account balance, on an annualized basis. Each
withdrawal constitutes a redemption of shares and any gain or loss realized
must be recognized for federal income tax purposes.
Shareholders wishing to enroll in the Withdrawal Plan should contact their
DWR or other Selected Broker-Dealer account executive or the Transfer Agent.
Systematic Payroll Deduction Plan. There is also available to employers a
Systematic Payroll Deduction Plan by which their employees may invest in
shares of the Fund. For further information please contact the Transfer Agent
or Distributor.
EXCHANGE PRIVILEGE
An "Exchange Privilege," that is, the privilege of exchanging shares of
one of the Fund's Series for another, is available to all shareholders. An
exchange of shares into any Series other than the Liquid Asset and U.S.
Government Money Market Series is effected on the basis of the next
calculated net asset value per share of the respective Series after the
exchange order is received. When exchanging into the Liquid Asset or U.S.
Government Money Market Series, shares of the relevant Series are redeemed at
their next calculated net asset value and exchanged for shares of the Liquid
Asset or U.S. Government Money Market Series at their net asset value
determined the following business day.
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 may, in its 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 upon such notice as may be required by applicable regulatory agencies
(presently sixty days' prior written notice for termination or material
revision), and provided further that the Exchange Privilege may be terminated
or materially revised without notice under certain unusual circumstances
described in the Statement of Additional Information. Shareholders
maintaining margin accounts with DWR or another Selected Broker-Dealer are
referred to their account executive regarding restrictions on exchanges of
shares of the Fund pledged in their margin account.
The current prospectus of the Fund describes investment objective(s) and
policies, and shareholders should read the disclosure relating to the Series
into which shares are to be exchanged carefully before investing. In the case
of any shareholder holding a share certificate or certificates, no exchanges
may be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. An exchange will
be treated for federal income tax purposes the same as a repurchase or
redemption of shares, on which the shareholder may realize a capital gain or
loss (shareholders holding shares in a qualified employee benefit plan may
not realize a capital gain or loss). However, the ability to deduct capital
losses on an exchange is 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 any Series for shares of any other Series
pursuant to this Ex-change Privilege by contacting their account executive
(no Exchange Privilege Authorization Form is required). Other shareholders
(and those sharehold-ers who are clients of DWR or another Selected
Broker-Dealer but who wish to make exchanges directly by writing or
telephoning the Transfer Agent)
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<PAGE>
must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent,
to initiate an exchange. If the Authorization Form is used, exchanges may be
made in writing or by contacting the Transfer Agent at (800) 869-NEWS
(toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures
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 will also be recorded. If such procedures are not employed, the
Fund may be liable for any losses due to unauthorized or fraudulent
instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her DWR or other
Selected Broker-Dealer account executive, if appropriate, or make a written
exchange request. Shareholders are advised that during periods of drastic
economic or market changes it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the case
in the past with the Dean Witter Funds.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
The availability of various shareholder services described above is
determined by the parameters of the investor's employee benefit plan.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemptions. Shares of the Fund may be redeemed for cash through the
Transfer Agent (without redemption or other charge) on any day that the New
York Stock Exchange is open (see "Determination of Net Asset Value").
Redemptions will be effected at the net asset value per share next determined
after the receipt of a redemption request meeting the applicable requirements
described below. In most instances, however, redemptions of shares will be
governed by the parameters set forth in the investor's employee benefit plan.
With respect to the redemption of shares of all Series of the Fund with
the exception of the Liquid Asset and U.S. Government Money Market Series,
each request for redemption, whether or not accompanied by a share
certificate (see below), must be sent to the Transfer Agent, which will
redeem the shares at their net asset value next computed (see "Determination
of Net Asset Value") after it receives the request, and certificates, 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.
Shares of the Liquid Asset and U.S. Government Money Market Series may be
redeemed in the following manners:
1. BY CHECK
The Transfer Agent will supply blank checks to any shareholder who has
requested them. The shareholder may make checks payable to the order of
anyone in any amount not less than $500 (checks written in amounts under $500
will not be honored by the Transfer Agent). Shareholders must sign checks
exactly as their shares are registered. If the account is a joint account,
the check may contain one signature unless the joint owners have specifically
specified otherwise on an investment application that all owners are required
to sign checks. Only shareholders having accounts in which no share
certificates have been issued will be permitted to redeem shares by check or
enroll in the Systematic Withdrawal Plan.
Shares will be redeemed at their net asset value next determined (see
"Determination of Net Asset Value") after receipt by the Transfer Agent of a
check which does not exceed the value of the account. Payment of the proceeds
of a check will normally be made on the next business day after receipt by
the Transfer Agent of the check in proper form. Shares purchased by check
(including a certified or bank cashier's check) are not normally
43
<PAGE>
available to cover redemption checks until fifteen days after receipt of the
check used for investment by the Transfer Agent. The Transfer Agent will not
honor a check in an amount exceeding the value of the account at the time the
check is presented for payment. Since the dollar value of an account is
constantly changing, it is not possible for a shareholder to determine in
advance the total value of its account so as to write a check for the
redemption of the entire account.
2. BY TELEPHONE OR WIRE INSTRUCTIONS WITH
PAYMENT TO PREDESIGNATED BANK ACCOUNT
A shareholder may redeem shares by telephoning or sending wire
instructions to the Transfer Agent. Payment will be made by the Transfer
Agent to the shareholder's bank account at any commercial bank designated by
the shareholder in an Investment Application, by wire if the amount is $1,000
or more and the shareholder so requests, and otherwise by mail. Normally, the
Transfer Agent will transmit payment the next business day following receipt
of a request for redemption in proper form. Only shareholders having accounts
in which no share certificates have been issued will be permitted to redeem
shares by wire instructions.
Redemption instructions must include the shareholder's name and account
number and be called to the Transfer Agent at 800-869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that redemption
instructions communicated over the telephone are genuine. Such procedures
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 will also be recorded. If such procedures are not employed, the
Fund may be liable for any losses due to unauthorized or fraudulent
instructions.
Telephone redemptions 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 a telephone redemption and
who is unable to reach the Fund by telephone should contact his or her DWR or
other Selected Broker-Dealer account executive, if appropriate, or make a
written redemption request. Shareholders are advised that during periods of
drastic economic or market changes it is possible that the telephone
redemption procedures may be difficult to implement, although this has not
been the case in the past with other funds managed by the Investment Manager.
3. BY MAIL
A shareholder may redeem shares by sending a letter to Dean Witter Trust
FSB, P.O. Box 983, Jersey City, NJ 07303, requesting redemption and
surrendering stock certificates if any have been issued.
Redemption proceeds will be mailed to the shareholder at his or her
registered address or mailed or wired to his or her predesignated bank
account, as he or she may request. Proceeds of redemption may also be sent to
some other person, as requested by the shareholder in accordance with the
general redemption requirements listed below.
GENERAL REDEMPTION REQUIREMENTS
Written requests for redemption must be signed by the registered
shareholder(s). Whether certificates are held by the shareholder or shares
are held in a shareholder's account, if the proceeds are to be paid to anyone
other than the registered shareholder(s) or sent to any address other than
the shareholder's registered address or predesignated bank account,
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). Additional documentation may be required where shares are held by
a corporation, partnership, trust or other organization.
If shares to be redeemed are represented by a share certificate, the
request for redemption must be accompanied by the share certificate and a
stock power signed by the registered shareholder(s) exactly as the account is
registered. Such signatures must also 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). Additional documentation may be required where shares
are held by a corporation, partnership, trust or other organization. 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.
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<PAGE>
All requests for redemption should be sent to Dean Witter Trust FSB, P.O.
Box 983, Jersey City, NJ 07303.
Generally, the Fund will attempt to make payment for all redemptions
within one business day, and in no event later than seven days after receipt
of such redemption request in proper form. However, if the shares being
redeemed were purchased by check (including a certified or bank cashier's
check), payment 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 investment of the check by the Transfer Agent). In addition, the
Fund may postpone redemptions at certain times when normal trading is not
taking place on the New York Stock Exchange.
Repurchase. DWR and other Selected Broker-Dealers are authorized to
repurchase, as agent for the Fund, shares represented by a share certificate
which is delivered to any of their offices. Shares held in a shareholder's
account without a share certificate may also be repurchased by DWR and other
Selected Broker-Dealers upon the telephonic request of the shareholder. The
repurchase price is the net asset value next determined (see "Purchase of
Fund Shares--Determination of Net Asset Value") after such repurchase order
is received. The offer by the Distributor to repurchase shares from
shareholders may be suspended by the Distributor at any time. In that event,
shareholders may redeem their shares through the Fund's Transfer Agent as set
forth above under "Redemption."
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Dividends and Distributions. The Liquid Asset, U.S. Government Money
Market, U.S. Government Securities and Intermediate Income Securities Series
declare dividends of substantially all of their daily net investment income
on each day the New York Stock Exchange is open for business (see "Purchase
of Fund Shares"). The Liquid Asset and U.S. Government Money Market Series
pay all dividends from net investment income (and net short-term capital
gains, if any) to shareholders of record as of the close of business the
preceding business day. The amount of the dividend payable by each Series may
fluctuate from day to day and may be omitted on some days if net realized
losses on portfolio securities exceed its net investment income. The U.S.
Government Securities and Intermediate Income Securities Series will pay all
dividends from net investment income monthly and distribute all distributions
from net realized short-term capital gains, if any, in excess of any net
realized long-term losses, at least once per year. The Dividend Growth and
Utilities Series will declare and pay all dividends from net investment
income and (it is anticipated) net short-term capital gains, if any,
quarterly. The American Value, Capital Growth, Strategist, Value-Added Market
and Global Equity Series will pay all dividends from net investment income
and net short-term capital gains, if any, annually. Any net long-term capital
gains realized by any Series will be distributed at least once each year.
However, any Series may determine 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 credited to the shareholder's
account without issuance of a share certificate unless the shareholder
requests in writing that all dividends and/or distributions be paid in cash.
Taxes. Because each Series of 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 any Series will be
required to pay any federal income tax. Shareholders normally subject to
federal income tax will normally have to pay federal income taxes, and any
state income taxes, on the dividends and distributions they receive from each
Series of 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, who is normally subject to income tax as ordinary
income regardless of whether the shareholder receives such payments in
additional shares or in cash. Any dividends declared in the last quarter of
any calendar year which are paid in the following year prior to February 1
will be deemed received by the shareholder in the prior calendar year.
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 Series would be eligible for the
deduction if the Series were the shareholder claiming the dividends received
deduction. In this
45
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regard, a 46-day holding period per dividend, generally, must be met. No
portion of the dividends payable by the Liquid Asset Series, the U.S.
Government Money Market Series, the U.S. Government Securities Series and the
Intermediate Income Securities Series will be eligible for the federal
dividends received deduction for corporations.
Gains or losses on a Series' transactions, if any, in listed options on
non-equity securities, futures and options on futures generally are treated
as 60% long-term and 40% short-term. When the Series engages in options and
futures transactions, various tax regulations applicable to the Series may
have the effect of causing the Series to recognize a gain or loss for tax
purposes before that gain or loss is realized, or to defer recognition of a
realized loss for tax purposes. Recognition, for tax purposes, of an
unrealized loss may result in a lesser amount of the Series' realized net
gains being available for distribution.
One of the requirements for a Series 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 Series 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. A Series 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.
The Series may at times make payments from sources other than income or
net capital gains. Payments from such sources will, in effect, represent a
return of a portion of each shareholder's investment. All, or a portion, of
such payments will not be taxable to shareholders.
At the end of the 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 mid-term and long-term capital gains and the portion eligible for the
dividends received deduction. 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. Moreover, shares of the Fund which
are held in an employee benefit plan are subject to the distribution tax
rules appropriate to that plan. With respect to all purchases, redemptions,
repurchases, exchanges effected and distributions received on such shares of
the Fund, shareholders should consult with their tax adviser.
Dividends, interest and gains received by the Fund (primarily by the
Global Equity Series) may give rise to withholding and other taxes imposed by
foreign countries. If it qualifies for and has made the appropriate election
with the Internal Revenue Service, the Fund will report annually to its
shareholders the amount per share of such taxes, to enable shareholders to
deduct their pro rata portion of such taxes from their taxable income or
claim United States foreign tax credits with respect to such taxes. In the
absence of such an election, a Series would deduct foreign tax in computing
the amount of its distributable income.
A portion of the dividend distributions from the U.S. Government
Securities and U.S. Government Money Market Series may be exempt from certain
state's personal income taxes. The benefit of this tax-exemption may be lost
if the shares of such Series are held in a qualified plan which is exempt
from state income taxation.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time, the Liquid Asset and U.S. Government Money Market
Series may advertise their "yields" and "effective yields." The "yield" of
the Liquid Asset and U.S. Government Money Market Series refers to the income
generated by an investment in the Liquid Asset and U.S. Government Money
Market Series over a given period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by an investment during that
46
<PAGE>
seven-day period is assumed to be generated each seven-day period within a
365-day period and is shown as a percentage of investment. The "effective
yield" for a seven-day period is calculated similarly but, when annualized,
the income earned by an investment in the Liquid Asset and U.S. Government
Money Market Series is assumed to be reinvested each week within a 365-day
period. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
From time to time the U.S. Government Securities and Intermediate Income
Securities Series may quote their "yield" in advertisements and sales
literature. The yield of a Series is computed by dividing the Series' net
investment income over a 30-day period by an average value (using the average
number of shares entitled to receive dividends and the net asset value per
share at the end of the period), all in accordance with applicable regulatory
requirements. Such amount is compounded for six months and then annualized
for a twelve-month period to derive the Series' yield.
Each Series of the Fund may also quote its "total return" in
advertisements and sales literature. The "average annual total return" of a
Series 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 a period of one or five years, as well as over the life of the
Series. Average annual total return reflects all income earned by a Series,
any appreciation or depreciation of the Series' assets and all expenses
incurred by the Series, for the stated period. It also assumes reinvestment
of all dividends and distributions paid by the Series.
In addition to the foregoing, a Series 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 Series may also advertise the growth
of hypothetical investments of $10,000, $50,000 and $100,000 in shares of the
Series. A Series 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.
Both the yield and the total return of a Series are based on historical
earnings and are not intended to indicate future performance.
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
The shares of beneficial interest of the Fund, with $0.01 par value, are
divided into eleven separate Series, and the shares of each Series are equal
as to earnings, assets and voting privileges with all other shares of that
Series. There are no conversion, preemptive or other subscription rights.
Upon liquidation of the Fund or any Series, shareholders of a Series are
entitled to share pro rata in the net assets of that Series available for
distribution to shareholders after all debts and expenses have been paid. The
shares do not have cumulative voting rights.
The assets received by the Fund on the sale of shares of each Series and
all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are allocated to each Series, and constitute the assets
of such Series. The assets of each Series are required to be segregated on
the Fund's books of account.
Additional Series (the proceeds of which would be invested in separate,
independently managed portfolios with distinct investment objectives,
policies and restrictions) may be offered in the future, but such additional
offerings would not affect the interests of the current shareholders in the
existing Series.
On any matters affecting only one Series, only the shareholders of that
Series are entitled to vote. On matters relating to all the Series but
affecting the Series differently, separate votes by Series are required.
Approval of an Investment Management Agreement and a change in fundamental
policies would be regarded as matters requiring separate voting by each
Series.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings.
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for
obligations of the Fund. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Fund, requires that Fund obligations include such disclaimer, and provides
for indemnification and reimbursement of expenses out of the Fund's property
for any shareholder held personally liable for the obligations of the Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is
47
<PAGE>
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.
Code of Ethics. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to
ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from a
person's employment activities and that actual and potential conflicts of
interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an
advance clearance process to monitor that no investment company managed or
advised by InterCapital ("Dean Witter Fund") is engaged at the same time in a
purchase or sale of the same security. The Code of Ethics bans the purchase
of securities in an initial public offering, and also prohibits engaging in
futures and options transactions and profiting on short-term trading (that
is, a purchase within sixty days of a sale or a sale within sixty days of a
purchase) of a security. In addition, investment personnel may not purchase
or sell a security for their personal account within thirty days before or
after any transaction in any Dean Witter Fund managed by them. Any violations
of the Code of Ethics are subject to sanctions, including reprimand, demotion
or suspension or termination of employment. The Code of Ethics comports with
regulatory requirements and the recommendations in the 1994 report by the
Investment Company Institute Advisory Group on Personal Investing.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover
of this Prospectus.
As of September 30, 1997, the following persons may be deemed to "control"
the designated Series by virtue of ownership of over 25% of the outstanding
shares of the Series: Glendale Elementary School Self-Insurance Account (U.S.
Government Money Market Series); Private Business Inc. 401(k) Plan (Capital
Growth Series); Pizzagalli Construction 401(k) Plan (Value-Added Market
Series); and VVP America Inc. Retirement Plan (Global Equity Series). This is
primarily a consequence of the relative sizes of the particular Series and
the fact that the shareholders of record are in most cases employee benefit
plans which are comprised of multiple beneficial shareholders.
48
<PAGE>
Dean Witter
Retirement Series
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
<PAGE>
DEAN WITTER RETIREMENT SERIES Two World Trade Center,
LETTER TO THE SHAREHOLDERS July 31, 1997 New York, New York 10048
DEAR SHAREHOLDER:
Following a modest increase in the federal-funds rate in late March, it
appeared at first as if the Federal Reserve Board was poised for a series of
further rate increases. However, a slight cooling off of recent economic
data, an ongoing lack of inflationary pressure and progress toward a federal
balanced budget agreement have argued against a quick succession of
rate-tightening moves.
As a result, interest rates actually declined during the second quarter of
1997, with the yield on 30-year U.S. Treasury bonds down 32 basis points
(0.32 percentage points) to 6.78 percent. While rates seem to be holding at
these lower levels, the possibility exists that the Fed may again tighten
policy in an attempt to ward off future inflationary pressure. Interest rates
available on money-market securities held steady during the second quarter.
AMID POSITIVE ECONOMIC NEWS, MIXED SIGNALS
On the heels of stronger than expected economic activity for the first
quarter, the second quarter began to show conflicting signals. Employment
data for June, for example, provided mixed indicators on the strength of the
economy by registering an increase in the unemployment rate to 5 percent,
though growth in employment came in at a solid 217,000 new jobs. A sign of a
possible slowing in the pace of economic activity came on July 1 with the
release of the National Association of Purchasing Managers Index for June,
which fell from May's levels. However, retail sales turned positive in June
after falling for three consecutive months.
The financial markets greeted constrained year-over-year wage increases and
six consecutive months of declining producer prices with jubilation. Payroll
growth has now risen by an average of 234,000 per month thus far in 1997,
above a strong average monthly growth of 212,000 for 1996. Labor shortages
exist in some metropolitan markets. Looking toward the third quarter, the Fed
would seem to have justification to either raise its federal-funds target
rate or hold steady, awaiting further economic evidence.
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
STOCK MARKETS CONTINUE TO FLY HIGH
Most global equity markets enjoyed favorable performance in the first half of
1997. In the United States, the stock market endured a correction of nearly
10 percent after the Fed raised interest rates in March. The downturn was
short-lived, however, as inflation data showed little, if any, pressure.
While the stocks of large-capitalization companies have dominated the market
year-to-date, smaller and mid-sized stocks are finally showing signs of
breaking out of their slump.
Latin American equity markets began the year on a strong note, gaining an
average of 15 percent during the first quarter as robust corporate earnings
growth and attractive valuations prompted strong capital inflows. The
region's markets then rallied an additional 22 percent on average during the
second quarter as macroeconomic and political fundamentals continued to
improve and corporate earnings results were generally in line with
expectations.
Asian equity markets posted mixed results during the first half of 1997 as
capital inflows tapered off from the high levels experienced at the end of
1996. Investor sentiment was negatively affected by a general lack of
earnings growth momentum and continued declines in export growth throughout
much of the region. Investors were also somewhat nervous about the prospects
for further asset deflation in the region, which has depressed the Thai and
Korean stock markets over the past year. The Japanese market staged a
recovery in the second quarter as the prospects for higher interest rates
faded, sentiment for a self-sustaining economic recovery there rebounded and
the selling pressure that crushed Japanese bank stocks subsided.
The investment climate in the European emerging markets remains broadly
positive. With the exception of Russia, the stock markets of eastern Europe
were constrained by low investor confidence following a Czech currency
crisis. Russian equities continued to post the region's strongest gains,
surging 120 percent in U.S. dollar terms during the first half of 1997 as
concerns surrounding President Yeltsin's health faded.
On a cautionary note, global market volatility has picked up. Stock markets
worldwide have fluctuated on U.S. interest-rate moves, economic data
releases, earnings disappointments and election results. Despite this
increase in volatility, equities continue to offer attractive total return
potential in the current environment of fiscally tight government policies,
strong global economic growth and low inflation.
LIQUID ASSET SERIES
As of the end of July 1997, the Liquid Asset Series had assets of
approximately $21 million, with an average life of 29 days. The Series' total
return for the twelve-month fiscal year ended July 31, 1997 was 4.57 percent
and its annualized yield for July was 4.65 percent.
At the end of the fiscal year, approximately 68 percent of the portfolio of
the Liquid Asset Series consisted of high-quality commercial paper, 8 percent
was invested in bankers' acceptances issued by major, financially strong
commercial banks and the remaining 24 percent was invested in federal agency
obligations. More than 93 percent of the Series' assets was due to mature in
less than three months.
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
The Series is well positioned for stability of value with a high degree of
liquidity. We continue to operate the Series in a straightforward
conservative style without "structured notes" or derivatives, which could
fluctuate excessively when interest rates change.
U.S. GOVERNMENT MONEY MARKET SERIES
As of July 31, 1997, the U.S. Government Money Market Series had assets of
approximately $4 million, with an average life of 31 days. The Series' total
return for the twelve-month fiscal year ended July 31, 1997 was 4.51 percent
and its annualized yield for July was 4.65 percent.
On July 31, 1997, approximately 99 percent of the portfolio of the U.S.
Government Money Market Series consisted of Federal agency obligations with
the remaining 1 percent invested in U.S. Treasury bills. More than 91 percent
of the Series' assets was due to mature in less than three months.
The Series is well positioned for stability of value with a high degree of
liquidity. We continue to operate the Series in a straightforward
conservative style without "structured notes" or derivatives, which could
fluctuate excessively when interest rates change.
U.S. GOVERNMENT SECURITIES SERIES
GROWTH OF $10,000
DATE FUND LEHMAN IX LIPPER IX
============================================================================
January 8, 1993 $10,000 $10,000 $10,000
- ----------------------------------------------------------------------------
July 31, 1993 $10,260 $10,595 $10,500
============================================================================
July 31, 1994 $10,188 $10,581 $10,291
- ----------------------------------------------------------------------------
July 31, 1995 $10,975 $11,600 $11,158
- ----------------------------------------------------------------------------
July 31, 1996 $11,467 $12,198 $11,619
- ----------------------------------------------------------------------------
July 31, 1997 $12,579 $13,439 $12,763
============================================================================
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR LIFE OF FUND
============================
9.70%(1) 5.16%(1)
============================
================================================
[ ] Fund [ ] Lehman(2) [ ] Lipper(3)
================================================
Past performance is not predictive of future returns.
- -------------------
(1) Total return figures shown assume reinvestment of all distributions.
(2) The Lehman Brothers General U.S. Government Index is a broad-based measure
of all U.S. Government and U.S. Treasury Securities. The Index does not
include any expenses, fees or charges. The index is unmanaged and should
not be considered an investment.
(3) The Lipper General U.S. Government Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper General U.S. Government Funds objective. The Index, which is
adjusted for capital distributions and income dividends, is unmanaged and
should not be considered an investment. There are currently 30 funds
represented.
For the fiscal year ended July 31, 1997, the U.S. Government Securities
Series posted a total return of 9.70 percent. This compares to a return of
10.17 percent for the Lehman Brothers General U.S. Government Index (Lehman
Index) and a return of 9.85 percent for the Lipper General U.S. Government
Funds Index (Lipper Index). During the fiscal year, the Series paid dividends
and distributions of approximately $0.58 per share. The accompanying chart
illustrates the performance of a hypothetical $10,000 investment in the
Series from inception (January 8, 1993) through the fiscal year ended July
31, 1997, versus the performance of similar investments in the Lehman Index
and Lipper Index.
On July 31, 1997, the Series' net assets exceeded $10.4 million, with
Government National Mortgage Association mortgage-backed securities (GNMAs)
representing 82 percent of the portfolio, U.S. Treasury securities 13 percent
and zero-coupon U.S. Treasury securities 5 percent. At present, the Series'
average maturity reflects a constructive position. Accordingly, as attractive
investment opportunities become available, the average maturity
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
may be gradually extended. On July 31, 1997, the average duration was 5.41
years. (Duration is a measure of the portfolio's sensitivity to changes in
interest rates.)
We believe that GNMAs continue to offer significant long-term value and, in
the current investment environment, offer not only an incremental yield
incentive over U.S. Treasury securities of similar maturity but also provide
the potential for better total returns.
INTERMEDIATE INCOME SECURITIES SERIES
GROWTH OF $10,000
DATE FUND LEHMAN IX LIPPER IX
============================================================================
January 12, 1993 $10,000 $10,000 $10,000
- ----------------------------------------------------------------------------
July 31, 1993 $10,167 $10,720 $10,544
============================================================================
July 31, 1994 $10,193 $10,725 $10,523
- ----------------------------------------------------------------------------
July 31, 1995 $11,133 $12,010 $11,484
- ----------------------------------------------------------------------------
July 31, 1996 $11,573 $12,680 $12,084
- ----------------------------------------------------------------------------
July 31, 1997 $12,572 $14,219 $13,307
============================================================================
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR LIFE OF FUND
============================
8.63%(1) 5.16%(1)
============================
================================================
[ ] Fund [ ] Lehman(2) [ ] Lipper(3)
================================================
Past performance is not predictive of future returns.
- -------------------
(1) Total return figures shown assume reinvestment of all distributions.
(2) The Lehman Brothers Intermediate Investment Grade Debt Index is an
unmanaged index of 5 to 10 year investment-grade corporate debt
securities. The Index does not include any expenses, fees or charges. The
index is unmanaged and should not be considered an investment.
(3) The Lipper Intermediate Investment Grade Funds Index is an
equally-weighted performance index of the largest qualifying funds (based
on net assets) in the Lipper Intermediate Investment Grade Debt Funds
Objective. The Index, which is adjusted for capital gains distributions
and income dividends, is unmanaged and should not be considered an
investment. There are currently 30 funds represented in this index.
For the fiscal year ended July 31, 1997, the Intermediate Income Securities
Series posted a total return of 8.63 percent. This compares to a return of
12.14 percent for the Lehman Brothers Intermediate Investment Grade Debt
Index (Lehman Index) and a return of 10.12 percent for the Lipper
Intermediate Investment Grade Funds Index (Lipper Index). During the fiscal
year, the Series paid distributions exceeding $.52 per share. The
accompanying chart illustrates the performance of a hypothetical $10,000
investment in the Series from inception (January 12, 1993) through the fiscal
year ended July 31, 1997, versus the performance of similar investments in
the Lehman Index and Lipper Index.
The Series' performance during the fiscal year was reflective of the overall
decline in interest rates beginning in the second quarter of 1997. The Series
underperformed the Lehman Index due to its somewhat greater commitment to
U.S. Treasuries during the first part of the period, when they substantially
underperformed corporate securities. Also affecting performance were
unusually large cash flows in and out of the Series. Toward the end of
October 1996, sizable share purchases caused the Series' assets to grow
nearly 50 percent in one month. Subsequently, share redemptions in January
and early February reduced net assets by more than 60 percent from their
December 1996 levels. As a result of these redemptions, nearly all the U.S.
Treasury positions held in the portfolio were sold. Although this provided
the Series with the opportunity to raise its allocation to corporates, it
also extended the average maturity of the portfolio to more than six years.
This negatively influenced the Series' performance since interest rates were
on the ascent. To offset the Series' longer duration, and improve liquidity,
the cash reserves were allowed to increase and some of the better-performing
corporates were replaced with shorter-maturity U.S. Treasuries. After
reaching a high of 13 percent, cash reserves were reduced to 7.7 percent by
July 31, 1997. New funds were invested in four-to seven-year U.S. Treasuries
and corporates. Due to the Series' relatively small asset size, greater
provisions were made for liquidity by greater U.S. Treasury allocations and
investments in higher-quality corporates.
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
On July 31, 1997, 64 percent of the Series' noncash holdings was invested in
corporate bonds, with U.S. Treasuries accounting for the remaining 36
percent. The average maturity and duration of the portfolio were 4.84 years
and 3.82 years, respectively. The average credit quality rating was A1.
AMERICAN VALUE SERIES
GROWTH OF $10,000
DATE FUND S&P 500 LIPPER IX
============================================================================
February 1, 1993 $10,000 $10,000 $10,000
- ----------------------------------------------------------------------------
July 31, 1993 $10,050 $10,271 $10,426
============================================================================
July 31, 1994 $ 9,990 $10,801 $10,916
- ----------------------------------------------------------------------------
July 31, 1995 $13,335 $13,613 $13,703
- ----------------------------------------------------------------------------
July 31, 1996 $14,645 $15,862 $14,917
- ----------------------------------------------------------------------------
July 31, 1997 $20,740 $24,123 $21,443
============================================================================
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR LIFE OF FUND
============================
41.62%(1) 17.63%(1)
============================
================================================
[ ] Fund [ ] S&P 500(2) [ ] Lipper(3)
================================================
Past performance is not predictive of future returns.
- -------------------
(1) Total return figures shown assume reinvestment of all distributions.
(2) The Standard & Poor's Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(3) The Lipper Growth Funds Index is an equally-weighted performance index
of the largest qualifying funds (based on net assets) in the Lipper
Growth Funds objective. The Index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in this
Index.
For the fiscal year ended July 31, 1997, the American Value Series posted a
total return of 41.62 percent. This compares to a return of 52.08 percent for
the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) and a
return of 43.76 percent for the Lipper Growth Funds Index (Lipper Index). The
accompanying chart illustrates the performance of a hypothetical $10,000
investment in the Series from inception (February 1, 1993) through the fiscal
year ended July 31, 1997, versus the performance of similar investments in
the S&P 500 Index and Lipper Index.
At the end of July 1997, the Series was well diversified, both in terms of
industries and in its market capitalization. On an industry front, the
portfolio now has a slight tilt toward economically sensitive groups. At 35
percent of net assets, technology continues to represent an important
portfolio commitment. Driven by companies' need for each to be the low-cost
producer in a competitive global environment, demand for technology is
expected to rebound, with the fall typically being the strongest seasonal
period for this sector.
With real wages rising ahead of inflation, and unemployment at its lowest
level in several decades, retailers (approximately 6 percent of the Series'
portfolio) are expected to experience stronger relative earnings. Cyclical
industries that we believe have strong secular strength include energy
(approximately 6 percent of the portfolio), agriculture (approximately 4
percent) and capital goods (approximately 4 percent), which all should
benefit from increased exports to newly industrialized countries with
developing middle classes.
Health-care companies with proprietary products, including drug, medical
device and biotechnology companies, are expected to continue to outpace
general corporate earnings growth. They represent 12 percent of the Series'
net assets. The secular trends of deregulation and consolidation are expected
to continue to lift stocks in the financial sector, which represents
approximately 16 percent of the portfolio.
<PAGE>
The Series is also diversified in terms of market capitalization. As of July
31, 1997, large-cap issues represented approximately 60 percent of the stock
portfolio, mid-sized companies about 40 percent. Going forward, the American
Value Series will be increasingly tilted in the direction of mid-cap issues,
as the
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
dollar seems to be breaking out of its seven-year range, a development that
historically favors mid-sized companies, which typically have significantly
lower currency exposures than larger companies. Additionally, relative
valuations in this sector of the market have become compelling from their
underperformance over the last few years.
CAPITAL GROWTH SERIES
GROWTH OF $10,000
DATE FUND S&P 500 LIPPER IX
============================================================================
February 2, 1993 $10,000 $10,000 $10,000
- ----------------------------------------------------------------------------
July 31, 1993 $ 8,880 $10,271 $10,426
============================================================================
July 31, 1994 $ 9,463 $10,800 $10,916
- ----------------------------------------------------------------------------
July 31, 1995 $11,363 $13,612 $13,703
- ----------------------------------------------------------------------------
July 31, 1996 $13,020 $15,860 $14,917
- ----------------------------------------------------------------------------
July 31, 1997 $18,680 $24,120 $21,443
============================================================================
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR LIFE OF FUND
============================
43.46%(1) 14.93%(1)
============================
================================================
[ ] Fund [ ] S&P 500(2) [ ] Lipper(3)
================================================
Past performance is not predictive of future returns.
- -------------------
(1) Total return figures shown assume reinvestment of all distributions.
(2) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(3) The Lipper Growth Funds Index is an equally-weighted performance index
of the largest qualifying funds (based on net assets) in the Lipper
Growth Funds objective. The Index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in this
Index.
For the fiscal year ended July 31, 1997, the Capital Growth Series posted a
total return of 43.46 percent. This compares to a return of 52.08 percent for
the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) and a
return of 43.76 percent for the Lipper Growth Funds Index (Lipper Index). The
accompanying chart illustrates the performance of a hypothetical $10,000
investment in the Series from inception (February 2, 1993) through the fiscal
year ended July 31, 1997, versus the performance of similar investments in
the S&P 500 Index and Lipper Index.
As the fiscal year came to a close, the Series completed a transition begun
during the early summer of 1996 when we modified its screening criteria. The
new criteria widened the universe from which we could choose stocks for the
portfolio and stated that companies considered for the portfolio must
demonstrate a history of consistent growth in earnings and revenues for the
past several years. These companies are also chosen for their solid future
earnings growth characteristics and attractive valuations.
During the fiscal year, the Series built up its positions in financial
services, upgraded its technology weighting, increased its exposure to the
retail industry and established positions in the energy sector. The Series also
increased its exposure to small-and mid-capitalization stocks and decreased its
former heavy weighting in large-capitalization securities. This shift was made
primarily because of the better valuation levels and higher growth potential
found in the newly increased sectors. As of July 31, 1997, the Series'
portfolio was weighted approximately 59 percent in large-cap stocks, with the
remaining percent in small-and mid-cap stocks. Although smaller issues
underperformed during much of this period, it is important to remember that,
historically, small-and mid-cap stocks have outperformed large caps over the
long term. Values in these issues began increasing relative to large caps
during the latter part of the fiscal year. We believe that investors will take
notice of this and begin to narrow the market's
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
large-cap bias. The Series will continue to hold stocks of various market
capitalizations, for diversification across both industry sectors and
capitalization ranges.
DIVIDEND GROWTH SERIES
GROWTH OF $10,000
DATE FUND S&P 500(2) LIPPER IX(3)
============================================================================
January 7, 1993 $10,000 $10,000 $10,000
- ----------------------------------------------------------------------------
July 31, 1993 $10,711 $10,577 $10,621
============================================================================
July 31, 1994 $11,368 $11,122 $11,280
- ----------------------------------------------------------------------------
July 31, 1995 $13,991 $14,018 $13,558
- ----------------------------------------------------------------------------
July 31, 1996 $16,242 $16,333 $15,337
- ----------------------------------------------------------------------------
July 31, 1997 $23,051 $24,839 $22,104
============================================================================
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR LIFE OF FUND
============================
41.92%(1) 20.09%(1)
============================
================================================
[ ] Fund [ ] S&P 500(2) [ ] Lipper(3)
================================================
Past performance is not predictive of future returns.
- -------------------
(1) Total return figures shown assume reinvestment of all distributions.
(2) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(3) The Lipper Growth and Income Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets)
in the Lipper Growth and Income Funds objective. The Index, which is
adjusted for capital gains distributions and income dividends, is
unmanaged and should not be considered an investment. There are currently
30 funds in this Index.
For the fiscal year ended July 31, 1997, the Dividend Growth Series posted a
total return of 41.92 percent. This compares to a return of 52.08 percent for
the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) and a
return of 44.14 percent for the Lipper Growth and Income Funds Index (Lipper
Index). The accompanying chart illustrates the performance of a hypothetical
$10,000 investment in the Series from inception (January 7, 1993) through the
fiscal year ended July 31, 1997, versus the performance of similar
investments in the S&P 500 Index and Lipper Index.
The Series' underperformance of the broad market was in large part due to
exceptional strength in small-capitalization stocks at various times during
the year, in particular technology, which afford little or no current yield.
On July 31, 1997, the Series' net assets exceeded $115 million. On that date,
the Series owned 38 equity issues spread among 30 different industry groups.
Since its inception, the Series has utilized a proprietary screening process
to assist in building its portfolio of common stocks. One new portfolio
position, Unicom Corp., was established during the fiscal year. Also, a
spin-off from Tenneco, Inc. during the period resulted in the receipt of
shares of Newport News Shipbuilding Inc. and El Paso Natural Gas Co. These
shares, along with our position in Pacific Gas & Electric Co., were sold
prior to the end of the fiscal year.
UTILITIES SERIES
For the fiscal year ended July 31, 1997, the Utilities Series posted a total
return of 19.87 percent. This compares to a return of 52.08 percent for the
Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) and 22.57
percent for the Lipper Utilities Fund Average (Lipper Average). The
accompanying chart illustrates the performance of a hypothetical $10,000
investment in the Series from inception (January 8, 1993) through the fiscal
year ended July 31, 1997, versus the performance of similar investments in the
S&P 500 Index and Lipper Average.
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
The utilities industry continues to react to uncertainty and confusion
surrounding its deregulation and restructuring. This response was evident
during the fiscal year as the industry underperformed the general market
despite strong earnings and low inflation. More recently, however, it appears
that investor confidence is improving as the form and direction of a
competitive utilities industry take shape. This was seen by the resurgence in
telecommunications stocks that occurred during the second half of the fiscal
year as investors anticipated further industry consolidation and alliances,
as well as in attractive earnings growth prospects from wireless services and
value-added features.
UTILITIES SERIES
GROWTH OF $10,000
DATE FUND S&P 500 LIPPER IX
============================================================================
January 8, 1993 $10,000 $10,000 $10,000
- ----------------------------------------------------------------------------
July 31, 1993 $11,498 $10,618 $11,118
============================================================================
July 31, 1994 $10,896 $11,166 $10,365
- ----------------------------------------------------------------------------
July 31, 1995 $12,221 $14,073 $11,382
- ----------------------------------------------------------------------------
July 31, 1996 $13,291 $16,397 $12,642
- ----------------------------------------------------------------------------
July 31, 1997 $15,933 $24,937 $15,495
============================================================================
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR LIFE OF FUND
============================
19.87%(1) 10.76%(1)
============================
================================================
[ ] Fund [ ] S&P 500(2) [ ] Lipper(3)
================================================
Past performance is not predictive of future returns.
- -------------------
(1) Total return figures shown assume reinvestment of all distributions.
(2) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(3) The Lipper Utility Funds Average tracks the performance of the funds which
invest 65% of their equity portfolio in utility shares as reported by
Lipper Analytical Services.
The Series remained fully invested during the first half of 1997, with 95
percent of its assets allocated to utility and utility-related equities on
July 31, 1997, and the remaining 5 percent in cash and cash equivalents. The
Series' equity portfolio reflected improved investor confidence, particularly
in the electric utilities and telecommunications sectors, given their
favorable growth outlook and the potential investment opportunities resulting
from a competitive environment. Within this component of the portfolio, 49
percent was allocated to electric utilities, 28 percent to telecommunications
and 18 percent to natural gas. Further diversifying the Series' portfolio are
selective foreign securities, primarily in the global telecommunications
sector, which accounted for 11 percent of net assets.
While the electric utility sector remained focused on making a balanced
transition from a monopoly to a deregulated environment, mergers and
acquisitions continued. The Series continues to invest selectively within the
electric utility sector and remains committed to companies characterized by
low energy cost and good earnings growth opportunities. Within the natural
gas sector, the Series continues to focus on high-quality, well-diversified
pipeline companies, given the favorable long-term outlook for the industry.
Looking ahead, the Series anticipates a modest reduction of its equity
allocation to electric utilities in favor of selective telecommunications and
natural gas companies. The Fund may also increase its foreign exposure to
capitalize on and participate in worldwide telecommunications infrastructure
growth.
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
VALUE-ADDED SERIES
GROWTH OF $10,000
DATE FUND S&P 500 LIPPER IX
============================================================================
February 1, 1993 $10,000 $10,000 $10,000
- ----------------------------------------------------------------------------
July 31, 1993 $10,071 $10,271 $10,465
============================================================================
July 31, 1994 $10,967 $10,801 $11,114
- ----------------------------------------------------------------------------
July 31, 1995 $13,450 $13,613 $13,359
- ----------------------------------------------------------------------------
July 31, 1996 $14,955 $15,862 $15,112
- ----------------------------------------------------------------------------
July 31, 1997 $21,405 $24,123 $21,780
============================================================================
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR LIFE OF FUND
============================
43.12%(1) 18.46%(1)
============================
================================================
[ ] Fund [ ] S&P 500(2) [ ] Lipper(3)
================================================
Past performance is not predictive of future returns.
- -------------------
(1) Total return figures shown assume reinvestment of all distributions.
(2) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(3) The Lipper Growth and Income Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets)
in the Lipper Growth and Income Funds objective. The Index, which is
adjusted for capital gains distributions and income dividends, is
unmanaged and should not be considered an investment. There are currently
30 funds in this Index.
For the fiscal year ended July 31, 1997, the Value-Added Series posted a
total return of 43.12 percent. This compares to a return of 52.08 percent for
the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) and
44.14 percent for the Lipper Growth and Income Funds Index (Lipper Index).
The accompanying chart illustrates the performance of a hypothetical $10,000
investment in the Series from inception (February 1, 1993) through the fiscal
year ended July 31, 1997, versus the performance of similar investments in
the S&P 500 Index and Lipper Index.
The Series is index oriented, investing in stocks that comprise the S&P 500,
its benchmark. Unlike the S&P 500, however, the Series weights all the
stocks' positions equally, thereby emphasizing the stocks of small-and
mid-sized companies, which historically have outperformed larger stocks.
While the Series performed well over the most recent six-and twelve-month
periods, its results were overshadowed by the S&P 500's returns. During the
fiscal year ended July 31, 1997, the S&P 500 was driven by
large-capitalization multinationals and technology stocks. These sectors are
more heavily weighted on the S&P 500 than in the Series' portfolio.
GLOBAL EQUITY SERIES
For the fiscal year ended July 31, 1997, the Global Equity Series posted a
total return of 26.66 percent. This compares to a return of 52.08 percent for
the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), a
return of 30.66 percent for the Morgan Stanley Capital International World
Index (MSCI Index) and a return of 32.32 percent for the Lipper Global Funds
Index (Lipper Index). The accompanying chart illustrates the performance of a
hypothetical $10,000 investment in the Series from inception (January 8,
1993) through the fiscal year ended July 31, 1997, versus the performance of
similar investments in the S&P 500 Index, MSCI Index and Lipper Index.
On July 31, 1997, the Series' net assets exceeded $19.7 million, with 30
percent in Europe, 32 percent in the United States, 20 percent in Japan, 9
percent in the emerging markets of the Pacific Rim, 7 percent in
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
Latin America and the remaining 2 percent scattered elsewhere. The Series'
asset allocation represented overweightings in Europe, Japan, the Pacific Rim
and Latin America.
GLOBAL EQUITY SERIES
GROWTH OF $10,000
DATE FUND S&P 500 MSCI IX LIPPER IX
============================================================================
January 8, 1993 $10,000 $10,000 $10,000 $10,000
- ----------------------------------------------------------------------------
July 31, 1993 $ 9,970 $10,618 $11,818 $11,239
============================================================================
July 31, 1994 $10,697 $11,166 $12,797 $13,168
- ----------------------------------------------------------------------------
July 31, 1995 $11,347 $14,073 $14,346 $14,509
- ----------------------------------------------------------------------------
July 31, 1996 $12,171 $16,397 $15,364 $15,516
- ----------------------------------------------------------------------------
July 31, 1997 $15,416 $24,937 $20,075 $20,531
============================================================================
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR LIFE OF FUND
============================
26.66%(1) 9.96%(1)
============================
========================================================================
[ ] Fund [ ] S&P 500(2) [ ] MSCI IX(3) [ ] Lipper IX(4)
========================================================================
Past performance is not predictive of future returns.
- -------------------
(1) Total return figures shown assume reinvestment of all distributions.
(2) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(3) The Morgan Stanley Capital International World Index (MSCI) measures the
performance for a diverse range of global stock markets including the
U.S., Canada, Europe, Australia, New Zealand and the Far East. The index
does not include any expenses, fees or charges or reinvestment of
dividends. The Index is unmanaged and should not be considered an
investment.
(4) The Lipper Global Funds Index is an equally-weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Global
Funds objective. The Index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in
this Index.
The Series' emphasis on European equities stems from the recovery there in
economic growth and company earnings. European exports have benefited from
the strong U.S. dollar, which has boosted corporate competitiveness. Also,
European corporations have been embracing cost-cutting moves to reduce
payroll, restructure business units and sell underperforming assets. Similar
moves in the United States have boosted returns on equity capital and equity
valuations. The Series also finds valuations in Asian markets attractive
after two years of subpar performance and recent currency volatility there.
Among the Series' key portfolio holdings are HSBC Holdings PLC (banking, Hong
Kong), Siemens AG (telecommunications, Germany), Cemex, S.A. de C.V.
(building materials, Mexico), Sony Corp. (electronics, Japan), Koninklijke
Ahold NV (retail, the Netherlands), Novartis AG (pharmaceuticals,
Switzerland) and Sun Microsystems, Inc. (computers-systems, United States).
STRATEGIST SERIES
For the fiscal year ended July 31, 1997, the Strategist Series posted a total
return of 27.35 percent. This compares to a return of 52.08 percent for the
Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), a return
of 10.79 percent for the Lehman Brothers Government/Corporate Bond Index
(Lehman Index) and 29.05 percent for the Lipper Flexible Portfolio Funds
Index (Lipper Index). The accompanying chart illustrates the performance of a
hypothetical $10,000 investment in the Series from inception (January 7,
1993) through the fiscal year ended July 31, 1997, versus the performance of
similar investments in the S&P 500 Index, Lehman Index and Lipper Index.
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
During the fiscal year, the Series benefited from our decision to remain
overweighted in long-dated financial assets. The table below summarizes the
asset allocation changes made in the Strategist Series' portfolio during the
fiscal year:
STRATEGIST SERIES
GROWTH OF $10,000
DATE FUND S&P 500 LEHMAN LIPPER IX
============================================================================
January 7, 1993 $10,000 $10,000 $10,000 $10,000
- ----------------------------------------------------------------------------
July 31, 1993 $ 9,830 $10,577 $10,617 $10,454
============================================================================
July 31, 1994 $ 9,842 $11,122 $10,603 $10,798
- ----------------------------------------------------------------------------
July 31, 1995 $11,634 $14,018 $11,677 $12,579
- ----------------------------------------------------------------------------
July 31, 1996 $13,608 $16,333 $12,297 $13,687
- ----------------------------------------------------------------------------
July 31, 1997 $17,330 $24,839 $13,624 $17,662
============================================================================
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR LIFE OF FUND
============================
27.35%(1) 12.81%(1)
============================
====================================================================
[ ] Fund [ ] S&P 500(2) [ ] Lehman(3) [ ] Lipper(4)
====================================================================
Past performance is not predictive of future returns.
- -------------------
(1) Total return figures shown assume reinvestment of all distributions.
(2) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(3) The Lehman Brothers Government/Corporate Bond Index tracks the
performance of government and corporate obligations, including U.S.
government agency and U.S. treasury securities and corporate and yankee
bonds, with maturities of one to ten years. The Index is unmanaged and
should not be considered an investment.
(4) The Lipper Flexible Portfolio Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets)
in the Lipper Flexible Portfolio Funds objective. The Index, which is
adjusted for capital gains distributions and income dividends, is
unmanaged and should not be considered an investment. There are currently
30 funds represented in this Index.
<TABLE>
<CAPTION>
EQUITY FIXED-INCOME
EXPOSURE (%) EXPOSURE (%) CASH (%)
------------ -------------- --------
<S> <C> <C> <C>
July 31, 1996 ....................... 50 40 10
April 28, 1997 ....................... 50 20 30
May 19, 1997 ........................ 60 20 20
June 26, 1997 ....................... 65 20 15
</TABLE>
As we enter the new fiscal year, the Series is allocated to reflect our
positive stance toward the equity markets and more cautious view of bonds.
With 58 percent of current assets invested in stocks, we believe that
corporate earnings growth, especially in a few specific industry sectors,
will continue to provide double-digit returns. Our equity portfolio, while
well diversified with more than 45 holdings, is highly concentrated in
industries we feel will provide above-average earnings growth and profit
potential. These include technology (mainframe and workstation manufacturers,
disk drive and software suppliers), financial services (insurance, banking,
savings and loans), energy (domestic and international oil companies) and
retailers (apparel and specialty stores, department store chains). We expect
each of these sectors either to continue their impressive pattern of powerful
earnings reports (technology and financials) or to begin a turnaround from
depressed earnings levels (energy and retailing).
Our underweighting in bonds, at only a 20 percent allocation, reflects our
concern that the Federal Reserve Board may feel compelled to raise rates in
the second half of 1997, thus keeping a lid on bond prices for the balance of
the year. Longer term, we would view any drop in long bonds' prices as a
buying opportunity and would likely use a portion of our 22 percent cash
reserve to purchase issues along the yield curve. Currently, the bond
portfolio is comprised of 12 government-issued securities and 12 corporate
bonds, with a wide variety of yields and maturities. All carry
investment-grade ratings.
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
We appreciate your support of Dean Witter Retirement Series and look forward
to continuing to serve your investment needs and objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER RETIREMENT SERIES
RESULTS OF SPECIAL MEETING (unaudited)
On May 21, 1997, a special meeting of the Series' shareholders was held for
the purpose of voting on three separate matters, the results of which are as
follows:
(1) FOR EACH SERIES, APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT
BETWEEN THE SERIES AND DEAN WITTER INTERCAPITAL INC. IN CONNECTION WITH
THE MERGER OF MORGAN STANLEY GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
Liquid Asset Series
For ..................... 19,779,400
Against ................. 106,527
Abstain ................. 266,372
U.S. Government Money Market Series
For ..................... 4,502,076
Against ................. 0
Abstain ................. 0
U.S. Government Securities Series
For ..................... 696,109
Against ................. 2,291
Abstain ................. 69,551
Intermediate Income Securities Series
For ..................... 151,816
Against ................. 0
Abstain ................. 5,572
American Value Series
For ..................... 2,068,650
Against ................. 40,170
Abstain ................. 143,685
Capital Growth Series
For ..................... 102,824
Against ................. 0
Abstain ................. 38,633
Dividend Growth Series
For ..................... 3,623,000
Against ................. 521,569
Abstain ................. 256,271
Utilities Series
For ..................... 237,912
Against ................. 2,108
Abstain ................. 33,928
Value-Added Market Series
For ..................... 940,344
Against ................. 2,261
Abstain ................. 28,379
Global Equity Series
For ..................... 798,944
Against ................. 17,237
Abstain ................. 141,869
Strategist Series
For ..................... 1,294,809
Against ................. 911
Abstain ................. 33,360
<PAGE>
DEAN WITTER RETIREMENT SERIES
RESULTS OF SPECIAL MEETING (unaudited) continued
(2) ELECTION OF TRUSTEES:
Michael Bozic
For .................. 35,221,586
Withheld ............. 684,992
Charles A. Fiumefreddo
For .................. 35,221,869
Withheld ............. 684,709
Edwin J. Garn
For .................. 35,221,881
Withheld ............. 684,697
John R. Haire
For .................. 35,221,786
Withheld ............. 684,792
Wayne E. Hedien
For .................. 35,221,881
Withheld ............. 684,697
Dr. Manuel H. Johnson
For .................. 35,221,881
Withheld ............. 684,697
Michael E. Nugent
For .................. 35,221,881
Withheld ............. 684,697
Philip J. Purcell
For .................. 35,221,881
Withheld ............. 684,697
John L. Schroeder
For .................. 35,221,881
Withheld ............. 684,697
(3) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT
ACCOUNTANTS:
For ...................................................... 34,484,382
Against .................................................. 545,576
Abstain .................................................. 876,620
<PAGE>
DEAN WITTER RETIREMENT SERIES - LIQUID ASSET
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (64.4%)
Automotive-Finance (8.5%)
$500 Ford Motor Credit Co. ........................................... 5.61% 08/25/97 $ 498,150
1,000 General Motors Acceptance Corp. ................................. 5.48-5.97 08/25/97-10/20/97 991,779
311 Toyota Motor Credit Corp. ....................................... 5.71 08/14/97 310,360
-------------
1,800,289
-------------
Bank Holding Companies (7.0%)
500 Bankers Trust New York Corp. .................................... 5.72 01/08/98 487,644
1,000 Barnett Banks, Inc. ............................................ 5.55 08/21/97 996,933
-------------
1,484,577
-------------
Banks-Commercial (18.6%)
465 ABN-AMRO North America Finance Inc. ............................. 5.74 09/05/97 462,446
500 Commerzbank U.S. Finance Inc. .................................. 5.52 08/15/97 498,931
1,000 Internationale Nederlanden (U.S.) Funding Corp. ................. 5.60 08/01/97 1,000,000
400 KfW International Finance Inc. .................................. 5.54 09/02/97 398,044
500 Societe Generale N.A., Inc. ..................................... 5.61 09/10/97 496,917
600 UBS Finance (Delaware) Inc. .................................... 5.53 08/07/97 599,449
500 WestPac Capital Corp. .......................................... 5.54 09/05/97 497,326
-------------
3,953,113
-------------
Brokerage (4.7%)
1,000 Goldman Sachs Group L.P. ....................................... 5.63-5.64 08/04/97-09/03/97 997,215
-------------
Finance-Consumer (6.4%)
400 American Express Credit Corp. ................................... 5.63 08/01/97 400,000
950 American General Finance Corp. .................................. 5.64 08/05/97 949,409
-------------
1,349,409
-------------
Finance-Diversified (8.4%)
400 Associates Corp. of North America ............................... 5.65 08/05/97 399,751
750 Commercial Credit Co. ........................................... 5.53 08/27/97 747,021
650 General Electric Capital Corp. .................................. 5.55-5.61 09/16/97-10/14/97 644,124
-------------
1,790,896
-------------
Industrials (2.0%)
425 Weyerhaeuser Co. ................................................ 5.54 08/20/97 423,764
-------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - LIQUID ASSET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
Office Equipment (4.7%)
$1,000 Xerox Credit Corp. .............................................. 5.51% 08/19/97 $ 997,260
-------------
Utilities-Finance (4.1%)
866 National Rural Utilities Cooperative Finance Corp. ............. 5.57-5.62 08/22/97-09/11/97 861,971
-------------
TOTAL COMMERCIAL PAPER (Amortized Cost $13,658,494) ............................................ 13,658,494
-------------
U.S. GOVERNMENT AGENCY (23.2%)
4,930 Federal Home Loan
Mortgage Corp.
(Amortized Cost $4,926,600) .................................... 5.47-5.75 08/01/97-09/19/97 4,926,600
-------------
BANKERS' ACCEPTANCES (7.2%)
1,014 BostonBank, N.A. ................................................ 5.71-5.88 09/30/97-01/20/98 993,499
541 Union Bank of California, N.A. .................................. 5.59 10/15/97 534,804
-------------
TOTAL BANKERS' ACCEPTANCES (Amortized Cost $1,528,303) .......................................... 1,528,303
-------------
TOTAL INVESTMENTS
(Amortized Cost $20,113,397)(a) ............................................... 94.8% 20,113,397
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............................... 5.2 1,099,631
----- -------------
NET ASSETS .................................................................... 100.0% $21,213,028
===== =============
</TABLE>
- --------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - U.S. GOVERNMENT MONEY MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCIES
(98.7%)
$1,000 Federal Farm Credit Bank .. 5.52-5.77% 08/04/97-11/25/97 $ 991,289
1,690 Federal Home Loan Banks ... 5.42-5.66 08/07/97-09/02/97 1,687,131
725 Federal Home Loan Mortgage
Corp. .................... 5.59-5.75 08/01/97-10/17/97 720,019
590 Federal National Mortgage
Association .............. 5.38-5.49 08/04/97-08/07/97 589,647
----------
TOTAL U.S. GOVERNMENT AGENCIES
(Amortized Cost $3,988,086) .............................. 3,988,086
----------
U.S. GOVERNMENT OBLIGATION (1.2%)
50 U.S. Treasury Bill
(Amortized Cost $48,650) .. 5.32 02/05/98 48,650
----------
TOTAL INVESTMENTS
(Amortized Cost $4,036,736)(a).......... 99.9% 4,036,736
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES ......................... 0.1 4,560
----- ----------
NET ASSETS.............................. 100.0% $4,041,296
====== ==========
</TABLE>
- --------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - U.S. GOVERNMENT SECURITIES
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS (98.6%)
Government National
Mortgage Assoc. I (71.4%)
$3,684 ................................................................. 7.00 % 06/15/23-03/15/27 $ 3,688,923
3,737 ................................................................. 7.50 01/15/24-01/15/27 3,802,491
------------
7,491,414
------------
971 Government National
Mortgage Assoc. II (9.2%) ...................................... 7.00 03/20/26 968,255
------------
U.S. Treasury Notes (12.6%)
1,200 ................................................................. 6.375 09/30/01 1,221,852
100 ................................................................. 6.250 06/30/02 101,434
------------
1,323,286
------------
600 U.S. Treasury Principal Strips (5.4%) ........................... 0.00 08/15/98 567,120
------------
TOTAL INVESTMENTS
(Identified Cost $10,212,454)(a) ......................................... 98.6% 10,350,075
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ........................... 1.4 146,232
----- ------------
NET ASSETS ............................................................... 100.0% $10,496,307
===== ============
</TABLE>
- --------------
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$202,248 and the aggregate gross unrealized depreciation is $64,627,
resulting in net unrealized appreciation of $137,621.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (56.8%)
Automobile-Rentals (4.0%)
$100 Hertz Corp. ..................................................... 6.00 % 01/15/03 $ 97,979
------------
Automotive (0.8%)
20 Chrysler Corp. .................................................. 10.40 08/01/99 20,005
------------
Automotive-Finance (1.1%)
25 General Motors Acceptance Corp. ................................. 8.40 10/15/99 26,177
------------
Banks (9.5%)
100 Bank One Corp. .................................................. 7.60 05/01/07 106,545
100 Long Island Savings Bank ....................................... 7.00 06/13/02 102,145
25 Star Bank N.A. .................................................. 6.375 03/01/04 24,764
------------
233,454
------------
Brokerage (4.1%)
100 Bear Stearns Companies, Inc. ................................... 6.75 08/15/00 101,506
------------
Data Processing (4.1%)
100 Oracle Corp. ................................................... 6.91 02/15/07 101,719
------------
Financial (8.4%)
100 Ikon Capital Inc. ............................................... 6.73 06/15/01 101,477
100 Nac Re Corp ..................................................... 8.00 06/15/99 103,259
------------
204,736
------------
Foreign Government (4.0%)
100 State of Israel ................................................ 6.375 12/15/05 97,826
------------
Healthcare (1.0%)
25 Columbia/HCA Healthcare Corp. .................................. 6.87 09/15/03 25,403
------------
Industrials (4.1%)
100 Millennium America Inc. ........................................ 7.00 11/15/06 100,710
------------
Leisure (4.4%)
100 Royal Caribbean Cruises ......................................... 8.25 04/01/05 108,221
------------
Manufacturing (2.0%)
50 Reebok International plc
(United Kingdom) ............................................... 6.75 09/15/05 49,374
------------
Paper & Forest Products (4.1%)
100 Noranda Forest, Inc. (Canada) ................................... 6.875 11/15/05 100,602
------------
Textiles (1.0%)
25 Burlington Industries, Inc. .................................... 7.25 09/15/05 25,313
------------
Utilities - Electric (4.2%)
100 Connecticut Light & Power Co. .................................. 7.875 06/01/01 102,208
------------
TOTAL CORPORATE BONDS
(Identified Cost $1,371,214) ........................................................ 1,395,233
------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (34.7%)
$100 U.S. Treasury Note .............................................. 6.125% 03/31/98 $ 100,396
300 U.S. Treasury Note .............................................. 5.75 10/31/00 299,463
300 U.S. Treasury Note .............................................. 5.875 11/30/01 299,868
150 U.S. Treasury Note .............................................. 6.25 01/31/02 152,100
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $843,820) .......................................................... 851,827
------------
SHORT-TERM INVESTMENT (a)(4.1%)
U.S. GOVERNMENT AGENCY
100 Federal Home Loan Banks
(Amortized Cost $100,000) ....................................... 5.39 08/01/97 100,000
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $2,315,034)(b) ......................................... 95.6% 2,347,060
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................... 4.4 108,712
-------- -----------
NET ASSETS .............................................................. 100.0% $2,455,772
======== ===========
</TABLE>
- --------------
(a) Security was purchased on a discount basis. The interest rate
shown has been adjusted to reflect a money market equivalent
yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$36,736 and the aggregate gross unrealized depreciation is $4,710,
resulting in net unrealized appreciation of $32,026.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - AMERICAN VALUE
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.7%)
Agriculture Related (4.4%)
4,500 Case Corp. ..................................................... $ 280,969
4,500 Deere & Co. .................................................... 255,937
5,500 Dekalb Genetics Corp. (Class B) ................................. 420,406
7,000 Delta & Pine Land Co. .......................................... 266,000
14,000 Monsanto Co. ................................................... 697,375
6,500 Pioneer Hi-Bred International, Inc. ............................. 481,000
-------------
2,401,687
-------------
Banks (7.1%)
6,000 Bank of New York Co., Inc. ..................................... 291,375
7,000 BankAmerica Corp. .............................................. 528,500
4,000 Bankers Trust New York Corp. .................................... 404,750
250,000 Credito Italiano Spa (Italy) ................................... 497,644
4,000 First Chicago NBD Corp. ........................................ 303,500
6,000 Fleet Financial Group, Inc. .................................... 407,250
10,000 Mellon Bank Corp. .............................................. 504,375
7,200 NationsBank Corp. .............................................. 512,550
6,000 Washington Mutual, Inc. ........................................ 414,000
-------------
3,863,944
-------------
Basic Cyclicals (0.7%)
2,300 Champion International Corp. .................................... 142,600
3,000 Reynolds Metals Co. ............................................ 234,000
-------------
376,600
-------------
Biotechnology (2.4%)
21,000 Biochem Pharma, Inc. (Canada)* ................................. 603,750
13,000 Centocor, Inc.* ................................................ 499,687
2,000 Gilead Sciences, Inc.* ......................................... 56,250
3,500 Vertex Pharmaceuticals, Inc.* .................................. 122,062
-------------
1,281,749
-------------
Capital Equipment (4.3%)
2,000 Aeroquip-Vickers, Inc. .......................................... 109,625
5,500 Boeing Co. ..................................................... 323,469
3,000 Crane Co. ...................................................... 136,312
6,000 General Electric Co. ........................................... 421,125
4,500 Kuhlman Corp. .................................................. 139,500
3,200 Parker-Hannifin Corp. .......................................... 206,000
2,200 Sundstrand Corp. ............................................... 136,400
10,000 Timken Co. ..................................................... 351,875
2,000 Tyco International Ltd. ......................................... 162,000
4,000 United Technologies Corp. ...................................... 338,250
-------------
2,324,556
-------------
Communications Equipment (9.4%)
2,000 Advanced Fibre Communications, Inc.* ........................... $ 139,250
21,000 Bay Networks, Inc.* ............................................ 640,500
15,000 Brightpoint, Inc.* ............................................. 447,187
3,000 CIENA Corp.* ................................................... 168,000
6,000 Cisco Systems, Inc.* ........................................... 476,625
700 Corsair Communications, Inc.* .................................. 13,738
11,500 Ericsson (L.M.) Telephone Co. (Class B)(ADR)(Sweden) ........... 520,375
7,000 Lucent Technologies Inc. ....................................... 594,562
10,000 Newbridge Networks Corp. (Canada)* .............................. 521,250
6,000 Nokia Corp. (ADR)(Finland) ...................................... 513,750
5,000 Northern Telecom Ltd. (Canada) .................................. 522,812
2,000 Tekelec* ....................................................... 123,000
7,000 Tellabs, Inc.* ................................................. 418,687
-------------
5,099,736
-------------
Computer Equipment (3.1%)
4,000 Dell Computer Corp.* ........................................... 342,000
12,000 EMC Corp.* ..................................................... 606,000
9,000 Kemet Corp.* ................................................... 230,625
6,500 SCI Systems, Inc.* ............................................. 516,344
-------------
1,694,969
-------------
Computer Software (4.3%)
15,000 BEA Systems, Inc.* ............................................. 290,625
5,000 Compuware Corp.* ............................................... 308,125
400 Great Plains Software, Inc.* ................................... 10,700
4,100 Microsoft Corp.* ............................................... 579,381
7,000 Oracle Corp.* .................................................. 380,187
5,000 Peoplesoft, Inc.* .............................................. 291,875
8,000 Veritas Software Corp.* ........................................ 494,000
-------------
2,354,893
-------------
Consumer-Noncyclical (4.5%)
9,000 Alberto-Culver Co. (Class B) ................................... 252,562
2,500 Avon Products, Inc. ............................................ 181,406
3,800 Coca Cola Co. .................................................. 263,150
1,600 Coca Cola FEMSA S.A. de C.V. (ADR)(Mexico) ...................... 89,800
8,000 Colgate-Palmolive Co. .......................................... 606,000
10,000 PanAmerican Beverages, Inc. (Class A)(Mexico) ................... 335,000
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - AMERICAN VALUE
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
3,000 Procter & Gamble Co. ........................................... $ 456,375
7,000 Sunbeam Corporation ............................................ 273,875
-------------
2,458,168
-------------
Consumer Business Services (1.4%)
8,000 AccuStaff, Inc.* ............................................... 218,000
7,400 Browning-Ferris Industries, Inc. ............................... 273,800
5,000 Corrections Corp. of America* .................................. 221,562
2,000 Service Corp. International ..................................... 68,000
-------------
781,362
-------------
Consumer Products (2.6%)
5,000 CVS Corp. ....................................................... 284,375
4,000 Philips Electronics NV (Netherlands) ........................... 327,250
3,500 Philips Electronics NV (Netherlands) ........................... 283,962
1,900 Sony Corp. (Japan) ............................................. 189,134
3,100 Sony Corp. (ADR)(Japan) ........................................ 315,619
-------------
1,400,340
-------------
Drugs (4.0%)
5,000 Dura Pharmaceuticals, Inc.* .................................... 194,062
4,500 Lilly (Eli) & Co. .............................................. 508,500
5,000 Medicis Pharmaceutical Corp. (Class A)* ........................ 225,000
280 Novartis (Switzerland) .......................................... 449,742
4,400 Pfizer, Inc. ................................................... 262,350
3,600 Warner-Lambert Co. ............................................. 502,875
-------------
2,142,529
-------------
Energy (5.9%)
9,000 Baker Hughes, Inc. .............................................. 396,563
8,000 Cooper Cameron Corp.* .......................................... 469,000
2,500 Diamond Offshore Drilling, Inc. ................................. 233,125
5,000 EVI, Inc.* ..................................................... 244,375
8,000 Falcon Drilling Company, Inc.* ................................. 231,000
12,000 Halliburton Co. ................................................ 552,000
5,000 Halter Marine Group, Inc.* ..................................... 153,125
8,200 Schlumberger, Ltd. ............................................. 626,275
4,000 Smith International, Inc.* ..................................... 286,750
-------------
3,192,213
-------------
Financial-Miscellaneous (7.1%)
400 Advanta Corp. (Class A) ........................................ 14,400
7,000 American Express Co. ............................................ 586,250
15,000 Hambrecht & Quist Group* ....................................... 447,188
Kansas City Southern
2,000 Industries, Inc. ............................................... 150,750
4,000 Legg Mason, Inc. ............................................... $ 245,750
16,000 Lehman Brothers Holdings, Inc. .................................. 797,000
8,000 Merrill Lynch & Co., Inc. ....................................... 563,500
8,000 Paine Webber Group, Inc. ........................................ 320,000
1,000 Price (T.) Rowe Associates, Inc. ................................ 54,250
10,000 Providian Financial Corp.* ..................................... 391,875
4,500 Salomon, Inc. .................................................. 285,469
-------------
3,856,432
-------------
Healthcare Products & Services (2.9%)
7,000 HBO & Co. ...................................................... 540,750
16,000 Health Management Associates, Inc. (Class A)* .................. 511,000
20,000 Healthsouth Corp.* ............................................. 530,000
-------------
1,581,750
-------------
Insurance (2.3%)
3,000 Hartford Financial Services Group, Inc. ........................ 261,375
Marsh & McLennan
7,000 Companies, Inc. ................................................ 542,063
5,000 Nationwide Financial Services, Inc. (Class A) .................. 151,250
4,000 Travelers Group, Inc. ........................................... 287,750
-------------
1,242,438
-------------
Internet (3.0%)
10,000 America Online, Inc.* .......................................... 675,000
10,000 E*TRADE Group, Inc.* ........................................... 305,000
10,000 Sterling Commerce, Inc.* ....................................... 376,875
5,000 Yahoo! Inc.* ................................................... 281,250
-------------
1,638,125
-------------
Media Group (4.1%)
6,600 Clear Channel Communications, Inc.* ............................ 410,850
Evergreen Media Corp.
8,000 (Class A)* ..................................................... 367,000
10,000 Jacor Communications, Inc.* .................................... 428,750
13,200 Outdoor Systems, Inc.* ......................................... 343,200
2,000 Univision Communications, Inc. (Class A)* ...................... 86,000
25,000 Westinghouse Electric Corp. ..................................... 601,563
-------------
2,237,363
-------------
Medical Supplies (2.4%)
6,000 Boston Scientific Corp.* ....................................... 430,500
5,500 Guidant Corp. .................................................. 501,875
4,000 Medtronic, Inc. ................................................ 349,000
-------------
1,281,375
-------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - AMERICAN VALUE
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Retail (5.8%)
3,000 Barnes & Noble, Inc.* .......................................... $ 150,000
13,500 Costco Companies Inc.* ......................................... 511,313
10,000 Dayton-Hudson Corp. ............................................ 646,250
5,000 Dollar General Corp. ............................................ 220,000
10,000 Family Dollar Stores, Inc. ..................................... 325,625
6,000 General Nutrition Companies, Inc.* ............................. 171,000
7,800 Home Depot, Inc. ............................................... 389,025
3,000 Ross Stores, Inc. .............................................. 94,500
17,000 Wal-Mart Stores, Inc. .......................................... 638,563
-------------
3,146,276
-------------
Semiconductor Equipment (5.7%)
9,000 Applied Materials, Inc.* ....................................... 826,313
2,000 ASM Lithography Holding NV (Netherlands)* ....................... 162,000
5,000 CFM Technologies, Inc.* ........................................ 129,375
1,000 DuPont Photomasks, Inc.* ........................................ 50,750
3,000 Etec Systems, Inc.* ............................................ 160,875
13,000 KLA-Tencor Corp.* .............................................. 786,500
7,000 LAM Research Corp.* ............................................ 370,125
7,000 PRI Automation, Inc.* .......................................... 345,625
5,000 Teradyne, Inc.* ................................................ 233,750
-------------
3,065,313
-------------
Semiconductors (9.2%)
4,000 Altera Corp. ................................................... 241,000
17,000 Analog Devices, Inc.* .......................................... 534,438
10,000 Burr-Brown Corp.* .............................................. 348,125
700 Galileo Technology Ltd. (Israel)* ............................... 16,975
2,000 Intel Corp. .................................................... 183,500
5,000 Lattice Semiconductor Corp.* ................................... 335,625
5,000 Linear Technology Corp. ........................................ 333,750
8,000 Maxim Integrated Products, Inc.* ................................ 553,000
2,500 MEMC Electronic Materials, Inc.* ................................ 72,500
4,000 Micrel, Inc.* .................................................. 259,000
9,000 Micron Technology, Inc. * ...................................... 438,188
6,000 Motorola, Inc. ................................................. 481,875
6,000 Texas Instruments, Inc. ......................................... 690,000
10,000 Vitesse Semiconductor Corp.* ................................... 483,750
-------------
4,971,726
-------------
Transportation (1.1%)
Continental Airlines, Inc.
900 (Class B)* ..................................................... $ 33,525
4,000 PACCAR, Inc. .................................................... 197,000
1,400 Ryanair Holdings PLC (ADR)(Ireland)* ........................... 39,375
3,000 Teekay Shipping Corp. .......................................... 104,813
6,000 US Airways Group, Inc.* ........................................ 229,877
-------------
604,590
-------------
TOTAL COMMON STOCKS (Identified Cost $42,913,438) .............. 52,998,134
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- --------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (A) (1.7%)
U.S. GOVERNMENT AGENCY
$900 Federal Home Loan Mortgage
Corp. 5.75% due 08/01/97
(Amortized Cost $900,000).......... 900,000
-----------
TOTAL INVESTMENTS
(Identified Cost $43,813,438)(b) . 99.4% 53,898,134
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES ................... 0.6 316,360
-------- ------------
NET ASSETS........................ 100.0% $54,214,494
======== ============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$10,364,753 and the aggregate gross unrealized depreciation is
$280,057, resulting in net unrealized appreciation of $10,084,696.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.0%)
Auto Trucks & Parts (2.3%)
5,000 Miller Industries, Inc.* ........................................ $ 84,375
------------
Banking (4.8%)
1,450 State Street Corp. .............................................. 81,291
1,350 Washington Mutual, Inc. ......................................... 93,150
------------
174,441
------------
Commercial Services (1.4%)
1,900 Affiliated Computer Services, Inc. (Class A)* ................... 51,537
------------
Communications -
Equipment & Software (3.8%)
1,100 3Com Corp.* ..................................................... 60,087
1,350 Tellabs, Inc.* .................................................. 80,747
------------
140,834
------------
Computer Services (1.9%)
1,800 Sterling Commerce, Inc.* ........................................ 67,837
------------
Computer Software (8.9%)
1,100 Computer Associates International, Inc. ......................... 74,869
2,200 Danka Business Systems PLC (ADR)(United Kingdom) ................ 107,525
800 Electronics for Imaging, Inc.* .................................. 44,000
450 Microsoft Corp.* ................................................ 63,591
700 Oracle Corp.* ................................................... 38,019
------------
328,004
------------
Computer - Systems (4.7%)
2,000 EMC Corp.* ...................................................... 101,000
900 SCI Systems, Inc.* .............................................. 71,494
------------
172,494
------------
Consumer Business Services (2.6%)
2,200 AccuStaff, Inc.* ................................................ 59,950
1,000 Service Corp. International ..................................... 34,000
------------
93,950
------------
Drugs (1.4%)
1,100 Elan Corp. PLC (ADR)(Ireland)* .................................. 52,250
------------
Electronics (4.2%)
750 Hadco Corp.* .................................................... 49,406
1,800 Jabil Circuit, Inc.* ............................................ 87,637
250 Sanmina Corp.* .................................................. 18,344
------------
155,387
------------
Electronics - Semiconductors/
Components (1.2%)
400 Intel Corp. ..................................................... 36,700
150 Photronics, Inc.* ............................................... 8,137
------------
44,837
------------
Enviromental Control (1.5%)
1,600 Newpark Resources, Inc.* ........................................ $ 55,300
------------
Financial - Miscellaneous (11.4%)
1,600 Green Tree Financial Corp. ...................................... 75,400
700 Household International, Inc. ................................... 90,650
2,200 MBNA Corp. ...................................................... 99,000
1,300 MGIC Investment Corp. ........................................... 68,331
1,400 SunAmerica, Inc. ................................................ 84,700
------------
418,081
------------
Healthcare - Diversified (2.2%)
2,000 Universal Health Services, Inc. (Class B)* ...................... 81,250
------------
Hospital Management (1.5%)
1,200 Express Scripts, Inc. (Class A)* ................................ 53,400
------------
Household Furnishings & Appliances (3.1%)
1,200 American Standard Companies, Inc.* .............................. 59,625
1,000 Ethan Allen Interiors, Inc. ..................................... 53,000
------------
112,625
------------
Life Insurance (1.4%)
1,300 Providian Financial Corp.* ...................................... 50,944
------------
Manufacturing - Diversified (2.7%)
1,200 Tyco International Ltd. ......................................... 97,200
------------
Media (2.0%)
1,200 Clear Channel Communications, Inc.* ............................. 74,700
------------
Oil & Gas Products (0.5%)
300 Camco International, Inc. ....................................... 19,387
------------
Oil Drilling & Services (9.3%)
1,450 ENSCO International, Inc.* ...................................... 95,881
2,900 Pride International, Inc.* ...................................... 76,669
1,500 Tidewater, Inc. ................................................. 75,750
2,400 Varco International, Inc.* ...................................... 92,850
------------
341,150
------------
Oil Equipment & Services (4.2%)
2,400 Falcon Drilling Company, Inc.* .................................. 69,300
1,200 Smith International, Inc.* ...................................... 86,025
------------
155,325
Pharmaceuticals (2.8%)
2,300 Medicis Pharmaceutical Corp. (Class A)* ......................... 103,500
------------
Retail - Department Stores (3.7%)
1,900 Dollar General Corp. ............................................ 83,600
950 Proffitt's, Inc.* ............................................... 50,350
------------
133,950
------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
Retail - Drugs Stores (1.7%)
1,100 Walgreen Co. .................................................... $ 62,150
------------
Retail - Food Chains (4.1%)
2,400 Kroger Co.* ..................................................... 70,950
1,500 Safeway, Inc.* .................................................. 80,438
------------
151,388
------------
Retail - Specialty (6.0%)
1,562 Consolidated Stores Corp.* ...................................... 62,871
2,700 General Nutrition Companies, Inc.* .............................. 76,950
3,200 Staples, Inc.* .................................................. 80,400
------------
220,221
------------
Utilities - Electric (1.9%)
900 AES Corp.* ...................................................... 71,100
------------
Utilities - Telephone (0.8%)
850 Airtouch Communications, Inc.* .................................. 27,997
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $2,725,382)(a) . 98.0% 3,595,614
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES................... 2.0 74,032
----- ----------
NET ASSETS....................... 100.0% $3,669,646
===== ==========
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$870,624 and the aggregate gross unrealized depreciation is $392,
resulting in net unrealized appreciation of $870,232.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (100.0%)
Aerospace (2.7%)
55,000 Raytheon Co. ................................................... $3,073,125
--------------
Aluminum (2.7%)
35,500 Aluminum Co. of America ........................................ 3,141,750
--------------
Automotive (5.3%)
84,000 Chrysler Corp. ................................................. 3,118,500
74,000 Ford Motor Co. ................................................. 3,024,750
--------------
6,143,250
--------------
Banks (2.7%)
43,000 NationsBank Corp. .............................................. 3,061,062
--------------
Banks - Money Center (2.7%)
41,000 BankAmerica Corp. .............................................. 3,095,500
--------------
Beverages - Soft Drinks (2.7%)
81,000 PepsiCo Inc. ................................................... 3,103,312
--------------
Chemicals (5.1%)
44,000 Du Pont (E.I.) de Nemours & Co., Inc. .......................... 2,945,250
49,500 Eastman Chemical Co. ........................................... 2,994,750
--------------
5,940,000
--------------
Computers - Systems (2.7%)
29,000 International Business Machines Corp. .......................... 3,066,750
--------------
Conglomerates (5.1%)
31,500 Minnesota Mining & Manufacturing Co. ........................... 2,984,625
63,000 Tenneco, Inc. .................................................. 2,937,375
--------------
5,922,000
--------------
Drugs (2.6%)
38,000 Bristol-Myers Squibb Co. ....................................... 2,980,625
--------------
Drugs & Healthcare (2.7%) ......................................
47,000 Abbott Laboratories ............................................ 3,075,562
--------------
Electric - Major (2.6%)
42,300 General Electric Co. ........................................... 2,968,931
--------------
Energy (2.6%)
47,000 Kerr-McGee Corp. ............................................... 2,943,375
--------------
Foods (5.2%)
59,800 Quaker Oats Company (The) ...................................... 3,061,012
13,300 Unilever NV (ADR)(Netherlands) ................................. 2,899,400
--------------
5,960,412
--------------
Machinery - Agricultural (2.6%)
53,600 Deere & Co. .................................................... 3,048,500
--------------
Manufacturing - Diversified (2.5%)
39,000 Honeywell, Inc. ................................................ $2,912,813
--------------
Metals - Miscellaneous (2.5%)
34,000 Phelps Dodge Corp. ............................................. 2,892,125
--------------
Natural Gas (2.6%)
78,000 Enron Corp. .................................................... 2,959,125
--------------
Office Equipment (2.7%)
41,000 Pitney Bowes, Inc. ............................................. 3,080,125
--------------
Oil - Domestic (5.3%)
32,000 Amoco Corp. .................................................... 3,008,000
59,000 Ashland, Inc. .................................................. 3,134,375
--------------
6,142,375
--------------
Oil Integrated - International (2.7%)
48,200 Exxon Corp. .................................................... 3,096,850
--------------
Paper & Forest Products (2.7%)
51,000 Weyerhaeuser Co. ............................................... 3,174,750
--------------
Photography (2.6%)
45,500 Eastman Kodak Co. .............................................. 3,048,500
--------------
Railroads (2.8%)
51,500 CSX Corp. ...................................................... 3,180,125
--------------
Retail - Department Stores (2.6%)
54,000 May Department Stores Co. ...................................... 3,017,250
--------------
Retail - Food Chains (2.6%)
120,600 American Stores Co. ............................................ 3,045,150
--------------
Steel (2.5%)
83,000 Timken Co. ..................................................... 2,920,563
--------------
Telecommunications (5.3%)
41,000 Bell Atlantic Corp. ............................................ 2,975,063
63,000 Sprint Corp. ................................................... 3,118,500
--------------
6,093,563
--------------
Tobacco (2.6%)
67,000 Philip Morris Companies, Inc. .................................. 3,023,375
--------------
Utilities - Electric (8.0%)
142,000 Houston Industries, Inc. ....................................... 2,973,125
82,800 New England Electric System .................................... 3,089,475
139,000 Unicom Corp. ................................................... 3,153,563
--------------
9,216,163
--------------
TOTAL COMMON STOCKS
(Identified Cost $86,532,718) .................................. 115,327,006
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (0.7%)
REPURCHASE AGREEMENT
The Bank of New York 5.75% due 08/01/97 (dated 07/31/97;
$757 proceeds $757,142)(a) (Identified Cost $757,021) ............. $ 757,021
-------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $87,289,739)(b) . 100.7 % 116,084,027
LIABILITIES IN EXCESS OF OTHER
ASSETS ............................ (0.7) (772,518)
-------- -------------
NET ASSETS ........................ 100.0 % $115,311,509
======== =============
</TABLE>
- ------------
ADR American Depository Receipt.
(a) Collateralized by $244,167 Federal National Mortgage Association
9.55% due 11/10/97 valued at $252,039, $400,000 Federal National
Mortgage Association 7.37% due 04/14/04 valued at $414,359 and
$99,269 Federal National Mortgage Association 7.50% due 04/16/07
valued at $105,764.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$29,069,461 and the aggregate gross unrealized depreciation is
$275,173, resulting in net unrealized appreciation of $28,794,288.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - UTILITIES
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (100.0%)
Natural Gas (19.1%)
5,000 American Water Works Company, Inc. ............................. $ 108,437
3,500 Brooklyn Union Gas Co. .......................................... 105,219
4,500 Calpine Corp.* .................................................. 88,875
3,500 Enron Corp. ..................................................... 132,781
5,000 MCN Corp. ...................................................... 158,437
2,000 Mobil Corp. ..................................................... 153,000
3,000 Pacific Enterprises ............................................. 100,312
4,000 Williams Companies, Inc. ........................................ 183,000
-----------
1,030,061
-----------
Telecommunications (29.1%)
3,000 Alltel Corp. .................................................... 98,625
3,000 AT&T Corp. ..................................................... 110,438
3,000 BellSouth Corp. ................................................ 142,125
3,500 Cable & Wireless PLC (ADR)(United Kingdom) ...................... 105,219
2,500 Compania de Telefonos de Chile S.A. (ADR)(Chile) ................ 82,344
Grupo Iusacell S.A. de C.V.
7,000 (Series L)(ADR)(Mexico)* ........................................ 131,688
3,000 GTE Corp. ....................................................... 139,500
2,000 Nokia Corp. (ADR)(Finland)* ..................................... 171,250
3,000 Sprint Corp. .................................................... 148,500
3,000 Teleport Communications Group Inc. (Class A)* ................... 118,125
2,500 Vodafone Group PLC (ADR)(United Kingdom) ........................ 126,250
5,500 WorldCom, Inc.* ................................................. 192,156
-----------
1,566,220
-----------
Utilities - Electric (51.8%)
2,000 AES Corp.* ...................................................... 158,000
3,000 American Electric Power Co. ..................................... 134,250
4,000 CILCORP, Inc. .................................................. 167,750
4,000 CINergy Corp. .................................................. 134,500
4,000 CMS Energy Corp. ............................................... 148,000
5,000 DPL, Inc. ...................................................... 123,125
4,050 DQE, Inc. ...................................................... 127,828
3,000 Duke Energy Corp. ............................................... 152,063
5,000 Edison International ........................................... 126,250
4,000 Florida Progress Corp. ......................................... 128,750
4,000 General Public Utilities Corp. ................................. 138,750
6,000 MDU Resources Group, Inc. ...................................... 142,500
3,000 NIPSCO Industries, Inc. ......................................... 126,375
5,500 PacifiCorp ...................................................... 122,719
4,500 Pinnacle West Capital Corp. .................................... 142,031
4,000 Public Service Company of Colorado .............................. $ 166,500
4,500 Sierra Pacific Resources ........................................ 143,719
6,000 Teco Energy, Inc. .............................................. 152,250
4,000 Utilicorp United, Inc. .......................................... 119,250
4,000 Western Resources, Inc. ......................................... 138,500
-----------
2,793,110
-----------
TOTAL COMMON STOCKS
(Identified Cost $4,358,265) .................................... 5,389,391
-----------
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
SHORT-TERM INVESTMENTS (5.2%)
U.S. GOVERNMENT AGENCY (a)(2.8%)
Federal National Mortgage Assoc. 5.48% due 08/04/97
$150 (Amortized Cost $149,931) ....................................... 149,931
-----------
REPURCHASE AGREEMENT (2.4%)
The Bank of New York
5.75% due 08/01/97 (dated 07/31/97; proceeds $132,571)(b)
133 (Identified Cost $132,550) ...................................... 132,550
-----------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $282,481) ...................................... 282,481
-----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $4,640,746)
(C) ............. ............. 105.2% 5,671,872
LIABILITIES IN EXCESS OF OTHER
ASSETS........................ (5.2) (280,644)
----- -----------
NET ASSETS..................... 100.0% $ 5,391,228
===== ===========
</TABLE>
- --------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $30,477 U.S. Treasury Note 6.25% due 05/31/99
valued at $31,043 and $99,095 U.S. Treasury Note 7.125% due 09/30/99
valued at $104,158.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$1,034,626 and the aggregate gross unrealized depreciation is $3,500,
resulting in net unrealized appreciation of $1,031,126.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.4%)
Aerospace & Defense (1.0%)
750 Boeing Co. ..................................................... $ 44,109
550 General Dynamics Corp. ......................................... 48,675
450 Lockheed Martin Corp. .......................................... 47,925
550 McDonnell Douglas Corp. ........................................ 42,075
450 Northrop Grumman Corp. ......................................... 51,806
-------------
234,590
-------------
Agriculture Related (0.2%)
600 Pioneer Hi-Bred International, Inc. ............................. 44,400
-------------
Air Freight (0.2%)
800 Federal Express Corp.* .......................................... 51,650
-------------
Airlines (0.8%)
450 AMR Corp.* ...................................................... 48,403
450 Delta Air Lines, Inc. .......................................... 39,994
1,550 Southwest Airlines Co. ......................................... 45,241
1,300 US Airways Group, Inc.* ......................................... 49,806
-------------
183,444
-------------
Aluminum (0.6%)
1,100 Alcan Aluminum Ltd. (Canada) .................................... 43,106
600 Aluminum Co. of America ......................................... 53,100
550 Reynolds Metals Co. ............................................ 42,900
-------------
139,106
-------------
Auto Parts - After Market (1.5%)
1,850 Cooper Tire & Rubber Co. ....................................... 46,134
1,150 Dana Corp. ..................................................... 52,253
1,250 Echlin, Inc. ................................................... 46,328
1,275 Genuine Parts Co. .............................................. 41,597
750 Goodyear Tire & Rubber Co. ..................................... 48,422
1,500 ITT Industries, Inc. ........................................... 42,469
1,000 Snap-On, Inc. .................................................. 41,250
800 TRW, Inc. ...................................................... 46,800
-------------
365,253
-------------
Auto Trucks & Parts (0.6%)
650 Cummins Engine Co., Inc. ....................................... 51,025
2,500 Navistar International Corp.* ................................... 51,562
1,050 PACCAR, Inc. ................................................... 51,712
-------------
154,299
-------------
Automobiles (0.6%)
1,100 Chrysler Corp. ................................................. 40,837
1,100 Ford Motor Co. ................................................. 44,962
800 General Motors Corp. ........................................... 49,500
-------------
135,299
-------------
Banks - Money Center (1.2%)
700 BankAmerica Corp. .............................................. $ 52,850
450 Bankers Trust New York Corp. ................................... 45,534
400 Chase Manhattan Corp. .......................................... 45,425
350 Citicorp ........................................................ 47,512
650 First Chicago NBD Corp. ........................................ 49,319
400 Morgan (J.P.) & Co., Inc. ...................................... 46,350
-------------
286,990
-------------
Banks - Regional (4.4%)
950 Banc One Corp. ................................................. 53,319
1,100 Bank of New York Co., Inc. ..................................... 53,419
550 BankBoston Corp. ............................................... 46,716
900 Barnett Banks, Inc. ............................................ 51,244
600 Comerica, Inc. ................................................. 45,375
700 CoreStates Financial Corp. ..................................... 43,181
825 Fifth Third Bancorp ............................................. 52,078
550 First Bank System, Inc. ........................................ 48,950
450 First Union Corp. .............................................. 45,647
700 Fleet Financial Group, Inc. .................................... 47,512
700 KeyCorp ......................................................... 43,531
1,000 Mellon Bank Corp. .............................................. 50,437
750 National City Corp. ............................................ 44,625
700 NationsBank Corp. .............................................. 49,831
750 Norwest Corp. .................................................. 47,297
900 PNC Bank Corp. ................................................. 41,175
450 Republic New York Corp. ........................................ 51,975
700 SunTrust Banks, Inc. ........................................... 44,931
750 U.S. Bancorp .................................................... 49,969
700 Wachovia Corp. ................................................. 45,150
800 Washington Mutual, Inc. ........................................ 55,200
150 Wells Fargo & Co. .............................................. 41,241
-------------
1,052,803
-------------
Beverages - Alcoholic (0.7%)
1,100 Anheuser-Busch Companies, Inc. ................................. 47,231
800 Brown-Forman Corp. (Class B) .................................... 39,000
1,650 Coors (Adolph) Co. ............................................. 51,872
1,100 Seagram Co. Ltd. (Canada) ....................................... 42,144
-------------
180,247
-------------
Beverages - Soft Drinks (0.5%)
650 Coca Cola Co. .................................................. 45,012
1,150 PepsiCo, Inc. .................................................. 44,059
1,700 Whitman Corp. .................................................. 42,925
-------------
131,996
-------------
Biotechnology (0.2%)
700 Amgen, Inc.* .................................................... 41,125
-------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Broadcast Media (0.6%)
2,200 Comcast Corp. (Class A Special) ................................. $ 49,637
Tele-Communications, Inc.
3,100 (Class A)* ...................................................... 52,894
2,200 U.S. West Media Group* .......................................... 48,537
-------------
151,068
-------------
Brokerage (0.2%)
1,000 Schwab (Charles) Corp. ......................................... 46,812
-------------
Building Materials (0.7%)
600 Armstrong World Industries, Inc. ............................... 44,287
1,000 Masco Corp. .................................................... 46,875
1,000 Owens-Corning ................................................... 42,062
1,300 Sherwin-Williams Co. ........................................... 41,681
-------------
174,905
-------------
Business Services (0.2%)
1,200 Cognizant Corp. ................................................ 51,150
-------------
Chemicals (1.5%)
550 Air Products & Chemicals, Inc. ................................. 48,503
450 Dow Chemical Co. ............................................... 42,750
700 Du Pont (E.I.) De Nemours & Co., Inc. .......................... 46,856
750 Eastman Chemical Co. ........................................... 45,375
900 Monsanto Co. ................................................... 44,831
800 Praxair, Inc. .................................................. 44,100
450 Rohm & Haas Co. ................................................ 44,100
750 Union Carbide Corp. ............................................ 41,531
-------------
358,046
-------------
Chemicals - Diversified (0.9%)
1,100 Avery Dennison Corp. ........................................... 48,537
1,800 Engelhard Corp. ................................................ 38,700
550 FMC Corp.* ...................................................... 47,162
950 Goodrich (B.F.) Co. ............................................ 42,928
700 PPG Industries, Inc. ........................................... 44,800
-------------
222,127
-------------
Chemicals - Specialty (1.5%)
1,000 Ecolab, Inc. ................................................... 46,687
750 Grace (W. R.) & Co. ............................................ 46,125
850 Great Lakes Chemical Corp. ..................................... 42,553
850 Hercules, Inc. ................................................. 45,156
800 International Flavors & Fragrances Inc. ........................ 42,450
1,300 Morton International, Inc. ..................................... 43,469
1,050 Nalco Chemical Co. ............................................. 42,853
1,200 Sigma-Aldrich Corp. ............................................ 41,250
-------------
350,543
-------------
Communications -
Equipment/Manufacturers (1.2%)
1,500 Andrew Corp.* ................................................... $ 39,094
1,650 DSC Communications Corp.* ....................................... 48,572
2,200 NextLevel Systems, Inc.* ........................................ 43,862
500 Northern Telecom Ltd. (Canada) .................................. 52,281
2,300 Scientific-Atlanta, Inc. ....................................... 48,300
800 Tellabs, Inc.* .................................................. 47,850
-------------
279,959
-------------
Communications Equipment (0.6%)
500 Harris Corp. ................................................... 43,437
600 Lucent Technologies Inc. ....................................... 50,962
650 Motorola, Inc. ................................................. 52,203
-------------
146,602
-------------
Computer Software & Services (3.0%)
900 3Com Corp.* ..................................................... 49,162
1,200 Adobe Systems, Inc. ............................................ 44,850
1,200 Autodesk, Inc. ................................................. 50,850
900 Automatic Data Processing, Inc. ................................ 44,550
1,650 Bay Networks, Inc.* ............................................. 50,325
1,400 Cabletron Systems, Inc.* ........................................ 47,425
1,000 Ceridian Corp.* ................................................. 43,750
650 Cisco Systems, Inc.* ............................................ 51,634
750 Computer Associates International, Inc. ........................ 51,047
600 Computer Sciences Corp.* ........................................ 48,862
350 Microsoft Corp.* ................................................ 49,459
10 Netscape Communications Corp.* .................................. 380
5,200 Novell, Inc.* ................................................... 39,325
950 Oracle Corp.* ................................................... 51,597
900 Parametric Technology Corp.* .................................... 44,100
5,800 Unisys Corp.* ................................................... 55,825
-------------
723,141
-------------
Computers - Peripheral Equipment (0.4%)
1,050 EMC Corp.* ...................................................... 53,025
1,000 Seagate Technology, Inc.* ....................................... 41,062
-------------
94,087
-------------
Computers - Systems (2.5%)
4,400 Amdahl Corp.* ................................................... 51,975
2,500 Apple Computer, Inc.* ........................................... 43,594
950 COMPAQ Computer Corp.* .......................................... 54,269
1,750 Data General Corp.* ............................................. 52,828
600 Dell Computer Corp.* ............................................ 51,300
1,100 Digital Equipment Corp.* ........................................ 45,306
700 Hewlett-Packard Co. ............................................ 49,044
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
500 International Business Machines Corp. .......................... $ 52,875
800 Shared Medical Systems Corp. ................................... 43,100
2,150 Silicon Graphics, Inc.* ......................................... 53,750
1,150 Sun Microsystems, Inc.* ......................................... 52,541
1,700 Tandem Computers Inc.* .......................................... 49,937
-------------
600,519
-------------
Containers - Metal & Glass (0.4%)
1,400 Ball Corp. ..................................................... 41,650
900 Crown Cork & Seal Co., Inc. .................................... 45,506
-------------
87,156
-------------
Containers - Paper (0.7%)
900 Bemis Company, Inc. ............................................ 41,344
3,200 Stone Container Corp. .......................................... 53,200
600 Temple-Inland, Inc. ............................................ 40,387
700 Union Camp Corp. ............................................... 40,994
-------------
175,925
-------------
Cosmetics (0.6%)
1,600 Alberto-Culver Co. (Class B) .................................... 44,900
600 Avon Products, Inc. ............................................ 43,537
450 Gillette Co. ................................................... 44,550
-------------
132,987
-------------
Data Processing (0.4%)
1,200 Equifax, Inc. .................................................. 40,725
1,000 First Data Corp. ............................................... 43,625
-------------
84,350
-------------
Distributors - Consumer Products (0.7%)
700 Cardinal Health, Inc. .......................................... 43,575
2,400 Fleming Companies., Inc. ....................................... 38,250
1,300 Supervalu, Inc. ................................................ 52,650
1,150 Sysco Corp. .................................................... 42,909
-------------
177,384
-------------
Electrical Equipment (1.8%)
1,000 AMP, Inc. ...................................................... 52,250
700 Emerson Electric Co. ........................................... 41,300
700 General Electric Co. ........................................... 49,131
950 General Signal Corp. ........................................... 46,728
550 Honeywell, Inc. ................................................ 41,078
550 Raychem Corp. .................................................. 53,350
700 Rockwell International Corp. ................................... 45,937
800 Thomas & Betts Corp. ........................................... 45,700
1,950 Westinghouse Electric Corp. .................................... 46,922
-------------
422,396
-------------
Electronic Components (0.2%)
500 Grainger (W.W.), Inc. .......................................... $ 48,000
-------------
Electronics - Defense (0.2%)
850 Raytheon Co. ................................................... 47,494
-------------
Electronics - Instrumentation (0.6%)
2,200 EG & G, Inc. ................................................... 45,100
550 Perkin-Elmer Corp. ............................................. 44,894
750 Tektronix, Inc. ................................................ 46,312
-------------
136,306
-------------
Electronics - Semiconductors (1.2%)
1,300 Advanced Micro Devices, Inc.* ................................... 45,581
500 Intel Corp. .................................................... 45,875
1,500 LSI Logic Corp.* ................................................ 47,344
1,150 Micron Technology, Inc. ........................................ 55,991
1,500 National Semiconductor Corp.* ................................... 47,250
450 Texas Instruments, Inc. ........................................ 51,750
-------------
293,791
-------------
Engineering & Construction (0.6%)
700 Fluor Corp. .................................................... 43,050
950 Foster Wheeler Corp. ........................................... 42,156
1,700 McDermott International, Inc. .................................. 51,956
-------------
137,162
-------------
Entertainment (0.7%)
1,100 King World Productions, Inc.* ................................... 44,412
850 Time Warner, Inc. .............................................. 46,378
1,400 Viacom, Inc. (Class B)* ......................................... 43,225
500 Walt Disney Co. ................................................ 40,406
-------------
174,421
-------------
Entertainment, Gaming & Lodging (0.2%)
2,400 Harrah's Entertainment, Inc.* ................................... 49,200
-------------
Finance - Consumer (1.0%)
600 Beneficial Corp. ............................................... 43,500
1,400 Countrywide Credit Industries, Inc. ............................ 49,350
1,100 Green Tree Financial Corp. ..................................... 51,837
400 Household International, Inc. .................................. 51,800
1,150 MBNA Corp. ..................................................... 51,750
-------------
248,237
-------------
Finance - Diversified (1.8%)
600 American Express Co. ........................................... 50,250
950 American General Corp. ......................................... 50,587
900 Fannie Mae ...................................................... 42,581
1,200 Freddie Mac ..................................................... 43,275
400 MBIA Inc. ...................................................... 47,200
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
900 MGIC Investment Corp. .......................................... $ 47,306
1,050 Morgan Stanley, Dean Witter, Discover & Co. (Note 3) ............ 54,928
700 SunAmerica, Inc. ............................................... 42,350
500 Transamerica Corp. ............................................. 50,437
-------------
428,914
-------------
Foods (2.4%)
2,100 Archer-Daniels-Midland Co. ..................................... 47,250
800 Campbell Soup Co. .............................................. 41,500
700 ConAgra, Inc. .................................................. 49,219
500 CPC International, Inc. ........................................ 47,969
600 General Mills, Inc. ............................................ 41,475
900 Heinz (H.J.) Co. ............................................... 41,569
750 Hershey Foods Corp. ............................................ 41,437
500 Kellogg Co. .................................................... 45,937
900 Quaker Oats Company (The) ....................................... 46,069
500 Ralston-Ralston Purina Group .................................... 45,125
900 Sara Lee Corp. ................................................. 39,431
200 Unilever NV (ADR)(Netherlands) .................................. 43,600
600 Wrigley (Wm.) Jr. Co. (Class A) ................................. 46,162
-------------
576,743
-------------
Hardware & Tools (0.4%)
1,200 Black & Decker Corp. ........................................... 50,550
1,100 Stanley Works ................................................... 49,844
-------------
100,394
-------------
Healthcare - Diversified (1.6%)
650 Abbott Laboratories ............................................. 42,534
1,400 Allergan, Inc. ................................................. 44,712
600 American Home Products Corp. ................................... 49,462
600 Bristol-Myers Squibb Co. ....................................... 47,062
1,800 Healthsouth Corp.* .............................................. 47,700
700 Johnson & Johnson ............................................... 43,619
1,300 Mallinckrodt Group, Inc. ....................................... 45,500
380 Warner-Lambert Co. ............................................. 53,081
-------------
373,670
-------------
Healthcare - Drugs (1.0%)
450 Lilly (Eli) & Co. .............................................. 50,850
450 Merck & Co., Inc. .............................................. 46,772
800 Pfizer, Inc. ................................................... 47,700
1,200 Pharmacia & Upjohn, Inc. ....................................... 45,300
1,000 Schering-Plough Corp. .......................................... 54,562
-------------
245,184
-------------
Healthcare - Miscellaneous (0.4%)
2,900 Beverly Enterprises, Inc.* ...................................... $ 44,587
1,500 Manor Care, Inc. ............................................... 49,500
-------------
94,087
-------------
Healthcare HMOs (0.4%)
1,950 Humana, Inc.* ................................................... 47,531
850 United Healthcare Corp. ........................................ 48,450
-------------
95,981
-------------
Healthcare Services (0.2%)
1,450 Alza Corp.* ..................................................... 46,853
-------------
Home Building (0.8%)
950 Centex Corp. ................................................... 52,962
1,450 Fleetwood Enterprises, Inc. .................................... 47,034
2,450 Kaufman & Broad Home Corp. ..................................... 52,369
1,200 Pulte Corp. .................................................... 48,975
-------------
201,340
-------------
Hospital Management (0.4%)
1,300 Columbia/HCA Healthcare Corp. .................................. 41,925
1,600 Tenet Healthcare Corp.* ......................................... 47,900
-------------
89,825
-------------
Hotels/Motels (0.8%)
700 HFS, Inc.* ...................................................... 40,775
1,400 Hilton Hotels Corp. ............................................ 44,012
750 ITT Corp.* ...................................................... 47,953
750 Marriot International, Inc. .................................... 51,562
-------------
184,302
-------------
Household Furnishings & Appliances (0.4%)
1,800 Maytag Corp. ................................................... 52,537
900 Whirlpool Corp. ................................................ 45,000
-------------
97,537
-------------
Household Products (0.8%)
340 Clorox Co. ..................................................... 47,472
700 Colgate-Palmolive Co. .......................................... 53,025
900 Kimberly-Clark Corp. ........................................... 45,619
300 Procter & Gamble Co. ........................................... 45,637
-------------
191,753
-------------
Housewares (0.6%)
1,200 Newell Co. ..................................................... 50,325
1,600 Rubbermaid, Inc. ............................................... 41,700
1,300 Tupperware Corp. ............................................... 45,175
-------------
137,200
-------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Insurance Brokers (0.4%)
825 Aon Corp. ...................................................... $ 46,200
700 Marsh & McLennan Cos., Inc. .................................... 54,206
-------------
100,406
-------------
Investment Banking/Brokerage (0.4%)
750 Merrill Lynch & Co., Inc. ...................................... 52,828
750 Salomon, Inc. .................................................. 47,578
-------------
100,406
-------------
Leisure Time (0.2%)
1,350 Brunswick Corp. ................................................ 43,537
-------------
Life Insurance (1.2%)
450 Aetna Inc. ..................................................... 51,272
1,000 Conseco, Inc. .................................................. 40,750
600 Jefferson-Pilot Corp. .......................................... 42,637
1,100 Providian Financial Corp.* ...................................... 43,106
650 Torchmark Corp. ................................................ 51,756
1,100 UNUM Corp. ..................................................... 48,950
-------------
278,471
-------------
Machine Tools (0.2%)
2,100 Giddings & Lewis, Inc. ......................................... 43,706
-------------
Machinery -Diversified (2.3%)
800 Briggs & Stratton Corp. ........................................ 40,550
650 Case Corp. ..................................................... 40,584
900 Caterpillar, Inc. .............................................. 50,400
1,700 Cincinnati Milacron, Inc. ...................................... 47,600
800 Cooper Industries, Inc. ........................................ 44,450
800 Deere & Co. .................................................... 45,500
700 Dover Corp. .................................................... 49,962
1,100 Harnischfeger Industries, Inc. ................................. 47,437
750 Ingersoll-Rand Co. ............................................. 51,047
650 NACCO Industries, Inc. (Class A) ................................ 45,094
1,200 Thermo Electron Corp.* .......................................... 41,025
1,400 Timken Co. ..................................................... 49,262
-------------
552,911
-------------
Manufacturing - Diversified (3.2%)
950 Aeroquip-Vickers, Inc. ......................................... 52,072
500 AlliedSignal, Inc. ............................................. 46,125
850 Corning, Inc. .................................................. 52,541
1,150 Crane Co. ...................................................... 52,253
550 Eaton Corp. .................................................... 49,672
900 Illinois Tool Works, Inc. ...................................... 46,688
900 Johnson Controls, Inc. ......................................... 40,331
900 Millipore Corp. ................................................ 39,769
Minnesota Mining &
450 Manufacturing Co. .............................................. 42,638
900 National Service Industries, Inc. .............................. $ 44,381
1,700 Pall Corp. ..................................................... 42,713
800 Parker-Hannifin Corp. .......................................... 51,500
1,000 Tenneco, Inc. .................................................. 46,625
700 Textron Inc. ................................................... 49,044
650 Tyco International Ltd. ......................................... 52,650
500 United Technologies Corp. ...................................... 42,281
-------------
751,283
-------------
Medical Products & Supplies (2.0%)
1,300 Bard (C.R.), Inc. .............................................. 48,913
1,000 Bausch & Lomb, Inc. ............................................ 42,563
800 Baxter International, Inc. ..................................... 46,250
800 Becton, Dickinson & Co. ........................................ 42,900
2,500 Biomet, Inc. ................................................... 49,844
700 Boston Scientific Corp.* ........................................ 50,225
600 Guidant Corp. .................................................. 54,750
500 Medtronic, Inc. ................................................ 43,625
1,200 St. Jude Medical, Inc.* ......................................... 48,975
1,200 United States Surgical Corp. ................................... 44,550
-------------
472,595
-------------
Metals & Mining (1.5%)
1,350 ASARCO, Inc. ................................................... 45,900
2,000 Barrick Gold Corp. (Canada) ..................................... 45,625
7,300 Battle Mountain Gold Co. ....................................... 40,606
1,850 Cyprus Amax Minerals Co. ....................................... 46,944
7,800 Echo Bay Mines Ltd. (Canada) .................................... 39,000
2,900 Homestake Mining Co. ........................................... 40,056
1,300 Newmont Mining Corp. ........................................... 53,625
2,600 Placer Dome Inc. (Canada) ....................................... 44,200
-------------
355,956
-------------
Metals - Miscellaneous (0.5%)
1,400 Freeport-McMoran Copper & Gold, Inc. (Class B) .................. 40,950
1,400 Inco Ltd. (Canada) .............................................. 43,313
500 Phelps Dodge Corp. ............................................. 42,531
-------------
126,794
-------------
Miscellaneous (0.4%)
1,350 American Greetings Corp. (Class A) .............................. 45,056
1,800 Jostens, Inc. .................................................. 46,468
-------------
91,524
-------------
Multi-Line Insurance (1.2%)
450 American International Group, Inc. .............................. 47,925
250 CIGNA Corp. .................................................... 49,875
550 Hartford Financial Services Group, Inc. ......................... 47,919
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
650 Lincoln National Corp. ......................................... $ 46,231
400 Loews Corp. .................................................... 43,250
700 Travelers Group, Inc. .......................................... 50,356
-------------
285,556
-------------
Natural Gas (0.3%)
600 Anardarko Petroleum Corp. ...................................... 41,925
1,100 Apache Corp. ................................................... 38,775
-------------
80,700
-------------
Office Equipment & Supplies (0.6%)
1,600 Ikon Office Solutions, Inc. .................................... 46,700
2,100 Moore Corp. Ltd. (Canada) ....................................... 45,544
600 Pitney Bowes, Inc. ............................................. 45,075
-------------
137,319
-------------
Oil & Gas Drilling (1.5%)
950 Baker Hughes, Inc. ............................................. 41,859
1,250 Dresser Industries, Inc. ....................................... 52,188
1,100 Halliburton Co. ................................................ 50,600
700 Helmerich & Payne, Inc. ........................................ 47,119
1,600 Rowan Cos., Inc.* ............................................... 52,600
700 Schlumberger, Ltd. .............................................. 53,463
600 Western Atlas, Inc.* ............................................ 47,738
-------------
345,567
-------------
Oil & Gas Exploration (0.9%)
900 Burlington Resources, Inc. ..................................... 42,525
650 Kerr-McGee Corp. ............................................... 40,706
680 Louisiana Land & Exploration Co. ................................ 48,025
1,700 Oryx Energy Co.* ................................................ 41,969
1,600 Union Pacific Resources Group, Inc. ............................. 39,500
-------------
212,725
-------------
Oil - Domestic Integrated (1.5%)
750 Amerada Hess Corp. ............................................. 44,109
900 Ashland, Inc. .................................................. 47,826
1,700 Occidental Petroleum Corp. ..................................... 42,606
650 Pennzoil Co. ................................................... 50,781
1,000 Phillips Petroleum Co. ......................................... 46,063
1,300 Sun Co., Inc. .................................................. 46,556
1,050 Unocal Corp. ................................................... 42,000
1,450 USX-Marathon Group .............................................. 46,672
-------------
366,613
-------------
Oil - International Integrated (1.3%)
450 Amoco Corp. .................................................... 42,300
600 Atlantic Richfield Co. ......................................... 44,888
550 Chevron Corp. .................................................. 43,519
700 Exxon Corp. .................................................... 44,975
600 Mobil Corp. .................................................... 45,900
800 Royal Dutch Petroleum Co. (Netherlands) ......................... $ 44,750
350 Texaco, Inc. ................................................... 40,622
-------------
306,954
-------------
Paper & Forest Products (2.1%)
1,200 Boise Cascade Corp. ............................................ 44,475
800 Champion International Corp. ................................... 49,600
500 Georgia-Pacific Corp. .......................................... 47,219
900 International Paper Co. ........................................ 50,400
1,100 James River Corp. of Virginia ................................... 45,306
1,800 Louisiana-Pacific Corp. ........................................ 41,288
600 Mead Corp. ..................................................... 43,200
900 Potlatch Corp. ................................................. 43,031
1,200 Westvaco Corp. ................................................. 40,125
800 Weyerhaeuser Co. ............................................... 49,800
550 Willamette Industries, Inc. .................................... 41,903
-------------
496,347
-------------
Photography/Imaging (0.6%)
700 Eastman Kodak Co. .............................................. 46,900
850 Polaroid Corp. ................................................. 50,575
650 Xerox Corp. .................................................... 53,463
-------------
150,938
-------------
Pollution Control (0.2%)
1,300 Waste Management Inc. .......................................... 41,600
-------------
Property - Casualty Insurance (1.2%)
600 Allstate Corp. ................................................. 47,400
700 Chubb Corp. .................................................... 49,350
250 General Re Corp. ............................................... 52,219
900 Safeco Corp. ................................................... 43,088
600 St. Paul Companies, Inc. ....................................... 47,063
1,800 USF&G Corp. .................................................... 44,213
-------------
283,333
-------------
Publishing (0.9%)
950 Dow Jones & Co., Inc. .......................................... 41,028
1,500 Dun & Bradstreet Corp. ......................................... 40,500
700 McGraw-Hill, Inc. .............................................. 47,469
1,600 Meredith Corp. ................................................. 44,300
750 Times Mirror Co. (Class A) ...................................... 40,969
-------------
214,266
-------------
Publishing -Newspaper (0.8%)
450 Gannett Co., Inc. .............................................. 44,691
900 Knight-Ridder Newspapers, Inc. ................................. 44,719
950 New York Times Co. (Class A) .................................... 47,738
950 Tribune Co. .................................................... 50,291
-------------
187,439
-------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Railroads (0.8%)
450 Burlington Northern Santa Fe Corp. ............................. $ 43,453
750 CSX Corp. ...................................................... 46,313
450 Norfolk Southern Corp. ......................................... 49,838
550 Union Pacific Corp. ............................................ 39,428
-------------
179,032
-------------
Restaurants (0.6%)
5,000 Darden Restaurants, Inc. ....................................... 47,813
750 McDonald's Corp. ............................................... 40,313
1,750 Wendy's International, Inc. .................................... 42,766
-------------
130,892
-------------
Retail - Department Stores (1.4%)
1,200 Dillard Department Stores, Inc. (Class A) ....................... 45,375
1,200 Federated Department Stores, Inc.* .............................. 52,575
850 Harcourt General, Inc. ......................................... 40,163
850 May Department Stores Co. ...................................... 47,494
750 Mercantile Stores Co., Inc. .................................... 50,391
900 Nordstrom, Inc. ................................................ 50,963
800 Penney (J.C.) Co., Inc. ........................................ 46,800
-------------
333,761
-------------
Retail - Drug Stores (0.8%)
850 CVS Corp. ...................................................... 48,344
1,500 Longs Drug Stores Corp. ........................................ 40,406
900 Rite Aid Corp. ................................................. 46,744
900 Walgreen Co. ................................................... 50,850
-------------
186,344
-------------
Retail - Food Chains (1.1%)
1,150 Albertson's, Inc. .............................................. 42,622
1,600 American Stores Co. ............................................ 40,400
1,400 Giant Food, Inc. (Class A) ...................................... 46,988
1,600 Great Atlantic & Pacific Tea Co., Inc. ......................... 43,900
1,400 Kroger Co.* ..................................................... 41,388
1,250 Winn-Dixie Stores, Inc. ........................................ 45,781
-------------
261,079
-------------
Retail - General Merchandise (1.1%)
1,400 Costco Companies Inc.* .......................................... 53,025
800 Dayton-Hudson Corp. ............................................ 51,700
4,000 Kmart Corp.* .................................................... 47,500
800 Sears, Roebuck & Co. ........................................... 50,650
1,400 Wal-Mart Stores, Inc. .......................................... 52,588
-------------
255,463
-------------
Retail - Specialty (1.6%)
1,600 AutoZone, Inc.* ................................................. $ 45,800
1,200 Circuit City Stores, Inc. ...................................... 43,500
1,050 Home Depot, Inc. ............................................... 52,369
1,100 Lowe's Companies, Inc. ......................................... 41,388
1,300 Pep Boys-Manny, Moe & Jack ...................................... 43,225
800 Tandy Corp. .................................................... 47,550
1,450 Toys 'R' Us, Inc.* .............................................. 49,391
1,800 Woolworth Corp.* ................................................ 50,963
-------------
374,186
-------------
Retail - Specialty Apparel (0.8%)
6,700 Charming Shoppes, Inc.* ......................................... 39,363
1,200 Gap, Inc. ...................................................... 53,325
2,200 Limited (The), Inc. ............................................ 49,088
1,700 TJX Companies, Inc. ............................................ 50,788
-------------
192,564
-------------
Savings & Loan Companies (0.4%)
1,000 Ahmanson (H.F.) & Co. .......................................... 53,188
600 Golden West Financial Corp. .................................... 50,475
-------------
103,663
-------------
Semiconductor Equipment (0.2%)
550 Applied Materials, Inc.* ........................................ 50,497
-------------
Shoes (0.6%)
700 Nike, Inc. (Class B) ............................................ 43,619
900 Reebok International Ltd. ....................................... 46,463
3,200 Stride Rite Corp. .............................................. 43,400
-------------
133,482
-------------
Specialized Services (1.0%)
1,350 Block (H.&R.), Inc. ............................................ 51,722
1,900 CUC International, Inc.* ........................................ 46,788
1,050 Interpublic Group of Companies, Inc. ........................... 46,988
2,550 Safety-Kleen Corp. ............................................. 44,784
1,200 Service Corp. International ..................................... 40,800
-------------
231,082
-------------
Specialty Printing (0.6%)
1,200 Deluxe Corp. ................................................... 39,975
1,200 Donnelley (R.R.) & Sons Co. .................................... 48,225
2,300 Harland (John H.) Co. .......................................... 45,138
-------------
133,338
-------------
Steel & Iron (1.3%)
1,600 Allegheny Teledyne Inc. ........................................ 49,800
7,400 Armco, Inc.* .................................................... 40,238
4,000 Bethlehem Steel Corp.* .......................................... 45,000
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
1,800 Inland Steel Industries, Inc. .................................. $ 41,288
750 Nucor Corp. .................................................... 46,547
1,150 USX-U.S. Steel Group, Inc. ..................................... 42,047
2,400 Worthington Industries, Inc. ................................... 47,400
-------------
312,320
-------------
Telecommunications -
Long Distance (1.0%)
1,300 AT&T Corp. ..................................................... 47,856
2,300 Frontier Corp. ................................................. 47,438
1,200 MCI Communications Corp. ....................................... 42,225
850 Sprint Corp. ................................................... 42,075
1,500 WorldCom, Inc.* ................................................. 52,406
-------------
232,000
-------------
Telecommunications -Wireless (0.2%)
1,500 Airtouch Communications, Inc.* .................................. 49,406
-------------
Textiles (0.9%)
Fruit of the Loom, Inc.
1,700 (Class A)* ...................................................... 46,538
850 Liz Claiborne, Inc. ............................................ 40,694
1,400 Russell Corp. .................................................. 40,863
900 Springs Industries, Inc. (Class A) .............................. 43,538
550 VF Corp. ....................................................... 49,363
-------------
220,996
-------------
Tobacco (0.6%)
1,150 Fortune Brands, Inc. ........................................... 40,753
1,050 Philip Morris Companies, Inc. .................................. 47,381
1,500 UST, Inc. ...................................................... 43,594
-------------
131,728
-------------
Toys (0.4%)
1,600 Hasbro Inc. .................................................... 49,100
1,350 Mattel, Inc. ................................................... 46,913
-------------
96,013
-------------
Truckers (0.4%)
1,300 Caliber System, Inc. ........................................... 50,619
1,250 Ryder System, Inc. ............................................. 44,766
-------------
95,385
-------------
Utilities - Electric (4.9%)
900 American Electric Power Co., Inc. ............................... 40,275
1,700 Baltimore Gas & Electric Co. ................................... 47,281
1,300 Carolina Power & Light Co. ..................................... 46,313
2,300 Central & South West Corp. ..................................... 46,144
1,200 CINergy Corp. .................................................. 40,350
1,400 Consolidated Edison Co. of New York, Inc. ...................... $ 44,275
1,450 Detroit Edison Co. ............................................. 43,409
1,300 Dominion Resources, Inc. ....................................... 47,775
1,050 Duke Energy Corp. .............................................. 53,222
1,700 Edison International ............................................ 42,925
1,450 Entergy Corp. .................................................. 39,603
1,000 FPL Group, Inc. ................................................ 47,875
1,200 General Public Utilities Corp. ................................. 41,625
2,200 Houston Industries, Inc. ....................................... 46,063
4,300 Niagara Mohawk Power Corp.* ..................................... 40,044
800 Northern States Power Co. ...................................... 41,100
1,950 Ohio Edison Co. ................................................ 43,388
2,050 PacifiCorp ...................................................... 45,741
2,100 PECO Energy Co. ................................................ 49,350
1,700 PG & E Corp. ................................................... 42,181
2,300 PP&L Resources, Inc. ........................................... 47,006
1,900 Public Service Enterprise Group, Inc. .......................... 47,025
1,900 Southern Co. ................................................... 41,681
1,200 Texas Utilities Co. ............................................ 42,525
2,100 Unicom Corp. ................................................... 47,644
1,200 Union Electric Co. ............................................. 46,200
-------------
1,161,020
-------------
Utilities - Natural Gas (2.4%)
800 Coastal Corp. .................................................. 43,500
600 Columbia Gas System, Inc. ...................................... 41,250
700 Consolidated Natural Gas Co. ................................... 40,513
1,300 Eastern Enterprises ............................................. 46,556
1,200 Enron Corp. .................................................... 45,525
1,900 ENSERCH Corp. .................................................. 42,275
1,200 NICOR, Inc. .................................................... 43,950
2,800 NorAm Energy Corp. ............................................. 44,800
1,250 ONEOK Inc. ..................................................... 43,750
1,200 Pacific Enterprises ............................................. 40,125
1,100 Peoples Energy Corp. ........................................... 42,213
900 Sonat, Inc. .................................................... 44,888
900 Williams Cos., Inc. ............................................ 41,175
-------------
560,520
-------------
Utilities - Telephone (1.4%)
1,250 Alltel Corp. ................................................... 41,094
650 Ameritech Corp. ................................................ 43,834
550 Bell Atlantic Corp. ............................................ 39,909
850 BellSouth Corp. ................................................ 40,269
1,000 GTE Corp. ...................................................... 46,500
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
700 NYNEX Corp. .................................................... $ 38,806
750 SBC Communications, Inc. ....................................... 44,391
1,100 U.S. West Communications Group, Inc. ............................ 40,219
-------------
335,022
-------------
Waste Management (0.4%)
1,200 Browning-Ferris Industries, Inc. ............................... 44,400
2,900 Laidlaw Inc. (Class B)(Canada) .................................. 46,219
-------------
90,619
-------------
TOTAL COMMON STOCKS (Identified Cost $14,805,322) ............... 23,156,111
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENT (a)(2.9%)
U.S. GOVERNMENT AGENCY
$700 Federal Home Loan Mortgage Corp.
5.75% due 08/01/97
(Amortized Cost $700,000) .................................... $ 700,000
------------
TOTAL INVESTMENTS
(Identified cost $15,505,322)(b) . 100.3% 23,856,111
LIABILITIES IN EXCESS OF
CASH AND OTHER ASSETS............. (0.3) (76,376)
----- ------------
NET ASSETS........................ 100.0% $23,779,735
===== ============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$8,490,682 and the aggregate gross unrealized depreciation is
$139,893, resulting in net unrealized appreciation of $8,350,789.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (93.8%)
ARGENTINA (0.7%)
Banks
1,700 Banco de Galicia y Buenos Aires S.A. de C.V. (Class B)(ADR) ....$ 53,337
-----------
Brewery
2,000 Quilmes Industrial S.A. (ADR) .................................. 23,000
-----------
Telecommunications
1,000 Telecom Argentina Stet - France Telecom S.A. (Class B)(ADR) .... 57,813
-----------
TOTAL ARGENTINA ................................................ 134,150
-----------
AUSTRALIA (1.0%)
Business Services
4,800 Mayne Nickless Ltd. ............................................ 27,735
-----------
Energy
2,500 Woodside Petroleum Ltd. ........................................ 21,268
-----------
Financial Services
24,000 Tyndall Australia Ltd. ......................................... 41,083
-----------
Foods & Beverages
30,000 Goodman Fielder Ltd. ........................................... 46,263
-----------
Metals & Mining
20,155 M.I.M. Holdings Ltd. ........................................... 28,022
14,000 Pasminco Ltd. .................................................. 27,000
-----------
55,022
-----------
TOTAL AUSTRALIA ................................................ 191,371
-----------
BELGIUM (0.2%)
Retail
1,000 G.I.B. Holdings Ltd. ........................................... 48,471
-----------
BRAZIL (2.3%)
Banks
600 Uniao de Bancos Brasileiros S.A. (GDR)* ........................ 24,150
-----------
Brewery
4,500 Companhia Cervejaria Brahma -(ADR) ............................. 68,906
-----------
Steel & Iron
2,000 Usinas Siderurgicas de Minas Gerais S.A. (ADR) -144A** ......... 23,700
3,000 Usinas Siderurgicas de Minas Gerais S.A. (S Shares)(ADR) ....... 35,550
-----------
59,250
-----------
Telecommunications
600 Telecommunicacoes Brasileiras S.A. (ADR) .......................$ 89,025
-----------
Utilities - Electric
2,000 Companhia Energetica de Minas Gerais S.A. (ADR) ................ 112,500
5,000 Companhia Paranaense de Energia -Copel (Preference Shares) ..... 96,250
-----------
208,750
-----------
TOTAL BRAZIL ................................................... 450,081
-----------
CANADA (0.7%)
Energy
5,000 Ranger Oil Ltd. ................................................ 48,970
-----------
Retail - Department Stores
4,000 Hudson's Bay Co. ............................................... 89,669
-----------
TOTAL CANADA ................................................... 138,639
-----------
CHILE (0.7%)
Pharmaceuticals
1,300 Laboratorio Chile S.A. (ADR) ................................... 38,431
-----------
Retail
3,000 Supermercados Unimarc S.A. (ADR)* .............................. 51,938
-----------
Telecommunications
1,487 Compania de Telecommunicaciones de Chile S.A. (ADR) ............ 48,978
-----------
TOTAL CHILE .................................................... 139,347
-----------
CHINA (0.2%)
Transportation
1,000 China Southern Airlines Co. (ADR) .............................. 31,000
-----------
DENMARK (0.9%)
Pharmaceuticals
1,000 Novo-Nordisk AS (Series B) ..................................... 105,361
-----------
Transportation
700 Kobenhavns Lufthavne AS ........................................ 73,453
-----------
TOTAL DENMARK .................................................. 178,814
-----------
FINLAND (0.7%)
Manufacturing
800 KCI Konecranes International ................................... 32,104
-----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
Paper Products
3,200 UPM-Kymmene OY Corp. ...........................................$ 77,810
-----------
Pharmaceuticals
1,000 Orion-yhtymae OY (B Shares) .................................... 36,300
-----------
TOTAL FINLAND .................................................. 146,214
-----------
FRANCE (3.6%)
Automotive
1,200 Michelin (B Shares) ............................................ 74,682
-----------
Computer Services
400 Axime (Ex Segin) ............................................... 44,599
-----------
Energy
700 Elf Aquitaine S.A. ............................................. 79,855
-----------
Financial Services
350 Credit Local de France ......................................... 34,675
-----------
Household Products
740 Societe BIC S.A. ............................................... 61,015
-----------
Insurance
2,000 AXA-UAP ........................................................ 130,730
1,400 Scor ........................................................... 61,218
-----------
191,948
-----------
Leisure
600 Accor S.A. ..................................................... 90,230
-----------
Retail
80 Carrefour Supermarche .......................................... 54,022
-----------
Steel & Iron
4,500 Usinor Sacilor ................................................. 89,673
-----------
TOTAL FRANCE ................................................... 720,699
-----------
GERMANY (3.8%)
Apparel
400 Adidas AG ...................................................... 46,995
-----------
Automotive
90 Bayerische Motoren Werke (BMW) AG .............................. 73,332
300 MAN AG ......................................................... 90,481
250 Volkswagen AG .................................................. 191,188
-----------
355,001
-----------
Chemicals
1,200 Bayer AG ....................................................... 50,519
600 SGL Carbon AG .................................................. 79,793
-----------
130,312
-----------
Machinery - Diversified
100 Mannesmann AG ..................................................$ 46,696
-----------
Pharmaceuticals
1,000 Gehe AG ........................................................ 62,605
-----------
Telecommunications
900 Siemens AG ..................................................... 62,709
-----------
Utilities - Electric
700 VEBA AG ........................................................ 40,702
-----------
TOTAL GERMANY .................................................. 745,020
-----------
HONG KONG (4.9%)
Banking
12,000 Guoco Group Ltd. ............................................... 67,743
3,140 HSBC Holdings PLC .............................................. 109,521
-----------
177,264
-----------
Conglomerates
24,000 China Resources Enterprise Ltd. ................................ 119,984
12,000 Citic Pacific Ltd. ............................................. 76,114
-----------
196,098
-----------
Finance & Brokerage
36,000 Peregrine Investments Holdings Ltd. ............................ 79,525
-----------
Real Estate
10,000 Cheung Kong (Holdings) Ltd. .................................... 111,097
24,000 New World Development Co., Ltd. ................................. 172,846
6,000 Sun Hung Kai Properties Ltd. ................................... 75,378
-----------
359,321
-----------
Utilities
36,600 Hong Kong & China Gas Co. Ltd. .................................. 79,431
-----------
Utilities - Electric
13,000 China Light & Power Co. Ltd. ................................... 74,564
-----------
TOTAL HONG KONG ................................................ 966,203
-----------
IRELAND (0.3%)
Transportation
2,000 Ryanair Holdings PLC (ADR)* .................................... 56,250
-----------
ITALY (1.4%)
Energy
1,500 Ente Nazionale Idrocarburi SpA (ADR) ........................... 88,219
-----------
Household Furnishings & Appliances
3,000 Industrie Natuzzi SpA (ADR) .................................... 82,688
-----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
Telecommunications
16,000 Telecom Italia SpA .............................................$ 101,703
------------
TOTAL ITALY .................................................... 272,610
------------
JAPAN (19.5%)
Automotive
4,000 Honda Motor Co. ................................................ 133,626
6,000 Suzuki Motor Co. Ltd. .......................................... 72,887
------------
206,513
------------
Banking
14,000 Asahi Bank, Ltd. ............................................... 104,876
3,000 Bank of Tokyo-Mitsubishi, Ltd. ................................. 55,677
9,000 Sakura Bank Ltd. ............................................... 55,045
------------
215,598
------------
Building & Construction
12,000 Sekisui House Ltd. ............................................. 114,392
------------
Business Services
2,000 Secom Co. ...................................................... 146,280
------------
Chemicals
8,000 Kaneka Corp. ................................................... 49,064
6,000 Nippon Shokubai K.K. Co. ....................................... 41,859
4,000 Shin-Etsu Chemical Co., Ltd. ................................... 114,054
------------
204,977
------------
Computers
6,000 Fujitsu, Ltd. .................................................. 88,072
------------
Consumer Products
4,000 Kao Corp. ...................................................... 60,064
------------
Electronics
6,000 Canon, Inc. .................................................... 191,328
9,000 Hitachi, Ltd. .................................................. 101,738
9,000 Hitachi Cable .................................................. 81,238
6,000 Matsushita Electric Industrial Co., Ltd. ....................... 125,021
8,000 Sharp Corp. .................................................... 102,581
2,000 Sony Corp. ..................................................... 199,089
2,000 TDK Corp. ...................................................... 172,094
------------
973,089
------------
Electronics - Semiconductors/Components
1,000 Rohm Co., Ltd. ................................................. 130,758
------------
Financial Services
6,000 Nomura Securities Co. Ltd. ..................................... 85,035
2,000 Orix Corp. ..................................................... 161,296
------------
246,331
------------
International Trade
10,000 Mitsui & Co. ...................................................$ 95,326
------------
Machine Tools
7,000 Asahi Diamond Industries Co. Ltd. .............................. 57,576
------------
Machinery
10,000 Minebea Co., Ltd. .............................................. 118,947
13,000 Mitsubishi Heavy Industries, Ltd. ............................... 91,572
------------
210,519
------------
Pharmaceuticals
5,000 Eisai Co. Ltd. ................................................. 103,762
6,000 Fujisawa Pharmaceutical ........................................ 61,245
2,000 Sankyo Co. Ltd. ................................................ 71,368
2,000 Terumo Corp. ................................................... 40,324
------------
276,699
------------
Real Estate
5,000 Mitsui Fudosan Co., Ltd. ....................................... 64,113
------------
Restaurants
5 Yoshinoya D & C Company Ltd. ................................... 61,583
------------
Retail
2,000 Aoyama Trading Co., Ltd. ....................................... 59,895
4,000 Izumiya Co. Ltd. ............................................... 50,953
2,000 Jusco Co. ...................................................... 55,677
------------
166,525
------------
Steel & Iron
40,000 NKK Corp. ...................................................... 72,887
------------
Telecommunications
10 DDI Corp. ...................................................... 68,669
14 Nippon Telegraph & Telephone Corp. ............................. 141,724
------------
210,393
------------
Textiles
15,000 Teijin Ltd. .................................................... 64,535
------------
Transportation
15 East Japan Railway Co. ......................................... 64,409
6,000 Yamato Transport Co. Ltd. ...................................... 75,924
------------
140,333
------------
Wholesale Distributor
1,000 Softbank Corp. ................................................. 51,881
------------
TOTAL JAPAN .................................................... 3,858,444
------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
MALAYSIA (2.2%)
Banking
8,000 Malayan Banking Berhad .........................................$ 75,959
22,666 Public Bank Berhad ............................................. 32,540
550 RHB Sakura Merchant Bankers Berhad ............................. 856
-----------
109,355
-----------
Building & Construction
9,000 United Engineers Malaysia Berhad ............................... 62,894
-----------
Conglomerates
10,000 Road Builder (M) Holdings Berhad ............................... 41,777
-----------
Entertainment
37,000 Magnum Corporation Berhad ...................................... 47,497
-----------
Financial Services
12,000 Arab Malaysian Finance Berhad 7.5% due 5/25/02 (Loan Stock) .... 4,147
-----------
Machinery
10,000 UMW Holdings Berhad ............................................ 39,499
-----------
Natural Gas
15,000 Petronas Gas Berhad ............................................ 52,697
-----------
Utilities - Electric
20,000 Tenaga Nasional Berhad ......................................... 80,517
-----------
TOTAL MALAYSIA ................................................. 438,383
-----------
MEXICO (3.4%)
Banking
Grupo Financiero Banamex Accival S.A. de C.V.
29,391 (B Shares)* .................................................... 90,414
-----------
Beverages
2,700 Pepsi-Gemex S.A. de C.V. (GDR) ................................. 39,150
-----------
Brewery
Grupo Modelo S.A. de C.V.
6,000 (Series C) ..................................................... 55,794
-----------
Building Materials
15,087 Cemex, S.A. de C.V. (B Shares) ................................. 86,840
-----------
Conglomerates
1,707 DESC S.A. de C.V. (Series C)(ADR) .............................. 62,732
Grupo Carso S.A. de C.V.
7,000 (Series A1) .................................................... 56,856
-----------
119,588
-----------
Food Processing
2,500 Grupo Industrial Maseca S.A. de C.V. (ADR) .....................$ 46,250
-----------
Paper & Forest Products
14,000 Kimberly-Clark de Mexico, S.A. de C.V. (A Shares) .............. 68,048
-----------
Retail
2,200 Grupo Elektra, S.A. de C.V. (GDR) ............................... 65,450
-----------
Telecommunications
2,000 Telefonos de Mexico S.A. de C.V. (Series L)(ADR) ............... 111,000
-----------
TOTAL MEXICO ................................................... 682,534
-----------
NETHERLANDS (4.3%)
Building Materials
800 Hunter Douglas NV .............................................. 37,205
-----------
Business & Public Services
700 Randstad Holdings NV ........................................... 74,946
-----------
Chemicals
500 Akzo Nobel NV .................................................. 77,462
-----------
Electronics
2,000 Philips Electronics NV ......................................... 162,264
-----------
Food Processing
200 Nutricia Verenigde Bedrijven NV ................................ 33,998
-----------
Furniture
1,400 Ahrend Groep NV ................................................ 47,327
-----------
Insurance
500 Aegon NV ....................................................... 37,958
875 ING Groep NV ................................................... 42,594
-----------
80,552
-----------
Publishing
2,900 Elsevier NV .................................................... 51,118
-----------
Retail
950 Gucci Group NV ................................................. 59,969
2,700 Koninklijke Ahold NV ........................................... 78,104
-----------
138,073
-----------
Steel
1,100 Koninklijke Hoogovens NV ....................................... 66,668
-----------
Transportation
2,000 KLM Royal Dutch Air Lines NV ................................... 71,377
-----------
TOTAL NETHERLANDS .............................................. 840,990
-----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES -GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
PERU (0.2%)
Banking
7,000 Banco Wiese (ADR) ..............................................$ 43,750
-----------
PHILIPPINES (0.1%)
Telecommunications
600 Philippine Long Distance Telephone Co. (ADR) ................... 20,137
-----------
PORTUGAL (0.4%)
Telecommunications
1,100 Portugal Telecom S.A. (ADR) .................................... 44,275
500 Telecel-Comunicacaoes Pessoais, S.A.* .......................... 39,155
-----------
TOTAL PORTUGAL ................................................. 83,430
-----------
SINGAPORE (1.6%)
Banking
4,500 Development Bank of Singapore, Ltd. ............................ 58,422
-----------
Beverages
7,000 Fraser & Neave Ltd. ............................................ 47,580
-----------
Hospital Management
6,000 Parkway Holdings Ltd. .......................................... 27,529
-----------
Publishing
4,000 Singapore Press Holdings Ltd. .................................. 75,856
-----------
Transportation
3,700 Singapore International Airlines ............................... 34,706
-----------
Utilities - Telecommunications
37,000 Singapore Telecommunications, Ltd. ............................. 70,167
-----------
TOTAL SINGAPORE ................................................ 314,260
-----------
SOUTH AFRICA (0.1%)
Brewers
700 South African Breweries Ltd. (ADR) ............................. 22,488
-----------
SOUTH KOREA (0.3%)
Electronics
1,700 Samsung Electronics Co. (GDR)(Non-voting) -144A** .............. 51,510
-----------
SPAIN (1.7%)
Banks
3,300 Banco Bilbao Vizcaya ........................................... 86,127
200 Banco Popular Espanol S.A. ..................................... 44,307
-----------
130,434
-----------
Natural Gas
800 Gas Natural SDG S.A. ...........................................$ 39,132
-----------
Retail
3,100 Centros Comerciales Pryca, S.A. ................................ 59,857
-----------
Telecommunications
500 Telefonica de Espana S.A. (ADR) ................................ 39,375
-----------
Utilities - Electric
2,800 Empresa Nacional de Electricidad S.A. .......................... 57,669
-----------
TOTAL SPAIN .................................................... 326,467
-----------
SWEDEN (1.4%)
Automotive
2,200 Scania AB (A Shares) ........................................... 63,038
-----------
Machinery
2,300 Kalmar Industries AB ........................................... 38,563
-----------
Manufacturing
1,200 Assa Abloy AB (Series B) ....................................... 26,276
-----------
Paper Products
Stora Kopparbergs Aktiebolag
3,400 (A Shares) ..................................................... 55,731
-----------
Telecommunications
2,250 Ericsson (L.M.) Telephone Co. AB (Series "B" Free) ............. 101,211
-----------
TOTAL SWEDEN ................................................... 284,819
-----------
SWITZERLAND (1.7%)
Engineering
40 ABB AG-Bearer .................................................. 56,890
-----------
Food Processing
70 Nestle S.A. .................................................... 88,901
-----------
Pharmaceuticals
32 Novartis AG .................................................... 51,399
30 Novartis AG - Bearer ........................................... 48,147
10 Roche Holdings AG .............................................. 96,790
-----------
196,336
-----------
TOTAL SWITZERLAND .............................................. 342,127
-----------
UNITED KINGDOM (10.4%)
Aerospace
11,453 Rolls-Royce PLC ................................................ 43,939
-----------
Aerospace & Defense
3,978 British Aerospace PLC .......................................... 86,970
2,900 Smiths Industries PLC .......................................... 38,274
-----------
125,244
-----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
Auto Parts - Original Equipment
26,200 LucasVarity PLC ................................................$ 80,755
-----------
Banking
3,600 Abbey National PLC ............................................. 49,460
1,323 Barclays Bank, PLC ............................................. 27,872
7,103 National Westminster Bank PLC .................................. 100,849
-----------
178,181
-----------
Beverages
5,800 Bass PLC ....................................................... 79,306
-----------
Broadcast Media
3,600 Flextech PLC* .................................................. 38,807
-----------
Building & Construction
5,893 Blue Circle Industries PLC ..................................... 39,999
-----------
Business Services
3,400 Compass Group PLC .............................................. 34,171
3,000 Reuters Holdings PLC ........................................... 32,315
-----------
66,486
-----------
Computer Software & Services
3,500 SEMA Group PLC ................................................. 80,622
-----------
Conglomerates
8,300 BTR PLC ........................................................ 25,787
9,302 Tomkins PLC .................................................... 46,972
-----------
72,759
-----------
Consumer Products
3,000 Unilever PLC ................................................... 86,910
-----------
Energy
27,300 Shell Transport & Trading Co. PLC .............................. 201,860
-----------
Food Processing
10,000 Devro PLC ...................................................... 64,104
-----------
Household Products
7,000 Reckitt & Colman PLC ........................................... 108,912
-----------
Insurance
4,200 Britannic Assurance PLC ........................................ 53,813
5,700 Commercial Union PLC ........................................... 64,061
10,441 Royal & Sun Alliance Insurance Group PLC ....................... 85,761
-----------
203,635
-----------
Leisure
2,671 Granada Group PLC .............................................. 36,785
-----------
Pharmaceuticals
6,220 Glaxo Wellcome PLC ............................................. 131,652
-----------
Property - Casualty Insurance
65 General Accident PLC ...........................................$ 980
-----------
Retail
9,500 Sainsbury (J.) PLC ............................................. 66,195
-----------
Telecommunications
10,000 British Telecommunications PLC ................................. 70,007
9,602 Securicor PLC .................................................. 43,607
11,900 Vodafone Group PLC ............................................. 60,091
-----------
173,705
-----------
Transportation
7,811 British Airways PLC ............................................ 84,896
-----------
Utilities
3,220 Thames Water PLC ............................................... 42,392
-----------
Utilities -Electric
6,500 National Power PLC ............................................. 57,546
-----------
TOTAL UNITED KINGDOM ........................................... 2,065,670
-----------
UNITED STATES (25.1%)
Aerospace & Defense
1,040 Lockheed Martin Corp. .......................................... 110,760
6,130 Loral Space & Communications* .................................. 95,781
-----------
206,541
-----------
Aluminum
1,240 Aluminum Co. of America ........................................ 109,740
-----------
Automotive
2,940 Chrysler Corp. ................................................. 109,147
2,870 Ford Motor Co. ................................................. 117,311
-----------
226,458
-----------
Banks
1,970 First Tennessee National Corp. ................................. 102,440
-----------
Beverages - Soft Drinks
2,780 PepsiCo, Inc. .................................................. 106,509
-----------
Biotechnology
4,120 Biochem Pharma, Inc.* .......................................... 118,450
-----------
Chemicals
1,060 Dow Chemical Co. ............................................... 100,700
2,250 Monsanto Co. ................................................... 112,078
1,880 Praxair, Inc. .................................................. 103,635
-----------
316,413
-----------
Communications - Equipment & Software
1,850 Cisco Systems, Inc.* ........................................... 146,959
-----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
Computer Software
2,400 Oracle Systems Corp.* ..........................................$ 130,350
-----------
Computers
3,360 Gateway 2000, Inc.* ............................................ 128,310
-----------
Computers - Peripheral Equipment
1,900 Seagate Technology, Inc.* ...................................... 78,019
-----------
Computers - Systems
1,760 Hewlett-Packard Co. ............................................ 123,310
3,230 Sun Microsystems, Inc.* ........................................ 147,571
-----------
270,881
-----------
Electrical Equipment
1,260 Honeywell, Inc. ................................................ 94,106
-----------
Electronics - Defense
1,590 General Motors Corp. (Class H) ................................. 96,096
-----------
Electronics - Semiconductors/Components
1,300 Intel Corp. .................................................... 119,275
-----------
Entertainment
1,240 Walt Disney Productions ........................................ 100,207
-----------
Financial - Miscellaneous
2,400 Ahmanson (H.F.) & Co. .......................................... 127,650
1,460 American Express Co. ........................................... 122,275
2,350 Fannie Mae ..................................................... 111,184
1,400 Golden West Financial Corp. .................................... 117,775
1,770 Travelers Group, Inc. .......................................... 127,329
-----------
606,213
-----------
Foods
1,450 General Mills, Inc. ............................................ 100,231
-----------
Household Furnishings & Appliances
4,340 Maytag Corp. ................................................... 126,674
2,800 Sunbeam Corp. .................................................. 109,550
-----------
236,224
-----------
Household Products
1,700 Colgate-Palmolive Co. .......................................... 128,775
-----------
Medical Products & Supplies
2,040 Baxter International, Inc. ..................................... 117,938
-----------
Medical Services
2,000 HBO & Co. ...................................................... 154,500
-----------
Oil Integrated -International
1,500 Atlantic Richfield Co. .........................................$ 112,219
1,480 Chevron Corp. .................................................. 117,105
1,900 Exxon Corp. .................................................... 122,075
1,520 Mobil Corp. .................................................... 116,280
-----------
467,679
-----------
Pharmaceuticals
1,580 Abbott Laboratories ............................................ 103,391
1,480 American Home Products Corp. ................................... 122,008
-----------
225,399
-----------
Retail - Department Stores
1,800 Sears, Roebuck & Co. ........................................... 113,963
-----------
Retail - Specialty
3,670 Bed Bath & Beyond, Inc.* ....................................... 121,110
-----------
Retail - Specialty Apparel
2,680 Gap, Inc. ...................................................... 119,093
-----------
Semiconductor Equipment
3,140 Teradyne, Inc.* ................................................ 146,795
-----------
Shoes
1,440 Nike, Inc. (Class B) ........................................... 89,730
-----------
TOTAL UNITED STATES ............................................ 4,978,404
-----------
TOTAL COMMON STOCKS
(Identified Cost $15,100,950) .................................. 18,572,282
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (a)(7.1%)
U.S. GOVERNMENT AGENCIES
Federal Farm Credit Bank
$1,000 5.45% due 08/04/97 ............................................ 999,546
400 Federal Home Loan Mortgage Corp.
5.75% due 08/01/97 ............................................. 400,000
----------
TOTAL SHORT-TERM INVESTMENTS
(Amortized Cost $1,399,546) .................................... 1,399,546
----------
TOTAL INVESTMENTS
(Identified Cost $16,500,496)(b) ................................. 100.9% 19,971,828
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS ................................................. (0.9) (174,632)
-------- ------------
NET ASSETS ........................................................ 100.0% $19,797,196
======== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
- ------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Securities were purchased on a discount basis. The interest rates
shown have been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$3,806,319 and the aggregate gross unrealized depreciation is
$334,987, resulting in net unrealized appreciation of $3,471,332.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JULY 31, 1997:
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO EXCHANGE DELIVERY APPRECIATION/
RECEIVE FOR DATE (DEPRECIATION)
- ------------------ ------------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
$ 64,633 ESP 10,034,338 08/01/97 $ 50
$ 1,472 MXN 11,571 08/01/97 (8)
DEM 69,082 $ 37,698 08/04/97 (123)
NLG 142,403 $ 69,027 08/04/97 (257)
yen 6,273,323 $ 52,939 08/05/97 (18)
MYR 199,255 $ 75,936 08/05/97 (259)
PTE 7,438,359 $ 40,153 08/05/97 (119)
$ 93,976 ESP 14,622,742 08/07/97 (139)
SGD 72,082 $ 49,042 08/07/97 (47)
$ 22,998 AUD 30,870 08/08/97 (77)
FRF 563,860 $ 91,528 08/29/97 (546)
-------
Net unrealized depreciation...................... $(1,543)
=======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY PORTFOLIO
SUMMARY OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -----------------------------------------------------------
<S> <C> <C>
Aerospace ...................... $ 43,939 0.2%
Aerospace & Defense ............ 331,785 1.7
Aluminum ....................... 109,740 0.6
Apparel ........................ 46,995 0.2
Auto Parts -Original Equipment 80,755 0.4
Automotive ..................... 925,692 4.7
Banking ........................ 872,984 4.4
Banks .......................... 310,361 1.6
Beverages ...................... 166,036 0.8
Beverages -Soft Drinks ......... 106,509 0.5
Biotechnology .................. 118,450 0.6
Brewers ........................ 22,488 0.1
Brewery ........................ 147,700 0.8
Broadcast Media ................ 38,807 0.2
Building & Construction ........ 217,285 1.1
Building Materials ............. 124,045 0.6
Business & Public Services .... 74,946 0.4
Business Services .............. 240,501 1.2
Chemicals ...................... 729,164 3.7
Communications -Equipment &
Software ...................... 146,959 0.7
Computer Services .............. 44,599 0.2
Computer Software .............. 130,350 0.7
Computer Software & Services ... 80,622 0.4
Computers ...................... 216,382 1.1
Computers -Peripheral Equipment 78,019 0.4
Computers -Systems ............. 270,881 1.4
Conglomerates .................. 430,222 2.2
Consumer Products .............. 146,974 0.7
Electrical Equipment ........... 94,106 0.5
Electronics .................... 1,186,863 6.0
Electronics -Defense ........... 96,096 0.5
Electronics -Semiconductors/
Components .................... 250,033 1.3
Energy ......................... 440,172 2.2
Engineering .................... 56,890 0.3
Entertainment .................. 147,704 0.8
Finance & Brokerage ............ 79,525 0.4
Financial -Miscellaneous ...... 606,213 3.1
Financial Services ............. 326,236 1.6
Food Processing ................ 233,253 1.2
Foods .......................... 100,231 0.5
Foods & Beverages .............. 46,263 0.2
Furniture ...................... 47,327 0.2
Hospital Management ............ 27,529 0.1
Household Furnishings &
Appliances .................... 318,912 1.6
Household Products ............. $ 298,702 1.5%
Insurance ...................... 476,135 2.4
International Trade ............ 95,326 0.5
Leisure ........................ 127,015 0.6
Machine Tools .................. 57,576 0.3
Machinery ...................... 288,581 1.5
Machinery -Diversified ......... 46,696 0.2
Manufacturing .................. 58,380 0.3
Medical Products & Supplies ... 117,938 0.6
Medical Services ............... 154,500 0.8
Metals & Mining ................ 55,022 0.3
Natural Gas .................... 91,829 0.5
Oil Integrated -International . 467,679 2.4
Paper & Forest Products ........ 68,048 0.3
Paper Products ................. 133,541 0.7
Pharmaceuticals ................ 1,072,783 5.4
Property -Casualty Insurance ... 980 0.0
Publishing ..................... 126,974 0.6
Real Estate .................... 423,434 2.1
Restaurants .................... 61,583 0.3
Retail ......................... 650,531 3.3
Retail -Department Stores ..... 203,632 1.0
Retail -Specialty .............. 121,110 0.6
Retail -Specialty Apparel ..... 119,093 0.6
Semiconductor Equipment ........ 146,795 0.7
Shoes .......................... 89,730 0.5
Steel .......................... 66,668 0.3
Steel & Iron ................... 221,810 1.1
Telecommunications ............. 1,099,479 5.6
Textiles ....................... 64,535 0.3
Transportation ................. 492,015 2.5
U.S. Government Agencies ...... 1,399,546 7.1
Utilities ...................... 121,823 0.6
Utilities -Electric ............ 519,748 2.6
Utilities -Telecommunications .. 70,167 0.4
Wholesale Distributor .......... 51,881 0.3
------------- ------------
$19,971,828 100.9%
============= ============
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ---------------------------------------------------
<S> <C> <C>
Common Stocks .......... $18,572,282 93.8%
Short-Term Investments 1,399,546 7.1
----------- -----
$19,971,828 100.9%
=========== =====
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS (58.4%)
Aerospace & Defense (1.1%)
3,905 Honeywell, Inc. ................................................ $ 291,655
-------------
Aluminum (0.5%)
1,600 Aluminum Co. of America ......................................... 141,600
-------------
Automotive (1.7%)
8,000 Chrysler Corp. .................................................. 297,000
3,500 Ford Motor Co. ................................................. 143,062
-------------
440,062
-------------
Banks - Money Center (2.3%)
4,500 Citicorp ........................................................ 610,875
-------------
Banks - Regional (2.0%)
1,940 Wells Fargo & Co. ............................................... 533,379
-------------
Beverages - Soft Drinks (0.5%)
3,400 PepsiCo Inc. ................................................... 130,262
-------------
Cable/Cellular (0.8%)
9,400 U.S. West Media Group* .......................................... 207,387
-------------
Chemicals (2.6%)
1,250 Dow Chemical Co. ................................................ 118,750
11,450 Monsanto Co. ................................................... 570,353
-------------
689,103
-------------
Communications - Equipment & Software (0.6%)
1,840 Cisco Systems, Inc.* ........................................... 146,165
-------------
Computer Software (1.6%)
1,800 Microsoft Corp.* ................................................ 254,362
3,150 Oracle Corp.* ................................................... 171,084
-------------
425,446
-------------
Computers (4.5%)
10,400 Dell Computer Corp.* ........................................... 889,200
7,800 Gateway 2000, Inc.* ............................................ 297,862
-------------
1,187,062
-------------
Computers - Peripheral Equipment (1.8%)
11,250 Seagate Technology, Inc.* ....................................... 461,953
-------------
Computers - Systems (3.7%)
3,450 Diebold, Inc. .................................................. 173,362
9,500 Hewlett-Packard Co. ............................................ 665,594
3,300 Sun Microsystems, Inc.* ......................................... 150,769
-------------
989,725
-------------
Consumer Products (1.8%)
14,000 Tupperware Corp. ............................................... 486,500
-------------
Electrical Equipment (2.4%)
4,820 Emerson Electric Co. ............................................ $ 284,380
5,160 General Electric Co. ........................................... 362,167
-------------
646,547
-------------
Electronics -
Semiconductors/Components (2.1%)
6,000 Intel Corp. ..................................................... 550,500
-------------
Entertainment/Gaming (0.7%)
7,000 Circus Circus Enterprises, Inc.* ................................ 175,437
-------------
Financial Services (2.0%)
5,000 American Express Co. ............................................ 418,750
2,600 Fannie Mae ...................................................... 123,013
-------------
541,763
-------------
Foods (2.6%)
2,860 Campbell Soup Co. .............................................. 148,363
7,900 General Mills, Inc. ............................................ 546,088
-------------
694,451
-------------
Forest Products (2.4%)
10,100 Champion International Corp. .................................... 626,200
-------------
Healthcare - HMOs (1.0%)
11,200 Humana, Inc.* .................................................. 273,000
-------------
Household Appliances (1.2%)
11,000 Maytag Corp. ................................................... 321,063
-------------
Insurance (0.1%)
Aetna Inc. (Class C)
172 (Conv. Pref.) $4.75 ............................................ 17,329
-------------
Oil - International Integrated (5.8%)
6,400 Atlantic Richfield Co. ......................................... 478,800
2,070 Chevron Corp. .................................................. 163,789
2,800 Exxon Corp. .................................................... 179,900
7,200 Mobil Corp. ..................................................... 550,800
1,500 Texaco, Inc. .................................................... 174,094
-------------
1,547,383
-------------
Pharmaceuticals (4.5%)
1,800 Abbott Laboratories ............................................. 117,788
6,700 American Home Products Corp. .................................... 552,331
8,450 Johnson & Johnson ............................................... 526,541
-------------
1,196,660
-------------
Retail -Specialty (3.2%)
10,000 Bed Bath & Beyond, Inc.* ....................................... 330,000
2,400 Costco Companies Inc.* .......................................... 90,900
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
3,450 Home Depot, Inc. ............................................... $ 172,069
14,250 Pier 1 Imports, Inc. ............................................ 251,156
-------------
844,125
-------------
Retail - Specialty Apparel (2.5%)
14,600 Gap, Inc. ....................................................... 648,788
-------------
Savings & Loans (0.5%)
1,500 Golden West Financial Corp. ..................................... 126,187
-------------
Shoes (0.7%)
3,000 Nike, Inc. (Class B) ............................................ 186,938
-------------
Steel (1.2%)
4,300 Inland Steel Industries, Inc. .................................. 98,631
3,450 Nucor Corp. ..................................................... 214,116
-------------
312,747
-------------
TOTAL COMMON AND
PREFERRED STOCKS
(Identified Cost $10,314,161) .................................. 15,450,292
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
CORPORATE BONDS (3.7%)
Automotive - Finance (0.1%)
$ 15 Ford Capital BV (Netherlands)
9.375% due 05/15/01 ........................................... 16,545
------------
Banks (0.9%)
100 Bank One Corp
9.875% due 03/01/09 ........................................... 124,417
Central Fidelity Capital I
100 Series -144A**
6.75% due 04/15/27 ............................................ 102,601
------------
227,018
------------
Financial (0.4%)
100 Money Store Inc. (The)
8.375% due 04/15/04 ........................................... 105,497
------------
Financial Services (0.4%)
Centura Capital Trust I
100 Series 144A**
8.845% due 06/01/27 ........................................... 108,125
------------
Insurance (0.4%)
100 Vesta Capital Trust I -144A**
8.525% due 01/15/27 ........................................... 108,250
------------
Metals & Mining (0.4%)
100 Placer Dome, Inc. (Canada)
8.50% due 12/31/45 ............................................ 102,750
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Oil & Gas Products (0.4%)
$ 100 Mitchell Energy & Development Corp.
6.75% due 02/15/04 ............................................ $ 99,420
-------------
Oil - Domestic (0.2%)
50 Occidental Petroleum Corp.
11.125% due 08/01/10 .......................................... 67,914
-------------
Steel (0.0%)
10 Pohang Iron & Steel Co., Ltd. (South Korea)
7.50% due 08/01/02 ............................................ 10,336
-------------
Telecommunications (0.4%)
100 Total Access Communication -144A** (Thailand)
8.375% due 11/04/06 ........................................... 99,250
-------------
Utilities - Electric (0.1%)
20 Long Island Lighting Co.
6.25% due 07/15/01 ............................................ 19,789
-------------
TOTAL CORPORATE BONDS
(Identified Cost $919,525) ..................................... 964,894
-------------
U.S. GOVERNMENT OBLIGATIONS (16.0%)
400 U.S. Treasury Bond
6.50% due 11/15/26 ............................................ 408,984
315 U.S. Treasury Bond
6.875% due 08/15/25 ........................................... 336,414
150 U.S. Treasury Bond
7.625% due 02/15/25 ........................................... 174,529
550 U.S. Treasury Note
5.125% due 11/30/98 ........................................... 546,364
950 U.S. Treasury Note
5.25% due 12/31/97 ............................................ 949,269
350 U.S. Treasury Note
5.625% due 11/30/00 ........................................... 348,071
450 U.S. Treasury Note
5.75% due 08/15/03 ............................................ 445,927
100 U.S. Treasury Note
5.875% due 11/30/01 ........................................... 99,956
50 U.S. Treasury Note
6.375% due 01/15/99 ........................................... 50,506
350 U.S. Treasury Note
6.50% due 05/15/05 ............................................ 360,315
360 U.S. Treasury Note
6.875% due 08/31/99 ............................................ 367,978
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 140 U.S. Treasury Note
7.25% due 05/15/04 ........................................................ $ 149,911
-------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $4,145,542) ............................................... 4,238,224
-------------
SHORT-TERM INVESTMENTS (22.0%)
U.S. GOVERNMENT AGENCIES (a)(21.2%)
5,000 Federal Farm Credit Bank
5.42% due 08/05/97 ........................................................ 4,996,989
600 Federal Home Loan Mortgage Corp.
5.75% due 08/01/97 ........................................................ 600,000
-------------
TOTAL U.S. GOVERNMENT AGENCIES
(Amortized Cost $5,596,989) ................................................ 5,596,989
-------------
REPURCHASE AGREEMENT (0.8%)
223 The Bank of New York 5.75% due 08/01/97 (dated 07/31/97; proceeds
$222,587)(b) (Identified Cost $222,551) ................................... 222,551
-------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $5,819,540) ................................................ 5,819,540
-------------
TOTAL INVESTMENTS
(Identified Cost $21,198,768)(c) .......................................... 100.1% 26,472,950
LIABILITIES IN EXCESS OF
OTHER ASSETS ............................................................... (0.1) (13,530)
-------- -------------
NET ASSETS ................................................................. 100.0% $26,459,420
======== =============
</TABLE>
- ------------
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Securities were purchased on a discount basis. The interest rates
shown have been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $120,000 U.S. Treasury Note 7.875% due 04/15/98
valued at $124,656, $93,651 U.S. Treasury Note 7.00% due 04/15/99
valued at $97,514 and $4,723 U.S. Treasury Note 5.625% due 08/31/97
valued at $4,832.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$5,356,659 and the aggregate gross unrealized depreciation is
$82,477, resulting in net unrealized appreciation of $5,274,182.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
July 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. GOVERNMENT U.S. GOVERNMENT INCOME
LIQUID ASSET MONEY MARKET SECURITIES SECURITIES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value*............... $20,113,397 $4,036,736 $10,350,075 $2,347,060
Cash .............................................. 8,427 2,213 78,974 86,163
Receivable for:
Investments sold.................................. -- -- -- --
Shares of beneficial interest sold................ 1,135,082 10,301 22,677 3,462
Dividends......................................... -- -- -- --
Interest.......................................... -- -- 76,764 33,314
Foreign withholding taxes reclaimed............... -- -- -- --
Prepaid expenses and other assets.................. 26,147 5,790 6,691 12,589
Deferred organizational expenses................... 1,127 1,284 1,191 1,189
Receivable from affiliate.......................... -- 8,537 -- 6,791
----------- ---------- ----------- ----------
TOTAL ASSETS...................................... 21,284,180 4,064,861 10,536,372 2,490,568
----------- ---------- ----------- ----------
LIABILITIES:
Payable for:
Investments purchased............................. -- -- -- --
Shares of beneficial interest repurchased ........ 38,541 -- 11,416 8,580
Dividends to shareholders......................... -- -- 4,011 746
Investment management fee......................... 4,022 -- 110 --
Accrued expenses and other payables................ 23,148 17,969 19,019 19,964
Organizational expenses payable.................... 5,441 5,596 5,509 5,506
----------- ---------- ----------- ----------
TOTAL LIABILITIES................................. 71,152 23,565 40,065 34,796
----------- ---------- ----------- ----------
NET ASSETS:
Paid-in-capital.................................... 21,213,018 4,041,296 10,359,177 2,514,907
Accumulated undistributed net investment income .. 10 -- -- 46
Accumulated undistributed net realized gain
(loss)............................................ -- -- (491) (91,207)
Net unrealized appreciation........................ -- -- 137,621 32,026
----------- ---------- ----------- ----------
NET ASSETS ...................................... $21,213,028 $4,041,296 $10,496,307 $2,455,772
=========== ========== =========== ==========
*IDENTIFIED COST.................................. $20,113,397 $4,036,736 $10,212,454 $2,315,034
=========== ========== =========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING ...... 21,213,018 4,042,542 1,059,510 253,850
=========== ========== =========== ==========
NET ASSET VALUE PER SHARE
(unlimited authorized shares of $.01 par value) .. $1.00 $1.00 $9.91 $9.67
=========== ========== =========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
AMERICAN CAPITAL DIVIDEND VALUE-ADDED GLOBAL
VALUE GROWTH GROWTH UTILITIES MARKET EQUITY STRATEGIST
- ------------- ------------ -------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$53,898,134 $3,595,614 $116,084,027 $5,671,872 $23,856,111 $19,971,828 $26,472,950
50,162 17,654 -- -- 71,591 97,563 --
1,160,411 114,777 338,972 59,863 724,700 274,717 --
117,578 17,493 153,745 13,810 32,661 36,421 50,264
27,266 905 165,765 20,937 22,727 10,450 18,010
-- -- 121 21 -- -- 81,793
101 -- -- 1,065 -- 8,996 144
13,270 4,338 11,076 5,646 8,501 9,554 7,169
1,376 1,379 1,186 1,191 1,379 1,191 1,189
-- 5,185 -- 2,057 -- 25,572 --
- ------------- ------------ -------------- ------------ ------------- ------------- -------------
55,268,298 3,757,345 116,754,892 5,776,462 24,717,670 20,436,292 26,631,519
- ------------- ------------ -------------- ------------ ------------- ------------- -------------
918,594 58,353 1,221,168 316,275 861,090 574,355 --
77,147 3,874 108,736 43,837 45,267 28,565 125,989
-- -- -- -- -- -- --
20,595 -- 71,294 -- 5,006 -- 16,034
31,781 19,786 36,684 19,613 20,886 30,667 24,575
5,687 5,686 5,501 5,509 5,686 5,509 5,501
- ------------- ------------ -------------- ------------ ------------- ------------- -------------
1,053,804 87,699 1,443,383 385,234 937,935 639,096 172,099
- ------------- ------------ -------------- ------------ ------------- ------------- -------------
37,394,619 2,542,364 78,149,265 3,829,119 14,983,162 15,411,210 20,620,027
46,600 -- 365,924 54,200 100,361 131,548 381,735
6,688,579 257,050 8,002,032 476,783 345,423 784,106 183,476
10,084,696 870,232 28,794,288 1,031,126 8,350,789 3,470,332 5,274,182
- ------------- ------------ -------------- ------------ ------------- ------------- -------------
$54,214,494 $3,669,646 $115,311,509 $5,391,228 $23,779,735 $19,797,196 $26,459,420
============= ============ ============== ============ ============= ============= =============
$43,813,438 $2,725,382 $ 87,289,739 $4,640,746 $15,505,322 $16,500,496 $21,198,768
============= ============ ============== ============ ============= ============= =============
3,197,235 207,826 5,855,243 391,125 1,262,502 1,367,161 1,744,091
============= ============ ============== ============ ============= ============= =============
$16.96 $17.66 $19.69 $13.78 $18.84 $14.48 $15.17
============= ============ ============== ============ ============= ============= =============
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS, continued
STATEMENTS OF OPERATIONS
For the year ended July 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. GOVERNMENT U.S. GOVERNMENT INCOME
LIQUID ASSET MONEY MARKET SECURITIES SECURITIES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INCOME
Interest........................................... $1,450,222 $393,765 $706,725 $245,036
Dividends.......................................... -- -- -- --
-------------- --------------- --------------- --------------
TOTAL INCOME..................................... 1,450,222 393,765 706,725 245,036
-------------- --------------- --------------- --------------
EXPENSES
Investment management fees......................... 132,515 36,695 67,676 24,502
Transfer agent fees and expenses................... 52,551 6,122 42,577 7,692
Shareholder reports and notices.................... 29,598 4,314 4,749 2,416
Professional fees.................................. 15,232 15,334 14,872 16,995
Registration fees.................................. 25,200 14,233 22,217 13,083
Custodian fees..................................... 10,663 6,196 3,435 4,847
Trustees' fees and expenses........................ 3,655 321 753 250
Organizational expenses............................ 2,722 2,721 2,727 2,727
Other.............................................. 3,904 1,879 1,870 3,021
-------------- --------------- --------------- --------------
TOTAL EXPENSES................................... 276,040 87,815 160,876 75,533
Less: amounts waived/reimbursed ................... (11,009) (14,427) (56,757) (37,837)
-------------- --------------- --------------- --------------
NET EXPENSES..................................... 265,031 73,388 104,119 37,696
-------------- --------------- --------------- --------------
NET INVESTMENT INCOME (LOSS)..................... 1,185,191 320,377 602,606 207,340
-------------- --------------- --------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss)........................... -- -- 5,297 (62,395)
Net change in unrealized
appreciation/depreciation......................... -- -- 365,249 151,066
-------------- --------------- --------------- --------------
NET GAIN......................................... -- -- 370,546 88,671
-------------- --------------- --------------- --------------
NET INCREASE....................................... $1,185,191 $320,377 $973,152 $296,011
============== =============== =============== ==============
</TABLE>
- --------------
* Net of $1,132, $10, $7,380, $972, $1,050, $18,695 and $63 foreign
withholding tax, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
AMERICAN CAPITAL DIVIDEND VALUE-ADDED GLOBAL
VALUE GROWTH GROWTH UTILITIES MARKET EQUITY STRATEGIST
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 147,964 $ 8,415 $ 69,357 $ 41,817 $ 34,670 $ 67,144 $ 673,048
357,714* 12,328* 2,522,140* 208,343* 368,546* 214,870* 153,990*
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
505,678 20,743 2,591,497 250,160 403,216 282,014 827,038
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
390,217 22,697 672,098 51,738 97,479 153,656 180,204
77,489 3,914 86,989 18,120 18,607 37,093 51,763
20,768 1,692 38,212 3,853 8,952 5,415 10,295
12,798 11,302 13,936 15,840 15,314 15,207 10,489
18,634 28,006 32,684 19,450 20,656 27,047 20,879
28,005 12,249 12,104 7,964 24,785 28,694 13,942
3,312 47 6,141 285 1,131 819 1,050
2,720 2,717 2,724 2,727 2,717 2,727 2,721
3,530 1,744 3,851 2,533 10,004 13,075 5,095
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
557,473 84,368 868,739 122,510 199,645 283,733 296,438
(98,395) (57,660) -- (53,527) (4,686) (130,077) (84,434)
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
459,078 26,708 868,739 68,983 194,959 153,656 212,004
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
46,600 (5,965) 1,722,758 181,177 208,257 128,358 615,034
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
7,151,437 294,325 8,642,932 608,162 896,043 811,865 247,627
9,007,653 762,068 21,493,364 426,820 6,185,067 2,898,751 4,379,845
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
16,159,090 1,056,393 30,136,296 1,034,982 7,081,110 3,710,616 4,627,472
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
$16,205,690 $1,050,428 $31,859,054 $1,216,159 $7,289,367 $3,838,974 $5,242,506
============= ============ ============= ============ ============= ============ ============
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS, continued
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended July 31,
<TABLE>
<CAPTION>
U.S. GOVERNMENT
LIQUID ASSET MONEY MARKET
------------------------------- --------------------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss).......................... $ 1,185,191 $ 3,416,056 $ 320,377 $ 727,122
Net realized gain (loss).............................. -- -- -- --
Net change in unrealized appreciation/depreciation ... -- -- -- --
------------ ------------- ------------ ------------
NET INCREASE ....................................... 1,185,191 3,416,056 320,377 727,122
------------ ------------- ------------ ------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income................................. (1,185,223) (3,416,043) (321,625) (727,125)
Net realized gain..................................... -- -- -- --
------------ ------------- ------------ ------------
TOTAL............................................... (1,185,223) (3,416,043) (321,625) (727,125)
------------ ------------- ------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Net proceeds from sales............................... 29,266,419 177,956,895 8,809,340 27,880,399
Reinvestment of dividends and distributions .......... 1,185,223 3,416,043 321,624 727,125
Cost of shares repurchased............................ (51,991,220) (174,251,486) (11,716,197) (32,674,558)
------------ ------------- ------------ ------------
NET INCREASE (DECREASE)............................. (21,539,578) 7,121,452 (2,585,233) (4,067,034)
------------ ------------- ------------ ------------
TOTAL INCREASE (DECREASE)........................... (21,539,610) 7,121,465 (2,586,481) (4,067,037)
NET ASSETS:
Beginning of period................................... 42,752,638 35,631,173 6,627,777 10,694,814
------------ ------------- ------------ ------------
END OF PERIOD....................................... $ 21,213,028 $ 42,752,638 $ 4,041,296 $ 6,627,777
============ ============= ============ ============
UNDISTRIBUTED NET INVESTMENT INCOME................... $ 10 $ 42 -- $ 2
============ ============= ============ ============
SHARES ISSUED AND REPURCHASED:
Sold.................................................. 29,266,419 177,956,895 8,809,340 27,880,399
Issued in reinvestment of dividends and
distributions........................................ 1,185,223 3,416,043 321,624 727,125
Repurchased........................................... (51,991,220) (174,251,486) (11,716,197) (32,674,558)
------------ ------------- ------------ ------------
NET INCREASE (DECREASE)............................... (21,539,578) 7,121,452 (2,585,233) (4,067,034)
============ ============= ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT INTERMEDIATE
SECURITIES INCOME SECURITIES AMERICAN VALUE CAPITAL GROWTH
- ---------------------------- ---------------------------- ----------------------------- -------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 602,606 $ 434,937 $ 207,340 $ 218,492 $ 46,600 $ 244,604 $ (5,965) $ 6,999
5,297 18,226 (62,395) (27,045) 7,151,437 4,355,860 294,325 31,476
365,249 (149,772) 151,066 (116,038) 9,007,653 (2,487,467) 762,068 45,817
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
973,152 303,391 296,011 75,409 16,205,690 2,112,997 1,050,428 84,292
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
(602,630) (434,913) (207,294) (218,918) (93,984) (299,827) (2,106) (8,566)
(22,190) -- -- (4,854) (3,137,376) (2,309,181) (56,080) (4,860)
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
(624,820) (434,913) (207,294) (223,772) (3,231,360) (2,609,008) (58,186) (13,426)
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
5,963,450 9,509,649 3,241,075 4,840,703 20,568,978 21,806,112 1,297,311 1,518,128
567,526 433,619 165,904 217,069 3,227,638 2,602,757 58,150 13,426
(5,033,814) (5,369,758) (5,211,640) (1,731,472) (22,877,816) (6,172,981) (665,910) (292,073)
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
1,497,162 4,573,510 (1,804,661) 3,326,300 918,800 18,235,888 689,551 1,239,481
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
1,845,494 4,441,988 (1,715,944) 3,177,937 13,893,130 17,739,877 1,681,793 1,310,347
8,650,813 4,208,825 4,171,716 993,779 40,321,364 22,581,487 1,987,853 677,506
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
$10,496,307 $ 8,650,813 $ 2,455,772 $ 4,171,716 $ 54,214,494 $40,321,364 $3,669,646 $1,987,853
============= ============= ============= ============= ============== ============= ============ =======================
$ $ $
-- $ 24 $ 46 -- $ 46,600 $ 93,984 -- $ 2,106
============= ============= ============= ============= ============== ============= ============ =======================
616,600 971,490 340,574 499,259 1,422,680 1,603,955 91,240 119,028
58,481 44,420 17,479 22,618 237,676 203,340 4,317 1,087
(517,322) (547,637) (547,645) (181,670) (1,545,904) (447,666) (45,416) (23,095)
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
157,759 468,273 (189,592) 340,207 114,452 1,359,629 50,141 97,020
============= ============= ============= ============= ============== ============= ============ =======================
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS, continued
STATEMENTS OF CHANGES IN NET ASSSETS, continued
For the year ended July 31,
<TABLE>
<CAPTION>
DIVIDEND GROWTH UTILITIES
----------------------------- -----------------------------
1997 1996 1997 1996
- ----------------------------------------------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................. $ 1,722,758 $ 1,244,989 $ 181,177 $ 205,110
Net realized gain (loss).............................. 8,642,932 2,317,010 608,162 (13,965)
Net change in unrealized appreciation/depreciation ... 21,493,364 2,701,826 426,820 257,350
------------ ----------- ----------- -----------
NET INCREASE ....................................... 31,859,054 6,263,825 1,216,159 448,495
------------ ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income................................. (1,707,024) (1,199,564) (160,780) (230,987)
Net realized gain..................................... (2,463,125) (590,466) -- --
------------ ----------- ----------- -----------
TOTAL............................................... (4,170,149) (1,790,030) (160,780) (230,987)
------------ ----------- ----------- -----------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Net proceeds from sales............................... 37,149,898 36,503,267 2,818,978 3,456,194
Reinvestment of dividends and distributions .......... 4,150,502 1,779,713 158,903 227,657
Cost of shares repurchased............................ (23,440,408) (8,398,184) (6,235,329) (1,687,882)
------------ ----------- ----------- -----------
NET INCREASE (DECREASE)............................. 17,859,992 29,884,796 (3,257,448) 1,995,969
------------ ----------- ----------- -----------
TOTAL INCREASE (DECREASE)........................... 45,548,897 34,358,591 (2,202,069) 2,213,477
NET ASSETS:
Beginning of period................................... 69,762,612 35,404,021 7,593,297 5,379,820
------------ ----------- ----------- -----------
END OF PERIOD....................................... $115,311,509 $69,762,612 $ 5,391,228 $ 7,593,297
============ =========== =========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME................... $ 365,924 $ 350,190 $ 54,200 $ 33,362
============ =========== =========== ===========
SHARES ISSUED AND REPURCHASED:
Sold.................................................. 2,205,684 2,524,798 222,951 288,411
Issued in reinvestment of dividends and
distributions........................................ 255,693 126,953 12,596 18,947
Repurchased........................................... (1,379,982) (583,926) (488,313) (141,590)
------------ ----------- ----------- -----------
NET INCREASE (DECREASE)............................... 1,081,395 2,067,825 (252,766) 165,768
============ =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
VALUE-ADDED MARKET GLOBAL EQUITY STRATEGIST
- ----------------------------- ---------------------------- ----------------------------------------
1997 1996 1997 1996 1997 1996
- -------------- ------------- ------------- ------------- ------------- -------------------------
<S> <C> <C> <C> <C> <C>
$ 208,257 $ 331,372 $ 128,358 $ 84,531 $ 615,034 $ 287,670
896,043 186,832 811,865 434,795 247,627 730,868
6,185,067 1,044,025 2,898,751 47,491 4,379,845 291,438
- -------------- ------------- ------------- ------------- ------------- -------------------------
7,289,367 1,562,229 3,838,974 566,817 5,242,506 1,309,976
- -------------- ------------- ------------- ------------- ------------- -------------------------
(279,999) (257,479) (70,000) (126,784) (408,002) (244,742)
(698,399) (78,439) (367,529) -- (699,994) (159,285)
- -------------- ------------- ------------- ------------- ------------- -------------------------
(978,398) (335,918) (437,529) (126,784) (1,107,996) (404,027)
- -------------- ------------- ------------- ------------- ------------- -------------------------
6,558,038 6,512,239 7,696,263 6,329,119 7,519,070 12,101,707
948,925 329,833 435,668 121,869 1,107,086 403,090
(10,417,432) (1,769,137) (3,421,423) (2,492,083) (3,796,952) (2,673,732)
- -------------- ------------- ------------- ------------- ------------- -------------------------
(2,910,469) 5,072,935 4,710,508 3,958,905 4,829,204 9,831,065
- -------------- ------------- ------------- ------------- ------------- -------------------------
3,400,500 6,299,246 8,111,953 4,398,938 8,963,714 10,737,014
20,379,235 14,079,989 11,685,243 7,286,305 17,495,706 6,758,692
- -------------- ------------- ------------- ------------- ------------- -------------------------
$ 23,779,735 $20,379,235 $19,797,196 $11,685,243 $26,459,420 $17,495,706
============== ============= ============= ============= ============= =========================
$ 100,361 $ 172,103 $ 131,548 $ 49,495 $ 381,735 $ 174,703
============== ============= ============= ============= ============= =========================
416,960 468,279 606,253 542,027 549,814 972,731
62,594 24,706 35,887 10,862 83,616 34,364
(680,374) (129,743) (265,700) (214,741) (277,595) (218,134)
- -------------- ------------- ------------- ------------- ------------- -------------------------
(200,820) 363,242 376,440 338,148 355,835 788,961
============== ============= ============= ============= ============= =========================
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Retirement Series (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company, consisting of eleven separate Series ("Series"). All of the Series,
with the exception of Strategist, are diversified.
The Fund was organized on May 14, 1992 as a Massachusetts business trust and
each of the Series commenced operations as follows:
<TABLE>
<CAPTION>
COMMENCEMENT COMMENCEMENT
OF OPERATIONS OF OPERATIONS
------------- -------------
<S> <C> <C> <C>
Liquid Asset ....................... December 30, 1992 Dividend Growth ........ January 7, 1993
U.S. Government Money Market ...... January 20, 1993 Utilities .............. January 8, 1993
U.S. Government Securities ......... January 8, 1993 Value-Added Market .... February 1, 1993
Intermediate Income Securities .... January 12, 1993 Global Equity .......... January 8, 1993
American Value ..................... February 1, 1993 Strategist ............. January 7, 1993
Capital Growth ..................... February 2, 1993
</TABLE>
The investment objectives of each Series are as follows:
SERIES INVESTMENT OBJECTIVE
- -------------------------------------------------------------------------------
Liquid Asset Seeks high current income, preservation of capital and
liquidity by investing in short-term money market
instruments.
- -------------------------------------------------------------------------------
U.S. Government Seeks high current income, preservation of capital and
Money Market liquidity by investing primarily in money market
instruments which are issued and/or guaranteed by the
U.S. Government, its agencies or instrumentalities.
- -------------------------------------------------------------------------------
U.S. Government Seeks high current income consistent with safety of
Securities principal by investing in a diversified portfolio of
obligations issued and/or guaranteed by the U.S.
Government or its instrumentalities.
- -------------------------------------------------------------------------------
Intermediate Income Seeks high current income consistent with safety of
Securities principal by investing primarily in intermediate term,
investment grade fixed-income securities.
- -------------------------------------------------------------------------------
American Value Seeks long-term growth consistent with an effort to
reduce volatility by investing principally in common
stock of companies in industries which, at the time of
investment, are believed to be undervalued in the
marketplace.
- -------------------------------------------------------------------------------
Capital Growth Seeks long-term capital growth by investing primarily
in common stocks.
- -------------------------------------------------------------------------------
Dividend Growth Seeks to provide reasonable current income and
long-term growth of income and capital by investing
primarily in common stock of companies with a record of
paying dividends and the potential for increasing
dividends.
- -------------------------------------------------------------------------------
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
SERIES INVESTMENT OBJECTIVE
- -------------------------------------------------------------------------------
Utilities Seeks to provide current income and long-term growth of
income and capital by investing in equity and
fixed-income securities of companies in the public
utilities industry.
- -------------------------------------------------------------------------------
Value-Added Seeks to achieve a high level of total return on its
Market assets through a combination of capital appreciation
and current income. It seeks to achieve this objective
by investing, on an equally weighted basis, in a
diversified portfolio of common stocks of the companies
which are represented in the Standard & Poor's 500
Composite Stock Price Index.
- -------------------------------------------------------------------------------
Global Equity Seeks to provide a high level of total return on its
assets, primarily through long-term capital growth and,
to a lesser extent, from income. It seeks to achieve
this objective through investments in all types of
common stocks and equivalents, preferred stocks and
bonds and other debt obligations of domestic and
foreign companies, governments and international
organizations.
- -------------------------------------------------------------------------------
Strategist Seeks a high total investment return through a fully
managed investment policy utilizing equity, investment
grade fixed income and money market securities.
- -------------------------------------------------------------------------------
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Liquid Asset and U.S. Government Money Market:
Securities are valued at amortized cost which approximates market value. All
remaining Series: (1) an equity security listed or traded on the New York,
American or other domestic or foreign stock exchange is valued at its latest
sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price
(in cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated as the primary market
pursuant to procedures adopted by the Trustees); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, including circumstances
under which it is determined by Dean Witter InterCapital Inc. (the
"Investment Manager") that sale 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
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
established by and under the general supervision of the Trustees (valuation
of securities for which market quotations are not readily available may also
be based upon current market prices of securities which are comparable in
coupon, rating and maturity, or an appropriate matrix utilizing similar
factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the securities valued
by such pricing service; and (5) short-term debt securities having a maturity
date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and distributions are recorded on the ex-dividend
date except for certain dividends on foreign securities which are recorded as
soon as the Fund is informed after the ex-dividend date. Interest income is
accrued daily. Liquid Asset and U.S. Government Money Market amortize
premiums and accrete discounts on securities owned; gains and losses realized
upon the sale of such securities are based on their amortized cost. Discounts
for all other Series are accreted over the life of the respective securities.
C. FOREIGN CURRENCY TRANSLATION -- The books and records of each Series
investing in foreign currency denominated transactions are translated into
U.S. dollars as follows: (1) the foreign currency market value of investment
securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of
Operations as realized and unrealized gain/loss on foreign exchange
transactions. Pursuant to U.S. Federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss
are included in or are a reduction of ordinary income for federal income tax
purposes. The Series do not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes
in the market prices of the securities.
D. FORWARD FOREIGN CURRENCY CONTRACTS -- Some of the Series may enter into
forward foreign currency contracts which are valued daily at the appropriate
exchange rates. The resultant unrealized exchange
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
gains and losses are included in the Statement of Operations as unrealized
foreign currency gain or loss. The Series record realized gains or losses on
delivery of the currency or at the time the forward contract is extinguished
(compensated) by entering into a closing transaction prior to delivery.
E. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply
individually for each Series 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.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
G. EXPENSES -- Direct expenses are charged to the respective Series and
general Fund expenses are allocated on the basis of relative net assets or
equally among the Series.
H. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of $150,000 ($13,636 allocated to each of
the Series) and will be reimbursed, exclusive of amounts waived. Such
expenses have been deferred and are being amortized by the Fund on the
straight line method over a period not to exceed five years from the
commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement (the "Agreement"), the Fund
pays the Investment Manager a management fee, accrued daily and payable
monthly, by applying the following annual rates to each Series' net assets
determined at the close of each business day: Liquid Asset, U.S. Government
Money Market and Value-Added Market -0.50%; U.S. Government Securities and
Intermediate Income Securities -0.65%; Dividend Growth and Utilities -0.75%;
American Value, Capital Growth and Strategist -0.85%; and Global Equity -1.0%.
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
For the period January 1, 1996 through December 31, 1997, the Investment
Manager is waiving the management fee and reimbursing expenses to the extent
they exceed 1.00% of daily net assets of each Series. At July 31, 1997,
included in the Statement of Assets and Liabilities are receivables from an
affiliate which represent expense reimbursements due to the Fund.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/maturities/prepayments of portfolio securities, excluding
short-term investments (except for Liquid Asset and U.S. Government Money
Market), for the year ended July 31, 1997 were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER
------------------------------ ------------------------------
SALES/
MATURITIES/ SALES/
PURCHASES PREPAYMENTS PURCHASES MATURITIES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Liquid Asset ................... $395,220,670 $391,812,764 $353,719,078 $382,160,567
U.S. Government Money Market .. 661,528,098 664,513,285 -- --
U.S. Government Securities .... 11,000,110 9,181,622 -- --
Intermediate Income Securities 2,742,469 4,820,820 2,019,750 1,836,116
American Value ................. 1,055,258 1,298,196 114,604,516 110,531,028
Capital Growth ................. 15,742 77,006 4,322,821 3,559,093
Dividend Growth ................ -- -- 44,208,359 27,461,961
Utilities ...................... -- -- 5,530,405 7,587,775
Value-Added Market ............. -- 25,784 4,396,277 8,131,744
Global Equity .................. -- 46,580 15,006,072 11,195,792
Strategist ..................... 3,410,867 5,765,994 12,067,832 9,926,607
</TABLE>
Included in the aforementioned purchases and sales/maturities of portfolio
securities of Value-Added Market are common stock purchases and sales of
Morgan Stanley, Dean Witter, Discover & Co., an affiliate of the Investment
Manager, of $12,464 and $75,839, respectively, including realized gains of
$28,629.
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
Included at July 31, 1997 in the payable for investments purchased and
receivable for investments sold were unsettled trades with Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Investment Manager, as follows:
<TABLE>
<CAPTION>
CAPITAL DIVIDEND GLOBAL
GROWTH GROWTH UTILITIES EQUITY
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Payable for investments purchased $ 4,319 $887,346 $200,025 $ --
========= ========== =========== =========
Receivable for investments sold .. $38,982 $149,533 $ 42,821 $91,462
========= ========== =========== =========
</TABLE>
For the year ended July 31, 1997, the following Series incurred brokerage
commissions with DWR, for portfolio transactions executed on behalf of such
Series, as follows:
<TABLE>
<CAPTION>
AMERICAN CAPITAL DIVIDEND GLOBAL
VALUE GROWTH GROWTH UTILITIES EQUITY STRATEGIST
- ---------- --------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
$25,735 $1,487 $43,558 $13,830 $9,201 $6,861
========== ========= ========== =========== ======== ============
</TABLE>
For the period May 31, 1997 through July 31, 1997, Capital Growth, Global
Equity and American Value incurred brokerage commissions of $270, $168 and
$1,365, respectively, with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager since May 31, 1997, for portfolio transactions executed on
behalf of the Series.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Fund's transfer agent. At July 31, 1997 the following Series had approximate
transfer agent fees and expenses payable as follows:
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. GOVERNMENT U.S. GOVERNMENT INCOME AMERICAN CAPITAL
LIQUID ASSET MONEY MARKET SECURITIES SECURITIES VALUE GROWTH
- -------------- --------------- --------------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$120 $100 $1,250 $150 $800 $90
============== =============== =============== ============== ============ =========
DIVIDEND VALUE-ADDED GLOBAL
GROWTH UTILITIES MARKET EQUITY STRATEGIST
- -------------- --------------- --------------- -------------- ------------
$280 $80 $140 $210 $500
============== =============== =============== ============== ============
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
4. FEDERAL INCOME TAX STATUS
At July 31, 1997, Intermediate Income Securities had a net capital loss
carryover of approximately $30,200 of which $5,700 will be available through
July 31, 2004 and $24,500 will be available through July 31, 2005 to offset
future capital gains to the extent provided by regulations. During the year
ended July 31, 1997, Utilities utilized its net capital loss carryover of
approximately $102,000.
Net capital and net currency losses incurred after October 31 ("post-October
losses") within the taxable year are deemed to arise on the first business
day of the Series' next taxable year. The following Series incurred and will
elect to defer post-October losses during fiscal 1997:
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. GOVERNMENT INCOME GLOBAL
SECURITIES SECURITIES EQUITY
- --------------- -------------- --------
<S> <C> <C>
$500 $57,800 $900
=============== ============== ========
</TABLE>
At July 31, 1997, the primary reason(s) for temporary book/tax differences
were as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCES
-------------------------------
POST- CAPITAL LOSS
OCTOBER DEFERRALS FROM
LOSSES WASH SALES
----------- ------------------
<S> <C> <C>
U.S. Government Securities ......... o
Intermediate Income Securities .... o o
American Value ..................... o
Capital Growth ..................... o
Dividend Growth .................... o
Utilities ..........................
Value-Added Market.................. o
Global Equity....................... o o
Strategist ......................... o
</TABLE>
Additionally, Global Equity had temporary differences attributable to income
from the mark-to-market of passive foreign investment companies ("PFICs") and
permanent differences attributable to tax adjustments on PFICs sold by the
Series and Capital Growth had permanent differences attributable to a net
operating loss.
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
To reflect reclassifications arising from permanent book/tax differences for
the year ended July 31, 1997, the following accounts were (charged) credited:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET INVESTMENT NET REALIZED
INCOME GAIN (LOSS)
-------------- ---------------
<S> <C> <C>
Capital Growth $ 5,965 $ (5,965)
Global Equity . $23,695 $(23,695)
</TABLE>
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
Some of the Portfolios may enter into forward foreign currency contracts
("forward contracts") to facilitate settlement of foreign currency
denominated portfolio transactions or to manage foreign currency exposure
associated with foreign currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Portfolios bear the
risk of an unfavorable change in foreign exchange rates underlying the
forward contracts. Risks may also arise upon entering into these contracts
from the potential inability of the counterparties to meet the terms of their
contracts.
At July 31, 1997, Global Equity had outstanding forward contracts to
facilitate settlement of foreign currency denominated portfolio transactions.
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET TOTAL
YEAR VALUE NET REALIZED TOTAL FROM DIVIDENDS DISTRIBUTIONS DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO TO AND
JULY 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ---------- ----------- ------------ -------------- ------------ -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIQUID ASSET
1993 (1) $ 1.00 $0.02 -- $ 0.02 $(0.02) -- $(0.02)
1994 1.00 0.03 -- 0.03 (0.03) -- (0.03)
1995 1.00 0.06 -- 0.06 (0.06) -- (0.06)
1996 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1997 1.00 0.05 -- 0.05 (0.05) -- (0.05)
U.S. GOVERNMENT MONEY MARKET
1993 (2) 1.00 --++ -- -- -- -- --
1994 1.00 0.03 -- 0.03 (0.03) -- (0.03)
1995 1.00 0.06 -- 0.06 (0.06) -- (0.06)
1996 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1997 1.00 0.04 -- 0.04 (0.04) -- (0.04)
U.S. GOVERNMENT SECURITIES
1993 (3) 10.00 0.19 $ 0.07 0.26 (0.20) -- (0.20)
1994 10.06 0.44 (0.50) (0.06) (0.44) -- (0.44)
1995 9.56 0.56 0.15 0.71 (0.56) -- (0.56)
1996 9.71 0.55 (0.12) 0.43 (0.55) -- (0.55)
1997 9.59 0.56 0.34 0.90 (0.56) $(0.02) (0.58)
INTERMEDIATE INCOME SECURITIES
1993 (4) 10.00 0.19 (0.02) 0.17 (0.19) -- (0.19)
1994 9.98 0.60 (0.57) 0.03 (0.60) -- (0.60)
1995 9.41 0.61 0.22 0.83 (0.61) -- (0.61)
1996 9.63 0.59 (0.21) 0.38 (0.59) (0.01) (0.60)
1997 9.41 0.53 0.26 0.79 (0.53) -- (0.53)
AMERICAN VALUE
1993 (5) 10.00 0.06 (0.01) 0.05 -- -- --
1994 10.05 0.03 (0.09) (0.06) (0.02) (0.04) (0.06)
1995 9.93 0.14 3.15 3.29 (0.12) -- (0.12)
1996 13.10 0.09 1.17 1.26 (0.15) (1.13) (1.28)
1997 13.08 0.02 5.12 5.14 (0.04) (1.22) (1.26)
</TABLE>
- ------------
* After application of the Fund's expense limitation.
+ Calculated based on the net asset value as of the last business day
of the period.
++ Includes dividends from net investment income of $0.004 per share.
(a) Not annualized.
(b) Annualized.
Commencement of operations:
(1) December 30, 1992. (4) January 12, 1993.
(2) January 20, 1993. (5) February 1, 1993.
(3) January 8, 1993.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS ASSETS
(BEFORE EXPENSES WERE (AFTER EXPENSES WERE
ASSUMED) ASSUMED)
-------------------------- --------------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO AVERAGE
END OF INVESTMENT PERIOD INVESTMENT INVESTMENT TURNOVER COMMISSION
PERIOD RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS) RATE RATE PAID
- ----------- ------------ ------------ ----------- ------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 1.77%(a) $ 1,081 1.30%(b) 0.53%(b) 0.14%(b) 3.02%(b) N/A N/A
1.00 3.48 1,524 2.50 * 0.99 -- 3.49 N/A N/A
1.00 5.90 35,631 1.16 4.96 -- 6.12 N/A N/A
1.00 5.44 42,753 0.65 5.05 0.33 5.37 N/A N/A
1.00 4.57 21,213 1.04 4.43 1.00 4.47 N/A N/A
1.00 0.42 (a) 125 2.50* (b) (0.95)(b) 2.13 (b) 0.83 (b) N/A N/A
1.00 3.52 555 2.50* 0.82 -- 3.32 N/A N/A
1.00 5.86 10,695 2.50* 3.62 -- 6.12 N/A N/A
1.00 5.23 6,628 0.82 4.75 0.37 5.21 N/A N/A
1.00 4.51 4,041 1.20 4.17 1.00 4.37 N/A N/A
10.06 2.60 (a) 1,756 1.81 (b) 0.33 (b) 0.18 (b) 3.66 (b) -- N/A
9.56 (0.69) 2,954 2.50* 1.96 -- 4.46 29% N/A
9.71 7.72 4,209 2.36 3.49 -- 5.85 14 N/A
9.59 4.49 8,651 1.48 4.70 0.63 5.55 47 N/A
9.91 9.70 10,496 1.55 5.24 1.00 5.79 89 N/A
9.98 1.67 (a) 182 2.50* (b) 1.00 (b) 1.62 (b) 3.50 (b) -- N/A
9.41 0.26 460 2.50* 3.64 -- 6.14 40 N/A
9.63 9.22 994 2.50* 4.08 -- 6.58 37 N/A
9.41 3.95 4,172 1.58 5.01 0.72 5.87 142 N/A
9.67 8.63 2,456 2.00 4.50 1.00 5.50 132 N/A
10.05 0.50 (a) 308 2.50*(b) (0.66)(b) 0.74 (b) 1.10 (b) 121 (a) --
9.93 (0.59) 6,841 2.50* (0.81) -- 1.69 136 --
13.10 33.48 22,581 1.42 0.39 -- 1.81 234 --
13.08 9.83 40,321 1.18 0.23 0.65 0.76 301 $0.0543
16.96 41.62 54,214 1.21 (0.11) 1.00 0.10 261 0.0552
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL HIGHLIGHTS, continued
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET TOTAL
YEAR VALUE NET REALIZED TOTAL FROM DISTRIBUTIONS DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
JULY 31 OF PERIOD INCOME (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ---------- ----------- ------------- -------------- ------------ -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
1993 (4) $10.00 $(0.02) $(1.10) $(1.12) -- -- --
1994 8.88 0.13 0.45 0.58 $(0.04) -- $(0.04)
1995 9.42 0.10 1.77 1.87 (0.12) -- (0.12)
1996 11.17 0.07 1.55 1.62 (0.11) $(0.07) (0.18)
1997 12.61 (0.03) 5.41 5.38 (0.01) (0.32) (0.33)
DIVIDEND GROWTH
1993 (1) 10.00 0.13 0.58 0.71 (0.10) -- (0.10)
1994 10.61 0.28 0.37 0.65 (0.23) (0.01) (0.24)
1995 11.02 0.34 2.13 2.47 (0.31) (0.10) (0.41)
1996 13.08 0.32 1.76 2.08 (0.36) (0.19) (0.55)
1997 14.61 0.33 5.60 5.93 (0.33) (0.52) (0.85)
UTILITIES
1993 (2) 10.00 0.19 1.30 1.49 (0.14) -- (0.14)
1994 11.35 0.37 (0.95) (0.58) (0.34) (0.01) (0.35)
1995 10.42 0.42 0.80 1.22 (0.37) (0.02) (0.39)
1996 11.25 0.38 0.61 0.99 (0.45) -- (0.45)
1997 11.79 0.41 1.90 2.31 (0.32) -- (0.32)
VALUE-ADDED MARKET
1993 (3) 10.00 0.05 0.02 0.07 (0.04) -- (0.04)
1994 10.03 0.24 0.65 0.89 (0.11) -- (0.11)
1995 10.81 0.21 2.16 2.37 (0.26) (0.12) (0.38)
1996 12.80 0.25 1.17 1.42 (0.22) (0.07) (0.29)
1997 13.93 0.21 5.58 5.79 (0.25) (0.63) (0.88)
GLOBAL EQUITY
1993 (2) 10.00 0.07 (0.03) 0.04 -- -- --
1994 10.04 0.08 0.58 0.66 (0.05) -- (0.05)
1995 10.65 0.14 0.49 0.63 (0.11) -- (0.11)
1996 11.17 0.09 0.71 0.80 (0.18) -- (0.18)
1997 11.79 0.09 2.98 3.07 (0.06) (0.32) (0.38)
STRATEGIST
1993 (1) 10.00 0.06 (0.23) (0.17) -- -- --
1994 9.83 0.23 (0.20) 0.03 (0.13) -- (0.13)
1995 9.73 0.24 1.49 1.73 (0.18) -- (0.18)
1996 11.28 0.25 1.63 1.88 (0.34) (0.22) (0.56)
1997 12.60 0.37 2.96 3.33 (0.28) (0.48) (0.76)
</TABLE>
- ------------
* After application of the Fund's expense limitation.
+ Calculated based on the net asset value as of the last business day
of the period.
(a) Not annualized.
(b) Annualized.
Commencement of operations:
(1) January 7, 1993.
(2) January 8, 1993.
(3) February 1, 1993.
(4) February 2, 1993.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS ASSETS
(BEFORE EXPENSES WERE (AFTER EXPENSES WERE
ASSUMED) ASSUMED)
-------------------------- -------------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO AVERAGE
END OF INVESTMENT PERIOD INVESTMENT INVESTMENT TURNOVER COMMISSION
PERIOD RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS) RATE RATE PAID
- ----------- ------------- ------------ ----------- ------------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8.88 (11.20)%(a) $ 135 2.50%*(b) (1.01)%(b) 1.97%(b) (0.47)%(b) 2%(a) --
9.42 6.57 215 2.50* (0.98) -- 1.52 11 --
11.17 20.08 678 2.50 * (1.07) -- 1.43 20 --
12.61 14.58 1,988 2.50 * (1.24) 0.76 0.50 68 $0.0536
17.66 43.46 3,670 3.16 (2.38) 1.00 (0.22) 147 0.0575
10.61 7.11 (a) 2,417 2.50* (b) 0.61 (b) 0.16 (b) 2.89 (b) 7 (a) --
11.02 6.13 12,821 1.51 1.78 -- 3.29 13 --
13.08 23.07 35,404 1.14 2.34 -- 3.48 29 --
14.61 16.09 69,763 1.00 2.07 0.63 2.44 18 0.0526
19.69 41.92 115,312 0.97 1.92 0.97 1.92 31 0.0537
11.35 14.98 (a) 1,334 2.50* (b) 1.59 (b) 0.30 (b) 3.79 (b) 8 (a) --
10.42 (5.23) 3,860 2.50* 1.62 -- 4.14 5 --
11.25 12.16 5,380 1.91 2.41 -- 4.32 24 --
11.79 8.76 7,593 1.52 2.31 0.62 3.20 17 0.0508
13.78 19.87 5,391 1.78 1.85 1.00 2.63 89 0.0508
10.03 0.71 (a) 640 2.50* (b) (0.16) (b) 0.92 (b) 1.42 (b) 1 (a) --
10.81 8.89 5,133 1.82 0.70 -- 2.53 8 --
12.80 22.65 14,080 1.22 1.33 -- 2.55 7 --
13.93 11.19 20,379 0.78 1.58 0.47 1.89 8 0.0300
18.84 43.12 23,780 1.02 1.04 1.00 1.07 23 0.0300
10.04 0.40 (a) 322 2.50* (b) (0.90) (b) 1.00 (b) 1.77 (b) -- --
10.65 6.54 2,020 2.50* 0.09 -- 2.41 8 --
11.17 6.08 7,286 2.25 0.48 -- 2.73 55 --
11.79 7.26 11,685 1.73 (0.15) 0.66 0.92 95 0.0500
14.48 26.66 19,797 1.85 (0.01) 1.00 0.84 80 0.0348
9.83 (1.70) (a) 551 2.50* (b) (0.19) (b) 0.64 (b) 1.67 (b) 26 (a) --
9.73 0.12 1,276 2.50* 0.70 -- 3.20 57 --
11.28 18.21 6,759 2.14 1.97 -- 4.11 115 --
12.60 16.97 17,496 1.61 1.92 0.66 2.86 113 0.0525
15.17 27.35 26,459 1.40 2.50 1.00 2.90 90 0.0535
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER RETIREMENT SERIES
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios 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 the Liquid Asset
Series, the U.S. Government Money Market Series, the U.S. Government
Securities Series, the Intermediate Income Securities Series, the American
Value Series, the Capital Growth Series, the Dividend Growth Series, the
Utilities Series, the Value-Added Market Series, the Global Equity Series,
and the Strategist Series (constituting Dean Witter Retirement Series,
hereafter referred to as the "Fund") at July 31, 1997, the results of each of
their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at July 31, 1997 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
September 12, 1997
1997 FEDERAL INCOME TAX NOTICE (unaudited)
During the year ended July 31, 1997, the Fund paid to shareholders
long-term capital gains per share as follows:
<TABLE>
<CAPTION>
AMERICAN CAPITAL DIVIDEND VALUE-ADDED GLOBAL
VALUE GROWTH GROWTH MARKET EQUITY STRATEGIST
- ---------- --------- ---------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C>
$0.31 $0.32 $0.47 $0.45 $0.05 $0.31
</TABLE>
Additionally, the following percentages of the income paid qualified
for the dividends received deduction available to corporations:
<TABLE>
<CAPTION>
AMERICAN CAPITAL DIVIDEND VALUE-ADDED GLOBAL
VALUE GROWTH GROWTH UTILITIES MARKET EQUITY STRATEGIST
- ---------- --------- ---------- ----------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
5.58% 100% 99.92% 98.72% 74.37% 7.89% 19.47%
</TABLE>
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
ANNUAL REPORT
JULY 31, 1997
DEAN WITTER
RETIREMENT SERIES
<PAGE>
DEAN WITTER RETIREMENT SERIES TWO WORLD TRADE CENTER,
NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS JANUARY 31, 1998
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Dean Witter
Retirement Series for the six-month period ended January 31, 1998.
Overall, the stock market was very generous to investors in 1997. However, in
August the Dow Jones Industrial Average appeared to have peaked at 8,340.
Bellwether multinational corporations such as Coca Cola began to guide earnings
estimates downward for the first time in many years on the basis of slower
growth and the currency impact from the turmoil in Asia. While the NASDAQ
Composite and Mid-Cap indexes peaked in early October, and the Standard &
Poor's 500 Composite Stock Price Index (S&P 500) peaked in early December,
uncertainty grew regarding earnings outlooks. Despite a flat to down fourth
quarter for the various indexes, the stock market, as measured by the Dow
Jones Industrial Average, increased by more than 20 percent for the third year
in a row for the first time ever. As year-end approached, historically
defensive sectors such as consumer goods and utilities outperformed the overall
market, while cyclical stocks lagged.
Over the past year the U.S. economy exhibited healthy growth with declining
inflation and strong employment growth. In this environment the Federal Reserve
Board periodically expressed concern that inflationary pressures could be on the
rise. However, inflation remains in check. Accordingly, the Federal Reserve
Board has left interest rates unchanged since March.
Demand for U.S. Treasury securities and the U.S. dollar increased as the crisis
in Asia induced an investor flight-to-quality. With many of the Southeast Asian
economies in turmoil, 1998 may see the United States inherit the deflationary
aspect of those markets. According to many analysts, this could benefit the
disinflationary trend here.
Real interest rates (market interest rates less inflation) in the United States
remain above historical norms. A realization of this situation by
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS JANUARY 31, 1998, CONTINUED
investors, combined with the probability of a surplus in the U.S. budget
(leading to a reduction in the issuance of U.S. Treasury securities in 1998),
could cause interest rates to continue to decline in the months to come.
In mid-summer, Asian currencies with values pegged to the U.S. dollar came under
intense speculative attack. After sacrificing considerable reserves in an
attempt to defend the fixed levels, central banks succumbed to the pressure and
let their currencies float. These currencies then declined sharply relative to
the dollar. Thailand triggered the crisis in July. Next the Philippines was
affected, then Malaysia and Indonesia continued the trend in August. Hong Kong
and the northeastern Asian countries appeared to be able to overcome the crisis,
but pressure reemerged in October. Taiwan permitted a small further depreciation
in its currency. The result was a sharp upward movement in Hong Kong interest
rates, which severely affected its stock market given the significant exposure
to bank and real-estate-related stocks. By the end of 1997 Korea had also
succumbed to the currency assault.
Not one market was spared from the Asian crisis, not even the United States.
Fears that the Federal Reserve Board might increase interest rates were
virtually eliminated by the severity of financial disruptions in Asia. The
turmoil in Asia brought with it a flight to quality into U.S. government
securities and fears of a negative impact on the U.S. economy as its competitive
pricing edge eroded. Furthermore, the Asian crisis caused concern as to whether
demand for U.S. products would slow as well, eventually weakening the U.S.
economy. Higher interest rates would exacerbate the Asian currency situation by
making U.S.-dollar-denominated assets even more attractive. As the period
progressed, investor sentiment shifted once again toward the increased
probability of a move to lower interest rates. These factors combined to push
interest rates on intermediate and longer maturities down far more than
shorter-term securities. On January 30, 1998, 10-year Treasury notes were
yielding 5.51 percent compared to 5.31 percent for two-year notes and 5.22
percent for six-month bills. While 10-year notes had declined 50 basis points
over the six-month period under review, six-month bills were down only 9 basis
points, pointing to a continued complacency over future inflation.
After rising by about 25 basis points late in the first quarter of 1997, money
market yields held remarkably stable during the remainder of the year and
through January 1998. The target rate for federal funds remained constant at 5.5
percent from March 25, 1997, through the end of January. Overall economic
conditions in the United States continue to be excellent, with inflation
remaining quite moderate. The unemployment rate reached a 24-year low during the
year.
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS JANUARY 31, 1998, CONTINUED
Despite Europe's sharp falls in October following the currency crisis in Asia,
European markets generally made a steady recovery during November and December.
Overall, 1997 was characterized by significant improvement in the economic
environment across Europe. In the United Kingdom low interest rates combined
with low inflation to result in strong economic growth and falling unemployment.
During the second half of the year Latin American markets, particularly Brazil
and Argentina, suffered as a result of turmoil in the Asian emerging markets.
Nevertheless, generally healthy economies and continued privatization programs
provided investors with a higher degree of confidence that these markets would
not be fundamentally disturbed by the situation in Asia.
LIQUID ASSET SERIES
As of January 31, 1998, Liquid Asset Series had assets of approximately $15
million, with an average maturity of 10 days. The Series' annualized net
investment income for the period under review was 4.61 percent.
On January 31, 1998, approximately 82 percent of the portfolio of the Liquid
Asset Series were invested in federal agency obligations and 18 percent in
high-quality commercial paper. One hundred percent of the Series' assets were
due to mature within one month.
We believe that Liquid Asset Series remains well positioned to meet its
objective of stability of principle. The Series continues to be operated in a
straight-forward, conservative style without structured notes or derivatives,
which could fluctuate excessively when interest rates change.
We do not expect the yields available in the money market in early 1998 to
differ dramatically from those available during the second half of 1997.
U.S. GOVERNMENT MONEY MARKET SERIES
As of January 31, 1998, the U.S. Government Money Market Series had net assets
totaling approximately $1.3 million, with an average maturity of 9 days. The
Series' annualized net investment income for the six-month period under review
was 4.53 percent. The Series' 30-day annualized yield for January was 4.48
percent.
On January 31, 1998, approximately 96 percent of U.S. Government Money Market
Series' assets were invested in federal agency obligations, with the remaining 4
percent invested in U.S. Treasury bills. One hundred percent of the portfolio's
assets were due to mature within one month.
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS JANUARY 31, 1998, CONTINUED
We believe the Series is well positioned to meet its objective of security of
principal, high current income and liquidity. We continue to operate the
portfolio in a straight-forward, conservative style without structured notes or
derivatives, which could fluctuate excessively when interest rates change.
We do not expect the yields available in the money market in early 1998 to
differ dramatically from those available during the second half of 1997.
U.S. GOVERNMENT SECURITIES SERIES
For the six-month period ended January 31, 1998, the U.S. Government Securities
Series provided a total return of 4.53 percent compared to a total return of
4.53 percent for the Lipper Analytical Services, Inc. General U.S. Government
Funds Index and 5.39 percent for the Lehman Brothers General U.S. Government
Funds Index. The Series' performance includes income distributions totaling
$0.290996 per share and a change in net asset value from $9.91 per share on July
31, 1997, to $10.06 per share at the end of the period. On January 31, 1998, the
Series had net assets in excess of $9.1 million. Performance for the fiscal year
reflected the volatility of the market and the overall declining interest-rate
environment in 1997.
As of January 31, 1998, 81 percent of the Series' portfolio was invested in
Government National Mortgage Association mortgage-backed securities (GNMAs). The
balance of the Series' portfolio was invested in U.S. Treasury securities (19
percent). The Series' average duration stood at approximately 5.0 years.
(Duration measures a bond fund's sensitivity to interest-rate fluctuations.)
We believe that GNMAs continue to offer significant long-term value. Also, in
the current investment environment, they provide not only an incremental yield
incentive over U.S. Treasury securities of similar maturity, but also the
potential for attractive returns.
INTERMEDIATE INCOME SECURITIES SERIES
For the six-month period ended January 31, 1998, the Intermediate Income Series
had a total return of 3.92 percent. This compares to a total return of 4.13
percent for the Lipper Analytical Services Intermediate Investment Grade Funds
Index, and 4.16 percent for the Lehman Intermediate Government Corporate Bond
Index.
The Series' performance during the six-month period under review was reflective
of the fall in interest rates. The Series was negatively affected by the
inability of its corporate holdings to perform as well as comparable Treasury
maturities in the second part of the period. This is attributable primarily to
anticipated fall-out from Asia onto U.S. corporations. Corporate performance was
also constrained in January, from the impact on prices for outstanding debt of a
record amount of new
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS JANUARY 31, 1998, CONTINUED
issues coming to market. As a result, the three new securities purchased by the
Series during the period, Citicorp, Dupont (E.I.) de Nemours & Co., Inc. and
Salomon, Inc. (which account for approximately 14 percent of net assets),
underperformed comparable Treasuries by 5 to 15 basis points, despite their
strong creditworthiness. All three issues were rated at least "A" by the major
rating services.
The Series' performance was aided by several transactions that resulted in a
modest inter-period extension of maturity. This allowed the Series to benefit,
to a greater extent, from the decline in interest rates. The Series also reduced
its Treasury and utility holdings, while investments in the bank and finance
sectors were increased. Temporary cash reserves were reduced early in the period
and ended January at 3.5 percent of net assets compared to 7.7 percent on July
31, 1997.
On January 31, 1998, U.S. Treasuries comprised approximately 26 percent of the
portfolio's holdings, with corporates accounting for the remainder (74 percent).
The average maturity of the Series, including cash reserves, was 5.07 years, the
average duration 3.97 years (duration gives investors an idea of a bond
portfolio's sensitivity to interest rate fluctuations). The average quality
rating was "A2." For the six-month period the Series paid dividends of $0.264433
per share.
AMERICAN VALUE SERIES
For the six-month period ended January 31, 1998, the American Value Series
produced a total return of 5.52 percent compared to 3.55 percent for the
Standard & Poor's 500 Composite Stock Price Index (S&P 500) and 3.18 percent for
the Lipper Analytical Services Inc. Growth Funds Index.
Based on recent analysis, the Series' portfolio manager expects U.S. economic
growth to slow to the 2.25 percent range in 1998, with earnings in the vicinity
of 5 percent. When earnings growth slips below the 10 percent range, the
market's leadership typically shifts from economically sensitive issues to
steady growth ones. In response, the Series has been tilted in this direction so
that steady growth stocks currently represent 60 percent of net assets.
On the cyclical side, the Series' 17.6 percent weighting in technology stocks
emphasizes software and services, which are more stable than other technology
sectors during economic slowdowns. Holdings in this area include Microsoft
Corp., Computer Associates International, Inc. and BMC Software, Inc. As of
January 31, 1998, the Series had a 8.1 percent weighting in retail stocks, which
is expected to be bolstered by a low unemployment level below 4.7 percent, and
by real wage growth and lower sourcing costs. The Series' retail positions
include Wal-Mart Stores, Inc. and Barnes & Noble, Inc.
On the growth side, the Series has increased its consumer staples weighting to
11.0 percent of net assets, emphasizing industries and companies with little or
no South American or Asian exposure.
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS JANUARY 31, 1998, CONTINUED
This sector includes food chains such as Safeway, Inc., drugstores like Rite Aid
Corp., and such selected food companies as Nabisco Holdings Corp. In the
consumer/business services area, the Series continues to hold 12.5 percent of
its net assets in the radio/cable and newspaper industries. Commitments in these
sectors include Clear Channel Communications, Inc., CBS Corp., Comcast Corp. and
Gannett Co., Inc.
Health care, which remains overweighted in the Series at 16.6 percent, reflects
an emphasis on drugs, biotechnology and medical devices -- all industries with
patent protection and pricing power. Companies in these areas include Lilly
(Eli) & Co., Pfizer, Inc., Centocor, Inc. and Guidant Corp. The Series has also
maintained an overweighted position in interest-rate sensitive stocks, as
evidenced by its 18.6 percent commitment to the financial sector, where the
focus is on regional banks, brokerage houses, government agencies and utilities.
A sample of some of these holdings includes Summit Bancorp, Travelers Group,
Inc., and Fannie Mae.
Because an economic backdrop that is typically associated with falling interest
rates and more difficult corporate earnings is expected to remain in place, we
have established a four percent position in long-term U.S. Treasuries.
CAPITAL GROWTH SERIES
For the six-month period ended January 31, 1998, the Capital Growth Series
produced a return of -3.37 percent. This compares to a return of 3.55 percent
for the S&P 500 Index and a return of 3.18 percent for the Lipper Analytical
Services Growth Funds Index. Net assets of the Capital Growth Series totaled
slightly more than $3.1 million as of the end of the period. At that time the
Series owned 51 stocks.
The Series' weightings in small- and mid-cap stocks helped its performance
during the first quarter of 1997. However, with the stock market setback late in
1997, many small- and mid-cap issues failed to match the performance of
large-cap stocks recorded during the second quarter. Though the Series
outperformed the S&P 500 in the first half of the year, its greater than 50
percent exposure to mid-and small-cap stocks resulted in its underperforming the
index in the second half of the year. Additionally, many of the Series' holdings
in the mid-cap area were in the technology and oil-service sectors, among the
two areas that saw most of the significant price declines during the second
quarter of 1997. Both of these sectors had been overweighted. Earnings
disappointments in a few key companies also dampened performance.
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS JANUARY 31, 1998, CONTINUED
We remain optimistic regarding Capital Growth Series' prospects for 1998. Stocks
in the portfolio are expected to have nearly a 30 percent earnings per share
growth rate for 1998 over 1997 and continue to have a very high return on equity
of approximately 20 percent, with a beta that is not much greater than that of
the overall markets.
DIVIDEND GROWTH SERIES
For the six-month period ended January 31, 1998, Dividend Growth Series had a
total return of 0.88 percent, compared to a total return of 3.55 percent for the
S&P 500 and 2.37 percent for the Lipper Analytical Services, Inc. Growth and
Income Funds Index. The Series' underperformance of its broad market indices was
in large part due to exceptional strength in technology stocks at times, a
sector which affords little or no current yield, and the Series' underweighting
in financial stocks.
Net assets of Dividend Growth Series totaled approximately $106 million on
January 31, 1998. As of January 31, 1998, the Series owned 38 equity issues
spread across 30 different industry groups. One new portfolio position was
established since our last report on July 31, 1997. A spinoff (a divestiture in
which a parent company establishes a subdivision or separate corporation) from
PepsiCo, Inc. during the period resulted in the receipt of shares of Tricon
Global Restaurants, Inc. These shares were subsequently liquidated.
UTILITIES SERIES
For the period ended January 31, 1998, the first half of the fiscal year, the
Utilities Series provided a total return of 14.05 percent compared to a total
return of 13.31 percent for the average Lipper Analytical Services Utility Funds
Index and 3.55 percent for the broad-based S&P 500.
During the past year, utilities benefited from a blend of improving industry
fundamentals, a favorable interest-rate environment and ongoing industry-wide
merger and acquisition activities. However, a primary event underpinning the
strong performance of the Series during the period was the Southeast Asian
economic crisis, which prompted a highly defensive investment mode in the U.S.
market.
Given this utility-friendly investment environment, electric utilities were the
primary beneficiaries of the cautious financial markets, with much of the
impetus being a flight to quality and safety. Additionally, electric utilities
continued to witness fair and balanced deregulation initiatives by many state
utility commissions, which tempered investors concerns and strengthened
shareholder confidence in this sector. Electric utility merger and acquisition
activity was consistently evident throughout the year as many companies enhanced
their earnings outlooks and expanded their product offerings and global presence
in preparation for the new competitive environment. The
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS JANUARY 31, 1998, CONTINUED
telecommunications sector also showed very healthy performance, benefiting from
numerous merger and acquisition announcements. Furthermore, the telecom sector
overall showed robust earnings growth, fueled by a strong economy and
high-growth applications including wireless communications, data and selective
international investments. While natural gas pricing was adversely effected by
mild weather patterns toward the end of the year, the sectors overall market
performance was enhanced by a combination of industry-wide merger activity and
an expansion of diversified deregulated businesses.
Against this backdrop, the Utilities Series maintained a fully invested posture,
reflecting the underlying defensive theme across the financial markets.
Additionally, investor confidence continued to strengthen, due to the tempering
of regulatory concerns and more visible growth fundamentals within the utility
sectors. On January 31, 1998, 96 percent of the Series' assets were allocated to
utility and utility-related equities with 4 percent held in cash. Within the
equity component of the portfolio, 52 percent of assets were allocated to
electric utilities, 25 percent to telecommunications and 19 percent to natural
gas. Enhancing overall Series diversification are selective foreign securities,
which account for 5 percent of assets, and a focus on the growth area of global
telecommunications infrastructure.
We believe the Series remains uniquely diversified and structured to meet its
objective of providing shareholders with above average current income and
long-term growth of income and capital. Given the focus on Energy and
Telecommunications, the Utilities Series is well positioned to benefit from the
worldwide growth coming from globalization, privatization and strong product
demand.
VALUE-ADDED MARKET SERIES
For the six-month period ended January 31, 1998, the Value-Added Series produced
a total return of 1.52 percent compared to 3.55 percent for the S&P 500 and 2.37
percent for the Lipper Analytical Services, Inc. Growth and Income Funds Index.
While the Series outperformed the S&P 500 during the third quarter of 1997, it
fell behind in the fourth quarter as both small-cap and cyclical stocks came
under pressure. Since inception on February 1, 1993, the Series has posted an
average annual total return of 16.8 percent.
The Series invests in substantially all the stocks included in the S&P 500.
Unlike the index, the Series weights all stock positions equally, thereby
emphasizing the stocks of smaller- to medium-capitalized companies, which causes
performance to differ from that of the S&P 500 Index.
Historically, the strategy employed by the Series has led to strong relative
returns during periods when small-cap stocks have outperformed larger ones.
However, over the past three years large-capitalization stocks have been market
leaders overshadowing the solid returns provided by small-
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS JANUARY 31, 1998, CONTINUED
and mid-cap stocks. We believe that we are now at a point in the economic cycle
where small caps may once again be positioned to outperform. Many relative
valuation measures, such as price-to-book, dividend yield and price-to-earnings
ratios, suggest that small-cap issues are currently undervalued relative to
large caps.
In addition, a continued strong U.S. dollar should reduce the relative earnings
growth of large multinationals, thus making small- and mid-caps more attractive.
Finally, because of the Asian currency crisis, investors in emerging markets may
decide to reconsider the attractiveness of the domestic small- and mid-cap
sectors. Such a scenario is expected to bode well for the equally weighted
strategy employed by the Series.
GLOBAL EQUITY SERIES
For the six-month period ended January 31, 1998, the Global Equity Series had a
total return of -6.07 percent. This compares to a total return of -3.59 percent
for the Lipper Analytical Services Global Funds Index, a return of 3.55 percent
for the S&P 500 and a return of -2.07 for the Morgan Stanley Capital
International World Index (MSCI Index).
As stated earlier, global markets in general were captivated by the widespread
plunge in Asian markets on the back of intense currency devaluations and ensuing
economic turmoil in that part of the world. Most Asian markets dropped between
60 and 70 percent, with Indonesia and Korea being hit the hardest. Even the Hong
Kong market, whose currency has not fluctuated in value, declined 44.5 percent
and the Japanese market disappointed investors again, falling 21.6 percent.
Japan's fragile economy slowed after the reversal of an income tax rebate and a
hike in its consumption tax. Investors also focused on the fragility of Japan's
financial system and the loss of credibility among politicians dealing with the
economic slump.
The European equity markets, with the dual catalysts of weak domestic currencies
and positive sentiment toward Economic and Monetary Union (EMU), mirrored the
U.S. market's rally. The following countries had exceptionally strong
performance during the period under review: Italy (24.90 percent), Spain (17.84
percent), Switzerland (11.95 percent) and the United Kingdom (10.90 percent).
The following core European markets lagged behind: France (3.78 percent),
Germany (-0.37 percent) and the Netherlands (-4.59 percent).
The Series' underperformance versus the MSCI Index is attributable to its
geographic allocation, which had more significant exposure to Japan and Asia
than the index. In response to the continuing market decline in Japan and the
economic crisis in the rest of Asia, the Series has since reduced
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS JANUARY 31, 1998, CONTINUED
exposure to those markets. The Series' asset allocation targets now are 38
percent of net assets in Europe, 35 percent in the United States, 6 percent in
Japan, emerging Asia and Latin America and 1 percent in other markets deemed to
be attractive. The balance will be held in cash.
STRATEGIST SERIES
The Strategist Series posted a total return of 0.28 percent for the six-month
period ended January 31, 1998, versus 2.94 percent for the Lipper Analytical
Services Flexible Funds Index. Over the same period, the S&P 500 posted a total
return of 3.55 percent and the Lehman Brothers Government/Corporate Bond Index
posted a total return of 5.12 percent.
The Series' underperformance for the period under review, August 1997 to January
1998, was due to our asset allocation, which favored stocks and underweighted
bonds. For the six-month period, the Strategist Series maintained an asset
allocation target of 70 percent equities, 20 percent U.S. government and
corporate bonds and 10 percent cash equivalents. This was a change from the
first half of 1997 when the Series was positioned at roughly a 50 percent/50
percent stock and bond/cash blend. The move was made because of our view that
corporate earnings growth would continue at an above average pace, therefore
leading us to take a more aggressive approach toward the equity markets. The
untimely currency crises in Indonesia, Singapore, Malaysia, and Thailand had the
compounding negative effect of pummeling technology stocks and causing a rapid
and significant flight to quality bond rally.
While the outperformance of bonds tied to the Asian Pacific crisis may have
affected our strategy during the second half of the year, January 1998 has been
a good month for the equity market. We would expect this trend to continue
through the first quarter of 1998, at the very least, and provide improved
returns to our shareholders based on our current allocation target.
The equity portion of the portfolio features an emphasis on the U.S. consumer,
who is enjoying unprecedented financial liquidity tied to low unemployment and
declining mortgage rates. We hold a number of retailers (Pier 1 Imports, Inc.
and Kmart Corp.), consumer products companies (Colgate-Palmolive Co. and Kellogg
Co.) and leisure-time service providers (Walt Disney Co.). The Series also holds
significant exposure to technology, financial services and energy stocks.
The fixed-income portion of the portfolio is well diversified among both
government and corporate issuers, varying in maturities, interest rates and
duration. At the end of the period, the Series' bond portfolio (21 issues in
all) had an average maturity of 9 1/4 years, an average yield of 6.25 percent
and an average duration of 5 1/3 years.
<PAGE>
DEAN WITTER RETIREMENT SERIES
LETTER TO THE SHAREHOLDERS JANUARY 31, 1998, CONTINUED
As the equity market continues to outperform other asset classes, we will
gradually seek opportunities to decrease our exposure to stocks and raise our
weightings to bonds and cash, protecting profits while continuing to seek
attractive long-term total returns.
LOOKING AHEAD
We expect U.S. economic growth to remain relatively healthy in early 1998, with
the Federal Reserve Board unlikely to raise interest rates. However, the central
bank may need to reassess its current complacent stance on monetary policy
during the year, should inordinately strong economic growth cause an
unacceptable increase in inflation.
Asia's reestablishment of currency stability is paramount in order for the
region's stock markets to make a sustainable recovery. Although the situation in
Asia and its impact on European corporate earnings will continue to be monitored
carefully, the underlying fundamentals of the European markets remain positive.
We appreciate your support of Dean Witter Retirement Series and look forward to
continuing to serve your investment needs and objectives.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER RETIREMENT SERIES - LIQUID ASSET
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (18.5%)
AUTOMOTIVE - FINANCE (8.3%)
$ 700 Chrysler Financial Corp.................................... 5.50% 02/12/98 $ 698,721
500 Ford Motor Credit Co....................................... 5.50 02/13/98 499,012
-----------
1,197,733
-----------
FINANCE - COMMERCIAL (3.4%)
500 CIT Group Holdings, Inc.................................... 5.50 02/27/98 497,953
-----------
FINANCE - CONSUMER (3.4%)
500 American Express Credit Corp............................... 5.51 02/20/98 498,478
-----------
FINANCE - DIVERSIFIED (3.4%)
500 General Electric Capital Corp.............................. 5.50 02/06/98 499,543
-----------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $2,693,707)............................................................... 2,693,707
-----------
U.S. GOVERNMENT AGENCIES (82.0%)
1,920 Federal Farm Credit Bank................................... 5.43-5.45 02/04/98-02/18/98 1,916,911
5,255 Federal Home Loan Mortgage Corp............................ 5.44-5.57 02/02/98-02/04/98 5,253,204
1,770 Federal National Mortgage Association...................... 5.42-5.44 02/09/98-02/25/98 1,765,271
1,000 Student Loan Marketing Association......................... 5.39 02/02/98 999,701
2,000 Tennessee Valley Authority................................. 5.39 02/11/98 1,996,712
-----------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $11,931,799).............................................................. 11,931,799
-----------
TOTAL INVESTMENTS
(AMORTIZED COST $14,625,506) (a)........................................................... 100.5% 14,625,506
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................. (0.5) (71,178)
------ ------------
NET ASSETS................................................................................. 100.0% $ 14,554,328
------ ------------
------ ------------
</TABLE>
- ---------------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - U.S. GOVERNMENT MONEY MARKET
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCIES (95.3%)
$ 520 Federal Farm Credit Bank.................................... 5.41-5.37% 02/04/98-02/11/98 $ 519,377
520 Federal Home Loan Banks..................................... 5.39 02/11/98 519,147
240 Federal Home Loan Mortgage Corp............................. 5.57 02/02/98 239,926
----------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $1,278,450)................................................................ 1,278,450
----------
U.S. GOVERNMENT OBLIGATION (3.7%)
50 U.S. Treasury Bill
(AMORTIZED COST $49,964).................................. 5.32 02/05/98 49,964
----------
TOTAL INVESTMENTS
(AMORTIZED COST $1,328,414) (a)............................................................. 99.0% 1,328,414
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.............................................. 1.0 13,475
------ -----------
NET ASSETS.................................................................................. 100.0% $ 1,341,889
------ -----------
------ -----------
</TABLE>
- ---------------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - U.S. GOVERNMENT SECURITIES
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS (98.2%)
Government National Mortgage Assoc. I (69.0%)
$ 2,569 ...................................................................... 7.00% 11/15/23-03/15/27 $2,607,904
3,588 ...................................................................... 7.50 01/15/24-01/15/27 3,694,826
----------
6,302,730
----------
932 Government National Mortgage Assoc. II (10.3%).......................... 7.00 03/20/26 943,806
----------
900 Resolution Funding Corp Zero Coupon Strips (5.9%)....................... 0.00 04/15/07 534,384
----------
U.S. Treasury Notes (13.0%)
100 ...................................................................... 5.625 01/31/98 99,969
1,050 ...................................................................... 6.375 09/30/01 1,083,201
----------
1,183,170
----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $8,706,194)....................................................................... 8,964,090
----------
SHORT-TERM INVESTMENT (1.7%)
REPURCHASE AGREEMENT
158 The Bank of New York
(dated 01/30/98;
proceeds $158,237) (a)
(IDENTIFIED COST $158,166)............................................ 5.375 02/02/98 158,166
----------
TOTAL INVESTMENTS
(IDENTIFIED COST $8,864,360) (b)..................................................................... 99.9% 9,122,256
OTHER ASSETS IN EXCESS OF LIABILITIES................................................................ 0.1 6,187
------ -----------
NET ASSETS........................................................................................... 100.0% $ 9,128,443
------ -----------
------ -----------
</TABLE>
- ---------------------
(a) Collateralized by $115,874 U.S. Treasury Bond 8.75% due 08/15/20 valued at
$161,330.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $264,269 and the
aggregate gross unrealized depreciation is $6,373, resulting in net
unrealized appreciation of $257,896.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (69.9%)
AUTOMOBILE - RENTALS (4.4%)
$ 100 Hertz Corp....................................................................... 6.00% 01/15/03 $ 99,883
----------
AUTOMOTIVE - FINANCE (1.2%)
25 General Motors Acceptance Corp................................................... 8.40 10/15/99 26,049
----------
BANK HOLDING COMPANIES (4.6%)
100 Citicorp......................................................................... 7.125 09/01/05 104,775
----------
BANKS (10.9%)
100 Bank One Corp.................................................................... 7.60 05/01/07 108,623
100 Shawmut Bank Connecticut, N.A.................................................... 8.625 02/15/05 112,915
25 Star Bank N.A.................................................................... 6.375 03/01/04 25,207
----------
246,745
----------
BROKERAGE (9.0%)
100 Bear Stearns Companies, Inc...................................................... 6.75 08/15/00 101,909
100 Salomon, Inc..................................................................... 6.50 03/01/00 101,019
----------
202,928
----------
CHEMICALS - DIVERSIFIED (4.5%)
100 Dupont (E.I.) de Nemours & Co., Inc.............................................. 6.50 09/01/02 102,621
----------
CHEMICALS - SPECIALTY (4.5%)
100 Millennium America, Inc.......................................................... 7.00 11/15/06 101,489
----------
DATA PROCESSING (4.6%)
100 Oracle Corp...................................................................... 6.91 02/15/07 103,316
----------
FINANCIAL (9.1%)
100 Ikon Capital Inc................................................................. 6.73 06/15/01 102,350
100 Nac Re Corp...................................................................... 8.00 06/15/99 102,820
----------
205,170
----------
FOREIGN GOVERNMENT (4.4%)
100 State of Israel.................................................................. 6.375 12/15/05 98,683
----------
LEISURE (4.8%)
100 Royal Caribbean Cruises.......................................................... 8.25 04/01/05 109,214
----------
MANUFACTURING (2.2%)
50 Reebok International Ltd. (United Kingdom)....................................... 6.75 09/15/05 50,081
----------
PAPER & FOREST PRODUCTS (4.5%)
100 Noranda Forest, Inc. (Canada).................................................... 6.875 11/15/05 102,122
----------
TEXTILES (1.2%)
25 Burlington Industries, Inc....................................................... 7.25 09/15/05 25,896
----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $1,537,322)........................................................................ 1,578,972
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (24.8%)
$ 100 U.S. Treasury Note............................................................... 6.125% 03/31/98 $ 100,112
100 U.S. Treasury Note............................................................... 6.625 06/30/01 103,776
300 U.S. Treasury Note............................................................... 5.875 11/30/01 304,776
50 U.S. Treasury Note............................................................... 6.25 01/31/02 51,480
----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $549,070).......................................................................... 560,144
----------
SHORT-TERM INVESTMENT (a) (3.3%)
U.S. GOVERNMENT AGENCY
75 Federal Home Loan Mortgage Corp.
(AMORTIZED COST $74,989)....................................................... 6.00 02/02/98 74,989
----------
TOTAL INVESTMENTS
(IDENTIFIED COST $2,161,381) (b)...................................................................... 98.0% 2,214,105
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................................................ 2.0 45,526
------ -----------
NET ASSETS............................................................................................ 100.0% $ 2,259,631
------ -----------
------ -----------
</TABLE>
- ---------------------
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $54,790 and the
aggregate gross unrealized depreciation is $2,066, resulting in net
unrealized appreciation of $52,724.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - AMERICAN VALUE
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (93.5%)
AGRICULTURE RELATED (0.9%)
2,000 Dekalb Genetics Corp. (Class B)......................................................... $ 54,750
7,333 Delta & Pine Land Co.................................................................... 219,990
2,000 Pioneer Hi-Bred International, Inc...................................................... 200,125
-----------
474,865
-----------
AUTO RELATED (0.1%)
2,000 Budget Group, Inc. (Class A)*........................................................... 69,875
-----------
BANKS (6.9%)
5,000 AmSouth Bancorporation.................................................................. 270,000
1,200 City National Corp...................................................................... 39,825
1,000 Comerica, Inc........................................................................... 94,375
200,000 Credito Italiano SpA (Italy)............................................................ 746,959
4,200 Crestar Financial Corp.................................................................. 220,500
17,000 Hibernia Corp. (Class A)................................................................ 324,062
5,000 Mellon Bank Corp........................................................................ 301,875
6,500 Northern Trust Corp..................................................................... 437,531
4,000 PNC Bank Corp........................................................................... 206,250
1,000 Southtrust Corp......................................................................... 56,437
2,000 Summit Bancorp.......................................................................... 100,000
2,000 Union Planters Corp..................................................................... 123,000
1,500 Wells Fargo & Co........................................................................ 463,500
2,000 Westamerica Bancorporation.............................................................. 190,000
-----------
3,574,314
-----------
BIOTECHNOLOGY (2.2%)
1,000 Arterial Vascular Engineering, Inc.*.................................................... 73,250
13,000 Centocor, Inc.*......................................................................... 520,812
3,000 Genzyme Corp. General Division*......................................................... 80,062
4,000 Gilead Sciences, Inc.*.................................................................. 162,000
7,000 IDEC Pharmaceuticals Corp.*............................................................. 292,250
-----------
1,128,374
-----------
BUILDING & CONSTRUCTION (0.3%)
7,000 D.R. Horton, Inc........................................................................ 138,250
-----------
CABLE/CELLULAR (4.1%)
16,000 Comcast Corp. (Class A Special)......................................................... 499,000
4,000 Comcast Corp. (Class A)................................................................. 124,250
7,000 Cox Communications, Inc. (Class A)*..................................................... 258,125
7,000 HSN, Inc.*.............................................................................. 333,375
12,000 Tele-Communications, Inc. (Class A)*.................................................... 336,000
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
9,000 Time Warner, Inc........................................................................ $ 577,687
-----------
2,128,437
-----------
CAPITAL GOODS (0.6%)
4,000 General Electric Co..................................................................... 310,000
-----------
COMMUNICATIONS EQUIPMENT (2.5%)
7,000 CIENA Corp.*............................................................................ 385,437
5,000 Cisco Systems, Inc.*.................................................................... 315,312
3,000 Lucent Technologies Inc................................................................. 265,500
4,000 Nokia Corp. (ADR) (Finland)............................................................. 304,000
-----------
1,270,249
-----------
COMPUTER EQUIPMENT (0.7%)
4,000 SCI Systems, Inc.*...................................................................... 174,000
4,000 Sun Microsystems, Inc.*................................................................. 191,750
-----------
365,750
-----------
COMPUTER SOFTWARE (8.6%)
5,000 Arbor Software Corp.*................................................................... 187,812
4,500 BMC Software, Inc.*..................................................................... 304,875
3,000 CBT Group PLC (ADR) (Ireland)*.......................................................... 272,250
1,000 Citrix Systems, Inc.*................................................................... 68,750
10,000 Computer Associates International, Inc.................................................. 531,875
11,000 Compuware Corp.*........................................................................ 429,000
7,000 Electronic Arts, Inc.*.................................................................. 251,562
5,000 Legato Systems, Inc.*................................................................... 229,375
7,000 Manugistics Group, Inc.*................................................................ 281,750
4,000 Microsoft Corp.*........................................................................ 596,750
13,000 PeopleSoft, Inc.*....................................................................... 455,812
6,000 Platinum Technology, Inc.*.............................................................. 168,000
1,000 SAP AG (Pref.) (Germany)................................................................ 363,040
6,000 Veritas Software Corp.*................................................................. 294,750
-----------
4,435,601
-----------
CONSUMER - NONCYCLICAL (3.9%)
9,000 Alberto-Culver Co. (Class B)............................................................ 266,625
6,000 Clorox Co............................................................................... 459,750
8,000 Heinz (H.J.) Co......................................................................... 443,500
5,000 Keebler Foods Co.*...................................................................... 137,500
6,000 Nabisco Holdings Corp. (Class A)........................................................ 248,250
3,000 Procter & Gamble Co..................................................................... 235,125
2,500 Quaker Oats Company (The)............................................................... 134,375
2,000 Sara Lee Corp........................................................................... 109,125
-----------
2,034,250
-----------
CONSUMER BUSINESS SERVICES (4.5%)
8,000 Automatic Data Processing, Inc.......................................................... 478,500
19,224 Cendant Corp.*.......................................................................... 651,213
10,000 Corrections Corp. of America*........................................................... 368,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - AMERICAN VALUE
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10,000 Paychex, Inc............................................................................ $ 478,750
8,000 Sysco Corp.............................................................................. 358,000
-----------
2,335,213
-----------
CONSUMER PRODUCTS (7.1%)
10,000 Albertson's, Inc........................................................................ 476,875
4,600 CVS Corp................................................................................ 301,587
5,000 Dominick's Supermarkets, Inc.*.......................................................... 198,125
15,000 Fred Meyer, Inc.*....................................................................... 553,125
15,000 Kroger Co.*............................................................................. 586,875
8,000 Rite Aid Corp........................................................................... 499,500
8,000 Safeway, Inc.*.......................................................................... 531,500
15,600 Walgreen Co............................................................................. 516,750
-----------
3,664,337
-----------
DRUGS (7.6%)
10,000 ALZA Corp. (Class A)*................................................................... 356,250
5,000 Bristol-Myers Squibb Co................................................................. 498,437
2,000 Cardinal Health, Inc.................................................................... 154,875
3,000 Dura Pharmaceuticals, Inc.*............................................................. 119,063
8,000 Lilly (Eli) & Co........................................................................ 540,000
5,000 Medicis Pharmaceutical Corp. (Class A)*................................................. 232,500
160 Novartis AG (Switzerland)............................................................... 274,255
6,300 Pfizer, Inc............................................................................. 516,206
8,000 Schering-Plough Corp.................................................................... 579,000
4,200 Warner-Lambert Co....................................................................... 632,100
-----------
3,902,686
-----------
ENERGY (1.2%)
4,200 Halliburton Co.......................................................................... 188,738
5,800 Schlumberger, Ltd....................................................................... 427,388
-----------
616,126
-----------
FINANCIAL - MISCELLANEOUS (5.3%)
2,000 American Express Co..................................................................... 167,375
3,000 Associates First Capital Corp. (Class A)................................................ 204,000
2,200 Donaldson, Lufkin & Jenrette, Inc....................................................... 154,688
6,350 Edwards (A.G.), Inc..................................................................... 240,506
9,000 Fannie Mae.............................................................................. 555,750
12,000 Freddie Mac............................................................................. 534,000
7,000 Hambrecht & Quist Group*................................................................ 221,813
500 Legg Mason, Inc......................................................................... 24,719
4,000 Lehman Brothers Holdings, Inc........................................................... 217,250
6,500 Paine Webber Group, Inc................................................................. 206,781
4,000 Providian Financial Corp................................................................ 195,500
-----------
2,722,382
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
HEALTHCARE PRODUCTS & SERVICES (4.0%)
12,000 HBO & Co................................................................................ $ 627,750
24,000 Health Management Associates, Inc. (Class A)*........................................... 574,500
14,000 Healthsouth Corp.*...................................................................... 314,125
10,000 Renal Treatment Centers, Inc.*.......................................................... 320,625
9,000 Total Renal Care Holdings, Inc.*........................................................ 218,813
-----------
2,055,813
-----------
INSURANCE (2.6%)
6,000 Allstate Corp........................................................................... 531,000
3,000 Equitable Companies, Inc................................................................ 138,000
2,100 Marsh & McLennan Companies, Inc......................................................... 155,138
5,100 SunAmerica, Inc......................................................................... 204,956
1,500 Torchmark Corp.......................................................................... 62,344
5,500 Travelers Group, Inc.................................................................... 272,250
-----------
1,363,688
-----------
INTERNET (3.5%)
8,000 America Online, Inc.*................................................................... 765,500
6,000 Checkfree Holdings Corp.*............................................................... 147,000
14,000 Excite, Inc.*........................................................................... 596,750
5,000 Yahoo! Inc.*............................................................................ 316,875
-----------
1,826,125
-----------
MEDIA GROUP (8.4%)
22,000 CBS Corp................................................................................ 658,625
14,000 Chancellor Media Corp.*................................................................. 481,250
7,000 Clear Channel Communications, Inc.*..................................................... 539,000
5,000 Gannett Co., Inc........................................................................ 302,500
8,000 Jacor Communications, Inc.*............................................................. 400,000
7,000 News Corp., Ltd. (ADR) (Australia)...................................................... 174,125
19,800 Outdoor Systems, Inc.*.................................................................. 475,200
7,300 Tribune Co.............................................................................. 443,475
8,000 Univision Communications, Inc. (Class A)*............................................... 305,000
5,000 Viacom, Inc. (Class B)*................................................................. 208,750
3,500 Walt Disney Co.......................................................................... 372,969
-----------
4,360,894
-----------
MEDICAL SUPPLIES (2.8%)
5,000 Becton, Dickinson & Co.................................................................. 315,625
8,500 Guidant Corp............................................................................ 546,125
7,300 Medtronic, Inc.......................................................................... 372,756
3,700 Sofamor Danek Group, Inc.*.............................................................. 231,713
-----------
1,466,219
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - AMERICAN VALUE
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MULTI-LINE INSURANCE (0.3%)
2,000 Lincoln National Corp................................................................... $ 151,375
-----------
RESTAURANTS (0.7%)
10,000 Cracker Barrel Old Country Store, Inc................................................... 346,250
-----------
RETAIL (8.1%)
6,000 Barnes & Noble, Inc.*................................................................... 190,875
20,000 Costco Companies, Inc.*................................................................. 867,500
950 Dollar General Corp..................................................................... 34,556
16,000 Family Dollar Stores, Inc............................................................... 510,000
8,000 Gap, Inc................................................................................ 312,500
6,000 General Nutrition Companies, Inc.*...................................................... 216,375
9,500 Home Depot, Inc......................................................................... 572,969
7,200 Lowe's Companies, Inc................................................................... 364,050
12,000 Mattel, Inc............................................................................. 486,000
10,000 Proffitt's, Inc.*....................................................................... 293,750
8,200 Wal-Mart Stores, Inc.................................................................... 326,975
-----------
4,175,550
-----------
SEMICONDUCTORS (1.1%)
3,000 Linear Technology Corp.................................................................. 198,000
3,000 Maxim Integrated Products, Inc.*........................................................ 103,875
8,000 Micron Technology, Inc.*................................................................ 277,000
-----------
578,875
-----------
TELECOMMUNICATIONS (2.0%)
6,000 Ameritech Corp.......................................................................... 257,625
4,000 Intermedia Communications Inc.*......................................................... 246,000
9,000 LCI International, Inc.*................................................................ 258,188
5,000 Teleport Communications Group Inc. (Class A)*........................................... 279,063
-----------
1,040,876
-----------
UTILITIES (3.5%)
13,000 Consolidated Edison Co. of New York, Inc................................................ 537,063
30,000 DPL, Inc................................................................................ 549,375
5,000 GTE Corp................................................................................ 272,813
4,000 New York State Electric & Gas Corp...................................................... 141,000
5,000 SCANA Corp.............................................................................. 140,938
3,000 U.S. West Communications Group.......................................................... 144,377
-----------
1,785,566
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $42,086,011)........................................................... $48,321,940
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATION (4.0%)
$ 1,900 U.S. Treasury Bond 6.375% due 08/15/27 (IDENTIFIED COST $1,918,109)..................... $ 2,040,220
-----------
SHORT-TERM INVESTMENT (a) (3.1%)
U.S. GOVERNMENT AGENCY
1,600 Federal Home Loan Mortgage Corp. 5.57% due 02/02/98
(IDENTIFIED COST $1,599,752).......................................................... 1,599,752
-----------
TOTAL INVESTMENTS
(IDENTIFIED COST $45,603,872) (b).......................................................... 100.6% 51,961,912
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................. (0.6) (306,378)
------ ------------
NET ASSETS................................................................................. 100.0% $ 51,655,534
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $6,838,484 and the
aggregate gross unrealized depreciation is $480,444, resulting in net
unrealized appreciation of $6,358,040.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (102.3%)
APPAREL & FOOTWEAR (0.9%)
600 Nautica Enterprises, Inc.*............................................................... $ 16,800
250 Tommy Hilfiger Corp.*.................................................................... 10,891
----------
27,691
----------
BANKING (1.1%)
600 State Street Corp........................................................................ 33,600
----------
BUILDING MATERIALS (2.6%)
1,300 Southdown, Inc........................................................................... 81,981
----------
CAPITAL GOODS (2.1%)
1,500 Tyco International Ltd................................................................... 66,562
----------
COMPUTER SOFTWARE (7.7%)
600 Cadence Design Systems, Inc.*............................................................ 16,800
900 Computer Associates International, Inc................................................... 47,869
1,000 Microsoft Corp.*......................................................................... 149,187
800 Security Dynamics Technologies, Inc.*.................................................... 28,200
----------
242,056
----------
COMPUTERS - SYSTEMS (3.3%)
1,550 EMC Corp.*............................................................................... 50,472
1,100 Sun Microsystems, Inc.*.................................................................. 52,731
----------
103,203
----------
CONSUMER SERVICES (2.5%)
3,000 AccuStaff, Inc.*......................................................................... 77,250
----------
DRUGS (12.6%)
1,500 Elan Corp. PLC (ADR) (Ireland)*.......................................................... 77,906
1,800 Medicis Pharmaceutical Corp. (Class A)*.................................................. 83,700
1,100 Pfizer, Inc.............................................................................. 90,131
600 Warner-Lambert Co........................................................................ 90,300
1,500 Watson Pharmaceuticals, Inc.*............................................................ 55,125
----------
397,162
----------
ENVIRONMENTAL CONTROL (2.1%)
4,000 Newpark Resources, Inc.*................................................................. 65,000
----------
FINANCIAL - MISCELLANEOUS (11.8%)
200 Household International, Inc............................................................. 24,900
2,900 MBNA Corp................................................................................ 90,081
2,000 Providian Financial Corp................................................................. 97,750
2,000 SunAmerica, Inc.......................................................................... 80,375
1,600 Travelers Group, Inc..................................................................... 79,200
----------
372,306
----------
HEALTHCARE PRODUCTS & SERVICES (2.1%)
1,100 Express Scripts, Inc. (Class A)*......................................................... 67,375
----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
HOME BUILDING (0.8%)
700 Oakwood Homes Corp....................................................................... $ 25,156
----------
HOSPITAL MANAGEMENT (3.7%)
2,800 Quorum Health Group, Inc.*............................................................... 70,000
1,000 Universal Health Services, Inc. (Class B)*............................................... 46,625
----------
116,625
----------
HOUSEHOLD FURNISHINGS & APPLIANCES (2.3%)
1,500 Ethan Allen Interiors, Inc............................................................... 71,812
----------
INSURANCE (5.2%)
1,800 Conseco, Inc............................................................................. 82,350
1,200 MGIC Investment Corp..................................................................... 81,150
----------
163,500
----------
MACHINERY - DIVERSIFIED (2.3%)
1,400 Deere & Co............................................................................... 73,850
----------
MEDIA (2.4%)
1,000 Clear Channel Communications, Inc.*...................................................... 77,000
----------
OIL DRILLING & SERVICES (1.3%)
1,300 R & B Falcon Corp.*...................................................................... 39,325
----------
OIL EQUIPMENT & SERVICES (3.5%)
5,250 Global Industries Ltd.*.................................................................. 76,453
1,700 Varco International, Inc.*............................................................... 34,850
----------
111,303
----------
RESTAURANTS (1.2%)
1,000 Starbucks Corp.*......................................................................... 36,562
----------
RETAIL - DEPARTMENT STORES (4.0%)
2,700 Proffitt's, Inc.*........................................................................ 79,313
1,200 Stage Stores, Inc.*...................................................................... 46,500
----------
125,813
----------
RETAIL - DRUG STORES (2.0%)
750 Rite Aid Corp............................................................................ 46,828
500 Walgreen Co.............................................................................. 16,563
----------
63,391
----------
RETAIL - FOOD CHAINS (4.8%)
2,000 Kroger Co.*.............................................................................. 78,250
1,100 Safeway, Inc.*........................................................................... 73,081
----------
151,331
----------
RETAIL - GENERAL MERCHANDISE (2.7%)
1,100 Consolidated Stores Corp.*............................................................... 45,238
1,100 Dollar General Corp...................................................................... 40,013
----------
85,251
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL - SPECIALTY (3.9%)
1,200 CompUSA, Inc.*........................................................................... $ 37,125
2,400 General Nutrition Companies, Inc.*....................................................... 86,550
----------
123,675
----------
RETAIL STORES (2.3%)
2,600 Staples, Inc.*........................................................................... 70,850
----------
TELECOMMUNICATIONS - LONG DISTANCE (2.7%)
3,000 LCI International, Inc.*................................................................. 86,063
----------
TELECOMMUNICATIONS - WIRELESS (2.4%)
1,700 Airtouch Communications, Inc.*........................................................... 74,588
----------
TELECOMMUNICATIONS EQUIPMENT (3.4%)
2,100 Tellabs, Inc.*........................................................................... 107,363
----------
UTILITIES - ELECTRIC (2.6%)
1,900 AES Corp.*............................................................................... 81,344
----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $2,757,715)............................................................. 3,218,988
----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (a) (1.9%)
U.S. GOVERNMENT AGENCY
$ 60 Federal Home Loan Mortgage Corp. 5.57% due 02/02/98 (AMORTIZED COST $59,990)............. $ 59,990
----------
TOTAL INVESTMENTS
(IDENTIFIED COST $2,817,705) (b)............................................................ 104.2% 3,278,978
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.............................................. (4.2) (133,479)
------ -----------
NET ASSETS.................................................................................. 100.0% $ 3,145,499
------ -----------
------ -----------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $505,750 and the
aggregate gross unrealized depreciation is $44,477, resulting in net
unrealized appreciation of $461,273.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (102.1%)
AEROSPACE (2.7%)
55,000 Raytheon Co. (Class B)................................................................. $ 2,866,875
------------
ALUMINUM (2.8%)
39,000 Aluminum Co. of America................................................................ 2,978,625
------------
AUTOMOTIVE (5.5%)
82,000 Chrysler Corp.......................................................................... 2,854,625
58,000 Ford Motor Co.......................................................................... 2,958,000
------------
5,812,625
------------
BANKS (2.5%)
45,500 NationsBank Corp....................................................................... 2,730,000
------------
BANKS - MONEY CENTER (2.7%)
41,000 BankAmerica Corp....................................................................... 2,913,562
------------
BEVERAGES - SOFT DRINKS (2.7%)
80,500 PepsiCo Inc............................................................................ 2,903,031
------------
CHEMICALS (5.4%)
50,500 Du Pont (E.I.) de Nemours & Co., Inc................................................... 2,859,562
48,500 Eastman Chemical Co.................................................................... 2,888,781
------------
5,748,343
------------
COMPUTERS - SYSTEMS (2.6%)
28,300 International Business Machines Corp................................................... 2,792,856
------------
CONGLOMERATES (5.4%)
34,000 Minnesota Mining & Manufacturing Co.................................................... 2,839,000
72,000 Tenneco, Inc........................................................................... 2,920,500
------------
5,759,500
------------
DRUGS (2.7%)
28,500 Bristol-Myers Squibb Co................................................................ 2,841,094
------------
DRUGS & HEALTHCARE (2.7%)
41,000 Abbott Laboratories.................................................................... 2,903,312
------------
ELECTRIC - MAJOR (2.8%)
38,000 General Electric Co.................................................................... 2,945,000
------------
ENERGY (2.7%)
46,000 Kerr-McGee Corp........................................................................ 2,880,750
------------
FOODS (5.2%)
53,200 Quaker Oats Company (The).............................................................. 2,859,500
46,500 Unilever NV (ADR) (Netherlands)........................................................ 2,653,406
------------
5,512,906
------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
MACHINERY - AGRICULTURAL (2.6%)
53,000 Deere & Co............................................................................. $ 2,795,750
------------
MANUFACTURING - DIVERSIFIED (2.8%)
42,000 Honeywell, Inc......................................................................... 2,942,625
------------
METALS - MISCELLANEOUS (2.7%)
44,500 Phelps Dodge Corp...................................................................... 2,931,438
------------
NATURAL GAS (2.7%)
69,000 Enron Corp............................................................................. 2,859,188
------------
OFFICE EQUIPMENT (2.7%)
64,000 Pitney Bowes, Inc...................................................................... 2,936,000
------------
OIL - DOMESTIC (5.4%)
34,500 Amoco Corp............................................................................. 2,807,438
55,000 Ashland, Inc........................................................................... 2,901,250
------------
5,708,688
------------
OIL - INTEGRATED - INTERNATIONAL (2.6%)
46,200 Exxon Corp............................................................................. 2,740,238
------------
PAPER & FOREST PRODUCTS (2.7%)
57,300 Weyerhaeuser Co........................................................................ 2,854,256
------------
PHOTOGRAPHY (2.7%)
44,000 Eastman Kodak Co....................................................................... 2,871,000
------------
RAILROADS (2.7%)
54,000 CSX Corp............................................................................... 2,862,000
------------
RETAIL - DEPARTMENT STORES (2.7%)
54,000 May Department Stores Co............................................................... 2,838,375
------------
RETAIL - FOOD CHAINS (2.7%)
131,000 American Stores Co..................................................................... 2,849,250
------------
STEEL (2.6%)
87,000 Timken Co.............................................................................. 2,805,750
------------
TELECOMMUNICATIONS (5.4%)
31,400 Bell Atlantic Corp..................................................................... 2,906,463
48,500 Sprint Corp............................................................................ 2,879,687
------------
5,786,150
------------
TOBACCO (2.7%)
68,500 Philip Morris Companies, Inc........................................................... 2,842,750
------------
UTILITIES - ELECTRIC (8.0%)
109,400 Houston Industries, Inc................................................................ 2,858,075
66,700 New England Electric System............................................................ 2,801,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
90,500 Unicom Corp............................................................................ $ 2,805,500
------------
8,464,975
------------
TOTAL INVESTMENTS
(IDENTIFIED COST $87,103,223) (a)......................................................... 102.1% 108,676,912
LIABILITIES IN EXCESS OF OTHER ASSETS..................................................... (2.1) (2,235,582)
------ -------------
NET ASSETS................................................................................ 100.0% $ 106,441,330
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $22,005,652 and the
aggregate gross unrealized depreciation is $431,963, resulting in net
unrealized appreciation of $21,573,689.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - UTILITIES
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.4%)
NATURAL GAS (17.3%)
4,000 Enron Corp............................................................................... $ 165,750
4,000 KeySpan Energy Corp...................................................................... 136,250
5,000 MCN Corp................................................................................. 185,000
2,000 Mobil Corp............................................................................... 136,250
3,000 Pacific Enterprises...................................................................... 108,187
5,000 Swift Energy Co.*........................................................................ 90,000
6,000 Williams Companies, Inc.................................................................. 171,000
----------
992,437
----------
TELECOMMUNICATIONS (25.1%)
4,000 BCE, Inc. (Canada)....................................................................... 125,000
2,500 BellSouth Corp........................................................................... 151,406
5,000 Cincinnati Bell, Inc..................................................................... 179,375
3,000 COLT Telecom Group plc (ADR) (United Kingdom)*........................................... 181,125
4,000 GTE Corp................................................................................. 218,250
4,000 LCI International, Inc.*................................................................. 114,750
3,000 Sprint Corp.............................................................................. 178,125
2,000 Teleport Communications Group Inc. (Class A)*............................................ 111,625
5,000 WorldCom, Inc.*.......................................................................... 179,062
----------
1,438,718
----------
UTILITIES - ELECTRIC (52.6%)
3,000 AES Corp.*............................................................................... 128,437
3,000 American Electric Power Co............................................................... 147,937
3,000 CILCORP, Inc............................................................................. 134,250
4,000 CINergy Corp............................................................................. 138,000
4,000 CMS Energy Corp.......................................................................... 170,250
8,250 DPL, Inc................................................................................. 151,078
4,000 DQE, Inc................................................................................. 130,750
3,000 Duke Power Co............................................................................ 162,563
4,500 Edison International..................................................................... 120,938
5,000 Florida Progress Corp.................................................................... 191,563
4,000 GPU, Inc................................................................................. 157,250
4,000 MDU Resources Group, Inc................................................................. 119,500
4,500 New Century Energies, Inc................................................................ 205,031
3,000 NIPSCO Industries, Inc................................................................... 153,188
4,500 PacifiCorp............................................................................... 104,344
4,000 Pinnacle West Capital Corp............................................................... 160,000
5,000 Sierra Pacific Resources................................................................. 176,875
6,000 Teco Energy, Inc......................................................................... 155,625
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
4,000 Utilicorp United, Inc.................................................................... $ 141,500
4,000 Western Resources, Inc................................................................... 163,000
----------
3,012,079
----------
WATER (2.4%)
5,000 American Water Works Company, Inc........................................................ 135,000
----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $4,211,298)............................................................. 5,578,234
----------
<PAGE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<S> <C> <C>
SHORT-TERM INVESTMENT (3.6%)
REPURCHASE AGREEMENT
$ 203 The Bank of New York 5.375% due 02/02/98 (dated 01/30/98; proceeds $202,961) (a)
(IDENTIFIED COST $202,870)............................................................. 202,870
----------
TOTAL INVESTMENTS
(IDENTIFIED COST $4,414,168) (b)............................................................ 101.0% 5,781,104
LIABILITIES IN EXCESS OF OTHER ASSETS....................................................... (1.0) (55,368)
------ -----------
NET ASSETS.................................................................................. 100.0% $ 5,725,736
------ -----------
------ -----------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $201,162 U.S. Treasury Note 6.75% due 05/31/99 valued at
$206,927.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $1,407,342 and the
aggregate gross unrealized depreciation is $40,406, resulting in net
unrealized appreciation of $1,366,936.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Retirement Series (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company,
consisting of eleven separate Series ("Series"). All of the Series, with the
exception of Strategist, are diversified.
The Fund was organized on May 14, 1992 as a Massachusetts business trust and
each of the Series commenced operations as follows:
<TABLE>
<CAPTION>
COMMENCEMENT COMMENCEMENT
OF OPERATIONS OF OPERATIONS
----------------- -----------------
<S> <C> <C> <C>
Liquid Asset............................ December 30, 1992 Dividend Growth......................... January 7, 1993
U.S. Government Money Market............ January 20, 1993 Utilities............................... January 8, 1993
U.S. Government Securities.............. January 8, 1993 Value-Added Market...................... February 1, 1993
Intermediate Income Securities.......... January 12, 1993 Global Equity........................... January 8, 1993
American Value.......................... February 1, 1993 Strategist.............................. January 7, 1993
Capital Growth.......................... February 2, 1993
</TABLE>
The investment objectives of each Series are as follows:
<TABLE>
<CAPTION>
SERIES INVESTMENT OBJECTIVE
<S> <C>
Liquid Asset Seeks high current income, preservation of capital and
liquidity by investing in short-term money market
instruments.
U.S. Government Money Seeks high current income, preservation of capital and
Market liquidity by investing primarily in money market instruments
which are issued and/or guaranteed by the U.S. Government,
its agencies or instrumentalities.
U.S. Government Seeks high current income consistent with safety of principal
Securities by investing in a diversified portfolio of obligations issued
and/or guaranteed by the U.S. Government or its
instrumentalities.
Intermediate Income Seeks high current income consistent with safety of principal
Securities by investing primarily in intermediate term, investment grade
fixed-income securities.
American Value Seeks long-term growth consistent with an effort to reduce
volatility by investing principally in common stock of
companies in industries which, at the time of investment, are
believed to be undervalued in the marketplace.
Capital Growth Seeks long-term capital growth by investing primarily in
common stocks.
Dividend Growth Seeks to provide reasonable current income and long-term
growth of income and capital by investing primarily in common
stock of companies with a record of paying dividends and the
potential for increasing dividends.
Utilities Seeks to provide current income and long-term growth of
income and capital by investing in equity and fixed-income
securities of companies in the public utilities industry.
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SERIES INVESTMENT OBJECTIVE
<S> <C>
Value-Added Market Seeks to achieve a high level of total return on its assets
through a combination of capital appreciation and current
income. It seeks to achieve this objective by investing, on
an equally weighted basis, in a diversified portfolio of
common stocks of the companies which are represented in the
Standard & Poor's 500 Composite Stock Price Index.
Global Equity Seeks to provide a high level of total return on its assets,
primarily through long-term capital growth and, to a lesser
extent, from income. It seeks to achieve this objective
through investments in all types of common stocks and
equivalents, preferred stocks and bonds and other debt
obligations of domestic and foreign companies, governments
and international organizations.
Strategist Seeks a high total investment return through a fully managed
investment policy utilizing equity, investment grade fixed
income and money market securities.
</TABLE>
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Liquid Asset and U.S. Government Money Market:
Securities are valued at amortized cost which approximates market value. All
remaining Series: (1) an equity security listed or traded on the New York,
American or other domestic or foreign stock exchange is valued at its latest
sale price on that exchange prior to the time when assets are valued; if there
were no sales that day, the security is valued at the latest bid price (in cases
where securities are traded on more than one exchange, the securities are valued
on the exchange designated as the primary market pursuant to procedures adopted
by the Trustees); (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest available bid
price prior to the time of valuation; (3) when market quotations are not readily
available, including circumstances under which it is determined by Dean Witter
InterCapital Inc. (the "Investment Manager") that sale or bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Trustees (valuation of securities for which
market quotations are not readily available may also be based upon current
market prices of securities which are comparable in coupon, rating and maturity,
or an appropriate matrix utilizing similar factors); (4) certain portfolio
securities may be valued by an outside pricing service approved by the Trustees.
The pricing service may utilize a matrix system incorporating security quality,
maturity and coupon as the evaluation model parameters, and/or research and
evaluations by its staff, including review of broker-dealer
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
market price quotations, if available, in determining what it believes is the
fair valuation of the securities valued by such pricing service; and (5)
short-term debt securities having a maturity date of more than sixty days at
time of purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and distributions are recorded on the ex-dividend date except
for certain dividends on foreign securities which are recorded as soon as the
Fund is informed after the ex-dividend date. Interest income is accrued daily.
Liquid Asset and U.S. Government Money Market amortize premiums and accrete
discounts on securities owned; gains and losses realized upon the sale of such
securities are based on their amortized cost. Discounts for all other Series are
accreted over the life of the respective securities.
C. FOREIGN CURRENCY TRANSLATION -- The books and records of each Series
investing in foreign currency denominated transactions are translated into U.S.
dollars as follows: (1) the foreign currency market value of investment
securities, other assets and liabilities and forward foreign currency contracts
are translated at the exchange rates prevailing at the end of the period; and
(2) purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are included in the Statement of Operations as realized and
unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal
income tax regulations, certain foreign exchange gains/losses included in
realized and unrealized gain/loss are included in or are a reduction of ordinary
income for federal income tax purposes. The Series do not isolate that portion
of the results of operations arising as a result of changes in the foreign
exchange rates from the changes in the market prices of the securities.
D. FORWARD FOREIGN CURRENCY CONTRACTS -- Some of the Series may enter into
forward foreign currency contracts which are valued daily at the appropriate
exchange rates. The resultant unrealized exchange gains and losses are included
in the Statement of Operations as unrealized foreign currency gain or loss. The
Series record realized gains or losses on delivery of the currency or at the
time the forward contract is extinguished (compensated) by entering into a
closing transaction prior to delivery.
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
E. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply individually
for each Series 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.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
G. EXPENSES -- Direct expenses are charged to the respective Series and general
Fund expenses are allocated on the basis of relative net assets or equally among
the Series.
H. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of $150,000 ($13,636 allocated to each of the
Series) and will be reimbursed, exclusive of amounts waived. Such expenses were
deferred and fully amortized by the Fund as of January 31, 1998.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement (the "Agreement"), the Fund pays
the Investment Manager a management fee, accrued daily and payable monthly, by
applying the following annual rates to each Series' net assets determined at the
close of each business day: Liquid Asset, U.S. Government Money Market and
Value-Added Market - 0.50%; U.S. Government Securities and Intermediate Income
Securities - 0.65%; Dividend Growth and Utilities - 0.75%; American Value,
Capital Growth and Strategist - 0.85%; and Global Equity - 1.0%.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
all personnel, including officers of the Fund who are employees of the
Investment Manager. The Investment Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
For the period August 1, 1997 through January 31, 1998, the Investment Manager
has continued to waive its management fee and reimburse expenses to the extent
they exceeded 1.00% of daily net assets of each Series. The waiver and
reimbursement of expenses will continue until June 30, 1998. At January 31,
1998, included in the Statement of Assets and Liabilities are receivables from
an affiliate which represent expense reimbursements due to the Fund.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/maturities/prepayments of portfolio securities, excluding
short-term investments (except for Liquid Asset and U.S. Government Money
Market), for the six months ended January 31, 1998 were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER
-------------------------- ------------------------
SALES/MATURITIES/ SALES/
PURCHASES PREPAYMENTS PURCHASES MATURITIES
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Liquid Asset................................. $465,238,660 $458,417,760 $40,745,922 $53,567,782
U.S. Government Money Market................. 135,205,272 137,983,856 -- --
U.S. Government Securities................... 2,685,761 4,370,987 -- --
Intermediate Income Securities............... 102,766 401,500 412,593 247,738
American Value............................... 5,697,516 2,979,522 63,095,393 71,417,357
Capital Growth............................... -- -- 3,007,969 3,284,177
Dividend Growth.............................. -- -- 13,779,275 20,449,245
Utilities.................................... -- -- 1,133,934 1,575,346
Value-Added Market........................... -- 14,947 1,464,974 3,171,601
Global Equity................................ 8,407 -- 6,994,819 8,140,516
Strategist................................... 632,891 889,618 12,838,780 12,657,535
</TABLE>
Included in the aforementioned sales/maturities of portfolio securities of
Value-Added Market are common stock sales of Morgan Stanley, Dean Witter,
Discover & Co., an affiliate of the Investment Manager, of $14,436, including
realized gains of $8,276.
Included at January 31, 1998 in the payable for investments purchased and
receivable for investments sold were unsettled trades with Dean Witter Reynolds
Inc. ("DWR"), an affiliate of the Investment Manager, as follows:
AMERICAN DIVIDEND
VALUE GROWTH
-------- ----------
Payable for investments purchased................. -- $ 99,113
-------- ----------
-------- ----------
Receivable for investments sold................... $394,607 $1,094,766
-------- ----------
-------- ----------
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
For the six months ended January 31, 1998, the following Series incurred
brokerage commissions with DWR for portfolio transactions executed on behalf of
such Series, as follows:
AMERICAN CAPITAL DIVIDEND GLOBAL
VALUE GROWTH GROWTH UTILITIES EQUITY STRATEGIST
--------- --------- --------- --------- --------- -----------
$ 18,575 $1,326 $25,890 $ 3,453 $ 5,113 $ 18,419
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Included at January 31, 1998 in the payable for investments purchased and
receivable for investments sold were unsettled trades with Morgan Stanley & Co.,
Inc., an affiliate of the Investment Manager, as follows:
AMERICAN CAPITAL
VALUE GROWTH
-------- --------
Payable for investments purchased................. $447,382 $ 16,640
-------- --------
-------- --------
Receivable for investments sold................... $332,289 $ 25,517
-------- --------
-------- --------
For the six months ended January 31, 1998, the following Series incurred
brokerage commissions with Morgan Stanley & Co., Inc. for portfolio transactions
executed on behalf of such Series, as follows:
AMERICAN VALUE CAPITAL GROWTH DIVIDEND GROWTH
-------------------- ----------- --------------------
$7,255 $404 $645
------ ---- ----
------ ---- ----
Dean Witter Trust FSB, an affiliate of the Investment Manager, is the Fund's
transfer agent. At January 31, 1998 the following Series had approximate
transfer agent fees and expenses payable as follows:
INTERMEDIATE
LIQUID U.S. GOVERNMENT U.S. GOVERNMENT INCOME AMERICAN
ASSET MONEY MARKET SECURITIES SECURITIES VALUE
--------- --------------- --------------- ------------ -----------
$5,700 $600 $1,040 $2,000 $2,000
------ ---- ------ ------ ------
------ ---- ------ ------ ------
CAPITAL DIVIDEND GLOBAL
GROWTH GROWTH UTILITIES EQUITY STRATEGIST
--------- --------------- --------------- ------------ -----------
$ 100 $ 1,500 $ 730 $ 650 $ 2,000
--------- ------ ------ ------ -----------
--------- ------ ------ ------ -----------
4. FEDERAL INCOME TAX STATUS
At July 31, 1997, Intermediate Income Securities had a net capital loss
carryover of approximately $30,200 for which $5,700 will be available through
July 31, 2004 and $24,500 will be available through July 31, 2005 to offset
future capital gains to the extent provided by regulations.
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
Net capital and currency losses incurred after October 31 ("post-October
losses") within the taxable year are deemed to arise on the first business day
of the Series' next taxable year. The following Series incurred and will elect
to defer post-October losses during fiscal 1997:
U.S. GOVERNMENT INTERMEDIATE
SECURITIES INCOME SECURITIES GLOBAL EQUITY
-------------------- -------------------- --------------------
$500 $57,800 $900
---- ------- ----
---- ------- ----
At July 31, 1997, the primary reason(s) for temporary book/tax differences were
as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCES
--------------------------------------
POST-OCTOBER CAPITAL LOSS DEFERRALS
LOSSES FROM WASH SALES
-------------- ----------------------
<S> <C> <C>
U.S. Government Securities........................ -
Intermediate Income Securities.................... - -
American Value.................................... -
Capital Growth.................................... -
Dividend Growth................................... -
Value-Added Market................................ -
Global Equity..................................... - -
Strategist........................................ -
</TABLE>
Additionally, Global Equity had temporary differences attributable to income
from the mark-to-market of passive foreign investment companies.
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
Some of the Portfolios may enter into forward foreign currency contracts
("forward contracts") to facilitate settlement of foreign currency denominated
portfolio transactions or to manage foreign currency exposure associated with
foreign currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Portfolios bear the
risk of an unfavorable change in foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At January 31, 1998, Global Equity had outstanding forward contracts to
facilitate settlement of foreign currency denominated portfolio transactions.
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET
VALUE INVESTMENT NET REALIZED TOTAL FROM DIVIDENDS DISTRIBUTIONS TOTAL DIVIDENDS
BEGINNING INCOME AND UNREALIZED INVESTMENT TO TO AND
YEAR ENDED JULY 31 OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIQUID ASSET
1993(1) $ 1.00 $ 0.02 -- $ 0.02 $(0.02) -- $(0.02)
1994 1.00 0.03 -- 0.03 (0.03) -- (0.03)
1995 1.00 0.06 -- 0.06 (0.06) -- (0.06)
1996 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1997 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1998* 1.00 0.02 -- 0.02 (0.02) -- (0.02)
U.S. GOVERNMENT MONEY MARKET
1993 (2) 1.00 -- ++ -- -- -- -- --
1994 1.00 0.03 -- 0.03 (0.03) -- (0.03)
1995 1.00 0.06 -- 0.06 (0.06) -- (0.06)
1996 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1997 1.00 0.04 -- 0.04 (0.04) -- (0.04)
1998* 1.00 0.02 -- 0.02 (0.02) -- (0.02)
U.S. GOVERNMENT SECURITIES
1993(3) 10.00 0.19 $ 0.07 0.26 (0.20) -- (0.20)
1994 10.06 0.44 (0.50) (0.06) (0.44) -- (0.44)
1995 9.56 0.56 0.15 0.71 (0.56) -- (0.56)
1996 9.71 0.55 (0.12) 0.43 (0.55) -- (0.55)
1997 9.59 0.56 0.34 0.90 (0.56) $(0.02) (0.58)
1998* 9.91 0.29 0.15 0.44 (0.29) -- (0.29)
INTERMEDIATE INCOME SECURITIES
1993(4) 10.00 0.19 (0.02) 0.17 (0.19) -- (0.19)
1994 9.98 0.60 (0.57) 0.03 (0.60) -- (0.60)
1995 9.41 0.61 0.22 0.83 (0.61) -- (0.61)
1996 9.63 0.59 (0.21) 0.38 (0.59) (0.01) (0.60)
1997 9.41 0.53 0.26 0.79 (0.53) -- (0.53)
1998* 9.67 0.26 0.11 0.37 (0.26) -- (0.26)
AMERICAN VALUE
1993(5) 10.00 0.06 (0.01) 0.05 -- -- --
1994 10.05 0.03 (0.09) (0.06) (0.02) (0.04) (0.06)
1995 9.93 0.14 3.15 3.29 (0.12) -- (0.12)
1996 13.10 0.09 1.17 1.26 (0.15) (1.13) (1.28)
1997 13.08 0.02 5.12 5.14 (0.04) (1.22) (1.26)
1998* 16.96 0.00 0.81 0.81 (0.02) (3.48) (3.50)
</TABLE>
- ---------------------
* For the six months ended January 31, 1998 (unaudited).
** After application of the Fund's expense limitation.
+ Calculated based on the net asset value as of the last business day
of the period.
++ Includes dividends from net investment income of $0.004 per share.
(a) Not annualized.
(b) Annualized.
Commencement of operations:
(1) December 30, 1992.
(2) January 20, 1993.
(3) January 8, 1993.
(4) January 12, 1993.
(5) February 1, 1993.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS ASSETS
(BEFORE EXPENSES WERE (AFTER EXPENSES WERE
ASSUMED) ASSUMED)
------------------------ -----------------------
NET ASSETS NET NET
NET ASSET TOTAL END OF INVESTMENT INVESTMENT PORTFOLIO AVERAGE
VALUE END INVESTMENT PERIOD INCOME INCOME TURNOVER COMMISSION
OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) EXPENSES (LOSS) RATE RATE PAID
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIQUID ASSET
1993(1) $ 1.00 1.77%(a) $ 1,081 1.30%(b) 0.53%(b) 0.14%(b) 3.02%(b) N/A N/A
1994 1.00 3.48 1,524 2.50** 0.99 -- 3.49 N/A N/A
1995 1.00 5.90 35,631 1.16 4.96 -- 6.12 N/A N/A
1996 1.00 5.44 42,753 0.65 5.05 0.33 5.37 N/A N/A
1997 1.00 4.57 21,213 1.04 4.43 1.00 4.47 N/A N/A
1998* 1.00 2.35(a) 14,554 1.30(b) 4.31(b) 1.00(b) 4.61(b) N/A N/A
U.S. GOVERNMENT
MONEY MARKET
1993 (2) 1.00 0.42(a) 125 2.50**(b) (0.95)(b) 2.13(b) 0.83(b) N/A N/A
1994 1.00 3.52 555 2.50** 0.82 -- 3.32 N/A N/A
1995 1.00 5.86 10,695 2.50** 3.62 -- 6.12 N/A N/A
1996 1.00 5.23 6,628 0.82 4.75 0.37 5.21 N/A N/A
1997 1.00 4.51 4,041 1.20 4.17 1.00 4.37 N/A N/A
1998* 1.00 2.31(a) 1,342 2.60(b) 2.93(b) 1.00(b) 4.53(b) N/A N/A
U.S. GOVERNMENT
SECURITIES
1993(3) 10.06 2.60(a) 1,756 1.81(b) 0.33(b) 0.18(b) 3.66(b) -- N/A
1994 9.56 (0.69) 2,954 2.50** 1.96 -- 4.46 29% N/A
1995 9.71 7.72 4,209 2.36 3.49 -- 5.85 14 N/A
1996 9.59 4.49 8,651 1.48 4.70 0.63 5.55 47 N/A
1997 9.91 9.70 10,496 1.55 5.24 1.00 5.79 89 N/A
1998* 10.06 4.53(a) 9,128 1.68(b) 5.16(b) 1.00(b) 5.84(b) 28(a) N/A
INTERMEDIATE
INCOME SECURITIES
1993(4) 9.98 1.67(a) 182 2.50**(b) 1.00(b) 1.62(b) 3.50(b) -- N/A
1994 9.41 0.26 460 2.50** 3.64 -- 6.14 40 N/A
1995 9.63 9.22 994 2.50** 4.08 -- 6.58 37 N/A
1996 9.41 3.95 4,172 1.58 5.01 0.72 5.87 142 N/A
1997 9.67 8.63 2,456 2.00 4.50 1.00 5.50 132 N/A
1998* 9.78 3.92(a) 2,260 3.20(b) 3.27(b) 1.00(b) 5.47(b) 24(a) N/A
AMERICAN VALUE
1993(5) 10.05 0.50(a) 308 2.50**(b) (0.66)(b) 0.74(b) 1.10(b) 121(a) --
1994 9.93 (0.59) 6,841 2.50** (0.81) -- 1.69 136 --
1995 13.10 33.48 22,581 1.42 0.39 -- 1.81 234 --
1996 13.08 9.83 40,321 1.18 0.23 0.65 0.76 301 $0.0543
1997 16.96 41.62 54,214 1.21 (0.11) 1.00 0.10 261 0.0552
1998* 14.27 5.52(a) 51,656 1.26(b) (0.30)(b) 1.00(b) (0.04)(b) 134(a) 0.0580
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL HIGHLIGHTS, CONTINUED
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET
VALUE INVESTMENT NET REALIZED TOTAL FROM DIVIDENDS DISTRIBUTIONS TOTAL DIVIDENDS
BEGINNING INCOME AND UNREALIZED INVESTMENT TO TO AND
YEAR ENDED JULY 31 OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
1993(4) $ 10.00 $(0.02) $(1.10) $(1.12) -- -- --
1994 8.88 0.13 0.45 0.58 $(0.04) -- $(0.04)
1995 9.42 0.10 1.77 1.87 (0.12) -- (0.12)
1996 11.17 0.07 1.55 1.62 (0.11) $(0.07) (0.18)
1997 12.61 (0.03) 5.41 5.38 (0.01) (0.32) (0.33)
1998* 17.66 (0.05) (0.70) (0.75) -- (2.69) (2.69)
DIVIDEND GROWTH
1993(1) 10.00 0.13 0.58 0.71 (0.10) -- (0.10)
1994 10.61 0.28 0.37 0.65 (0.23) (0.01) (0.24)
1995 11.02 0.34 2.13 2.47 (0.31) (0.10) (0.41)
1996 13.08 0.32 1.76 2.08 (0.36) (0.19) (0.55)
1997 14.61 0.33 5.60 5.93 (0.33) (0.52) (0.85)
1998* 19.69 0.16 (0.05) 0.11 (0.19) (2.07) (2.26)
UTILITIES
1993(2) 10.00 0.19 1.30 1.49 (0.14) -- (0.14)
1994 11.35 0.37 (0.95) (0.58) (0.34) (0.01) (0.35)
1995 10.42 0.42 0.80 1.22 (0.37) (0.02) (0.39)
1996 11.25 0.38 0.61 0.99 (0.45) -- (0.45)
1997 11.79 0.41 1.90 2.31 (0.32) -- (0.32)
1998* 13.78 0.19 1.73 1.92 (0.27) (1.68) (1.95)
VALUE-ADDED MARKET
1993(3) 10.00 0.05 0.02 0.07 (0.04) -- (0.04)
1994 10.03 0.24 0.65 0.89 (0.11) -- (0.11)
1995 10.81 0.21 2.16 2.37 (0.26) (0.12) (0.38)
1996 12.80 0.25 1.17 1.42 (0.22) (0.07) (0.29)
1997 13.93 0.21 5.58 5.79 (0.25) (0.63) (0.88)
1998* 18.84 0.08 0.18 0.26 (0.16) (0.77) (0.93)
GLOBAL EQUITY
1993(2) 10.00 0.07 (0.03) 0.04 -- -- --
1994 10.04 0.08 0.58 0.66 (0.05) -- (0.05)
1995 10.65 0.14 0.49 0.63 (0.11) -- (0.11)
1996 11.17 0.09 0.71 0.80 (0.18) -- (0.18)
1997 11.79 0.09 2.98 3.07 (0.06) (0.32) (0.38)
1998* 14.48 0.05 (0.96) (0.91) (0.17) (0.62) (0.79)
STRATEGIST
1993(1) 10.00 0.06 (0.23) (0.17) -- -- --
1994 9.83 0.23 (0.20) 0.03 (0.13) -- (0.13)
1995 9.73 0.24 1.49 1.73 (0.18) -- (0.18)
1996 11.28 0.25 1.63 1.88 (0.34) (0.22) (0.56)
1997 12.60 0.37 2.96 3.33 (0.28) (0.48) (0.76)
1998* 15.17 0.18 (0.24) (0.06) (0.38) (1.90) (2.28)
</TABLE>
- ---------------------
* For the six months ended January 31, 1998 (unaudited).
** After application of the Fund's expense limitation.
+ Calculated based on the net asset value as of the last business day
of the period.
(a) Not annualized.
(b) Annualized.
Commencement of operations:
(1) January 7, 1993.
(2) January 8, 1993.
(3) February 1, 1993.
(4) February 2, 1993.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS ASSETS
(BEFORE EXPENSES WERE (AFTER EXPENSES WERE
ASSUMED) ASSUMED)
------------------------ -----------------------
NET ASSETS NET NET
NET ASSET TOTAL END OF INVESTMENT INVESTMENT PORTFOLIO AVERAGE
VALUE END INVESTMENT PERIOD INCOME INCOME TURNOVER COMMISSION
OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) EXPENSES (LOSS) RATE RATE PAID
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
1993(4) $ 8.88 (11.20)%(a) $ 135 2.50**%(b) (1.01)%(b) 1.97%(b) (0.47)%(b) 2%(a) --
1994 9.42 6.57 215 2.50** (0.98) -- 1.52 11 --
1995 11.17 20.08 678 2.50** (1.07) -- 1.43 20 --
1996 12.61 14.58 1,988 2.50** (1.24) 0.76 0.50 68 $0.0536
1997 17.66 43.46 3,670 3.16 (2.38) 1.00 (0.22) 147 0.0575
1998* 14.22 (3.37)(a) 3,145 2.66(b) (2.39)(b) 1.00(b) (0.73) (b) 92(a) 0.0558
DIVIDEND GROWTH
1993(1) 10.61 7.11(a) 2,417 2.50**(b) 0.61(b) 0.16(b) 2.89(b) 7(a) --
1994 11.02 6.13 12,821 1.51 1.78 -- 3.29 13 --
1995 13.08 23.07 35,404 1.14 2.34 -- 3.48 29 --
1996 14.61 16.09 69,763 1.00 2.07 0.63 2.44 18 0.0526
1997 19.69 41.92 115,312 0.97 1.92 0.97 1.92 31 0.0537
1998* 17.54 0.88(a) 106,441 0.95(b) 1.61(b) 0.95(b) 1.61(b) 12(a) 0.0518
UTILITIES
1993(2) 11.35 14.98(a) 1,334 2.50**(b) 1.59(b) 0.30(b) 3.79(b) 8(a) --
1994 10.42 (5.23) 3,860 2.50** 1.62 -- 4.14 5 --
1995 11.25 12.16 5,380 1.91 2.41 -- 4.32 24 --
1996 11.79 8.76 7,593 1.52 2.31 0.62 3.20 17 0.0508
1997 13.78 19.87 5,391 1.78 1.85 1.00 2.63 89 0.0508
1998* 13.75 14.05(a) 5,726 2.02(b) 1.54(b) 1.00(b) 2.56(b) 22(a) 0.0507
VALUE-ADDED MARKET
1993(3) 10.03 0.71(a) 640 2.50**(b) (0.16)(b) 0.92(b) 1.42(b) 1(a) --
1994 10.81 8.89 5,133 1.82 0.70 -- 2.53 8 --
1995 12.80 22.65 14,080 1.22 1.33 -- 2.55 7 --
1996 13.93 11.19 20,379 0.78 1.58 0.47 1.89 8 0.0300
1997 18.84 43.12 23,780 1.02 1.04 1.00 1.07 23 0.0300
1998* 18.17 1.52(a) 21,828 0.93(b) 0.81(b) 0.93(b) 0.81(b) 7(a) 0.0300
GLOBAL EQUITY
1993(2) 10.04 0.40(a) 322 2.50**(b) (0.90)(b) 1.00(b) 1.77(b) -- --
1994 10.65 6.54 2,020 2.50** 0.09 -- 2.41 8 --
1995 11.17 6.08 7,286 2.25 0.48 -- 2.73 55 --
1996 11.79 7.26 11,685 1.73 (0.15) 0.66 0.92 95 0.0500
1997 14.48 26.66 19,797 1.85 (0.01) 1.00 0.84 80 0.0348
1998* 12.78 (6.07)(a) 16,540 1.79(b) (0.24)(b) 1.00(b) 0.55(b) 41(a) 0.0345
STRATEGIST
1993(1) 9.83 (1.70)(a) 551 2.50**(b) (0.19)(b) 0.64(b) 1.67(b) 26(a) --
1994 9.73 0.12 1,276 2.50** 0.70 -- 3.20 57 --
1995 11.28 18.21 6,759 2.14 1.97 -- 4.11 115 --
1996 12.60 16.97 17,496 1.61 1.92 0.66 2.86 113 0.0525
1997 15.17 27.35 26,459 1.40 2.50 1.00 2.90 90 0.0535
1998* 12.83 0.28(a) 22,393 1.36(b) 1.54(b) 1.00(b) 1.90(b) 67(a) 0.0512
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.3%)
ADVERTISING/MARKETING SERVICES (0.6%)
1,000 Cognizant Corp.......................................................................... $ 45,375
900 Interpublic Group of Companies, Inc..................................................... 44,156
1,000 Omnicom Group, Inc...................................................................... 40,562
-----------
130,093
-----------
AEROSPACE & DEFENSE (0.8%)
850 Boeing Co............................................................................... 40,428
550 General Dynamics Corp................................................................... 47,437
450 Lockheed Martin Corp.................................................................... 46,828
350 Northrop Grumman Corp................................................................... 42,919
-----------
177,612
-----------
AGRICULTURAL PRODUCTS (0.4%)
2,105 Archer-Daniels-Midland Co............................................................... 44,337
500 Pioneer Hi-Bred International, Inc...................................................... 50,031
-----------
94,368
-----------
AIR FREIGHT (0.2%)
700 Federal Express Corp.*.................................................................. 45,544
-----------
AIRLINES (0.7%)
300 AMR Corp.*.............................................................................. 37,875
350 Delta Air Lines, Inc.................................................................... 39,944
1,600 Southwest Airlines Co................................................................... 41,700
700 US Airways Group Inc.*.................................................................. 42,656
-----------
162,175
-----------
ALUMINUM (0.6%)
1,400 Alcan Aluminium Ltd. (Canada)........................................................... 41,212
600 Aluminum Co. of America................................................................. 45,825
650 Reynolds Metals Co...................................................................... 40,991
-----------
128,028
-----------
AUTO PARTS - AFTER MARKET (1.6%)
1,850 Cooper Tire & Rubber Co................................................................. 44,516
1,000 Dana Corp............................................................................... 50,125
1,250 Echlin, Inc............................................................................. 44,453
1,275 Genuine Parts Co........................................................................ 42,314
750 Goodyear Tire & Rubber Co............................................................... 46,969
1,500 ITT Industries, Inc..................................................................... 46,505
1,000 Snap-On, Inc............................................................................ 39,187
800 TRW, Inc................................................................................ 40,700
-----------
354,769
-----------
AUTOMOBILES (0.6%)
1,100 Chrysler Corp........................................................................... 38,294
900 Ford Motor Co........................................................................... 45,900
700 General Motors Corp..................................................................... 40,556
-----------
124,750
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
BANKS - MONEY CENTER (1.6%)
700 BankAmerica Corp........................................................................ $ 49,744
450 Bankers Trust New York Corp............................................................. 46,941
400 Chase Manhattan Corp.................................................................... 42,875
350 Citicorp................................................................................ 41,650
650 First Chicago NBD Corp.................................................................. 48,506
900 First Union Corp........................................................................ 43,256
400 Morgan (J.P.) & Co., Inc................................................................ 40,475
700 NationsBank Corp........................................................................ 42,000
-----------
355,447
-----------
BANKS - REGIONAL (4.7%)
800 Banc One Corp........................................................................... 44,700
800 Bank of New York Co., Inc............................................................... 43,350
550 BankBoston Corp......................................................................... 49,225
650 BB & T Corp............................................................................. 38,309
500 Comerica, Inc........................................................................... 47,187
600 CoreStates Financial Corp............................................................... 45,900
600 Fifth Third Bancorp..................................................................... 45,750
700 Fleet Financial Group, Inc.............................................................. 50,137
1,200 Huntington Bancshares, Inc.............................................................. 40,050
700 KeyCorp................................................................................. 45,500
800 Mellon Bank Corp........................................................................ 48,300
750 National City Corp...................................................................... 45,141
600 Northern Trust Corp..................................................................... 40,387
1,200 Norwest Corp............................................................................ 43,800
800 PNC Bank Corp........................................................................... 41,250
450 Republic New York Corp.................................................................. 48,994
700 State Street Corp....................................................................... 39,200
800 Summit Bancorp.......................................................................... 40,000
700 SunTrust Banks, Inc..................................................................... 48,475
1,200 Synovus Financial Corp.................................................................. 39,525
450 U.S. Bancorp............................................................................ 49,275
600 Wachovia Corp........................................................................... 46,650
150 Wells Fargo & Co........................................................................ 46,350
-----------
1,027,455
-----------
BEVERAGES - ALCOHOLIC (0.8%)
1,100 Anheuser-Busch Companies, Inc........................................................... 49,431
800 Brown-Forman Corp. (Class B)............................................................ 41,400
1,350 Coors (Adolph) Co. (Class B)............................................................ 42,356
1,100 Seagram Co. Ltd. (Canada)............................................................... 37,537
-----------
170,724
-----------
BEVERAGES - SOFT DRINKS (0.4%)
650 Coca Cola Co............................................................................ 42,087
1,050 PepsiCo, Inc............................................................................ 37,866
-----------
79,953
-----------
BIOTECHNOLOGY (0.2%)
800 Amgen Inc.*............................................................................. 39,950
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BROADCAST MEDIA (1.1%)
1,500 CBS Corp................................................................................ $ 44,906
600 Clear Channel Communications, Inc.*..................................................... 46,200
1,500 Comcast Corp. (Class A Special)......................................................... 46,781
1,700 Tele-Communications, Inc. (Class A)*.................................................... 47,600
1,700 U.S. West Media Group, Inc.*............................................................ 50,469
-----------
235,956
-----------
BUILDING MATERIALS (0.6%)
600 Armstrong World Industries Inc.......................................................... 42,750
1,000 Masco Corp.............................................................................. 49,250
1,400 Owens Corning........................................................................... 38,937
-----------
130,937
-----------
CHEMICALS (1.3%)
550 Air Products & Chemicals, Inc........................................................... 44,034
450 Dow Chemical Co......................................................................... 40,500
700 Du Pont (E.I.) De Nemours & Co., Inc.................................................... 39,637
750 Eastman Chemical Co..................................................................... 44,672
1,000 Praxair, Inc............................................................................ 41,437
450 Rohm & Haas Co.......................................................................... 38,587
900 Union Carbide Corp...................................................................... 39,431
-----------
288,298
-----------
CHEMICALS - DIVERSIFIED (0.9%)
2,200 Engelhard Corp.......................................................................... 36,850
600 FMC Corp.*.............................................................................. 40,350
950 Goodrich (B.F.) Co...................................................................... 39,841
900 Monsanto Co............................................................................. 42,694
700 PPG Industries, Inc..................................................................... 40,162
-----------
199,897
-----------
CHEMICALS - SPECIALTY (1.5%)
1,700 Ecolab, Inc............................................................................. 46,537
500 Grace (W. R.) & Co...................................................................... 39,281
850 Great Lakes Chemical Corp............................................................... 37,134
850 Hercules, Inc........................................................................... 40,109
900 International Flavors & Fragrances, Inc................................................. 37,912
1,300 Morton International, Inc............................................................... 42,900
1,050 Nalco Chemical Co....................................................................... 39,375
1,100 Sigma-Aldrich Corp...................................................................... 42,625
-----------
325,873
-----------
COMMERCIAL & CONSUMER SERVICES (1.0%)
1,000 Block (H.&R.), Inc...................................................................... 43,875
1,300 Cendant Corp.*.......................................................................... 44,037
1,400 Dun & Bradstreet Corp................................................................... 44,625
2,900 Laidlaw, Inc. (Canada).................................................................. 41,325
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
1,200 Service Corp. International............................................................. $ 46,800
-----------
220,662
-----------
COMMUNICATIONS EQUIPMENT (1.8%)
1,600 Andrew Corp.*........................................................................... 44,000
2,000 DSC Communications Corp.*............................................................... 40,000
1,000 Harris Corp............................................................................. 47,625
500 Lucent Technologies Inc................................................................. 44,250
650 Motorola, Inc........................................................................... 38,634
2,800 NextLevel Systems, Inc.*................................................................ 48,650
1,000 Northern Telecom Ltd. (Canada).......................................................... 45,125
2,500 Scientific-Atlanta, Inc................................................................. 38,906
800 Tellabs, Inc.*.......................................................................... 40,900
-----------
388,090
-----------
COMPUTER - NETWORKING (0.7%)
1,200 3Com Corp.*............................................................................. 39,675
1,400 Bay Networks, Inc.*..................................................................... 38,062
2,700 Cabletron Systems, Inc.*................................................................ 38,981
700 Cisco Systems, Inc.*.................................................................... 44,144
-----------
160,862
-----------
COMPUTER SOFTWARE & SERVICES (2.2%)
1,000 Adobe Systems, Inc...................................................................... 38,437
1,100 Autodesk, Inc........................................................................... 42,487
800 Computer Associates International, Inc.................................................. 42,550
600 Computer Sciences Corp.*................................................................ 50,925
900 HBO & Co................................................................................ 47,081
300 Microsoft Corp.*........................................................................ 44,756
5,700 Novell, Inc.*........................................................................... 40,256
1,800 Oracle Corp.*........................................................................... 41,850
900 Parametric Technology Corp.*............................................................ 45,675
700 Shared Medical Systems Corp............................................................. 45,850
2,700 Unisys Corp.*........................................................................... 44,550
-----------
484,417
-----------
COMPUTERS - PERIPHERAL EQUIPMENT (0.4%)
1,500 EMC Corp.*.............................................................................. 48,844
1,800 Seagate Technology, Inc.*............................................................... 41,737
-----------
90,581
-----------
COMPUTERS - SYSTEMS (1.8%)
2,500 Apple Computer, Inc.*................................................................... 45,781
1,384 COMPAQ Computer Corp.................................................................... 41,606
2,600 Data General Corp.*..................................................................... 40,137
500 Dell Computer Corp.*.................................................................... 49,719
800 Digital Equipment Corp.*................................................................ 45,250
700 Hewlett-Packard Co...................................................................... 42,000
500 International Business Machines Corp.................................................... 49,344
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2,700 Silicon Graphics, Inc.*................................................................. $ 41,850
900 Sun Microsystems, Inc.*................................................................. 43,144
-----------
398,831
-----------
CONSUMER - NONCYCLICAL (0.4%)
1,000 American Greetings Corp. (Class A)...................................................... 43,312
1,800 Jostens, Inc............................................................................ 40,612
-----------
83,924
-----------
CONTAINERS - METAL & GLASS (0.6%)
1,400 Ball Corp............................................................................... 45,500
900 Crown Cork & Seal Co., Inc.............................................................. 44,550
1,300 Owens-Illinois, Inc.*................................................................... 47,287
-----------
137,337
-----------
CONTAINERS - PAPER (0.7%)
1,000 Bemis Company, Inc...................................................................... 43,125
3,100 Stone Container Corp.................................................................... 39,525
700 Temple-Inland, Inc...................................................................... 38,850
700 Union Camp Corp......................................................................... 40,031
-----------
161,531
-----------
DATA PROCESSING (0.8%)
700 Automatic Data Processing, Inc.......................................................... 41,869
1,000 Ceridian Corp.*......................................................................... 45,312
1,200 Equifax, Inc............................................................................ 39,450
1,500 First Data Corp......................................................................... 45,937
-----------
172,568
-----------
DISTRIBUTORS - FOOD & HEALTH (0.6%)
600 Cardinal Health, Inc.................................................................... 46,462
1,000 Supervalu, Inc.......................................................................... 43,875
900 Sysco Corp.............................................................................. 40,275
-----------
130,612
-----------
ELECTRICAL EQUIPMENT (1.6%)
1,100 AMP, Inc................................................................................ 44,000
800 Emerson Electric Co..................................................................... 48,400
600 General Electric Co..................................................................... 46,500
1,000 General Signal Corp..................................................................... 39,000
600 Honeywell, Inc.......................................................................... 42,037
1,100 Raychem Corp............................................................................ 41,044
800 Rockwell International Corp............................................................. 44,700
800 Thomas & Betts Corp..................................................................... 39,500
-----------
345,181
-----------
ELECTRONIC COMPONENTS (0.2%)
500 Grainger (W.W.), Inc.................................................................... 48,125
-----------
ELECTRONICS - DEFENSE (0.2%)
850 Raytheon Co. (Class B).................................................................. 44,306
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
ELECTRONICS - INSTRUMENTATION (0.6%)
1,800 EG & G, Inc............................................................................. $ 43,425
700 Perkin-Elmer Corp....................................................................... 41,300
1,125 Tektronix, Inc.......................................................................... 47,531
-----------
132,256
-----------
ELECTRONICS - SEMICONDUCTORS (1.1%)
2,000 Advanced Micro Devices, Inc.*........................................................... 40,125
500 Intel Corp.............................................................................. 40,500
1,700 LSI Logic Corp.*........................................................................ 40,800
1,350 Micron Technology, Inc.*................................................................ 46,744
1,400 National Semiconductor Corp.*........................................................... 39,375
700 Texas Instruments, Inc.................................................................. 38,237
-----------
245,781
-----------
ENGINEERING & CONSTRUCTION (0.6%)
1,100 Fluor Corp.............................................................................. 41,456
1,700 Foster Wheeler Corp..................................................................... 40,800
1,400 McDermott International, Inc............................................................ 44,625
-----------
126,881
-----------
ENTERTAINMENT (0.8%)
800 King World Productions Inc.*............................................................ 47,350
700 Time Warner, Inc........................................................................ 44,931
1,000 Viacom, Inc. (Class B)*................................................................. 41,750
400 Walt Disney Co.......................................................................... 42,625
-----------
176,656
-----------
FACILITIES & ENVIRONMENTAL SERVICES (0.2%)
1,700 Safety-Kleen Corp....................................................................... 44,200
-----------
FINANCE - CONSUMER (1.3%)
600 Beneficial Corp......................................................................... 46,575
1,000 Countrywide Credit Industries, Inc...................................................... 46,625
2,100 Green Tree Financial Corp............................................................... 41,606
400 Household International, Inc............................................................ 49,800
1,400 MBNA Corp............................................................................... 43,487
1,000 Providian Financial Corp................................................................ 48,875
-----------
276,968
-----------
FINANCE - DIVERSIFIED (1.7%)
600 American Express Co..................................................................... 50,212
700 American General Corp................................................................... 39,462
800 Fannie Mae.............................................................................. 49,400
1,000 Freddie Mac............................................................................. 44,500
700 MBIA Inc................................................................................ 45,325
700 MGIC Investment Corp.................................................................... 47,337
800 Morgan Stanley, Dean Witter, Discover & Co. (Note 3).................................... 46,700
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1,050 SunAmerica, Inc......................................................................... $ 42,197
-----------
365,133
-----------
FOODS (2.5%)
500 Bestfoods............................................................................... 48,750
800 Campbell Soup Co........................................................................ 42,800
1,400 ConAgra, Inc............................................................................ 44,275
600 General Mills, Inc...................................................................... 44,662
800 Heinz (H.J.) Co......................................................................... 44,350
750 Hershey Foods Corp...................................................................... 47,766
900 Kellogg Co.............................................................................. 41,569
800 Quaker Oats Company (The)............................................................... 43,000
500 Ralston-Ralston Purina Group............................................................ 46,937
900 Sara Lee Corp........................................................................... 49,106
800 Unilever NV (ADR) (Netherlands)......................................................... 45,650
600 Wrigley (Wm.) Jr. Co. (Class A)......................................................... 44,362
-----------
543,227
-----------
FOOTWEAR (0.4%)
1,000 Nike, Inc. (Class B).................................................................... 40,062
1,400 Reebok International Ltd. (United Kingdom)*............................................. 37,362
-----------
77,424
-----------
GAMING, LOTTERY, & PARI-MUTUEL COMPANIES (0.4%)
2,000 Harrah's Entertainment, Inc.*........................................................... 44,000
1,700 Mirage Resorts, Inc.*................................................................... 39,206
-----------
83,206
-----------
GOLD & PRECIOUS METALS MINING (0.4%)
2,000 Barrick Gold Corp. (Canada)............................................................. 38,750
7,300 Battle Mountain Gold Co................................................................. 41,062
-----------
79,812
-----------
HARDWARE & TOOLS (0.4%)
900 Black & Decker Corp..................................................................... 43,369
1,100 Stanley Works........................................................................... 48,675
-----------
92,044
-----------
HEALTHCARE - DIVERSIFIED (1.5%)
650 Abbott Laboratories..................................................................... 46,028
1,400 Allergan, Inc........................................................................... 47,600
500 American Home Products Corp............................................................. 47,719
400 Bristol-Myers Squibb Co................................................................. 39,875
700 Johnson & Johnson....................................................................... 46,856
1,300 Mallinckrodt Group, Inc................................................................. 46,069
300 Warner-Lambert Co....................................................................... 45,150
-----------
319,297
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
HEALTHCARE - DRUGS (1.0%)
700 Lilly (Eli) & Co........................................................................ $ 47,250
350 Merck & Co., Inc........................................................................ 41,037
600 Pfizer, Inc............................................................................. 49,162
1,200 Pharmacia & Upjohn, Inc................................................................. 46,125
600 Schering-Plough Corp.................................................................... 43,425
-----------
226,999
-----------
HEALTHCARE - HMOS (0.4%)
1,950 Humana, Inc.*........................................................................... 39,122
850 United Healthcare Corp.................................................................. 43,562
-----------
82,684
-----------
HEALTHCARE - LONG TERM (0.4%)
1,800 Healthsouth Corp.*...................................................................... 40,387
1,400 Manor Care, Inc......................................................................... 48,562
-----------
88,949
-----------
HEALTHCARE SERVICES (0.2%)
1,200 ALZA Corp. (Class A)*................................................................... 42,750
-----------
HEAVY DUTY TRUCKS & PARTS (0.6%)
800 Cummins Engine Co., Inc................................................................. 42,800
1,700 Navistar International Corp.*........................................................... 45,900
800 PACCAR, Inc............................................................................. 40,200
-----------
128,900
-----------
HOME BUILDING (0.8%)
700 Centex Corp............................................................................. 43,925
1,000 Fleetwood Enterprises, Inc.............................................................. 41,625
1,700 Kaufman & Broad Home Corp............................................................... 43,775
1,100 Pulte Corp.............................................................................. 46,887
-----------
176,212
-----------
HOSPITAL MANAGEMENT (0.4%)
1,600 Columbia/HCA Healthcare Corp............................................................ 40,000
1,300 Tenet Healthcare Corp.*................................................................. 44,850
-----------
84,850
-----------
HOUSEHOLD FURNISHINGS & APPLIANCES (0.4%)
1,200 Maytag Corp............................................................................. 46,125
800 Whirlpool Corp.......................................................................... 46,250
-----------
92,375
-----------
HOUSEHOLD PRODUCTS - NON-DURABLE (1.1%)
600 Clorox Co............................................................................... 45,975
600 Colgate-Palmolive Co.................................................................... 43,950
1,100 Fort James Corp......................................................................... 47,231
900 Kimberly-Clark Corp..................................................................... 46,969
600 Procter & Gamble Co..................................................................... 47,025
-----------
231,150
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HOUSEWARES (0.8%)
1,150 Fortune Brands, Inc..................................................................... $ 43,988
1,200 Newell Co............................................................................... 49,275
1,600 Rubbermaid, Inc......................................................................... 41,400
1,500 Tupperware Corp......................................................................... 38,344
-----------
173,007
-----------
INSURANCE BROKERS (0.4%)
825 Aon Corp................................................................................ 46,045
600 Marsh & McLennan Cos., Inc.............................................................. 44,325
-----------
90,370
-----------
INVESTMENT BANKING/BROKERAGE (0.6%)
750 Lehman Brothers Holdings, Inc........................................................... 40,734
650 Merrill Lynch & Co., Inc................................................................ 41,031
1,200 Schwab (CHARLES) Corp................................................................... 43,800
-----------
125,565
-----------
LEISURE TIME - PRODUCTS (0.6%)
1,350 Brunswick Corp.......................................................................... 40,669
1,400 Hasbro, Inc............................................................................. 48,300
1,000 Mattel, Inc............................................................................. 40,500
-----------
129,469
-----------
LIFE & HEALTH INSURANCE (1.2%)
550 Aetna Inc............................................................................... 40,425
1,000 Conseco, Inc............................................................................ 45,750
600 Jefferson-Pilot Corp.................................................................... 49,013
1,100 Torchmark Corp.......................................................................... 45,719
400 Transamerica Corp....................................................................... 41,100
1,000 UNUM Corp............................................................................... 48,625
-----------
270,632
-----------
LODGING - HOTELS (0.6%)
1,400 Hilton Hotels Corp...................................................................... 39,638
500 ITT Corp.*.............................................................................. 40,000
650 Marriot International, Inc.............................................................. 44,931
-----------
124,569
-----------
MACHINERY - DIVERSIFIED (2.0%)
700 Case Corp............................................................................... 40,819
900 Caterpillar Inc......................................................................... 43,200
1,700 Cincinnati Milacron, Inc................................................................ 43,350
800 Cooper Industries, Inc.................................................................. 42,450
800 Deere & Co.............................................................................. 42,200
1,400 Dover Corp.............................................................................. 47,688
1,100 Harnischfeger Industries, Inc........................................................... 38,500
1,125 Ingersoll-Rand Co....................................................................... 44,719
450 NACCO Industries, Inc. (Class A)........................................................ 45,197
1,400 Timken Co............................................................................... 45,150
-----------
433,273
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
MANUFACTURING - DIVERSIFIED (2.8%)
850 Aeroquip-Vickers, Inc................................................................... $ 42,500
1,100 AlliedSignal, Inc....................................................................... 42,831
1,200 Corning, Inc............................................................................ 40,800
1,050 Crane Co................................................................................ 45,347
450 Eaton Corp.............................................................................. 40,388
800 Illinois Tool Works Inc................................................................. 44,550
900 Johnson Controls, Inc................................................................... 45,619
450 Minnesota Mining & Manufacturing Co..................................................... 37,575
900 National Service Industries, Inc........................................................ 45,000
1,000 Tenneco, Inc............................................................................ 40,563
700 Textron, Inc............................................................................ 41,869
1,200 Thermo Electron Corp.*.................................................................. 46,800
1,000 Tyco International Ltd.................................................................. 44,375
600 United Technologies Corp................................................................ 48,975
-----------
607,192
-----------
MANUFACTURING - SPECIALIZED (1.0%)
1,100 Avery Dennison Corp..................................................................... 49,363
900 Briggs & Stratton Corp.................................................................. 39,656
1,200 Millipore Corp.......................................................................... 39,300
1,900 Pall Corp............................................................................... 37,881
1,000 Parker-Hannifin Corp.................................................................... 43,688
-----------
209,888
-----------
MEDICAL PRODUCTS & SUPPLIES (2.0%)
1,400 Bard (C.R.), Inc........................................................................ 43,400
1,000 Bausch & Lomb, Inc...................................................................... 42,875
800 Baxter International, Inc............................................................... 44,550
800 Becton, Dickinson & Co.................................................................. 50,500
1,500 Biomet, Inc............................................................................. 42,938
800 Boston Scientific Corp.*................................................................ 40,600
700 Guidant Corp............................................................................ 44,975
900 Medtronic, Inc.......................................................................... 45,956
1,300 St. Jude Medical, Inc.*................................................................. 42,250
1,400 United States Surgical Corp............................................................. 39,988
-----------
438,032
-----------
METALS & MINING (1.4%)
1,800 ASARCO, Inc............................................................................. 40,050
2,600 Cyprus Amax Minerals Co................................................................. 40,950
2,700 Freeport-McMoran Copper & Gold, Inc. (Class B).......................................... 39,656
3,900 Homestake Mining Co..................................................................... 37,050
2,200 Inco Ltd. (Canada)...................................................................... 39,050
1,300 Newmont Mining Corp..................................................................... 37,050
600 Phelps Dodge Corp....................................................................... 39,525
2,800 Placer Dome Inc. (Canada)............................................................... 36,050
-----------
309,381
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MULTI-LINE INSURANCE (1.2%)
400 American International Group, Inc....................................................... $ 44,125
250 CIGNA Corp.............................................................................. 42,391
550 Hartford Financial Services Group Inc................................................... 49,500
650 Lincoln National Corp................................................................... 49,197
400 Loews Corp.............................................................................. 39,925
900 Travelers Group, Inc.................................................................... 44,550
-----------
269,688
-----------
OFFICE EQUIPMENT & SUPPLIES (0.4%)
2,600 Moore Corp. Ltd. (Canada)............................................................... 39,000
1,000 Pitney Bowes, Inc....................................................................... 45,875
-----------
84,875
-----------
OIL & GAS - EXPLORATION & PRODUCTION (0.2%)
450 Burlington Northern Santa Fe Corp....................................................... 39,038
-----------
OIL & GAS - REFINING & MARKETING (0.4%)
900 Ashland, Inc............................................................................ 47,475
1,300 Sun Co., Inc............................................................................ 50,375
-----------
97,850
-----------
OIL & GAS DRILLING (1.3%)
1,100 Baker Hughes, Inc....................................................................... 42,419
1,150 Dresser Industries, Inc................................................................. 41,113
900 Halliburton Co.......................................................................... 40,444
1,500 Helmerich & Payne, Inc.................................................................. 38,344
1,500 Rowan Companies, Inc.*.................................................................. 39,563
600 Schlumberger, Ltd....................................................................... 44,213
700 Western Atlas, Inc.*.................................................................... 43,619
-----------
289,715
-----------
OIL - EXPLORATION & PRODUCTION (0.8%)
700 Anardarko Petroleum Corp................................................................ 41,300
1,200 Apache Corp............................................................................. 39,750
1,037 Burlington Resources, Inc............................................................... 44,332
1,700 Oryx Energy Co.*........................................................................ 40,800
-----------
166,182
-----------
OIL - INTEGRATED - DOMESTIC (1.7%)
750 Amerada Hess Corp....................................................................... 41,016
600 Atlantic Richfield Co................................................................... 44,625
650 Kerr-McGee Corp......................................................................... 40,706
1,600 Occidental Petroleum Corp............................................................... 40,800
650 Pennzoil Co............................................................................. 42,006
1,000 Phillips Petroleum Co................................................................... 44,000
1,700 Union Pacific Resources Group, Inc...................................................... 38,038
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
1,200 Unocal Corp............................................................................. $ 41,250
1,350 USX-Marathon Group...................................................................... 45,309
-----------
377,750
-----------
OIL - INTEGRATED - INTERNATIONAL (1.1%)
500 Amoco Corp.............................................................................. 40,688
550 Chevron Corp............................................................................ 41,147
700 Exxon Corp.............................................................................. 41,519
600 Mobil Corp.............................................................................. 40,875
800 Royal Dutch Petroleum Co. (ADR) (Netherlands)........................................... 41,000
800 Texaco, Inc............................................................................. 41,650
-----------
246,879
-----------
PAPER & FOREST PRODUCTS (1.8%)
1,200 Boise Cascade Corp...................................................................... 38,400
800 Champion International Corp............................................................. 40,950
700 Georgia-Pacific Corp.................................................................... 38,588
900 International Paper Co.................................................................. 41,119
2,100 Louisiana-Pacific Corp.................................................................. 42,131
1,200 Mead Corp............................................................................... 39,000
900 Potlatch Corp........................................................................... 40,050
1,200 Westvaco Corp........................................................................... 38,925
800 Weyerhaeuser Co......................................................................... 39,850
1,200 Willamette Industries, Inc.............................................................. 40,200
-----------
399,213
-----------
PERSONAL CARE (0.6%)
1,600 Alberto-Culver Co. (Class B)............................................................ 47,400
700 Avon Products, Inc...................................................................... 42,000
450 Gillette Co............................................................................. 44,438
-----------
133,838
-----------
PHOTOGRAPHY/IMAGING (0.8%)
700 Eastman Kodak Co........................................................................ 45,675
1,600 Ikon Office Solutions, Inc.............................................................. 50,400
1,000 Polaroid Corp........................................................................... 41,063
550 Xerox Corp.............................................................................. 44,206
-----------
181,344
-----------
PROPERTY - CASUALTY INSURANCE (1.6%)
500 Allstate Corp........................................................................... 44,250
600 Chubb Corp.............................................................................. 45,563
300 Cincinnati Financial Corp............................................................... 38,250
200 General Re Corp......................................................................... 41,625
400 Progressive Corp........................................................................ 43,750
900 SAFECO Corp............................................................................. 44,944
500 St. Paul Companies, Inc................................................................. 43,500
2,000 USF&G Corp.............................................................................. 47,625
-----------
349,507
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PUBLISHING (0.8%)
950 Dow Jones & Co., Inc.................................................................... $ 47,738
700 McGraw-Hill, Inc........................................................................ 48,869
1,100 Meredith Corp........................................................................... 43,106
750 Times Mirror Co. (Class A).............................................................. 43,219
-----------
182,932
-----------
PUBLISHING - NEWSPAPER (0.8%)
700 Gannett Co., Inc........................................................................ 42,350
800 Knight-Ridder Newspapers, Inc........................................................... 44,050
600 New York Times Co. (Class A)............................................................ 39,038
850 Tribune Co.............................................................................. 51,638
-----------
177,076
-----------
RAILROADS (0.5%)
750 CSX Corp................................................................................ 39,750
1,250 Norfolk Southern Corp................................................................... 39,453
650 Union Pacific Corp...................................................................... 39,000
-----------
118,203
-----------
RESTAURANTS (0.8%)
3,500 Darden Restaurants, Inc................................................................. 44,188
850 McDonald's Corp......................................................................... 40,056
1,500 TRICON Global Restaurants, Inc.*........................................................ 40,875
1,850 Wendy's International, Inc.............................................................. 41,278
-----------
166,397
-----------
RETAIL - BUILDING SUPPLIES (0.6%)
700 Home Depot, Inc......................................................................... 42,219
900 Lowe's Companies, Inc................................................................... 45,506
1,400 Sherwin-Williams Co..................................................................... 39,900
-----------
127,625
-----------
RETAIL - COMPUTERS & ELECTRONICS (0.4%)
1,200 Circuit City Stores, Inc................................................................ 40,950
1,200 Tandy Corp.............................................................................. 46,500
-----------
87,450
-----------
RETAIL - DEPARTMENT STORES (1.5%)
1,200 Dillard Department Stores, Inc. (Class A)............................................... 42,150
1,200 Federated Department Stores, Inc.*...................................................... 50,850
850 Harcourt General, Inc................................................................... 45,316
850 May Department Stores Co................................................................ 44,678
750 Mercantile Stores Co., Inc.............................................................. 44,625
900 Nordstrom, Inc.......................................................................... 45,731
700 Penney (J.C.) Co., Inc.................................................................. 47,163
-----------
320,513
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
RETAIL - DRUG STORES (0.8%)
600 CVS Corp................................................................................ $ 39,338
1,500 Longs Drug Stores Corp.................................................................. 43,406
700 Rite Aid Corp........................................................................... 43,706
1,400 Walgreen Co............................................................................. 46,375
-----------
172,825
-----------
RETAIL - FOOD CHAINS (1.2%)
900 Albertson's, Inc........................................................................ 42,919
1,800 American Stores Co...................................................................... 39,150
1,400 Giant Food, Inc. (Class A).............................................................. 45,588
1,600 Great Atlantic & Pacific Tea Co., Inc................................................... 45,600
1,200 Kroger Co.*............................................................................. 46,950
900 Winn-Dixie Stores, Inc.................................................................. 43,875
-----------
264,082
-----------
RETAIL - GENERAL MERCHANDISE (1.0%)
1,000 Costco Companies, Inc.*................................................................. 43,375
600 Dayton-Hudson Corp...................................................................... 43,163
3,900 Kmart Corp.*............................................................................ 42,900
900 Sears, Roebuck & Co..................................................................... 41,456
1,100 Wal-Mart Stores, Inc.................................................................... 43,863
-----------
214,757
-----------
RETAIL - SPECIALTY (1.0%)
1,600 AutoZone, Inc.*......................................................................... 43,900
1,000 Consolidated Stores Corp.*.............................................................. 41,125
1,800 Pep Boys-Manny, Moe & Jack.............................................................. 39,375
1,600 Toys 'R' Us, Inc.*...................................................................... 42,900
2,000 Woolworth Corp.*........................................................................ 43,500
-----------
210,800
-----------
RETAIL - SPECIALTY APPAREL (0.8%)
9,500 Charming Shoppes, Inc.*................................................................. 38,000
1,200 Gap, Inc................................................................................ 46,875
1,700 Limited (The), Inc...................................................................... 45,050
1,300 TJX Companies, Inc...................................................................... 44,038
-----------
173,963
-----------
SAVINGS & LOAN COMPANIES (0.6%)
800 Ahmanson (H.F.) & Co.................................................................... 46,650
500 Golden West Financial Corp.............................................................. 42,219
700 Washington Mutual, Inc.................................................................. 44,975
-----------
133,844
-----------
SEMICONDUCTOR EQUIPMENT (0.4%)
1,200 Applied Materials, Inc.*................................................................ 39,300
1,000 KLA-Tencor Corp.*....................................................................... 37,500
-----------
76,800
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SPECIALTY PRINTING (0.6%)
1,200 Deluxe Corp............................................................................. $ 39,600
1,200 Donnelley (R.R.) & Sons Co.............................................................. 44,775
2,500 Harland (John H.) Co.................................................................... 38,438
-----------
122,813
-----------
STEEL & IRON (1.3%)
1,600 Allegheny Teledyne Inc.................................................................. 39,400
7,900 Armco, Inc.............................................................................. 37,031
4,000 Bethlehem Steel Corp.*.................................................................. 39,500
2,000 Inland Steel Industries, Inc............................................................ 39,875
900 Nucor Corp.............................................................................. 42,863
1,150 USX-U.S. Steel Group, Inc............................................................... 38,381
2,300 Worthington Industries, Inc............................................................. 38,669
-----------
275,719
-----------
TELECOMMUNICATIONS - CELLULAR/WIRELESS (0.2%)
1,000 Airtouch Communications, Inc.*.......................................................... 43,875
-----------
TELECOMMUNICATIONS - LONG DISTANCE (0.8%)
700 AT&T Corp............................................................................... 43,838
1,000 MCI Communications Corp................................................................. 46,438
700 Sprint Corp............................................................................. 41,563
1,400 WorldCom, Inc.*......................................................................... 50,138
-----------
181,977
-----------
TELEPHONES (1.6%)
1,000 ALLTEL Corp............................................................................. 42,750
1,000 Ameritech Corp.......................................................................... 42,938
450 Bell Atlantic Corp...................................................................... 41,653
700 BellSouth Corp.......................................................................... 42,394
1,700 Frontier Corp........................................................................... 44,306
800 GTE Corp................................................................................ 43,650
500 SBC Communications, Inc................................................................. 38,875
900 U.S. West Communications Group.......................................................... 43,313
-----------
339,879
-----------
TEXTILES - APPAREL (0.8%)
1,700 Fruit of the Loom, Inc. (Class A)*...................................................... 40,800
1,100 Liz Claiborne, Inc...................................................................... 44,550
1,600 Russell Corp............................................................................ 39,500
1,100 VF Corp................................................................................. 47,025
-----------
171,875
-----------
TEXTILES - HOME FURNISHINGS (0.2%)
900 Springs Industries, Inc. (Class A)...................................................... 47,363
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
TOBACCO (0.4%)
1,050 Philip Morris Companies, Inc............................................................ $ 43,575
1,300 UST, Inc................................................................................ 44,850
-----------
88,425
-----------
TRUCKERS (0.2%)
1,250 Ryder System, Inc....................................................................... 41,875
-----------
UTILITIES - ELECTRIC (5.3%)
1,200 Ameren Corp............................................................................. 43,950
900 American Electric Power Co., Inc........................................................ 44,381
1,500 Baltimore Gas & Electric Co............................................................. 45,563
1,100 Carolina Power & Light Co............................................................... 44,688
1,700 Central & South West Corp............................................................... 46,006
1,200 CINergy Corp............................................................................ 41,400
1,100 Consolidated Edison Co. of New York, Inc................................................ 45,444
1,200 Detroit Edison Co....................................................................... 43,050
1,100 Dominion Resources, Inc................................................................. 43,863
800 Duke Power Co........................................................................... 43,350
1,700 Edison International.................................................................... 45,688
1,550 Entergy Corp............................................................................ 44,369
1,600 FirstEnergy Corp.*...................................................................... 46,400
800 FPL Group, Inc.......................................................................... 45,900
1,200 GPU, Inc................................................................................ 47,175
1,700 Houston Industries, Inc................................................................. 44,413
4,300 Niagara Mohawk Power Corp.*............................................................. 46,494
800 Northern States Power Co................................................................ 42,900
2,050 PacifiCorp.............................................................................. 47,534
2,000 PECO Energy Co.......................................................................... 37,875
1,500 PG & E Corp............................................................................. 44,719
2,000 PP & L Resources, Inc................................................................... 43,750
1,500 Public Service Enterprise Group, Inc.................................................... 46,500
1,900 Southern Co............................................................................. 46,194
1,100 Texas Utilities Co...................................................................... 45,238
1,500 Unicom Corp............................................................................. 46,500
-----------
1,163,344
-----------
UTILITIES - NATURAL GAS (2.2%)
800 Coastal Corp............................................................................ 46,400
600 Columbia Gas System, Inc................................................................ 45,525
700 Consolidated Natural Gas Co............................................................. 38,019
1,100 Eastern Enterprises..................................................................... 45,513
1,200 Enron Corp.............................................................................. 49,725
1,200 NICOR, Inc.............................................................................. 48,300
1,250 ONEOK, Inc.............................................................................. 42,734
1,200 Pacific Enterprises..................................................................... 43,275
1,100 Peoples Energy Corp..................................................................... 41,525
1,000 Sonat, Inc.............................................................................. 43,688
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1,600 Williams Companies, Inc................................................................. $ 45,600
-----------
490,304
-----------
WASTE MANAGEMENT (0.4%)
1,200 Browning-Ferris Industries, Inc......................................................... 41,475
1,700 Waste Management Inc.................................................................... 39,950
-----------
81,425
-----------
TOTAL INVESTMENTS
(IDENTIFIED COST $14,359,063) (a).......................................................... 99.3% 21,680,008
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 0.7 147,912
------ ------------
NET ASSETS................................................................................. 100.0% $ 21,827,920
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $7,720,997 and the
aggregate gross unrealized depreciation is $400,052, resulting in net
unrealized appreciation of $7,320,945.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS (98.0%)
ARGENTINA (0.6%)
BANKING
2,232 Banco de Galicia y Buenos Aires S.A. de C.V. (Class B) (ADR)............................ $ 48,964
-----------
TELECOMMUNICATIONS
1,300 Telefonica de Argentina S.A. (Class B) (ADR)............................................ 45,013
-----------
TOTAL ARGENTINA......................................................................... 93,977
-----------
AUSTRALIA (1.7%)
BANKING
8,000 Westpac Banking Corp., Ltd.............................................................. 54,840
-----------
ENERGY
5,000 Woodside Petroleum Ltd.................................................................. 34,446
-----------
FINANCIAL SERVICES
24,000 Tyndall Australia Ltd................................................................... 40,637
-----------
FOODS & BEVERAGES
30,000 Goodman Fielder Ltd..................................................................... 47,320
-----------
TELECOMMUNICATIONS
2,400 Telstra Corp., Ltd. (ADR)*.............................................................. 108,450
-----------
TOTAL AUSTRALIA......................................................................... 285,693
-----------
BELGIUM (0.3%)
RETAIL
1,000 G.I.B. Holdings Ltd..................................................................... 48,988
-----------
BRAZIL (1.5%)
TELECOMMUNICATIONS
1,400 Telecommunicacoes Brasileiras S.A. (ADR)................................................ 155,400
-----------
UTILITIES - ELECTRIC
7,500 Companhia Paranaense de Energia - Copel (ADR)........................................... 90,000
-----------
TOTAL BRAZIL............................................................................ 245,400
-----------
CANADA (1.7%)
BANKING
2,000 Royal Bank of Canada.................................................................... 104,891
-----------
BIOTECHNOLOGY
5,500 BioChem Pharma, Inc.*................................................................... 112,062
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
COMPUTERS - SYSTEMS
2,000 Geac Computer Corp., Ltd.*.............................................................. $ 66,630
-----------
TOTAL CANADA............................................................................ 283,583
-----------
CHILE (0.6%)
TELECOMMUNICATIONS
2,000 Compania de Telecommunicaciones de Chile S.A. (ADR)..................................... 48,125
-----------
UTILITIES - ELECTRIC
2,000 Enersis S.A. (ADR)...................................................................... 52,875
-----------
TOTAL CHILE............................................................................. 101,000
-----------
CHINA (0.2%)
TELECOMMUNICATIONS
1,300 China Telecom (Hong Kong) Ltd. (ADR)*................................................... 40,869
-----------
DENMARK (1.4%)
PHARMACEUTICALS
1,000 Novo-Nordisk AS (Series B).............................................................. 143,462
-----------
TRANSPORTATION
700 Kobenhavns Lufthavne AS................................................................. 80,840
-----------
TOTAL DENMARK........................................................................... 224,302
-----------
FINLAND (0.4%)
MANUFACTURING
800 KCI Konecranes International............................................................ 27,451
-----------
PHARMACEUTICALS
1,400 Orion-yhtymae Oy (B Shares)............................................................. 42,350
-----------
TOTAL FINLAND........................................................................... 69,801
-----------
FRANCE (6.3%)
AEROSPACE & DEFENSE
3,000 Thomson CSF............................................................................. 102,765
-----------
AUTOMOTIVE
1,200 Compagnie Generale des Etablissements Michelin (B Shares)............................... 63,910
1,200 Valeo S.A............................................................................... 83,837
-----------
147,747
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BANKING
1,600 Banque Nationale de Paris............................................................... $ 82,629
-----------
ENERGY
700 Elf Aquitaine S.A....................................................................... 79,015
-----------
FINANCIAL SERVICES
1,100 Compagnie Financiere de Paribas (A Shares).............................................. 98,328
350 Dexia France............................................................................ 41,620
-----------
139,948
-----------
INSURANCE
1,400 AXA-UAP................................................................................. 116,238
-----------
LEISURE
600 Accor S.A............................................................................... 118,033
-----------
MEDIA
700 Havas S.A............................................................................... 49,978
-----------
TELECOMMUNICATIONS
3,000 France Telecom S.A. (ADR)*.............................................................. 127,125
-----------
TELECOMMUNICATIONS EQUIPMENT
600 Alcatel Alsthom......................................................................... 79,569
-----------
TOTAL FRANCE............................................................................ 1,043,047
-----------
GERMANY (2.8%)
APPAREL
400 Adidas AG............................................................................... 58,721
20 Hugo Boss AG (Pref.).................................................................... 28,431
-----------
87,152
-----------
AUTOMOTIVE
90 Bayerische Motoren Werke (BMW) AG....................................................... 71,842
300 MAN AG.................................................................................. 80,536
-----------
152,378
-----------
CHEMICALS
1,200 Bayer AG................................................................................ 45,074
600 SGL Carbon AG........................................................................... 75,451
-----------
120,525
-----------
MACHINERY - DIVERSIFIED
100 Mannesmann AG........................................................................... 56,916
-----------
TELECOMMUNICATIONS
900 Siemens AG.............................................................................. 54,989
-----------
TOTAL GERMANY........................................................................... 471,960
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
HONG KONG (2.9%)
BANKING
12,000 Guoco Group Ltd......................................................................... $ 17,846
3,140 HSBC Holdings PLC....................................................................... 69,638
-----------
87,484
-----------
CONGLOMERATES
11,000 Hutchison Whampoa, Ltd.................................................................. 64,723
-----------
REAL ESTATE
15,000 Cheung Kong (Holdings) Ltd.............................................................. 76,620
14,000 New World Development Co., Ltd.......................................................... 33,764
6,000 Sun Hung Kai Properties Ltd............................................................. 30,803
-----------
141,187
-----------
UTILITIES
36,600 Hong Kong & China Gas Co., Ltd.......................................................... 61,528
-----------
UTILITIES - ELECTRIC
23,000 CLP Holdings Ltd........................................................................ 126,406
-----------
TOTAL HONG KONG......................................................................... 481,328
-----------
INDIA (0.4%)
TELECOMMUNICATIONS
5,000 Mahanagar Telephone Nigam Ltd. (GDR)*................................................... 75,312
-----------
ISRAEL (0.3%)
RETAIL
4,000 Supersol Ltd. (ADR)..................................................................... 55,000
-----------
ITALY (2.1%)
BANKING
36,000 Banca Commerciale Italiana.............................................................. 147,419
-----------
ENERGY
1,500 Ente Nazionale Idrocarburi SpA (ADR)*................................................... 87,937
-----------
TELECOMMUNICATIONS
16,000 Telecom Italia SpA...................................................................... 110,825
-----------
TOTAL ITALY............................................................................. 346,181
-----------
JAPAN (6.4%)
AUTOMOTIVE
2,000 Honda Motor Co.......................................................................... 72,656
4,000 Suzuki Motor Co., Ltd................................................................... 36,879
-----------
109,535
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BANKING
18,000 Sakura Bank Ltd......................................................................... $ 67,376
-----------
BUILDING & CONSTRUCTION
5,000 Sekisui House Ltd....................................................................... 41,371
-----------
BUSINESS SERVICES
1,000 Secom Co................................................................................ 63,042
-----------
COMPUTERS
6,000 Fujitsu, Ltd............................................................................ 68,558
-----------
ELECTRONICS
1,000 Sony Corp............................................................................... 92,199
-----------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
1,000 Rohm Co., Ltd........................................................................... 109,535
-----------
FINANCIAL SERVICES
5,000 Nomura Securities Co., Ltd.............................................................. 66,982
-----------
INTERNATIONAL TRADE
10,000 Mitsui & Co............................................................................. 66,351
-----------
MACHINERY
5,000 Minebea Co., Ltd........................................................................ 53,192
-----------
PHARMACEUTICALS
2,000 Terumo Corp............................................................................. 32,151
-----------
REAL ESTATE
5,000 Mitsui Fudosan Co., Ltd................................................................. 49,645
-----------
RESTAURANTS
5 Yoshinoya D & C Co., Ltd................................................................ 47,281
-----------
TELECOMMUNICATIONS
10 Nippon Telegraph & Telephone Corp....................................................... 90,623
-----------
TIRE & RUBBER GOODS
4,000 Bridgestone Corp........................................................................ 96,139
-----------
TOTAL JAPAN............................................................................. 1,053,980
-----------
MALAYSIA (0.5%)
NATURAL GAS
20,000 Petronas Gas Berhad..................................................................... 44,205
-----------
UTILITIES - ELECTRIC
20,000 Tenaga Nasional Berhad.................................................................. 33,931
-----------
TOTAL MALAYSIA.......................................................................... 78,136
-----------
MEXICO (2.8%)
BANKING
80,000 Grupo Financiero Bancomer, S.A. de C.V. (Series B)*..................................... 42,364
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
BEVERAGES - SOFT DRINKS
6,900 Coca-Cola Femsa S.A. de C.V. (ADR)...................................................... $ 127,650
-----------
BUILDING MATERIALS
15,087 Cemex S.A. de C.V. (B Shares)*.......................................................... 63,843
-----------
CONGLOMERATES
1,207 DESC S.A. de C.V. (Series C) (ADR)...................................................... 35,456
7,000 Grupo Carso S.A. de C.V. (Series A1).................................................... 39,882
-----------
75,338
-----------
PAPER & FOREST PRODUCTS
14,000 Kimberly-Clark de Mexico S.A. de C.V. (A Shares)........................................ 60,071
-----------
TELECOMMUNICATIONS
2,000 Telefonos de Mexico S.A. de C.V. (Series L) (ADR)....................................... 98,500
-----------
TOTAL MEXICO............................................................................ 467,766
-----------
NETHERLANDS (4.0%)
BUILDING MATERIALS
800 Hunter Douglas NV....................................................................... 30,266
-----------
BUSINESS & PUBLIC SERVICES
1,750 Randstad Holdings NV.................................................................... 70,452
-----------
CHEMICALS
750 Akzo Nobel NV........................................................................... 135,762
-----------
ELECTRONICS
2,000 Philips Electronics NV.................................................................. 135,034
-----------
FOOD PROCESSING
1,000 Koninklijke Numico NV................................................................... 31,721
-----------
HOUSEHOLD FURNISHINGS & APPLIANCES
1,400 Koninklijke Ahrend Groep NV............................................................. 42,577
-----------
INSURANCE
500 Aegon NV................................................................................ 47,703
875 ING Groep NV............................................................................ 40,064
-----------
87,767
-----------
PUBLISHING
2,900 Elsevier NV............................................................................. 49,091
-----------
RETAIL
2,700 Koninklijke Ahold NV.................................................................... 74,385
-----------
TOTAL NETHERLANDS....................................................................... 657,055
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PERU (0.2%)
BANKING
7,000 Banco Wiese (ADR)....................................................................... $ 34,125
-----------
PHILIPPINES (0.3%)
TELECOMMUNICATIONS
1,700 Philippine Long Distance Telephone Co. (ADR)............................................ 44,625
-----------
PORTUGAL (0.9%)
TELECOMMUNICATIONS
1,600 Portugal Telecom S.A. (ADR)............................................................. 81,400
500 Telecel-Comunicacoes Pessoais S.A.*..................................................... 64,112
-----------
TOTAL PORTUGAL.......................................................................... 145,512
-----------
SINGAPORE (0.9%)
BANKING
4,500 Development Bank of Singapore, Ltd...................................................... 28,905
-----------
UTILITIES - TELECOMMUNICATIONS
59,000 Singapore Telecommunications, Ltd....................................................... 117,139
-----------
TOTAL SINGAPORE......................................................................... 146,044
-----------
SOUTH AFRICA (0.2%)
COMPUTERS - SYSTEMS
2,462 Dimension Data Holdings Ltd. (GDR) - 144A** *........................................... 35,084
-----------
SPAIN (2.2%)
BANKING
2,000 Banco Popular Espanol S.A............................................................... 150,870
-----------
RETAIL
5,100 Centros Comerciales Pryca S.A........................................................... 89,768
-----------
TELECOMMUNICATIONS
700 Telefonica de Espana S.A. (ADR)......................................................... 68,338
-----------
UTILITIES - ELECTRIC
2,800 Endesa S.A.............................................................................. 53,978
-----------
TOTAL SPAIN............................................................................. 362,954
-----------
SWEDEN (0.9%)
AUTOMOTIVE
2,200 Scania AB (A Shares).................................................................... 47,752
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
MACHINERY
2,300 Kalmar Industries AB.................................................................... $ 35,031
-----------
MANUFACTURING
1,200 Assa Abloy AB (Series B)................................................................ 29,598
-----------
TELECOMMUNICATIONS
1,000 Ericsson (L.M.) Telephone Co. AB (Series "B" Free)...................................... 39,217
-----------
TOTAL SWEDEN............................................................................ 151,598
-----------
SWITZERLAND (2.8%)
BUILDING MATERIALS
50 Holderbank Financiere Glarus AG (B Shares).............................................. 41,192
-----------
ENGINEERING
40 ABB AG - Bearer......................................................................... 50,949
-----------
FOOD PROCESSING
100 Nestle S.A.............................................................................. 159,553
-----------
PHARMACEUTICALS
32 Novartis AG............................................................................. 54,851
30 Novartis AG - Bearer.................................................................... 51,524
10 Roche Holdings AG....................................................................... 103,930
-----------
210,305
-----------
TOTAL SWITZERLAND....................................................................... 461,999
-----------
TAIWAN (0.3%)
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
2,000 Taiwan Semiconductor Manufacturing Co., Ltd. (ADR)*..................................... 47,500
-----------
UNITED KINGDOM (15.9%)
AEROSPACE
16,453 Rolls-Royce PLC......................................................................... 55,633
-----------
AEROSPACE & DEFENSE
3,996 British Aerospace PLC................................................................... 103,787
-----------
AUTO PARTS - ORIGINAL EQUIPMENT
11,000 BBA Group PLC........................................................................... 64,507
26,200 LucasVarity PLC......................................................................... 88,591
-----------
153,098
-----------
BANKING
3,600 Abbey National PLC...................................................................... 72,331
7,103 National Westminster Bank PLC........................................................... 127,050
-----------
199,381
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BEVERAGES
5,800 Bass PLC................................................................................ $ 91,901
-----------
BUILDING & CONSTRUCTION
5,963 Blue Circle Industries PLC.............................................................. 31,559
-----------
BUSINESS SERVICES
3,400 Compass Group PLC....................................................................... 45,986
3,000 Reuters Holdings PLC.................................................................... 26,953
-----------
72,939
-----------
COMPUTER SOFTWARE & SERVICES
3,500 SEMA Group PLC.......................................................................... 99,194
-----------
CONGLOMERATES
9,302 Tomkins PLC............................................................................. 50,143
-----------
ELECTRONICS
6,000 General Electric Co. PLC................................................................ 37,538
-----------
ENERGY
17,300 Shell Transport & Trading Co. PLC....................................................... 117,560
-----------
FOOD PROCESSING
10,000 Devro PLC............................................................................... 64,850
6,000 Unilever PLC............................................................................ 47,216
-----------
112,066
-----------
HOUSEHOLD PRODUCTS
7,000 Reckitt & Colman PLC.................................................................... 112,630
-----------
INSURANCE
4,200 Britannic Assurance PLC................................................................. 81,985
5,700 Commercial Union PLC.................................................................... 92,178
10,731 Royal & Sun Alliance Insurance Group PLC................................................ 121,477
-----------
295,640
-----------
LEISURE
2,671 Granada Group PLC....................................................................... 42,017
15,000 Rank Group PLC.......................................................................... 73,446
-----------
115,463
-----------
PHARMACEUTICALS
12,000 British Biotech PLC*.................................................................... 26,855
8,286 Glaxo Wellcome PLC...................................................................... 222,383
-----------
249,238
-----------
PUBLISHING
7,000 Reed International PLC.................................................................. 72,152
-----------
RETAIL
6,200 Next PLC................................................................................ 74,185
9,500 Sainsbury (J.) PLC...................................................................... 77,126
-----------
151,311
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS
10,000 British Telecommunications PLC.......................................................... $ 95,560
4,300 Esat Telecom Group PLC (ADR)*........................................................... 72,563
9,602 Securicor PLC........................................................................... 51,733
12,000 Vodafone Group PLC...................................................................... 92,227
-----------
312,083
-----------
TRANSPORTATION
7,811 British Airways PLC..................................................................... 65,710
-----------
UTILITIES - ELECTRIC
11,500 National Power PLC...................................................................... 125,298
-----------
TOTAL UNITED KINGDOM.................................................................... 2,624,324
-----------
UNITED STATES (36.5%)
AEROSPACE & DEFENSE
6,200 Loral Space & Communications Ltd.*...................................................... 136,788
-----------
ALUMINUM
2,100 Aluminum Co. of America................................................................. 160,387
-----------
AUTOMOTIVE
3,800 Chrysler Corp........................................................................... 132,287
3,000 Ford Motor Co........................................................................... 153,000
-----------
285,287
-----------
BANKS
2,300 First Tennessee National Corp........................................................... 135,412
-----------
BEVERAGES - SOFT DRINKS
3,700 PepsiCo, Inc............................................................................ 133,431
-----------
BUILDING MATERIALS
3,200 Champion International Corp............................................................. 163,800
-----------
CHEMICALS
1,400 Dow Chemical Co......................................................................... 126,000
4,500 Georgia Gulf Corp....................................................................... 146,812
3,200 Monsanto Co............................................................................. 151,800
-----------
424,612
-----------
COMMERCIAL SERVICES
10,000 Actrade International, Ltd.*............................................................ 221,250
-----------
COMMUNICATIONS - EQUIPMENT & SOFTWARE
2,400 Cisco Systems, Inc.*.................................................................... 151,350
-----------
COMPUTERS
5,100 Gateway 2000, Inc.*..................................................................... 192,206
-----------
COMPUTERS - SYSTEMS
2,800 Diebold, Inc............................................................................ 139,300
2,300 Hewlett-Packard Co...................................................................... 138,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3,500 Sun Microsystems, Inc.*................................................................. $ 167,781
-----------
445,081
-----------
ELECTRICAL EQUIPMENT
2,000 Honeywell, Inc.......................................................................... 140,125
-----------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
1,800 Intel Corp.............................................................................. 145,800
-----------
ENTERTAINMENT
1,400 Walt Disney Co.......................................................................... 149,188
-----------
FINANCIAL SERVICES
1,700 American Express Co..................................................................... 142,269
2,500 Fannie Mae.............................................................................. 154,375
2,500 Travelers Group, Inc.................................................................... 123,750
-----------
420,394
-----------
FOODS
1,900 General Mills, Inc...................................................................... 141,431
-----------
HOUSEHOLD FURNISHINGS & APPLIANCES
4,100 Maytag Corp............................................................................. 157,594
-----------
HOUSEHOLD PRODUCTS - NON-DURABLE
2,000 Colgate-Palmolive Co.................................................................... 146,500
-----------
MEDICAL SERVICES
3,100 HBO & Co................................................................................ 162,169
-----------
OFFSHORE DRILLING
2,900 Diamond Offshore Drilling, Inc.......................................................... 129,594
-----------
OIL - INTEGRATED - DOMESTIC
1,800 Atlantic Richfield Co................................................................... 133,875
-----------
OIL - INTEGRATED - INTERNATIONAL
1,800 Chevron Corp............................................................................ 134,663
2,200 Exxon Corp.............................................................................. 130,488
2,000 Mobil Corp.............................................................................. 136,250
-----------
401,401
-----------
OIL WELL EQUIPMENT & SERVICE
1,800 Schlumberger, Ltd....................................................................... 132,638
-----------
PHARMACEUTICALS
2,100 Abbott Laboratories..................................................................... 148,706
2,000 American Home Products Corp............................................................. 190,875
-----------
339,581
-----------
RETAIL - SPECIALTY
4,100 Bed Bath & Beyond, Inc.*................................................................ 162,463
5,700 Pep Boys-Manny, Moe & Jack.............................................................. 124,688
-----------
287,151
-----------
RETAIL - SPECIALTY APPAREL
3,750 Gap, Inc................................................................................ 146,484
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
SAVINGS & LOAN COMPANIES
2,300 Ahmanson (H.F.) & Co.................................................................... $ 134,119
1,500 Golden West Financial Corp.............................................................. 126,656
-----------
260,775
-----------
STEEL
2,800 Nucor Corp.............................................................................. 133,350
-----------
TRUCKERS
6,000 Yellow Corp.*........................................................................... 155,250
-----------
TOTAL UNITED STATES..................................................................... 6,032,904
-----------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $13,567,636)........................................................... 16,210,047
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<S> <C> <C>
SHORT-TERM INVESTMENT (3.9%)
REPURCHASE AGREEMENT
$ 637 The Bank of New York 5.375% due 02/02/98 (dated 01/30/98; proceeds $637,783) (IDENTIFIED
COST $637,497) (a).................................................................... 637,497
-----------
TOTAL INVESTMENTS
(IDENTIFIED COST $14,205,133) (b).......................................................... 101.9% 16,847,544
LIABILITIES IN EXCESS OF OTHER ASSETS...................................................... (1.9) (307,800)
------ ------------
NET ASSETS................................................................................. 100.0% $ 16,539,744
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Collateralized by $632,131 U.S. Treasury Note 6.75% due 05/31/99 valued at
$650,247.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $3,318,087 and the
aggregate gross unrealized depreciation is $675,676, resulting in net
unrealized appreciation of $2,642,411.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JANUARY 31, 1998:
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO EXCHANGE DELIVERY APPRECIATION/
RECEIVE FOR DATE (DEPRECIATION)
- --------------------------------------------------------------------
<S> <C> <C> <C>
ESP 5,233,996 $ 34,075 02/02/98 $ (330)
L 22,579 $ 37,097 02/03/98 (215)
$ 27,614 DEM 50,376 02/04/98 71
$ 88,025 FRF 540,474 02/27/98 (136)
FRF 306,396 $ 50,586 02/27/98 (607)
-------
Net unrealized depreciation ............... $ (1,217)
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
SUMMARY OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aerospace.......................................................................... $ 55,633 0.3%
Aerospace & Defense................................................................ 343,340 2.1
Aluminum........................................................................... 160,387 1.0
Apparel............................................................................ 87,152 0.5
Auto Parts - Original Equipment.................................................... 153,098 0.9
Automotive......................................................................... 742,699 4.5
Banking............................................................................ 1,049,248 6.4
Banks.............................................................................. 135,412 0.8
Beverages.......................................................................... 91,901 0.6
Beverages - Soft Drinks............................................................ 261,081 1.6
Biotechnology...................................................................... 112,062 0.7
Building & Construction............................................................ 72,930 0.4
Building Materials................................................................. 299,101 1.8
Business & Public Services......................................................... 70,452 0.4
Business Services.................................................................. 135,981 0.8
Chemicals.......................................................................... 680,899 4.1
Commercial Services................................................................ 221,250 1.3
Communications - Equipment & Software.............................................. 151,350 0.9
Computer Software & Services....................................................... 99,194 0.6
Computers.......................................................................... 260,764 1.6
Computers - Systems................................................................ 546,795 3.3
Conglomerates...................................................................... 190,204 1.2
Electrical Equipment............................................................... 140,125 0.9
Electronics........................................................................ 264,771 1.6
Electronics - Semiconductors/Components............................................ 302,835 1.8
Energy............................................................................. 318,958 1.9
Engineering........................................................................ 50,949 0.3
Entertainment...................................................................... 149,188 0.9
Financial Services................................................................. 667,961 4.0
Food Processing.................................................................... 303,340 1.8
Foods.............................................................................. 141,431 0.9
Foods & Beverages.................................................................. 47,320 0.3
Household Furnishings & Appliances................................................. 200,171 1.2
Household Products................................................................. 112,630 0.7
Household Products - Non - Durable................................................. 146,500 0.9
Insurance.......................................................................... 499,645 3.0
International Trade................................................................ 66,351 0.4
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Leisure............................................................................ $ 233,496 1.4%
Machinery.......................................................................... 88,223 0.5
Machinery - Diversified............................................................ 56,916 0.3
Manufacturing...................................................................... 57,049 0.3
Media.............................................................................. 49,978 0.3
Medical Services................................................................... 162,169 1.0
Natural Gas........................................................................ 44,205 0.3
Offshore Drilling.................................................................. 129,594 0.8
Oil - Integrated - Domestic........................................................ 133,875 0.8
Oil - Integrated - International................................................... 401,401 2.4
Oil Well Equipment & Service....................................................... 132,638 0.8
Paper & Forest Products............................................................ 60,071 0.4
Pharmaceuticals.................................................................... 1,017,087 6.2
Publishing......................................................................... 121,243 0.7
Real Estate........................................................................ 190,832 1.2
Repurchase Agreement............................................................... 637,497 3.9
Restaurants........................................................................ 47,281 0.3
Retail............................................................................. 419,452 2.5
Retail - Specialty................................................................. 287,151 1.7
Retail - Specialty Apparel......................................................... 146,484 0.9
Savings & Loan Companies........................................................... 260,775 1.6
Steel.............................................................................. 133,350 0.8
Telecommunications................................................................. 1,565,006 9.5
Telecommunications Equipment....................................................... 79,569 0.5
Tire & Rubber Goods................................................................ 96,139 0.6
Transportation..................................................................... 146,550 0.9
Truckers........................................................................... 155,250 0.9
Utilities.......................................................................... 61,528 0.4
Utilities - Electric............................................................... 482,488 2.9
Utilities - Telecommunications..................................................... 117,139 0.7
----------- -----
$16,847,544 101.9%
----------- -----
----------- -----
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Common Stocks.................................................................. $16,181,616 97.8%
Preferred Stock................................................................ 28,431 0.2
Short-Term Investment.......................................................... 637,497 3.9
----------- -----
$16,847,544 101.9%
----------- -----
----------- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (68.6%)
AEROSPACE & DEFENSE (2.0%)
3,260 General Motors Corp. (Class H).......................................................... $ 112,877
3,100 Honeywell, Inc.......................................................................... 217,194
1,300 Thiokol Corp............................................................................ 112,125
-----------
442,196
-----------
AIRLINES (1.0%)
4,875 Continental Airlines, Inc. (Class B)*................................................... 226,078
-----------
ALUMINUM (0.9%)
2,700 Aluminum Co. of America................................................................. 206,212
-----------
AUTOMOTIVE (2.0%)
6,000 Chrysler Corp........................................................................... 208,875
4,460 Ford Motor Co........................................................................... 227,460
-----------
436,335
-----------
BANKS - MONEY CENTER (1.7%)
1,800 Chase Manhattan Corp.................................................................... 192,937
1,550 Citicorp................................................................................ 184,450
-----------
377,387
-----------
BANKS - REGIONAL (1.9%)
3,350 NationsBank Corp........................................................................ 201,000
750 Wells Fargo & Co........................................................................ 231,750
-----------
432,750
-----------
BEVERAGES - SOFT DRINKS (0.9%)
5,640 PepsiCo Inc............................................................................. 203,392
-----------
BIOTECHNOLOGY (0.2%)
2,500 BioChem Pharma, Inc. (Canada)*.......................................................... 50,937
-----------
BROADCAST MEDIA (0.8%)
2,420 Clear Channel Communications, Inc.*..................................................... 186,340
-----------
CABLE/CELLULAR (1.2%)
8,960 U.S. West Media Group, Inc.*............................................................ 266,000
-----------
CHEMICALS (2.6%)
2,500 Dow Chemical Co......................................................................... 225,000
880 Du Pont (E.I.) De Nemours & Co., Inc.................................................... 49,830
1,650 Georgia Gulf Corp....................................................................... 53,831
5,500 Monsanto Co............................................................................. 260,906
-----------
589,567
-----------
COMMUNICATIONS EQUIPMENT (3.3%)
1,870 Bay Networks, Inc.*..................................................................... 50,841
4,095 Cisco Systems, Inc.*.................................................................... 258,241
2,500 Lucent Technologies Inc................................................................. 221,250
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
3,830 Tellabs, Inc.*.......................................................................... $ 195,809
-----------
726,141
-----------
COMPUTER SOFTWARE (1.8%)
1,070 HBO & Co................................................................................ 55,974
1,620 Microsoft Corp.*........................................................................ 241,684
2,000 Network Associates, Inc.*............................................................... 108,000
-----------
405,658
-----------
COMPUTERS (4.2%)
2,220 Dell Computer Corp.*.................................................................... 220,751
4,730 Diebold, Inc............................................................................ 235,318
6,330 Gateway 2000, Inc.*..................................................................... 238,562
4,880 Sun Microsystems, Inc.*................................................................. 233,935
-----------
928,566
-----------
CONSUMER PRODUCTS (1.0%)
3,000 Colgate-Palmolive Co.................................................................... 219,750
-----------
ELECTRICAL EQUIPMENT (1.6%)
1,800 Emerson Electric Co..................................................................... 108,900
3,160 General Electric Co..................................................................... 244,900
-----------
353,800
-----------
ENGINEERING & CONSTRUCTION (0.5%)
2,900 Fluor Corp.............................................................................. 109,294
-----------
ENTERTAINMENT (0.2%)
500 Walt Disney Co.......................................................................... 53,281
-----------
FINANCIAL SERVICES (2.9%)
2,660 American Express Co..................................................................... 222,609
3,400 Fannie Mae.............................................................................. 209,950
4,440 Travelers Group, Inc.................................................................... 219,780
-----------
652,339
-----------
FOODS (2.1%)
3,200 General Mills, Inc...................................................................... 238,200
5,100 Kellogg Co.............................................................................. 235,556
-----------
473,756
-----------
HEALTHCARE - HMOS (0.8%)
9,200 Humana, Inc.*........................................................................... 184,575
-----------
HOUSEHOLD APPLIANCES (1.1%)
6,630 Maytag Corp............................................................................. 254,841
-----------
INSURANCE (4.0%)
2,250 Ace, Ltd. (Bermuda)..................................................................... 209,391
2,000 American International Group, Inc....................................................... 220,625
3,080 Chubb Corp.............................................................................. 233,888
4,940 Equitable Companies, Inc................................................................ 227,240
-----------
891,144
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTERNET (0.9%)
2,100 America Online, Inc.*................................................................... $ 200,944
-----------
LIFE & HEALTH INSURANCE (0.2%)
1,170 Conseco, Inc............................................................................ 53,528
-----------
OFFICE EQUIPMENT & SUPPLIES (0.2%)
1,700 IKON Office Solutions, Inc.............................................................. 53,550
-----------
OIL - INTEGRATED - DOMESTIC (1.8%)
3,600 Amerada Hess Corp....................................................................... 196,875
2,670 Atlantic Richfield Co................................................................... 198,581
-----------
395,456
-----------
OIL - INTEGRATED - INTERNATIONAL (4.0%)
1,500 Chevron Corp............................................................................ 112,219
3,420 Exxon Corp.............................................................................. 202,849
2,960 Mobil Corp.............................................................................. 201,650
3,880 Royal Dutch Petroleum Co. (ADR) (Netherlands)........................................... 198,850
3,540 Texaco, Inc............................................................................. 184,301
-----------
899,869
-----------
PAPER PRODUCTS (1.7%)
4,340 Bowater, Inc............................................................................ 212,660
3,400 Champion International Corp............................................................. 174,038
-----------
386,698
-----------
PHARMACEUTICALS (5.6%)
3,400 Abbott Laboratories..................................................................... 240,763
3,050 American Home Products Corp............................................................. 291,084
3,660 Johnson & Johnson....................................................................... 244,991
3,520 Lilly (Eli) & Co........................................................................ 237,600
1,570 Warner-Lambert Co....................................................................... 236,285
-----------
1,250,723
-----------
RAILROAD EQUIPMENT (0.5%)
2,400 Trinity Industries, Inc................................................................. 108,600
-----------
RETAIL - DEPARTMENT STORES (1.7%)
15,500 Kmart Corp.*............................................................................ 170,500
4,070 May Department Stores Co................................................................ 213,929
-----------
384,429
-----------
RETAIL - SPECIALTY (5.1%)
5,200 Bed Bath & Beyond, Inc.*................................................................ 206,050
5,570 Costco Companies, Inc.*................................................................. 241,599
4,000 Home Depot, Inc......................................................................... 241,250
3,590 Payless ShoeSource, Inc.*............................................................... 233,574
5,000 Pep Boys-Manny, Moe & Jack.............................................................. 109,375
4,600 Pier 1 Imports, Inc..................................................................... 107,525
-----------
1,139,373
-----------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
RETAIL - SPECIALTY APPAREL (2.3%)
6,555 Gap, Inc. (The)......................................................................... $ 256,055
8,530 Wet Seal, Inc. (Class A)*............................................................... 260,698
-----------
516,753
-----------
SAVINGS & LOAN ASSOCIATIONS (1.2%)
540 Golden West Financial Corp.............................................................. 45,596
3,300 Washington Mutual, Inc.................................................................. 212,025
-----------
257,621
-----------
SEMICONDUCTORS (0.9%)
2,430 Intel Corp.............................................................................. 196,830
-----------
STEEL (0.9%)
4,130 Nucor Corp.............................................................................. 196,691
-----------
TELECOMMUNICATIONS (0.9%)
6,280 Winstar Communications, Inc.*........................................................... 205,278
-----------
TOBACCO (1.0%)
5,300 Philip Morris Companies, Inc............................................................ 219,950
-----------
TRANSPORTATION - MISCELLANEOUS (0.2%)
740 Airborne Freight Corp................................................................... 52,633
-----------
TRUCKERS (0.8%)
6,790 Yellow Corp.*........................................................................... 175,691
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $12,748,839)........................................................... 15,364,956
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<S> <C> <C>
CORPORATE BONDS (4.1%)
BANKS (1.9%)
$ 100 Central Fidelity Capital I Inc. (Series A)
6.594%+ due 04/15/27.................................................................. 101,925
100 Centura Capital Trust I - 144A**
8.845% due 06/01/27................................................................... 111,500
100 MBNA Capital I (Series A)
8.278% due 12/01/26................................................................... 104,288
100 Norwest Financial, Inc.
6.20% due 02/15/01.................................................................... 101,140
-----------
418,853
-----------
BROKERAGE (0.5%)
100 Bear Stearns Co., Inc.
6.75% due 12/15/07.................................................................... 101,716
-----------
CABLE & TELECOMMUNICATIONS (0.5%)
100 Time Warner Entertainment Co.
8.375% due 03/15/23................................................................... 114,351
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OIL - DOMESTIC (0.3%)
$ 50 Occidental Petroleum Corp.
11.125% due 08/01/10.................................................................. $ 69,469
-----------
OIL - INTEGRATED - DOMESTIC (0.4%)
100 Mitchell Energy & Development Corp.
6.75% due 02/15/04.................................................................... 100,556
-----------
RECREATION (0.5%)
100 Carnival Cruise Lines (Panama)
7.20% due 10/01/23.................................................................... 104,848
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $886,461).............................................................. 909,793
-----------
U.S. GOVERNMENT OBLIGATIONS (17.2%)
400 U.S. Treasury Bond 6.50% due 11/15/26................................................... 434,880
200 U.S. Treasury Bond 6.625% due 02/15/27.................................................. 221,034
315 U.S. Treasury Bond 6.875% due 08/15/25.................................................. 357,254
150 U.S. Treasury Bond 7.625% due 02/15/25.................................................. 185,241
550 U.S. Treasury Note 5.125% due 11/30/98.................................................. 549,224
350 U.S. Treasury Note 5.625% due 11/30/00.................................................. 352,418
200 U.S. Treasury Note 5.75% due 08/15/03................................................... 202,894
750 U.S. Treasury Note 5.875% due 04/30/98.................................................. 750,938
50 U.S. Treasury Note 6.375% due 01/15/99.................................................. 50,505
360 U.S. Treasury Note 6.875% due 08/31/99.................................................. 368,388
100 U.S. Treasury Note 6.875% due 05/15/06.................................................. 108,634
240 U.S. Treasury Note 7.25% due 05/15/04................................................... 262,490
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $3,690,528)............................................................ 3,843,900
-----------
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (9.9%)
U.S. GOVERNMENT AGENCY (a) (8.9%)
$ 2,000 Federal Home Loan Mortgage Corp. 5.57% due 02/02/98 (AMORTIZED COST $1,999,691)......... $ 1,999,691
REPURCHASE AGREEMENT (1.0%)
231 The Bank of New York 5.375% due 02/02/98 (dated 01/30/98;
proceeds $231,243) (b) (IDENTIFIED COST $231,139)..................................... 231,139
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $2,230,830)............................................................ 2,230,830
-----------
TOTAL INVESTMENTS
(IDENTIFIED COST $19,556,658) (c).......................................................... 99.8% 22,349,479
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 0.2 43,305
------ ------------
NET ASSETS................................................................................. 100.0% $ 22,392,784
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
+ Floating rate security. Coupon rate shown is the rate in effect at January
31, 1998.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $229,194 U.S. Treasury Note 6.75% due 05/31/99 valued at
$235,762.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $3,083,220 and the
aggregate gross unrealized depreciation is $290,399, resulting in net
unrealized appreciation of $2,792,821.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JANUARY 31, 1998 (UNAUDITED)
U.S.
GOVERNMENT U.S. INTERMEDIATE
LIQUID MONEY GOVERNMENT INCOME
ASSET MARKET SECURITIES SECURITIES
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
ASSETS:
Investments in securities, at
value*...................... $ 14,625,506 $ 1,328,414 $ 9,122,256 $ 2,214,105
Cash.......................... 6,323 3,934 -- 3,102
Receivable for:
Investments sold.......... -- -- -- --
Shares of beneficial
interest sold........... 218 -- 11,954 17,687
Dividends................. -- -- -- --
Interest.................. -- -- 68,587 40,162
Foreign withholding taxes
reclaimed............... -- -- -- --
Prepaid expenses and other
assets...................... 24,491 14,766 16,932 15,312
Receivable from affiliate..... -- 13,513 3,774 9,215
------------ -------------- -------------- --------------
TOTAL ASSETS............. 14,656,538 1,360,627 9,223,503 2,299,583
------------ -------------- -------------- --------------
LIABILITIES:
Payable for:
Investments purchased..... -- -- -- --
Shares of beneficial
interest repurchased.... 75,004 13 73,280 17,685
Dividends to
shareholders............ -- -- 2,887 1,552
Investment management
fee..................... 1,518 -- -- --
Payable to bank............... -- -- -- --
Accrued expenses and other
payables.................... 20,247 13,129 13,399 15,208
Organizational expenses
payable..................... 5,441 5,596 5,494 5,507
------------ -------------- -------------- --------------
TOTAL LIABILITIES........ 102,210 18,738 95,060 39,952
------------ -------------- -------------- --------------
NET ASSETS:
Paid-in-capital............... 14,554,269 1,341,889 8,848,631 2,293,628
Accumulated undistributed net
investment income (loss).... 59 -- 1,523 --
Accumulated undistributed net
realized gain (loss)........ -- -- 20,393 (86,721)
Net unrealized appreciation... -- -- 257,896 52,724
------------ -------------- -------------- --------------
NET ASSETS............... $ 14,554,328 $ 1,341,889 $ 9,128,443 $ 2,259,631
------------ -------------- -------------- --------------
------------ -------------- -------------- --------------
*IDENTIFIED COST......... $ 14,625,506 $ 1,328,414 $ 8,864,360 $ 2,161,381
------------ -------------- -------------- --------------
------------ -------------- -------------- --------------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 14,554,269 1,343,135 907,586 231,029
------------ -------------- -------------- --------------
------------ -------------- -------------- --------------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $1.00 $1.00 $10.06 $9.78
------------ -------------- -------------- --------------
------------ -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN CAPITAL DIVIDEND VALUE-ADDED GLOBAL
VALUE GROWTH GROWTH UTILITIES MARKET EQUITY STRATEGIST
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at
value*...................... $51,961,912 $3,278,978 $108,676,912 $ 5,781,104 $21,680,008 $16,847,544 $22,349,479
Cash.......................... 22,586 6,336 -- -- -- -- --
Receivable for:
Investments sold.......... 3,730,008 64,521 1,094,766 -- 1,808,050 115,705 --
Shares of beneficial
interest sold........... 128,546 6,606 132,946 7,995 20,597 43,821 42,041
Dividends................. 34,902 474 145,893 20,148 20,800 11,090 11,339
Interest.................. 55,955 -- -- 61 -- 190 84,739
Foreign withholding taxes
reclaimed............... 102 -- -- 879 -- 9,627 --
Prepaid expenses and other
assets...................... 18,335 9,813 23,369 12,180 15,058 14,726 17,968
Receivable from affiliate..... -- 10,073 -- 4,399 -- -- --
----------- ---------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS............. 55,952,346 3,376,801 110,073,886 5,826,766 23,544,513 17,042,703 22,505,566
----------- ---------- ----------- ----------- ----------- ----------- -----------
LIABILITIES:
Payable for:
Investments purchased..... 4,165,686 84,655 219,824 -- 766,461 384,629 50,490
Shares of beneficial
interest repurchased.... 73,077 127,301 536,067 82,058 2,166 90,818 31,313
Dividends to
shareholders............ -- -- -- -- -- -- --
Investment management
fee..................... 25,936 -- 69,123 -- 9,635 2,005 7,625
Payable to bank............... -- -- 2,776,964 -- 916,944 -- --
Accrued expenses and other
payables.................... 26,426 13,659 25,077 13,463 15,700 19,998 17,853
Organizational expenses
payable..................... 5,687 5,687 5,501 5,509 5,687 5,509 5,501
----------- ---------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES........ 4,296,812 231,302 3,632,556 101,030 1,716,593 502,959 112,782
----------- ---------- ----------- ----------- ----------- ----------- -----------
NET ASSETS:
Paid-in-capital............... 42,372,269 2,629,962 80,897,846 4,191,598 13,822,383 14,340,215 20,050,426
Accumulated undistributed net
investment income (loss).... (9,930) (12,000) 210,699 22,892 4,120 (29,347) 40,488
Accumulated undistributed net
realized gain (loss)........ 2,935,155 66,264 3,759,096 144,310 680,472 (412,723) (490,951)
Net unrealized appreciation... 6,358,040 461,273 21,573,689 1,366,936 7,320,945 2,641,599 2,792,821
----------- ---------- ----------- ----------- ----------- ----------- -----------
NET ASSETS............... $51,655,534 $3,145,499 $106,441,330 $ 5,725,736 $21,827,920 $16,539,744 $22,392,784
----------- ---------- ----------- ----------- ----------- ----------- -----------
----------- ---------- ----------- ----------- ----------- ----------- -----------
*IDENTIFIED COST......... $45,603,872 $2,817,705 $87,103,223 $ 4,414,168 $14,359,063 $14,205,133 $19,556,658
----------- ---------- ----------- ----------- ----------- ----------- -----------
----------- ---------- ----------- ----------- ----------- ----------- -----------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 3,619,409 221,216 6,067,310 416,454 1,201,316 1,294,028 1,745,060
----------- ---------- ----------- ----------- ----------- ----------- -----------
----------- ---------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $14.27 $14.22 $17.54 $13.75 $18.17 $12.78 $12.83
----------- ---------- ----------- ----------- ----------- ----------- -----------
----------- ---------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
U.S.
GOVERNMENT U.S. INTERMEDIATE
LIQUID MONEY GOVERNMENT INCOME
ASSET MARKET SECURITIES SECURITIES
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INCOME
Interest...................... $ 513,192 $ 70,286 $ 342,206 $ 78,148
Dividends..................... -- -- -- --
------------- ------------- ------------- -------------
TOTAL INCOME............. 513,192 70,286 342,206 78,148
------------- ------------- ------------- -------------
EXPENSES
Investment management fee..... 45,737 6,359 32,484 7,860
Transfer agent fees and
expenses.................... 29,090 3,091 28,410 6,787
Shareholder reports and
notices..................... 2,090 2,272 3,073 1,257
Professional fees............. 7,639 6,984 9,340 8,204
Trustees' fees and expenses... 654 194 191 161
Registration fees............. 25,676 8,283 6,649 9,771
Custodian fees................ 5,784 3,425 1,414 1,981
Organizational expenses....... 1,127 1,284 1,198 1,189
Other......................... 867 1,112 1,353 1,449
------------- ------------- ------------- -------------
TOTAL EXPENSES........... 118,664 33,004 84,112 38,659
Less: amounts
waived/reimbursed........... (27,190) (20,286) (34,137) (26,618)
------------- ------------- ------------- -------------
NET EXPENSES............. 91,474 12,718 49,975 12,041
------------- ------------- ------------- -------------
NET INVESTMENT INCOME
(LOSS)................... 421,718 57,568 292,231 66,107
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... -- -- 20,884 4,486
Foreign exchange
transactions............ -- -- -- --
------------- ------------- ------------- -------------
TOTAL GAIN (LOSS)........ -- -- 20,884 4,486
------------- ------------- ------------- -------------
Net change in unrealized
appreciation on:
Investments............... -- -- 120,275 20,698
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- -- -- --
------------- ------------- ------------- -------------
NET
APPRECIATION/DEPRECIATION... -- -- 120,275 20,698
------------- ------------- ------------- -------------
NET GAIN (LOSS).......... -- -- 141,159 25,184
------------- ------------- ------------- -------------
NET INCREASE (DECREASE)....... $ 421,718 $ 57,568 $ 433,390 $ 91,291
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
- ------------------
* Net of $214, $40, $2,918, $310, $581 and $8,092 foreign withholding tax,
respectively.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN CAPITAL DIVIDEND VALUE-ADDED GLOBAL
VALUE GROWTH GROWTH UTILITIES MARKET EQUITY STRATEGIST
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INCOME
Interest...................... $ 110,855 $ 713 $ 9,439 $ 8,680 $ 11,805 $ 17,773 $ 269,126
Dividends..................... 149,796* 3,744* 1,422,606* 86,439* 190,780* 119,744* 94,051
----------- ---------- ----------- --------- ----------- -------------- ------------
TOTAL INCOME............. 260,651 4,457 1,432,045 95,119 202,585 137,517 363,177
----------- ---------- ----------- --------- ----------- -------------- ------------
EXPENSES
Investment management fee..... 229,993 13,989 418,755 20,047 58,249 88,799 106,545
Transfer agent fees and
expenses.................... 48,915 2,411 57,705 9,175 13,452 24,150 31,512
Shareholder reports and
notices..................... 12,904 878 18,040 1,419 5,764 4,941 6,365
Professional fees............. 7,940 8,372 7,113 8,410 7,932 3,415 7,968
Trustees' fees and expenses... 1,171 32 2,576 43 538 552 653
Registration fees............. 15,902 7,874 6,489 6,757 7,426 10,052 7,209
Custodian fees................ 22,271 7,922 16,419 6,172 9,899 19,725 6,997
Organizational expenses....... 1,368 1,364 1,186 1,190 1,365 1,191 1,189
Other......................... 1,819 903 2,605 671 3,881 6,511 1,969
----------- ---------- ----------- --------- ----------- -------------- ------------
TOTAL EXPENSES........... 342,283 43,745 530,888 53,884 108,506 159,336 170,407
Less: amounts
waived/reimbursed........... (71,703) (27,288) -- (27,155) -- (70,537) (45,059)
----------- ---------- ----------- --------- ----------- -------------- ------------
NET EXPENSES............. 270,580 16,457 530,888 26,729 108,506 88,799 125,348
----------- ---------- ----------- --------- ----------- -------------- ------------
NET INVESTMENT INCOME
(LOSS)................... (9,929) (12,000) 901,157 68,390 94,079 48,718 237,829
----------- ---------- ----------- --------- ----------- -------------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... 6,670,506 308,540 7,240,475 294,455 1,275,998 (409,191) 2,217,573
Foreign exchange
transactions............ -- -- -- -- -- (965) --
----------- ---------- ----------- --------- ----------- -------------- ------------
TOTAL GAIN (LOSS)........ 6,670,506 308,540 7,240,475 294,455 1,275,998 (410,156) 2,217,573
----------- ---------- ----------- --------- ----------- -------------- ------------
Net change in unrealized
appreciation on:
Investments............... (3,726,656) (408,959) (7,220,599) 335,810 (1,029,844) (828,921) (2,481,361)
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- -- -- -- -- 188 --
----------- ---------- ----------- --------- ----------- -------------- ------------
NET
APPRECIATION/DEPRECIATION... (3,726,656) (408,959) (7,220,599) 335,810 (1,029,844) (828,733) (2,481,361)
----------- ---------- ----------- --------- ----------- -------------- ------------
NET GAIN (LOSS).......... 2,943,850 (100,419) 19,876 630,265 246,154 (1,238,889) (263,788)
----------- ---------- ----------- --------- ----------- -------------- ------------
NET INCREASE (DECREASE)....... $ 2,933,921 $ (112,419) $ 921,033 $ 698,655 $ 340,233 $ (1,190,171) $ (25,959)
----------- ---------- ----------- --------- ----------- -------------- ------------
----------- ---------- ----------- --------- ----------- -------------- ------------
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LIQUID ASSET U.S. GOVERNMENT MONEY MARKET
---------------------------- -----------------------------
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JANUARY 31, FOR THE YEAR JANUARY 31, FOR THE YEAR
1998 ENDED 1998 ENDED
(UNAUDITED) JULY 31, 1997 (UNAUDITED) JULY 31, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 421,718 $ 1,185,191 $ 57,568 $ 320,377
Net realized gain (loss)...... -- -- -- --
Net change in unrealized
appreciation/depreciation... -- -- -- --
------------- ------------- ------------- -------------
NET INCREASE
(DECREASE)............... 421,718 1,185,191 57,568 320,377
------------- ------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (421,669) (1,185,223) (57,568) (321,625)
Net realized gain............. -- -- -- --
------------- ------------- ------------- -------------
TOTAL.................... (421,669) (1,185,223) (57,568) (321,625)
------------- ------------- ------------- -------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 4,996,727 29,266,419 3,589,536 8,809,340
Reinvestment of dividends and
distributions............... 421,669 1,185,223 57,570 321,624
Cost of shares repurchased.... (12,077,145) (51,991,220) (6,346,513) (11,716,197)
------------- ------------- ------------- -------------
NET INCREASE
(DECREASE)............... (6,658,749) (21,539,578) (2,699,407) (2,585,233)
------------- ------------- ------------- -------------
TOTAL INCREASE
(DECREASE)............... (6,658,700) (21,539,610) (2,699,407) (2,586,481)
NET ASSETS:
Beginning of period........... 21,213,028 42,752,638 4,041,296 6,627,777
------------- ------------- ------------- -------------
END OF PERIOD............ $ 14,554,328 $ 21,213,028 $ 1,341,889 $ 4,041,296
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 59 $ 10 $ -- $ --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 4,996,727 29,266,419 3,589,536 8,809,340
Issued in reinvestment of
dividends and
distributions............... 421,669 1,185,223 57,570 321,624
Repurchased................... (12,077,145) (51,991,220) (6,346,513) (11,716,197)
------------- ------------- ------------- -------------
NET INCREASE (DECREASE)....... (6,658,749) (21,539,578) (2,699,407) (2,585,233)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INTERMEDIATE INCOME
SECURITIES
U.S. GOVERNMENT SECURITIES -------------------------- AMERICAN VALUE
--------------------------- -----------------------------
FOR THE SIX
FOR THE SIX MONTHS FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED FOR THE YEAR MONTHS ENDED
JANUARY 31, ENDED JANUARY 31, ENDED JANUARY 31, FOR THE YEAR
1998 JULY 31, 1998 JULY 31, 1998 ENDED
(UNAUDITED) 1997 (UNAUDITED) 1997 (UNAUDITED) JULY 31, 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 292,231 $ 602,606 $ 66,107 $ 207,340 $ (9,929) $ 46,600
Net realized gain (loss)...... 20,884 5,297 4,486 (62,395) 6,670,506 7,151,437
Net change in unrealized
appreciation/depreciation... 120,275 365,249 20,698 151,066 (3,726,656) 9,007,653
------------ ------------ ----------- ------------ ------------- -------------
NET INCREASE
(DECREASE)............... 433,390 973,152 91,291 296,011 2,933,921 16,205,690
------------ ------------ ----------- ------------ ------------- -------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (290,708) (602,630) (66,153) (207,294) (46,601) (93,984)
Net realized gain............. -- (22,190) -- -- (10,423,930) (3,137,376)
------------ ------------ ----------- ------------ ------------- -------------
TOTAL.................... (290,708) (624,820) (66,153) (207,294) (10,470,531) (3,231,360)
------------ ------------ ----------- ------------ ------------- -------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 1,813,180 5,963,450 283,057 3,241,075 7,940,634 20,568,978
Reinvestment of dividends and
distributions............... 285,087 567,526 65,091 165,904 10,456,727 3,227,638
Cost of shares repurchased.... (3,608,813) (5,033,814) (569,427) (5,211,640) (13,419,711) (22,877,816)
------------ ------------ ----------- ------------ ------------- -------------
NET INCREASE
(DECREASE)............... (1,510,546) 1,497,162 (221,279) (1,804,661) 4,977,650 918,800
------------ ------------ ----------- ------------ ------------- -------------
TOTAL INCREASE
(DECREASE)............... (1,367,864) 1,845,494 (196,141) (1,715,944) (2,558,960) 13,893,130
NET ASSETS:
Beginning of period........... 10,496,307 8,650,813 2,455,772 4,171,716 54,214,494 40,321,364
------------ ------------ ----------- ------------ ------------- -------------
END OF PERIOD............ $ 9,128,443 $ 10,496,307 $2,259,631 $ 2,455,772 $ 51,655,534 $ 54,214,494
------------ ------------ ----------- ------------ ------------- -------------
------------ ------------ ----------- ------------ ------------- -------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 1,523 $ -- $ -- $ 46 $ (9,930) $ 46,600
------------ ------------ ----------- ------------ ------------- -------------
------------ ------------ ----------- ------------ ------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 182,904 616,600 29,319 340,574 475,241 1,422,680
Issued in reinvestment of
dividends and
distributions............... 28,729 58,481 6,741 17,479 759,385 237,676
Repurchased................... (363,557) (517,322) (58,881) (547,645) (812,452) (1,545,904)
------------ ------------ ----------- ------------ ------------- -------------
NET INCREASE (DECREASE)....... (151,924) 157,759 (22,821) (189,592) 422,174 114,452
------------ ------------ ----------- ------------ ------------- -------------
------------ ------------ ----------- ------------ ------------- -------------
<CAPTION>
CAPITAL GROWTH
-------------------------
FOR THE SIX
MONTHS FOR THE
ENDED YEAR
JANUARY 31, ENDED
1998 JULY 31,
(UNAUDITED) 1997
- ------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ (12,000) $ (5,965)
Net realized gain (loss)...... 308,540 294,325
Net change in unrealized
appreciation/depreciation... (408,959) 762,068
----------- -----------
NET INCREASE
(DECREASE)............... (112,419) 1,050,428
----------- -----------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... -- (2,106)
Net realized gain............. (499,326) (56,080)
----------- -----------
TOTAL.................... (499,326) (58,186)
----------- -----------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 490,054 1,297,311
Reinvestment of dividends and
distributions............... 498,585 58,150
Cost of shares repurchased.... (901,041) (665,910)
----------- -----------
NET INCREASE
(DECREASE)............... 87,598 689,551
----------- -----------
TOTAL INCREASE
(DECREASE)............... (524,147) 1,681,793
NET ASSETS:
Beginning of period........... 3,669,646 1,987,853
----------- -----------
END OF PERIOD............ $3,145,499 $3,669,646
----------- -----------
----------- -----------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ (12,000) $ --
----------- -----------
----------- -----------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 30,557 91,240
Issued in reinvestment of
dividends and
distributions............... 37,042 4,317
Repurchased................... (54,209) (45,416)
----------- -----------
NET INCREASE (DECREASE)....... 13,390 50,141
----------- -----------
----------- -----------
</TABLE>
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
DIVIDEND GROWTH UTILITIES
---------------------------------- -------------------------------
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JANUARY 31, FOR THE YEAR JANUARY 31, FOR THE YEAR
1998 ENDED 1998 ENDED
(UNAUDITED) JULY 31, 1997 (UNAUDITED) JULY 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 901,157 $ 1,722,758 $ 68,390 $ 181,177
Net realized gain (loss)...... 7,240,475 8,642,932 294,455 608,162
Net change in unrealized
appreciation/depreciation... (7,220,599) 21,493,364 335,810 426,820
-------------- ----------------- -------------- --------------
NET INCREASE
(DECREASE)............... 921,033 31,859,054 698,655 1,216,159
-------------- ----------------- -------------- --------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (1,056,382) (1,707,024) (99,698) (160,780)
Net realized gain............. (11,483,411) (2,463,125) (626,928) --
-------------- ----------------- -------------- --------------
TOTAL.................... (12,539,793) (4,170,149) (726,626) (160,780)
-------------- ----------------- -------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 11,895,670 37,149,898 766,131 2,818,978
Reinvestment of dividends and
distributions............... 12,516,642 4,150,502 725,733 158,903
Cost of shares repurchased.... (21,663,731) (23,440,408) (1,129,385) (6,235,329)
-------------- ----------------- -------------- --------------
NET INCREASE
(DECREASE)............... 2,748,581 17,859,992 362,479 (3,257,448)
-------------- ----------------- -------------- --------------
TOTAL INCREASE
(DECREASE)............... (8,870,179) 45,548,897 334,508 (2,202,069)
NET ASSETS:
Beginning of period........... 115,311,509 69,762,612 5,391,228 7,593,297
-------------- ----------------- -------------- --------------
END OF PERIOD............ $ 106,441,330 $ 115,311,509 $ 5,725,736 $ 5,391,228
-------------- ----------------- -------------- --------------
-------------- ----------------- -------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 210,699 $ 365,924 $ 22,892 $ 54,200
-------------- ----------------- -------------- --------------
-------------- ----------------- -------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 626,873 2,205,684 53,835 222,951
Issued in reinvestment of
dividends and
distributions............... 731,871 255,693 52,861 12,596
Repurchased................... (1,146,677) (1,379,982) (81,367) (488,313)
-------------- ----------------- -------------- --------------
NET INCREASE (DECREASE)....... 212,067 1,081,395 25,329 (252,766)
-------------- ----------------- -------------- --------------
-------------- ----------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
VALUE-ADDED MARKET GLOBAL EQUITY STRATEGIST
-------------------------- -------------------------- --------------------------
FOR THE SIX FOR THE SIX FOR THE SIX
MONTHS ENDED FOR THE YEAR MONTHS ENDED FOR THE YEAR MONTHS ENDED FOR THE YEAR
JANUARY 31, ENDED JANUARY 31, ENDED JANUARY 31, ENDED
1998 JULY 31, 1998 JULY 31, 1998 JULY 31,
(UNAUDITED) 1997 (UNAUDITED) 1997 (UNAUDITED) 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 94,079 $ 208,257 $ 48,718 $ 128,358 $ 237,829 $ 615,034
Net realized gain (loss)...... 1,275,998 896,043 (410,156) 811,865 2,217,573 247,627
Net change in unrealized
appreciation/depreciation... (1,029,844) 6,185,067 (828,733) 2,898,751 (2,481,361) 4,379,845
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE
(DECREASE)............... 340,233 7,289,367 (1,190,171) 3,838,974 (25,959) 5,242,506
------------ ------------ ------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (190,320) (279,999) (209,613) (70,000) (579,076) (408,002)
Net realized gain............. (940,949) (698,399) (786,673) (367,529) (2,892,000) (699,994)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL.................... (1,131,269) (978,398) (996,286) (437,529) (3,471,076) (1,107,996)
------------ ------------ ------------ ------------ ------------ ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 2,714,845 6,558,038 2,499,146 7,696,263 3,032,517 7,519,070
Reinvestment of dividends and
distributions............... 1,094,116 948,925 989,770 435,668 3,467,463 1,107,086
Cost of shares repurchased.... (4,969,740) (10,417,432) (4,559,911) (3,421,423) (7,069,581) (3,796,952)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE
(DECREASE)............... (1,160,779) (2,910,469) (1,070,995) 4,710,508 (569,601) 4,829,204
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE
(DECREASE)............... (1,951,815) 3,400,500 (3,257,452) 8,111,953 (4,066,636) 8,963,714
NET ASSETS:
Beginning of period........... 23,779,735 20,379,235 19,797,196 11,685,243 26,459,420 17,495,706
------------ ------------ ------------ ------------ ------------ ------------
END OF PERIOD............ $21,827,920 $ 23,779,735 $16,539,744 $ 19,797,196 $22,392,784 $ 26,459,420
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 4,120 $ 100,361 $ (29,347) $ 131,548 $ 40,488 $ 381,735
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 145,290 416,960 186,903 606,253 207,847 549,814
Issued in reinvestment of
dividends and
distributions............... 62,095 62,594 80,798 35,887 282,597 83,616
Repurchased................... (268,571) (680,374) (340,834) (265,700) (489,475) (277,595)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE)....... (61,186) (200,820) (73,133) 376,440 969 355,835
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
DEAN WITTER
RETIREMENT SERIES
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
SEMIANNUAL REPORT
JANUARY 31, 1998
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of Dean
Witter American Value Fund (the "Acquiring Fund") to be issued pursuant to an
Agreement and Plan of Reorganization, dated April 30, 1998, between the
Acquiring Fund and American Value Series ("American Value"), one of eleven
portfolios of Dean Witter Retirement Series ("Retirement Series"), in
connection with the acquisition by the Acquiring Fund of substantially all of
the assets, subject to stated liabilities, of American Value. This Statement of
Additional Information does not constitute a prospectus. This Statement of
Additional Information does not include all information that a shareholder
should consider before voting on the proposals contained in the Proxy Statement
and Prospectus, and, therefore, should be read in conjunction with the related
Proxy Statement and Prospectus, dated June , 1998. A copy of the Proxy
Statement and Prospectus may be obtained without charge by mailing a written
request to the Acquiring Fund at Two World Trade Center, New York, New York
10048 or by calling Nina Maceda at Dean Witter Trust Company at (800) 869-NEWS
(TOLL FREE). Please retain this document for future reference.
The date of this Statement of Additional Information is June , 1998.
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
---
INTRODUCTION ............................................ B-3
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND ......... B-3
FINANCIAL STATEMENTS .................................... B-4
</TABLE>
B-2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated June , 1998
(the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus has
been sent to American Value shareholders in connection with the solicitation of
proxies by the Board of Trustees of American Value to be voted at the Special
Meeting of Shareholders of American Value to be held on August 19, 1998. This
Statement of Additional Information incorporates by reference the Statement of
Additional Information of the Acquiring Fund dated May 1, 1998 and the
Statement of Additional Information of American Value dated October 31, 1997.
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND
INVESTMENT OBJECTIVES AND POLICIES
For additional information about the Acquiring Fund's investment
objectives and policies, see "Investment Practices and Policies" and
"Investment Restrictions" in the Acquiring Fund's Statement of Additional
Information.
MANAGEMENT
For additional information about the Board of Trustees, officers and
management personnel of the Acquiring Fund, see "The Fund and its Management"
and "Trustees and Officers" in the Acquiring Fund's Statement of Additional
Information.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about the Acquiring Fund's investment manager,
see "The Fund and its Management" in the Acquiring Fund's Statement of
Additional Information. For additional information about the Acquiring Fund's
independent auditors, see "Independent Accountants" in the Acquiring Fund's
Statement of Additional Information. For additional information about other
services provided to the Acquiring Fund, see "Custodian and Transfer Agent" and
"Shareholder Services" in the Acquiring Fund's Statement of Additional
Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For additional information about brokerage allocation practices, see
"Portfolio Transactions and Brokerage" in the Acquiring Fund's Statement of
Additional Information.
DESCRIPTION OF FUND SHARES
For additional information about the voting rights and other
characteristics of the shares of the Acquiring Fund, see "Shares of the Fund"
in the Acquiring Fund's Statement of Additional Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of the
Acquiring Fund's shares and the determination of net asset value, see "Purchase
of Fund Shares," "Redemptions and Repurchases," "Financial Statements" and
"Shareholder Services" in the Acquiring Fund's Statement of Additional
Information.
B-3
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
For additional information about the Acquiring Fund's policies regarding
dividends and distributions and tax matters affecting the Acquiring Fund and
its shareholders, see "Dividends, Distributions and Taxes" and "Financial
Statements" in the Acquiring Fund's Statement of Additional Information.
DISTRIBUTION OF SHARES
For additional information about the Acquiring Fund's distributor and the
distribution agreement between the Acquiring Fund and its distributor, see
"Purchase of Fund Shares" in the Acquiring Fund's Statement of Additional
Information.
PERFORMANCE DATA
For additional information about the Acquiring Fund's performance data,
see "Performance Information" in the Acquiring Fund's Statement of Additional
Information.
FINANCIAL STATEMENTS
The Acquiring Fund's most recent audited financial statements are set
forth in the Acquiring Fund's Annual Report for the fiscal year ended December
31, 1997, a copy of which is incorporated by reference in the Proxy Statement
and Prospectus. American Value's most recent audited financial statements are
set forth in American Value's Annual Report for the fiscal year ended July 31,
1997, which is incorporated by reference to the Proxy Statement and Prospectus.
B-4
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
Dean Witter
American
Value Fund
- -----------------------------------------------------------------------------
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 attractively valued given their above average
relative earnings growth potential at that time. (See "Investment Practices
and Policies.")
A Prospectus for the Fund dated May 1, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone numbers listed below
or from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean
Witter Reynolds, Inc., at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in
addition to and more detailed than that set forth in the Prospectus. It is
intended to provide 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 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund and its Management........... 3
Trustees and Officers................. 6
Investment Practices and Policies .... 12
Investment Restrictions............... 25
Portfolio Transactions and Brokerage . 26
The Distributor....................... 28
Determination of Net Asset Value ..... 33
Purchase of Fund Shares .............. 33
Shareholder Services.................. 36
Redemptions and Repurchases........... 40
Dividends, Distributions and Taxes ... 41
Performance Information............... 43
Shares of the Fund.................... 44
Custodian and Transfer Agent.......... 45
Independent Accountants............... 45
Reports to Shareholders............... 45
Legal Counsel......................... 45
Experts............................... 45
Registration Statement................ 45
Financial Statements--December 31,
1997................................. 46
Report of Independent Accountants .... 62
</TABLE>
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 Morgan Stanley Dean Witter & Co.
("MSDW"), a Delaware corporation. In an internal reorganization which took
place in January, 1993, InterCapital assumed the investment advisory,
administrative and management activities previously performed by the
InterCapital Division of Dean Witter Reynolds Inc. ("DWR"), a broker-dealer
affiliate of InterCapital. (As hereinafter used in this Statement of
Additional Information, the terms "InterCapital" and "Investment Manager"
refer to DWR's InterCapital Division prior to the internal reorganization and
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 by the Fund's Board of Trustees. Information as to these Trustees and
officers is contained under the caption "Trustees and Officers."
InterCapital is 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 New York Quality
Municipal Securities, InterCapital Insured Municipal Securities, InterCapital
California Insured 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 American Value Fund, Dean Witter U.S. Government
Money Market Trust, Dean Witter Variable Investment Series, Dean Witter World
Wide Investment Trust, Dean Witter Select Municipal Reinvestment Fund, Dean
Witter U.S. Government Securities Trust, Dean Witter California Tax-Free
Income Fund, Dean Witter New York Tax-Free Income Fund, Dean Witter
Convertible Securities Trust, Dean Witter Federal Securities Trust, Dean
Witter Value-Added Market Series, High Income Advantage Trust, High Income
Advantage Trust II, High Income Advantage Trust III, Dean Witter Government
Income Trust, Dean Witter Utilities Fund, 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 New
York Municipal Money Market Trust, Dean Witter Capital Growth Securities,
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 Short-Term U.S. Treasury Trust, Dean Witter Health Sciences
Trust, Dean Witter Retirement Series, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, Dean Witter Global Dividend Growth
Securities, Dean Witter Global Utilities Fund, Dean Witter International
Small Cap Fund, Dean Witter Mid-Cap Growth Fund, Dean Witter Select
Dimensions Investment Series, Dean Witter Global Asset Allocation Fund, Dean
Witter Balanced Growth Fund, Dean Witter Balanced Income Fund, Dean Witter
Hawaii Municipal Trust, Dean Witter Capital Appreciation Fund, Dean Witter
Intermediate Term U.S. Treasury Trust, Dean Witter Japan Fund, Dean Witter
Income Builder Fund, Dean Witter Special Value Fund, Dean Witter Financial
Services Trust, Dean Witter Market Leader Trust, Dean Witter Information
Fund, Dean Witter S&P 500 Index Fund, Dean Witter Fund of Funds, Morgan
Stanley Dean Witter Competitive Edge Fund--"Best Ideas" Portfolio, Morgan
Stanley Dean Witter Growth Fund, Morgan
3
<PAGE>
Stanley Dean Witter Mid-Cap Dividend Growth Securities, 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.
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 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 Total Return
Trust, TCW/DW Mid-Cap Equity Trust, TCW/DW Global Telecom Trust, TCW/DW
Emerging Market Opportunities Trust, TCW/DW Term Trust 2000, TCW/DW Term
Trust 2002 and TCW/DW Term Trust 2003 (the "TCW/DW Funds"). InterCapital also
serves as (i) administrator of The Black Rock Strategic Term Trust Inc., a
closed-end investment company; (ii) sub-administrator of Templeton Global
Governments Income Trust, a closed-end investment company; and (iii)
investment advisor of Offshore Dividend Growth Fund and Offshore Money Market
Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in DWR's International
Active Assets Account program and are neither citizens nor residents of the
United States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage
the investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help, 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. On April
17, 1995, DWSC was reorganized in the State of Delaware, necessitating the
entry into a new Services Agreement by InterCapital on that date. The
foregoing internal reorganizations 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. These expenses will be allocated
among the four classes of shares of the Fund (each, a "Class") pro rata based
on the net assets of the Fund attributable to each Class, except as described
below. Such expenses include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1 (the "12b-1 fee") (see "The
Distributor"); charges and expenses of any registrar, custodian, stock
transfer and dividend disbursing agent; brokerage commissions; taxes;
engraving and printing 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'
4
<PAGE>
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 industry associations; interest on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Trustees) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto); and all other costs of the
Fund's operation. The 12b-1 fees relating to a particular Class will be
allocated directly to that Class. In addition, other expenses associated with
a particular Class (except advisory or custodial fees) may be allocated
directly to that Class, provided that such expenses are reasonably identified
as specifically attributable to that Class and the direct allocation to that
Class is approved by the Trustees.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
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 daily net assets not
exceeding $250 million; 0.50% of the portion of daily net assets exceeding
$250 million but not exceeding $2.5 billion; 0.475% of the portion of daily
net assets exceeding $2.5 billion but not exceeding $3.5 billion; 0.45% of
the portion of daily net assets exceeding $3.5 billion but not exceeding $4.5
billion; and 0.425% of the portion of daily net assets exceeding $4.5
billion. The management fee is allocated among the Classes pro rata based on
the net assets of the Fund attributable to each Class. For the fiscal years
ended December 31, 1995, 1996 and 1997, the Fund accrued to the Investment
Manager total compensation under the Agreement in the amounts of $9,736,912,
$14,111,045 and $18,075,407, respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Agreement was initially approved by the Board of Trustees on February
21, 1997 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on May 21, 1997. The Agreement is substantially identical
to a prior investment management agreement which was initially approved by
the 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, as such
agreement had been amended by the Board of Trustees at their meeting held on
April 24, 1997 to provide a breakpoint in the management fee that reduced the
compensation received by the Investment Manager under the agreement on assets
exceeding $3.5 billion. The Agreement took effect on May 31, 1997 upon the
consummation of the merger of Dean Witter, Discover & Co. with Morgan Stanley
Group Inc. The Agreement may be terminated at any time, without penalty, on
thirty days' notice by the Board of 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).
Under its terms, the Agreement has an initial term ending April 30, 1999
and will remain in effect from year to year thereafter, provided continuance
of the Agreement is approved at least annually by the vote of the holders of
a majority, as defined in the Act, of the outstanding shares of the Fund, or
by the Board of Trustees of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Trustees of
the Fund who are not parties to the Agreement or "interested persons" (as
defined in the Act) of any such party (the "Independent Trustees"), which
vote must be cast in person at a meeting called for the purpose of voting on
such approval.
The following owned 5% or more of the outstanding shares of Class A on
March 31, 1998: Morgan Stanley Dean Witter Trust FSB as Trustee for Trayco of
SC INC. 401K & Profit Sharing Plan, P.O. Box
5
<PAGE>
957, Jersey City, NJ 07303-0957; Morgan Stanley Dean Witter Trust FSB as
Trustee for Fenner Inc., P.O. Box 957, Jersey City, NJ 07303-0957; Morgan
Stanley Dean Witter Trust FSB as Trustee for Ashcraft & Gerel Target Benefit
Plan, P.O. Box 957, Jersey City, NJ 07303-0957; Morgan Stanley Dean Witter
Trust FSB as Trustee for Robinson Nugent Inc. Profit Sharing 401K Plan, P.O.
Box 957, Jersey City, NJ 07303-0957. The following owned 5% or more of the
outstanding shares of Class D on March 31, 1998: Mellon Bank, N.A., A/C DWRF
8604862, Mellon Bank N.A., Mutual Funds Operations, P.O. Box 3198,
Pittsburgh, PA 15230-3198.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR. The Fund has agreed that DWR or its parent company may use or, at any
time, permit others to use, the name "Dean Witter." The Fund has also agreed
that, in the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent is terminated, the Fund will eliminate the name
"Dean Witter" from its name if DWR or its parent company shall so request.
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital, and with the 83 Dean Witter Funds and the 14 TCW/DW Funds, are
shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- ---------------------------------------------------------
<S> <C>
Michael Bozic (57) Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee
c/o Levitz Furniture Corporation of the Dean Witter Funds; formerly President and Chief
6111 Broken Sound Parkway, N.W. Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial
Services, Inc. and Weirton Steel Corporation.
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and Director of
Chairman, President, Chief Executive InterCapital, Dean Witter Distributors Inc.
Officer and Trustee ("Distributors") and Dean Witter Trust Company ("DWSC");
Two World Trade Center Director and Executive Vice President of DWR; Chairman,
New York, New York 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 Morgan Stanley Dean Witter Trust
FSB ("MSDW Trust"); Director and/or officer of various
MSDW subsidiaries.
6
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- ---------------------------------------------------------
Edwin J. Garn (65) Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah)(1974-1992) and Chairman,
c/o Huntsman Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way Salt Lake City, Utah (1971-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Corporation; Director of Franklin
Covey (time management systems), John Alden Financial
Corp. (health insurance), United Space Alliance (joint
venture between Lockheed Martin and the Boeing Company)
and Nuskin Asia Pacific (multilevel marketing); member of
the board of various civic and charitable organizations.
John R. Haire (73) Chairman of the Audit Committee and Chairman of the
Trustee Committee of the Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Chairman of
New York, New York the Audit Committee and Chairman of the Committee of the
Independent Trustees and Trustee of the TCW/DW Funds;
formerly President, Council for Aid to Education
(1978-1989) and Chairman and Chief Executive Officer of
Anchor Corporation, an Investment Adviser (1964-1978).
Wayne E. Hedien (64) Retired; Director or Trustee of the Dean Witter Funds;
Trustee Director of The PMI Group, Inc. (private mortgage
c/o Gordon Altman Butowsky insurance); Trustee and Vice Chairman of The Field Museum
Weitzen Shalov & Wein of Natural History; formerly associated with the Allstate
Counsel to the Independent Trustees Companies (1966-1994), most recently as Chairman of The
114 West 47th Street Allstate Corporation (March, 1993-December, 1994) and
New York, New York Chairman and Chief Executive Officer of its wholly-owned
subsidiary, Allstate Insurance Company (July,
1989-December, 1994); director of various other business
and charitable organizations.
Dr. Manuel H. Johnson (49) Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group
c/o Johnson Smick International, Inc. of Seven Council (G7C), an international economic
1133 Connecticut Avenue, N.W. commission; Director or Trustee of the Dean Witter Funds;
Washington, D.C. Trustee of the TCW/DW Funds; Director of NASDAQ (since
June, 1995); Director of Greenwich Capital Markets, Inc.
(broker-dealer) and NVR, Inc. (home construction);
Chairman and Trustee of the Financial Accounting
Foundation (oversight organization of the Financial
Accounting Standards Board); formerly Vice Chairman of
the Board of Governors of the Federal Reserve System
(1986-1990) and Assistant Secretary of the U.S. Treasury.
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- ---------------------------------------------------------
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a private
Trustee investment partnership (since April, 1988); Director or
c/o Triumph Capital, L.P. Trustee of the Dean Witter Funds; Trustee of the TCW/DW
237 Park Avenue Funds; formerly Vice President, Bankers Trust Company and
New York, New York BT Capital Corporation (1984-1988); director of various
business organizations.
Philip J. Purcell* (54) Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDW, DWR and Novus Credit Services Inc.;
1585 Broadway Director of InterCapital, DWSC and Distributors; Director
New York, New York or Trustee of the Dean Witter Funds; Director and/or
officer of various MSDW subsidiaries.
John L. Schroeder (67) Retired; Director or Trustee of the Dean Witter Funds;
Trustee Trustee of the TCW/DW Funds; Director of Citizens
c/o Gordon Altman Butowsky Utilities Company; formerly Executive Vice President and
Weitzen Shalov & Wein Chief Investment Officer of the Home Insurance Company
Counsel to the Independent Trustees (August, 1991-September, 1995).
114 West 47th Street
New York, New York
Barry Fink (43) Senior Vice President (since March, 1997) and Secretary
Vice President, and General Counsel (since February, 1997) of
Secretary and General Counsel InterCapital and DWSC; Senior Vice Pres ident (since
Two World Trade Center March, 1997) and Assistant Secretary and Assistant
New York, New York General Counsel (since February, 1997) of Distributors;
Assistant Secretary of DWR (since August, 1996); Vice
President, Secretary and General Counsel of the Dean
Witter Funds and the TCW/DW Funds (since February, 1997);
previously First Vice President (June, 1993-February,
1997), Vice President (until June, 1993) and Assistant
Secretary and Assistant General Counsel of InterCapital
and DWSC and Assistant Secretary of the Dean Witter Funds
and the TCW/DW Funds.
Anita H. Kolleeny (42) Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (52) First Vice President and Assistant Treasurer of
Treasurer InterCapital and DWSC; Treasurer of the Dean Witter Funds
Two World Trade Center and TCW/DW Funds.
New York, New York
</TABLE>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
In addition, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and MSDW
Trust and Director of MSDW Trust, Executive Vice President and Director of
DWR, and Director of SPS Transaction Services, Inc. and various other MSDW
subsidiaries, Robert M. Scanlan, President of InterCapital and Chief
Operating Officer of InterCapital and DWSC, Executive Vice President of
Distributors and MSDW Trust and Director of MSDW Trust, Joseph
8
<PAGE>
J. McAlinden, Executive Vice President and Chief Investment Officer of
InterCapital and Director of MSDW Trust, Robert S. Giambrone, Senior Vice
President of InterCapital, DWSC, Distributors and MSDW Trust and Director of
MSDW Trust, and Kenton J. Hinchliffe, Ira N. Ross, Paul D. Vance, Senior Vice
Presidents of InterCapital and Michelle Kaufman, Vice President of
InterCapital, are Vice Presidents of the Fund. In addition, Marilyn K.
Cranney, First Vice President and Assistant General Counsel of InterCapital
and DWSC, Lou Anne D. McInnis, Ruth Rossi and Carsten Otto, Vice Presidents
and Assistant General Counsels of InterCapital and DWSC, and Frank
Bruttomesso and Todd Lebo, staff attorneys with InterCapital, are Assistant
Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of
this Statement of Additional Information, there are a total of 86 Dean Witter
Funds, comprised of 130 portfolios. As of March 31, 1998, the Dean Witter
Funds had total net assets of approximately $105 billion and more than six
million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own
any stock or other securities issued by InterCapital's parent company, MSDW.
These are the "disinterested" or "independent" Trustees. The other two
Trustees (the "management Trustees") are affiliated with InterCapital. Four
of the seven independent Trustees are also Independent Trustees of the TCW/DW
Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Dean Witter Funds seek as Independent
Trustees individuals of distinction and experience in business and finance,
government service or academia; these are people whose advice and counsel are
in demand by others and for whom there is often competition. To accept a
position on the Funds' Boards, such individuals may reject other attractive
assignments because the Funds make substantial demands on their time. Indeed,
by serving on the Funds' Boards, certain Trustees who would otherwise be
qualified and in demand to serve on bank boards would be prohibited by law
from doing so.
All of the Independent Trustees serve as members of the Audit Committee
and the Committee of the Independent Trustees. Three of them also serve as
members of the Derivatives Committee. During the calendar year ended December
31, 1997, the three Committees held a combined total of seventeen meetings.
The Committees hold some meetings at InterCapital's offices and some outside
InterCapital. Management Trustees or officers do not attend these meetings
unless they are invited for purposes of furnishing information or making a
report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading
among Funds in the same complex; and approving fidelity bond and related
insurance coverage and allocations, as well as other matters that arise from
time to time. The Independent Trustees are required to select and nominate
individuals to fill any Independent Trustee vacancy on the Board of any Fund
that has a Rule 12b-1 plan of distribution. Most of the Dean Witter Funds
have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance of such
services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting
Committee meeting minutes to the full Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
9
<PAGE>
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and
the Funds' operations and management. He screens and/or prepares written
materials and identifies critical issues for the Independent Trustees to
consider, develops agendas for Committee meetings, determines the type and
amount of information that the Committees will need to form a judgment on
various issues, and arranges to have that information furnished to Committee
members. He also arranges for the services of independent experts and
consults with them in advance of meetings to help refine reports and to focus
on critical issues. Members of the Committees believe that the person who
serves as Chairman of both Committees and guides their efforts is pivotal to
the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service
providers. In effect, the Chairman of the Committees serves as a combination
of chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and as
Chairman of the Committee of the Independent Trustees and the Audit Committee
of the TCW/DW Funds. The current Committee Chairman has had more than 35
years experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of
separate groups of Independent Trustees arriving at conflicting decisions
regarding operations and management of the Funds and avoids the cost and
confusion that would likely ensue. Finally, having the same Independent
Trustees serve on all Fund Boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of Independent
Trustees, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee
of the Independent Trustees an additional annual fee of $1,200). If a Board
meeting and a Committee meeting, or more than one Committee meeting, take
place on a single day, the Trustees are paid a single meeting fee by the
Fund. The Fund also reimburses such Trustees for travel and other
out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by
the Investment Manager or an affiliated company receive no compensation or
expense reimbursement from the Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended December 31, 1997.
10
<PAGE>
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME OF INDEPENDENT COMPENSATION
TRUSTEE FROM THE FUND
- --------------------------- ---------------
<S> <C>
Michael Bozic ............. $1,650
Edwin J. Garn ............. 1,850
John R. Haire ............. 3,800
Wayne E. Hedien............ 482
Dr. Manuel H. Johnson .... 1,800
Michael E. Nugent ......... 1,850
John L. Schroeder.......... 1,850
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for
services to the 84 Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1997. With respect to Messrs. Haire, Johnson, Nugent and
Schroeder, the TCW/DW Funds are included solely because of a limited exchange
privilege between those Funds and five Dean Witter Money Market Funds. Mr.
Hedien's term as Director or Trustee of each Dean Witter Fund commenced on
September 1, 1997.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF
COMMITTEES OF FOR SERVICE AS
INDEPENDENT CHAIRMAN OF
FOR SERVICE DIRECTORS/ COMMITTEES OF TOTAL CASH
AS DIRECTOR OR FOR SERVICE AS TRUSTEES AND INDEPENDENT COMPENSATION
TRUSTEE AND TRUSTEE AND AUDIT TRUSTEES FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER COMMITTEES OF 84 AND AUDIT 84 DEAN WITTER
NAME OF OF 84 DEAN WITTER OF 14 TCW/DW DEAN WITTER COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS TCW/DW FUNDS TCW/DW FUNDS
- --------------------- ----------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael Bozic ........ $133,602 -- -- -- $133,602
Edwin J. Garn ........ 149,702 -- -- -- 149,702
John R. Haire ........ 149,702 $73,725 $157,463 $25,350 406,240
Wayne E. Hedien....... 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson 145,702 71,125 -- -- 216,827
Michael E. Nugent ... 149,702 73,725 -- -- 223,427
John L. Schroeder .... 149,702 73,725 -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have adopted a retirement program under
which an Independent Trustee who retires after serving for at least five
years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Dean Witter Fund that has adopted the
retirement program (each such Fund referred to as an "Adopting Fund" and each
such Trustee referred to as an "Eligible Trustee") is entitled to retirement
payments upon reaching the eligible retirement age (normally, after attaining
age 72). Annual payments are based upon length of service. Currently, upon
retirement, each Eligible Trustee is entitled to receive from the Adopting
Fund, commencing as of his or her retirement date and continuing for the
remainder of his or her life, an annual retirement benefit (the "Regular
Benefit") equal to 29.41% of his or her Eligible Compensation plus 0.4901667%
of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years
up to a maximum of 58.82% after ten years of service. The foregoing
percentages may be changed by the Board.(1) "Eligible Compensation" is
one-fifth of the total compensation earned by such Eligible Trustee for
service to the Adopting Fund in the five year period prior to the date of the
Eligible Trustee's retirement. Benefits under the retirement program are not
secured or funded by the Adopting Funds.
(1) An Eligible Trustee may elect alternate payments of his or her
retirement benefits based upon the combined life expectancy of such
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. The amount estimated to be payable under this
method, through the remainder of the later of the lives of such
Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit. In addition, the Eligible Trustee may elect that the
surviving spouse's periodic payment of benefits will be equal to either
50% or 100% of the previous periodic amount, an election that,
respectively, increases or decreases the previous periodic amount so
that the resulting payments will be the actuarial equivalent of the
Regular Benefit.
11
<PAGE>
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended December,
31 1997 and by the 57 Dean Witter Funds (including the Fund) for the year
ended December 31, 1997, and the estimated retirement benefits for the Fund's
Independent Trustees, to commence upon their retirement, from the Fund as of
December 31, 1997 and from the 57 Dean Witter Funds as of December 31, 1997.
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS
--------------------------------
ESTIMATED ANNUAL
RETIREMENT BENEFITS BENEFITS
ACCRUED AS EXPENSES UPON RETIREMENT(2)
----------------------- -------------------
ESTIMATED
CREDITED
YEARS ESTIMATED
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
NAME OF INDEPENDENT RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- -------------------------- --------------- --------------- -------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic ............. 10 58.82% $ 370 $ 20,499 $ 925 $ 55,026
Edwin J. Garn ............. 10 58.82 616 30,878 925 55,026
John R. Haire ............. 10 58.82 (445) (19,823)(3) 2,246 132,002
Wayne E. Hedien............ 9 50.00 0 0 786 46,772
Dr. Manuel H. Johnson .... 10 58.82 248 12,832 925 55,026
Michael E. Nugent ......... 10 58.82 465 22,546 925 55,026
John L. Schroeder.......... 8 49.02 709 39,350 771 46,123
</TABLE>
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until May 1, 1999.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
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.
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 the basic assumptions that industry trends are a
primary force governing company earnings; conventional forecasts may not
fully reflect underlying industry conditions or changing economic cycles; the
market's perception of industry trends is often transitory or exaggerated;
and distortions in relative valuations beyond their normal ranges may provide
significant buying or selling opportunities.
The Investment Manager generally seeks to invest assets of the Fund in
industries it considers to exhibit underappreciated earnings potential at the
time of purchase and to sell those it considers to have peaked in relative
earnings potential.
The Investment Manager also uses models which employ economic indicators
or other financial variables to evaluate the relative attractiveness of
industries. Economic analysis includes traditional business cycle analysis
and such signposts as current Federal Reserve monetary posture, direction of
commodity prices, and global currency and economic trends. Economic
indicators most relevant to particular industries are reviewed. Some
industries analyzed, such as aerospace and energy, do not correlate with
economic indicators and must be analyzed relative to their respective
specific industry
12
<PAGE>
cycles. Financial variables under consideration may include corporate
earnings growth and cashflow, corporate and industry asset valuation,
absolute and relative price/earnings ratios and dividend discount valuations.
Once attractive industries have been identified, stocks to represent those
industries are selected utilizing a multivariate process that includes size
and quality of the company, earnings visibility of the company 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 to earnings multiples to
earnings growth. Price and earnings momentum ratings derived from external
sources are also factored into the stock selection decision. The Investment
Manager also evaluates fundamental company criteria such as product cycle
analysis, revenue growth, margin analysis, consistency of earnings
profitability, proprietary nature of the product and quality of management.
Stocks may be selected from the three capitalization tiers of the market:
large capitalization, medium capitalization, and small capitalization.
Based on the sum total of this analysis, approximately 40-60 industries
are studied and classified as attractive, moderately attractive or
unattractive. Attractive groups are purchased, moderately attractive groups
are bought or held, and unattractive groups are sold. The Investment Manager
may utilize services that examine historical industry relative
price-to-earnings ranges for input on the Investment Manager's valuation
analysis.
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 underappreciated, can
benefit from the performance probabilities of the total group.
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 attractive, 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
earnings, product cycle analysis, historic track record 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
attractive 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
valuation; capitalization and liquidity profile. Stocks in industries not
characterized as attractive may be underweighted. Also, smaller
capitalization issues may not be equally weighted due to liquidity
considerations.
3. Relative Industry Values.
Industry selection 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.
13
<PAGE>
4. 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 concepts 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 unattractive due to
consideration of stage-of-cycle analysis or may not include representation in
industries considered attractive 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 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, 1997, the Fund did
not loan any of its portfolio securities.
14
<PAGE>
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.
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 liquid portfolio securities which the Fund holds in a
segregated account maintained with its Custodian.
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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.
Options written by the Fund normally have expiration dates of from up to
nine months (equity securities) to eighteen months (fixed-income securities)
from the date written. The exercise price of a call option may be below,
equal to or above the current market value of the underlying security at the
time the option is written. See "Risks of Options 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, at all times, in a segregated
account maintained on its behalf at the Fund's Custodian, cash, U.S.
Government securities or other liquid portfolio securities 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 liquid
portfolio securities which the Fund holds in a segregated account maintained
at its Custodian. In writing puts, the Fund assumes the risk of loss should
the market value of the underlying security decline below the exercise price
of the option (any loss being decreased by the receipt of the premium on the
option written). During the option period, the Fund may be required, at any
time, to make payment of the exercise price against delivery of the
underlying security. The operation of and limitations on covered put options
in other respects are substantially identical to those of call options.
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The Fund will write put options for two purposes: (1) to receive the
income derived from the premiums paid by purchasers; and (2) when the
Investment Manager wishes to purchase the security underlying the option at a
price lower than its current market price, in which case it will write the
covered put at an exercise price reflecting the lower purchase price sought.
The potential gain on a covered put option is limited to the premium received
on the option (less the commissions paid on the transaction) while the
potential loss equals the difference between the exercise price of the option
and the current market price of the underlying securities when the put is
exercised, offset by the premium received (less the commissions paid on the
transaction).
Purchasing Call and Put Options. 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 addition,
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 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 liquid portfolio securities 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
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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 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
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stock indexes provide the Fund with a means of protecting the Fund against
the risk of market wide price movements. If the Investment Manager
anticipates a market decline, the Fund could purchase a stock index put
option. If the expected market decline materialized, the resulting decrease
in the value of the Fund's portfolio would be offset to the extent of the
increase in the value of the put option. If the Investment Manager
anticipates a market rise, the Fund may purchase a stock index call option to
enable the Fund to participate in such rise until completion of anticipated
common stock purchases by the Fund. Purchases and sales of stock index
options also enable the Investment Manager to more speedily achieve changes
in the Fund's equity positions.
The Fund will write put options on stock indexes only if such positions
are covered by cash, U.S. government securities or other liquid portfolio
securities equal to the aggregate exercise price of the puts, 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 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
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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.
Interest Rate Futures Contracts. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or
other liquid portfolio securities equal to approximately 2% of the contract
amount. Initial margin requirements are established by the Exchanges on which
futures contracts trade and may, from time to time, change. In addition,
brokers may establish margin deposit requirements in excess of those required
by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a 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.
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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 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
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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 liquid portfolio securities equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities underlying the futures contract or the exercise price of the
option. Such a position may also be covered by owning the securities
underlying the futures contract (in the case of a stock index futures
contract a portfolio of securities substantially replicating the relevant
index), or by holding a call option permitting the Fund to purchase the same
contract at a price no higher than the price at which the short position was
established.
In addition, if the Fund holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S.
Government securities or other liquid portfolio securities equal to the
purchase price of the contract or the exercise price of the put option (less
the amount of initial or variation margin on deposit) in a segregated account
maintained for the Fund by its Custodian. Alternatively, the Fund could cover
its long position by purchasing a put option on the same futures contract
with an exercise price as high or higher than the price of the contract held
by the Fund.
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
22
<PAGE>
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 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
23
<PAGE>
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 net 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 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 liquid 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, 1997, the Fund did not purchase securities on a when-issued, delayed
delivery or forward commitment basis.
24
<PAGE>
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 liquid 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, 1997, the Fund did not purchase securities on
a "when, as and if issued" basis. The Fund may also sell securities on a
"when, as and if issued" basis provided that the issuance of the security
will result automatically from the exchange or conversion of a security owned
by the Fund at the time of 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.
Rule 144A under the Securities Act permits the Fund to sell restricted
securities to qualified institutional buyers without limitation. The
Investment Manager, pursuant to procedures adopted by the Trustees of the
Fund, will make a determination as to the liquidity of each restricted
security purchased by the Fund. If a restricted security is determined to be
"liquid," such security will not be included within the category "illiquid
securities," which under current policy may not exceed 15% of the Fund's net
assets.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at
a meeting of Shareholders, if the holders of 50% of the outstanding shares of
the Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund. For purposes of the following restrictions:
(i) all percentage limitations apply immediately after a purchase or initial
investment; and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets
does not require elimination of any security from the portfolio.
The Fund may not:
1. 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
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<PAGE>
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.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially
all of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- -----------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the
Investment Manager is responsible for decisions to buy and sell securities
for the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. The Fund also
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation, generally referred
to as the
26
<PAGE>
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, 1995, 1996 and 1997 the Fund paid a
total of $6,911,661, $11,278,417 and $15,385,470, respectively in brokerage
commissions.
The Investment Manager currently serves as investment manager to a number
of clients, including other investment companies, and may in the future act
as investment manager or adviser to others. It is the practice of the
Investment Manager to cause purchase and sale transactions to be allocated
among the Fund and others whose assets it manages in such manner as it deems
equitable. In making such allocations among the Fund and other client
accounts, various factors may be considered, including the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client
accounts. In the case of certain initial and secondary public offerings, the
Investment Manager utilizes a pro rata allocation process based on the size
of the Dean Witter Funds involved and the number of shares available from the
public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange,
the Fund's policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the Fund and the Investment
Manager from obtaining a high quality of brokerage and research services. In
seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Investment Manager relies upon its experience and knowledge
regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, 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, 1997, the Fund paid $13,487,395 in brokerage commissions in connection
with transactions in the aggregate amount of $10,756,352,989 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., Certifi-
27
<PAGE>
cates of Deposit and Bankers' Acceptances) and Commercial Paper. Such
transactions will be effected with DWR only when the price available from DWR
is better than that available from other dealers. During the fiscal years
ended December 31, 1995, 1996 and 1997, the Fund did not effect any principal
transactions with DWR.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR, Morgan Stanley & Co. Incorporated ("MS & Co.") and
other affiliated brokers and dealers. In order for an affiliated broker or
dealer to effect any portfolio transactions for the Fund, the commissions,
fees or other remuneration received by the affiliated broker or dealer must
be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on an exchange during a
comparable period of time. This standard would allow the affiliated broker or
dealer to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Board of Trustees of the Fund, including a
majority of the Trustees who are not "interested" persons of the Fund, as
defined in the Act, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to an
affiliated broker or dealer are consistent with the foregoing standard. The
Fund does not reduce the management fee it pays to the Investment Manager by
any amount of the brokerage commissions it may pay to an affiliated broker or
dealer. During the fiscal years ended December 31, 1995, 1996 and 1997, the
Fund paid a total of $989,462, $902,407 and $1,122,089, respectively, in
brokerage commissions to DWR. During the fiscal year ended December 31, 1997,
the brokerage commissions paid to DWR represented approximately 7.29% 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 8.89% of the aggregate dollar value of all portfolio
transactions of the Fund during the year for which commissions were paid.
During the period June 1 through December 31, 1997, the Fund paid a total of
$551,901 in brokerage commissions to MS & Co., which broker-dealer became an
affiliate of the Investment Manager on May 31, 1997 upon consummation of the
merger of Dean Witter, Discover & Co. with Morgan Stanley Group Inc. The
brokerage commissions paid to MS & Co. represented approximately 3.59% of the
total brokerage commissions paid by the Fund for this period and were paid on
account of transactions having an aggregate dollar value equal to
approximately 5.02% of the aggregate dollar value of all portfolio
transactions of the Fund during the period for which commissions were paid.
During the fiscal year ended December 31, 1997, the Fund purchased common
stock issued by Merrill Lynch, Pierce, Fenner & Smith Inc. and Lehman
Brothers Inc. which issuers were among the ten brokers or the ten dealers
which executed transactions for or with the Fund in the largest dollar
amounts during the year. At December 31, 1997, the Fund held common stock
issued by Merrill Lynch, Pierce, Fenner & Smith Inc. and Lehman Brothers Inc.
with market values of $47,409,375 and $20,400,000, respectively.
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 similar agreements with other selected broker-dealers. The Distributor,
a Delaware corporation, is a wholly-owned subsidiary of MSDW. The Board of
Trustees of the Fund including a majority of the Trustees who are not, and
were not at the time they voted, interested persons of the Fund, as defined
in the Act ( the "Independent Trustees"), approved, at their meeting held on
June 30, 1997, the current 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. By its
terms, the Distribution Agreement has an initial term ending April 30, 1998
and will remain in effect from year to year thereafter if approved by the
Board.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and
28
<PAGE>
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 and pays filing fees in
accordance with state securities laws. The Fund and the Distributor have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment
or mistake of law or for any act or omission or for any losses sustained by
the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan") pursuant to which each Class, other than Class D, pays
the Distributor compensation accrued daily and payable monthly at the
following annual rates: 0.25% and 1.0% of the average daily net assets of
Class A and Class C, respectively, and, with respect to Class B, 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
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 Class B 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 Class B shares attributable to shares issued, net of shares redeemed,
since the inception of the Prior Plan. The Distributor also receives the
proceeds of front-end sales charges and of contingent deferred sales charges
imposed on certain redemptions of shares, which are separate and apart from
payments made pursuant to the Plan (see "Purchase of Fund Shares" in the
Prospectus). The Distributor has informed the Fund that it and/or DWR
received (a) approximately $3,588,974, $3,792,237 and $4,721,534 in
contingent deferred sales charges from Class B for the fiscal years ended
December 31, 1995, 1996 and 1997, respectively; (b) approximately $0 and
$3,192 in contingent deferred sales charges from Class A and Class C,
respectively, for the fiscal year ended December 31, 1997; and (c)
approximately $202,038 in front-end sales charges from Class A for the fiscal
year ended December 31, 1997, none of which was retained by the Distributor.
The Distributor has informed the Fund that the entire fee payable by Class
A and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class's average daily net assets
are currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers, Inc. (of which
the Distributor is a member). The "service fee" is a payment made for
personal service and/or the maintenance of shareholder accounts. The
remaining portion of the Plan fees payable by a Class, if any, is
characterized as an "asset-based sales charge" as such is defined by the
aforementioned Rules of the Association.
The Plan 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 Trustees of the Fund who are not
"interested persons" of the Fund (as defined in the Act) and who have no
direct or indirect financial interest in the operation of the Plan (the
"Independent 12b-1 Trustees"), 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 voting
securities of the Fund at an Annual Meeting of Shareholders of the Fund held
on April 21, 1987.
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 an internal reorganization the share distribution
activities
29
<PAGE>
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. At their meeting held on April 28,
1993, the Trustees, including a majority of the Independent 12b-1 Trustees,
approved certain technical amendments to the Plan in connection with
amendments adopted by the National Association of Securities Dealers, Inc. to
its Rules of the Association. At their meeting held on October 26, 1995, the
Trustees of the Fund, including all of the Independent 12b-1 Trustees,
approved an amendment to the Plan to permit payments to be made under the
Plan with respect to certain distribution expenses incurred in connection
with the distribution of shares, including personal services to shareholders
with respect to holdings of such shares, of an investment company whose
assets are acquired by the Fund in a tax-free reorganization. At their
meeting held on June 30, 1997, the Trustees, including a majority of the
Independent 12b-1 Trustees, approved amendments to the Plan to reflect the
multiple-class structure for the Fund, which took effect on July 28, 1997.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report
provided by the Distributor of the amounts expended under the Plan and the
purpose for which such expenditures were made. Class B shares of the Fund
accrued amounts payable to the Distributor under the Plan, during the fiscal
year ended December 31, 1997, of $30,004,099. This amount is equal to 0.83%
of the average daily net assets of Class B for the fiscal year and was
calculated pursuant to clause (a) of the compensation formula under the Plan.
For the fiscal period July 28 through December 31, 1997, Class A and Class C
shares of the Fund accrued payments under the Plan amounting to $7,380 and
$26,712, respectively, which amounts are equal to 0.25% and 1.00% of the
average daily net assets of Class A and Class C, respectively, for such
period.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set
forth in the Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the account executives or
dealers of record in all cases. On orders of $1 million or more (for which no
sales charge was paid) or net asset value purchases by employer-sponsored
401(k) and other plans qualified under Section 401(a) of the Internal Revenue
Code ("Qualified Retirement Plans") for which Morgan Stanley Dean Witter
Trust FSB ("MSDW Trust") serves as Trustee or DWR's Retirement Plan Services
serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement, the Investment Manager compensates DWR's account executives by
paying them, from its own funds, a gross sales credit of 1.0% of the amount
sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission,
currently a residual of up to 0.25% of the current value (not including
reinvested dividends or distributions) of the amount sold in all cases. In
the case of Class B shares purchased on or after July 28, 1997 by Qualified
Retirement Plans for which MSDW Trust serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement, DWR compensates its account executives by paying them,
from its own funds, a gross sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value
of the respective accounts for which they are the account executives of
record.
30
<PAGE>
With respect to Class D shares other than shares held by participants in
the InterCapital mutual fund asset allocation program, the Investment Manager
compensates DWR's account executives by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of
up to 1.0% of the amount sold. There is a chargeback of 100% of the amount
paid if the Class D shares are redeemed in the first year and a chargeback of
50% of the amount paid if the Class D shares are redeemed in the second year
after purchase. The Investment Manager also compensates DWR's account
executives by paying them, from its own funds, an annual residual commission,
currently a residual of up to 0.10% of the current value of the respective
accounts for which they are the account executives of record (not including
accounts of participants in the InterCapital mutual fund asset allocation
program).
The gross sales credit is a charge which reflects commissions paid by DWR
to its account executives and DWR's Fund-associated distribution-related
expenses, including sales compensation, and overhead and other branch office
distribution-related expenses including (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery
and supplies, (b) the costs of client sales seminars, (c) travel expenses of
mutual fund sales coordinators to promote the sale of Fund shares and (d)
other expenses relating to branch promotion of Fund sales. The distribution
fee that the Distributor receives from the Fund under the Plan, in effect,
offsets distribution expenses incurred under the Plan on behalf of the Fund
and, in the case of Class B shares, opportunity costs, such as the gross
sales credit and an assumed interest charge thereon ("carrying charge"). In
the Distributor's reporting of the distribution expenses to the Fund, in the
case of Class B shares, such assumed interest (computed at the "broker's call
rate") has been calculated on the gross credit as it is reduced by amounts
received by the Distributor under the Plan and any contingent deferred sales
charges received by the Distributor upon redemption of shares of the Fund. No
other interest charge is included as a distribution expense in the
Distributor's calculation of its distribution costs for this purpose. The
broker's call rate is the interest rate charged to securities brokers on
loans secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments
at the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case
of Class A, and 1.0%, in the case of Class C, of the average net assets of
the respective Class during the month. No interest or other financing
charges, if any, incurred on any distribution expenses on behalf of Class A
and Class C will be reimbursable under the Plan. With respect to Class A, in
the case of all expenses other than expenses representing the service fee,
and, with respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to account executives, such
amounts shall be determined at the beginning of each calendar quarter by the
Trustees, including, a majority of the Independent 12b-1 Trustees. Expenses
representing the service fee (for Class A) or a gross sales credit or a
residual to account executives (for Class C) may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall
be reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Trustees will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund,
together with a report explaining the purposes and anticipated benefits of
incurring such expenses. The Trustees will determine which particular
expenses, and the portions thereof, that may be borne by the Fund, and in
making such a determination shall consider the scope of the Distributor's
commitment to promoting the distribution of the Fund's Class A and Class C
shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended December 31, 1997 to the Distributor.
The Distributor and DWR estimate that they have spent, pursuant to the Plan,
$190,354,031 on behalf of Class B since the inception of the Prior Plan. It
is estimated that this amount was spent in approximately the following ways:
(i) 3.83% ($7,290,650)--advertising and promotional expenses; (ii) 0.34%
($654,259)--printing of prospectuses for distribution to
31
<PAGE>
other than current shareholders; and (iii) 95.83% ($182,409,122)--other
expenses, including the gross sales credit and the carrying charge, of which
7.09% ($12,930,176) represents carrying charges, 37.39% ($68,198,328)
represents commission credits to DWR branch offices for payments of
commissions to account executives and 55.52% ($101,280,618) represents
overhead and other branch office distribution-related expenses. The amounts
accrued by Class A and Class C for distribution during the fiscal period July
28 through December 31, 1997 were for expenses which relate to compensation
of sales personnel and associated overhead expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of
shares. The Distributor has advised the Fund that in the case of Class B
shares the excess distribution expenses, including the carrying charge
designed to approximate the opportunity costs incurred by DWR which arise
from it having advanced monies without having received the amount of any
sales charges imposed at the time of sale of the Fund's Class B shares,
totalled $72,540,376 as of December 31, 1997. Because there is no requirement
under the Plan that the Distributor be reimbursed for all distribution
expenses with respect to Class B shares or any requirement that the Plan be
continued from year to year, this excess amount does not constitute a
liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such
expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or contingent deferred sales charges, may or may not be
recovered through future distribution fees or contingent deferred sales
charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct
financial interest in the operation of the Plan except to the extent that the
Distributor, InterCapital, DWR, DWSC or certain of their employees may be
deemed to have such an interest as a result of benefits derived from the
successful operation of the Plan or as a result of receiving a portion of the
amounts expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending December 31, 1996 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.
Prior to the Board's approval of amendments to the Plan to reflect the
multiple-class structure for the Fund, the most recent continuance of the
Plan for one year, until April 30, 1998, was approved by the Board of
Trustees of the Fund, including a majority of the Independent 12b-1 Trustees,
at a Board meeting held on April 24, 1997. Prior to approving the
continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to
continue the Plan, the Trustees considered: (1) the Fund's experience under
the Plan and whether such experience indicates that the Plan is operating as
anticipated; (2) the benefits the Fund had obtained, was obtaining and would
be likely to obtain under the Plan; and (3) what services had been provided
and were continuing to be provided under the Plan to the Fund and its
shareholders. Based upon their review, the Trustees of the Fund, including
each of the Independent 12b-1 Trustees, determined that continuation of the
Plan would be in the best interest of the Fund and would have a reasonable
likelihood of continuing to benefit the Fund and its shareholders. In the
Trustees' quarterly review of the Plan, they will consider its continued
appropriateness and the level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of
the affected Class or Classes of the Fund, and all material amendments to the
Plan must also be approved by the Trustees in the manner described above. The
Plan may be terminated at any time, without payment of any penalty, by vote
of a majority of the Independent 12b-1 Trustees or by a vote of a majority of
the outstanding voting securities of the Fund (as defined in the Act) on not
more than thirty days' written notice to any other party to the Plan. So long
as the Plan is in effect, the election and nomination of Independent 12b-1
Trustees shall be committed to the discretion of the Independent 12b-1
Trustees.
32
<PAGE>
DETERMINATION OF NET ASSET VALUE
- -----------------------------------------------------------------------------
The net asset value per share for each Class of shares of the Fund is
determined once daily as of 4:00 p.m. New York time (or, on days when the New
York Stock Exchange closes prior to 4:00 p.m., at such earlier time) on each
day that the New York Stock Exchange is open. The New York Stock Exchange
currently observes the following holidays: New Year's Day, Reverend Dr.
Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
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
supervision of the Trustees.
Generally, trading in foreign securities, as well as corporate bonds,
United States government securities and money market instruments, is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of
the New York Stock Exchange. Occasionally, events which may affect the values
of such securities and such exchange rates may occur between the times at
which they are determined and the close of the New York Stock Exchange and
will therefore not be reflected in the computation of the Fund's net asset
value. If events that may affect the value of such securities occur during
such period, then these securities may be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without
an initial sales charge are subject to a contingent deferred sales charge
("CDSC") of 1.0% if redeemed within one year of purchase, except in the
circumstances discussed in the Prospectus.
Right of Accumulation. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for
purchases of shares of the Fund totalling at least $25,000 in net asset
value. For example, if any person or entity who qualifies for this privilege
holds Class A shares of the Fund and/or other Dean Witter Funds that are
multiple class funds ("Dean Witter Multi-Class Funds") or shares of other
Dean Witter Funds sold with a front-end sales charge purchased at a price
including a front-end sales charge having a current value of $5,000, and
purchases $20,000 of additional shares of the Fund, the sales charge
applicable to the $20,000 purchase would be 4.75% of the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of
33
<PAGE>
Accumulation. Similar notification must be made in writing by the selected
broker-dealer or shareholder when such an order is placed by mail. The
reduced sales charge will not be granted if: (a) such notification is not
furnished at the time of the order; or (b) a review of the records of the
Distributor or Morgan Stanley Dean Witter Trust FSB (the "Transfer Agent")
fails to confirm the investor's represented holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges
are available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase of Class A shares made during the period will receive the
reduced sales commission applicable to the amount represented by the goal, as
if it were a single purchase. A number of shares equal in value to 5% of the
dollar amount of the Letter of Intent will be held in escrow by the Transfer
Agent, in the name of the shareholder. The initial purchase under a Letter of
Intent must be equal to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to
pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the
Distributor is authorized by the shareholder to liquidate a sufficient number
of his or her escrowed shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced
sales charges in the same manner as set forth above under "Right of
Accumulation," but there will be no retroactive reduction of sales charges on
previous purchases. For the purpose of determining whether the investor is
entitled to a further reduced sales charge applicable to purchases at or
above a sales charge level which exceeds the stated goal of a Letter of
Intent, the cumulative current net asset value of any shares owned by the
investor in any other Dean Witter Funds held by the shareholder which were
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Dean Witter Funds acquired in exchange for those
shares, and including in each case shares acquired through reinvestment of
dividends and distributions) will be added to the cost or net asset value of
shares of the Fund owned by the investor. However, shares of "Exchange Funds"
(see "Shareholder Services--Exchange Privilege") and the purchase of shares
of other Dean Witter Funds will not be included in determining whether the
stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As
stated in the Prospectus, a CDSC will be imposed on any redemption by an
investor if after such redemption the current value of the investor's Class B
shares of the Fund is less than the dollar amount of all payments by the
shareholder for the purchase of Class B shares during the preceding six years
(or, in the case of shares held by certain Qualified Retirement Plans, three
years). However, no CDSC will be imposed to the extent that the net asset
value of the shares redeemed does not exceed: (a) the current net asset value
of shares purchased more than six years (or, in the case of shares held by
certain Qualified Retirement Plans, three years) prior to the redemption,
plus (b) the current net asset value of shares purchased through reinvestment
of dividends or distributions of the Fund or another Dean Witter Fund (see
"Shareholder Services--Targeted
34
<PAGE>
Dividends"), plus (c) the current net asset value of shares acquired in
exchange for (i) shares of Dean Witter front-end sales charge funds, or (ii)
shares of other Dean Witter Funds for which shares of front-end sales charge
funds have been exchanged (see "Shareholder Services--Exchange Privilege"),
plus (d) increases in the net asset value of the investor's shares above the
total amount of payments for the purchase of Fund shares made during the
preceding six (three) years. The CDSC will be paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the
amount which represents an increase in the net asset value of the investor's
shares above the amount of the total payments for the purchase of shares
within the last six years (or, in the case of shares held by certain
Qualified Retirement Plans, three years) will be redeemed first. In the event
the redemption amount exceeds such increase in value, the next portion of the
amount redeemed will be the amount which represents the net asset value of
the investor's shares purchased more than six (three) years prior to the
redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of Dean Witter
front-end sales charge funds, or for shares of other Dean Witter funds for
which shares of front-end sales charge funds have been exchanged. A portion
of the amount redeemed which exceeds an amount which represents both such
increase in value and the value of shares purchased more than six years (or,
in the case of shares held by certain Qualified Retirement Plans, three
years) prior to the redemption and/or shares purchased through reinvestment
of dividends or distributions and/or shares acquired in the above-described
exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number
of years from the time of any payment for the purchase of shares, all
payments made during a month will be aggregated and deemed to have been made
on the last day of the month. The following table sets forth the rates of the
CDSC applicable to most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- --------------------------- ------------------------
<S> <C>
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified
Retirement Plans for which MSDW Trust serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------- ------------------------
<S> <C>
First .................... 2.0%
Second ................... 2.0%
Third .................... 1.0%
Fourth and thereafter .... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year or three-year period. This will result in any such
CDSC being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years
(or, in the case of shares held by certain Qualified Retirement Plans, three
years) of purchase which are in excess of these amounts and which redemptions
do not qualify for waiver of the CDSC, as described in the Prospectus.
35
<PAGE>
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC
of 1.0% on most redemptions made within one year after purchase, except in
the circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund and maintained by the
Transfer Agent. This is an open account in which shares owned by the investor
are credited by the Transfer Agent in lieu of issuance of a share
certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares
and may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder-instituted
transaction takes place in the Shareholder Investment Account, the
shareholder will be mailed a confirmation of the transaction from the Fund or
from DWR or other selected broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of
the Fund, unless the shareholder requests that they be paid in cash. Each
purchase of shares of the Fund is made upon the condition that the Transfer
Agent is thereby automatically appointed as agent of the investor to receive
all dividends and capital gains distributions on shares owned by the
investor. Such dividends and distributions will be paid, at the net asset
value per share, in shares of the applicable Class of the Fund (or in cash if
the shareholder so requests) as of the close of business on the record date.
At any time an investor may request the Transfer Agent, in writing, to have
subsequent dividends and/or capital gains distributions paid to him or her in
cash rather than shares. To assure sufficient time to process the change,
such request should be received by the Transfer Agent at least five business
days prior to the record date of the dividend or distribution. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payments will be made to DWR or other
selected broker-dealer, and will be forwarded to the shareholder, upon the
receipt of proper instructions. It has been and remains the Fund's policy and
practice that, if checks for dividends or distributions paid in cash remain
uncashed, no interest will accrue on amounts represented by such uncashed
checks.
Targeted Dividends. (Service Mark) In states where it is legally
permissible, shareholders may also have all income dividends and capital
gains distributions automatically invested in shares of any Class of an
open-end Dean Witter Fund other than Dean Witter American Value Fund or in
another Class of Dean Witter American Value Fund. Such investment will be
made as described above for automatic investment in shares of the applicable
Class of the Fund, at the net asset value per share of the selected Dean
Witter Fund as of the close of business on the payment date of the dividend
or distribution and will begin to earn dividends, if any, in the selected
Dean Witter Fund the next business day. To participate in the Targeted
Dividends program, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent. Shareholders of the
Fund must be shareholders of the selected Class of the Dean Witter Fund
targeted to receive investments from dividends at the time they enter the
Targeted Dividends program. Investors should review the prospectus of the
targeted Dean Witter Fund before entering the program.
EasyInvest. (Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated
36
<PAGE>
the same business day the transfer of funds is effected (subject to any
applicable sales charges). Shares of the Dean Witter money market funds
redeemed in connection with EasyInvest are redeemed on the business day
preceding the transfer of funds. For further information or to subscribe to
EasyInvest, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares
of the applicable Class at net asset value, without the imposition of a CDSC
upon redemption, by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset
value per share next determined after receipt of the check or proceeds by the
Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own
or purchase shares of the Fund having a minimum value of $10,000 based upon
the then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount,
not less than $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable CDSC will be imposed on shares redeemed
under the Withdrawal Plan (see "Purchase of Fund Shares"). Therefore, any
shareholder participating in the Withdrawal Plan will have sufficient shares
redeemed from his or her account so that the proceeds (net of any applicable
CDSC) to the shareholder will be the designated monthly or quarterly amount.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment designated in the application. The
shares will be redeemed at their net asset value determined, at the
shareholder's option, on the tenth or twenty-fifth day (or next following
business day) of the relevant month or quarter and normally a check for the
proceeds will be mailed by the Transfer Agent, or amounts credited to a
shareholder's DWR brokerage account, within five business days after the date
of redemption. The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the share holder's original
investment will be correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income 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 sales charges which may be
applicable to purchases or redemptions of shares (see "Purchase of Fund
Shares").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the
account must send complete written instructions to the Transfer Agent to
enroll in the Withdrawal Plan. The shareholder's signature on such
instructions must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). A shareholder may, at any time, change the amount and interval of
withdrawal payments through his or her Account Executive or by written
notification to the Transfer Agent. In addition, the party and/or the address
to which checks are mailed may be changed by written notification to the
Transfer Agent, with signature guarantees required in the manner described
above. The shareholder may also terminate the Withdrawal Plan at any time by
written notice to the Transfer Agent. In the event of such termination, the
account will be continued as a regular shareholder investment account. The
shareholder may also redeem all or part of the shares held in the Withdrawal
Plan account (see "Redemptions and Repurchases" in the Prospectus) at any
time.
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<PAGE>
Direct Investments through Transfer Agent. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the
Fund for which they qualify at any time by sending a check in any amount, not
less than $100, payable to Dean Witter American Value Fund, and indicating
the selected Class, directly to the Fund's Transfer Agent. In the case of
Class A shares, after deduction of any applicable sales charge, the balance
will be applied to the purchase of Fund shares, and, in the case of shares of
the other Classes, the entire amount will be applied to the purchase of Fund
shares, at the net asset value per share next computed after receipt of the
check or purchase payment by the Transfer Agent. The shares so purchased will
be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of each Class of
shares of the Fund may exchange their shares for shares of the same Class of
shares of any other Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be exchanged for shares of any of the
following funds: Dean Witter Short-Term U.S. Treasury Trust, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter
Intermediate Term U.S. Treasury Trust and five Dean Witter Funds which are
money market funds (the foregoing nine funds are hereinafter referred to as
the "Exchange Funds"). Class A shares may also be exchanged for shares of
Dean Witter Multi-State Municipal Series Trust and Dean Witter Hawaii
Municipal Trust, which are Dean Witter Funds sold with a front-end sales
charge ("FSC Funds"). Class B shares may also be exchanged for shares of Dean
Witter Global Short-Term Income Fund Inc. ("Global Short-Term"), which is a
Dean Witter Fund offered with a CDSC. Exchanges may be made after the shares
of the Fund acquired by purchase (not by exchange or dividend reinvestment)
have been held for thirty days. There is no waiting period for exchanges of
shares acquired by exchange or dividend reinvestment. An exchange will be
treated for federal income tax purposes the same as a repurchase or
redemption of shares, on which the shareholder may realize a capital gain or
loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to
the contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit
should not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number
of factors, including the number of years from the time of purchase until the
time of redemption or exchange ("holding period"). When shares of a Dean
Witter Multi-Class Fund or Global Short-Term are exchanged for shares of an
Exchange Fund, the exchange is executed at no charge to the shareholder,
without the imposition of the CDSC at the time of the exchange. During the
period of time the shareholder remains in the Exchange Fund (calculated from
the last day of the month in which the Exchange Fund shares were acquired),
the holding period or "year since purchase payment made" is frozen. When
shares are redeemed out of the Exchange Fund, they will be subject to a CDSC
which would be based upon the period of time the shareholder held shares in a
Dean Witter Multi-Class Fund or in Global Short-Term. However, in the case of
shares exchanged into an Exchange Fund on or after April 23, 1990, upon a
redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the
Exchange Fund 12b-1 distribution fees incurred on or after that date which
are attributable to those shares. Shareholders acquiring shares of an
Exchange Fund pursuant to this exchange privilege may exchange those shares
back into a Dean Witter Multi-Class Fund or Global Short-Term from the
Exchange Fund, with no CDSC being imposed on such exchange. The holding
period previously frozen when shares were first exchanged for shares of the
Exchange Fund resumes on the last day of the month in which shares of a Dean
Witter Multi-Class Fund or of Global Short-Term are reacquired. A CDSC is
imposed only upon an ultimate redemption, based upon the time (calculated as
described above) the shareholder was invested in a Dean Witter Multi-Class
Fund or in Global
38
<PAGE>
Short-Term. In the case of exchanges of Class A shares which are subject to a
CDSC, the holding period also includes the time (calculated as described
above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or
Global Short-Term are exchanged for shares of a Dean Witter Multi-Class Fund,
shares of Global Short-Term, shares of a FSC Fund or shares of an Exchange
Fund, the date of purchase of the shares of the fund exchanged into, for
purposes of the CDSC upon redemption, will be the last day of the month in
which the shares being exchanged were originally purchased. In allocating the
purchase payments between funds for purposes of the CDSC, the amount which
represents the current net asset value of shares at the time of the exchange
which were (i) purchased more than one, three or six years (depending on the
CDSC schedule applicable to the shares) prior to the exchange, (ii)
originally acquired through reinvestment of dividends or distributions and
(iii) acquired in exchange for shares of FSC Funds, or for shares of other
Dean Witter Funds for which shares of FSC Funds have been exchanged (all such
shares called "Free Shares"), will be exchanged first. After an exchange, all
dividends earned on shares in an Exchange Fund will be considered Free
Shares. If the exchanged amount exceeds the value of such Free Shares, an
exchange is made, on a block-by-block basis, of non-Free Shares held for the
longest period of time (except that, with respect to Class B shares, if
shares held for identical periods of time but subject to different CDSC
schedules are held in the same Exchange Privilege account, the shares of that
block that are subject to a lower CDSC rate will be exchanged prior to the
shares of that block that are subject to a higher CDSC rate). Shares equal to
any appreciation in the value of non-Free Shares exchanged will be treated as
Free Shares, and the amount of the purchase payments for the non-Free Shares
of the fund exchanged into will be equal to the lesser of (a) the purchase
payments for, or (b) the current net asset value of, the exchanged non-Free
Shares. If an exchange between funds would result in exchange of only part of
a particular block of non-Free Shares, then shares equal to any appreciation
in the value of the block (up to the amount of the exchange) will be treated
as Free Shares and exchanged first, and the purchase payment for that block
will be allocated on a pro rata basis between the non-Free Shares of that
block to be retained and the non-Free Shares to be exchanged. The prorated
amount of such purchase payment attributable to the retained non-Free Shares
will remain as the purchase payment for such shares, and the amount of
purchase payment for the exchanged non-Free Shares will be equal to the
lesser of (a) the prorated amount of the purchase payment for, or (b) the
current net asset value of, those exchanged non-Free Shares. Based upon the
procedures described in the Prospectus under the caption "Purchase of Fund
Shares," any applicable CDSC will be imposed upon the ultimate redemption of
shares of any fund, regardless of the number of exchanges since those shares
were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any
other of the funds and the general administration of the Exchange Privilege,
the Transfer Agent acts as agent for the Distributor and for the
shareholder's selected broker-dealer, if any, in the performance of such
functions. With respect to exchanges, redemptions or repurchases, the
Transfer Agent shall be liable for its own negligence and not for the default
or negligence of its correspondents or for losses in transit. The Fund shall
not be liable for any default or negligence of the Transfer Agent, the
Distributor or any selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Dean Witter Liquid
Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter
California Tax-Free Daily Income Trust and Dean Witter New York Municipal
Money Market Trust, although those funds may, in their discretion, accept
initial investments of as low as $1,000. The
39
<PAGE>
minimum initial investment for the Exchange Privilege account of each Class
is $10,000 for Dean Witter Short-Term U.S. Treasury Trust, although that
fund, in its discretion, may accept initial purchases of as low as $5,000.
The minimum initial investment for the Exchange Privilege account of each
Class is $5,000 for Dean Witter Special Value Fund. The minimum initial
investment for the Exchange Privilege account of each Class of all other Dean
Witter Funds for which the Exchange Privilege is available is $1,000.) Upon
exchange into an Exchange Fund, the shares of that fund will be held in a
special Exchange Privilege Account separately from accounts of those
shareholders who have acquired their shares directly from that fund. As a
result, certain services normally available to shareholders of those funds,
including the check writing feature, will not be available for funds held in
that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter funds for
whichshares of the Fund have been exchanged, upon such notice as may be
required by applicable regulatory agencies (presently sixty days' prior
written notice for termination or material revision), provided that six
months' prior written notice of termination will be given to the shareholders
who hold shares of Exchange Funds pursuant to the Exchange Privilege, and
provided further that the Exchange Privilege may be terminated or materially
revised without notice at times (a) when the New York Stock Exchange is
closed for other than customary weekends and holidays, (b) when trading on
that Exchange is restricted, (c) when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, (d) during any other period when the
Securities and Exchange Commission by order so permits (provided that
applicable rules and regulations of the Securities and Exchange Commission
shall govern as to whether the conditions prescribed in (b) or (c) exist) or
(e) if the Fund would be unable to invest amounts effectively in accordance
with its investment objective, policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount
of any applicable CDSC. If shares are held in a shareholder's account without
a share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption. The share certificate, or
an accompanying stock power, and the request for redemption, must be signed
by the shareholder or shareholders exactly as the shares are registered. Each
request for redemption, whether or not accompanied by a share certificate,
must be sent to the Fund's Transfer Agent, which will redeem the shares at
their net asset value next computed (see "Purchase of Fund Shares") after it
receives the request, and certificate, if any, in good order. Any redemption
request received after such computation will be redeemed at the next
determined net asset value. The term "good order" means that the share
certificate, if any, and request for redemption are properly signed,
accompanied by any documentation required by the Transfer Agent, and bear
signature guarantees when required by the Fund or 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,
40
<PAGE>
signatures must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). A stock power may be obtained from any dealer or commercial bank.
The Fund may change the signature guarantee requirements from time to time
upon notice to shareholders, which may be by means of a supplement to the
prospectus or a new prospectus.
Repurchase. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by
DWR and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer
reduced by any applicable CDSC.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares of any Class presented for repurchase or
redemption will be made by check within seven days after receipt by the
Transfer Agent of the certificate and/or written request in good order. Such
payment may be postponed or the right of redemption suspended at times (a)
when the New York Stock Exchange is closed for other than customary weekends
and holidays, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) during
any other period when the Securities and Exchange Commission by order so
permits; provided that applicable rules and regulations of the Securities and
Exchange Commission shall govern as to whether the conditions prescribed in
(b) or (c) exist. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum
time needed to verify that the check used for investment has been honored
(not more than fifteen days from the time of receipt of the check by the
Transfer Agent). It has been and remains the Fund's policy and practice that,
if checks for redemption proceeds remain uncashed, no interest will accrue on
amounts represented by such uncashed checks. Shareholders maintaining margin
accounts with DWR or another selected broker-dealer are referred to their
account executive regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the
length of time shares subject to the charge have been held), any transfer
involving less than all of the shares in an account will be made on a pro
rata basis (that is, by transferring shares in the same proportion that the
transferred shares bear to the total shares in the account immediately prior
to the transfer). The transferred shares will continue to be subject to any
applicable CDSC as if they had not been so transferred.
Reinstatement Privilege. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 35 days after the date of
redemption or repurchase, reinstate any portion or all of the proceeds of
such redemption or repurchase in shares of the Fund in the same Class at the
net asset value next determined after a reinstatement request, together with
the proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax 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.
41
<PAGE>
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.
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 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.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction. The Treasury intends to issue
regulations to permit shareholders to take into account their proportionate
share of the Fund's capital gains distributions that will be subject to a
reduced rate under the Taxpayer Relief Act of 1997. The Taxpayer Relief Act
reduces the maximum tax on long-term capital gains from 28% to 20%; however,
it also lengthens the required holding period to obtain the lower rate from
more than 12 months to more than 18 months. The lower rates do not apply to
collectibles and certain other assets. Additionally, the maximum capital gain
rate for assets that are held more than five years and that are acquired
after December 31, 2000 is 18%.
The Fund intends to remain qualified as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986 (the "Code"). As
such, the Fund will not be subject to federal income tax on its net
investment income and capital gains, if any, realized during any fiscal year
in which it distributes such income and capital gains to its shareholders. In
addition, the Fund intends to distribute to its shareholders each calendar
year a sufficient amount of ordinary income and capital gains to avoid the
imposition of a 4% excise tax. Shareholders will normally have to pay federal
income taxes, and any state and/or local 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 income regardless
of whether the shareholder receives such payments in additional shares or in
cash. Any dividends declared in the last quarter of any calendar year which
are paid in the following year prior to February 1 will be deemed received by
the shareholder in the prior year.
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.
42
<PAGE>
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.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains during
the six-month period.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. These figures are
computed separately for Class A, Class B, Class C and Class D shares. The
Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten
year period, or for the period from the date of commencement of operations,
if shorter than any of the foregoing. The ending redeemable value is reduced
by any CDSC at the end of the one, five or ten year or other period. For the
purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing the average annual
total return involves a percentage obtained by dividing the ending redeemable
value by the amount of the initial investment, taking a root of the quotient
(where the root is equivalent to the number of years in the period) and
subtracting 1 from the result. The average annual total returns for Class B
for the one, five and ten year periods ended December 31, 1997, were 26.55%,
17.80% and 17.73%, respectively.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class C and Class D for specified periods by
determining the aggregate percentage rate which will result in the ending
value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value by the
initial $1,000 investment and subtracting 1 from the result. The ending
redeemable value is reduced by any CDSC at the end of the period. Based on
the foregoing calculations, the total returns for the period July 28, 1997
through December 31, 1997 were 2.05%, 6.46% and 7.83% for Class A, Class C
and Class D, respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for
Class A or the deduction of the CDSC for each of Class B and Class C which,
if reflected, would reduce the performance 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 sales charge. Based on this
calculation, the average annual total returns of Class B for the one, five
and ten year periods ended December 31, 1997, were 31.55%, 18.01% and 17.73%,
respectively.
In addition, the Fund may compute its aggregate total return for each
Class for specified periods by determining the aggregate percentage rate
which will result in the ending value of a hypothetical $1,000 investment
made at the beginning of the period. For the purpose of this calculation, it
is assumed that all dividends and distributions are reinvested. The formula
for computing aggregate total return involves
43
<PAGE>
a percentage obtained by dividing the ending value (without reduction for any
sales charge) by the initial $1,000 investment and subtracting 1 from the
result. Based on the foregoing calculation, the total returns for Class B for
the one, five and ten year period ended December 31, 1997, were 31.55%,
128.87% and 411.49%, respectively. Based on the foregoing calculations, the
total returns for Class A, Class C and Class D for the period July 28 through
December 31, 1997 were 7.70%, 7.39% and 7.83%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1
to the Fund's aggregate total return to date (expressed as a decimal and
without taking into account the effect of any applicable CDSC) and
multiplying by $9,475, $48,000 and $97,000 in the case of Class A
(investments of $10,000, $50,000 and $100,000 adjusted for the initial sales
charge) or by $10,000, $50,000 and $100,000 in the case of each of Class B,
Class C and Class D, as the case may be. Investments of $10,000, $50,000 and
$100,000 in each Class at inception of the Class would have grown to the
following amounts at December 31, 1997:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION --------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ---------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Class A .. 7/28/97 $ 10,205 $ 51,696 $ 104,469
Class B.... 3/27/80 124,526 622,630 1,245,260
Class C.... 7/28/97 10,739 53,695 107,390
Class D.... 7/28/97 10,783 53,915 107,830
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent
organizations.
SHARES OF THE FUND
- -----------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share of beneficial interest held. The Fund is authorized to issue an
unlimited number of shares of beneficial interest. All of the Trustees have
been elected by the shareholders of the Fund, most recently at a Special
Meeting of Shareholders held on May 21, 1997. The Trustees themselves have
the power to alter the number and the terms of office of the Trustees (as
provided for in the Declaration of Trust), and they may at any time lengthen
or shorten their own terms or make their terms of unlimited duration and
appoint their own successors, provided that always at least a majority of the
Trustees has been elected by the shareholders of the Fund. Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove the
Trustees. The voting rights of shareholders are not cumulative, so that
holders of more than 50 percent of the shares voting can, if they choose,
elect all Trustees being selected, while the holders of the remaining shares
would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. The Trustees have not currently authorized any such
additional series or classes of shares other than as set forth in the
Prospectus.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor
is any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise
from his/her or its own bad faith, willful misfeasance, gross negligence or
reckless disregard of his/her or its duties. It also provides that all third
persons shall look solely to the Fund property for satisfaction of claims
arising in connection with the affairs of the Fund. With the exceptions
stated, the Declaration of Trust provides that a Trustee, officer, employee
or agent is entitled to be indemnified against all liability in connection
with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of
beneficial interest.
The Fund shall be of unlimited duration subject to the provisions in the
Declaration of Trust concerning termination by action of the shareholders or
the Trustees.
44
<PAGE>
CUSTODIAN AND TRANSFER AGENT
- -----------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is
the Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), Harborside Financial
Center, Plaza Two, Jersey City, New Jersey 07311 is the Transfer Agent of the
Fund's shares and Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various
investment plans described herein. MSDW Trust is an affiliate of Dean Witter
InterCapital Inc., the Fund's Investment Manager, and of Dean Witter
Distributors Inc., the Fund's Distributor. As Transfer Agent and Dividend
Disbursing Agent, MSDW Trust's responsibilities include maintaining
shareholder accounts, disbursing cash dividends and reinvesting dividends,
processing account registration changes, handling purchase and redemption
transactions, mailing prospectuses and reports, mailing and tabulating
proxies, processing share certificate transactions, and maintaining
shareholder records and lists. For these services MSDW Trust receives a per
shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund.
The independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- -----------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports
showing the Fund's portfolio and other information. An annual report,
containing financial statements audited by independent 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
- -----------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The financial statements of the Fund for the fiscal year ended December
31, 1997 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 LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
45
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (86.0%)
Agriculture Related (1.3%)
400,000 Dekalb Genetics Corp. (Class B) ................................. $ 15,700,000
516,667 Delta & Pine Land Co. .......................................... 15,758,343
200,000 Pioneer Hi-Bred International, Inc. ............................ 21,450,000
--------------
52,908,343
--------------
Auto Related (0.1%)
127,900 Budget Group, Inc. (Class A)* ................................... 4,420,544
--------------
Banks (9.8%)
350,000 Ahmanson (H.F.) & Co. .......................................... 23,428,125
105,000 AmSouth Bancorporation .......................................... 5,702,812
75,000 City National Corp. ............................................ 2,770,312
130,000 Comerica, Inc. ................................................. 11,732,500
17,450,000 Credito Italiano SpA (Italy) .................................... 53,823,613
275,000 Crestar Financial Corp. ........................................ 15,675,000
687,000 Dime Bancorp, Inc. ............................................. 20,781,750
205,000 First Security Corp. ........................................... 8,584,375
150,000 First Tennessee National Corp. ................................. 10,012,500
205,000 First Union Corp. .............................................. 10,506,250
340,000 Mellon Bank Corp. .............................................. 20,612,500
200,000 Northern Trust Corp. ........................................... 13,950,000
1,200,000 Norwest Corp. .................................................. 46,350,000
360,000 PNC Bank Corp. ................................................. 20,542,500
185,000 Southtrust Corp. ............................................... 11,701,250
200,000 Summit Bancorp .................................................. 10,650,000
245,000 U.S. Bancorp .................................................... 27,424,687
100,000 Union Planters Corp. ............................................ 6,793,750
410,000 Washington Mutual, Inc. ........................................ 26,137,500
170,000 Wells Fargo & Co. .............................................. 57,704,375
93,200 Zions Bancorporation ............................................ 4,194,000
--------------
409,077,799
--------------
Beverages -Soft Drinks (0.1%)
41,900 Coca Cola Co. ................................................... 2,791,587
--------------
Biotechnology (2.2%)
350,000 Alkermes, Inc.* ................................................. 6,868,750
870,000 Biochem Pharma, Inc. (Canada)* .................................. 18,106,875
881,000 Centocor, Inc.* ................................................. 29,293,250
300,000 Genzyme Corp. General Division* ................................ 8,287,500
375,000 Gilead Sciences, Inc.* .......................................... 14,343,750
385,000 IDEC Pharmaceuticals Corp.* ..................................... 13,234,375
--------------
90,134,500
--------------
Cable & Telecommunications (2.2%)
324,000 Comcast Corp. (Class A) ......................................... $ 10,287,000
1,090,000 Comcast Corp. (Class A Special) ................................. 34,335,000
550,000 Cox Communications, Inc. (Class A)* ............................. 22,034,375
900,000 Tele-Communications, Inc. (Class A)* ............................ 25,087,500
--------------
91,743,875
--------------
Cable Television Equipment (0.4%)
300,000 CIENA Corp.* .................................................... 18,337,500
--------------
Capital Goods (0.6%)
325,000 General Electric Co. ............................................ 23,846,875
--------------
Communications Equipment (0.2%)
180,000 Cisco Systems, Inc.* ............................................ 10,035,000
--------------
Computer Services (0.5%)
400,000 Paychex, Inc. ................................................... 20,250,000
--------------
Computer Software (4.5%)
320,000 BMC Software, Inc.* ............................................. 20,960,000
69,000 Citrix Systems, Inc.* ........................................... 5,244,000
Computer Associates
800,000 International, Inc. ............................................ 42,300,000
730,000 Compuware Corp.* ................................................ 23,360,000
117,500 Manugistics Group, Inc.* ........................................ 5,214,062
1,000,000 PeopleSoft, Inc.* ............................................... 38,750,000
510,000 Platinum Technology, Inc.* ...................................... 14,407,500
40,000 SAP AG (Pref.)(Germany) ......................................... 13,092,325
440,500 Veritas Software Corp.* ......................................... 22,300,312
--------------
185,628,199
--------------
Consumer Business Services (2.2%)
700,000 Automatic Data Processing, Inc. ................................. 42,962,500
500,000 Corrections Corp. of America* ................................... 18,531,250
635,000 Sysco Corp. ..................................................... 28,932,187
--------------
90,425,937
--------------
Consumer -Products (10.5%)
385,000 Alberto-Culver Co. (Class B) .................................... 12,344,062
875,000 Albertson's, Inc. ............................................... 41,453,125
400,000 Clorox Co. ...................................................... 31,625,000
600,000 CVS Corp. ....................................................... 38,437,500
1,020,000 Fred Meyer, Inc.* ............................................... 37,102,500
500,000 Heinz (H.J.) Co. ................................................ 25,406,250
1,000,000 Kroger Co.* ..................................................... 36,937,500
920,000 Nabisco Holdings Corp. (Class A) ................................ 44,562,500
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1997, continued
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
100,000 Procter & Gamble Co. ........................................... $ 7,981,250
475,000 Quaker Oats Company (The) ....................................... 25,056,250
700,000 Rite Aid Corp. ................................................. 41,081,250
699,000 Safeway, Inc.* .................................................. 44,211,750
200,000 Sara Lee Corp. .................................................. 11,262,500
1,300,000 Walgreen Co. .................................................... 40,787,500
--------------
438,248,937
--------------
Drugs (6.1%)
425,000 Bristol-Myers Squibb Co. ....................................... 40,215,625
240,000 Cardinal Health, Inc. .......................................... 18,030,000
215,000 Dura Pharmaceuticals, Inc.* ..................................... 9,863,125
620,000 Lilly (Eli) & Co. .............................................. 43,167,500
200,000 Medicis Pharmaceutical Corp. (Class A)* ......................... 10,250,000
12,000 Novartis AG (Switzerland) ....................................... 19,459,459
530,000 Pfizer, Inc. .................................................... 39,518,125
645,000 Schering-Plough Corp. .......................................... 40,070,625
271,000 Warner-Lambert Co. ............................................. 33,604,000
--------------
254,178,459
--------------
Finance (1.1%)
800,000 Fannie Mae ...................................................... 45,650,000
--------------
Financial -Miscellaneous (6.0%)
205,000 American Express Co. ........................................... 18,296,250
Associates First Capital Corp.
190,000 (Class A) ....................................................... 13,513,750
300,000 Donaldson, Lufkin & Jenrette, Inc. .............................. 23,850,000
504,050 Edwards (A.G.), Inc. ........................................... 20,035,987
965,000 Freddie Mac ..................................................... 40,469,687
700,000 Hambrecht & Quist Group* ........................................ 25,550,000
2,800 Legg Mason, Inc. ............................................... 156,625
400,000 Lehman Brothers Holdings, Inc. .................................. 20,400,000
650,000 Merrill Lynch & Co., Inc. ...................................... 47,409,375
605,500 Paine Webber Group, Inc. ........................................ 20,927,594
91,500 Price (T. Rowe) Associates, Inc. ............................... 5,753,063
274,600 Providian Financial Corp. ....................................... 12,408,488
--------------
248,770,819
--------------
Healthcare -Diversified (0.4%)
470,000 General Nutrition Companies, Inc.* ............................. 15,921,250
--------------
Healthcare Products & Services (3.7%)
1,000,000 HBO & Co. ...................................................... 47,937,500
1,650,000 Health Management Associates, Inc. (Class A)* ................... 41,662,500
1,200,000 Healthsouth Corp.* .............................................. $ 33,300,000
398,100 Renal Treatment Centers, Inc.* .................................. 14,381,363
583,333 Total Renal Care Holdings, Inc.* ................................ 16,041,658
--------------
153,323,021
--------------
Hotels/Motels (1.1%)
1,393,798 Cendant Corp.* .................................................. 47,911,806
--------------
Household Products (0.4%)
360,000 Sunbeam Corporation, Inc. ...................................... 15,165,000
--------------
Insurance (3.7%)
441,000 Allstate Corp. .................................................. 40,075,875
120,000 Hartford Financial Services Group Inc. .......................... 11,227,500
250,000 Lincoln National Corp. .......................................... 19,531,250
133,470 Marsh & McLennan Companies, Inc. ................................ 9,951,857
401,000 SunAmerica Inc. ................................................. 17,142,750
125,000 Torchmark Corp. ................................................ 5,257,813
950,000 Travelers Group, Inc. ........................................... 51,181,250
--------------
154,368,295
--------------
Internet (2.3%)
600,000 America Online, Inc.* ........................................... 53,512,500
300,000 Check Point Software Technologies Ltd. (Israel)* ................ 12,225,000
260,000 CheckFree Holdings Corp.* ....................................... 7,020,000
345,000 Yahoo! Inc.* .................................................... 23,891,250
--------------
96,648,750
--------------
Machinery -Diversified (0.2%)
164,800 Thermo Electron Corp.* ......................................... 7,333,600
--------------
Media Group (9.3%)
1,610,000 CBS Corp. ....................................................... 47,394,375
689,500 Chancellor Media Corp.* ......................................... 51,453,938
450,000 Clear Channel Communications, Inc.* ............................. 35,746,875
701,000 Gannett Co., Inc. ............................................... 43,330,563
300,000 HSN, Inc.* ...................................................... 15,450,000
438,000 Jacor Communications, Inc.* ..................................... 23,268,750
400,000 News Corp., Ltd. (ADR)(Australia) ............................... 8,925,000
650,000 Outdoor Systems, Inc.* .......................................... 24,943,750
760,000 Time Warner, Inc. ............................................... 47,120,000
483,100 Tribune Co. .................................................... 30,072,975
325,000 Universal Outdoor Holdings, Inc.* .............................. 16,900,000
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1997, continued
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
306,600 Univision Communications, Inc. (Class A)* .......................$ 21,404,513
500,000 Viacom, Inc. (Class B)* ......................................... 20,718,750
--------------
386,729,489
--------------
Medical Supplies (1.9%)
450,000 Guidant Corp. ................................................... 28,012,500
500,000 Medtronic, Inc. ................................................. 26,156,250
200,000 Mentor Corp. .................................................... 7,300,000
285,300 Sofamor Danek Group, Inc.* ...................................... 18,562,331
--------------
80,031,081
--------------
Miscellaneous (0.7%)
480,000 Equitable Companies, Inc. ....................................... 23,880,000
169,000 Excite, Inc.* ................................................... 5,070,000
--------------
28,950,000
--------------
Recreation (0.5%)
205,000 Walt Disney Co. ................................................. 20,307,813
--------------
Restaurants (0.3%)
385,000 Cracker Barrel Old Country Store, Inc. .......................... 12,849,375
--------------
Retail (7.0%)
401,000 Barnes & Noble, Inc.* ........................................... 13,383,375
1,500,000 Costco Companies, Inc.* ......................................... 66,843,750
646,000 Dayton-Hudson Corp. ............................................. 43,605,000
527,500 Dollar General Corp. ............................................ 19,121,875
295,000 Family Dollar Stores, Inc. ...................................... 8,647,188
600,000 Gap, Inc. ....................................................... 21,262,500
700,000 Home Depot, Inc. ............................................... 41,212,500
361,100 Lowe's Companies, Inc. ......................................... 17,219,956
543,000 Mattel, Inc. ................................................... 20,226,750
350,000 Proffitt's, Inc.* ............................................... 9,953,125
740,000 Wal-Mart Stores, Inc. ........................................... 29,183,750
--------------
290,659,769
--------------
Telecommunications (1.6%)
750,000 LCI International, Inc.* ........................................ 23,062,500
800,000 Teleport Communications Group Inc.* ............................. 43,900,000
--------------
66,962,500
--------------
Transportation (0.9%)
500,000 OMI Corp.* ...................................................... 4,593,750
557,000 US Airways Group Inc.* .......................................... 34,812,500
--------------
39,406,250
--------------
Utilities (3.9%)
400,000 Ameritech Corp. .................................................$ 32,200,000
386,000 Bell Atlantic Corp. ............................................ 35,126,000
550,000 Consolidated Edison Co. of New York, Inc. ....................... 22,550,000
400,000 FPL Group, Inc. ................................................ 23,675,000
400,000 GTE Corp. ....................................................... 20,900,000
150,000 New York State Electric & Gas Corp. ............................ 5,325,000
455,000 U.S. West Communications Group, Inc. ............................ 20,531,875
--------------
160,307,875
--------------
Utilities -Electric (0.2%)
200,000 Pinnacle West Capital Corp. ..................................... 8,475,000
--------------
Utilities -Telecommunications (0.1%)
51,500 Intermedia Communications Inc.* ................................ 3,116,286
--------------
TOTAL COMMON STOCKS
(Identified Cost $3,070,263,608) ................................ 3,574,915,534
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (9.0%)
$242,000 U.S. Treasury Bond 6.375% due 08/15/27 .......................... 255,317,260
342,000 U.S. Treasury Strip 0.00% due 05/15/20 .......................... 88,916,580
107,000 U.S. Treasury Strip 0.00% due 11/15/19 .......................... 28,658,880
-------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $356,519,055) .................................. 372,892,720
-------------
SHORT-TERM INVESTMENTS (7.1%)
U.S. GOVERNMENT AGENCY (a)(7.0%)
293,000 Federal Home Loan Mortgage Corp. 6.00% due 01/02/98
(Amortized Cost $292,951,167) 292,951,167
-------------
REPURCHASE AGREEMENT (0.1%)
The Bank of New York 3.875% due 01/02/98 (dated 12/31/97,
4,377 proceeds $4,377,721)(b) (Identified Cost $4,376,779) ............ 4,376,779
-------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $297,327,946) .................................. 297,327,946
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1997, continued
<TABLE>
<CAPTION>
VALUE
- ------------------------------------ -------- --------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $3,724,110,609)(c) . 102.1% $4,245,136,200
LIABILITIES IN EXCESS OF OTHER
ASSETS .............................. (2.1) (89,244,700)
-------- --------------
NET ASSETS .......................... 100.0% $4,155,891,500
======== ==============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $4,016,966 U.S. Treasury Note 7.00% due 07/15/06
valued at $4,464,314.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$537,652,888 and the aggregate gross unrealized depreciation is
$16,627,297, resulting in net unrealized appreciation of
$521,025,591.
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $3,724,110,609)......................... $4,245,136,200
Receivable for:
Investments sold........................................ 29,647,388
Shares of beneficial interest sold...................... 8,751,357
Interest................................................ 5,827,705
Dividends............................................... 2,138,596
Prepaid expenses and other assets......................... 122,713
--------------
TOTAL ASSETS............................................ 4,291,623,959
--------------
LIABILITIES:
Payable for:
Investments purchased................................... 124,542,641
Distributions to shareholders .......................... 3,767,120
Plan of distribution fee................................ 2,946,023
Shares of beneficial interest repurchased............... 2,219,241
Investment management fee............................... 1,808,423
Accrued expenses and other payables....................... 449,011
--------------
TOTAL LIABILITIES....................................... 135,732,459
--------------
NET ASSETS ............................................. $4,155,891,500
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital........................................... $3,481,928,047
Net unrealized appreciation .............................. 521,025,591
Accumulated net investment loss........................... (42,030)
Accumulated undistributed net realized gain............... 152,979,892
--------------
NET ASSETS ............................................. $4,155,891,500
==============
CLASS A SHARES:
Net Assets................................................ $ 15,843,639
Shares Outstanding (unlimited authorized, $.01 par value) 535,374
NET ASSET VALUE PER SHARE............................... $ 29.59
==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ....... $ 31.23
==============
CLASS B SHARES:
Net Assets................................................ $4,078,071,882
Shares Outstanding (unlimited authorized, $.01 par value) 138,185,565
NET ASSET VALUE PER SHARE............................... $ 29.51
==============
CLASS C SHARES:
Net Assets................................................ $ 12,204,456
Shares Outstanding (unlimited authorized, $.01 par
value)................................................... 413,867
NET ASSET VALUE PER SHARE............................... $ 29.49
==============
CLASS D SHARES:
Net Assets................................................ $49,771,523
Shares Outstanding (unlimited authorized, $.01 par
value)................................................... 1,679,836
NET ASSET VALUE PER SHARE............................... $ 29.63
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended December 31, 1997*
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $103,775 foreign
withholding tax)......................... $ 24,992,865
Interest.................................. 15,881,254
--------------
TOTAL INCOME............................ 40,874,119
--------------
EXPENSES
Plan of distribution fee (Class A
shares).................................. 7,380
Plan of distribution fee (Class B
shares).................................. 30,004,099
Plan of distribution fee (Class C
shares).................................. 26,712
Investment management fee................. 18,075,407
Transfer agent fees and expenses.......... 3,788,836
Registration fees......................... 359,919
Custodian fees............................ 228,926
Shareholder reports and notices........... 222,511
Professional fees......................... 61,757
Trustees' fees and expenses............... 15,729
Other..................................... 37,222
--------------
TOTAL EXPENSES.......................... 52,828,498
--------------
NET INVESTMENT LOSS..................... (11,954,379)
--------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ........................ 738,335,473
Net change in unrealized appreciation .... 251,384,827
--------------
NET GAIN................................ 989,720,300
--------------
NET INCREASE.............................. $977,765,921
==============
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1997* DECEMBER 31, 1996
- ------------------------------------------------------ ------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................................... $ (11,954,379) $ (9,041,376)
Net realized gain...................................... 738,335,473 275,397,900
Net change in unrealized appreciation.................. 251,384,827 13,163,448
------------------ -----------------
NET INCREASE......................................... 977,765,921 279,519,972
------------------ -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -Class B shares.................. -- (1,126,313)
Net realized gain
Class A shares........................................ (1,747,209) --
Class B shares........................................ (680,450,520) (299,891,577)
Class C shares........................................ (1,454,608) --
Class D shares........................................ (6,581,680) --
------------------ -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.................... (690,234,017) (301,017,890)
------------------ -----------------
Net increase from transactions in shares of beneficial
interest.............................................. 769,509,113 731,461,022
------------------ -----------------
NET INCREASE......................................... 1,057,041,017 709,963,104
NET ASSETS:
Beginning of period.................................... 3,098,850,483 2,388,887,379
------------------ -----------------
END OF PERIOD
(Including net investment losses of $42,030 and
$43,257, respectively)................................ $4,155,891,500 $3,098,850,483
================== =================
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1997
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. The Fund's investment objective is
capital growth consistent with an effort to reduce volatility. The Fund seeks
to achieve its objective by investing in a diversified portfolio of
securities consisting principally of common stocks. The Fund was incorporated
in Maryland in 1979, commenced operations on March 27, 1980 and was
reorganized as a Massachusetts business trust on April 30, 1987. On July 28,
1997, the Fund commenced offering three additional classes of shares, with
the then current shares, other than shares which were purchased prior to
April 30, 1984 (and with respect to such shares, certain shares acquired
through reinvestment of dividends and capital gains distributions
(collectively the "Old Shares")), designated as Class B shares. The Old
Shares have been designated Class D shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS-- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where a security is traded on more than one exchange, the
security is valued on the exchange designated as the primary market pursuant
to procedures adopted by the Trustees); (2) all other portfolio securities
for which over-the-counter market quotations are readily available are valued
at the latest available bid price prior to the time of valuation; (3) when
market quotations are not readily available, including circumstances under
which it is determined by Dean Witter InterCapital Inc. (the "Investment
Manager") that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in
good faith under procedures established by and under the general supervision
of the Trustees (valuation of debt securities for which market quotations are
not
53
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1997, continued
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); and (4) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS-- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date. Discounts are accreted over the life of the respective
securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS-- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. FEDERAL INCOME TAX STATUS-- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS-- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with the Investment Manager,
the Fund pays a management fee, accrued daily and payable monthly, by
applying the following annual rates to the net
54
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1997, continued
assets of the Fund determined at the close of each business day: 0.625% to
the portion of daily net assets not exceeding $250 million; 0.50% to the
portion of daily net assets exceeding $250 million but not exceeding $2.5
billion and 0.475% to the portion of daily net assets exceeding $2.5 billion
but not exceeding $3.5 billion. Effective May 1, 1997, the Agreement was
amended to reduce the annual rate to 0.45% of the portion of daily net assets
in excess of $3.5 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A -up to
0.25% of the average daily net assets of Class A; (ii) Class B -1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value
of the Class B shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the
average daily net assets of Class B; and (iii) Class C -up to 1.0% of the
average daily net assets of Class C. In the case of Class A shares, amounts
paid under the Plan are paid to the Distributor for services provided. In the
case of Class B and Class C shares, amounts paid under the Plan are paid to
the Distributor for services provided and the expenses borne by it and others
in the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, the account executives of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor, and others who engage in
or support distribution of the shares or who service shareholder accounts,
including overhead and telephone expenses; printing and distribution of
prospectuses and reports used in connection with the offering of these shares
to other than current shareholders; and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan, in the case of Class
B
55
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1997, continued
shares, to compensate DWR and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in
the form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. The Distributor has advised the Fund that such
excess amounts, including carrying charges, totaled $72,540,376 at December
31, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant
to the Plan in any calendar year in excess of 0.25% or 1.0% of the average
daily net assets of Class A or Class C, respectively, will not be reimbursed
by the Fund through payments in any subsequent year, except that expenses
representing a gross sales credit to account executives may be reimbursed in
the subsequent calendar year. For the period ended December 31, 1997, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the year ended December 31,
1997, it received contingent deferred sales charges from certain redemptions
of the Fund's Class B shares and Class C shares of $4,721,534 and $3,192,
respectively and received $202,038 in front-end sales charges from sales of
the Fund's Class A shares. The respective shareholders pay such charges which
are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended December 31, 1997
aggregated $9,245,904,533 and $9,254,551,447, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$410,926,244 and $180,464,206, respectively.
For the year ended December 31, 1997, the Fund incurred $1,122,089 in
brokerage commissions with DWR for portfolio transactions executed on behalf
of the Fund.
At December 31, 1997, the Fund's payable for investments purchased included
unsettled trades with DWR of $8,367,064.
56
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1997, continued
For the period May 31, 1997 through December 31, 1997, the Fund incurred
brokerage commissions of $551,901 with Morgan Stanley & Co., Inc., an
affiliate of the Investment Manager since May 31, 1997, for portfolio
transactions executed on behalf of the Fund. At December 31, 1997 the Fund's
payable for investments purchased and receivable for investments sold
included unsettled trades with Morgan Stanley & Co., Inc., of $4,206,932 and
$4,914,567, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At December 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $54,000.
The Fund has an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Fund who will have served as
independent Trustees for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five years of service. Aggregate pension costs for the year
ended December 31, 1997 included in Trustees' fees and expenses in the
Statement of Operations amounted to $4,301. At December 31, 1997, the Fund
had an accrued pension liability of $42,030 which is included in accrued
expenses in the Statement of Assets and Liabilities.
5. FEDERAL INCOME TAX STATUS
As of December 31, 1997, the Fund had temporary book/tax differences
primarily attributable to capital loss deferrals on wash sales and permanent
book/tax differences primarily attributable to a net operating loss. To
reflect reclassifications arising from permanent differences accumulated net
realized gain was charged $11,955,606 and accumulated net investment loss was
credited $11,955,606.
57
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1997, continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1997+ DECEMBER 31, 1996
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold ....................................... 539,039 $ 17,439,944 -- --
Reinvestment of distributions............... 57,321 1,665,172 -- --
Redeemed.................................... (60,986) (2,023,896) -- --
-------------- --------------- -------------- --------------
Net increase -Class A....................... 535,374 17,081,220 -- --
-------------- --------------- -------------- --------------
CLASS B SHARES
Sold ....................................... 26,893,089 818,085,006 36,925,212 $1,016,961,498
Reinvestment of dividends and
distributions.............................. 22,224,675 644,669,591 10,599,054 286,147,878
Redeemed ................................... (24,498,814) (739,128,498) (20,736,856) (571,648,354)
-------------- --------------- -------------- --------------
Net increase -Class B....................... 24,618,950 723,626,099 26,787,410 731,461,022
-------------- --------------- -------------- --------------
CLASS C SHARES*
Sold ....................................... 387,776 12,691,589 -- --
Reinvestment of distributions............... 46,319 1,340,948 -- --
Redeemed ................................... (20,228) (667,646) -- --
-------------- --------------- -------------- --------------
Net increase -Class C....................... 413,867 13,364,891 -- --
-------------- --------------- -------------- --------------
CLASS D SHARES*
Sold ....................................... 332,349 10,839,979 -- --
Reinvestment of distributions............... 208,632 6,067,022 -- --
Redeemed ................................... (45,049) (1,470,098) -- --
-------------- --------------- -------------- --------------
Net increase -Class D....................... 495,932 15,436,903 -- --
-------------- --------------- -------------- --------------
Net increase in Fund ....................... 26,064,123 $ 769,509,113 26,787,410 $ 731,461,022
============== =============== ============== ==============
</TABLE>
- ------------
+ On July 28, 1997, 1,183,904 shares representing $37,731,024 were
transferred to Class D.
* For the period July 28, 1997 (issue date) through December 31, 1997.
58
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997*++ 1996 1995 1994 1993 1992
- ----------------------------- --------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ...................... $27.01 $27.16 $21.21 $23.10 $20.93 $20.66
--------- --------- -------- --------- --------- --------
Net investment income (loss) . (0.10) (0.08) 0.01 -- (0.09) 0.03
Net realized and unrealized
gain (loss) ................. 8.34 2.86 8.87 (1.57) 3.94 0.71
--------- --------- -------- --------- --------- --------
Total from investment
operations .................. 8.24 2.78 8.88 (1.57) 3.85 0.74
--------- --------- -------- --------- --------- --------
Less dividends and
distributions from:
Net investment income ...... -- (0.01) -- -- (0.01) (0.03)
Net realized gain ........... (5.74) (2.92) (2.93) (0.32) (1.67) (0.44)
Paid-in-capital ............. -- -- -- -- -- --
--------- --------- -------- --------- --------- --------
Total dividends and
distributions ............... (5.74) (2.93) (2.93) (0.32) (1.68) (0.47)
--------- --------- -------- --------- --------- --------
Net asset value, end of
period ...................... $29.51 $27.01 $27.16 $21.21 $23.10 $20.93
========= ========= ======== ========= ========= ========
TOTAL INVESTMENT RETURN+ .... 31.55% 10.53% 42.20% (6.75)% 18.70% 3.84%
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 1.46% 1.53% 1.61% 1.71% 1.61% 1.72%
Net investment income (loss) . (0.34)% (0.33)% 0.06% 0.01% (0.59)% 0.18%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions..................... $4,078 $3,099 $2,389 $1,490 $1,218 $459
Portfolio turnover rate ..... 275% 279% 256% 295% 276% 305%
--
Average commission rate paid $0.0563 $0.0590 -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1991 1990 1989 1988
- ----------------------------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ...................... $14.39 $14.81 $13.19 $12.21
-------- --------- -------- --------
Net investment income (loss) . 0.05 0.24 0.34 0.29
Net realized and unrealized
gain (loss) ................. 7.90 (0.38) 2.99 1.03
-------- --------- -------- --------
Total from investment
operations .................. 7.95 (0.14) 3.33 1.32
-------- --------- -------- --------
Less dividends and
distributions from:
Net investment income ...... (0.03) (0.28) (0.32) (0.33)
Net realized gain ........... (1.65) -- (1.39) --
Paid-in-capital ............. -- -- -- (0.01)
-------- --------- -------- --------
Total dividends and
distributions ............... (1.68) (0.28) (1.71) (0.34)
-------- --------- -------- --------
Net asset value, end of
period ...................... $20.66 $14.39 $14.81 $13.19
======== ========= ======== ========
TOTAL INVESTMENT RETURN+ .... 56.26% (0.90)% 25.39% 10.84%
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 1.58% 1.70% 1.66% 1.78%
Net investment income (loss) . 0.29% 1.67% 2.23% 2.15%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions..................... $ 227 $ 89 $ 100 $ 90
Portfolio turnover rate ..... 264% 234% 196% 133%
Average commission rate paid -- -- -- --
</TABLE>
- ------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date, other than shares which were
purchased prior to April 30, 1984 (and with respect to such shares,
certain shares acquired through reinvestment of dividends and capital
gains distributions (collectively the "Old Shares")), have been
designated Class B shares. The Old Shares have been designated Class D
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
DECEMBER 31,
1997++
- ------------------------------------------ ------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 31.87
------------------
Net investment income ..................... 0.05
Net realized and unrealized gain .......... 2.32
------------------
Total from investment operations .......... 2.37
------------------
Less distributions from net realized gain (4.65)
------------------
Net asset value, end of period ............ $ 29.59
==================
TOTAL INVESTMENT RETURN+ .................. 7.70 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 0.92 %(2)
Net investment income ..................... 0.38 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $15,844
Portfolio turnover rate ................... 275 %
Average commission rate paid .............. $0.0563
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 31.87
------------------
Net investment loss ....................... (0.05)
Net realized and unrealized gain .......... 2.32
------------------
Total from investment operations .......... 2.27
------------------
Less distributions from net realized gain . (4.65)
------------------
Net asset value, end of period ............ $ 29.49
==================
TOTAL INVESTMENT RETURN+ .................. 7.39 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.66 %(2)
Net investment loss ....................... (0.36)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $12,204
Portfolio turnover rate ................... 275 %
Average commission rate paid .............. $0.0563
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
DECEMBER 31,
1997++
- ------------------------------------------ ------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 31.87
------------------
Net investment income ..................... 0.07
Net realized and unrealized gain .......... 2.34
------------------
Total from investment operations .......... 2.41
------------------
Less distributions from net realized gain (4.65)
------------------
Net asset value, end of period ............ $ 29.63
==================
TOTAL INVESTMENT RETURN+ .................. 7.83%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 0.64%(2)
Net investment income ..................... 0.50%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $49,772
Portfolio turnover rate ................... 275%
Average commission rate paid .............. $0.0563
</TABLE>
- ------------
* The date shares were first issued. Shareholders who held shares of the
Fund prior to July 28, 1997 (the date the Fund converted to a multiple
class share structure) should refer to the Financial Highlights of Class
B to obtain the historical per share data and ratio information of their
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
61
<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, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at December 31, 1997 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 6, 1998
62
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
FEDERAL TAX NOTICE (unaudited)
1997 FEDERAL TAX NOTICE
For the year ended December 31, 1997, the Fund paid to shareholders the
following per share amounts from long-term capital gains. These distributions
are taxable as 28% rate gains or 20% rate gains, as indicated below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
--------- --------- --------- ---------
PORTION OF LONG-TERM CAPITAL GAINS TAXABLE AS:
<S> <C> <C> <C> <C>
28% rate gain ................................ $0.48 $0.72 $0.48 $0.48
20% rate gain ................................ 0.46 0.46 0.46 0.46
--------- --------- --------- ---------
Total.......................................... $0.94 $1.18 $0.94 $0.94
========= ========= ========= =========
</TABLE>
For the year ended December 31, 1997, 5.08% of the income dividends qualified
for the dividends received deduction available to corporations.
63
<PAGE>
DEAN WITTER
RETIREMENT SERIES
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 31, 1997
- -----------------------------------------------------------------------------
Dean Witter Retirement Series (the "Fund") is an open-end, no-load,
management investment company which provides a selection of investment
portfolios for institutional and individual investors participating in
various employee benefit plans and Individual Retirement Account rollover
plans. Each Series has its own investment objective and policies. Shares of
the Fund are sold and redeemed at net asset value without the imposition of a
sales charge. Dean Witter Distributors Inc., the Fund's Distributor (the
"Distributor"), and any of its affiliates are authorized, pursuant to a Plan
of Distribution pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended, entered into by the Fund with the Distributor and Dean
Witter Reynolds Inc., to make payments, out of their own resources, for
expenses incurred in connection with the promotion of distribution of shares
of the Fund.
The LIQUID ASSET SERIES seeks high current income, preservation of capital
and liquidity by investing in corporate and government money market
instruments.
The U.S. GOVERNMENT MONEY MARKET SERIES seeks security of principal, high
current income and liquidity by investing primarily in money market
instruments which are issued and/or guaranteed, as to principal and interest,
by the U.S. Government, its agencies or instrumentalities.
The U.S. GOVERNMENT SECURITIES SERIES seeks high current income consistent
with safety of principal by investing in a diversified portfolio of
obligations issued and/or guaranteed by the U.S. Government or its
instrumentalities.
The INTERMEDIATE INCOME SECURITIES SERIES seeks high current income
consistent with safety of principal by investing primarily in intermediate
term, investment grade fixed-income securities.
The AMERICAN VALUE SERIES seeks long-term growth consistent with an effort
to reduce volatility by investing principally in common stock of companies in
industries which, at the time of the investment, are believed to be
attractively valued given their above average relative earnings growth
potential at that time.
The CAPITAL GROWTH SERIES seeks long-term capital growth by investing
primarily in common stocks selected through utilization of a computerized
screening process.
The DIVIDEND GROWTH SERIES seeks to provide reasonable current income and
long-term growth of income and capital by investing primarily in the common
stock of companies with a record of paying dividends and the potential for
increasing dividends.
The STRATEGIST SERIES seeks to maximize its total return by actively
allocating its assets among the major asset categories of equity securities,
fixed-income securities and money market instruments.
The UTILITIES SERIES seeks to provide current income and long-term growth
of income and capital by investing in equity and fixed-income securities of
companies in the public utilities industry.
The VALUE-ADDED MARKET SERIES' investment objective is to achieve a high
level of total return on its assets through a combination of capital
appreciation and current income. It seeks to achieve this objective by
investing, on an equally-weighted basis, in a diversified portfolio of common
stocks of the companies which are represented in the Standard & Poor's 500
Composite Stock Price Index.
The GLOBAL EQUITY SERIES' investment objective is a high level of total
return on its assets, primarily through long-term capital growth and, to a
lesser extent, from income. It seeks to achieve this objective through
investments in all types of common stocks and equivalents, preferred stocks
and bonds and other debt obligations of domestic and foreign companies and
governments and international organizations.
A Prospectus for the Fund dated October 31, 1997, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed
below, from the Fund's Distributor, or from Dean Witter Reynolds Inc. at any
of its branch offices. This Statement of Additional Information is not a
Prospectus. It contains information in addition to and more detailed than
that set forth in the Prospectus. It is intended to provide additional
information regarding the activities and operations of the Fund, and should
be read in conjunction with the Prospectus.
Dean Witter
Retirement Series
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund and its Management.......... 3
Trustees and Officers................ 6
Investment Practices and Policies ... 13
Investment Restrictions.............. 33
Portfolio Transactions and
Brokerage........................... 35
Determination of Net Asset Value .... 37
Purchase of Fund Shares.............. 39
Shareholder Services................. 41
Redemptions and Repurchases.......... 43
Dividends, Distributions and Taxes .. 43
Performance Information.............. 45
Description of Shares................ 48
Custodian and Transfer Agent......... 49
Independent Accountants.............. 49
Reports to Shareholders.............. 49
Legal Counsel........................ 49
Experts.............................. 49
Registration Statement............... 50
Principal Securities Holders......... 50
Financial Statements--July 31, 1997 . 51
Report of Independent Accountants ... 106
Appendix............................. 107
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of the Commonwealth of
Massachusetts on May 14, 1992.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or
"InterCapital"), a Delaware corporation, whose address is Two World Trade
Center, New York, New York 10048, is the Fund's Investment Manager.
InterCapital is a wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co. ("MSDWD"), a Delaware corporation. In an internal
reorganization which took place in January, 1993, InterCapital assumed the
investment advisory, administrative and management activities previously
performed by the InterCapital Division of Dean Witter Reynolds Inc. ("DWR"),
a broker-dealer affiliate of InterCapital. (As hereinafter used in this
Statement of Additional Information, the terms "InterCapital" and "Investment
Manager" refer to DWR's InterCapital Division prior to the internal
reorganization and to Dean Witter InterCapital Inc. thereafter.) The daily
management of the Fund and research relating to the portfolio of each Series
of the Fund are 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. Information as to these Trustees and officers is contained
under the caption "Trustees and Officers."
InterCapital is also the investment manager (or investment adviser) of the
following investment companies:
OPEN-END FUNDS
1 Active Assets California Tax-Free Trust Dean Witter Japan
2 Active Assets Government Securities Trust
3 Active Assets Money Trust
4 Active Assets Tax-Free Trust
5 Dean Witter American Value Fund
6 Dean Witter Balanced Growth Fund
7 Dean Witter Balanced Income Fund
8 Dean Witter California Tax-Free Daily Income Trust
9 Dean Witter California Tax-Free Income Fund
10 Dean Witter Capital Appreciation Fund
11 Dean Witter Capital Growth Securities
12 Dean Witter Convertible Securities Trust Dean Witter
13 Dean Witter Developing Growth Securities Trust
14 Dean Witter Diversified Income Trust
15 Dean Witter Dividend Growth Securities Inc.
16 Dean Witter European Growth Fund Inc.
17 Dean Witter Federal Securities Trust
18 Dean Witter Fund of Funds
19 Dean Witter Global Asset Allocation Fund
20 Dean Witter Global Dividend Growth Securities
21 Dean Witter Global Short-Term Income Fund Inc.
22 Dean Witter Global Utilities Fund
23 Dean Witter Hawaii Municipal Trust Dean Witter Tax-Free
24 Dean Witter Health Sciences Trust
25 Dean Witter High Income Securities
26 Dean Witter High Yield Securities Inc.
27 Dean Witter Income Builder Fund
28 Dean Witter Information Fund
29 Dean Witter Intermediate Income Securities
30 Dean Witter Intermediate Term U.S. Treasury Trust
31 Dean Witter International SmallCap Fund
32 Dean Witter Japan Fund
33 Dean Witter Limited Term Municipal Trust
34 Dean Witter Liquid Asset Fund Inc.
35 Dean Witter Market Leader Trust
36 Dean Witter Mid-Cap Growth Fund
37 Dean Witter Multi-State Municipal Series Trust
38 Dean Witter National Municipal Trust
39 Dean Witter Natural Resource Development Securities Inc.
40 Dean Witter New York Municipal Money Market Trust
41 Dean Witter New York Tax-Free Income Fund
42 Dean Witter Pacific Growth Fund Inc.
43 Dean Witter Precious Metals and Minerals Trust
44 Dean Witter Retirement Series
45 Dean Witter S&P 500 Index Fund
46 Dean Witter Select Dimensions Investment Series
47 Dean Witter Select Municipal Reinvestment Fund
48 Dean Witter Short-Term Bond Fund
49 Dean Witter Short-Term U.S. Treasury Trust
50 Dean Witter Special Value Fund
51 Dean Witter Strategist Fund
52 Dean Witter Tax-Exempt Securities Trust
53 Dean Witter Daily Income Trust
54 Dean Witter U.S. Government Money Market Trust
55 Dean Witter U.S. Government Securities Trust
56 Dean Witter Utilities Fund
57 Dean Witter Value-Added Market Series
58 Dean Witter Variable Investment Series
59 Dean Witter World Wide Income Trust
60 Dean Witter World Wide Investment Trust
3
<PAGE>
CLOSED-END FUNDS
1 High Income Advantage Trust
2 High Income Advantage Trust II
3 High Income Advantage Trust III
4 InterCapital Income Securities Inc.
5 Dean Witter Government Income Trust
6 InterCapital Insured Municipal Bond Trust
7 InterCapital Insured Municipal Trust
8 InterCapital Insured Municipal Income Trust
9 InterCapital California Insured Municipal Income Trust
10 InterCapital Insured Municipal Securities
11 InterCapital Insured California Municipal Securities
12 InterCapital Quality Municipal Investment Trust
13 InterCapital Quality Municipal Income Trust
14 InterCapital Quality Municipal Securities
15 InterCapital California Quality Municipal Securities
16 InterCapital New York Quality Municipal Securities
17 Municipal Income Trust
18 Municipal Income Trust II
19 Municipal Income Trust III
20 Municipal Income Opportunities Trust
21 Municipal Income Opportunities II
22 Municipal Income Opportunities III
23 Prime Income Trust
24 Municipal Premium Income Trust
The foregoing investment companies, together with the Fund, are collectively
referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser (the
"TCW/DW Funds"):
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
7 TCW/DW Mid-Cap Equity Trust
8 TCW/DW Global Telecom Trust
9 TCW/DW Strategic Income Trust
CLOSED-END FUNDS
10 TCW/DW Term Trust 2000
11 TCW/DW Term Trust 2002
12 TCW/DW Term Trust 2003
13 TCW/DW Total Return Trust
14 TCW/DW Emerging Markets Opportunities Trust
InterCapital also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; and (ii) sub-administrator
of MassMutual Participation Investors and Templeton Global Governments Income
Trust, closed-end investment companies.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage
the investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment 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 and bookkeeping and certain legal services as the
Fund may reasonably require in the conduct of its business, including the
preparation of prospectuses, statements of additional information, proxy
statements and reports required to be filed with federal and state securities
commissions (except insofar as the participation or assistance of independent
accountants and attorneys is, in the opinion of the Investment Manager,
necessary or desirable). In addition, the Investment Manager pays the
salaries of all personnel, including officers of the Fund, who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone service, heat, light, power and other utilities provided to the
Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to
the Fund which were previously performed
4
<PAGE>
directly by InterCapital. On April 17, 1995, DWSC was reorganized in the
State of Delaware, necessitating the entry into a new Services Agreement by
InterCapital and DWSC on that date. The foregoing internal reorganizations
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
Management Agreement (see below), or by the Distributor of the Fund's shares,
Dean Witter Distributors Inc. ("Distributors") (see "The Distributor"), will
be paid by the Fund. Each Series pays all other expenses incurred in its
operation and a portion of the Fund's general administration expenses
allocated on the basis of the asset size of the respective Series. Expenses
that are borne directly by a Series include, but are not limited to: charges
and expenses of any registrar, custodian, share transfer and dividend
disbursing agent; brokerage commissions; certain taxes; registration costs of
the Series and its shares under federal and state securities laws;
shareholder servicing costs; charges and expenses of any outside service used
for pricing of the shares of the Series; interest on borrowings by the
Series; fees and expenses of legal counsel, including counsel to the Trustees
who are not interested persons of the Fund or of the Investment Manager) not
including compensation or expenses of attorneys who are employees of the
Investment Manager and independent accountants; and all other expenses
attributable to a particular Series. Expenses which are allocated on the
basis of size of the respective Series include the costs and expenses 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; state franchise taxes; Securities and
Exchange Commission fees; membership dues of industry associations; postage;
insurance premiums on property or personnel (including officers and Trustees)
of the Fund which inure to its benefit; and all other costs of the Fund's
operations properly payable by the Fund and allocable on the basis of size of
the respective Series. Depending on the nature of a legal claim, liability or
lawsuit, litigation costs, payment of legal claims or liabilities and any
indemnification relating thereto may be directly applicable to the Series or
allocated on the basis of the size of the respective Series. The Trustees
have determined that this is an appropriate method of allocation of expenses.
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 each of
the following annual rates to the net assets of the respective Series of the
Fund, each business day: 0.50% (Liquid Asset Series); 0.50% (U.S. Government
Money Market Series); 0.65% (U.S. Government Securities Series); 0.65%
(Intermediate Income Securities Series); 0.85% (American Value Series); 0.85%
(Capital Growth Series); 0.75% (Dividend Growth Series); 0.85% (Strategist
Series); 0.75% (Utilities Series); 0.50% (Value-Added Market Series); and
1.0% (Global Equity Series). The management fees for the American Value,
Capital Growth, Dividend Growth, Strategist, Utilities and Global Equity
Series are higher than those paid by most investment policies.
The Investment Manager assumed all expenses (except for brokerage fees and
a portion of organizational expenses) for each Series and waived the
compensation provided for in the Agreement with respect to each Series during
the fiscal years ended July 31, 1994 and 1995 and the period August 1, 1995
through December 31, 1995 and has assumed all such expenses (except for
brokerage fees and a portion of organizational expenses) and waived the
compensation provided for in its Management Agreement with respect to any
Series to the extent that such expenses and compensation exceeded 1.00% of
the daily net assets of the Series for the period from January 1, 1996
through July 31, 1997. The Investment Manager has undertaken to continue to
assume, until December 31, 1997, all such expenses and waive compensation
with respect to any Series to the extent that such expenses and compensation
exceed 1.00% of the daily net assets of the Series. The Fund's Investment
Manager paid the organizational expenses of the Fund in the amount of
$150,000 ($13,636 allocated to each of the Series), which will be reimbursed
by the Fund net of any amounts waived.
5
<PAGE>
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Agreement was initially approved by the Board of Trustees on February
21, 1997 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on May 21, 1997. The Agreement is substantially identical
to a prior investment management agreement which was initially approved by
the Board of Trustees on October 30, 1992 and, subsequently, by DWR as the
then sole shareholder of the Fund on January 12, 1993. The Agreement took
effect on May 31, 1997 upon the consummation of the merger of Dean Witter,
Discover & Co. with Morgan Stanley Group Inc. The Agreement may be terminated
at any time, without penalty, on thirty days' notice by the Board of 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).
Under its terms, the Agreement had an initial term ending April 30, 1999
and will continue from year to year thereafter with respect to each Series,
provided continuance of the Agreement is approved at least annually by the
vote of the holders of a majority of the outstanding shares of that Series,
as defined in the Act, or by the Trustees of the Fund; provided that in
either event such continuance is approved annually by the vote of a majority
of the Trustees of the Fund who are not parties to the Agreement or
"interested persons" (as defined in the Act) of any such party (the
"Independent Trustees"), which vote must be cast in person at a meeting
called for the purpose of voting on such approval.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR. The Fund has agreed that DWR or its parent company may use, or at any
time permit others to use, the name "Dean Witter." The Fund has also agreed
that in the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate
the name "Dean Witter" from its name if DWR or its parent company shall so
request.
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 85 Dean Witter Funds and the 14 TCW/DW Funds are
shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
<S> <C>
Michael Bozic (56) Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of
c/o Levitz Furniture Corporation the Dean Witter Funds; formerly President and Chief Executive
6111 Broken Sound Parkway, N.W. Officer of Hills Department Stores (May, 1991-July, 1995);
Boca Raton, Florida formerly variously Chairman, Chief Executive Officer,
President and Chief Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and Co.; Director of
Eaglemark Financial Services Inc., the United Negro College
Fund and Weirton Steel Corporation.
6
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and Director of InterCapital,
Chairman, President DWSC and Distributors; Executive Vice President and Director
Chief Executive Officer and Trustee of DWR; Chairman, Director or Trustee, President and Chief
Two World Trade Center Executive Officer of the Dean Witter Funds; Chairman, Chief
New York, New York Executive Officer and Trustee of the TCW/DW Funds; Chairman
and Director of Dean Witter Trust FSB ("DWT"); formerly Executive
Vice President and Director of Dean Witter, Discover & Co.
(until February, 1993); Director of various MSDWD subsidiaries
and affiliates.
Edwin J. Garn (65) Director or Trustee of the Dean Witter Funds; formerly United
Trustee States Senator (R-Utah)(1974-1992) and Chairman, Senate
c/o Huntsman Corporation Banking Committee (1980-1986); formerly Mayor of Salt Lake
500 Huntsman Way City, Utah (1971-1974); formerly Astronaut, Space Shuttle
Salt Lake City, Utah Discovery (April 12-19, 1985); Vice Chairman, Huntsman
Corporation (since January, 1993); Director of Franklin Quest
(time management systems) and John Alden Financial Corp. (health
insurance); Member of the board of various civic and charitable
organizations.
John R. Haire (72) Chairman of the Audit Committee and Chairman of the Committee
Trustee of the Independent Directors or Trustees and Director or Trustee
Two World Trade Center of the Dean Witter Funds; Chairman of the Audit Committee
New York, New York and Chairman of the Committee of the Independent Trustees
and Trustee of the TCW/DW Funds; formerly President, Council
for Aid to Education (1978-1989) and Chairman and Chief Executive
Officer of Anchor Corporation, an Investment Adviser
(1964-1978); Director of Washington National Corporation
(insurance).
Wayne E. Hedien (63) Retired; Director or Trustee of the Dean Witter Funds; Director
Trustee of the PMI Group, Inc. (private mortgage insurance); Trustee
c/o Gordon Altman Butowsky and Vice Chairman of The Field Museum of Natural History;
Weitzen Shalov & Wein formerly associated with the Allstate Companies (1966-1994),
Counsel to the Independent Trustees most recently as Chairman of The Allstate Corporation (March,
114 West 47th Street 1993-December, 1994) and Chairman and Chief Executive Officer
New York, New York of its wholly-owned subsidiary, Allstate Insurance Company
(July, 1989-December, 1994); director of various other business
and charitable organizations.
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Dr. Manuel H. Johnson (48) Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm; Co-Chairman and a founder of the Group of Seven Council
c/o Johnson Smick International, Inc. (G7C), an international economic commission; Director or
1133 Connecticut Avenue, N.W. Trustee of the Dean Witter Funds; Trustee of the TCW/DW Funds;
Washington, DC Director of NASDAQ (since June, 1995); Director of Greenwich
Capital Markets Inc. (broker-dealer); formerly Vice Chairman
of the Board of Governors of the Federal Reserve System
(1986-1990) and Assistant Secretary of the U.S. Treasury
(1982-1986).
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a private investment
Trustee partnership; Director or Trustee of the Dean Witter Funds;
c/o Triumph Capital, L.P. Trustee of the TCW/DW Funds; formerly Vice President, Bankers
237 Park Avenue Trust Company and BT Capital Corporation (1984-1988); Director
New York, New York of various business organizations.
Philip J. Purcell* (54) Chairman of the Board of Directors and Chief Executive Officer
Trustee of MSDWD, DWR and Novus Credit Services Inc.; Director of
1585 Broadway InterCapital, DWSC and Distributors; Director or Trustee of
New York, New York the Dean Witter Funds; Director and/or officer of various
MSDWD subsidiaries.
John L. Schroeder (67) Retired; Director or Trustee of the Dean Witter Funds; Trustee
Trustee of the TCW/DW Funds; Director of Citizens Utilities Company;
c/o Gordon Altman Butowsky formerly Executive Vice President and Chief Investment Officer
Weitzen Shalov & Wein of the Home Insurance Company (August, 1991-September, 1995).
Counsel to the Independent Trustees
114 West 47th Street
New York, New York
Barry Fink (42) Senior Vice President (since March, 1997) and Secretary and
Vice President, General Counsel (since February, 1997) of InterCapital and
Secretary and General Counsel DWSC; Senior Vice President (since March, 1997) and Assistant
Two World Trade Center Secretary and Assistant General Counsel (since February, 1997)
New York, New York of Distributors; Assistant Secretary of DWR (since August,
1996); Vice President, Secretary and General Counsel of the
Dean Witter Funds and the TCW/DW Funds (since February, 1997);
previously First Vice President (June, 1993-February, 1997),
Vice President (until June, 1993) and Assistant Secretary
and Assistant General Counsel of InterCapital and DWSC and
Assistant Secretary of the Dean Witter Funds and TCW/DW Funds.
Thomas F. Caloia (51) First Vice President and Assistant Treasurer of InterCapital
Treasurer and DWSC; Treasurer of the Dean Witter Funds and the TCW/DW
Two World Trade Center Funds.
New York, New York
</TABLE>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------- ------------------------------------------------------
<S> <C>
Mark Bavoso (36) Senior Vice President of InterCapital (since June, 1993);
Vice President Vice President of various Dean Witter Funds; previously
Two World Trade Center Vice President of InterCapital.
New York, New York
Patricia A. Cuddy (43) Vice President of InterCapital; Vice President of various
Vice President Dean Witter Funds.
Two World Trade Center
New York, New York
Edward F. Gaylor (56) Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Rajesh K. Gupta (37) Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Peter Hermann (37) Vice President of InterCapital; Vice President of various
Vice President Dean Witter Funds.
Two World Trade Center
New York, New York
Jonathan R. Page (51) Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Paul D. Vance (61) Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Anita H. Kolleeny (42) Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Paula LaCosta (46) Vice President of InterCapital; Vice President of various
Vice President Dean Witter Funds.
Two World Trade Center
New York, New York
Rochelle G. Siegel (48) Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Kenton J. Hinchliffe (53) Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Alice S. Weiss (49) Vice President of InterCapital; Vice President of various
Vice President Dean Witter Funds.
Two World Trade Center
New York, New York
</TABLE>
9
<PAGE>
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Executive Vice President and Director of DWR, and Director
of SPS Transaction Services, Inc. and various other MSDWD subsidiaries,
Joseph J. McAlinden, Executive Vice President and Chief Investment Officer of
InterCapital and Director of DWT and Robert S. Giambrone, Senior Vice
President of InterCapital, DWSC, Distributors and DWT and Director of DWT,
are Vice Presidents of the Fund. Marilyn K. Cranney, First Vice President and
Assistant General Counsel of InterCapital and DWSC, and Lou Anne D. McInnis,
Ruth Rossi and Carsten Otto, Vice Presidents and Assistant General Counsels
of InterCapital and DWSC, and Frank Bruttomesso and Todd Lebo, Staff
Attorneys with InterCapital, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of
this Statement of Additional Information, there are a total of 85 Dean Witter
Funds, comprised of 128 portfolios. As of September 30, 1997, the Dean Witter
Funds had total net assets of approximately $93.2 billion and more than five
million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own
any stock or other securities issued by InterCapital's parent company, MSDWD.
These are the "disinterested" or "independent" Trustees. The other two
Trustees (the "management Trustees") are affiliated with InterCapital. Four
of the seven independent Trustees are also Independent Trustees of the TCW/DW
Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Dean Witter Funds seek as Independent
Trustees individuals of distinction and experience in business and finance,
government service or academia; these are people whose advice and counsel are
in demand by others and for whom there is often competition. To accept a
position on the Funds' Boards, such individuals may reject other attractive
assignments because the Funds make substantial demands on their time. Indeed,
by serving on the Funds' Boards, certain Trustees who would otherwise be
qualified and in demand to serve on bank boards would be prohibited by law
from doing so.
All of the Independent Trustees serve as members of the Audit Committee
and the Committee of the Independent Trustees. Three of them also serve as
members of the Derivatives Committee. During the calendar year ended December
31, 1996, the three Committees held a combined total of sixteen meetings. The
Committees hold some meetings at InterCapital's offices and some outside
InterCapital. Management Trustees or officers do not attend these meetings
unless they are invited for purposes of furnishing information or making a
report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading
among Funds in the same complex; and approving fidelity bond and related
insurance coverage and allocations, as well as other matters that arise from
time to time. The Independent Trustees are required to select and nominate
individuals to fill any Independent Trustee vacancy on the Board of any Fund
that has a Rule 12b-1 plan of distribution. Most of the Dean Witter Funds
have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance
10
<PAGE>
of such services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting
Committee meeting minutes to the full Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and
the Funds' operations and management. He screens and/or prepares written
materials and identifies critical issues for the Independent Trustees to
consider, develops agendas for Committee meetings, determines the type and
amount of information that the Committees will need to form a judgment on
various issues, and arranges to have that information furnished to Committee
members. He also arranges for the services of independent experts and
consults with them in advance of meetings to help refine reports and to focus
on critical issues. Members of the Committees believe that the person who
serves as Chairman of both Committees and guides their efforts is pivotal to
the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service
providers. In effect, the Chairman of the Committees serves as a combination
of chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and, since
July 1, 1996, as Chairman of the Committee of the Independent Trustees and
the Audit Committee of the TCW/DW Funds. The current Committee Chairman has
had more than 35 years experience as a senior executive in the investment
company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of
separate groups of Independent Trustees arriving at conflicting decisions
regarding operations and management of the Funds and avoids the cost and
confusion that would likely ensue. Finally, having the same Independent
Trustees serve on all Fund Boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of Independent
Trustees, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee
of the Independent Trustees an additional annual fee of $1,200). If a Board
meeting and a Committee meeting, or more than one Committee meeting, take
place on a single day, the Trustees are paid a single meeting fee by the
Fund. The Fund also reimburses such Trustees for travel and other
11
<PAGE>
out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by
the Investment Manager or an affiliated company receive no compensation or
expense reimbursement from the Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended July 31, 1997. Mr.
Hedien's term as Trustee did not commence until September 1, 1997.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- ---------------
<S> <C>
Michael Bozic .............. $1,750
Edwin J. Garn .............. 1,750
John R. Haire .............. 3,750
Dr. Manuel H. Johnson ..... 1,800
Michael E. Nugent........... 1,850
John L. Schroeder........... 1,850
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1996 for
services to the 82 Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1996. With respect to Messrs. Haire, Johnson, Nugent and
Schroeder, the TCW/DW Funds are included solely because of a limited exchange
privilege between those Funds and five Dean Witter Money Market Funds.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF
COMMITTEES OF FOR SERVICE AS
FOR SERVICE INDEPENDENT CHAIRMAN OF TOTAL CASH
AS DIRECTOR FOR SERVICE DIRECTORS/ COMMITTEES OF COMPENSATION
OR TRUSTEE AS TRUSTEE TRUSTEES AND INDEPENDENT PAID
AND COMMITTEE AND COMMITTEE AUDIT TRUSTEES FOR SERVICES TO
MEMBER OF MEMBER OF COMMITTEES OF 82 AND AUDIT 82 DEAN WITTER
NAME OF 82 DEAN WITTER 14 TCW/DW DEAN WITTER COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS TCW/DW FUNDS TCW/DW FUNDS
- ---------------------- -------------- --------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael Bozic ......... $138,850 -- -- -- $138,850
Edwin J. Garn ......... 140,900 -- -- -- 140,900
John R. Haire ......... 106,400 $64,283 $195,450 $12,187 378,320
Dr. Manuel H. Johnson 137,100 66,483 -- -- 203,583
Michael E. Nugent .... 138,850 64,283 -- -- 203,133
John L. Schroeder...... 137,150 69,083 -- -- 206,233
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, not including the Fund, have adopted a retirement program under
which an Independent Trustee who retires after serving for at least five
years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Dean Witter Fund that has adopted the
retirement program (each such Fund referred to as an "Adopting Fund" and each
such Trustee referred to as an "Eligible Trustee") is entitled to retirement
payments upon reaching the eligible retirement age (normally, after attaining
age 72). Annual payments are based upon length of service. Currently, upon
retirement, each Eligible Trustee is entitled to receive from the Adopting
Fund, commencing as of his or her retirement date and continuing for the
remainder of his or her life, an annual retirement benefit (the "Regular
Benefit") equal to 25.0% of his or her Eligible Compensation plus 0.4166666%
of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years
up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the
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<PAGE>
Board.(1) "Eligible Compensation" is one-fifth of the total compensation
earned by such Eligible Trustee for service to the Adopting Fund in the five
year period prior to the date of the Eligible Trustee's retirement. Benefits
under the retirement program are not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Dean Witter Funds (not including the
Fund) for the year ended December 31, 1996, and the estimated retirement
benefits for the Fund's Independent Trustees, to commence upon their
retirement, from the 57 Dean Witter Funds as of December 31, 1996. Mr.
Hedien's term did not commence until September 1, 1997.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
ESTIMATED BENEFITS BENEFITS
CREDITED ACCRUED AS UPON
YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS (2)
- --------------------------- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Michael Bozic .............. 10 50.0% $20,147 $ 51,325
Edwin J. Garn .............. 10 50.0 27,772 51,325
John R. Haire .............. 10 50.0 46,952 129,550
Dr. Manuel H. Johnson ..... 10 50.0 10,926 51,325
Michael E. Nugent .......... 10 50.0 19,217 51,325
John L. Schroeder........... 8 41.7 38,700 42,771
</TABLE>
(1) An Eligible Trustee may elect alternate payments of his or her
retirement benefits based upon the combined life expectancy of such
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. The amount estimated to be payable under this
method, through the remainder of the later of the lives of such
Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit. In addition, the Eligible Trustee may elect that the
surviving spouse's periodic payment of benefits will be equal to either
50% or 100% of the previous periodic amount, an election that,
respectively, increases or decreases the previous periodic amount so
that the resulting payments will be the actuarial equivalent of the
Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
LIQUID ASSET SERIES
Variable and Floating Rate Obligations. As stated in the Prospectus, the
Liquid Asset Series may invest in variable and floating rate obligations. The
interest rate payable on a variable rate obligation is adjusted at
predesignated periodic intervals and, on floating rate obligations, whenever
there is a change in the market rate of interest on which the interest rate
payable is based. Other features may include the right whereby the Liquid
Asset Series may demand prepayment of the principal amount of the obligation
prior to its stated maturity (a "demand feature") and the right of the issuer
to prepay the principal amount prior to maturity. The principal benefit of a
variable rate obligation is that the interest rate adjustment minimizes
changes in the market value of the obligation. As a result, the purchase of
variable rate and floating rate obligations should enhance the ability of the
Liquid Asset Series to maintain a stable net asset value per share (see "How
Net Asset Value is Determined") and to sell obligations prior to maturity at
a price approximating the full principal amount of the obligations. The
principal benefit to the Liquid Asset Series of purchasing obligations with a
demand feature is that liquidity, and the ability of the Liquid Asset Series
to obtain repayment of the full principal amount of an obligation prior to
maturity, is enhanced. The payment of principal and interest by issuers of
certain obligations purchased by the
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<PAGE>
Liquid Asset Series may be guaranteed by letters of credit or other credit
facilities offered by banks or other financial institutions. Such guarantees
will be considered in determining whether an obligation meets the Liquid
Asset Series' investment quality requirements.
INTERMEDIATE INCOME SECURITIES SERIES
As stated in the Prospectus, the Intermediate Income Securities Series may
invest up to 5% of its net assets in lower rated fixed-income securities,
sometimes referred to as high yield securities. Because of the special nature
of high yield securities, the Investment Manager must take account of certain
special considerations in assessing the risks associated with such
investments. For example, as the high yield securities market is relatively
new, its growth had paralleled a long economic expansion and, until recently,
it had not faced adverse economic and market conditions. Therefore, an
economic downturn or increase in interest rates is likely to have a negative
effect on the high yield bond market and on the value of the high yield
securities held by the Intermediate Income Securities Series, as well as on
the ability of the securities' issuers to repay principal and interest on
their borrowings.
The prices of high yield securities have been found to be less sensitive
to changes in prevailing interest rates than higher-rated investments, but
are likely to be more sensitive to adverse economic changes or individual
corporate developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial
stress which would adversely affect their ability to service their principal
and interest payment obligations, to meet their projected business goals or
to obtain additional financing. If the issuer of a fixed-income security
owned by the Intermediate Income Securities Series defaults, the Series may
incur additional expenses to seek recovery. In addition, periods of economic
uncertainty and change can be expected to result in an increased volatility
of market prices of high yield securities and a concomitant volatility in the
net asset value of a share of a Series. Moreover, the market prices of
certain of the Intermediate Income Securities Series' securities which are
structured as zero coupon and payment-in-kind securities are affected to a
greater extent by interest rate changes and thereby tend to be more volatile
than securities which pay interest periodically and in cash (see "Dividends,
Distributions and Taxes" for a discussion of the tax ramifications of
investments in such securities).
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse
effect on the market prices of certain securities. The limited liquidity of
the market may also adversely affect the ability of the Fund's Trustees to
arrive at a fair value for certain high yield securities at certain times and
could make it difficult for the Intermediate Income Securities Series to sell
certain securities.
New laws and proposed new laws may have a potentially negative impact on
the market for high yield bonds. For example, recent legislation requires
federally-insured savings and loan associations to divest their investments
in high yield bonds. This legislation and other proposed legislation may have
an adverse effect upon the value of high yield securities and a concomitant
negative impact upon the net asset value of a share of the Intermediate
Income Securities Series.
AMERICAN VALUE SERIES
As discussed in the Prospectus, the American Value Series 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 Investment Manager.
Industry Valuation Approach. As stated in the Prospectus, in managing the
American Value Series, the Investment Manager generally seeks to identify
industries, rather than individual companies, as prospects for capital
appreciation. This approach is designed to capitalize on the basic
assumptions that industry trends are a primary force governing company
earnings; conventional forecasts may not fully reflect underlying industry
conditions or changing economic cycles; the market's perception of industry
trends is often transitory or exaggerated; and distortions in relative
valuations beyond their normal ranges may provide significant buying or
selling opportunities.
14
<PAGE>
The Investment Manager generally seeks to invest assets of the American
Value Series in industries it considers to exhibit underappreciated earnings
potential at the time of purchase and to sell those it considers to have
peaked in relative earnings potential.
The Investment Manager also uses models which employ economic indicators
or other financial variables to evaluate the relative attractiveness of
industries. Economic analysis includes traditional business cycle analysis
and such signposts as current Federal Reserve monetary posture, direction of
commodity prices, and global currency and economic trends. Economic
indicators most relevant to particular industries are reviewed. Some
industries analyzed, such as aerospace and energy, do not correlate with
economic indicators and must be analyzed relative to their respective
specific industry cycles. Financial variables under consideration may include
corporate earnings growth and cashflow, corporate and industry asset
valuation, absolute and relative price/earnings ratios and dividend discount
valuations.
Once attractive industries have been identified, stocks to represent those
industries are selected utilizing a multivariate process that includes size
and quality of the company, earnings visibility of the company 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 to earnings multiples to
earnings growth. Price and earnings momentum ratings derived from external
sources are also factored into the stock selection decision. The Investment
Manager also evaluates fundamental company criteria such as product cycle
analysis, revenue growth, margin analysis, consistency of earnings
profitability, proprietary nature of the product and quality of management.
Stocks may be selected from the three capitalization tiers of the market:
large capitalization, medium capitalization, and small capitalization.
Based on the sum total of this analysis, approximately 40-60 industries
are studied and classified as attractive, moderately attractive or
unattractive. Attractive groups are purchased, moderately attractive groups
are bought or held, and unattractive groups are sold. The Investment Manager
may utilize services that examine historical industry relative
price-to-earnings ranges for input on the Investment Manager's valuation
analysis.
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 underappreciated, can
benefit from the performance probabilities of the total group.
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 attractive, 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
earnings, product cycle analysis, historic track record 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
attractive industries and which the Investment Manager believes to be
attractive investments are finally selected for inclusion in the portfolio.
When final selections are made,
15
<PAGE>
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 valuation, capitalization and
liquidity profile. Stocks in industries not characterized as attractive may
be underweighted. Also, smaller capitalization issues may not be equally
weighted due to liquidity considerations.
3. Relative Industry Values.
Industry selection 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. Practical Applications.
In applying the industry valuation approach to management of the American
Value Series, the Investment Manager will make adjustments in the Series
which reflect modifications of the underlying concepts whenever, in its
opinion, such adjustments are necessary or desirable to achieve the American
Value Series' 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 unattractive due to
consideration of stage-of-cycle analysis or may not include representation in
industries considered attractive 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 American Value Series continuously
sells and redeems its own shares, and, as a result, securities may have to be
sold at times from the American Value Series' portfolio to meet redemptions
and monies received upon sale of the American Value Series' shares. 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 American Value Series may
hold a portion of its assets 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.
CAPITAL GROWTH SERIES
As stated in the Prospectus, the money market instruments which the
Capital Growth Series may purchase include U.S. Government securities, bank
obligations, Eurodollar certificates of deposit, obligations of savings
institutions, fully insured certificates of deposit and commercial paper.
Such securities are limited to:
U.S. Government Securities. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as
the Federal Home Loan Bank), including Treasury bills, notes and bonds;
Bank Obligations. Obligations (including certificates of deposit, bankers'
acceptances, commercial paper (see below) and other debt obligations) of
banks subject to regulation by the U.S. Government and having total assets of
$1 billion or more, and instruments secured by such obligations, not
including obligations of foreign branches of domestic banks except as
permitted below;
16
<PAGE>
Eurodollar Certificates of Deposit. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1
billion or more (investments in Eurodollar certificates may be affected by
changes in currency rates or exchange control regulations, or changes in
governmental administration or economic or monetary policy in the United
States and abroad);
Obligations of Savings Institutions. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more (investments in savings institutions above $100,000 in principal amount
are not protected by federal deposit insurance);
Fully Insured Certificates of Deposit. Certificates of deposit of banks
and savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered
by the FDIC), limited to $100,000 principal amount per certificate and to 15%
or less of the Capital Growth Series' total assets in all such obligations
and in all illiquid assets, in the aggregate;
Commercial Paper. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation ("S&P") or the highest grade by Moody's
Investors Service Inc. ("Moody's") or, if not rated, issued by a company
having an outstanding debt issue rated at least AA by S&P or Aa by Moody's.
GLOBAL EQUITY SERIES
Forward Foreign Currency Exchange Contracts. As discussed in the
Prospectus, the Global Equity Series may enter into forward foreign currency
exchange contracts ("forward contracts") as a hedge against fluctuations in
future foreign exchange rates. The Series will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies. A forward contract
involves an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between
currency traders (usually large, commercial and investment banks) and their
customers. Such forward contracts will only be entered into with United
States banks and their foreign branches or foreign banks whose assets total
$1 billion or more. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for trades.
When management of the Series believes that the currency of a particular
foreign country may suffer a substantial movement against the U.S. dollar, it
may enter into a forward contract to purchase or sell, for a fixed amount of
dollars or other currency, the amount of foreign currency approximating the
value of some or all of the Series' portfolio securities denominated in such
foreign currency. The Series will not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Series to deliver an amount of foreign currency
in excess of the value of the Series' portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of
the prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the management of the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Series will be served. The Series' custodian bank will
place cash, U.S. Government securities or other appropriate liquid portfolio
securities in a segregated account of the Series in an amount equal to the
value of the Series' total assets committed to the consummation of forward
contracts entered into under the circumstances set forth above. If the value
of the securities placed in the segregated account declines, additional cash
or securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Series' commitments with
respect to such contracts.
Where, for example, the Series is hedging a portfolio position consisting
of foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the
forward contract for delivery by the Series of a foreign currency, the Series
may either sell the portfolio security and make delivery of the foreign
currency, or it may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an
17
<PAGE>
"offsetting" contract with the same currency trader obligating it to
purchase, on the same maturity date, the same amount of the foreign currency
(however, the ability of the Series to terminate a contract is contingent
upon the willingness of the currency trader with whom the contract has been
entered into to permit an offsetting transaction). It is impossible to
forecast the market value of portfolio securities at the expiration of the
contract. Accordingly, it may be necessary for the Series to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of
foreign currency the Series is obligated to deliver and if a decision is made
to sell the security and make delivery of the foreign currency. Conversely,
it may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio securities if its market value
exceeds the amount of foreign currency the Series is obligated to deliver.
If the Series retains the portfolio securities and engages in an
offsetting transaction, the Series will incur a gain or loss to the extent
that there has been movement in spot or forward contract prices. If the
Series engages in an offsetting transaction, it may subsequently enter into a
new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Series' entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Series will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Series will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
If the Series purchases a fixed-income security which is denominated in
U.S. dollars but which will pay out its principal based upon a formula tied
to the exchange rate between the U.S. dollar and a foreign currency, it may
hedge against a decline in the principal value of the security by entering
into a forward contract to sell an amount of the relevant foreign currency
equal to some or all of the principal value of the security.
At times when the Series has written a call option on a security or the
currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a
greater extent than the value of the premium received for the option. The
Series will maintain with its Custodian at all times, cash, U.S. Government
securities, or other appropriate liquid portfolio securities in a segregated
account equal in value to all forward contract obligations and option
contract obligations entered into in hedge situations such as this.
Although the Series values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do realize
a profit based on the spread between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Series at one rate, while offering a lesser rate of exchange
should the Series desire to resell that currency to the dealer.
GENERAL INVESTMENT TECHNIQUES
Repurchase Agreements. When cash may be available for only a few days, it
may be invested by a Series in repurchase agreements until such time as it may
otherwise be invested or used for payments of obligations of the Series. A
repurchase agreement may be viewed as a type of secured lending by the Series
which typically involves the acquisition by the Series of government securities
from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Series 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 full value of the collateral, as specified
in the agreement, does not decrease below the repurchase price plus accrued
interest. If such decrease occurs, additional collateral will be added to the
account to maintain full collateralization. In the event the original seller
defaults on its obligations to repurchase, as a result of its bankruptcy or
otherwise, the
18
<PAGE>
Series will seek to sell the collateral, which action could involve costs or
delays. In such case, the Series' ability to dispose of the collateral to
recover its investment may be restricted or delayed.
The Series will, when received, accrue interest from the institution until
the time when the repurchase is to occur. Although such date is deemed by the
Series to be the maturity date of a repurchase agreement, the maturities of
securities subject to repurchase agreements are not subject to any limits and
may exceed one year.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, each Series follows procedures
designed to minimize such risks. Repurchase agreements will be transacted
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continuously monitored by the Investment
Manager subject to procedures established by the Trustees. The procedures
also require that the collateral underlying the agreement be specified.
Reverse Repurchase Agreements. As stated in the Prospectus, the Liquid
Asset, U.S. Government Money Market and Intermediate Income Securities Series
may also use reverse repurchase agreements as part of their investment
strategy. Reverse repurchase agreements involve sales by the Series of assets
concurrently with an agreement by the Series to repurchase the same assets at
a later date at a fixed price. Generally, the effect of such a transaction is
that the Series can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement,
while it will be able to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Series of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash. Opportunities to achieve this advantage
may not always be available, and the Series intend to use the reverse
repurchase technique only when it will be to its advantage to do so. The
Series will establish a segregated account with its custodian bank in which
it will maintain cash, U.S. Government securities or other liquid portfolio
securities equal in value to its obligations in respect of reverse repurchase
agreements. Reverse repurchase agreements are considered borrowings by the
Series and for purposes other than meeting redemptions may not exceed 5% of
the Series' total assets.
When-Issued and Delayed Delivery Securities and Forward Commitments. As
discussed in the Prospectus, from time to time, in the ordinary course of
business, a Series may purchase securities on a when-issued or delayed
delivery basis or may purchase or sell securities on a forward commitment
basis, i.e., delivery and payment can take place a month or more after the
date of the transactions. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during this period.
While a Series will only purchase securities on a when-issued, delayed
delivery or forward commitment basis with the intention of acquiring the
securities, the Series may sell the securities before the settlement date, if
it is deemed advisable. At the time the Series makes the commitment to
purchase securities on a when-issued or delayed delivery basis, the Series
will record the transaction and thereafter reflect the value, each day, of
such security in determining the net asset value of the Series. At the time
of delivery of the securities, the value may be more or less than the
purchase price. The Series will also establish a segregated account with the
Series' custodian bank in which it will continuously maintain cash or U.S.
Government securities or other liquid portfolio securities equal in value to
commitments for such when-issued or delayed delivery securities; subject to
this requirement, the Series may purchase securities on such basis without
limit. An increase in the percentage of the Series' assets committed to the
purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Series' net asset value. The Investment
Manager and the Trustees do not believe that any Series' net asset value or
income will be adversely affected by its purchase of securities on such
basis.
When, As and If Issued Securities. As discussed in the Prospectus, each
Series (with the exception of the U.S. Government Money Market Series) may
purchase securities on a "when, as and if issued" basis under which the
issuance of the security depends upon the occurrence of a subsequent event,
such as approval of a merger, corporate reorganization, leveraged buyout or
debt restructuring. The commitment for the purchase of any such security will
not be recognized by the Series until the Investment Manager determines that
issuance of the security is probable. At such time, the Series will
19
<PAGE>
record the transaction and, in determining its net asset value, will reflect
the value of the security daily. At such time, the Series will also establish
a segregated account with its custodian bank in which it will continuously
maintain cash or U.S. Government securities or other liquid portfolio
securities equal in value to recognized commitments for such securities.
Settlement of the trade will occur within five business days of the
occurrence of the subsequent event. The value of the Series' commitments to
purchase the securities of any one issuer, together with the value of all
securities of such issuer owned by the Series, may not exceed 5% of the value
of the Series' total assets at the time the initial commitment to purchase
such securities is made (see "Investment Restrictions"). Subject to the
foregoing restrictions, any Series may purchase securities on such basis
without limit. An increase in the percentage of the Series' 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 any Series will be
adversely affected by its purchase of securities on such basis.
Zero Coupon Securities. A portion of the U.S. Government securities
purchased by each Series of the Fund may be "zero coupon" Treasury
securities. These are U.S. Treasury bills, notes and bonds which have been
stripped of their unmatured interest coupons and receipts or which are
certificates representing interests in such stripped debt obligations and
coupons. In addition, a portion of the fixed-income securities purchased by
such Series may be "zero coupon" securities. "Zero coupon" securities are
purchased at a discount from their face amount, giving the purchaser the
right to receive their full value at maturity. A zero coupon security pays no
interest to its holder during its life. Its value to an investor consists of
the difference between its face value at the time of maturity and the price
for which it was acquired, which is generally an amount significantly less
than its face value (sometimes referred to as a "deep discount" price).
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant
rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received if prevailing interest rates rise. For this reason, zero
coupon securities are subject to substantially greater market price
fluctuations during periods of changing prevailing interest rates than are
comparable debt securities which make current distributions of interest.
Current federal tax law requires that a holder (such as the Series) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the Series receives no interest
payments in cash on the security during the year.
Currently, the only U.S. Treasury security issued without coupons is the
Treasury bill. However, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account).
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements and subject to Investment Restriction (11) below, each Series of
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 Series, and are at all times secured by cash or money market instruments,
which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least the market value, determined
daily, of the loaned securities. The advantage of such loans is that the
Series 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 Series will not lend portfolio
securities having a value of more than 10% of its total assets.
A loan may be terminated by the borrower on one business day's notice, or
by a Series on four business days' notice. If the borrower fails to deliver
the loaned securities within four days after receipt of notice, the Series
could use the collateral to replace the securities while holding the borrower
liable
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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
of 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 Series.
When voting or consent rights which accompany loaned securities pass to
the borrower, a Series will follow the policy of calling the loaned
securities, in whole or in part as may be appropriate, to be delivered within
one day after notice, to permit the exercise of such rights if the matters
involved would have a material effect on the Series' investment in such
loaned securities. A Series will pay reasonable finder's, administrative and
custodial fees in connection with a loan of its securities. No Series lent
any of its portfolio securities during the fiscal period ended July 31, 1997
and no Series has any intention of lending any of its porfolio securities
during the current fiscal year of the Fund.
U.S. Government Securities. As stated in the Prospectus, the Intermediate
Income Securities and Utilities Series may invest in U.S. Government
securities. Securities issued by the U.S. Government, its agencies or
instrumentalities in which the Intermediate Income Securities and Utilities
Series may invest include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export Import Bank, the Farmers Home Administration; the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from three months
to thirty years although the Fund may not invest in securities with
maturities of more than twelve years.
(3) Securities issued by agencies and instrumentalies which are not
backed by the full faith and credit of the United States, but whose issuing
agency or instrumentality has the right to borrow, to meet its obligations,
from an existing line of credit with the U.S. Treasury. Among the agencies
and instrumentalities issuing such obligations are the Tennessee Valley
Authority, the Federal National Mortgage Association ("FNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") and the U.S. Postal Service.
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal Farm
Credit System and the Federal Home Loan Bank.
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, each of the Intermediate Income
Securities, American Value, Capital Growth, Strategist, Utilities and Global
Equity Series may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities (the
Capital Growth Series may also write covered put and call options on stock
and bond 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
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contracts. The Global Equity Series may also hedge against potential changes
in the market value of the currencies in which its investments (or
anticipated investments) are denominated by purchasing put and call options
on currencies and engage in transactions involving currency futures contracts
and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and equity
securities are listed on Exchanges and are written in over-the-counter
transactions ("OTC options"). Listed options are issued by the Options
Clearing Corporation ("OCC") and other clearing entities including foreign
exchanges. Ownership of a listed call option gives a Series 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 Series 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 a Series 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 Series will hold the Treasury bills in a segregated account with its
Custodian, so that they will be treated as being covered.
Options on GNMA Certificates. Currently, options on GNMA Certificates are
only traded over-the-counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, a Series,
as a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy
its delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Series will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA
Certificates in the cash market in order to maintain its cover. A GNMA
Certificate held by the Series to cover an option position in any but the
nearest expiration month may cease to represent cover for the option in the
event of a decline in the GNMA coupon rate at which new pools are originated
under the FHA/VA loan ceiling in effect at any given time, as such decline
may increase the prepayments made on other mortgage pools. If this should
occur, the Series will no longer be covered, and the Series will either enter
into a closing purchase transaction or replace such Certificate with a
Certificate which represents cover. When the Series closes out its position
or replaces such Certificate, it may realize an unanticipated loss and incur
transaction costs.
Options on Foreign Currencies. The Global Equity Series may purchase and
write options on foreign currencies for purposes similar to those involved
with investing in forward foreign currency exchange contracts. For example,
in order to protect against declines in the dollar value of portfolio
securities which are denominated in a foreign currency, the Global Equity
Series may purchase put options on an amount of such foreign currency
equivalent to the current value of the portfolio securities involved. As a
result, the Global Equity Series would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the portfolio securities (less the amount
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of the premiums paid for the options). Conversely, the Global Equity Series
may purchase call options on foreign currencies in which securities it
anticipates purchasing are denominated to secure a set U.S. dollar price for
such securities and protect against a decline in the value of the U.S. dollar
against such foreign currency. The Global Equity Series may also purchase
call and put options to close out written option positions.
The Global Equity Series may also write call options on foreign currency
to protect against potential declines in its portfolio securities which are
denominated in foreign currencies. If the U.S. dollar value of the portfolio
securities falls as a result of a decline in the exchange rate between the
foreign currency in which a security is denominated and the U.S. dollar, then
a loss to the Series occasioned by such value decline would be ameliorated by
receipt of the premium on the option sold. At the same time, however, the
Series gives up the benefit of any rise in value of the relevant portfolio
securities above the exercise price of the option and, in fact, only receives
a benefit from the writing of the option to the extent that the value of the
portfolio securities falls below the price of the premium received. The
Global Equity Series may also write options to close out long call option
positions.
The markets in foreign currency options are relatively new and the Global
Equity Series' ability to establish and close out positions on such options
is subject to the maintenance of a liquid secondary market. Although the
Series will not purchase or write such options unless and until, in the
opinion of management of the Series, the market for them has developed
sufficiently to ensure that the risks in connection with such options are not
greater than the risks in connection with the underlying currency, there can
be no assurance that a liquid secondary market will exist for a particular
option at any specific time. In addition, options on foreign currencies are
affected by all of those factors which influence foreign exchange rates and
investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and have no relationship to the investment merits of a foreign
security, including foreign securities held in a "hedged" investment
portfolio. Because foreign currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved
in the use of foreign currency options, investors may be disadvantaged by
having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that
are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. options markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying markets
that are not reflected in the options market.
OTC Options. Exchange-listed options are issued by the OCC (in the U.S.)
or other clearing corporation or exchange 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 relevant Series of the Fund. With OTC options, such
variables as expiration date, exercise price and premium will be agreed upon
between a Series 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 or amount of foreign currency underlying an option
it has written, in accordance with the terms of the option, the Series 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
member banks of the Federal Reserve System or primary dealers in U.S.
Government securities or with affiliates of such banks or dealers which have
capital of at least $50 million or whose obligations are guaranteed by an
entity having capital of at least $50 million.
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Covered Call Writing. As stated in the Prospectus, the Series are
permitted to write covered call options on portfolio securities, and the
Global Equity Series is permitted to write covered call options on the U.S.
dollar and foreign currencies, in each case without limit, in order to aid in
achieving their investment objectives. Generally, a call option is "covered"
if the Series owns, or has the right to acquire, without additional cash
consideration (or for additional cash consideration held for the Series by
its Custodian in a segregated account) the underlying security (currency)
subject to the option except that in the case of call options on U.S.
Treasury Bills, a Series might own U.S. Treasury Bills of a different series
from those underlying the call option, but with a principal amount and value
corresponding to the exercise price and a maturity date no later than that of
the securities (currency) deliverable under the call option. A call option is
also covered if the Series holds a call on the same security (currency) 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 Series in cash, U.S.
Government securities or other liquid portfolio securities which the Series
holds in a segregated account maintained with the Series' Custodian.
The Series 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 Series to achieve a high current income return
for their shareholders or achieve a more consistent average total return than
would be realized from holding the underlying securities (and, in the case of
the Global Equity Series, currencies) alone. Moreover, the premium received
will offset a portion of the potential loss incurred by the Series if the
securities (currencies) underlying the option are ultimately sold (exchanged)
by the Series at a loss. The value of the premium received will fluctuate
with varying economic market conditions. If the market value of the portfolio
securities (or the currencies in which they are denominated) upon which call
options have been written increases, a Series may receive less total return
from the portion of its portfolio upon which calls have been written than it
would have had such calls not been written.
As regards listed options and certain over-the-counter ("OTC") options,
during the option period, the Series may be required, at any time, to deliver
the underlying security (currency) against payment of the exercise price on
any calls it has written (exercise of certain listed and OTC options may be
limited to specific expiration dates). This obligation is terminated upon the
expiration of the option period or at such earlier time when the writer
effects a closing purchase transaction. A closing purchase transaction is
accomplished by purchasing an option of the same series as the option
previously written. However, once the Series has been assigned an exercise
notice, the Series will be unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit
on an outstanding call option, to prevent an underlying security (currency)
from being called, to permit the sale of an underlying security (or the
exchange of the underlying currency) or to enable the Series to write another
call option on the underlying security (currency) with either a different
exercise price or expiration date or both. Also, effecting a closing purchase
transaction will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments by the
Series. The Series may realize a net gain or loss from a closing purchase
transaction depending upon whether the amount of the premium received on the
call option is more or less than the cost of effecting the closing purchase
transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of
the underlying security (currency). Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part or exceeded
by a decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Series realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised,
the Series realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference between the purchase price of the
underlying security (currency) and the proceeds of the sale of the security
(currency) plus the premium received when the option was written, less the
commission paid.
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Options written by a Series normally have expiration dates of up to
eighteen months from the date written. The exercise price of a call option
may be below, equal to or above the current market value of the underlying
security (currency) at the time the option is written. See "Risks of Options
and Futures Transactions," below.
The Series may also purchase put options to close out written put
positions in a manner similar to call options closing purchase transactions.
In addition, a Series may sell a put option which it has previously purchased
prior to the sale of the securities (currency) underlying such option. Such a
sale would result in a net gain or loss depending on whether the amount
received on the sale is more or less than the premium and other transaction
costs paid on the put option which is sold. Any such gain or loss could be
offset in whole or in part by a change in the market value of the underlying
security (currency). If a put option purchased by a Series expired without
being sold or exercised, the premium would be lost.
Covered Put Writing. As stated in the Prospectus, as a writer of a covered
put option, the Series incurs an obligation to buy the security underlying
the option from the purchaser of the put, at the option's exercise price at
any time during the option period, at the purchaser's election (certain
listed and OTC put options written by the Series will be exercisable by the
purchaser only on a specific date). A put is "covered" if the Series
maintains, at all times, in a segregated account maintained on its behalf at
its Custodian, cash, U.S. Government securities or other liquid portfolio
securities in an amount equal to at least the exercise price of the option,
at all times during the option period. Similarly, a written put position
could be covered by the Series 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 Series in cash, U.S.
Government securities or other liquid portfolio securities which the Series
holds in a segregated account maintained at its Custodian. In writing puts, a
Series assumes the risk of loss should the market value of the underlying
security decline below the exercise price of the option (any loss being
decreased by the receipt of the premium on the option written). In the case
of listed options, during the option period, the Series 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.
A Series 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 the Series 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 Series
may purchase listed and OTC call and put options in amounts equalling up to
10% of the total assets of the Series. The Series may purchase call options
in order to close out a covered call position (see "Covered Call Writing"
above) or purchase call options on securities they intend to purchase. The
Global Equity Series may purchase a call option on foreign currency to hedge
against an adverse exchange rate move of the currency in which the security
it anticipates purchasing is denominated vis-a-vis the currency in which the
exercise price is denominated. The purchase of the call option to effect a
closing transaction or a call written over-the-counter may be a listed or an
OTC option. In either case, the call purchased is likely to be on the same
securities (currencies) and have the same terms as the written option. If
purchased over-the-counter, the option would generally be acquired from the
dealer or financial institution which purchased the call written by the
Series.
Each Series may purchase put options on securities (and, in the case of
the Global Equity Series, on currencies) which it holds (or has the right to
acquire) in its portfolio only to protect itself against a decline in the
value of the security (currency). If the value of the underlying security
(currency) were to fall below the exercise price of the put purchased in an
amount greater than the premium paid for the
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option, the Series would incur no additional loss. A Series may also purchase
put options to close out written put positions in a manner similar to call
options closing purchase transactions. In addition, a Series may sell a put
option which it has previously purchased prior to the sale of the securities
(currencies) 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 when it
was purchased. Any such gain or loss could be offset in whole or in part by a
change in the market value of the underlying security (currency). If a put
option purchased by a Series expired without being sold or exercised, the
Series would realize a loss.
Risks of Options Transactions. The successful use of options depends on
the ability of the Investment Manager to forecast correctly interest rates
and market movements. If the market value of the portfolio securities (or, in
the case of the Global Equity Series, the currencies in which they are
denominated) upon which call options have been written increases, the Series
may receive a lower total return from the portion of its portfolio upon which
calls have been written than it would have had such calls not been written.
In writing puts, the Series assumes the risk of loss should the market value
of the underlying securities (or, in the case of the Global Equity Series,
the currencies in which they are denominated) 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 covered call writer
has, in return for the premium on the option, given up the opportunity for
capital appreciation above the exercise price should the market price of the
underlying security (or, in the case of the Global Equity Series, the value
of the security's denominated currency) increase, but has retained the risk
of loss should the price of the underlying security (or, in the case of the
Global Equity Series, the value of the security's denominated currency)
decline. The covered put writer also retains the risk of loss should the
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. A covered put option
writer who is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option would continue to bear the risk of decline in the
market price of the underlying security (or, in the case of the Global Equity
Series, currency) until the option expires or is exercised. In addition, a
covered put writer would be unable to utilize the amount held in cash or U.S.
Government or other liquid portfolio securities as security for the put
option for other investment purposes until the exercise or expiration of the
option.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered put
call option writer is unable to effect a closing purchase transaction or to
purchase an offsetting OTC option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered
call option writer may not be able to sell an underlying security (or, in the
case of the Global Equity Series, currency) at a time when it might otherwise
be advantageous to do so.
A Series' ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option
exchanges. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options will generally only be closed out
by entering into a closing purchase transaction with the purchasing dealer.
However, a Series 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 Series is not able to either
enter into a closing purchase transaction or purchase an offsetting position,
it will be required to maintain the securities subject to the call, or the
collateral underlying the put, even though it might not be advantageous to do
so, until a closing transaction can be entered into (or the option is
exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes
or series of options or underlying securities; (iv) interruption of the
normal operations on an exchange; (v) inadequacy of the facilities of an
exchange or the Options Clearing Corporation ("OCC") to handle
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current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the OCC as a result of
trades on that exchange would generally continue to be exercisable in
accordance with their terms.
In the event of the bankruptcy of a broker through which a Series engages
in transactions in options, the Series 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 a Series, the Series could experience a loss of all or part of
the value of the option. Transactions are entered into by a Series only with
brokers or financial institutions deemed creditworthy by the Fund's
management.
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 a Series 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. Series may also invest in options on stock indexes.
As stated in the Prospectus, options on stock indexes are similar to options
on stock except that, rather than the right to take or make delivery of stock
at a specified price, an option on a stock index gives the holder the right
to receive, upon exercise of the option, an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option. This amount of cash is equal to such difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple (the "multiplier"). The multiplier for an
index option performs a function similar to the unit of trading for a stock
option. It determines the total dollar value per contract of each point in
the difference between the exercise price of an option and the current level
of the underlying index. A multiplier of 100 means that a one-point
difference will yield $100. Options on different indexes may have different
multipliers. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Unlike stock options, all
settlements are in cash and a gain or loss depends on price movements in the
stock market generally (or in a particular segment of the market) rather than
the price movements in individual stocks. Currently, options are traded on,
among other indexes, the Standard & Poor's 100 Index and the Standard &
Poor's 500 Index on the Chicago Board Options Exchange, the Major Market
Index and the Computer Technology Index, Oil Index and Institutional Index on
the American Stock Exchange and the NYSE Index and NYSE Beta Index on the New
York Stock Exchange). The Financial News Composite Index on the Pacific Stock
Exchange and the Value Line Index, National O-T-C Index and Utilities Index
on the Philadelphia Stock Exchange, each of which and any similar index on
which options are traded in the future which include stocks that are not
limited to any particular industry or segment of the market is referred to as
a "broadly based stock market index." Options on broad-based stock indexes
provide the Series with a means of protecting the Series against the risk of
market-wide price movements. If the Investment Manager anticipates a market
decline, the Series could purchase a stock index put option. If the expected
market decline materialized, the resulting decrease in the value of the
Series' 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
Series may purchase a stock index call option to enable the Series to
participate in such rise until completion of anticipated common stock
purchases by the Series. Purchases and sales of stock index options also
enable the Investment Manager to more speedily achieve changes in a Series'
equity positions.
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Series will be able to write put options on stock indexes only if such
positions are covered by cash, U.S. Government securities or other liquid
portfolio securities equal to the aggregate exercise price of the puts, 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 Series, which cover is held by the
Series in a segregated account maintained for it by its Custodian. All call
options on stock indexes written by a Series 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 Series.
Risks of Options on Indexes. Because exercises of stock index options are
settled in cash, the Series, as a call writer, would not be able to 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 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 has been assigned until the next business day, at the earliest.
The time lag between exercise and notice of assignment poses no risk for the
writer of a covered call on a specific underlying security, such as a common
stock, because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as the
writer already owns the underlying security, it can satisfy its settlement
obligations by simply delivering it, and the risk that its value may have
declined since the exercise date is borne by the exercising holder. In
contrast, even if the writer of an index call holds stocks that exactly match
the composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those stocks against payment of the
exercise price. Instead, it will be required to pay cash in an amount based
on the closing index value on the exercise date; and by the time it learns
that it has been assigned, the index may have declined, with a corresponding
decline 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 Utilities, American
Value, Capital Growth, Strategist, Value-Added Market, Intermediate Income
Securities and Global Equity Series may purchase and sell interest rate
futures contracts that are traded, or may in the future be traded, on U.S.
(and in the case of Global Equity Series, foreign) commodity exchanges on
such underlying securities as U.S. Treasury bonds, notes, bills and GNMA
Certificates and stock and bond index futures contracts that are traded, or
may in the future be traded, on U.S. commodity exchanges on such indexes as
the Moody's Investment-Grade Corporate Bond Index, S&P 500 Index and the New
York Stock Exchange Composite Index.
As a futures contract purchaser, a Series incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, a Series incurs an obligation to deliver the specified amount of
the underlying obligation at a specified time in return for an agreed upon
price.
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Series will purchase or sell interest rate futures contracts for the
purpose of hedging their fixed-income portfolio (or anticipated portfolio)
securities against changes in prevailing interest rates or, to alter the
Series' asset allocation in fixed-income securities. If it is anticipated
that interest rates may rise and, concomitantly, the price of certain of its
portfolio securities fall, a Series may sell an interest rate futures
contract or a bond index futures contract. If declining interest rates are
anticipated, or if the Investment Manager wishes to increase the Series'
allocation of fixed-income securities, a Series may purchase an interest rate
futures contract or a bond index futures contract to protect against a
potential increase in the price of securities the Series intends to purchase.
Subsequently, appropriate securities may be purchased by the Series in an
orderly fashion; as securities are purchased, corresponding futures positions
would be terminated by offsetting sales of contracts.
Series will purchase or sell stock index futures contracts for the purpose
of hedging their equity portfolio (or anticipated portfolio) securities
against changes in their prices. If the Investment Manager anticipates that
the prices of stock held by a Series may fall or wishes to decrease the
Series' asset allocation in equity securities, the Series may sell a stock
index futures contract. Conversely, if the Investment Manager wishes to
increase the assets of the Series which are invested in stocks or as a hedge
against anticipated prices rises in those stocks which the Series intends to
purchase, the Series may purchase stock index futures contracts. This allows
the Series to purchase equities, in accordance with the asset allocations of
the Series management, in an orderly and efficacious manner.
The Global Equity Series will purchase or sell futures contracts on
currencies in which its portfolio securities (or anticipated portfolio
securities) are denominated for the purposes of hedging against anticipated
changes in currency exchange rates. The Global Equity Series will enter into
currency futures contracts for the same reasons as set forth under the
heading "Forward Foreign Currency Exchange Contracts" under "The Global
Equity Series" above for entering into forward foreign currency contracts;
namely, to "lock-in" the value of a security purchased or sold in a given
currency vis-a-vis a different currency or to hedge against an adverse
currency exchange rate movement of a portfolio security's (or anticipated
portfolio security's) denominated currency vis-a-vis a different currency.
In addition to the above, interest rate and bond index and stock index
(and currency) futures contracts will be bought or sold in order to close out
a short or long position in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the 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 security (or,
in the case of the Global Equity Series, currency) and the same delivery
date. If the sale price exceeds the offsetting purchase price, the seller
would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference
and would realize a loss. Similarly, a futures contract purchase is closed
out by effecting a futures contract sale for the same aggregate amount of the
specific type of security (currency) 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 offseting sale price, the
purchaser would realize a loss. There is no assurance that a Series will be
able to enter into a closing transaction.
When a Series enters into a futures contract it is initially required to
deposit with its Custodian, in an 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% (for interest rate futures contracts) 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 contract 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
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deposit on the futures contract which will be returned to the Series upon the
proper termination of the futures contract. The margin deposits made are
marked-to-market daily and the Series may be required to make subsequent
deposits of cash or U.S. Government securities, called "variation margin,"
with the Series' 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. As discussed in the Prospectus, the Series may also invest
in stock index futures contracts. An index futures contract sale creates an
obligation by the Series, as seller, to deliver cash at a specified future
time. An index futures contract purchase would create an obligation by the
Series, 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 Series 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 Series 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 Series may
elect to close the position by taking an opposite position which will operate
to terminate the Series' 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 Series and the Series 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.
Currency Futures. As noted above, the Global Equity Series may invest in
foreign currency futures. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise date, for
a set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and
under the same circumstances as forward foreign currency exchange contracts.
The Global Equity Series' management will assess such factors as cost
spreads, liquidity and transaction costs in determining whether to utilize
futures contracts or forward contracts in its foreign currency transactions
and hedging strategy. Currently, currency futures exist for, among other
foreign currencies, the Japanese yen, German mark, Canadian dollar, British
pound, Swiss franc and European currency unit.
Purchasers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures generally.
In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. Further, settlement of a
foreign currency futures contract must occur within the country issuing the
underlying currency. Thus, the Global Equities Series must accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign restrictions or regulation regarding the maintenance of foreign
banking arrangements by U.S. residents and may be required to pay any fees,
taxes or charges associated with such delivery which are assessed in the
issuing country.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To reduce
this risk, the Global
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Equity Series will not purchase or write options on foreign currency futures
contracts unless and until, in the opinion of the Series' management, the
market for such options has developed sufficiently that the risks in
connection with such options are not greater than the risks in connection
with transactions in the underlying foreign currency futures contracts.
Options on Futures Contracts. The Series may purchase and write call and
put options on futures contracts which are traded on an exchange and enter
into closing transactions with respect to such options to terminate an
existing position. An option on a futures contract gives the purchaser the
right, in return for the premium paid, 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 the exericse 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 Series will only purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of
a futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, the
Investment Manager wished to protect against an increase in interest rates
and the resulting negative impact on the value of a portion of a Series'
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 Series' management seeks to hedge. Any premiums
received in the writing of options on futures contracts may, of course,
augment the income of the Series and thereby provide a further hedge against
losses resulting from price declines in portions of its 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 Series may
not enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to initial margin plus the
amount paid for premiums for unexpired options on futures contracts exceeds
5% of the value of the Series' 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 a Series' 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, Series may only
enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of the Series' portfolio. If the CFTC
changes its regulations so that the Fund would be permitted to write options
on futures contracts for income purposes without CFTC registration, these
Series 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 these Series.
Risks of Transactions in Futures Contracts and Related Options. The
successful use of futures and related options depends on the ability of the
Investment Manager to accurately predict market and interest rate movements.
As stated in the Prospectus, a Series may sell a futures contract to protect
against the decline in the value of securities (or, in the case of the Global
Equity Series, the currency in which securities are denominated) held by the
Series. However, it is possible that the futures market may advance and the
value of securites (or, in the case of the Global Equity Series, the currency
in which they are denominated) held in the Series may decline. If this
occurred, the Series 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.
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If the Series purchases a futures contract to hedge against the increase
in value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities (currency) decreases, then the
Series 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 a Series maintains a short position in a futures contract or has sold a
call option on a futures contract, it will cover this position by holding, in
a segregated account maintained at its Custodian, cash, U.S. Government
securities or other high grade debt obligations equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities (currencies) underlying the futures contract or the exercise price
of the option. Such a position may also be covered by owning the securities
(currencies) 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 Series to
purchase the same contract at a price no higher than the price at which the
short position was established.
In addition, if a Series holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S.
Government securities or other liquid portfolio securities equal to the
purchase price of the contract or the exercise price of the put option (less
the amount of initial or variation margin on deposit) in a segregated account
maintained for the Series by its Custodian. Alternatively, the Series 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 at which the
short position was established.
In addition, if a Series holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S.
Government securities or other liquid portfolio securities equal to the
purchase price of the contract or the exercise price of the put option (less
the amount of initial or variation margin on deposit) in a segregated account
maintained for the Series by its Custodian. Alternatively, the Series 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 Series.
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 Series
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Series 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 Series 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 Series' ability to
effectively hedge its portfolio.
With regard to the Global Equity Series, futures contracts and options
thereon which are purchased or sold on foreign commodities exchanges may have
greater price volatility than their U.S. counterparts. Furthermore, foreign
commodities exchanges may be less regulated and under less governmental
scrutiny than U.S. exchanges. Brokerage commissions, clearing costs and other
transaction costs may be higher on foreign exchanges. Greater margin
requirements may limit the Global Equity Series' ability to enter into
certain commodity transactions on foreign exchanges. Moreover, differences in
clearance and delivery requirements on foreign exchanges may occasion delays
in the settlement of the Series' transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which the Series
engages in transactions in futures or options thereon, the Series 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 Series, the Series could experience
a loss of all or part of the value of the option. Transactions are entered
into by a Series only with brokers or financial institutions deemed
creditworthy by the Series' management.
While the futures contracts and options transactions to be engaged in by a
Series for the purpose of hedging the Series' portfolio securities are not
speculative in nature, there are risks inherent in the use
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of such instruments. One such risk which may arise in employing futures
contracts to protect against the price volatility of portfolio securities
(and, for the Global Equity Series, the currencies in which they are
denominated) 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 Series' portfolio securities (and
the currencies in which they are denominated). Another such risk is that
prices of interest rate futures contracts may not move in tandem with the
changes in prevailing interest rates against which the Series seeks a hedge.
A correlation may also be distorted by the fact that the futures market is
dominated by short-term traders seeking to profit from the difference between
a contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by the Series and
the movements in the prices of the securities (currencies) which are the
subject of the hedge. If participants in the futures market elect to close
out their contracts through offsetting transactions rather than meet margin
deposit requirements, distortions in the normal relationship between the debt
securities and futures markets could result. Price distortions could also
result if investors in futures contracts opt to make or take delivery of
underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the futures market. In addition, due
to the fact that, from the point of view of speculators, the deposit
requirements in the futures markets are less onerous than margin requirements
in the cash market, increased participation by speculators in the futures
market could cause temporary price distortions. Due to the possibility of
price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities and movements in
the prices of futures contracts, a correct forecast of interest rate trends
may still not result in a successful hedging transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which Series
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, a Series 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 a Series
from closing out a contract which may result in reduced gain or increased
loss to the Series. The absence of a liquid market in futures contracts might
cause the Series to make or take delivery of the underlying securities
(currencies) at a time when it may be disadvantageous to do so.
The extent to which the Series may enter into transactions involving
futures contracts and options thereon may be limited by the Internal Revenue
Code's requirements for qualification as a regulated investment company and
the Fund's intention to qualify each Series as such (see "Dividends,
Distributions and Taxes" in the Prospectus).
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to a
Series 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 Series 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 (currencies).
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 of the Series, except as otherwise indicated. Under the
Act, a fundamental policy may not be changed with respect to a Series without
the vote of a majority of the outstanding voting securities of that Series,
as defined in the Act. Such a majority is defined as the lesser of (a) 67% or
more of the shares of the Series present at a meeting of shareholders of the
Fund, if the holders of more than 50% of the outstanding shares of the Series
are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Series. For purposes of the following restrictions and those
contained in the Prospectus: (i) all percentage limitations
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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 the amount of total or net assets does not
require elimination of any security from the portfolio.
RESTRICTIONS APPLICABLE TO ALL SERIES
Each Series of the Fund may not:
1. Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require
the untimely disposition of securities; or through its transactions in
reverse repurchase agreements. Borrowing in the aggregate, including reverse
repurchase agreements, may not exceed 5% (10% for Liquid Asset Series and 15%
for U.S. Government Money Market Series), and borrowing for purposes other
than meeting redemptions may not exceed 5% (10% for Liquid Asset Series) of
the value of the Series' total assets (including the amount borrowed), less
liabilities (not including the amount borrowed) at the time the borrowing is
made.
2. Pledge its assets or assign or otherwise encumber them except to secure
borrowings effected within the limitations set forth in restriction (1). 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.
3. Make short sales of securities.
4. Engage in the underwriting of securities, except insofar as the Series
may be deemed an underwriter under the Securities Act of 1933 in disposing of
a portfolio security.
5. Purchase or sell commodities or commodities contracts, except that the
Series may purchase or write interest rate, currency and stock and bond index
futures contracts and related options thereon.
6. Purchase or sell real estate or interests therein (including real
estate limited partnerships), although the Series may purchase securities of
issuers which engage in real estate operations and securities secured by real
estate or interests therein (as such, in case of default of such securities,
a Series may hold the real estate securing such security).
7. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Series may invest in
the securities or companies which operate, invest in, or sponsor such
programs.
8. Purchase securities on margin (but the Series may obtain such
short-term loans as are necessary for the clearance of transactions). The
deposit or payment by a Series of initial or variation margin in connection
with futures contracts or related options thereon is not considered the
purchase of a security on margin.
9. Issue senior securities as defined in the Act, except insofar as the
Series may be deemed to have issued a senior security by reason of (a)
entering into any repurchase or reverse repurchase agreement; (b) purchasing
any securities on a when-issued or delayed delivery basis; (c) purchasing or
selling futures contracts, forward foreign exchange contracts or options; (d)
borrowing money in accordance with restrictions described above; or (e)
lending portfolio securities.
10. Purchase securities of any issuer for the purpose of exercising
control or management.
11. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Series may invest
consistent with its investment objectives and policies; (b) by investment in
repurchase agreements; or (c) by lending its portfolio securities.
12. Participate on a joint or a joint and several basis in any securities
trading account. The "bunching" of orders of two or more Series (or of one or
more Series and of other accounts under the investment management of the
Investment Manager) for the sale or purchase of portfolio securities shall
not be considered participating in a joint securities trading account.
34
<PAGE>
13. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets or in accordance with the provisions of Section 12(d) of the Act and
any Rules promulgated thereunder.
In addition, as a nonfundamental policy, the Fund may not invest in
securities of any issuer if, to the knowledge of the Fund, any officer or
trustee of the Fund or any officer or director of the Investment Manager owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuers.
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 each Series of the Fund, the selection of brokers and dealers to effect
the transactions, and the negotiation of brokerage commissions, if any.
Purchases and sales of securities on a stock exchange are effected through
brokers who charge a commission for their services. In the over-the-counter
market, securities are generally traded on a "net" basis with dealers acting
as principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which
includes an amount of compensation to the underwriter, generally referred to
as the underwriter's concession or discount. When securities are purchased or
sold directly from or to an issuer, no commissions or discounts are paid. For
the fiscal years ended July 31, 1995, 1996 and 1997, the Series of the Fund
paid brokerage commissions as follows:
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS
PAID FOR FISCAL YEAR PAID FOR FISCAL YEAR PAID FOR FISCAL YEAR
NAME OF SERIES ENDED 7/31/95 ENDED 7/31/96 ENDED 7/31/97
- -------------- ------------- ------------- -------------
<S> <C> <C> <C>
American Value Series .... $66,581 $140,058 $192,907
Capital Growth Series .... 629 3,207 8,366
Dividend Growth Series ... 37,711 51,116 79,426
Strategist Series......... 6,628 17,146 12,242
Utilities Series.......... 4,444 4,668 16,017
Value-Added Market
Series................... 7,693 7,588 10,509
Global Equity Series ..... 28,597 78,153 71,144
</TABLE>
Purchases of money market instruments are made from dealers, underwriters
and issuers; sales, if any, prior to maturity, are made to dealers and
issuers. The Fund does not normally incur brokerage commission expense on
such transactions. Money market instruments 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 Investment Manager serves as investment adviser 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
Series of the Fund and others whose assets it manages in such manner as it
deems equitable. In making such allocations among the Series of the Fund and
other client accounts, various factors may be considered, including the
respective investment objectives, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment,
the size of investment commitments generally held and the opinions of the
persons responsible for managing the portfolios of the Fund and other client
accounts. In the case of certain initial and secondary public offerings, the
Investment Manager may utilize a pro rata allocation process based on the
size of the Dean Witter Funds involved and the number of shares available
from the public offering. This procedure may, under certain circumstances,
have an adverse effect on the Fund or any of its Series.
The policy of the Fund regarding purchases and sales of securities for the
various Series 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,
35
<PAGE>
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.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on foreign securities exchanges. Fixed
commissions on such transactions are generally higher than negotiated
commissions on domestic transactions. There is also generally less government
supervision and regulation of foreign securities exchanges and brokers than
in the United States.
In seeking to implement the policies of the Series of the Fund, 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 price and execution are obtainable from more than one broker or dealer,
it may give consideration to placing portfolio transactions with those
brokers and dealers who also furnish research and other services to the Fund
or the Investment Manager. Such services may include, but are not limited to,
any one or more of the following: information as to the availability of
securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or
evaluations of portfolio securities. The Fund will give no weight to any
research services provided by a dealer, transacting with the Fund as
principal, in determining the price of a security purchased from or sold to
that dealer.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager or in the
management of accounts of some of its other clients and may not in all cases
benefit a Series of 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 thus reduce its expenses, it is of indeterminable value and the fees paid
to the Investment Manager are not reduced by any amount that may be
attributable to the value of such services. For the fiscal year ended July
31, 1997, the Series of the Fund directed the payment of commissions in
connection with transactions in the following aggregate amounts to brokers
because of research services provided:
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS AGGREGATE DOLLAR
DIRECTED IN CONNECTION AMOUNT OF TRANSACTIONS
WITH RESEARCH SERVICES FOR WHICH SUCH
PROVIDED COMMISSIONS WERE PAID
FOR FISCAL YEAR FOR FISCAL YEAR
NAME OF SERIES ENDED 7/31/97 ENDED 7/31/97
- ---------------------- ---------------------- ----------------------
<S> <C> <C>
American Value Series . $160,636 $123,574,975
Capital Growth Series . 6,645 3,724,582
Dividend Growth
Series................ 35,869 24,046,647
Strategist Series...... 5,214 1,707,539
Utilities Series....... 2,002 821,559
Global Equity Series .. 61,879 15,783,096
</TABLE>
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' Acceptance) and Commercial Paper. Such transactions will
be effected with DWR only when the price available from DWR is better than
that available from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR and Morgan Stanley & Co., Inc.
36
<PAGE>
("Morgan Stanley"), another broker-dealer affiliate of the Investment
Manager. In order for an affiliated broker-dealer to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration
received by the affiliated broker-dealer must be reasonable and fair compared
to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time. This
standard would allow the affiliated broker-dealer to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker
in a commensurate arm's-length transaction. Furthermore, the 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 these brokers are consistent with the foregoing
standard. The Fund does not reduce the management fee it pays to the
Investment Manager by any amount of the brokerage commissions it may pay to
these affiliated brokers. For the fiscal year ended July 31, 1995, the Series
paid the following dollar amounts of brokerage commissions to DWR: American
Value Series: $18,882; Capital Growth Series: $519; Dividend Growth Series:
$28,711; Strategist Series: $5,710; Utilities Series: $3,970; and Global
Equity Series: $3,713. For the fiscal year ended July 31, 1996, the Series
paid the following dollar amounts of brokerage commissions to DWR: American
Value Series: $67,847; Capital Growth Series: $1,774; Dividend Growth Series:
$30,759; Strategist Series: $10,751; Utilities Series: $4,140; and Global
Equity Series: $5,635. For the fiscal year ended July 31, 1997, the Series
paid brokerage commissions to DWR for transactions as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF AGGREGATE
DOLLAR AMOUNT OF
EXECUTED TRADES ON
BROKERAGE COMMISSIONS PERCENTAGE OF AGGREGATE WHICH BROKERAGE
PAID TO DWR FOR FISCAL BROKERAGE COMMISSIONS COMMISSIONS WERE PAID
YEAR FOR FISCAL YEAR ENDED FOR FISCAL YEAR ENDED
NAME OF SERIES ENDED 7/31/97 7/31/97 7/31/97
- ---------------------- ---------------------- ----------------------- -----------------------
<S> <C> <C> <C>
American Value Series . $25,735 13.34% 17.28%
Capital Growth Series . 1,487 17.77 22.77
Dividend Growth
Series................ 43,558 54.84 65.14
Strategist Series...... 6,861 56.04 80.35
Utilities Series....... 13,830 86.35 90.59
Global Equity Series .. 9,201 12.93 30.64
</TABLE>
For the period June 1, 1997 through July 31, 1997, the Series paid
brokerage commissions to Morgan Stanley as set forth in the chart below.
Morgan Stanley became an affiliate of the Investment Manager on May 31, 1997
upon consummation of the merger of Dean Witter, Discover & Co. with Morgan
Stanley Group, Inc.
<TABLE>
<CAPTION>
PERCENTAGE OF AGGREGATE
DOLLAR AMOUNT OF
EXECUTED TRADES ON
BROKERAGE COMMISSIONS PERCENTAGE OF AGGREGATE WHICH BROKERAGE
PAID TO MORGAN STANLEY BROKERAGE COMMISSIONS COMMISSIONS WERE PAID
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
NAME OF SERIES 6/1/97-7/31/97 6/1/97-7/31/97 6/1/97-7/31/97
- --------------------- ---------------------- ----------------------- -----------------------
<S> <C> <C> <C>
American Value
Series............... $1,365 0.71% 0.71%
Capital Growth
Series............... 270 3.23 2.76
Global Equity Series . 168 0.24 0.42
</TABLE>
During the fiscal year ended July 31, 1997, the American Value Series held
common stock issued by Merrill Lynch & Co., Inc. with a market value of
$563,500 and common stock issued by Lehman Brothers with a market value of
$797,000.
DETERMINATION OF NET ASSET VALUE
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the net asset value of the shares of each
Series is determined once daily at 4:00 p.m., New York time (or, on days when
the New York Stock Exchange closes prior to
37
<PAGE>
4:00 p.m., at such earlier time), on each day that the New York Stock
Exchange is open for trading. The New York Stock Exchange currently observes
the following holidays: New Year's Day, Reverend Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
As discussed in the Prospectus, the Liquid Asset and U.S. Government Money
Market Series each utilize the amortized cost method in valuing their
portfolio securities for purposes of determining the net asset value of its
shares. The Series utilize the amortized cost method in valuing their
portfolio securities even though the portfolio securities may increase or
decrease in market value, generally in connection with changes in interest
rates. The amortized cost method of valuation involves valuing a security at
its cost at the time of purchase adjusted by a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during which value,
as determined by amortized cost, is higher or lower than the price the Series
would receive if they sold the investment. During such periods, the yield to
investors in the Series may differ somewhat from that obtained in a similar
company which uses mark-to-market values for all of its portfolio securities.
For example, if the use of amortized cost resulted in a lower (higher)
aggregate portfolio value on a particular day, a prospective investor in a
Series would be able to obtain a somewhat higher (lower) yield than would
result from investment in such a similar company and existing investors would
receive less (more) investment income. The purpose of this method of
calculation is to facilitate the maintenance of a constant net asset value
per share of $1.00.
The use of the amortized cost method to value the portfolio securities of
the Liquid Asset and U.S. Government Money Market Series and the maintenance
of the per share net asset value of $1.00 is permitted pursuant to Rule 2a-7
under the Act (the "Rule") and is conditioned on its compliance with various
conditions contained in the Rule including: (a) the Trustees are obligated,
as a particular responsibility within the overall duty of care owed to the
Series' shareholders, to establish procedures reasonably designed, taking
into account current market conditions and the Series' investment objectives,
to stabilize the net asset value per share as computed for the purpose of
distribution and redemption at $1.00 per share; (b) the procedures include
(i) calculation, at such intervals as the Trustees determine are appropriate
and as are reasonable in light of current market conditions, of the
deviation, if any, between net asset value per share using amortized cost to
value portfolio securities and net asset value per share based upon available
market quotations with respect to such portfolio securities; (ii) periodic
review by the Trustees of the amount of deviation as well as methods used to
calculate it; and (iii) maintenance of written records of the procedures, and
the Trustees' considerations made pursuant to them and any actions taken upon
such consideration; (c) the Trustees should consider what steps should be
taken, if any, in the event of a difference of more than 1/2 of 1% between
the two methods of valuation; and (d) the Trustees should take such action as
they deem appropriate (such as shortening the average portfolio maturity,
realizing gains or losses, withholding dividends or, as provided by the
Declaration of Trust, reducing the number of outstanding shares of a Series)
to eliminate or reduce to the extent reasonably practicable material dilution
or other unfair results to investors or existing shareholders which might
arise from differences between the two methods of valuation. Any reduction of
outstanding shares will be effected by having each shareholder
proportionately contribute to the Series' capital the necessary shares that
represent the amount of excess upon such determination.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio instrument is deemed to be the period remaining
(calculated from the trade date or such other date on which the Series'
interest in the instrument is subject to market action) until the date noted
on the face of the instrument as the date on which the principal amount must
be paid, or in the case of an instrument called for redemption, the date on
which the redemption payment must be made.
A variable rate obligation that is subject to a demand feature is deemed
to have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand. A floating rate instrument that is
subject to a demand feature is deemed to have a maturity equal to the period
remaining until the principal amount can be recovered through demand.
38
<PAGE>
An Eligible Security is defined in the Rule to mean a security which: (a)
has a remaining maturity of thirteen months or less; (b)(i) is rated in the
two highest short-term rating categories by any two nationally recognized
statistical rating organizations ("NRSROs") that have issued a short-term
rating with respect to the security or class of debt obligations of the
issuer; or (ii) if only one NRSRO has issued a short-term rating with respect
to the security, then by that NRSRO; (c) was a long-term security at the time
of issuance whose issuer has outstanding a short-term debt obligation which
is comparable in priority and security and has a rating as specified in
clause (b) above; or (d) if no rating is assigned by any NRSRO as provided in
clauses (b) and (c) above, the unrated security is determined by the Board to
be of comparable quality to any such rated security. The Liquid Asset and
U.S. Government Money Market Series will limit their investments to
securities that meet the requirements for Eligible Securities including the
required ratings by S&P or Moody's, as set forth in the prospectus.
As permitted by the Rule, the Board has delegated to the Fund's Investment
Manager, subject to the Board's oversight pursuant to guidelines and
procedures adopted by the Board, the authority to determine which securities
present minimal credit risks and which unrated securities are comparable in
quality to rated securities.
Also, as required by the Rule, the Series will limit their investments in
securities, other than Government securities, so that, at the time of
purchase: (a) except as further limited in (b) below with regard to certain
securities, no more than 5% of their total assets will be invested in the
securities of any one issuer; and (b) with respect to Eligible Securities
that have received a rating in less than the highest category by any one of
the NRSROs whose ratings are used to qualify the security as an Eligible
Security, or that have been determined to be of comparable quality: (i) no
more than 5% in the aggregate of the Series' total assets in all such
securities, and (ii) no more than the greater of 1% of total assets, or $1
million, in the securities on any one issuer.
The presence of a line of credit or other credit facility offered by a
bank or other financial institution which guarantees the payment obligation
of the issuer, in the event of a default in the payment of principal or
interest of an obligation, may be taken into account in determining whether
an investment is an Eligible Security, provided that the guarantee itself is
an Eligible Security.
The Rule further requires that the Series limit their investments to U.S.
dollar-denominated instruments which the Trustees determine present minimal
credit risks and which are Eligible Securities. The Rule also requires the
Series to maintain a dollar-weighted average portfolio maturity (not more
than 90 days) appropriate to its objective of maintaining a stable net asset
value of $1.00 per share and precludes the purchase of any instrument with a
remaining maturity of more than 397 days. Should the disposition of a
portfolio security result in a dollar-weighted average portfolio maturity of
more than 90 days, the Series will invest its available cash in such a manner
as to reduce such maturity to 90 days or less as soon as is reasonably
practicable.
If the Board determines that it is no longer in the best interests of the
Series and its shareholders to maintain a stable price of $1 per share or if
the Board believes that maintaining such price no longer reflects a
market-based net asset value per share, the Board has the right to change
from an amortized cost basis of valuation to valuation based on market
quotations. The Fund will notify shareholders of the Series of any such
change.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are offered for sale on
a continuous basis at an offering price equal to the net asset value per
share of each Series next determined following a receipt of an order. The
Trustees of the Fund have approved a Distribution Agreement appointing Dean
Witter Distributors Inc. (the "Distributor") as exclusive distributor of the
Fund's shares. 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 similar agreements with other
selected broker-dealers. The Distributor, a Delaware corporation, is a
wholly-owned subsidiary of MSDWD. The Trustees who are not, and were not at
the time they voted, interested persons of the Fund, as defined in the Act,
(the "Independent Trustees") approved, at their meeting held on April 24,
1997, the current
39
<PAGE>
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 May
31, 1997 upon the consummation of the merger of Dean Witter, Discover & Co.
with Morgan Stanley Group Inc. The Distribution Agreement is substantially
identical to the Fund's previous distribution agreement which was approved by
the Independent Trustees at their meeting held on October 30, 1992. By its
terms, the Distribution Agreement has an initial term ending April 30, 1998
and will remain in effect from year to year thereafter if approved by the
Trustees.
The Distributor has agreed to pay certain expenses of the offering of the
Fund's shares, including 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 will bear the costs of initial typesetting, printing
and distribution to shareholders. The Fund and the Distributor have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
PLAN OF DISTRIBUTION
As discussed in the Prospectus, the Fund has entered into a Plan of
Distribution pursuant to Rule 12b-1 under the Act (the "Plan") with the
Distributor and DWR whereby the Distributor and any of its affiliates are
authorized to utilize their own resources to finance certain activities in
connection with the distribution of shares of the Fund. The Plan was
initially approved by the Trustees of the Fund on July 29, 1992 and,
subsequently, by DWR as the then sole shareholder of the Fund. The vote of
the Trustees included a majority of the Trustees who are not and were not at
the time of their votes interested persons of the Fund and who have and had
at the time of their votes no 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 such Plan. In determining to
approve the Plan, the Trustees, including the Independent 12b-1 Trustees,
concluded that, in their judgment, there is a reasonable likelihood that the
Plan will benefit the Fund and its shareholders.
The Plan provides that the Fund authorizes the Distributor and DWR to bear
the expense of all promotional and distribution-related activities on behalf
of the Fund, except for expenses that the Trustees determine to reimburse.
Among the activities and services which may be provided by the Distributor
under the Plan are: (1) compensation to and expenses of account executives
and other employees of the Distributor and other broker-dealers, including
overhead and telephone expenses; (2) sales incentives and bonuses to sales
representatives and to marketing personnel in connection with promoting sales
of the Fund's shares; (3) expenses incurred in connection with promoting
sales of the Fund's shares; (4) preparing and distributing sales literature;
and (5) providing advertising and promotional activities, including direct
mail solicitation and television, radio, newspaper, magazine and other media
advertisements.
DWR's account executives are paid a monthly residual commission,
calculated based upon the current value of the respective accounts for which
they are the account executives of record. The "gross residual" is a charge
which reflects residual commissions paid by DWR to its account executives and
DWR's expenses associated with the servicing of shareholders' accounts,
including the expenses of operating DWR's branch offices in connection with
the servicing of shareholders' accounts, which expenses include lease costs,
the salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and supplies
and other expenses relating to branch office servicing of shareholder
accounts.
Under the Plan, 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.
Under its terms, the Plan had an initial term ending April 30, 1993 and
will remain in effect from year to year thereafter, provided such continuance
is approved annually by a vote of the Trustees, including a majority of the
Independent 12b-1 Trustees. An amendment to increase materially the maximum
amount authorized to be spent under the Plan on behalf of any Series must be
approved by the
40
<PAGE>
shareholders of such Series, and all material amendments to the Plan must be
approved by the Trustees in the manner described above. The Plan may be
terminated on behalf of any Series at any time, without payment of any
penalty, by vote of the majority of the Independent 12b-1 Trustees or by a
vote of a majority of the outstanding voting securities of such Series (as
defined in the Act) on not more than 30 days written notice to any other
party to the Plan. The authority for the Distributor to finance distribution
activities automatically terminates in the event of an assignment (as defined
in the Act). After such an assignment, the Fund's authority to make payments
to its Distributor would resume, subject to certain conditions. So long as
the Plan is in effect, the selection or nomination of the Independent 12b-1
Trustees is committed to the discretion of the Independent 12b-1 Trustees.
Continuation of the Plan was most recently approved by the Trustees,
including a majority of the Independent 12b-1 Trustees, on April 24, 1997, at
a meeting called for the purpose of voting on such Plan.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that the Distributor or DWR or certain of their employees may be deemed to
have such an interest as a result of benefits derived from the successful
operation of the Plan or as a result of receiving a portion of the amounts
expended thereunder by the Distributor.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Shareholder Investment Account. Upon purchase of shares of the Fund, a
Shareholder Investment Account is opened for the investor on the books of
each Series of the Fund owned by the investor, maintained by Dean Witter
Trust FSB (the "Transfer Agent"), in full and fractional shares of the Series
(rounded to the nearest 1/100 of a share). This is an open account in which
shares owned by the investor are credited by the Transfer Agent in lieu of
issuance of a share certificate. If a share certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only
for full shares and may be redeposited in the account at any time. There is
no charge to the investor for issuance of a certificate. No certificates will
be issued for fractional shares or to shareholders who have elected the
Systematic Withdrawal Plan or check writing privilege of withdrawing cash
from their accounts. Whenever a shareholder-instituted transaction takes
place in the Shareholder Investment Account, the shareholder will be mailed a
statement by DWR or other selected broker-dealer, the Distributor or the
Transfer Agent reflecting the status of such Account.
Automatic Investment of Dividends and Distributions. All 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. An investor may terminate such agency at any time and may request
the Transfer Agent in writing to have subsequent dividends and/or capital
gains distributions paid in cash rather than shares. Such request must be
received by the Transfer Agent at least five (5) business days prior to the
record date for which it commences to take effect. In case of recently
purchased shares for which registration instructions have not been received
on the record date, cash payments will be made to the Distributor. It has
been and remains the Fund's policy and practice that, if checks for dividends
or distributions paid in cash remain uncashed, no interest will accrue on
amounts represented by such uncashed checks.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own
or purchase shares of the Fund having a minimum value of $10,000 based upon
the then current offering price. The 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.
Dividends and capital gains distributions on shares held under the
Withdrawal Plan will be invested in additional full and fractional shares at
net asset value. Shares will be credited to an open account for the investor
by the Transfer Agent; no share certificates will be issued. A shareholder is
entitled to a share certificate upon written request to the Transfer Agent,
although in that event the shareholder's Withdrawal Plan will be terminated.
41
<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 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.
A shareholder may, at any time change the amount and interval of
withdrawal payments and the address to which checks are mailed by written
notification to the Transfer Agent. The shareholder's signature on such
notification 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). 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 Shareholder Investment
Account. The shareholder may also redeem all or part of the shares held in
the Withdrawal Plan account (see "Redemptions and Repurchases" in the
Prospectus) at any time. Shareholders wishing to enroll in the Withdrawal
Plan should contact their account executive or the Transfer Agent.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of any Series of the
Fund may exchange their shares for shares of any other Series of the Fund.
There is no holding period for exchanges of shares. 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, unless shares are held in a qualified retirement plan which is not
subject to taxation.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to
the contrary. For telephone exchanges, the exact registration of the existing
Account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit
should not be endorsed.)
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 or telegraph 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 any Series of
the Fund, the application of proceeds to the purchase of new shares in the
Fund 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 Series 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.
42
<PAGE>
The Fund 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, upon
such notice as may be required by applicable regulatory agencies (presently
sixty days' prior written notice for termination or material revision),
provided that the Exchange Privilege may be terminated or materially revised
without notice at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on that Exchange
is restricted, (c) when an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange
Commission by order so permits (provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to
whether the conditions prescribed in (b) or (c) exist), or (e) if the Fund
would be unable to invest amounts effectively in accordance with its
investment objective, policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund may be redeemed at net
asset value on any day the New York Stock Exchange is open (see
"Determination of Net Asset Value"). Redemptions will be effected at the net
asset value per share next determined after the receipt of a redemption
request meeting the applicable requirements discussed in the Prospectus. When
a redemption is made by check and a check is presented to the Transfer Agent
for payment, the Transfer Agent will redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the
check. This enables the shareholder to continue earning daily income
dividends until the check has cleared. It has been and remains the Fund's
policy and practice that, if checks for redemption proceeds remain uncashed,
no interest will accrue on amounts represented by such uncashed checks.
A check drawn by a shareholder against his or her account in the Fund
constitutes a request for redemption of a number of shares sufficient to
provide proceeds equal to the amount of the check. Payment of the proceeds of
a check will normally be made on the next business day after receipt by the
Transfer Agent of the check in proper form. If a check is presented for
payment to the Transfer Agent by a shareholder or payee in person, the
Transfer Agent will make payment by means of a check drawn on the Fund's
account or, in the case of a shareholder payee, to the shareholder's
predesignated bank account, but will not make payment in cash.
The Fund reserves the right to suspend redemptions or postpone the date of
payment (1) for any periods during which the New York Stock Exchange is
closed (other than for customary weekend and holiday closings), (2) when
trading on that Exchange is restricted or an emergency exists, as determined
by the Securities and Exchange Commission, so that disposal of the Fund's
investments or determination of the Fund's net asset value is not reasonably
practicable, or (3) for such other periods as the Commission by order may
permit for the protection of the Fund's shareholders.
The Transfer Agent acts as agent for shareholders of the Fund in effecting
redemptions of shares of the Fund. 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 or telegraph instructions.
The Prospectus describes redemption procedures by check, telephone or wire
instructions with payment to a predesignated bank account, or by mail.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Liquid Asset Series and U.S. Government Money Market Series. As discussed
in the Prospectus, dividends from net income on the Liquid Asset and U.S.
Government Money Market Series will be declared payable on each day the New
York Stock Exchange is open for business to shareholders of record as of the
close of business the preceding business day. Net income, for dividend
purposes, includes accrued interest and amortization of original issue and
market discount, less the amortization of market premium and the estimated
expenses of the Series. Net income will be calculated immediately
43
<PAGE>
prior to the determination of net asset value per share of the Series (see
"Determination of Net Asset Value" above and in the Prospectus). The amount
of dividend may fluctuate from day to day and may be omitted on some days if
realized losses on portfolio securities exceed the Series' net investment
income. The Trustees may revise the above dividend policy, or postpone the
payment of dividends, if either Series should have or anticipate any large
unexpected expense, loss or fluctuation in net assets which in the opinion of
the Trustees might have a significant adverse effect on shareholders. On
occasion, in order to maintain a constant $1.00 per share net asset value,
the Trustees may direct that the number of outstanding shares of either
Series be reduced in each shareholder's account. Such reduction may result in
taxable income to a shareholder in excess of the net increase (i.e.,
dividends, less such reductions), if any, in the shareholder's account for a
period. Furthermore, such reduction may be realized as a capital loss when
the shares are liquidated. Any net realized capital gains will be declared
and paid at least once per calendar year, except that net short-term gains
may be paid more frequently, with the distribution of dividends from net
investment income.
Other Series. The dividend policies of the U.S. Government Securities,
Intermediate Income Securities, American Value, Capital Growth, Dividend
Growth, Strategist, Utilities, Value-Added Market and Global Equity Series
are discussed in the Prospectus. In computing interest income, these Series
will not amortize any discount or premium resulting from the purchase of debt
securities except those original issue discounts for which amortization is
required for federal income tax purposes. Gains or losses resulting from
unamortized market discount or premium on securities issued prior to July 19,
1984 will be treated as capital gains or losses when realized. With respect
to market discount on bonds issued after July 18, 1984, a portion of any
capital gain realized upon disposition may be recharacterized as taxable
ordinary income in accordance with the provisions of the Internal Revenue
Code (the "Code"). Dividends, interest and capital gains received by Series
holding foreign securities may give rise to withholding and other taxes
imposed by foreign countries.
Options and Futures. Exchange-traded futures contracts, listed options on
futures contracts and certain listed options are classified as "Section 1256"
contracts under the Code. Unless the Series makes an election as discussed
below, the character of gain or loss resulting from the sale, disposition,
closing out, expiration or other termination of Section 1256 contracts would
generally be treated as long-term capital gain or loss to the extent of 60
percent thereof and short-term capital gain or loss to the extent of 40
percent thereof and such Section 1256 contracts would also be required to be
marked-to-market at the end of the Fund's fiscal year, for purposes of
federal income tax calculations.
Over-the-counter options are not classified as Section 1256 contracts and
are not subject to the mark-to-market or 60 percent-40 percent taxation
rules. When call options written by a Series, or put options purchased by a
Series, are exercised, the gain or loss realized on the sales of the
underlying securities may be either short-term or long-term, depending upon
the holding period of the securities. In determining the amount of gain or
loss, the sales proceeds are reduced by the premium paid for over-the-counter
puts or increased by the premium received for over-the-counter calls.
If a Series holds a security which is offset by a Section 1256 contract,
the Series would by deemed to hold a "mixed straddle" position, as such is
defined in the Code. A Series may elect to identify its mixed straddle
positions pursuant to Section 1256(d) of the Code and thereby avoid
application of both the mark-to-market and 60 percent/40 percent taxation
rules. The Series may also make certain other elections with respect to mixed
straddles which could avoid or limit the application of certain rules which
could, in certain circumstances, cause deferral or disallowance of losses,
change long-term capital gains into short-term capital gains, or change
short-term capital losses into long-term capital losses.
Whether the portfolio security constituting part of the identified mixed
straddle is deemed to have been held for less than three months for purposes
of determining qualification of the Series as a regulated investment company
will be determined generally by the actual holding period of the security. In
certain circumstances, entering into a mixed straddle could result in the
recognition of unrealized gain or loss which would be taken into account in
determining the amount of income available for the Series' distributions, and
can result in an amount which is greater or less than the Series' net
realized gains being available for distribution. If an amount which is less
than the Series' net realized gains is available for distribution, the Series
may elect to distribute more than such available amount, up to the full
amount
44
<PAGE>
of such net realized gains. Such a distribution may, in part, constitute a
return of capital to the shareholders. If the Series does not elect to
identify a mixed straddle, no recognition of gain or loss on the securities
in its portfolio will result when the mixed straddle is entered into.
However, any losses realized on the straddle will be governed by a number of
tax rules which might, under certain circumstances, defer or disallow the
losses in whole or in part, change long-term gains into short-term gains, or
change short-term losses into long-term losses. A deferral or disallowance of
recognition of a realized loss may result in an amount being available for
the Series' distributions which is greater than the Series' net realized
gains.
Special Rules for Certain Foreign Currency Transactions (Global Equity
Series). In general, gains from foreign currencies and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies are
currently considered to be qualifying income for purposes of determining
whether the Global Equity Series qualifies as a regulated investment company.
It is currently unclear, however, who will be treated as the issuer of
certain foreign currency instruments or how foreign currency options,
futures, or forward foreign currency contracts will be valued for purposes of
the regulated investment company diversification requirements applicable to
the Series. The Global Equity Series may request a private letter ruling from
the Internal Revenue Service on some or all of these issues.
Under Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional
currency (i.e., unless certain special rules apply, currencies other than the
U.S. dollar). In general, foreign currency gains or losses from forward
contracts, from futures contracts that are not "regulated futures contracts",
and from unlisted options will be treated as ordinary income or loss under
Code Section 988. Also, certain foreign exchange gains or losses derived with
respect to foreign fixed-income securities are also subject to Section 988
treatment. In general, therefore, Code Section 988 gains or losses will
increase or decrease the amount of the Global Equity Series' investment
company taxable income available to be distributed to shareholders as
ordinary income, rather than increasing or decreasing the amount of the
Global Equity Series' net capital gain. Additionally, to the extent that Code
Section 988 losses exceeded other investment company taxable income during a
taxable year, the Global Equity Series' distributions for that year could
constitute a return of capital (i.e., a return of the shareholder's
investment).
If the Global Equity Series invests in an entity which is classified as a
"passive foreign investment company" ("PFIC") for U.S. tax purposes, the
application of certain technical tax provisions applying to such companies
could result in the imposition of federal income tax with respect to such
investments at the Series level which could not be eliminated by
distributions to shareholders. The Taxpayer Relief Act of 1997 and,
previously, the U.S.-Treasury issued proposed regulation section 1.1291-8
establishes a mark-to-market regime which allows investment companies
investing in PFICs to avoid most, if not all, of the difficulties posed by
the PFIC rules. In any event, it is not anticipated that taxes on the Global
Equity Series with respect to investments in PFICs would be significant.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
The annualized current yield of the Liquid Asset Series and U.S.
Government Money Market Series, as may be quoted from time to time in
advertisements and other communications to shareholders and potential
investors, is computed by determining, for a stated seven-day period, the net
change, exclusive of capital changes and including the value of additional
shares purchased with dividends and any dividends declared therefrom, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge which reflects
deductions from shareholder accounts (such as management fees), and dividing
the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then multiplying the base period
return by (365/7).
The Liquid Asset and U.S. Government Money Market Series' annualized
effective yield, as may be quoted from time to time in advertisements and
other communications to shareholders and potential investors, is computed by
determining (for the same stated seven-day period as for the current yield),
the net change, exclusive of capital changes and including the value of
additional shares purchased with
45
<PAGE>
dividends and any dividends declared therefrom, in the value of a
hypothetical pre-existing account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the
value of the account at the beginning of the base period to obtain the base
period return, and then compounding the base period return by adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from
the result. The annualized and effective yields for the seven-days ended July
31, 1997 for the Liquid Asset and U.S. Government Money Market Series, were
as follows: 4.65% and 4.76% for the Liquid Asset Series; and 4.65% and 4.67%
for the U.S. Government Money Market Series. Had the Series been paying their
investment management fees and had the Investment Manager not been assuming
any of their expenses during the period, the annualized and effective yields
for the Liquid Asset and U.S. Government Money Market Series would have been
4.36% and 4.45%, and 3.51% and 3.56%, respectively.
As discussed in the Prospectus, from time to time the U.S. Government
Securities and Intermediate Income Securities Series may quote their "yields"
in advertisements and sales literature. Yield is calculated for any 30-day
period as follows: the amount of interest and/or dividend income for each
security in the Series' portfolio is determined in accordance with regulatory
requirements; the total for the entire portfolio constitutes the Series'
gross income for the period. Expenses accrued during the period are
subtracted to arrive at "net investment income". The resulting amount is
divided by the product of the net asset value per share on the last day of
the period multiplied by the average number of Fund shares outstanding during
the period that were entitled to dividends. This amount is added to 1 and
raised to the sixth power. 1 is then subtracted from the result and the
difference is multiplied by 2 to arrive at the annualized yield. For the
30-day period ended July 31, 1997, the yields of the U.S. Government
Securities and Intermediate Income Series were 6.03% and 5.65%, respectively,
calculated pursuant to the above formula. Had these Series been paying their
investment management fees and had the Investment Manager not been assuming
any expenses during the period, the 30-day period yields for the U.S.
Government Securities and the Intermediate Income Securities Series would
have been 5.52% and 2.15%, respectively.
46
<PAGE>
As discussed in the Prospectus, each Series of the Fund may quote its
"total return" in advertisements and sales literature. A Series' "average
annual return" represents an annualization of the Series' 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 year period, or for the period from
the date of commencement of the Series' operations, if shorter than any of
the foregoing. For the purpose of this calculation, it is assumed that all
dividends and distributions are reinvested. The formula for computing the
average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment, taking a
root of the quotient (where the root is equivalent to the number of years in
the period) and subtracting 1 from the result. The average annual total
returns for the period from commencement of the Series' operations through
July 31, 1997 and for the fiscal year ended July 31, 1997 were:
<TABLE>
<CAPTION>
WITHOUT FEE WAIVER AND
EXPENSE ASSUMPTION
-------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL AVERAGE ANNUAL
TOTAL RETURN FOR AVERAGE ANNUAL TOTAL RETURN FOR TOTAL RETURN
PERIOD FROM TOTAL RETURN PERIOD FROM FOR
COMMENCEMENT OF FOR FISCAL YEAR COMMENCEMENT OF FISCAL YEAR
COMMENCEMENT OPERATIONS THROUGH ENDED OPERATIONS THROUGH ENDED
SERIES OF OPERATIONS JULY 31, 1997 JULY 31, 1997 JULY 31, 1997 JULY 31, 1997
------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
U.S. Government Securities .... 1/8/93 5.16% 9.70% 4.53% 9.03%
Intermediate Income Securities 1/12/93 5.16 8.63 4.29 7.06
American Value ................. 2/1/93 17.63 41.62 17.37 41.37
Capital Growth ................. 2/2/93 14.93 43.46 14.30 41.19
Dividend Growth ................ 1/7/93 20.09 41.92 -- --
Strategist ..................... 1/7/93 12.81 27.35 12.55 26.93
Utilities ...................... 1/8/93 10.76 19.87 9.74 18.74
Value-Added Market ............. 2/1/93 18.46 43.12 18.25 43.05
Global Equity .................. 1/8/93 9.96 26.66 9.52 25.87
</TABLE>
In addition to the foregoing, a Series 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. A Series may also 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 by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the total returns of the period from commencement of operations
through July 31, 1997 and for the fiscal year ended July 31, 1997 were:
<TABLE>
<CAPTION>
TOTAL RETURN FROM TOTAL RETURN FOR
COMMENCEMENT OF OPERATIONS FISCAL YEAR
THROUGH ENDED
SERIES JULY 31, 1997 JULY 31, 1997
- ------------------------------- -------------------------- ----------------
<S> <C> <C>
U.S. Government Securities .... 25.79% 9.70%
Intermediate Income Securities 25.72 8.63
American Value ................. 107.40 41.62
Capital Growth ................. 86.80 43.46
Dividend Growth ................ 130.51 41.92
Strategist ..................... 73.30 27.35
Utilities ...................... 59.33 19.87
Value-Added Market ............. 114.05 43.12
Global Equity .................. 54.16 26.66
</TABLE>
A Series may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of the Series by adding 1 to the
Series' aggregate total return to date (expressed as
47
<PAGE>
a decimal) and multiplying by 10,000, 50,000 or 100,000, as the case may be.
Investments at commencement of operations of $10,000, $50,000 and $100,000 in
each Series of the Fund would have grown to the following amounts as of July
31, 1997:
<TABLE>
<CAPTION>
INVESTMENT AT
COMMENCEMENT OF OPERATIONS OF
--------------------------------
SERIES $10,000 $50,000 $100,000
- ------------------------------- --------- --------- ----------
<S> <C> <C> <C>
Liquid Asset.................... $12,297 $ 61,485 $122,970
U.S. Government Money Market ... 12,103 60,515 121,030
U.S. Government Securities .... 12,579 62,895 125,790
Intermediate Income Securities 12,572 62,860 125,720
American Value ................. 20,740 103,700 207,400
Capital Growth ................. 18,680 93,400 186,800
Dividend Growth ................ 23,051 115,255 230,510
Strategist ..................... 17,330 86,650 173,300
Utilities ...................... 15,933 79,665 159,330
Value-Added Market ............. 21,405 107,025 214,050
Global Equity .................. 15,416 77,080 154,160
</TABLE>
The yields quoted in any advertisement or other communication should not
be considered a representation of the yields of the Liquid Asset and U.S.
Government Money Market Series in the future since the yield is not fixed.
Actual yields will depend not only on the type, quality and maturities of the
investments held by the Series and changes in interest rates on such
investments, but also on changes in the Series' expenses during the period.
Yield information may be useful in reviewing the performance of the Liquid
Asset and U.S. Government Money Market Series and for providing a basis for
comparison with other investment alternatives. However unlike bank deposits
or other investments which typically pay a fixed yield for a stated period of
time, the Liquid Asset and U.S. Government Money Market Series yields
fluctuate.
The Fund may, from time to time, advertise the performance of a Series
relative to certain performance rankings and indices compiled by independent
organizations.
DESCRIPTION OF SHARES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the shareholders of each Series of the
Fund are entitled to a full vote for each full share held. 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 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, 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 elected, while the holders of the remaining shares
would be unable to elect any Trustees.
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 shareholders
vote as may be required by the Act or the Fund's Declaration of Trust.
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). The Trustees have not authorized any
such additional series or classes of shares.
48
<PAGE>
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor
is any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise
from his/her or its own bad faith, willful misfeasance, gross negligence, or
reckless disregard of his/her or its duties. It also provides that all third
persons shall look solely to the Fund's property for satisfaction of claims
arising in connection with the affairs of the Fund. With the exceptions
stated, the Declaration of Trust provides that a Trustee, officer, employee
or agent is entitled to be indemnified against all liability in connection
with the affairs of the Fund.
The Fund shall be of unlimited duration subject to the provisions in the
Declaration of Trust concerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
- -----------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York, 10286 is
the Custodian of the Fund's assets. Any of the Fund's cash balances in excess
of $100,000 are unprotected by federal deposit insurance. Such balances may,
at times, be substantial.
Dean Witter Trust FSB, 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 of Fund
shares and Agent for shareholders under various investment plans described
herein. Dean Witter Trust FSB is an affiliate of Dean Witter InterCapital
Inc., the Fund's Investment Manager, and of Dean Witter Distributors Inc.,
the Fund's Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean
Witter Trust FSB's responsibilities include maintaining shareholder accounts,
including providing subaccounting and recordkeeping services for certain
retirement accounts; disbursing cash dividends and distributions and
reinvesting dividends and distributions; 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 FSB receives a per shareholder account fee from
the Fund.
INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund.
The independent accountants are responsible for auditing the annual financial
statements of each Series of the Fund.
REPORTS TO SHAREHOLDERS
- -----------------------------------------------------------------------------
The Fund, on behalf of each Series, will send to shareholders, at least
semi-annually, reports showing each Series' portfolio and other information.
An annual report, containing financial statements audited by independent
accountants, together with their report, will be sent to shareholders each
year.
The Fund's fiscal year ends on July 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Trustees.
LEGAL COUNSEL
- -----------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The annual financial statements of each Series of the Fund for the year
ended July 31, 1997, which are included in this Statement of Additional
Information and incorporated by reference in the Prospectus, have been so
included and incorporated by reference in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
49
<PAGE>
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.
PRINCIPAL SECURITIES HOLDERS
- -----------------------------------------------------------------------------
The following parties held, as of September 30, 1997, five percent or more
of the voting securities of the Series indicated, in the percentage amount
indicated: Great Bay Distributors Inc., 2310 Starkey Road, Largo, FL (Liquid
Asset Series: 7.4%); DWTC as Trustee for Willdan Association Profit Sharing
Plan, Products 401(k) Plan, P.O. Box 957, Jersey City, NJ (Liquid Asset
Series: 9.7%); DWTC as Trustee for Fenner Manheim Inc., Profit Sharing Plan,
P.O. Box 957, Jersey City, NJ (Liquid Asset Series: 5.0%); DWTC as Trustee
for Cygnus 401(k) Plan, P.O. Box 957, Jersey City, NJ (U.S. Government Money
Market Series: 19.0%); Cartwright Employee Insurance Benefit Account, 3401
North 67th Avenue, Phoenix, AZ (U.S. Government Money Market Series: 17.4%);
Emjayco as Trustee for the benefit of Geer Tank Trucks Inc., 401(k) Plan
90235, P.O. Box 17909, Milwaukee, WI (U.S. Government Money Market Series:
5.6%); DWTC as Trustee for Willdan Association Profit Sharing Plan, Products
401(k) Plan, P.O. Box 957, Jersey City, NJ (U.S. Government Securities
Series: 9.4%); DWTC as Trustee for VVP America Inc. Retirement Plan, P.O. Box
957, Jersey City, NJ (U.S. Government Securities Series: 6.6%); DWTC as
Trustee for Foulke Management Corporation 401(k) Plan, P.O. Box 957, Jersey
City, NJ (U.S. Government Securities Series: 10.6%); DWTC as Trustee for
Bulkmatic Transport Company, Profit Sharing Plan, P.O. Box 957, Jersey City,
NJ (U.S. Government Securities Series: 12.7%); DWTC as Trustee for Cygnus
401(k) Plan, P.O. Box 957, Jersey City, NJ (Intermediate Income Securities
Series: 7.5%); DWTC as Trustee for Zeus 401(k) Plan, P.O. Box 957, Jersey
City, NJ (Intermediate Income Securities Series: 7.0%); DWTC as Trustee for
Integrated Medical Systems 401(k) Plan, P.O. Box 957, Jersey City, NJ
(Intermediate Income Securities: 8.6%); Dean Witter as Trustee for Private
Business Inc., 401(k) Plan, 9010 Overlook Boulevard, Brentwood, TN
(Intermediate Income Securities: 23.3%); DWTC as Trustee for the benefit of
VVP America Inc., Deferred Compensation Plan, P.O. Box 957, Jersey City, NJ
(Intermediate Income Securities: 7.1%); DWTC as Trustee for VVP America Inc.
Retirement Plan, P.O. Box 957, Jersey City, NJ (American Value Series:
12.0%); Charles E. Behr as Trustee of Charles E. Behr Trust, DTD 6/30/94, 802
N. Ft. Harrison Avenue, Clearwater, FL (American Value Series: 6.2%); DWTC as
Trustee for Bulkmatic Transport Company, Profit Sharing Plan, P.O. Box 957,
Jersey City, NJ (American Value Series: 7.7%); DWTC as Trustee for St.
Petersburg Kennel Club, 401(k) Plan, P.O. Box 957, Jersey City, NJ (Capital
Growth Series: 11.0%); DWTC as Trustee for the benefit of VVP America Inc.,
Deferred Compensation Plan, P.O. Box 957, Jersey City, NJ (Capital Growth
Series: 6.7%); DWR as Custodian for Candies for the benefit of Neil Cole and
Gary Klein, VIP Plus 401(k) Plan, DTD 11/15/95, 2975 Westchester Avenue,
Purchase, NY (Capital Growth Series: 7.2%); Cozad State Bank Co., 401(k)
Profit Sharing Plan, DTD 12/5/65, Investment Manager Capital Growth Fund, Box
2000, Cozad, NE (Capital Growth Series: 15.2%); The Chase Manhattan Bank,
N.A. as Trustee for the benefit of The NFL Player Second Career Savings Plan,
3 Chase Metrotech Center, Brooklyn, NY (Dividend Growth Series: 19.7%); DWTC
as Trustee for VVP America Inc. Retirement Plan, P.O. Box 957, Jersey City,
NJ (Dividend Growth Series: 9.5%); DWTC as Trustee for Pizzagalli
Construction, 401(k) Plan, Harborside Financial Center, Jersey City, NJ
(Dividend Growth Series: 9.2%); DWTC as Trustee for Fenner Manheim Inc.,
Profit Sharing Plan, P.O. Box 957, Jersey City, NJ (Strategist Series: 8.3%);
DWTC as Trustee for VVP America Inc. Retirement Plan, P.O. Box 957, Jersey
City, NJ (Strategist Series: 16.6%); DWTC as Trustee for Pizzagalli
Construction, 401(k) Plan, Harborside Financial Center, Jersey City, NJ
(Strategist Series: 24.8%); DWTC as Trustee for Bulkmatic Transport Company,
Profit Sharing Plan, P.O. Box 957, Jersey City, NJ (Strategist Series: 7.0%);
DWTC as Trustee for St. Petersburg Kennel Club, 401(k) Plan, P.O. Box 957,
Jersey City, NJ (Utilities Series: 7.2%); DWTC as Trustee for Zeus 401(k)
Plan, P.O. Box 957, Jersey City, NJ (Utilities Series: 11.9%); DWTC as
Trustee for Integrated Medical Systems 401(k) Plan, P.O. Box 957, Jersey
City, NJ (Utilities Series: 7.7%); DWTC as Trustee for Foulke Management
Corporation 401(k) Plan, P.O. Box 957, Jersey City, NJ (Utilities Series:
11.2%); DWTC as Trustee for D&H Manufacturing Co. 401(k) Plan, P.O. Box 957,
Jersey City, NJ (Utilities Series: 17.4%); DWTC as Trustee for the benefit of
Sunnyvale Value and Fitting Company, P.O. Box 957, Jersey City, NJ (Utilities
Series: 5.7%).
In addition, at September 30, 1997, InterCapital held 5.2% of the
outstanding shares of Intermediate Income Securities Series and 5.7% of the
outstanding shares of Capital Growth Series.
50
<PAGE>
DEAN WITTER RETIREMENT SERIES - LIQUID ASSET
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (64.4%)
Automotive-Finance (8.5%)
$500 Ford Motor Credit Co. ........................................... 5.61% 08/25/97 $ 498,150
1,000 General Motors Acceptance Corp. ................................. 5.48-5.97 08/25/97-10/20/97 991,779
311 Toyota Motor Credit Corp. ....................................... 5.71 08/14/97 310,360
-------------
1,800,289
-------------
Bank Holding Companies (7.0%)
500 Bankers Trust New York Corp. .................................... 5.72 01/08/98 487,644
1,000 Barnett Banks, Inc. ............................................ 5.55 08/21/97 996,933
-------------
1,484,577
-------------
Banks-Commercial (18.6%)
465 ABN-AMRO North America Finance Inc. ............................. 5.74 09/05/97 462,446
500 Commerzbank U.S. Finance Inc. .................................. 5.52 08/15/97 498,931
1,000 Internationale Nederlanden (U.S.) Funding Corp. ................. 5.60 08/01/97 1,000,000
400 KfW International Finance Inc. .................................. 5.54 09/02/97 398,044
500 Societe Generale N.A., Inc. ..................................... 5.61 09/10/97 496,917
600 UBS Finance (Delaware) Inc. .................................... 5.53 08/07/97 599,449
500 WestPac Capital Corp. .......................................... 5.54 09/05/97 497,326
-------------
3,953,113
-------------
Brokerage (4.7%)
1,000 Goldman Sachs Group L.P. ....................................... 5.63-5.64 08/04/97-09/03/97 997,215
-------------
Finance-Consumer (6.4%)
400 American Express Credit Corp. ................................... 5.63 08/01/97 400,000
950 American General Finance Corp. .................................. 5.64 08/05/97 949,409
-------------
1,349,409
-------------
Finance-Diversified (8.4%)
400 Associates Corp. of North America ............................... 5.65 08/05/97 399,751
750 Commercial Credit Co. ........................................... 5.53 08/27/97 747,021
650 General Electric Capital Corp. .................................. 5.55-5.61 09/16/97-10/14/97 644,124
-------------
1,790,896
-------------
Industrials (2.0%)
425 Weyerhaeuser Co. ................................................ 5.54 08/20/97 423,764
-------------
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER RETIREMENT SERIES - LIQUID ASSET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
Office Equipment (4.7%)
$1,000 Xerox Credit Corp. .............................................. 5.51% 08/19/97 $ 997,260
-------------
Utilities-Finance (4.1%)
866 National Rural Utilities Cooperative Finance Corp. ............. 5.57-5.62 08/22/97-09/11/97 861,971
-------------
TOTAL COMMERCIAL PAPER (Amortized Cost $13,658,494) ............................................ 13,658,494
-------------
U.S. GOVERNMENT AGENCY (23.2%)
4,930 Federal Home Loan
Mortgage Corp.
(Amortized Cost $4,926,600) .................................... 5.47-5.75 08/01/97-09/19/97 4,926,600
-------------
BANKERS' ACCEPTANCES (7.2%)
1,014 BostonBank, N.A. ................................................ 5.71-5.88 09/30/97-01/20/98 993,499
541 Union Bank of California, N.A. .................................. 5.59 10/15/97 534,804
-------------
TOTAL BANKERS' ACCEPTANCES (Amortized Cost $1,528,303) .......................................... 1,528,303
-------------
TOTAL INVESTMENTS
(Amortized Cost $20,113,397)(a) ............................................... 94.8% 20,113,397
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............................... 5.2 1,099,631
----- -------------
NET ASSETS .................................................................... 100.0% $21,213,028
===== =============
</TABLE>
- --------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER RETIREMENT SERIES - U.S. GOVERNMENT MONEY MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCIES
(98.7%)
$1,000 Federal Farm Credit Bank .. 5.52-5.77% 08/04/97-11/25/97 $ 991,289
1,690 Federal Home Loan Banks ... 5.42-5.66 08/07/97-09/02/97 1,687,131
725 Federal Home Loan Mortgage
Corp. .................... 5.59-5.75 08/01/97-10/17/97 720,019
590 Federal National Mortgage
Association .............. 5.38-5.49 08/04/97-08/07/97 589,647
----------
TOTAL U.S. GOVERNMENT AGENCIES
(Amortized Cost $3,988,086) .............................. 3,988,086
----------
U.S. GOVERNMENT OBLIGATION (1.2%)
50 U.S. Treasury Bill
(Amortized Cost $48,650) .. 5.32 02/05/98 48,650
----------
TOTAL INVESTMENTS
(Amortized Cost $4,036,736)(a).......... 99.9% 4,036,736
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES ......................... 0.1 4,560
----- ----------
NET ASSETS.............................. 100.0% $4,041,296
====== ==========
</TABLE>
- --------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DEAN WITTER RETIREMENT SERIES - U.S. GOVERNMENT SECURITIES
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS (98.6%)
Government National
Mortgage Assoc. I (71.4%)
$3,684 ................................................................. 7.00 % 06/15/23-03/15/27 $ 3,688,923
3,737 ................................................................. 7.50 01/15/24-01/15/27 3,802,491
------------
7,491,414
------------
971 Government National
Mortgage Assoc. II (9.2%) ...................................... 7.00 03/20/26 968,255
------------
U.S. Treasury Notes (12.6%)
1,200 ................................................................. 6.375 09/30/01 1,221,852
100 ................................................................. 6.250 06/30/02 101,434
------------
1,323,286
------------
600 U.S. Treasury Principal Strips (5.4%) ........................... 0.00 08/15/98 567,120
------------
TOTAL INVESTMENTS
(Identified Cost $10,212,454)(a) ......................................... 98.6% 10,350,075
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ........................... 1.4 146,232
----- ------------
NET ASSETS ............................................................... 100.0% $10,496,307
===== ============
</TABLE>
- --------------
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$202,248 and the aggregate gross unrealized depreciation is $64,627,
resulting in net unrealized appreciation of $137,621.
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER RETIREMENT SERIES - INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (56.8%)
Automobile-Rentals (4.0%)
$100 Hertz Corp. ..................................................... 6.00 % 01/15/03 $ 97,979
------------
Automotive (0.8%)
20 Chrysler Corp. .................................................. 10.40 08/01/99 20,005
------------
Automotive-Finance (1.1%)
25 General Motors Acceptance Corp. ................................. 8.40 10/15/99 26,177
------------
Banks (9.5%)
100 Bank One Corp. .................................................. 7.60 05/01/07 106,545
100 Long Island Savings Bank ....................................... 7.00 06/13/02 102,145
25 Star Bank N.A. .................................................. 6.375 03/01/04 24,764
------------
233,454
------------
Brokerage (4.1%)
100 Bear Stearns Companies, Inc. ................................... 6.75 08/15/00 101,506
------------
Data Processing (4.1%)
100 Oracle Corp. ................................................... 6.91 02/15/07 101,719
------------
Financial (8.4%)
100 Ikon Capital Inc. ............................................... 6.73 06/15/01 101,477
100 Nac Re Corp ..................................................... 8.00 06/15/99 103,259
------------
204,736
------------
Foreign Government (4.0%)
100 State of Israel ................................................ 6.375 12/15/05 97,826
------------
Healthcare (1.0%)
25 Columbia/HCA Healthcare Corp. .................................. 6.87 09/15/03 25,403
------------
Industrials (4.1%)
100 Millennium America Inc. ........................................ 7.00 11/15/06 100,710
------------
Leisure (4.4%)
100 Royal Caribbean Cruises ......................................... 8.25 04/01/05 108,221
------------
Manufacturing (2.0%)
50 Reebok International plc
(United Kingdom) ............................................... 6.75 09/15/05 49,374
------------
Paper & Forest Products (4.1%)
100 Noranda Forest, Inc. (Canada) ................................... 6.875 11/15/05 100,602
------------
Textiles (1.0%)
25 Burlington Industries, Inc. .................................... 7.25 09/15/05 25,313
------------
Utilities - Electric (4.2%)
100 Connecticut Light & Power Co. .................................. 7.875 06/01/01 102,208
------------
TOTAL CORPORATE BONDS
(Identified Cost $1,371,214) ........................................................ 1,395,233
------------
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
DEAN WITTER RETIREMENT SERIES - INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (34.7%)
$100 U.S. Treasury Note .............................................. 6.125% 03/31/98 $ 100,396
300 U.S. Treasury Note .............................................. 5.75 10/31/00 299,463
300 U.S. Treasury Note .............................................. 5.875 11/30/01 299,868
150 U.S. Treasury Note .............................................. 6.25 01/31/02 152,100
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $843,820) .......................................................... 851,827
------------
SHORT-TERM INVESTMENT (a)(4.1%)
U.S. GOVERNMENT AGENCY
100 Federal Home Loan Banks
(Amortized Cost $100,000) ....................................... 5.39 08/01/97 100,000
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $2,315,034)(b) ......................................... 95.6% 2,347,060
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................... 4.4 108,712
-------- -----------
NET ASSETS .............................................................. 100.0% $2,455,772
======== ===========
</TABLE>
- --------------
(a) Security was purchased on a discount basis. The interest rate
shown has been adjusted to reflect a money market equivalent
yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$36,736 and the aggregate gross unrealized depreciation is $4,710,
resulting in net unrealized appreciation of $32,026.
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DEAN WITTER RETIREMENT SERIES - AMERICAN VALUE
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.7%)
Agriculture Related (4.4%)
4,500 Case Corp. ..................................................... $ 280,969
4,500 Deere & Co. .................................................... 255,937
5,500 Dekalb Genetics Corp. (Class B) ................................. 420,406
7,000 Delta & Pine Land Co. .......................................... 266,000
14,000 Monsanto Co. ................................................... 697,375
6,500 Pioneer Hi-Bred International, Inc. ............................. 481,000
-------------
2,401,687
-------------
Banks (7.1%)
6,000 Bank of New York Co., Inc. ..................................... 291,375
7,000 BankAmerica Corp. .............................................. 528,500
4,000 Bankers Trust New York Corp. .................................... 404,750
250,000 Credito Italiano Spa (Italy) ................................... 497,644
4,000 First Chicago NBD Corp. ........................................ 303,500
6,000 Fleet Financial Group, Inc. .................................... 407,250
10,000 Mellon Bank Corp. .............................................. 504,375
7,200 NationsBank Corp. .............................................. 512,550
6,000 Washington Mutual, Inc. ........................................ 414,000
-------------
3,863,944
-------------
Basic Cyclicals (0.7%)
2,300 Champion International Corp. .................................... 142,600
3,000 Reynolds Metals Co. ............................................ 234,000
-------------
376,600
-------------
Biotechnology (2.4%)
21,000 Biochem Pharma, Inc. (Canada)* ................................. 603,750
13,000 Centocor, Inc.* ................................................ 499,687
2,000 Gilead Sciences, Inc.* ......................................... 56,250
3,500 Vertex Pharmaceuticals, Inc.* .................................. 122,062
-------------
1,281,749
-------------
Capital Equipment (4.3%)
2,000 Aeroquip-Vickers, Inc. .......................................... 109,625
5,500 Boeing Co. ..................................................... 323,469
3,000 Crane Co. ...................................................... 136,312
6,000 General Electric Co. ........................................... 421,125
4,500 Kuhlman Corp. .................................................. 139,500
3,200 Parker-Hannifin Corp. .......................................... 206,000
2,200 Sundstrand Corp. ............................................... 136,400
10,000 Timken Co. ..................................................... 351,875
2,000 Tyco International Ltd. ......................................... 162,000
4,000 United Technologies Corp. ...................................... 338,250
-------------
2,324,556
-------------
Communications Equipment (9.4%)
2,000 Advanced Fibre Communications, Inc.* ........................... $ 139,250
21,000 Bay Networks, Inc.* ............................................ 640,500
15,000 Brightpoint, Inc.* ............................................. 447,187
3,000 CIENA Corp.* ................................................... 168,000
6,000 Cisco Systems, Inc.* ........................................... 476,625
700 Corsair Communications, Inc.* .................................. 13,738
11,500 Ericsson (L.M.) Telephone Co. (Class B)(ADR)(Sweden) ........... 520,375
7,000 Lucent Technologies Inc. ....................................... 594,562
10,000 Newbridge Networks Corp. (Canada)* .............................. 521,250
6,000 Nokia Corp. (ADR)(Finland) ...................................... 513,750
5,000 Northern Telecom Ltd. (Canada) .................................. 522,812
2,000 Tekelec* ....................................................... 123,000
7,000 Tellabs, Inc.* ................................................. 418,687
-------------
5,099,736
-------------
Computer Equipment (3.1%)
4,000 Dell Computer Corp.* ........................................... 342,000
12,000 EMC Corp.* ..................................................... 606,000
9,000 Kemet Corp.* ................................................... 230,625
6,500 SCI Systems, Inc.* ............................................. 516,344
-------------
1,694,969
-------------
Computer Software (4.3%)
15,000 BEA Systems, Inc.* ............................................. 290,625
5,000 Compuware Corp.* ............................................... 308,125
400 Great Plains Software, Inc.* ................................... 10,700
4,100 Microsoft Corp.* ............................................... 579,381
7,000 Oracle Corp.* .................................................. 380,187
5,000 Peoplesoft, Inc.* .............................................. 291,875
8,000 Veritas Software Corp.* ........................................ 494,000
-------------
2,354,893
-------------
Consumer-Noncyclical (4.5%)
9,000 Alberto-Culver Co. (Class B) ................................... 252,562
2,500 Avon Products, Inc. ............................................ 181,406
3,800 Coca Cola Co. .................................................. 263,150
1,600 Coca Cola FEMSA S.A. de C.V. (ADR)(Mexico) ...................... 89,800
8,000 Colgate-Palmolive Co. .......................................... 606,000
10,000 PanAmerican Beverages, Inc. (Class A)(Mexico) ................... 335,000
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
DEAN WITTER RETIREMENT SERIES - AMERICAN VALUE
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
3,000 Procter & Gamble Co. ........................................... $ 456,375
7,000 Sunbeam Corporation ............................................ 273,875
-------------
2,458,168
-------------
Consumer Business Services (1.4%)
8,000 AccuStaff, Inc.* ............................................... 218,000
7,400 Browning-Ferris Industries, Inc. ............................... 273,800
5,000 Corrections Corp. of America* .................................. 221,562
2,000 Service Corp. International ..................................... 68,000
-------------
781,362
-------------
Consumer Products (2.6%)
5,000 CVS Corp. ....................................................... 284,375
4,000 Philips Electronics NV (Netherlands) ........................... 327,250
3,500 Philips Electronics NV (Netherlands) ........................... 283,962
1,900 Sony Corp. (Japan) ............................................. 189,134
3,100 Sony Corp. (ADR)(Japan) ........................................ 315,619
-------------
1,400,340
-------------
Drugs (4.0%)
5,000 Dura Pharmaceuticals, Inc.* .................................... 194,062
4,500 Lilly (Eli) & Co. .............................................. 508,500
5,000 Medicis Pharmaceutical Corp. (Class A)* ........................ 225,000
280 Novartis (Switzerland) .......................................... 449,742
4,400 Pfizer, Inc. ................................................... 262,350
3,600 Warner-Lambert Co. ............................................. 502,875
-------------
2,142,529
-------------
Energy (5.9%)
9,000 Baker Hughes, Inc. .............................................. 396,563
8,000 Cooper Cameron Corp.* .......................................... 469,000
2,500 Diamond Offshore Drilling, Inc. ................................. 233,125
5,000 EVI, Inc.* ..................................................... 244,375
8,000 Falcon Drilling Company, Inc.* ................................. 231,000
12,000 Halliburton Co. ................................................ 552,000
5,000 Halter Marine Group, Inc.* ..................................... 153,125
8,200 Schlumberger, Ltd. ............................................. 626,275
4,000 Smith International, Inc.* ..................................... 286,750
-------------
3,192,213
-------------
Financial-Miscellaneous (7.1%)
400 Advanta Corp. (Class A) ........................................ 14,400
7,000 American Express Co. ............................................ 586,250
15,000 Hambrecht & Quist Group* ....................................... 447,188
2,000 Kansas City Southern Industries, Inc. .......................... 150,750
4,000 Legg Mason, Inc. ............................................... $ 245,750
16,000 Lehman Brothers Holdings, Inc. .................................. 797,000
8,000 Merrill Lynch & Co., Inc. ....................................... 563,500
8,000 Paine Webber Group, Inc. ........................................ 320,000
1,000 Price (T.) Rowe Associates, Inc. ................................ 54,250
10,000 Providian Financial Corp.* ..................................... 391,875
4,500 Salomon, Inc. .................................................. 285,469
-------------
3,856,432
-------------
Healthcare Products & Services (2.9%)
7,000 HBO & Co. ...................................................... 540,750
16,000 Health Management Associates, Inc. (Class A)* .................. 511,000
20,000 Healthsouth Corp.* ............................................. 530,000
-------------
1,581,750
-------------
Insurance (2.3%)
3,000 Hartford Financial Services Group, Inc. ........................ 261,375
7,000 Marsh & McLennan Companies, Inc. ............................... 542,063
5,000 Nationwide Financial Services, Inc. (Class A) .................. 151,250
4,000 Travelers Group, Inc. ........................................... 287,750
-------------
1,242,438
-------------
Internet (3.0%)
10,000 America Online, Inc.* .......................................... 675,000
10,000 E*TRADE Group, Inc.* ........................................... 305,000
10,000 Sterling Commerce, Inc.* ....................................... 376,875
5,000 Yahoo! Inc.* ................................................... 281,250
-------------
1,638,125
-------------
Media Group (4.1%)
6,600 Clear Channel Communications, Inc.* ............................ 410,850
8,000 Evergreen Media Corp. (Class A)* ............................... 367,000
10,000 Jacor Communications, Inc.* .................................... 428,750
13,200 Outdoor Systems, Inc.* ......................................... 343,200
2,000 Univision Communications, Inc. (Class A)* ...................... 86,000
25,000 Westinghouse Electric Corp. ..................................... 601,563
-------------
2,237,363
-------------
Medical Supplies (2.4%)
6,000 Boston Scientific Corp.* ....................................... 430,500
5,500 Guidant Corp. .................................................. 501,875
4,000 Medtronic, Inc. ................................................ 349,000
-------------
1,281,375
-------------
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
DEAN WITTER RETIREMENT SERIES - AMERICAN VALUE
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Retail (5.8%)
3,000 Barnes & Noble, Inc.* .......................................... $ 150,000
13,500 Costco Companies Inc.* ......................................... 511,313
10,000 Dayton-Hudson Corp. ............................................ 646,250
5,000 Dollar General Corp. ............................................ 220,000
10,000 Family Dollar Stores, Inc. ..................................... 325,625
6,000 General Nutrition Companies, Inc.* ............................. 171,000
7,800 Home Depot, Inc. ............................................... 389,025
3,000 Ross Stores, Inc. .............................................. 94,500
17,000 Wal-Mart Stores, Inc. .......................................... 638,563
-------------
3,146,276
-------------
Semiconductor Equipment (5.7%)
9,000 Applied Materials, Inc.* ....................................... 826,313
2,000 ASM Lithography Holding NV (Netherlands)* ....................... 162,000
5,000 CFM Technologies, Inc.* ........................................ 129,375
1,000 DuPont Photomasks, Inc.* ........................................ 50,750
3,000 Etec Systems, Inc.* ............................................ 160,875
13,000 KLA-Tencor Corp.* .............................................. 786,500
7,000 LAM Research Corp.* ............................................ 370,125
7,000 PRI Automation, Inc.* .......................................... 345,625
5,000 Teradyne, Inc.* ................................................ 233,750
-------------
3,065,313
-------------
Semiconductors (9.2%)
4,000 Altera Corp. ................................................... 241,000
17,000 Analog Devices, Inc.* .......................................... 534,438
10,000 Burr-Brown Corp.* .............................................. 348,125
700 Galileo Technology Ltd. (Israel)* ............................... 16,975
2,000 Intel Corp. .................................................... 183,500
5,000 Lattice Semiconductor Corp.* ................................... 335,625
5,000 Linear Technology Corp. ........................................ 333,750
8,000 Maxim Integrated Products, Inc.* ................................ 553,000
2,500 MEMC Electronic Materials, Inc.* ................................ 72,500
4,000 Micrel, Inc.* .................................................. 259,000
9,000 Micron Technology, Inc. * ...................................... 438,188
6,000 Motorola, Inc. ................................................. 481,875
6,000 Texas Instruments, Inc. ......................................... 690,000
10,000 Vitesse Semiconductor Corp.* ................................... 483,750
-------------
4,971,726
-------------
Transportation (1.1%)
900 Continental Airlines, Inc. (Class B)* .......................... $ 33,525
4,000 PACCAR, Inc. .................................................... 197,000
1,400 Ryanair Holdings PLC (ADR)(Ireland)* ........................... 39,375
3,000 Teekay Shipping Corp. .......................................... 104,813
6,000 US Airways Group, Inc.* ........................................ 229,877
-------------
604,590
-------------
TOTAL COMMON STOCKS (Identified Cost $42,913,438) .............. 52,998,134
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- --------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (a) (1.7%)
U.S. GOVERNMENT AGENCY
$900 Federal Home Loan Mortgage
Corp. 5.75% due 08/01/97
(Amortized Cost $900,000).......... 900,000
-----------
TOTAL INVESTMENTS
(Identified Cost $43,813,438)(b) . 99.4% 53,898,134
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES ................... 0.6 316,360
-------- ------------
NET ASSETS........................ 100.0% $54,214,494
======== ============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$10,364,753 and the aggregate gross unrealized depreciation is
$280,057, resulting in net unrealized appreciation of $10,084,696.
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
DEAN WITTER RETIREMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.0%)
Auto Trucks & Parts (2.3%)
5,000 Miller Industries, Inc.* ........................................ $ 84,375
------------
Banking (4.8%)
1,450 State Street Corp. .............................................. 81,291
1,350 Washington Mutual, Inc. ......................................... 93,150
------------
174,441
------------
Commercial Services (1.4%)
1,900 Affiliated Computer Services, Inc. (Class A)* ................... 51,537
------------
Communications -
Equipment & Software (3.8%)
1,100 3Com Corp.* ..................................................... 60,087
1,350 Tellabs, Inc.* .................................................. 80,747
------------
140,834
------------
Computer Services (1.9%)
1,800 Sterling Commerce, Inc.* ........................................ 67,837
------------
Computer Software (8.9%)
1,100 Computer Associates International, Inc. ......................... 74,869
2,200 Danka Business Systems PLC (ADR)(United Kingdom) ................ 107,525
800 Electronics for Imaging, Inc.* .................................. 44,000
450 Microsoft Corp.* ................................................ 63,591
700 Oracle Corp.* ................................................... 38,019
------------
328,004
------------
Computer - Systems (4.7%)
2,000 EMC Corp.* ...................................................... 101,000
900 SCI Systems, Inc.* .............................................. 71,494
------------
172,494
------------
Consumer Business Services (2.6%)
2,200 AccuStaff, Inc.* ................................................ 59,950
1,000 Service Corp. International ..................................... 34,000
------------
93,950
------------
Drugs (1.4%)
1,100 Elan Corp. PLC (ADR)(Ireland)* .................................. 52,250
------------
Electronics (4.2%)
750 Hadco Corp.* .................................................... 49,406
1,800 Jabil Circuit, Inc.* ............................................ 87,637
250 Sanmina Corp.* .................................................. 18,344
------------
155,387
------------
Electronics - Semiconductors/
Components (1.2%)
400 Intel Corp. ..................................................... 36,700
150 Photronics, Inc.* ............................................... 8,137
------------
44,837
------------
Enviromental Control (1.5%)
1,600 Newpark Resources, Inc.* ........................................ $ 55,300
------------
Financial - Miscellaneous (11.4%)
1,600 Green Tree Financial Corp. ...................................... 75,400
700 Household International, Inc. ................................... 90,650
2,200 MBNA Corp. ...................................................... 99,000
1,300 MGIC Investment Corp. ........................................... 68,331
1,400 SunAmerica, Inc. ................................................ 84,700
------------
418,081
------------
Healthcare - Diversified (2.2%)
2,000 Universal Health Services, Inc. (Class B)* ...................... 81,250
------------
Hospital Management (1.5%)
1,200 Express Scripts, Inc. (Class A)* ................................ 53,400
------------
Household Furnishings & Appliances (3.1%)
1,200 American Standard Companies, Inc.* .............................. 59,625
1,000 Ethan Allen Interiors, Inc. ..................................... 53,000
------------
112,625
------------
Life Insurance (1.4%)
1,300 Providian Financial Corp.* ...................................... 50,944
------------
Manufacturing - Diversified (2.7%)
1,200 Tyco International Ltd. ......................................... 97,200
------------
Media (2.0%)
1,200 Clear Channel Communications, Inc.* ............................. 74,700
------------
Oil & Gas Products (0.5%)
300 Camco International, Inc. ....................................... 19,387
------------
Oil Drilling & Services (9.3%)
1,450 ENSCO International, Inc.* ...................................... 95,881
2,900 Pride International, Inc.* ...................................... 76,669
1,500 Tidewater, Inc. ................................................. 75,750
2,400 Varco International, Inc.* ...................................... 92,850
------------
341,150
------------
Oil Equipment & Services (4.2%)
2,400 Falcon Drilling Company, Inc.* .................................. 69,300
1,200 Smith International, Inc.* ...................................... 86,025
------------
155,325
Pharmaceuticals (2.8%)
2,300 Medicis Pharmaceutical Corp. (Class A)* ......................... 103,500
------------
Retail - Department Stores (3.7%)
1,900 Dollar General Corp. ............................................ 83,600
950 Proffitt's, Inc.* ............................................... 50,350
------------
133,950
------------
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
DEAN WITTER RETIREMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
Retail - Drugs Stores (1.7%)
1,100 Walgreen Co. .................................................... $ 62,150
------------
Retail - Food Chains (4.1%)
2,400 Kroger Co.* ..................................................... 70,950
1,500 Safeway, Inc.* .................................................. 80,438
------------
151,388
------------
Retail - Specialty (6.0%)
1,562 Consolidated Stores Corp.* ...................................... 62,871
2,700 General Nutrition Companies, Inc.* .............................. 76,950
3,200 Staples, Inc.* .................................................. 80,400
------------
220,221
------------
Utilities - Electric (1.9%)
900 AES Corp.* ...................................................... 71,100
------------
Utilities - Telephone (0.8%)
850 Airtouch Communications, Inc.* .................................. 27,997
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $2,725,382)(a) . 98.0% 3,595,614
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES................... 2.0 74,032
----- ----------
NET ASSETS....................... 100.0% $3,669,646
===== ==========
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$870,624 and the aggregate gross unrealized depreciation is $392,
resulting in net unrealized appreciation of $870,232.
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
DEAN WITTER RETIREMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (100.0%)
Aerospace (2.7%)
55,000 Raytheon Co. ................................................... $3,073,125
--------------
Aluminum (2.7%)
35,500 Aluminum Co. of America ........................................ 3,141,750
--------------
Automotive (5.3%)
84,000 Chrysler Corp. ................................................. 3,118,500
74,000 Ford Motor Co. ................................................. 3,024,750
--------------
6,143,250
--------------
Banks (2.7%)
43,000 NationsBank Corp. .............................................. 3,061,062
--------------
Banks - Money Center (2.7%)
41,000 BankAmerica Corp. .............................................. 3,095,500
--------------
Beverages - Soft Drinks (2.7%)
81,000 PepsiCo Inc. ................................................... 3,103,312
--------------
Chemicals (5.1%)
44,000 Du Pont (E.I.) de Nemours & Co., Inc. .......................... 2,945,250
49,500 Eastman Chemical Co. ........................................... 2,994,750
--------------
5,940,000
--------------
Computers - Systems (2.7%)
29,000 International Business Machines Corp. .......................... 3,066,750
--------------
Conglomerates (5.1%)
31,500 Minnesota Mining & Manufacturing Co. ........................... 2,984,625
63,000 Tenneco, Inc. .................................................. 2,937,375
--------------
5,922,000
--------------
Drugs (2.6%)
38,000 Bristol-Myers Squibb Co. ....................................... 2,980,625
--------------
Drugs & Healthcare (2.7%) ......................................
47,000 Abbott Laboratories ............................................ 3,075,562
--------------
Electric - Major (2.6%)
42,300 General Electric Co. ........................................... 2,968,931
--------------
Energy (2.6%)
47,000 Kerr-McGee Corp. ............................................... 2,943,375
--------------
Foods (5.2%)
59,800 Quaker Oats Company (The) ...................................... 3,061,012
13,300 Unilever NV (ADR)(Netherlands) ................................. 2,899,400
--------------
5,960,412
--------------
Machinery - Agricultural (2.6%)
53,600 Deere & Co. .................................................... 3,048,500
--------------
Manufacturing - Diversified (2.5%)
39,000 Honeywell, Inc. ................................................ $2,912,813
--------------
Metals - Miscellaneous (2.5%)
34,000 Phelps Dodge Corp. ............................................. 2,892,125
--------------
Natural Gas (2.6%)
78,000 Enron Corp. .................................................... 2,959,125
--------------
Office Equipment (2.7%)
41,000 Pitney Bowes, Inc. ............................................. 3,080,125
--------------
Oil - Domestic (5.3%)
32,000 Amoco Corp. .................................................... 3,008,000
59,000 Ashland, Inc. .................................................. 3,134,375
--------------
6,142,375
--------------
Oil Integrated - International (2.7%)
48,200 Exxon Corp. .................................................... 3,096,850
--------------
Paper & Forest Products (2.7%)
51,000 Weyerhaeuser Co. ............................................... 3,174,750
--------------
Photography (2.6%)
45,500 Eastman Kodak Co. .............................................. 3,048,500
--------------
Railroads (2.8%)
51,500 CSX Corp. ...................................................... 3,180,125
--------------
Retail - Department Stores (2.6%)
54,000 May Department Stores Co. ...................................... 3,017,250
--------------
Retail - Food Chains (2.6%)
120,600 American Stores Co. ............................................ 3,045,150
--------------
Steel (2.5%)
83,000 Timken Co. ..................................................... 2,920,563
--------------
Telecommunications (5.3%)
41,000 Bell Atlantic Corp. ............................................ 2,975,063
63,000 Sprint Corp. ................................................... 3,118,500
--------------
6,093,563
--------------
Tobacco (2.6%)
67,000 Philip Morris Companies, Inc. .................................. 3,023,375
--------------
Utilities - Electric (8.0%)
142,000 Houston Industries, Inc. ....................................... 2,973,125
82,800 New England Electric System .................................... 3,089,475
139,000 Unicom Corp. ................................................... 3,153,563
--------------
9,216,163
--------------
TOTAL COMMON STOCKS
(Identified Cost $86,532,718) .................................. 115,327,006
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
DEAN WITTER RETIREMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (0.7%)
REPURCHASE AGREEMENT
The Bank of New York 5.75% due 08/01/97 (dated 07/31/97;
$757 proceeds $757,142)(a) (Identified Cost $757,021) ............. $ 757,021
-------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $87,289,739)(b) . 100.7% 116,084,027
LIABILITIES IN EXCESS OF OTHER
ASSETS ............................ (0.7) (772,518)
-------- -------------
NET ASSETS ........................ 100.0% $115,311,509
======== =============
</TABLE>
- ------------
ADR American Depository Receipt.
(a) Collateralized by $244,167 Federal National Mortgage Association
9.55% due 11/10/97 valued at $252,039, $400,000 Federal National
Mortgage Association 7.37% due 04/14/04 valued at $414,359 and
$99,269 Federal National Mortgage Association 7.50% due 04/16/07
valued at $105,764.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$29,069,461 and the aggregate gross unrealized depreciation is
$275,173, resulting in net unrealized appreciation of $28,794,288.
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
DEAN WITTER RETIREMENT SERIES - UTILITIES
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (100.0%)
Natural Gas (19.1%)
5,000 American Water Works Company, Inc. ............................. $ 108,437
3,500 Brooklyn Union Gas Co. .......................................... 105,219
4,500 Calpine Corp.* .................................................. 88,875
3,500 Enron Corp. ..................................................... 132,781
5,000 MCN Corp. ...................................................... 158,437
2,000 Mobil Corp. ..................................................... 153,000
3,000 Pacific Enterprises ............................................. 100,312
4,000 Williams Companies, Inc. ........................................ 183,000
-----------
1,030,061
-----------
Telecommunications (29.1%)
3,000 Alltel Corp. .................................................... 98,625
3,000 AT&T Corp. ..................................................... 110,438
3,000 BellSouth Corp. ................................................ 142,125
3,500 Cable & Wireless PLC (ADR)(United Kingdom) ...................... 105,219
2,500 Compania de Telefonos de Chile S.A. (ADR)(Chile) ................ 82,344
7,000 Grupo Iusacell S.A. de C.V. (Series L)(ADR)(Mexico)* ............ 131,688
3,000 GTE Corp. ....................................................... 139,500
2,000 Nokia Corp. (ADR)(Finland)* ..................................... 171,250
3,000 Sprint Corp. .................................................... 148,500
3,000 Teleport Communications Group Inc. (Class A)* ................... 118,125
2,500 Vodafone Group PLC (ADR)(United Kingdom) ........................ 126,250
5,500 WorldCom, Inc.* ................................................. 192,156
-----------
1,566,220
-----------
Utilities - Electric (51.8%)
2,000 AES Corp.* ...................................................... 158,000
3,000 American Electric Power Co. ..................................... 134,250
4,000 CILCORP, Inc. .................................................. 167,750
4,000 CINergy Corp. .................................................. 134,500
4,000 CMS Energy Corp. ............................................... 148,000
5,000 DPL, Inc. ...................................................... 123,125
4,050 DQE, Inc. ...................................................... 127,828
3,000 Duke Energy Corp. ............................................... 152,063
5,000 Edison International ........................................... 126,250
4,000 Florida Progress Corp. ......................................... 128,750
4,000 General Public Utilities Corp. ................................. 138,750
6,000 MDU Resources Group, Inc. ...................................... 142,500
3,000 NIPSCO Industries, Inc. ......................................... 126,375
5,500 PacifiCorp ...................................................... 122,719
4,500 Pinnacle West Capital Corp. .................................... 142,031
4,000 Public Service Company of Colorado .............................. $ 166,500
4,500 Sierra Pacific Resources ........................................ 143,719
6,000 Teco Energy, Inc. .............................................. 152,250
4,000 Utilicorp United, Inc. .......................................... 119,250
4,000 Western Resources, Inc. ......................................... 138,500
-----------
2,793,110
-----------
TOTAL COMMON STOCKS
(Identified Cost $4,358,265) .................................... 5,389,391
-----------
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
SHORT-TERM INVESTMENTS (5.2%)
U.S. GOVERNMENT AGENCY (a)(2.8%)
Federal National Mortgage Assoc. 5.48% due 08/04/97
$150 (Amortized Cost $149,931) ....................................... 149,931
-----------
REPURCHASE AGREEMENT (2.4%)
The Bank of New York
5.75% due 08/01/97 (dated 07/31/97; proceeds $132,571)(b)
133 (Identified Cost $132,550) ...................................... 132,550
-----------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $282,481) ...................................... 282,481
-----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $4,640,746)
(C) ............. ............. 105.2% 5,671,872
LIABILITIES IN EXCESS OF OTHER
ASSETS........................ (5.2) (280,644)
----- -----------
NET ASSETS..................... 100.0% $ 5,391,228
===== ===========
</TABLE>
- --------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $30,477 U.S. Treasury Note 6.25% due 05/31/99
valued at $31,043 and $99,095 U.S. Treasury Note 7.125% due 09/30/99
valued at $104,158.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$1,034,626 and the aggregate gross unrealized depreciation is $3,500,
resulting in net unrealized appreciation of $1,031,126.
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.4%)
Aerospace & Defense (1.0%)
750 Boeing Co. ..................................................... $ 44,109
550 General Dynamics Corp. ......................................... 48,675
450 Lockheed Martin Corp. .......................................... 47,925
550 McDonnell Douglas Corp. ........................................ 42,075
450 Northrop Grumman Corp. ......................................... 51,806
-------------
234,590
-------------
Agriculture Related (0.2%)
600 Pioneer Hi-Bred International, Inc. ............................. 44,400
-------------
Air Freight (0.2%)
800 Federal Express Corp.* .......................................... 51,650
-------------
Airlines (0.8%)
450 AMR Corp.* ...................................................... 48,403
450 Delta Air Lines, Inc. .......................................... 39,994
1,550 Southwest Airlines Co. ......................................... 45,241
1,300 US Airways Group, Inc.* ......................................... 49,806
-------------
183,444
-------------
Aluminum (0.6%)
1,100 Alcan Aluminum Ltd. (Canada) .................................... 43,106
600 Aluminum Co. of America ......................................... 53,100
550 Reynolds Metals Co. ............................................ 42,900
-------------
139,106
-------------
Auto Parts - After Market (1.5%)
1,850 Cooper Tire & Rubber Co. ....................................... 46,134
1,150 Dana Corp. ..................................................... 52,253
1,250 Echlin, Inc. ................................................... 46,328
1,275 Genuine Parts Co. .............................................. 41,597
750 Goodyear Tire & Rubber Co. ..................................... 48,422
1,500 ITT Industries, Inc. ........................................... 42,469
1,000 Snap-On, Inc. .................................................. 41,250
800 TRW, Inc. ...................................................... 46,800
-------------
365,253
-------------
Auto Trucks & Parts (0.6%)
650 Cummins Engine Co., Inc. ....................................... 51,025
2,500 Navistar International Corp.* ................................... 51,562
1,050 PACCAR, Inc. ................................................... 51,712
-------------
154,299
-------------
Automobiles (0.6%)
1,100 Chrysler Corp. ................................................. 40,837
1,100 Ford Motor Co. ................................................. 44,962
800 General Motors Corp. ........................................... 49,500
-------------
135,299
-------------
Banks - Money Center (1.2%)
700 BankAmerica Corp. .............................................. $ 52,850
450 Bankers Trust New York Corp. ................................... 45,534
400 Chase Manhattan Corp. .......................................... 45,425
350 Citicorp ........................................................ 47,512
650 First Chicago NBD Corp. ........................................ 49,319
400 Morgan (J.P.) & Co., Inc. ...................................... 46,350
-------------
286,990
-------------
Banks - Regional (4.4%)
950 Banc One Corp. ................................................. 53,319
1,100 Bank of New York Co., Inc. ..................................... 53,419
550 BankBoston Corp. ............................................... 46,716
900 Barnett Banks, Inc. ............................................ 51,244
600 Comerica, Inc. ................................................. 45,375
700 CoreStates Financial Corp. ..................................... 43,181
825 Fifth Third Bancorp ............................................. 52,078
550 First Bank System, Inc. ........................................ 48,950
450 First Union Corp. .............................................. 45,647
700 Fleet Financial Group, Inc. .................................... 47,512
700 KeyCorp ......................................................... 43,531
1,000 Mellon Bank Corp. .............................................. 50,437
750 National City Corp. ............................................ 44,625
700 NationsBank Corp. .............................................. 49,831
750 Norwest Corp. .................................................. 47,297
900 PNC Bank Corp. ................................................. 41,175
450 Republic New York Corp. ........................................ 51,975
700 SunTrust Banks, Inc. ........................................... 44,931
750 U.S. Bancorp .................................................... 49,969
700 Wachovia Corp. ................................................. 45,150
800 Washington Mutual, Inc. ........................................ 55,200
150 Wells Fargo & Co. .............................................. 41,241
-------------
1,052,803
-------------
Beverages - Alcoholic (0.7%)
1,100 Anheuser-Busch Companies, Inc. ................................. 47,231
800 Brown-Forman Corp. (Class B) .................................... 39,000
1,650 Coors (Adolph) Co. ............................................. 51,872
1,100 Seagram Co. Ltd. (Canada) ....................................... 42,144
-------------
180,247
-------------
Beverages - Soft Drinks (0.5%)
650 Coca Cola Co. .................................................. 45,012
1,150 PepsiCo, Inc. .................................................. 44,059
1,700 Whitman Corp. .................................................. 42,925
-------------
131,996
-------------
Biotechnology (0.2%)
700 Amgen, Inc.* .................................................... 41,125
-------------
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Broadcast Media (0.6%)
2,200 Comcast Corp. (Class A Special) ................................. $ 49,637
3,100 Tele-Communications, Inc. (Class A)* ............................ 52,894
2,200 U.S. West Media Group* .......................................... 48,537
-------------
151,068
-------------
Brokerage (0.2%)
1,000 Schwab (Charles) Corp. ......................................... 46,812
-------------
Building Materials (0.7%)
600 Armstrong World Industries, Inc. ............................... 44,287
1,000 Masco Corp. .................................................... 46,875
1,000 Owens-Corning ................................................... 42,062
1,300 Sherwin-Williams Co. ........................................... 41,681
-------------
174,905
-------------
Business Services (0.2%)
1,200 Cognizant Corp. ................................................ 51,150
-------------
Chemicals (1.5%)
550 Air Products & Chemicals, Inc. ................................. 48,503
450 Dow Chemical Co. ............................................... 42,750
700 Du Pont (E.I.) De Nemours & Co., Inc. .......................... 46,856
750 Eastman Chemical Co. ........................................... 45,375
900 Monsanto Co. ................................................... 44,831
800 Praxair, Inc. .................................................. 44,100
450 Rohm & Haas Co. ................................................ 44,100
750 Union Carbide Corp. ............................................ 41,531
-------------
358,046
-------------
Chemicals - Diversified (0.9%)
1,100 Avery Dennison Corp. ........................................... 48,537
1,800 Engelhard Corp. ................................................ 38,700
550 FMC Corp.* ...................................................... 47,162
950 Goodrich (B.F.) Co. ............................................ 42,928
700 PPG Industries, Inc. ........................................... 44,800
-------------
222,127
-------------
Chemicals - Specialty (1.5%)
1,000 Ecolab, Inc. ................................................... 46,687
750 Grace (W. R.) & Co. ............................................ 46,125
850 Great Lakes Chemical Corp. ..................................... 42,553
850 Hercules, Inc. ................................................. 45,156
800 International Flavors & Fragrances Inc. ........................ 42,450
1,300 Morton International, Inc. ..................................... 43,469
1,050 Nalco Chemical Co. ............................................. 42,853
1,200 Sigma-Aldrich Corp. ............................................ 41,250
-------------
350,543
-------------
Communications -
Equipment/Manufacturers (1.2%)
1,500 Andrew Corp.* ................................................... $ 39,094
1,650 DSC Communications Corp.* ....................................... 48,572
2,200 NextLevel Systems, Inc.* ........................................ 43,862
500 Northern Telecom Ltd. (Canada) .................................. 52,281
2,300 Scientific-Atlanta, Inc. ....................................... 48,300
800 Tellabs, Inc.* .................................................. 47,850
-------------
279,959
-------------
Communications Equipment (0.6%)
500 Harris Corp. ................................................... 43,437
600 Lucent Technologies Inc. ....................................... 50,962
650 Motorola, Inc. ................................................. 52,203
-------------
146,602
-------------
Computer Software & Services (3.0%)
900 3Com Corp.* ..................................................... 49,162
1,200 Adobe Systems, Inc. ............................................ 44,850
1,200 Autodesk, Inc. ................................................. 50,850
900 Automatic Data Processing, Inc. ................................ 44,550
1,650 Bay Networks, Inc.* ............................................. 50,325
1,400 Cabletron Systems, Inc.* ........................................ 47,425
1,000 Ceridian Corp.* ................................................. 43,750
650 Cisco Systems, Inc.* ............................................ 51,634
750 Computer Associates International, Inc. ........................ 51,047
600 Computer Sciences Corp.* ........................................ 48,862
350 Microsoft Corp.* ................................................ 49,459
10 Netscape Communications Corp.* .................................. 380
5,200 Novell, Inc.* ................................................... 39,325
950 Oracle Corp.* ................................................... 51,597
900 Parametric Technology Corp.* .................................... 44,100
5,800 Unisys Corp.* ................................................... 55,825
-------------
723,141
-------------
Computers - Peripheral Equipment (0.4%)
1,050 EMC Corp.* ...................................................... 53,025
1,000 Seagate Technology, Inc.* ....................................... 41,062
-------------
94,087
-------------
Computers - Systems (2.5%)
4,400 Amdahl Corp.* ................................................... 51,975
2,500 Apple Computer, Inc.* ........................................... 43,594
950 COMPAQ Computer Corp.* .......................................... 54,269
1,750 Data General Corp.* ............................................. 52,828
600 Dell Computer Corp.* ............................................ 51,300
1,100 Digital Equipment Corp.* ........................................ 45,306
700 Hewlett-Packard Co. ............................................ 49,044
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
500 International Business Machines Corp. .......................... $ 52,875
800 Shared Medical Systems Corp. ................................... 43,100
2,150 Silicon Graphics, Inc.* ......................................... 53,750
1,150 Sun Microsystems, Inc.* ......................................... 52,541
1,700 Tandem Computers Inc.* .......................................... 49,937
-------------
600,519
-------------
Containers - Metal & Glass (0.4%)
1,400 Ball Corp. ..................................................... 41,650
900 Crown Cork & Seal Co., Inc. .................................... 45,506
-------------
87,156
-------------
Containers - Paper (0.7%)
900 Bemis Company, Inc. ............................................ 41,344
3,200 Stone Container Corp. .......................................... 53,200
600 Temple-Inland, Inc. ............................................ 40,387
700 Union Camp Corp. ............................................... 40,994
-------------
175,925
-------------
Cosmetics (0.6%)
1,600 Alberto-Culver Co. (Class B) .................................... 44,900
600 Avon Products, Inc. ............................................ 43,537
450 Gillette Co. ................................................... 44,550
-------------
132,987
-------------
Data Processing (0.4%)
1,200 Equifax, Inc. .................................................. 40,725
1,000 First Data Corp. ............................................... 43,625
-------------
84,350
-------------
Distributors - Consumer Products (0.7%)
700 Cardinal Health, Inc. .......................................... 43,575
2,400 Fleming Companies., Inc. ....................................... 38,250
1,300 Supervalu, Inc. ................................................ 52,650
1,150 Sysco Corp. .................................................... 42,909
-------------
177,384
-------------
Electrical Equipment (1.8%)
1,000 AMP, Inc. ...................................................... 52,250
700 Emerson Electric Co. ........................................... 41,300
700 General Electric Co. ........................................... 49,131
950 General Signal Corp. ........................................... 46,728
550 Honeywell, Inc. ................................................ 41,078
550 Raychem Corp. .................................................. 53,350
700 Rockwell International Corp. ................................... 45,937
800 Thomas & Betts Corp. ........................................... 45,700
1,950 Westinghouse Electric Corp. .................................... 46,922
-------------
422,396
-------------
Electronic Components (0.2%)
500 Grainger (W.W.), Inc. .......................................... $ 48,000
-------------
Electronics - Defense (0.2%)
850 Raytheon Co. ................................................... 47,494
-------------
Electronics - Instrumentation (0.6%)
2,200 EG & G, Inc. ................................................... 45,100
550 Perkin-Elmer Corp. ............................................. 44,894
750 Tektronix, Inc. ................................................ 46,312
-------------
136,306
-------------
Electronics - Semiconductors (1.2%)
1,300 Advanced Micro Devices, Inc.* ................................... 45,581
500 Intel Corp. .................................................... 45,875
1,500 LSI Logic Corp.* ................................................ 47,344
1,150 Micron Technology, Inc. ........................................ 55,991
1,500 National Semiconductor Corp.* ................................... 47,250
450 Texas Instruments, Inc. ........................................ 51,750
-------------
293,791
-------------
Engineering & Construction (0.6%)
700 Fluor Corp. .................................................... 43,050
950 Foster Wheeler Corp. ........................................... 42,156
1,700 McDermott International, Inc. .................................. 51,956
-------------
137,162
-------------
Entertainment (0.7%)
1,100 King World Productions, Inc.* ................................... 44,412
850 Time Warner, Inc. .............................................. 46,378
1,400 Viacom, Inc. (Class B)* ......................................... 43,225
500 Walt Disney Co. ................................................ 40,406
-------------
174,421
-------------
Entertainment, Gaming & Lodging (0.2%)
2,400 Harrah's Entertainment, Inc.* ................................... 49,200
-------------
Finance - Consumer (1.0%)
600 Beneficial Corp. ............................................... 43,500
1,400 Countrywide Credit Industries, Inc. ............................ 49,350
1,100 Green Tree Financial Corp. ..................................... 51,837
400 Household International, Inc. .................................. 51,800
1,150 MBNA Corp. ..................................................... 51,750
-------------
248,237
-------------
Finance - Diversified (1.8%)
600 American Express Co. ........................................... 50,250
950 American General Corp. ......................................... 50,587
900 Fannie Mae ...................................................... 42,581
1,200 Freddie Mac ..................................................... 43,275
400 MBIA Inc. ...................................................... 47,200
SEE NOTES TO FINANCIAL STATEMENTS
67
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
900 MGIC Investment Corp. .......................................... $ 47,306
1,050 Morgan Stanley, Dean Witter, Discover & Co. (Note 3) ............ 54,928
700 SunAmerica, Inc. ............................................... 42,350
500 Transamerica Corp. ............................................. 50,437
-------------
428,914
-------------
Foods (2.4%)
2,100 Archer-Daniels-Midland Co. ..................................... 47,250
800 Campbell Soup Co. .............................................. 41,500
700 ConAgra, Inc. .................................................. 49,219
500 CPC International, Inc. ........................................ 47,969
600 General Mills, Inc. ............................................ 41,475
900 Heinz (H.J.) Co. ............................................... 41,569
750 Hershey Foods Corp. ............................................ 41,437
500 Kellogg Co. .................................................... 45,937
900 Quaker Oats Company (The) ....................................... 46,069
500 Ralston-Ralston Purina Group .................................... 45,125
900 Sara Lee Corp. ................................................. 39,431
200 Unilever NV (ADR)(Netherlands) .................................. 43,600
600 Wrigley (Wm.) Jr. Co. (Class A) ................................. 46,162
-------------
576,743
-------------
Hardware & Tools (0.4%)
1,200 Black & Decker Corp. ........................................... 50,550
1,100 Stanley Works ................................................... 49,844
-------------
100,394
-------------
Healthcare - Diversified (1.6%)
650 Abbott Laboratories ............................................. 42,534
1,400 Allergan, Inc. ................................................. 44,712
600 American Home Products Corp. ................................... 49,462
600 Bristol-Myers Squibb Co. ....................................... 47,062
1,800 Healthsouth Corp.* .............................................. 47,700
700 Johnson & Johnson ............................................... 43,619
1,300 Mallinckrodt Group, Inc. ....................................... 45,500
380 Warner-Lambert Co. ............................................. 53,081
-------------
373,670
-------------
Healthcare - Drugs (1.0%)
450 Lilly (Eli) & Co. .............................................. 50,850
450 Merck & Co., Inc. .............................................. 46,772
800 Pfizer, Inc. ................................................... 47,700
1,200 Pharmacia & Upjohn, Inc. ....................................... 45,300
1,000 Schering-Plough Corp. .......................................... 54,562
-------------
245,184
-------------
Healthcare - Miscellaneous (0.4%)
2,900 Beverly Enterprises, Inc.* ...................................... $ 44,587
1,500 Manor Care, Inc. ............................................... 49,500
-------------
94,087
-------------
Healthcare HMOs (0.4%)
1,950 Humana, Inc.* ................................................... 47,531
850 United Healthcare Corp. ........................................ 48,450
-------------
95,981
-------------
Healthcare Services (0.2%)
1,450 Alza Corp.* ..................................................... 46,853
-------------
Home Building (0.8%)
950 Centex Corp. ................................................... 52,962
1,450 Fleetwood Enterprises, Inc. .................................... 47,034
2,450 Kaufman & Broad Home Corp. ..................................... 52,369
1,200 Pulte Corp. .................................................... 48,975
-------------
201,340
-------------
Hospital Management (0.4%)
1,300 Columbia/HCA Healthcare Corp. .................................. 41,925
1,600 Tenet Healthcare Corp.* ......................................... 47,900
-------------
89,825
-------------
Hotels/Motels (0.8%)
700 HFS, Inc.* ...................................................... 40,775
1,400 Hilton Hotels Corp. ............................................ 44,012
750 ITT Corp.* ...................................................... 47,953
750 Marriot International, Inc. .................................... 51,562
-------------
184,302
-------------
Household Furnishings & Appliances (0.4%)
1,800 Maytag Corp. ................................................... 52,537
900 Whirlpool Corp. ................................................ 45,000
-------------
97,537
-------------
Household Products (0.8%)
340 Clorox Co. ..................................................... 47,472
700 Colgate-Palmolive Co. .......................................... 53,025
900 Kimberly-Clark Corp. ........................................... 45,619
300 Procter & Gamble Co. ........................................... 45,637
-------------
191,753
-------------
Housewares (0.6%)
1,200 Newell Co. ..................................................... 50,325
1,600 Rubbermaid, Inc. ............................................... 41,700
1,300 Tupperware Corp. ............................................... 45,175
-------------
137,200
-------------
SEE NOTES TO FINANCIAL STATEMENTS
68
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Insurance Brokers (0.4%)
825 Aon Corp. ...................................................... $ 46,200
700 Marsh & McLennan Cos., Inc. .................................... 54,206
-------------
100,406
-------------
Investment Banking/Brokerage (0.4%)
750 Merrill Lynch & Co., Inc. ...................................... 52,828
750 Salomon, Inc. .................................................. 47,578
-------------
100,406
-------------
Leisure Time (0.2%)
1,350 Brunswick Corp. ................................................ 43,537
-------------
Life Insurance (1.2%)
450 Aetna Inc. ..................................................... 51,272
1,000 Conseco, Inc. .................................................. 40,750
600 Jefferson-Pilot Corp. .......................................... 42,637
1,100 Providian Financial Corp.* ...................................... 43,106
650 Torchmark Corp. ................................................ 51,756
1,100 UNUM Corp. ..................................................... 48,950
-------------
278,471
-------------
Machine Tools (0.2%)
2,100 Giddings & Lewis, Inc. ......................................... 43,706
-------------
Machinery - Diversified (2.3%)
800 Briggs & Stratton Corp. ........................................ 40,550
650 Case Corp. ..................................................... 40,584
900 Caterpillar, Inc. .............................................. 50,400
1,700 Cincinnati Milacron, Inc. ...................................... 47,600
800 Cooper Industries, Inc. ........................................ 44,450
800 Deere & Co. .................................................... 45,500
700 Dover Corp. .................................................... 49,962
1,100 Harnischfeger Industries, Inc. ................................. 47,437
750 Ingersoll-Rand Co. ............................................. 51,047
650 NACCO Industries, Inc. (Class A) ................................ 45,094
1,200 Thermo Electron Corp.* .......................................... 41,025
1,400 Timken Co. ..................................................... 49,262
-------------
552,911
-------------
Manufacturing - Diversified (3.2%)
950 Aeroquip-Vickers, Inc. ......................................... 52,072
500 AlliedSignal, Inc. ............................................. 46,125
850 Corning, Inc. .................................................. 52,541
1,150 Crane Co. ...................................................... 52,253
550 Eaton Corp. .................................................... 49,672
900 Illinois Tool Works, Inc. ...................................... 46,688
900 Johnson Controls, Inc. ......................................... 40,331
900 Millipore Corp. ................................................ 39,769
450 Minnesota Mining & Manufacturing Co. ........................... 42,638
900 National Service Industries, Inc. .............................. $ 44,381
1,700 Pall Corp. ..................................................... 42,713
800 Parker-Hannifin Corp. .......................................... 51,500
1,000 Tenneco, Inc. .................................................. 46,625
700 Textron Inc. ................................................... 49,044
650 Tyco International Ltd. ......................................... 52,650
500 United Technologies Corp. ...................................... 42,281
-------------
751,283
-------------
Medical Products & Supplies (2.0%)
1,300 Bard (C.R.), Inc. .............................................. 48,913
1,000 Bausch & Lomb, Inc. ............................................ 42,563
800 Baxter International, Inc. ..................................... 46,250
800 Becton, Dickinson & Co. ........................................ 42,900
2,500 Biomet, Inc. ................................................... 49,844
700 Boston Scientific Corp.* ........................................ 50,225
600 Guidant Corp. .................................................. 54,750
500 Medtronic, Inc. ................................................ 43,625
1,200 St. Jude Medical, Inc.* ......................................... 48,975
1,200 United States Surgical Corp. ................................... 44,550
-------------
472,595
-------------
Metals & Mining (1.5%)
1,350 ASARCO, Inc. ................................................... 45,900
2,000 Barrick Gold Corp. (Canada) ..................................... 45,625
7,300 Battle Mountain Gold Co. ....................................... 40,606
1,850 Cyprus Amax Minerals Co. ....................................... 46,944
7,800 Echo Bay Mines Ltd. (Canada) .................................... 39,000
2,900 Homestake Mining Co. ........................................... 40,056
1,300 Newmont Mining Corp. ........................................... 53,625
2,600 Placer Dome Inc. (Canada) ....................................... 44,200
-------------
355,956
-------------
Metals - Miscellaneous (0.5%)
1,400 Freeport-McMoran Copper & Gold, Inc. (Class B) .................. 40,950
1,400 Inco Ltd. (Canada) .............................................. 43,313
500 Phelps Dodge Corp. ............................................. 42,531
-------------
126,794
-------------
Miscellaneous (0.4%)
1,350 American Greetings Corp. (Class A) .............................. 45,056
1,800 Jostens, Inc. .................................................. 46,468
-------------
91,524
-------------
Multi-Line Insurance (1.2%)
450 American International Group, Inc. .............................. 47,925
250 CIGNA Corp. .................................................... 49,875
550 Hartford Financial Services Group, Inc. ......................... 47,919
SEE NOTES TO FINANCIAL STATEMENTS
69
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
650 Lincoln National Corp. ......................................... $ 46,231
400 Loews Corp. .................................................... 43,250
700 Travelers Group, Inc. .......................................... 50,356
-------------
285,556
-------------
Natural Gas (0.3%)
600 Anardarko Petroleum Corp. ...................................... 41,925
1,100 Apache Corp. ................................................... 38,775
-------------
80,700
-------------
Office Equipment & Supplies (0.6%)
1,600 Ikon Office Solutions, Inc. .................................... 46,700
2,100 Moore Corp. Ltd. (Canada) ....................................... 45,544
600 Pitney Bowes, Inc. ............................................. 45,075
-------------
137,319
-------------
Oil & Gas Drilling (1.5%)
950 Baker Hughes, Inc. ............................................. 41,859
1,250 Dresser Industries, Inc. ....................................... 52,188
1,100 Halliburton Co. ................................................ 50,600
700 Helmerich & Payne, Inc. ........................................ 47,119
1,600 Rowan Cos., Inc.* ............................................... 52,600
700 Schlumberger, Ltd. .............................................. 53,463
600 Western Atlas, Inc.* ............................................ 47,738
-------------
345,567
-------------
Oil & Gas Exploration (0.9%)
900 Burlington Resources, Inc. ..................................... 42,525
650 Kerr-McGee Corp. ............................................... 40,706
680 Louisiana Land & Exploration Co. ................................ 48,025
1,700 Oryx Energy Co.* ................................................ 41,969
1,600 Union Pacific Resources Group, Inc. ............................. 39,500
-------------
212,725
-------------
Oil - Domestic Integrated (1.5%)
750 Amerada Hess Corp. ............................................. 44,109
900 Ashland, Inc. .................................................. 47,826
1,700 Occidental Petroleum Corp. ..................................... 42,606
650 Pennzoil Co. ................................................... 50,781
1,000 Phillips Petroleum Co. ......................................... 46,063
1,300 Sun Co., Inc. .................................................. 46,556
1,050 Unocal Corp. ................................................... 42,000
1,450 USX-Marathon Group .............................................. 46,672
-------------
366,613
-------------
Oil - International Integrated (1.3%)
450 Amoco Corp. .................................................... 42,300
600 Atlantic Richfield Co. ......................................... 44,888
550 Chevron Corp. .................................................. 43,519
700 Exxon Corp. .................................................... 44,975
600 Mobil Corp. .................................................... 45,900
800 Royal Dutch Petroleum Co. (Netherlands) ......................... $ 44,750
350 Texaco, Inc. ................................................... 40,622
-------------
306,954
-------------
Paper & Forest Products (2.1%)
1,200 Boise Cascade Corp. ............................................ 44,475
800 Champion International Corp. ................................... 49,600
500 Georgia-Pacific Corp. .......................................... 47,219
900 International Paper Co. ........................................ 50,400
1,100 James River Corp. of Virginia ................................... 45,306
1,800 Louisiana-Pacific Corp. ........................................ 41,288
600 Mead Corp. ..................................................... 43,200
900 Potlatch Corp. ................................................. 43,031
1,200 Westvaco Corp. ................................................. 40,125
800 Weyerhaeuser Co. ............................................... 49,800
550 Willamette Industries, Inc. .................................... 41,903
-------------
496,347
-------------
Photography/Imaging (0.6%)
700 Eastman Kodak Co. .............................................. 46,900
850 Polaroid Corp. ................................................. 50,575
650 Xerox Corp. .................................................... 53,463
-------------
150,938
-------------
Pollution Control (0.2%)
1,300 Waste Management Inc. .......................................... 41,600
-------------
Property - Casualty Insurance (1.2%)
600 Allstate Corp. ................................................. 47,400
700 Chubb Corp. .................................................... 49,350
250 General Re Corp. ............................................... 52,219
900 Safeco Corp. ................................................... 43,088
600 St. Paul Companies, Inc. ....................................... 47,063
1,800 USF&G Corp. .................................................... 44,213
-------------
283,333
-------------
Publishing (0.9%)
950 Dow Jones & Co., Inc. .......................................... 41,028
1,500 Dun & Bradstreet Corp. ......................................... 40,500
700 McGraw-Hill, Inc. .............................................. 47,469
1,600 Meredith Corp. ................................................. 44,300
750 Times Mirror Co. (Class A) ...................................... 40,969
-------------
214,266
-------------
Publishing -Newspaper (0.8%)
450 Gannett Co., Inc. .............................................. 44,691
900 Knight-Ridder Newspapers, Inc. ................................. 44,719
950 New York Times Co. (Class A) .................................... 47,738
950 Tribune Co. .................................................... 50,291
-------------
187,439
-------------
SEE NOTES TO FINANCIAL STATEMENTS
70
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Railroads (0.8%)
450 Burlington Northern Santa Fe Corp. ............................. $ 43,453
750 CSX Corp. ...................................................... 46,313
450 Norfolk Southern Corp. ......................................... 49,838
550 Union Pacific Corp. ............................................ 39,428
-------------
179,032
-------------
Restaurants (0.6%)
5,000 Darden Restaurants, Inc. ....................................... 47,813
750 McDonald's Corp. ............................................... 40,313
1,750 Wendy's International, Inc. .................................... 42,766
-------------
130,892
-------------
Retail - Department Stores (1.4%)
1,200 Dillard Department Stores, Inc. (Class A) ....................... 45,375
1,200 Federated Department Stores, Inc.* .............................. 52,575
850 Harcourt General, Inc. ......................................... 40,163
850 May Department Stores Co. ...................................... 47,494
750 Mercantile Stores Co., Inc. .................................... 50,391
900 Nordstrom, Inc. ................................................ 50,963
800 Penney (J.C.) Co., Inc. ........................................ 46,800
-------------
333,761
-------------
Retail - Drug Stores (0.8%)
850 CVS Corp. ...................................................... 48,344
1,500 Longs Drug Stores Corp. ........................................ 40,406
900 Rite Aid Corp. ................................................. 46,744
900 Walgreen Co. ................................................... 50,850
-------------
186,344
-------------
Retail - Food Chains (1.1%)
1,150 Albertson's, Inc. .............................................. 42,622
1,600 American Stores Co. ............................................ 40,400
1,400 Giant Food, Inc. (Class A) ...................................... 46,988
1,600 Great Atlantic & Pacific Tea Co., Inc. ......................... 43,900
1,400 Kroger Co.* ..................................................... 41,388
1,250 Winn-Dixie Stores, Inc. ........................................ 45,781
-------------
261,079
-------------
Retail - General Merchandise (1.1%)
1,400 Costco Companies Inc.* .......................................... 53,025
800 Dayton-Hudson Corp. ............................................ 51,700
4,000 Kmart Corp.* .................................................... 47,500
800 Sears, Roebuck & Co. ........................................... 50,650
1,400 Wal-Mart Stores, Inc. .......................................... 52,588
-------------
255,463
-------------
Retail - Specialty (1.6%)
1,600 AutoZone, Inc.* ................................................. $ 45,800
1,200 Circuit City Stores, Inc. ...................................... 43,500
1,050 Home Depot, Inc. ............................................... 52,369
1,100 Lowe's Companies, Inc. ......................................... 41,388
1,300 Pep Boys-Manny, Moe & Jack ...................................... 43,225
800 Tandy Corp. .................................................... 47,550
1,450 Toys 'R' Us, Inc.* .............................................. 49,391
1,800 Woolworth Corp.* ................................................ 50,963
-------------
374,186
-------------
Retail - Specialty Apparel (0.8%)
6,700 Charming Shoppes, Inc.* ......................................... 39,363
1,200 Gap, Inc. ...................................................... 53,325
2,200 Limited (The), Inc. ............................................ 49,088
1,700 TJX Companies, Inc. ............................................ 50,788
-------------
192,564
-------------
Savings & Loan Companies (0.4%)
1,000 Ahmanson (H.F.) & Co. .......................................... 53,188
600 Golden West Financial Corp. .................................... 50,475
-------------
103,663
-------------
Semiconductor Equipment (0.2%)
550 Applied Materials, Inc.* ........................................ 50,497
-------------
Shoes (0.6%)
700 Nike, Inc. (Class B) ............................................ 43,619
900 Reebok International Ltd. ....................................... 46,463
3,200 Stride Rite Corp. .............................................. 43,400
-------------
133,482
-------------
Specialized Services (1.0%)
1,350 Block (H.&R.), Inc. ............................................ 51,722
1,900 CUC International, Inc.* ........................................ 46,788
1,050 Interpublic Group of Companies, Inc. ........................... 46,988
2,550 Safety-Kleen Corp. ............................................. 44,784
1,200 Service Corp. International ..................................... 40,800
-------------
231,082
-------------
Specialty Printing (0.6%)
1,200 Deluxe Corp. ................................................... 39,975
1,200 Donnelley (R.R.) & Sons Co. .................................... 48,225
2,300 Harland (John H.) Co. .......................................... 45,138
-------------
133,338
-------------
Steel & Iron (1.3%)
1,600 Allegheny Teledyne Inc. ........................................ 49,800
7,400 Armco, Inc.* .................................................... 40,238
4,000 Bethlehem Steel Corp.* .......................................... 45,000
SEE NOTES TO FINANCIAL STATEMENTS
71
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
1,800 Inland Steel Industries, Inc. .................................. $ 41,288
750 Nucor Corp. .................................................... 46,547
1,150 USX-U.S. Steel Group, Inc. ..................................... 42,047
2,400 Worthington Industries, Inc. ................................... 47,400
-------------
312,320
-------------
Telecommunications -
Long Distance (1.0%)
1,300 AT&T Corp. ..................................................... 47,856
2,300 Frontier Corp. ................................................. 47,438
1,200 MCI Communications Corp. ....................................... 42,225
850 Sprint Corp. ................................................... 42,075
1,500 WorldCom, Inc.* ................................................. 52,406
-------------
232,000
-------------
Telecommunications -Wireless (0.2%)
1,500 Airtouch Communications, Inc.* .................................. 49,406
-------------
Textiles (0.9%)
1,700 Fruit of the Loom, Inc. (Class A)* .............................. 46,538
850 Liz Claiborne, Inc. ............................................ 40,694
1,400 Russell Corp. .................................................. 40,863
900 Springs Industries, Inc. (Class A) .............................. 43,538
550 VF Corp. ....................................................... 49,363
-------------
220,996
-------------
Tobacco (0.6%)
1,150 Fortune Brands, Inc. ........................................... 40,753
1,050 Philip Morris Companies, Inc. .................................. 47,381
1,500 UST, Inc. ...................................................... 43,594
-------------
131,728
-------------
Toys (0.4%)
1,600 Hasbro Inc. .................................................... 49,100
1,350 Mattel, Inc. ................................................... 46,913
-------------
96,013
-------------
Truckers (0.4%)
1,300 Caliber System, Inc. ........................................... 50,619
1,250 Ryder System, Inc. ............................................. 44,766
-------------
95,385
-------------
Utilities - Electric (4.9%)
900 American Electric Power Co., Inc. ............................... 40,275
1,700 Baltimore Gas & Electric Co. ................................... 47,281
1,300 Carolina Power & Light Co. ..................................... 46,313
2,300 Central & South West Corp. ..................................... 46,144
1,200 CINergy Corp. .................................................. 40,350
1,400 Consolidated Edison Co. of New York, Inc. ...................... $ 44,275
1,450 Detroit Edison Co. ............................................. 43,409
1,300 Dominion Resources, Inc. ....................................... 47,775
1,050 Duke Energy Corp. .............................................. 53,222
1,700 Edison International ............................................ 42,925
1,450 Entergy Corp. .................................................. 39,603
1,000 FPL Group, Inc. ................................................ 47,875
1,200 General Public Utilities Corp. ................................. 41,625
2,200 Houston Industries, Inc. ....................................... 46,063
4,300 Niagara Mohawk Power Corp.* ..................................... 40,044
800 Northern States Power Co. ...................................... 41,100
1,950 Ohio Edison Co. ................................................ 43,388
2,050 PacifiCorp ...................................................... 45,741
2,100 PECO Energy Co. ................................................ 49,350
1,700 PG & E Corp. ................................................... 42,181
2,300 PP&L Resources, Inc. ........................................... 47,006
1,900 Public Service Enterprise Group, Inc. .......................... 47,025
1,900 Southern Co. ................................................... 41,681
1,200 Texas Utilities Co. ............................................ 42,525
2,100 Unicom Corp. ................................................... 47,644
1,200 Union Electric Co. ............................................. 46,200
-------------
1,161,020
-------------
Utilities - Natural Gas (2.4%)
800 Coastal Corp. .................................................. 43,500
600 Columbia Gas System, Inc. ...................................... 41,250
700 Consolidated Natural Gas Co. ................................... 40,513
1,300 Eastern Enterprises ............................................. 46,556
1,200 Enron Corp. .................................................... 45,525
1,900 ENSERCH Corp. .................................................. 42,275
1,200 NICOR, Inc. .................................................... 43,950
2,800 NorAm Energy Corp. ............................................. 44,800
1,250 ONEOK Inc. ..................................................... 43,750
1,200 Pacific Enterprises ............................................. 40,125
1,100 Peoples Energy Corp. ........................................... 42,213
900 Sonat, Inc. .................................................... 44,888
900 Williams Cos., Inc. ............................................ 41,175
-------------
560,520
-------------
Utilities - Telephone (1.4%)
1,250 Alltel Corp. ................................................... 41,094
650 Ameritech Corp. ................................................ 43,834
550 Bell Atlantic Corp. ............................................ 39,909
850 BellSouth Corp. ................................................ 40,269
1,000 GTE Corp. ...................................................... 46,500
SEE NOTES TO FINANCIAL STATEMENTS
72
<PAGE>
DEAN WITTER RETIREMENT SERIES - VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
700 NYNEX Corp. .................................................... $ 38,806
750 SBC Communications, Inc. ....................................... 44,391
1,100 U.S. West Communications Group, Inc. ............................ 40,219
-------------
335,022
-------------
Waste Management (0.4%)
1,200 Browning-Ferris Industries, Inc. ............................... 44,400
2,900 Laidlaw Inc. (Class B)(Canada) .................................. 46,219
-------------
90,619
-------------
TOTAL COMMON STOCKS (Identified Cost $14,805,322) ............... 23,156,111
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENT (a)(2.9%)
U.S. GOVERNMENT AGENCY
$700 Federal Home Loan Mortgage Corp.
5.75% due 08/01/97
(Amortized Cost $700,000) .................................... $ 700,000
------------
TOTAL INVESTMENTS
(Identified cost $15,505,322)(b) . 100.3% 23,856,111
LIABILITIES IN EXCESS OF
CASH AND OTHER ASSETS............. (0.3) (76,376)
----- ------------
NET ASSETS........................ 100.0% $23,779,735
===== ============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$8,490,682 and the aggregate gross unrealized depreciation is
$139,893, resulting in net unrealized appreciation of $8,350,789.
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (93.8%)
ARGENTINA (0.7%)
Banks
1,700 Banco de Galicia y Buenos Aires S.A. de C.V. (Class B)(ADR) ....$ 53,337
-----------
Brewery
2,000 Quilmes Industrial S.A. (ADR) .................................. 23,000
-----------
Telecommunications
1,000 Telecom Argentina Stet - France Telecom S.A. (Class B)(ADR) .... 57,813
-----------
TOTAL ARGENTINA ................................................ 134,150
-----------
AUSTRALIA (1.0%)
Business Services
4,800 Mayne Nickless Ltd. ............................................ 27,735
-----------
Energy
2,500 Woodside Petroleum Ltd. ........................................ 21,268
-----------
Financial Services
24,000 Tyndall Australia Ltd. ......................................... 41,083
-----------
Foods & Beverages
30,000 Goodman Fielder Ltd. ........................................... 46,263
-----------
Metals & Mining
20,155 M.I.M. Holdings Ltd. ........................................... 28,022
14,000 Pasminco Ltd. .................................................. 27,000
-----------
55,022
-----------
TOTAL AUSTRALIA ................................................ 191,371
-----------
BELGIUM (0.2%)
Retail
1,000 G.I.B. Holdings Ltd. ........................................... 48,471
-----------
BRAZIL (2.3%)
Banks
600 Uniao de Bancos Brasileiros S.A. (GDR)* ........................ 24,150
-----------
Brewery
4,500 Companhia Cervejaria Brahma -(ADR) ............................. 68,906
-----------
Steel & Iron
2,000 Usinas Siderurgicas de Minas Gerais S.A. (ADR) -144A** ......... 23,700
3,000 Usinas Siderurgicas de Minas Gerais S.A. (S Shares)(ADR) ....... 35,550
-----------
59,250
-----------
Telecommunications
600 Telecommunicacoes Brasileiras S.A. (ADR) .......................$ 89,025
-----------
Utilities - Electric
2,000 Companhia Energetica de Minas Gerais S.A. (ADR) ................ 112,500
5,000 Companhia Paranaense de Energia -Copel (Preference Shares) ..... 96,250
-----------
208,750
-----------
TOTAL BRAZIL ................................................... 450,081
-----------
CANADA (0.7%)
Energy
5,000 Ranger Oil Ltd. ................................................ 48,970
-----------
Retail - Department Stores
4,000 Hudson's Bay Co. ............................................... 89,669
-----------
TOTAL CANADA ................................................... 138,639
-----------
CHILE (0.7%)
Pharmaceuticals
1,300 Laboratorio Chile S.A. (ADR) ................................... 38,431
-----------
Retail
3,000 Supermercados Unimarc S.A. (ADR)* .............................. 51,938
-----------
Telecommunications
1,487 Compania de Telecommunicaciones de Chile S.A. (ADR) ............ 48,978
-----------
TOTAL CHILE .................................................... 139,347
-----------
CHINA (0.2%)
Transportation
1,000 China Southern Airlines Co. (ADR) .............................. 31,000
-----------
DENMARK (0.9%)
Pharmaceuticals
1,000 Novo-Nordisk AS (Series B) ..................................... 105,361
-----------
Transportation
700 Kobenhavns Lufthavne AS ........................................ 73,453
-----------
TOTAL DENMARK .................................................. 178,814
-----------
FINLAND (0.7%)
Manufacturing
800 KCI Konecranes International ................................... 32,104
-----------
SEE NOTES TO FINANCIAL STATEMENTS
74
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
Paper Products
3,200 UPM-Kymmene OY Corp. ...........................................$ 77,810
-----------
Pharmaceuticals
1,000 Orion-yhtymae OY (B Shares) .................................... 36,300
-----------
TOTAL FINLAND .................................................. 146,214
-----------
FRANCE (3.6%)
Automotive
1,200 Michelin (B Shares) ............................................ 74,682
-----------
Computer Services
400 Axime (Ex Segin) ............................................... 44,599
-----------
Energy
700 Elf Aquitaine S.A. ............................................. 79,855
-----------
Financial Services
350 Credit Local de France ......................................... 34,675
-----------
Household Products
740 Societe BIC S.A. ............................................... 61,015
-----------
Insurance
2,000 AXA-UAP ........................................................ 130,730
1,400 Scor ........................................................... 61,218
-----------
191,948
-----------
Leisure
600 Accor S.A. ..................................................... 90,230
-----------
Retail
80 Carrefour Supermarche .......................................... 54,022
-----------
Steel & Iron
4,500 Usinor Sacilor ................................................. 89,673
-----------
TOTAL FRANCE ................................................... 720,699
-----------
GERMANY (3.8%)
Apparel
400 Adidas AG ...................................................... 46,995
-----------
Automotive
90 Bayerische Motoren Werke (BMW) AG .............................. 73,332
300 MAN AG ......................................................... 90,481
250 Volkswagen AG .................................................. 191,188
-----------
355,001
-----------
Chemicals
1,200 Bayer AG ....................................................... 50,519
600 SGL Carbon AG .................................................. 79,793
-----------
130,312
-----------
Machinery - Diversified
100 Mannesmann AG ..................................................$ 46,696
-----------
Pharmaceuticals
1,000 Gehe AG ........................................................ 62,605
-----------
Telecommunications
900 Siemens AG ..................................................... 62,709
-----------
Utilities - Electric
700 VEBA AG ........................................................ 40,702
-----------
TOTAL GERMANY .................................................. 745,020
-----------
HONG KONG (4.9%)
Banking
12,000 Guoco Group Ltd. ............................................... 67,743
3,140 HSBC Holdings PLC .............................................. 109,521
-----------
177,264
-----------
Conglomerates
24,000 China Resources Enterprise Ltd. ................................ 119,984
12,000 Citic Pacific Ltd. ............................................. 76,114
-----------
196,098
-----------
Finance & Brokerage
36,000 Peregrine Investments Holdings Ltd. ............................ 79,525
-----------
Real Estate
10,000 Cheung Kong (Holdings) Ltd. .................................... 111,097
24,000 New World Development Co., Ltd. ................................. 172,846
6,000 Sun Hung Kai Properties Ltd. ................................... 75,378
-----------
359,321
-----------
Utilities
36,600 Hong Kong & China Gas Co. Ltd. .................................. 79,431
-----------
Utilities - Electric
13,000 China Light & Power Co. Ltd. ................................... 74,564
-----------
TOTAL HONG KONG ................................................ 966,203
-----------
IRELAND (0.3%)
Transportation
2,000 Ryanair Holdings PLC (ADR)* .................................... 56,250
-----------
ITALY (1.4%)
Energy
1,500 Ente Nazionale Idrocarburi SpA (ADR) ........................... 88,219
-----------
Household Furnishings & Appliances
3,000 Industrie Natuzzi SpA (ADR) .................................... 82,688
-----------
SEE NOTES TO FINANCIAL STATEMENTS
75
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
Telecommunications
16,000 Telecom Italia SpA .............................................$ 101,703
------------
TOTAL ITALY .................................................... 272,610
------------
JAPAN (19.5%)
Automotive
4,000 Honda Motor Co. ................................................ 133,626
6,000 Suzuki Motor Co. Ltd. .......................................... 72,887
------------
206,513
------------
Banking
14,000 Asahi Bank, Ltd. ............................................... 104,876
3,000 Bank of Tokyo-Mitsubishi, Ltd. ................................. 55,677
9,000 Sakura Bank Ltd. ............................................... 55,045
------------
215,598
------------
Building & Construction
12,000 Sekisui House Ltd. ............................................. 114,392
------------
Business Services
2,000 Secom Co. ...................................................... 146,280
------------
Chemicals
8,000 Kaneka Corp. ................................................... 49,064
6,000 Nippon Shokubai K.K. Co. ....................................... 41,859
4,000 Shin-Etsu Chemical Co., Ltd. ................................... 114,054
------------
204,977
------------
Computers
6,000 Fujitsu, Ltd. .................................................. 88,072
------------
Consumer Products
4,000 Kao Corp. ...................................................... 60,064
------------
Electronics
6,000 Canon, Inc. .................................................... 191,328
9,000 Hitachi, Ltd. .................................................. 101,738
9,000 Hitachi Cable .................................................. 81,238
6,000 Matsushita Electric Industrial Co., Ltd. ....................... 125,021
8,000 Sharp Corp. .................................................... 102,581
2,000 Sony Corp. ..................................................... 199,089
2,000 TDK Corp. ...................................................... 172,094
------------
973,089
------------
Electronics - Semiconductors/Components
1,000 Rohm Co., Ltd. ................................................. 130,758
------------
Financial Services
6,000 Nomura Securities Co. Ltd. ..................................... 85,035
2,000 Orix Corp. ..................................................... 161,296
------------
246,331
------------
International Trade
10,000 Mitsui & Co. ...................................................$ 95,326
------------
Machine Tools
7,000 Asahi Diamond Industries Co. Ltd. .............................. 57,576
------------
Machinery
10,000 Minebea Co., Ltd. .............................................. 118,947
13,000 Mitsubishi Heavy Industries, Ltd. ............................... 91,572
------------
210,519
------------
Pharmaceuticals
5,000 Eisai Co. Ltd. ................................................. 103,762
6,000 Fujisawa Pharmaceutical ........................................ 61,245
2,000 Sankyo Co. Ltd. ................................................ 71,368
2,000 Terumo Corp. ................................................... 40,324
------------
276,699
------------
Real Estate
5,000 Mitsui Fudosan Co., Ltd. ....................................... 64,113
------------
Restaurants
5 Yoshinoya D & C Company Ltd. ................................... 61,583
------------
Retail
2,000 Aoyama Trading Co., Ltd. ....................................... 59,895
4,000 Izumiya Co. Ltd. ............................................... 50,953
2,000 Jusco Co. ...................................................... 55,677
------------
166,525
------------
Steel & Iron
40,000 NKK Corp. ...................................................... 72,887
------------
Telecommunications
10 DDI Corp. ...................................................... 68,669
14 Nippon Telegraph & Telephone Corp. ............................. 141,724
------------
210,393
------------
Textiles
15,000 Teijin Ltd. .................................................... 64,535
------------
Transportation
15 East Japan Railway Co. ......................................... 64,409
6,000 Yamato Transport Co. Ltd. ...................................... 75,924
------------
140,333
------------
Wholesale Distributor
1,000 Softbank Corp. ................................................. 51,881
------------
TOTAL JAPAN .................................................... 3,858,444
------------
SEE NOTES TO FINANCIAL STATEMENTS
76
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
MALAYSIA (2.2%)
Banking
8,000 Malayan Banking Berhad .........................................$ 75,959
22,666 Public Bank Berhad ............................................. 32,540
550 RHB Sakura Merchant Bankers Berhad ............................. 856
-----------
109,355
-----------
Building & Construction
9,000 United Engineers Malaysia Berhad ............................... 62,894
-----------
Conglomerates
10,000 Road Builder (M) Holdings Berhad ............................... 41,777
-----------
Entertainment
37,000 Magnum Corporation Berhad ...................................... 47,497
-----------
Financial Services
12,000 Arab Malaysian Finance Berhad 7.5% due 5/25/02 (Loan Stock) .... 4,147
-----------
Machinery
10,000 UMW Holdings Berhad ............................................ 39,499
-----------
Natural Gas
15,000 Petronas Gas Berhad ............................................ 52,697
-----------
Utilities - Electric
20,000 Tenaga Nasional Berhad ......................................... 80,517
-----------
TOTAL MALAYSIA ................................................. 438,383
-----------
MEXICO (3.4%)
Banking
29,391 Grupo Financiero Banamex Accival S.A. de C.V. (B Shares)* ...... 90,414
-----------
Beverages
2,700 Pepsi-Gemex S.A. de C.V. (GDR) ................................. 39,150
-----------
Brewery
Grupo Modelo S.A. de C.V.
6,000 (Series C) ..................................................... 55,794
-----------
Building Materials
15,087 Cemex, S.A. de C.V. (B Shares) ................................. 86,840
-----------
Conglomerates
1,707 DESC S.A. de C.V. (Series C)(ADR) .............................. 62,732
7,000 Grupo Carso S.A. de C.V. (Series A1) ........................... 56,856
-----------
119,588
-----------
Food Processing
2,500 Grupo Industrial Maseca S.A. de C.V. (ADR) .....................$ 46,250
-----------
Paper & Forest Products
14,000 Kimberly-Clark de Mexico, S.A. de C.V. (A Shares) .............. 68,048
-----------
Retail
2,200 Grupo Elektra, S.A. de C.V. (GDR) ............................... 65,450
-----------
Telecommunications
2,000 Telefonos de Mexico S.A. de C.V. (Series L)(ADR) ............... 111,000
-----------
TOTAL MEXICO ................................................... 682,534
-----------
NETHERLANDS (4.3%)
Building Materials
800 Hunter Douglas NV .............................................. 37,205
-----------
Business & Public Services
700 Randstad Holdings NV ........................................... 74,946
-----------
Chemicals
500 Akzo Nobel NV .................................................. 77,462
-----------
Electronics
2,000 Philips Electronics NV ......................................... 162,264
-----------
Food Processing
200 Nutricia Verenigde Bedrijven NV ................................ 33,998
-----------
Furniture
1,400 Ahrend Groep NV ................................................ 47,327
-----------
Insurance
500 Aegon NV ....................................................... 37,958
875 ING Groep NV ................................................... 42,594
-----------
80,552
-----------
Publishing
2,900 Elsevier NV .................................................... 51,118
-----------
Retail
950 Gucci Group NV ................................................. 59,969
2,700 Koninklijke Ahold NV ........................................... 78,104
-----------
138,073
-----------
Steel
1,100 Koninklijke Hoogovens NV ....................................... 66,668
-----------
Transportation
2,000 KLM Royal Dutch Air Lines NV ................................... 71,377
-----------
TOTAL NETHERLANDS .............................................. 840,990
-----------
SEE NOTES TO FINANCIAL STATEMENTS
77
<PAGE>
DEAN WITTER RETIREMENT SERIES -GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
PERU (0.2%)
Banking
7,000 Banco Wiese (ADR) ..............................................$ 43,750
-----------
PHILIPPINES (0.1%)
Telecommunications
600 Philippine Long Distance Telephone Co. (ADR) ................... 20,137
-----------
PORTUGAL (0.4%)
Telecommunications
1,100 Portugal Telecom S.A. (ADR) .................................... 44,275
500 Telecel-Comunicacaoes Pessoais, S.A.* .......................... 39,155
-----------
TOTAL PORTUGAL ................................................. 83,430
-----------
SINGAPORE (1.6%)
Banking
4,500 Development Bank of Singapore, Ltd. ............................ 58,422
-----------
Beverages
7,000 Fraser & Neave Ltd. ............................................ 47,580
-----------
Hospital Management
6,000 Parkway Holdings Ltd. .......................................... 27,529
-----------
Publishing
4,000 Singapore Press Holdings Ltd. .................................. 75,856
-----------
Transportation
3,700 Singapore International Airlines ............................... 34,706
-----------
Utilities - Telecommunications
37,000 Singapore Telecommunications, Ltd. ............................. 70,167
-----------
TOTAL SINGAPORE ................................................ 314,260
-----------
SOUTH AFRICA (0.1%)
Brewers
700 South African Breweries Ltd. (ADR) ............................. 22,488
-----------
SOUTH KOREA (0.3%)
Electronics
1,700 Samsung Electronics Co. (GDR)(Non-voting) -144A** .............. 51,510
-----------
SPAIN (1.7%)
Banks
3,300 Banco Bilbao Vizcaya ........................................... 86,127
200 Banco Popular Espanol S.A. ..................................... 44,307
-----------
130,434
-----------
Natural Gas
800 Gas Natural SDG S.A. ...........................................$ 39,132
-----------
Retail
3,100 Centros Comerciales Pryca, S.A. ................................ 59,857
-----------
Telecommunications
500 Telefonica de Espana S.A. (ADR) ................................ 39,375
-----------
Utilities - Electric
2,800 Empresa Nacional de Electricidad S.A. .......................... 57,669
-----------
TOTAL SPAIN .................................................... 326,467
-----------
SWEDEN (1.4%)
Automotive
2,200 Scania AB (A Shares) ........................................... 63,038
-----------
Machinery
2,300 Kalmar Industries AB ........................................... 38,563
-----------
Manufacturing
1,200 Assa Abloy AB (Series B) ....................................... 26,276
-----------
Paper Products
3,400 Stora Kopparbergs Aktiebolag (A Shares) ........................ 55,731
-----------
Telecommunications
2,250 Ericsson (L.M.) Telephone Co. AB (Series "B" Free) ............. 101,211
-----------
TOTAL SWEDEN ................................................... 284,819
-----------
SWITZERLAND (1.7%)
Engineering
40 ABB AG-Bearer .................................................. 56,890
-----------
Food Processing
70 Nestle S.A. .................................................... 88,901
-----------
Pharmaceuticals
32 Novartis AG .................................................... 51,399
30 Novartis AG - Bearer ........................................... 48,147
10 Roche Holdings AG .............................................. 96,790
-----------
196,336
-----------
TOTAL SWITZERLAND .............................................. 342,127
-----------
UNITED KINGDOM (10.4%)
Aerospace
11,453 Rolls-Royce PLC ................................................ 43,939
-----------
Aerospace & Defense
3,978 British Aerospace PLC .......................................... 86,970
2,900 Smiths Industries PLC .......................................... 38,274
-----------
125,244
-----------
SEE NOTES TO FINANCIAL STATEMENTS
78
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
Auto Parts - Original Equipment
26,200 LucasVarity PLC ................................................$ 80,755
-----------
Banking
3,600 Abbey National PLC ............................................. 49,460
1,323 Barclays Bank, PLC ............................................. 27,872
7,103 National Westminster Bank PLC .................................. 100,849
-----------
178,181
-----------
Beverages
5,800 Bass PLC ....................................................... 79,306
-----------
Broadcast Media
3,600 Flextech PLC* .................................................. 38,807
-----------
Building & Construction
5,893 Blue Circle Industries PLC ..................................... 39,999
-----------
Business Services
3,400 Compass Group PLC .............................................. 34,171
3,000 Reuters Holdings PLC ........................................... 32,315
-----------
66,486
-----------
Computer Software & Services
3,500 SEMA Group PLC ................................................. 80,622
-----------
Conglomerates
8,300 BTR PLC ........................................................ 25,787
9,302 Tomkins PLC .................................................... 46,972
-----------
72,759
-----------
Consumer Products
3,000 Unilever PLC ................................................... 86,910
-----------
Energy
27,300 Shell Transport & Trading Co. PLC .............................. 201,860
-----------
Food Processing
10,000 Devro PLC ...................................................... 64,104
-----------
Household Products
7,000 Reckitt & Colman PLC ........................................... 108,912
-----------
Insurance
4,200 Britannic Assurance PLC ........................................ 53,813
5,700 Commercial Union PLC ........................................... 64,061
10,441 Royal & Sun Alliance Insurance Group PLC ....................... 85,761
-----------
203,635
-----------
Leisure
2,671 Granada Group PLC .............................................. 36,785
-----------
Pharmaceuticals
6,220 Glaxo Wellcome PLC ............................................. 131,652
-----------
Property - Casualty Insurance
65 General Accident PLC ...........................................$ 980
-----------
Retail
9,500 Sainsbury (J.) PLC ............................................. 66,195
-----------
Telecommunications
10,000 British Telecommunications PLC ................................. 70,007
9,602 Securicor PLC .................................................. 43,607
11,900 Vodafone Group PLC ............................................. 60,091
-----------
173,705
-----------
Transportation
7,811 British Airways PLC ............................................ 84,896
-----------
Utilities
3,220 Thames Water PLC ............................................... 42,392
-----------
Utilities -Electric
6,500 National Power PLC ............................................. 57,546
-----------
TOTAL UNITED KINGDOM ........................................... 2,065,670
-----------
UNITED STATES (25.1%)
Aerospace & Defense
1,040 Lockheed Martin Corp. .......................................... 110,760
6,130 Loral Space & Communications* .................................. 95,781
-----------
206,541
-----------
Aluminum
1,240 Aluminum Co. of America ........................................ 109,740
-----------
Automotive
2,940 Chrysler Corp. ................................................. 109,147
2,870 Ford Motor Co. ................................................. 117,311
-----------
226,458
-----------
Banks
1,970 First Tennessee National Corp. ................................. 102,440
-----------
Beverages - Soft Drinks
2,780 PepsiCo, Inc. .................................................. 106,509
-----------
Biotechnology
4,120 Biochem Pharma, Inc.* .......................................... 118,450
-----------
Chemicals
1,060 Dow Chemical Co. ............................................... 100,700
2,250 Monsanto Co. ................................................... 112,078
1,880 Praxair, Inc. .................................................. 103,635
-----------
316,413
-----------
Communications - Equipment & Software
1,850 Cisco Systems, Inc.* ........................................... 146,959
-----------
SEE NOTES TO FINANCIAL STATEMENTS
79
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
Computer Software
2,400 Oracle Systems Corp.* ..........................................$ 130,350
-----------
Computers
3,360 Gateway 2000, Inc.* ............................................ 128,310
-----------
Computers - Peripheral Equipment
1,900 Seagate Technology, Inc.* ...................................... 78,019
-----------
Computers - Systems
1,760 Hewlett-Packard Co. ............................................ 123,310
3,230 Sun Microsystems, Inc.* ........................................ 147,571
-----------
270,881
-----------
Electrical Equipment
1,260 Honeywell, Inc. ................................................ 94,106
-----------
Electronics - Defense
1,590 General Motors Corp. (Class H) ................................. 96,096
-----------
Electronics - Semiconductors/Components
1,300 Intel Corp. .................................................... 119,275
-----------
Entertainment
1,240 Walt Disney Productions ........................................ 100,207
-----------
Financial - Miscellaneous
2,400 Ahmanson (H.F.) & Co. .......................................... 127,650
1,460 American Express Co. ........................................... 122,275
2,350 Fannie Mae ..................................................... 111,184
1,400 Golden West Financial Corp. .................................... 117,775
1,770 Travelers Group, Inc. .......................................... 127,329
-----------
606,213
-----------
Foods
1,450 General Mills, Inc. ............................................ 100,231
-----------
Household Furnishings & Appliances
4,340 Maytag Corp. ................................................... 126,674
2,800 Sunbeam Corp. .................................................. 109,550
-----------
236,224
-----------
Household Products
1,700 Colgate-Palmolive Co. .......................................... 128,775
-----------
Medical Products & Supplies
2,040 Baxter International, Inc. ..................................... 117,938
-----------
Medical Services
2,000 HBO & Co. ...................................................... 154,500
-----------
Oil Integrated -International
1,500 Atlantic Richfield Co. .........................................$ 112,219
1,480 Chevron Corp. .................................................. 117,105
1,900 Exxon Corp. .................................................... 122,075
1,520 Mobil Corp. .................................................... 116,280
-----------
467,679
-----------
Pharmaceuticals
1,580 Abbott Laboratories ............................................ 103,391
1,480 American Home Products Corp. ................................... 122,008
-----------
225,399
-----------
Retail - Department Stores
1,800 Sears, Roebuck & Co. ........................................... 113,963
-----------
Retail - Specialty
3,670 Bed Bath & Beyond, Inc.* ....................................... 121,110
-----------
Retail - Specialty Apparel
2,680 Gap, Inc. ...................................................... 119,093
-----------
Semiconductor Equipment
3,140 Teradyne, Inc.* ................................................ 146,795
-----------
Shoes
1,440 Nike, Inc. (Class B) ........................................... 89,730
-----------
TOTAL UNITED STATES ............................................ 4,978,404
-----------
TOTAL COMMON STOCKS
(Identified Cost $15,100,950) .................................. 18,572,282
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (a)(7.1%)
U.S. GOVERNMENT AGENCIES
Federal Farm Credit Bank
$1,000 5.45% due 08/04/97 ............................................ 999,546
400 Federal Home Loan Mortgage Corp.
5.75% due 08/01/97 ............................................. 400,000
----------
TOTAL SHORT-TERM INVESTMENTS
(Amortized Cost $1,399,546) .................................... 1,399,546
----------
TOTAL INVESTMENTS
(Identified Cost $16,500,496)(b) ................................. 100.9% 19,971,828
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS ................................................. (0.9) (174,632)
-------- ------------
NET ASSETS ........................................................ 100.0% $19,797,196
======== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
80
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
- ------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Securities were purchased on a discount basis. The interest rates
shown have been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$3,806,319 and the aggregate gross unrealized depreciation is
$334,987, resulting in net unrealized appreciation of $3,471,332.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JULY 31, 1997:
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO EXCHANGE DELIVERY APPRECIATION/
RECEIVE FOR DATE (DEPRECIATION)
- ------------------ ------------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
$ 64,633 ESP 10,034,338 08/01/97 $ 50
$ 1,472 MXN 11,571 08/01/97 (8)
DEM 69,082 $ 37,698 08/04/97 (123)
NLG 142,403 $ 69,027 08/04/97 (257)
yen 6,273,323 $ 52,939 08/05/97 (18)
MYR 199,255 $ 75,936 08/05/97 (259)
PTE 7,438,359 $ 40,153 08/05/97 (119)
$ 93,976 ESP 14,622,742 08/07/97 (139)
SGD 72,082 $ 49,042 08/07/97 (47)
$ 22,998 AUD 30,870 08/08/97 (77)
FRF 563,860 $ 91,528 08/29/97 (546)
-------
Net unrealized depreciation...................... $(1,543)
=======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
81
<PAGE>
DEAN WITTER RETIREMENT SERIES - GLOBAL EQUITY PORTFOLIO
SUMMARY OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -----------------------------------------------------------
<S> <C> <C>
Aerospace ...................... $ 43,939 0.2%
Aerospace & Defense ............ 331,785 1.7
Aluminum ....................... 109,740 0.6
Apparel ........................ 46,995 0.2
Auto Parts-Original Equipment .. 80,755 0.4
Automotive ..................... 925,692 4.7
Banking ........................ 872,984 4.4
Banks .......................... 310,361 1.6
Beverages ...................... 166,036 0.8
Beverages-Soft Drinks .......... 106,509 0.5
Biotechnology .................. 118,450 0.6
Brewers ........................ 22,488 0.1
Brewery ........................ 147,700 0.8
Broadcast Media ................ 38,807 0.2
Building & Construction ........ 217,285 1.1
Building Materials ............. 124,045 0.6
Business & Public Services .... 74,946 0.4
Business Services .............. 240,501 1.2
Chemicals ...................... 729,164 3.7
Communications-Equipment &
Software ...................... 146,959 0.7
Computer Services .............. 44,599 0.2
Computer Software .............. 130,350 0.7
Computer Software & Services ... 80,622 0.4
Computers ...................... 216,382 1.1
Computers-Peripheral Equipment . 78,019 0.4
Computers-Systems .............. 270,881 1.4
Conglomerates .................. 430,222 2.2
Consumer Products .............. 146,974 0.7
Electrical Equipment ........... 94,106 0.5
Electronics .................... 1,186,863 6.0
Electronics-Defense ............ 96,096 0.5
Electronics-Semiconductors/
Components .................... 250,033 1.3
Energy ......................... 440,172 2.2
Engineering .................... 56,890 0.3
Entertainment .................. 147,704 0.8
Finance & Brokerage ............ 79,525 0.4
Financial-Miscellaneous ....... 606,213 3.1
Financial Services ............. 326,236 1.6
Food Processing ................ 233,253 1.2
Foods .......................... 100,231 0.5
Foods & Beverages .............. 46,263 0.2
Furniture ...................... 47,327 0.2
Hospital Management ............ 27,529 0.1
Household Furnishings &
Appliances .................... 318,912 1.6
Household Products ............. $ 298,702 1.5%
Insurance ...................... 476,135 2.4
International Trade ............ 95,326 0.5
Leisure ........................ 127,015 0.6
Machine Tools .................. 57,576 0.3
Machinery ...................... 288,581 1.5
Machinery-Diversified .......... 46,696 0.2
Manufacturing .................. 58,380 0.3
Medical Products & Supplies ... 117,938 0.6
Medical Services ............... 154,500 0.8
Metals & Mining ................ 55,022 0.3
Natural Gas .................... 91,829 0.5
Oil Integrated-International ... 467,679 2.4
Paper & Forest Products ........ 68,048 0.3
Paper Products ................. 133,541 0.7
Pharmaceuticals ................ 1,072,783 5.4
Property-Casualty Insurance .... 980 0.0
Publishing ..................... 126,974 0.6
Real Estate .................... 423,434 2.1
Restaurants .................... 61,583 0.3
Retail ......................... 650,531 3.3
Retail-Department Stores ...... 203,632 1.0
Retail-Specialty ............... 121,110 0.6
Retail-Specialty Apparel ...... 119,093 0.6
Semiconductor Equipment ........ 146,795 0.7
Shoes .......................... 89,730 0.5
Steel .......................... 66,668 0.3
Steel & Iron ................... 221,810 1.1
Telecommunications ............. 1,099,479 5.6
Textiles ....................... 64,535 0.3
Transportation ................. 492,015 2.5
U.S. Government Agencies ...... 1,399,546 7.1
Utilities ...................... 121,823 0.6
Utilities-Electric ............. 519,748 2.6
Utilities-Telecommunications ... 70,167 0.4
Wholesale Distributor .......... 51,881 0.3
------------- ------------
$19,971,828 100.9%
============= ============
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ---------------------------------------------------
<S> <C> <C>
Common Stocks .......... $18,572,282 93.8%
Short-Term Investments 1,399,546 7.1
----------- -----
$19,971,828 100.9%
=========== =====
</TABLE>
82
<PAGE>
DEAN WITTER RETIREMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS (58.4%)
Aerospace & Defense (1.1%)
3,905 Honeywell, Inc. ................................................ $ 291,655
-------------
Aluminum (0.5%)
1,600 Aluminum Co. of America ......................................... 141,600
-------------
Automotive (1.7%)
8,000 Chrysler Corp. .................................................. 297,000
3,500 Ford Motor Co. ................................................. 143,062
-------------
440,062
-------------
Banks - Money Center (2.3%)
4,500 Citicorp ........................................................ 610,875
-------------
Banks - Regional (2.0%)
1,940 Wells Fargo & Co. ............................................... 533,379
-------------
Beverages - Soft Drinks (0.5%)
3,400 PepsiCo Inc. ................................................... 130,262
-------------
Cable/Cellular (0.8%)
9,400 U.S. West Media Group* .......................................... 207,387
-------------
Chemicals (2.6%)
1,250 Dow Chemical Co. ................................................ 118,750
11,450 Monsanto Co. ................................................... 570,353
-------------
689,103
-------------
Communications - Equipment & Software (0.6%)
1,840 Cisco Systems, Inc.* ........................................... 146,165
-------------
Computer Software (1.6%)
1,800 Microsoft Corp.* ................................................ 254,362
3,150 Oracle Corp.* ................................................... 171,084
-------------
425,446
-------------
Computers (4.5%)
10,400 Dell Computer Corp.* ........................................... 889,200
7,800 Gateway 2000, Inc.* ............................................ 297,862
-------------
1,187,062
-------------
Computers - Peripheral Equipment (1.8%)
11,250 Seagate Technology, Inc.* ....................................... 461,953
-------------
Computers - Systems (3.7%)
3,450 Diebold, Inc. .................................................. 173,362
9,500 Hewlett-Packard Co. ............................................ 665,594
3,300 Sun Microsystems, Inc.* ......................................... 150,769
-------------
989,725
-------------
Consumer Products (1.8%)
14,000 Tupperware Corp. ............................................... 486,500
-------------
Electrical Equipment (2.4%)
4,820 Emerson Electric Co. ............................................ $ 284,380
5,160 General Electric Co. ........................................... 362,167
-------------
646,547
-------------
Electronics -
Semiconductors/Components (2.1%)
6,000 Intel Corp. ..................................................... 550,500
-------------
Entertainment/Gaming (0.7%)
7,000 Circus Circus Enterprises, Inc.* ................................ 175,437
-------------
Financial Services (2.0%)
5,000 American Express Co. ............................................ 418,750
2,600 Fannie Mae ...................................................... 123,013
-------------
541,763
-------------
Foods (2.6%)
2,860 Campbell Soup Co. .............................................. 148,363
7,900 General Mills, Inc. ............................................ 546,088
-------------
694,451
-------------
Forest Products (2.4%)
10,100 Champion International Corp. .................................... 626,200
-------------
Healthcare - HMOs (1.0%)
11,200 Humana, Inc.* .................................................. 273,000
-------------
Household Appliances (1.2%)
11,000 Maytag Corp. ................................................... 321,063
-------------
Insurance (0.1%)
Aetna Inc. (Class C)
172 (Conv. Pref.) $4.75 ............................................ 17,329
-------------
Oil - International Integrated (5.8%)
6,400 Atlantic Richfield Co. ......................................... 478,800
2,070 Chevron Corp. .................................................. 163,789
2,800 Exxon Corp. .................................................... 179,900
7,200 Mobil Corp. ..................................................... 550,800
1,500 Texaco, Inc. .................................................... 174,094
-------------
1,547,383
-------------
Pharmaceuticals (4.5%)
1,800 Abbott Laboratories ............................................. 117,788
6,700 American Home Products Corp. .................................... 552,331
8,450 Johnson & Johnson ............................................... 526,541
-------------
1,196,660
-------------
Retail -Specialty (3.2%)
10,000 Bed Bath & Beyond, Inc.* ....................................... 330,000
2,400 Costco Companies Inc.* .......................................... 90,900
SEE NOTES TO FINANCIAL STATEMENTS
83
<PAGE>
DEAN WITTER RETIREMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
3,450 Home Depot, Inc. ............................................... $ 172,069
14,250 Pier 1 Imports, Inc. ............................................ 251,156
-------------
844,125
-------------
Retail - Specialty Apparel (2.5%)
14,600 Gap, Inc. ....................................................... 648,788
-------------
Savings & Loans (0.5%)
1,500 Golden West Financial Corp. ..................................... 126,187
-------------
Shoes (0.7%)
3,000 Nike, Inc. (Class B) ............................................ 186,938
-------------
Steel (1.2%)
4,300 Inland Steel Industries, Inc. .................................. 98,631
3,450 Nucor Corp. ..................................................... 214,116
-------------
312,747
-------------
TOTAL COMMON AND
PREFERRED STOCKS
(Identified Cost $10,314,161) .................................. 15,450,292
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
CORPORATE BONDS (3.7%)
Automotive - Finance (0.1%)
$ 15 Ford Capital BV (Netherlands)
9.375% due 05/15/01 ........................................... 16,545
------------
Banks (0.9%)
100 Bank One Corp
9.875% due 03/01/09 ........................................... 124,417
100 Central Fidelity Capital I Series -144A**
6.75% due 04/15/27 ............................................ 102,601
------------
227,018
------------
Financial (0.4%)
100 Money Store Inc. (The)
8.375% due 04/15/04 ........................................... 105,497
------------
Financial Services (0.4%)
100 Centura Capital Trust I Series 144A**
8.845% due 06/01/27 ........................................... 108,125
------------
Insurance (0.4%)
100 Vesta Capital Trust I -144A**
8.525% due 01/15/27 ........................................... 108,250
------------
Metals & Mining (0.4%)
100 Placer Dome, Inc. (Canada)
8.50% due 12/31/45 ............................................ 102,750
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Oil & Gas Products (0.4%)
$ 100 Mitchell Energy & Development Corp.
6.75% due 02/15/04 ............................................ $ 99,420
-------------
Oil - Domestic (0.2%)
50 Occidental Petroleum Corp.
11.125% due 08/01/10 .......................................... 67,914
-------------
Steel (0.0%)
10 Pohang Iron & Steel Co., Ltd. (South Korea)
7.50% due 08/01/02 ............................................ 10,336
-------------
Telecommunications (0.4%)
100 Total Access Communication -144A** (Thailand)
8.375% due 11/04/06 ........................................... 99,250
-------------
Utilities - Electric (0.1%)
20 Long Island Lighting Co.
6.25% due 07/15/01 ............................................ 19,789
-------------
TOTAL CORPORATE BONDS
(Identified Cost $919,525) ..................................... 964,894
-------------
U.S. GOVERNMENT OBLIGATIONS (16.0%)
400 U.S. Treasury Bond
6.50% due 11/15/26 ............................................ 408,984
315 U.S. Treasury Bond
6.875% due 08/15/25 ........................................... 336,414
150 U.S. Treasury Bond
7.625% due 02/15/25 ........................................... 174,529
550 U.S. Treasury Note
5.125% due 11/30/98 ........................................... 546,364
950 U.S. Treasury Note
5.25% due 12/31/97 ............................................ 949,269
350 U.S. Treasury Note
5.625% due 11/30/00 ........................................... 348,071
450 U.S. Treasury Note
5.75% due 08/15/03 ............................................ 445,927
100 U.S. Treasury Note
5.875% due 11/30/01 ........................................... 99,956
50 U.S. Treasury Note
6.375% due 01/15/99 ........................................... 50,506
350 U.S. Treasury Note
6.50% due 05/15/05 ............................................ 360,315
360 U.S. Treasury Note
6.875% due 08/31/99 ............................................ 367,978
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
84
<PAGE>
DEAN WITTER RETIREMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 140 U.S. Treasury Note
7.25% due 05/15/04 ........................................................ $ 149,911
-------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $4,145,542) ............................................... 4,238,224
-------------
SHORT-TERM INVESTMENTS (22.0%)
U.S. GOVERNMENT AGENCIES (a)(21.2%)
5,000 Federal Farm Credit Bank
5.42% due 08/05/97 ........................................................ 4,996,989
600 Federal Home Loan Mortgage Corp.
5.75% due 08/01/97 ........................................................ 600,000
-------------
TOTAL U.S. GOVERNMENT AGENCIES
(Amortized Cost $5,596,989) ................................................ 5,596,989
-------------
REPURCHASE AGREEMENT (0.8%)
223 The Bank of New York 5.75% due 08/01/97 (dated 07/31/97; proceeds
$222,587)(b) (Identified Cost $222,551) ................................... 222,551
-------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $5,819,540) ................................................ 5,819,540
-------------
TOTAL INVESTMENTS
(Identified Cost $21,198,768)(c) .......................................... 100.1% 26,472,950
LIABILITIES IN EXCESS OF
OTHER ASSETS ............................................................... (0.1) (13,530)
-------- -------------
NET ASSETS ................................................................. 100.0% $26,459,420
======== =============
</TABLE>
- ------------
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Securities were purchased on a discount basis. The interest rates
shown have been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $120,000 U.S. Treasury Note 7.875% due 04/15/98
valued at $124,656, $93,651 U.S. Treasury Note 7.00% due 04/15/99
valued at $97,514 and $4,723 U.S. Treasury Note 5.625% due 08/31/97
valued at $4,832.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$5,356,659 and the aggregate gross unrealized depreciation is
$82,477, resulting in net unrealized appreciation of $5,274,182.
SEE NOTES TO FINANCIAL STATEMENTS
85
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
July 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. GOVERNMENT U.S. GOVERNMENT INCOME
LIQUID ASSET MONEY MARKET SECURITIES SECURITIES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value*............... $20,113,397 $4,036,736 $10,350,075 $2,347,060
Cash .............................................. 8,427 2,213 78,974 86,163
Receivable for:
Investments sold.................................. -- -- -- --
Shares of beneficial interest sold................ 1,135,082 10,301 22,677 3,462
Dividends......................................... -- -- -- --
Interest.......................................... -- -- 76,764 33,314
Foreign withholding taxes reclaimed............... -- -- -- --
Prepaid expenses and other assets.................. 26,147 5,790 6,691 12,589
Deferred organizational expenses................... 1,127 1,284 1,191 1,189
Receivable from affiliate.......................... -- 8,537 -- 6,791
----------- ---------- ----------- ----------
TOTAL ASSETS...................................... 21,284,180 4,064,861 10,536,372 2,490,568
----------- ---------- ----------- ----------
LIABILITIES:
Payable for:
Investments purchased............................. -- -- -- --
Shares of beneficial interest repurchased ........ 38,541 -- 11,416 8,580
Dividends to shareholders......................... -- -- 4,011 746
Investment management fee......................... 4,022 -- 110 --
Accrued expenses and other payables................ 23,148 17,969 19,019 19,964
Organizational expenses payable.................... 5,441 5,596 5,509 5,506
----------- ---------- ----------- ----------
TOTAL LIABILITIES................................. 71,152 23,565 40,065 34,796
----------- ---------- ----------- ----------
NET ASSETS:
Paid-in-capital.................................... 21,213,018 4,041,296 10,359,177 2,514,907
Accumulated undistributed net investment income .. 10 -- -- 46
Accumulated undistributed net realized gain
(loss)............................................ -- -- (491) (91,207)
Net unrealized appreciation........................ -- -- 137,621 32,026
----------- ---------- ----------- ----------
NET ASSETS ...................................... $21,213,028 $4,041,296 $10,496,307 $2,455,772
=========== ========== =========== ==========
*IDENTIFIED COST.................................. $20,113,397 $4,036,736 $10,212,454 $2,315,034
=========== ========== =========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING ...... 21,213,018 4,042,542 1,059,510 253,850
=========== ========== =========== ==========
NET ASSET VALUE PER SHARE
(unlimited authorized shares of $.01 par value) .. $1.00 $1.00 $9.91 $9.67
=========== ========== =========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
86
<PAGE>
<TABLE>
<CAPTION>
AMERICAN CAPITAL DIVIDEND VALUE-ADDED GLOBAL
VALUE GROWTH GROWTH UTILITIES MARKET EQUITY STRATEGIST
- ------------- ------------ -------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$53,898,134 $3,595,614 $116,084,027 $5,671,872 $23,856,111 $19,971,828 $26,472,950
50,162 17,654 -- -- 71,591 97,563 --
1,160,411 114,777 338,972 59,863 724,700 274,717 --
117,578 17,493 153,745 13,810 32,661 36,421 50,264
27,266 905 165,765 20,937 22,727 10,450 18,010
-- -- 121 21 -- -- 81,793
101 -- -- 1,065 -- 8,996 144
13,270 4,338 11,076 5,646 8,501 9,554 7,169
1,376 1,379 1,186 1,191 1,379 1,191 1,189
-- 5,185 -- 2,057 -- 25,572 --
- ------------- ------------ -------------- ------------ ------------- ------------- -------------
55,268,298 3,757,345 116,754,892 5,776,462 24,717,670 20,436,292 26,631,519
- ------------- ------------ -------------- ------------ ------------- ------------- -------------
918,594 58,353 1,221,168 316,275 861,090 574,355 --
77,147 3,874 108,736 43,837 45,267 28,565 125,989
-- -- -- -- -- -- --
20,595 -- 71,294 -- 5,006 -- 16,034
31,781 19,786 36,684 19,613 20,886 30,667 24,575
5,687 5,686 5,501 5,509 5,686 5,509 5,501
- ------------- ------------ -------------- ------------ ------------- ------------- -------------
1,053,804 87,699 1,443,383 385,234 937,935 639,096 172,099
- ------------- ------------ -------------- ------------ ------------- ------------- -------------
37,394,619 2,542,364 78,149,265 3,829,119 14,983,162 15,411,210 20,620,027
46,600 -- 365,924 54,200 100,361 131,548 381,735
6,688,579 257,050 8,002,032 476,783 345,423 784,106 183,476
10,084,696 870,232 28,794,288 1,031,126 8,350,789 3,470,332 5,274,182
- ------------- ------------ -------------- ------------ ------------- ------------- -------------
$54,214,494 $3,669,646 $115,311,509 $5,391,228 $23,779,735 $19,797,196 $26,459,420
============= ============ ============== ============ ============= ============= =============
$43,813,438 $2,725,382 $ 87,289,739 $4,640,746 $15,505,322 $16,500,496 $21,198,768
============= ============ ============== ============ ============= ============= =============
3,197,235 207,826 5,855,243 391,125 1,262,502 1,367,161 1,744,091
============= ============ ============== ============ ============= ============= =============
$16.96 $17.66 $19.69 $13.78 $18.84 $14.48 $15.17
============= ============ ============== ============ ============= ============= =============
</TABLE>
87
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS, continued
STATEMENTS OF OPERATIONS
For the year ended July 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. GOVERNMENT U.S. GOVERNMENT INCOME
LIQUID ASSET MONEY MARKET SECURITIES SECURITIES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INCOME
Interest........................................... $1,450,222 $393,765 $706,725 $245,036
Dividends.......................................... -- -- -- --
-------------- --------------- --------------- --------------
TOTAL INCOME..................................... 1,450,222 393,765 706,725 245,036
-------------- --------------- --------------- --------------
EXPENSES
Investment management fees......................... 132,515 36,695 67,676 24,502
Transfer agent fees and expenses................... 52,551 6,122 42,577 7,692
Shareholder reports and notices.................... 29,598 4,314 4,749 2,416
Professional fees.................................. 15,232 15,334 14,872 16,995
Registration fees.................................. 25,200 14,233 22,217 13,083
Custodian fees..................................... 10,663 6,196 3,435 4,847
Trustees' fees and expenses........................ 3,655 321 753 250
Organizational expenses............................ 2,722 2,721 2,727 2,727
Other.............................................. 3,904 1,879 1,870 3,021
-------------- --------------- --------------- --------------
TOTAL EXPENSES................................... 276,040 87,815 160,876 75,533
Less: amounts waived/reimbursed ................... (11,009) (14,427) (56,757) (37,837)
-------------- --------------- --------------- --------------
NET EXPENSES..................................... 265,031 73,388 104,119 37,696
-------------- --------------- --------------- --------------
NET INVESTMENT INCOME (LOSS)..................... 1,185,191 320,377 602,606 207,340
-------------- --------------- --------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss)........................... -- -- 5,297 (62,395)
Net change in unrealized
appreciation/depreciation......................... -- -- 365,249 151,066
-------------- --------------- --------------- --------------
NET GAIN......................................... -- -- 370,546 88,671
-------------- --------------- --------------- --------------
NET INCREASE....................................... $1,185,191 $320,377 $973,152 $296,011
============== =============== =============== ==============
</TABLE>
- --------------
* Net of $1,132, $10, $7,380, $972, $1,050, $18,695 and $63 foreign
withholding tax, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
88
<PAGE>
<TABLE>
<CAPTION>
AMERICAN CAPITAL DIVIDEND VALUE-ADDED GLOBAL
VALUE GROWTH GROWTH UTILITIES MARKET EQUITY STRATEGIST
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 147,964 $ 8,415 $ 69,357 $ 41,817 $ 34,670 $ 67,144 $ 673,048
357,714* 12,328* 2,522,140* 208,343* 368,546* 214,870* 153,990*
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
505,678 20,743 2,591,497 250,160 403,216 282,014 827,038
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
390,217 22,697 672,098 51,738 97,479 153,656 180,204
77,489 3,914 86,989 18,120 18,607 37,093 51,763
20,768 1,692 38,212 3,853 8,952 5,415 10,295
12,798 11,302 13,936 15,840 15,314 15,207 10,489
18,634 28,006 32,684 19,450 20,656 27,047 20,879
28,005 12,249 12,104 7,964 24,785 28,694 13,942
3,312 47 6,141 285 1,131 819 1,050
2,720 2,717 2,724 2,727 2,717 2,727 2,721
3,530 1,744 3,851 2,533 10,004 13,075 5,095
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
557,473 84,368 868,739 122,510 199,645 283,733 296,438
(98,395) (57,660) -- (53,527) (4,686) (130,077) (84,434)
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
459,078 26,708 868,739 68,983 194,959 153,656 212,004
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
46,600 (5,965) 1,722,758 181,177 208,257 128,358 615,034
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
7,151,437 294,325 8,642,932 608,162 896,043 811,865 247,627
9,007,653 762,068 21,493,364 426,820 6,185,067 2,898,751 4,379,845
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
16,159,090 1,056,393 30,136,296 1,034,982 7,081,110 3,710,616 4,627,472
- ------------- ------------ ------------- ------------ ------------- ------------ ------------
$16,205,690 $1,050,428 $31,859,054 $1,216,159 $7,289,367 $3,838,974 $5,242,506
============= ============ ============= ============ ============= ============ ============
</TABLE>
89
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS, continued
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended July 31,
<TABLE>
<CAPTION>
U.S. GOVERNMENT
LIQUID ASSET MONEY MARKET
------------------------------- --------------------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss).......................... $ 1,185,191 $ 3,416,056 $ 320,377 $ 727,122
Net realized gain (loss).............................. -- -- -- --
Net change in unrealized appreciation/depreciation ... -- -- -- --
------------ ------------- ------------ ------------
NET INCREASE ....................................... 1,185,191 3,416,056 320,377 727,122
------------ ------------- ------------ ------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income................................. (1,185,223) (3,416,043) (321,625) (727,125)
Net realized gain..................................... -- -- -- --
------------ ------------- ------------ ------------
TOTAL............................................... (1,185,223) (3,416,043) (321,625) (727,125)
------------ ------------- ------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Net proceeds from sales............................... 29,266,419 177,956,895 8,809,340 27,880,399
Reinvestment of dividends and distributions .......... 1,185,223 3,416,043 321,624 727,125
Cost of shares repurchased............................ (51,991,220) (174,251,486) (11,716,197) (32,674,558)
------------ ------------- ------------ ------------
NET INCREASE (DECREASE)............................. (21,539,578) 7,121,452 (2,585,233) (4,067,034)
------------ ------------- ------------ ------------
TOTAL INCREASE (DECREASE)........................... (21,539,610) 7,121,465 (2,586,481) (4,067,037)
NET ASSETS:
Beginning of period................................... 42,752,638 35,631,173 6,627,777 10,694,814
------------ ------------- ------------ ------------
END OF PERIOD....................................... $ 21,213,028 $ 42,752,638 $ 4,041,296 $ 6,627,777
============ ============= ============ ============
UNDISTRIBUTED NET INVESTMENT INCOME................... $ 10 $ 42 -- $ 2
============ ============= ============ ============
SHARES ISSUED AND REPURCHASED:
Sold.................................................. 29,266,419 177,956,895 8,809,340 27,880,399
Issued in reinvestment of dividends and
distributions........................................ 1,185,223 3,416,043 321,624 727,125
Repurchased........................................... (51,991,220) (174,251,486) (11,716,197) (32,674,558)
------------ ------------- ------------ ------------
NET INCREASE (DECREASE)............................... (21,539,578) 7,121,452 (2,585,233) (4,067,034)
============ ============= ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
90
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT INTERMEDIATE
SECURITIES INCOME SECURITIES AMERICAN VALUE CAPITAL GROWTH
- ---------------------------- ---------------------------- ----------------------------- -------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 602,606 $ 434,937 $ 207,340 $ 218,492 $ 46,600 $ 244,604 $ (5,965) $ 6,999
5,297 18,226 (62,395) (27,045) 7,151,437 4,355,860 294,325 31,476
365,249 (149,772) 151,066 (116,038) 9,007,653 (2,487,467) 762,068 45,817
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
973,152 303,391 296,011 75,409 16,205,690 2,112,997 1,050,428 84,292
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
(602,630) (434,913) (207,294) (218,918) (93,984) (299,827) (2,106) (8,566)
(22,190) -- -- (4,854) (3,137,376) (2,309,181) (56,080) (4,860)
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
(624,820) (434,913) (207,294) (223,772) (3,231,360) (2,609,008) (58,186) (13,426)
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
5,963,450 9,509,649 3,241,075 4,840,703 20,568,978 21,806,112 1,297,311 1,518,128
567,526 433,619 165,904 217,069 3,227,638 2,602,757 58,150 13,426
(5,033,814) (5,369,758) (5,211,640) (1,731,472) (22,877,816) (6,172,981) (665,910) (292,073)
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
1,497,162 4,573,510 (1,804,661) 3,326,300 918,800 18,235,888 689,551 1,239,481
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
1,845,494 4,441,988 (1,715,944) 3,177,937 13,893,130 17,739,877 1,681,793 1,310,347
8,650,813 4,208,825 4,171,716 993,779 40,321,364 22,581,487 1,987,853 677,506
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
$10,496,307 $ 8,650,813 $ 2,455,772 $ 4,171,716 $ 54,214,494 $40,321,364 $3,669,646 $1,987,853
============= ============= ============= ============= ============== ============= ============ =======================
$ $ $
-- $ 24 $ 46 -- $ 46,600 $ 93,984 -- $ 2,106
============= ============= ============= ============= ============== ============= ============ =======================
616,600 971,490 340,574 499,259 1,422,680 1,603,955 91,240 119,028
58,481 44,420 17,479 22,618 237,676 203,340 4,317 1,087
(517,322) (547,637) (547,645) (181,670) (1,545,904) (447,666) (45,416) (23,095)
- ------------- ------------- ------------- ------------- -------------- ------------- ------------ -----------------------
157,759 468,273 (189,592) 340,207 114,452 1,359,629 50,141 97,020
============= ============= ============= ============= ============== ============= ============ =======================
</TABLE>
91
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL STATEMENTS, continued
STATEMENTS OF CHANGES IN NET ASSSETS, continued
For the year ended July 31,
<TABLE>
<CAPTION>
DIVIDEND GROWTH UTILITIES
----------------------------- -----------------------------
1997 1996 1997 1996
- ----------------------------------------------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................. $ 1,722,758 $ 1,244,989 $ 181,177 $ 205,110
Net realized gain (loss).............................. 8,642,932 2,317,010 608,162 (13,965)
Net change in unrealized appreciation/depreciation ... 21,493,364 2,701,826 426,820 257,350
------------ ----------- ----------- -----------
NET INCREASE ....................................... 31,859,054 6,263,825 1,216,159 448,495
------------ ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income................................. (1,707,024) (1,199,564) (160,780) (230,987)
Net realized gain..................................... (2,463,125) (590,466) -- --
------------ ----------- ----------- -----------
TOTAL............................................... (4,170,149) (1,790,030) (160,780) (230,987)
------------ ----------- ----------- -----------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Net proceeds from sales............................... 37,149,898 36,503,267 2,818,978 3,456,194
Reinvestment of dividends and distributions .......... 4,150,502 1,779,713 158,903 227,657
Cost of shares repurchased............................ (23,440,408) (8,398,184) (6,235,329) (1,687,882)
------------ ----------- ----------- -----------
NET INCREASE (DECREASE)............................. 17,859,992 29,884,796 (3,257,448) 1,995,969
------------ ----------- ----------- -----------
TOTAL INCREASE (DECREASE)........................... 45,548,897 34,358,591 (2,202,069) 2,213,477
NET ASSETS:
Beginning of period................................... 69,762,612 35,404,021 7,593,297 5,379,820
------------ ----------- ----------- -----------
END OF PERIOD....................................... $115,311,509 $69,762,612 $ 5,391,228 $ 7,593,297
============ =========== =========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME................... $ 365,924 $ 350,190 $ 54,200 $ 33,362
============ =========== =========== ===========
SHARES ISSUED AND REPURCHASED:
Sold.................................................. 2,205,684 2,524,798 222,951 288,411
Issued in reinvestment of dividends and
distributions........................................ 255,693 126,953 12,596 18,947
Repurchased........................................... (1,379,982) (583,926) (488,313) (141,590)
------------ ----------- ----------- -----------
NET INCREASE (DECREASE)............................... 1,081,395 2,067,825 (252,766) 165,768
============ =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
92
<PAGE>
<TABLE>
<CAPTION>
VALUE-ADDED MARKET GLOBAL EQUITY STRATEGIST
- ----------------------------- ---------------------------- ----------------------------------------
1997 1996 1997 1996 1997 1996
- -------------- ------------- ------------- ------------- ------------- -------------------------
<S> <C> <C> <C> <C> <C>
$ 208,257 $ 331,372 $ 128,358 $ 84,531 $ 615,034 $ 287,670
896,043 186,832 811,865 434,795 247,627 730,868
6,185,067 1,044,025 2,898,751 47,491 4,379,845 291,438
- -------------- ------------- ------------- ------------- ------------- -------------------------
7,289,367 1,562,229 3,838,974 566,817 5,242,506 1,309,976
- -------------- ------------- ------------- ------------- ------------- -------------------------
(279,999) (257,479) (70,000) (126,784) (408,002) (244,742)
(698,399) (78,439) (367,529) -- (699,994) (159,285)
- -------------- ------------- ------------- ------------- ------------- -------------------------
(978,398) (335,918) (437,529) (126,784) (1,107,996) (404,027)
- -------------- ------------- ------------- ------------- ------------- -------------------------
6,558,038 6,512,239 7,696,263 6,329,119 7,519,070 12,101,707
948,925 329,833 435,668 121,869 1,107,086 403,090
(10,417,432) (1,769,137) (3,421,423) (2,492,083) (3,796,952) (2,673,732)
- -------------- ------------- ------------- ------------- ------------- -------------------------
(2,910,469) 5,072,935 4,710,508 3,958,905 4,829,204 9,831,065
- -------------- ------------- ------------- ------------- ------------- -------------------------
3,400,500 6,299,246 8,111,953 4,398,938 8,963,714 10,737,014
20,379,235 14,079,989 11,685,243 7,286,305 17,495,706 6,758,692
- -------------- ------------- ------------- ------------- ------------- -------------------------
$ 23,779,735 $20,379,235 $19,797,196 $11,685,243 $26,459,420 $17,495,706
============== ============= ============= ============= ============= =========================
$ 100,361 $ 172,103 $ 131,548 $ 49,495 $ 381,735 $ 174,703
============== ============= ============= ============= ============= =========================
416,960 468,279 606,253 542,027 549,814 972,731
62,594 24,706 35,887 10,862 83,616 34,364
(680,374) (129,743) (265,700) (214,741) (277,595) (218,134)
- -------------- ------------- ------------- ------------- ------------- -------------------------
(200,820) 363,242 376,440 338,148 355,835 788,961
============== ============= ============= ============= ============= =========================
</TABLE>
93
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Retirement Series (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company, consisting of eleven separate Series ("Series"). All of the Series,
with the exception of Strategist, are diversified.
The Fund was organized on May 14, 1992 as a Massachusetts business trust and
each of the Series commenced operations as follows:
<TABLE>
<CAPTION>
COMMENCEMENT COMMENCEMENT
OF OPERATIONS OF OPERATIONS
------------- -------------
<S> <C> <C> <C>
Liquid Asset ....................... December 30, 1992 Dividend Growth ........ January 7, 1993
U.S. Government Money Market ...... January 20, 1993 Utilities .............. January 8, 1993
U.S. Government Securities ......... January 8, 1993 Value-Added Market .... February 1, 1993
Intermediate Income Securities .... January 12, 1993 Global Equity .......... January 8, 1993
American Value ..................... February 1, 1993 Strategist ............. January 7, 1993
Capital Growth ..................... February 2, 1993
</TABLE>
The investment objectives of each Series are as follows:
SERIES INVESTMENT OBJECTIVE
- -------------------------------------------------------------------------------
Liquid Asset Seeks high current income, preservation of capital and
liquidity by investing in short-term money market
instruments.
- -------------------------------------------------------------------------------
U.S. Government Seeks high current income, preservation of capital and
Money Market liquidity by investing primarily in money market
instruments which are issued and/or guaranteed by the
U.S. Government, its agencies or instrumentalities.
- -------------------------------------------------------------------------------
U.S. Government Seeks high current income consistent with safety of
Securities principal by investing in a diversified portfolio of
obligations issued and/or guaranteed by the U.S.
Government or its instrumentalities.
- -------------------------------------------------------------------------------
Intermediate Income Seeks high current income consistent with safety of
Securities principal by investing primarily in intermediate term,
investment grade fixed-income securities.
- -------------------------------------------------------------------------------
American Value Seeks long-term growth consistent with an effort to
reduce volatility by investing principally in common
stock of companies in industries which, at the time of
investment, are believed to be undervalued in the
marketplace.
- -------------------------------------------------------------------------------
Capital Growth Seeks long-term capital growth by investing primarily
in common stocks.
- -------------------------------------------------------------------------------
Dividend Growth Seeks to provide reasonable current income and
long-term growth of income and capital by investing
primarily in common stock of companies with a record of
paying dividends and the potential for increasing
dividends.
- -------------------------------------------------------------------------------
94
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
SERIES INVESTMENT OBJECTIVE
- -------------------------------------------------------------------------------
Utilities Seeks to provide current income and long-term growth of
income and capital by investing in equity and
fixed-income securities of companies in the public
utilities industry.
- -------------------------------------------------------------------------------
Value-Added Seeks to achieve a high level of total return on its
Market assets through a combination of capital appreciation
and current income. It seeks to achieve this objective
by investing, on an equally weighted basis, in a
diversified portfolio of common stocks of the companies
which are represented in the Standard & Poor's 500
Composite Stock Price Index.
- -------------------------------------------------------------------------------
Global Equity Seeks to provide a high level of total return on its
assets, primarily through long-term capital growth and,
to a lesser extent, from income. It seeks to achieve
this objective through investments in all types of
common stocks and equivalents, preferred stocks and
bonds and other debt obligations of domestic and
foreign companies, governments and international
organizations.
- -------------------------------------------------------------------------------
Strategist Seeks a high total investment return through a fully
managed investment policy utilizing equity, investment
grade fixed income and money market securities.
- -------------------------------------------------------------------------------
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Liquid Asset and U.S. Government Money Market:
Securities are valued at amortized cost which approximates market value. All
remaining Series: (1) an equity security listed or traded on the New York,
American or other domestic or foreign stock exchange is valued at its latest
sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price
(in cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated as the primary market
pursuant to procedures adopted by the Trustees); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, including circumstances
under which it is determined by Dean Witter InterCapital Inc. (the
"Investment Manager") that sale 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
95
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
established by and under the general supervision of the Trustees (valuation
of securities for which market quotations are not readily available may also
be based upon current market prices of securities which are comparable in
coupon, rating and maturity, or an appropriate matrix utilizing similar
factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the securities valued
by such pricing service; and (5) short-term debt securities having a maturity
date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and distributions are recorded on the ex-dividend
date except for certain dividends on foreign securities which are recorded as
soon as the Fund is informed after the ex-dividend date. Interest income is
accrued daily. Liquid Asset and U.S. Government Money Market amortize
premiums and accrete discounts on securities owned; gains and losses realized
upon the sale of such securities are based on their amortized cost. Discounts
for all other Series are accreted over the life of the respective securities.
C. FOREIGN CURRENCY TRANSLATION -- The books and records of each Series
investing in foreign currency denominated transactions are translated into
U.S. dollars as follows: (1) the foreign currency market value of investment
securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of
Operations as realized and unrealized gain/loss on foreign exchange
transactions. Pursuant to U.S. Federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss
are included in or are a reduction of ordinary income for federal income tax
purposes. The Series do not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes
in the market prices of the securities.
D. FORWARD FOREIGN CURRENCY CONTRACTS -- Some of the Series may enter into
forward foreign currency contracts which are valued daily at the appropriate
exchange rates. The resultant unrealized exchange
96
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
gains and losses are included in the Statement of Operations as unrealized
foreign currency gain or loss. The Series record realized gains or losses on
delivery of the currency or at the time the forward contract is extinguished
(compensated) by entering into a closing transaction prior to delivery.
E. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply
individually for each Series 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.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
G. EXPENSES -- Direct expenses are charged to the respective Series and
general Fund expenses are allocated on the basis of relative net assets or
equally among the Series.
H. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of $150,000 ($13,636 allocated to each of
the Series) and will be reimbursed, exclusive of amounts waived. Such
expenses have been deferred and are being amortized by the Fund on the
straight line method over a period not to exceed five years from the
commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement (the "Agreement"), the Fund
pays the Investment Manager a management fee, accrued daily and payable
monthly, by applying the following annual rates to each Series' net assets
determined at the close of each business day: Liquid Asset, U.S. Government
Money Market and Value-Added Market -0.50%; U.S. Government Securities and
Intermediate Income Securities -0.65%; Dividend Growth and Utilities -0.75%;
American Value, Capital Growth and Strategist -0.85%; and Global Equity -1.0%.
97
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
For the period January 1, 1996 through December 31, 1997, the Investment
Manager is waiving the management fee and reimbursing expenses to the extent
they exceed 1.00% of daily net assets of each Series. At July 31, 1997,
included in the Statement of Assets and Liabilities are receivables from an
affiliate which represent expense reimbursements due to the Fund.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/maturities/prepayments of portfolio securities, excluding
short-term investments (except for Liquid Asset and U.S. Government Money
Market), for the year ended July 31, 1997 were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER
------------------------------ ------------------------------
SALES/
MATURITIES/ SALES/
PURCHASES PREPAYMENTS PURCHASES MATURITIES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Liquid Asset ................... $395,220,670 $391,812,764 $353,719,078 $382,160,567
U.S. Government Money Market .. 661,528,098 664,513,285 -- --
U.S. Government Securities .... 11,000,110 9,181,622 -- --
Intermediate Income Securities 2,742,469 4,820,820 2,019,750 1,836,116
American Value ................. 1,055,258 1,298,196 114,604,516 110,531,028
Capital Growth ................. 15,742 77,006 4,322,821 3,559,093
Dividend Growth ................ -- -- 44,208,359 27,461,961
Utilities ...................... -- -- 5,530,405 7,587,775
Value-Added Market ............. -- 25,784 4,396,277 8,131,744
Global Equity .................. -- 46,580 15,006,072 11,195,792
Strategist ..................... 3,410,867 5,765,994 12,067,832 9,926,607
</TABLE>
Included in the aforementioned purchases and sales/maturities of portfolio
securities of Value-Added Market are common stock purchases and sales of
Morgan Stanley, Dean Witter, Discover & Co., an affiliate of the Investment
Manager, of $12,464 and $75,839, respectively, including realized gains of
$28,629.
98
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
Included at July 31, 1997 in the payable for investments purchased and
receivable for investments sold were unsettled trades with Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Investment Manager, as follows:
<TABLE>
<CAPTION>
CAPITAL DIVIDEND GLOBAL
GROWTH GROWTH UTILITIES EQUITY
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Payable for investments purchased $ 4,319 $887,346 $200,025 $ --
========= ========== =========== =========
Receivable for investments sold .. $38,982 $149,533 $ 42,821 $91,462
========= ========== =========== =========
</TABLE>
For the year ended July 31, 1997, the following Series incurred brokerage
commissions with DWR, for portfolio transactions executed on behalf of such
Series, as follows:
<TABLE>
<CAPTION>
AMERICAN CAPITAL DIVIDEND GLOBAL
VALUE GROWTH GROWTH UTILITIES EQUITY STRATEGIST
- ---------- --------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
$25,735 $1,487 $43,558 $13,830 $9,201 $6,861
========== ========= ========== =========== ======== ============
</TABLE>
For the period May 31, 1997 through July 31, 1997, Capital Growth, Global
Equity and American Value incurred brokerage commissions of $270, $168 and
$1,365, respectively, with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager since May 31, 1997, for portfolio transactions executed on
behalf of the Series.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Fund's transfer agent. At July 31, 1997 the following Series had approximate
transfer agent fees and expenses payable as follows:
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. GOVERNMENT U.S. GOVERNMENT INCOME AMERICAN CAPITAL
LIQUID ASSET MONEY MARKET SECURITIES SECURITIES VALUE GROWTH
- -------------- --------------- --------------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$120 $100 $1,250 $150 $800 $90
============== =============== =============== ============== ============ =========
DIVIDEND VALUE-ADDED GLOBAL
GROWTH UTILITIES MARKET EQUITY STRATEGIST
- -------------- --------------- --------------- -------------- ------------
$280 $80 $140 $210 $500
============== =============== =============== ============== ============
</TABLE>
99
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
4. FEDERAL INCOME TAX STATUS
At July 31, 1997, Intermediate Income Securities had a net capital loss
carryover of approximately $30,200 of which $5,700 will be available through
July 31, 2004 and $24,500 will be available through July 31, 2005 to offset
future capital gains to the extent provided by regulations. During the year
ended July 31, 1997, Utilities utilized its net capital loss carryover of
approximately $102,000.
Net capital and net currency losses incurred after October 31 ("post-October
losses") within the taxable year are deemed to arise on the first business
day of the Series' next taxable year. The following Series incurred and will
elect to defer post-October losses during fiscal 1997:
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. GOVERNMENT INCOME GLOBAL
SECURITIES SECURITIES EQUITY
- --------------- -------------- --------
<S> <C> <C>
$500 $57,800 $900
=============== ============== ========
</TABLE>
At July 31, 1997, the primary reason(s) for temporary book/tax differences
were as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCES
-------------------------------
POST- CAPITAL LOSS
OCTOBER DEFERRALS FROM
LOSSES WASH SALES
----------- ------------------
<S> <C> <C>
U.S. Government Securities ......... o
Intermediate Income Securities .... o o
American Value ..................... o
Capital Growth ..................... o
Dividend Growth .................... o
Utilities ..........................
Value-Added Market.................. o
Global Equity....................... o o
Strategist ......................... o
</TABLE>
Additionally, Global Equity had temporary differences attributable to income
from the mark-to-market of passive foreign investment companies ("PFICs") and
permanent differences attributable to tax adjustments on PFICs sold by the
Series and Capital Growth had permanent differences attributable to a net
operating loss.
100
<PAGE>
DEAN WITTER RETIREMENT SERIES
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
To reflect reclassifications arising from permanent book/tax differences for
the year ended July 31, 1997, the following accounts were (charged) credited:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET INVESTMENT NET REALIZED
INCOME GAIN (LOSS)
-------------- ---------------
<S> <C> <C>
Capital Growth $ 5,965 $ (5,965)
Global Equity . $23,695 $(23,695)
</TABLE>
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
Some of the Portfolios may enter into forward foreign currency contracts
("forward contracts") to facilitate settlement of foreign currency
denominated portfolio transactions or to manage foreign currency exposure
associated with foreign currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Portfolios bear the
risk of an unfavorable change in foreign exchange rates underlying the
forward contracts. Risks may also arise upon entering into these contracts
from the potential inability of the counterparties to meet the terms of their
contracts.
At July 31, 1997, Global Equity had outstanding forward contracts to
facilitate settlement of foreign currency denominated portfolio transactions.
101
<PAGE>
DEAN WITTER RETIREMENT SERIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET TOTAL
YEAR VALUE NET REALIZED TOTAL FROM DIVIDENDS DISTRIBUTIONS DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO TO AND
JULY 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ---------- ----------- ------------ -------------- ------------ -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIQUID ASSET
1993 (1) $ 1.00 $0.02 -- $ 0.02 $(0.02) -- $(0.02)
1994 1.00 0.03 -- 0.03 (0.03) -- (0.03)
1995 1.00 0.06 -- 0.06 (0.06) -- (0.06)
1996 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1997 1.00 0.05 -- 0.05 (0.05) -- (0.05)
U.S. GOVERNMENT MONEY MARKET
1993 (2) 1.00 --++ -- -- -- -- --
1994 1.00 0.03 -- 0.03 (0.03) -- (0.03)
1995 1.00 0.06 -- 0.06 (0.06) -- (0.06)
1996 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1997 1.00 0.04 -- 0.04 (0.04) -- (0.04)
U.S. GOVERNMENT SECURITIES
1993 (3) 10.00 0.19 $ 0.07 0.26 (0.20) -- (0.20)
1994 10.06 0.44 (0.50) (0.06) (0.44) -- (0.44)
1995 9.56 0.56 0.15 0.71 (0.56) -- (0.56)
1996 9.71 0.55 (0.12) 0.43 (0.55) -- (0.55)
1997 9.59 0.56 0.34 0.90 (0.56) $(0.02) (0.58)
INTERMEDIATE INCOME SECURITIES
1993 (4) 10.00 0.19 (0.02) 0.17 (0.19) -- (0.19)
1994 9.98 0.60 (0.57) 0.03 (0.60) -- (0.60)
1995 9.41 0.61 0.22 0.83 (0.61) -- (0.61)
1996 9.63 0.59 (0.21) 0.38 (0.59) (0.01) (0.60)
1997 9.41 0.53 0.26 0.79 (0.53) -- (0.53)
AMERICAN VALUE
1993 (5) 10.00 0.06 (0.01) 0.05 -- -- --
1994 10.05 0.03 (0.09) (0.06) (0.02) (0.04) (0.06)
1995 9.93 0.14 3.15 3.29 (0.12) -- (0.12)
1996 13.10 0.09 1.17 1.26 (0.15) (1.13) (1.28)
1997 13.08 0.02 5.12 5.14 (0.04) (1.22) (1.26)
</TABLE>
- ------------
* After application of the Fund's expense limitation.
+ Calculated based on the net asset value as of the last business day
of the period.
++ Includes dividends from net investment income of $0.004 per share.
(a) Not annualized.
(b) Annualized.
Commencement of operations:
(1) December 30, 1992. (4) January 12, 1993.
(2) January 20, 1993. (5) February 1, 1993.
(3) January 8, 1993.
SEE NOTES TO FINANCIAL STATEMENTS
102
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS ASSETS
(BEFORE EXPENSES WERE (AFTER EXPENSES WERE
ASSUMED) ASSUMED)
-------------------------- --------------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO AVERAGE
END OF INVESTMENT PERIOD INVESTMENT INVESTMENT TURNOVER COMMISSION
PERIOD RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS) RATE RATE PAID
- ----------- ------------ ------------ ----------- ------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 1.77%(a) $ 1,081 1.30%(b) 0.53%(b) 0.14%(b) 3.02%(b) N/A N/A
1.00 3.48 1,524 2.50 * 0.99 -- 3.49 N/A N/A
1.00 5.90 35,631 1.16 4.96 -- 6.12 N/A N/A
1.00 5.44 42,753 0.65 5.05 0.33 5.37 N/A N/A
1.00 4.57 21,213 1.04 4.43 1.00 4.47 N/A N/A
1.00 0.42 (a) 125 2.50* (b) (0.95)(b) 2.13 (b) 0.83 (b) N/A N/A
1.00 3.52 555 2.50* 0.82 -- 3.32 N/A N/A
1.00 5.86 10,695 2.50* 3.62 -- 6.12 N/A N/A
1.00 5.23 6,628 0.82 4.75 0.37 5.21 N/A N/A
1.00 4.51 4,041 1.20 4.17 1.00 4.37 N/A N/A
10.06 2.60 (a) 1,756 1.81 (b) 0.33 (b) 0.18 (b) 3.66 (b) -- N/A
9.56 (0.69) 2,954 2.50* 1.96 -- 4.46 29% N/A
9.71 7.72 4,209 2.36 3.49 -- 5.85 14 N/A
9.59 4.49 8,651 1.48 4.70 0.63 5.55 47 N/A
9.91 9.70 10,496 1.55 5.24 1.00 5.79 89 N/A
9.98 1.67 (a) 182 2.50* (b) 1.00 (b) 1.62 (b) 3.50 (b) -- N/A
9.41 0.26 460 2.50* 3.64 -- 6.14 40 N/A
9.63 9.22 994 2.50* 4.08 -- 6.58 37 N/A
9.41 3.95 4,172 1.58 5.01 0.72 5.87 142 N/A
9.67 8.63 2,456 2.00 4.50 1.00 5.50 132 N/A
10.05 0.50 (a) 308 2.50*(b) (0.66)(b) 0.74 (b) 1.10 (b) 121 (a) --
9.93 (0.59) 6,841 2.50* (0.81) -- 1.69 136 --
13.10 33.48 22,581 1.42 0.39 -- 1.81 234 --
13.08 9.83 40,321 1.18 0.23 0.65 0.76 301 $0.0543
16.96 41.62 54,214 1.21 (0.11) 1.00 0.10 261 0.0552
</TABLE>
103
<PAGE>
DEAN WITTER RETIREMENT SERIES n
FINANCIAL HIGHLIGHTS, continued
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET TOTAL
YEAR VALUE NET REALIZED TOTAL FROM DISTRIBUTIONS DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
JULY 31 OF PERIOD INCOME (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ---------- ----------- ------------- -------------- ------------ -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
1993 (4) $10.00 $(0.02) $(1.10) $(1.12) -- -- --
1994 8.88 0.13 0.45 0.58 $(0.04) -- $(0.04)
1995 9.42 0.10 1.77 1.87 (0.12) -- (0.12)
1996 11.17 0.07 1.55 1.62 (0.11) $(0.07) (0.18)
1997 12.61 (0.03) 5.41 5.38 (0.01) (0.32) (0.33)
DIVIDEND GROWTH
1993 (1) 10.00 0.13 0.58 0.71 (0.10) -- (0.10)
1994 10.61 0.28 0.37 0.65 (0.23) (0.01) (0.24)
1995 11.02 0.34 2.13 2.47 (0.31) (0.10) (0.41)
1996 13.08 0.32 1.76 2.08 (0.36) (0.19) (0.55)
1997 14.61 0.33 5.60 5.93 (0.33) (0.52) (0.85)
UTILITIES
1993 (2) 10.00 0.19 1.30 1.49 (0.14) -- (0.14)
1994 11.35 0.37 (0.95) (0.58) (0.34) (0.01) (0.35)
1995 10.42 0.42 0.80 1.22 (0.37) (0.02) (0.39)
1996 11.25 0.38 0.61 0.99 (0.45) -- (0.45)
1997 11.79 0.41 1.90 2.31 (0.32) -- (0.32)
VALUE-ADDED MARKET
1993 (3) 10.00 0.05 0.02 0.07 (0.04) -- (0.04)
1994 10.03 0.24 0.65 0.89 (0.11) -- (0.11)
1995 10.81 0.21 2.16 2.37 (0.26) (0.12) (0.38)
1996 12.80 0.25 1.17 1.42 (0.22) (0.07) (0.29)
1997 13.93 0.21 5.58 5.79 (0.25) (0.63) (0.88)
GLOBAL EQUITY
1993 (2) 10.00 0.07 (0.03) 0.04 -- -- --
1994 10.04 0.08 0.58 0.66 (0.05) -- (0.05)
1995 10.65 0.14 0.49 0.63 (0.11) -- (0.11)
1996 11.17 0.09 0.71 0.80 (0.18) -- (0.18)
1997 11.79 0.09 2.98 3.07 (0.06) (0.32) (0.38)
STRATEGIST
1993 (1) 10.00 0.06 (0.23) (0.17) -- -- --
1994 9.83 0.23 (0.20) 0.03 (0.13) -- (0.13)
1995 9.73 0.24 1.49 1.73 (0.18) -- (0.18)
1996 11.28 0.25 1.63 1.88 (0.34) (0.22) (0.56)
1997 12.60 0.37 2.96 3.33 (0.28) (0.48) (0.76)
</TABLE>
- ------------
* After application of the Fund's expense limitation.
+ Calculated based on the net asset value as of the last business day
of the period.
(a) Not annualized.
(b) Annualized.
Commencement of operations:
(1) January 7, 1993.
(2) January 8, 1993.
(3) February 1, 1993.
(4) February 2, 1993.
SEE NOTES TO FINANCIAL STATEMENTS
104
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS ASSETS
(BEFORE EXPENSES WERE (AFTER EXPENSES WERE
ASSUMED) ASSUMED)
-------------------------- -------------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO AVERAGE
END OF INVESTMENT PERIOD INVESTMENT INVESTMENT TURNOVER COMMISSION
PERIOD RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS) RATE RATE PAID
- ----------- ------------- ------------ ----------- ------------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8.88 (11.20)%(a) $ 135 2.50%*(b) (1.01)%(b) 1.97%(b) (0.47)%(b) 2%(a) --
9.42 6.57 215 2.50* (0.98) -- 1.52 11 --
11.17 20.08 678 2.50 * (1.07) -- 1.43 20 --
12.61 14.58 1,988 2.50 * (1.24) 0.76 0.50 68 $0.0536
17.66 43.46 3,670 3.16 (2.38) 1.00 (0.22) 147 0.0575
10.61 7.11 (a) 2,417 2.50* (b) 0.61 (b) 0.16 (b) 2.89 (b) 7 (a) --
11.02 6.13 12,821 1.51 1.78 -- 3.29 13 --
13.08 23.07 35,404 1.14 2.34 -- 3.48 29 --
14.61 16.09 69,763 1.00 2.07 0.63 2.44 18 0.0526
19.69 41.92 115,312 0.97 1.92 0.97 1.92 31 0.0537
11.35 14.98 (a) 1,334 2.50* (b) 1.59 (b) 0.30 (b) 3.79 (b) 8 (a) --
10.42 (5.23) 3,860 2.50* 1.62 -- 4.14 5 --
11.25 12.16 5,380 1.91 2.41 -- 4.32 24 --
11.79 8.76 7,593 1.52 2.31 0.62 3.20 17 0.0508
13.78 19.87 5,391 1.78 1.85 1.00 2.63 89 0.0508
10.03 0.71 (a) 640 2.50* (b) (0.16) (b) 0.92 (b) 1.42 (b) 1 (a) --
10.81 8.89 5,133 1.82 0.70 -- 2.53 8 --
12.80 22.65 14,080 1.22 1.33 -- 2.55 7 --
13.93 11.19 20,379 0.78 1.58 0.47 1.89 8 0.0300
18.84 43.12 23,780 1.02 1.04 1.00 1.07 23 0.0300
10.04 0.40 (a) 322 2.50* (b) (0.90) (b) 1.00 (b) 1.77 (b) -- --
10.65 6.54 2,020 2.50* 0.09 -- 2.41 8 --
11.17 6.08 7,286 2.25 0.48 -- 2.73 55 --
11.79 7.26 11,685 1.73 (0.15) 0.66 0.92 95 0.0500
14.48 26.66 19,797 1.85 (0.01) 1.00 0.84 80 0.0348
9.83 (1.70) (a) 551 2.50* (b) (0.19) (b) 0.64 (b) 1.67 (b) 26 (a) --
9.73 0.12 1,276 2.50* 0.70 -- 3.20 57 --
11.28 18.21 6,759 2.14 1.97 -- 4.11 115 --
12.60 16.97 17,496 1.61 1.92 0.66 2.86 113 0.0525
15.17 27.35 26,459 1.40 2.50 1.00 2.90 90 0.0535
</TABLE>
105
<PAGE>
DEAN WITTER RETIREMENT SERIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER RETIREMENT SERIES
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios 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 the Liquid Asset
Series, the U.S. Government Money Market Series, the U.S. Government
Securities Series, the Intermediate Income Securities Series, the American
Value Series, the Capital Growth Series, the Dividend Growth Series, the
Utilities Series, the Value-Added Market Series, the Global Equity Series,
and the Strategist Series (constituting Dean Witter Retirement Series,
hereafter referred to as the "Fund") at July 31, 1997, the results of each of
their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at July 31, 1997 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
September 12, 1997
1997 FEDERAL INCOME TAX NOTICE (unaudited)
During the year ended July 31, 1997, the Fund paid to shareholders
long-term capital gains per share as follows:
<TABLE>
<CAPTION>
AMERICAN CAPITAL DIVIDEND VALUE-ADDED GLOBAL
VALUE GROWTH GROWTH MARKET EQUITY STRATEGIST
- ---------- --------- ---------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C>
$0.31 $0.32 $0.47 $0.45 $0.05 $0.31
</TABLE>
Additionally, the following percentages of the income paid qualified
for the dividends received deduction available to corporations:
<TABLE>
<CAPTION>
AMERICAN CAPITAL DIVIDEND VALUE-ADDED GLOBAL
VALUE GROWTH GROWTH UTILITIES MARKET EQUITY STRATEGIST
- ---------- --------- ---------- ----------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
5.58% 100% 99.92% 98.72% 74.37% 7.89% 19.47%
</TABLE>
106
<PAGE>
APPENDIX
- -----------------------------------------------------------------------------
Description of the highest commercial paper, bond and other short-and
long-term rating categories assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors
Service, Inc. ("Fitch"), Duff and Phelps, Inc. ("Duff"), IBCA Limited and
IBCA Inc. ("IBCA") and Thomson BankWatch, Inc. ("Thomson"):
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted with a plus sign
(+) designation. Capacity for timely payment on issues with an A-2
designation is strong. However, the relative degree of safety is not as high
as for issues designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned
by Moody's. Issuers of P-1 paper must have a superior capacity for repayment
of short-term promissory obligations and ordinarily will be evidenced by
leading market positions in well established industries, high rates of return
of funds employed, conservative capitalization structures with moderate
reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well established access to a range of financial markets and assured sources
of alternate liquidity. Issues rated Prime-2 (P-2) have a strong capacity for
repayment of short-term promissory obligations. This ordinarily will be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is
maintained.
The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade)
is the second highest commercial paper rating assigned by Fitch which
reflects an assurance of timely payment only slightly less in degree than the
strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by good
fundamental protection factors. Risk factors are minor. Duff applies the
modifiers (+) and (-) to the rating Duff-1 in recognition of significant
quality differences within the highest tier. Paper rated Duff-2 is regarded
as having good certainty of timely payment, good access to capital markets
and sound liquidity factors and company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. The designation A2 by
IBCA indicates that the obligation is supported by a strong capacity for
timely repayment, although such capacity may be susceptible to adverse
changes in business, economic, or financial conditions.
The rating TBW-1 is the highest short-term rating assigned by Thomson and
indicates a very high degree of likelihood that principal and interest will
be paid on a timely basis. The rating TBW-2 by Thomson is its second highest
rating; while the degree of safety regarding timely repayment of principal
and interest is strong, the relative degree of safety is not as high as for
issues rated TBW-1.
BOND AND LONG-TERM RATINGS
Bonds rated AAA are considered by S&P to be the highest grade obligations
and possess an extremely strong capacity to pay interest and repay principal.
Bonds rated AA by S&P are judged by S&P to have a very strong capacity to pay
interest and repay principal, and differ only in small degrees from issues
rated AAA.
107
<PAGE>
Bonds which are rated Aaa by Moody's are judged to be of the best quality.
Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. Aa bonds are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuations of protective elements may
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa rated bonds. Moody's
applies numerical modifiers 1, 2 and 3 in the Aa rating category. The
modifier 1 indicates a ranking for the security in the higher end of this
rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates a ranking in the lower end of the rating category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions and liable to but slight market fluctuation other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such
stability of applicable earnings that safety is beyond reasonable question
whatever changes occur in conditions. Bonds rated AA by Fitch are judged by
Fitch to be of safety virtually beyond question and are readily salable,
whose merits are not unlike those of the AAA class, but whose margin of
safety is less strikingly broad. The issue may be the obligation of a small
company, strongly secured but influenced as to rating by the lesser financial
power of the enterprise and more local type of market.
Bonds rated AAA by Duff are considered to be of the highest credit quality
with negligible risk factors that are only slightly more than for risk-free
U.S. Treasury debt. Bonds rated AA are judged by Duff to be of high credit
quality with strong protection factors; risk is modest but may vary slightly
from time to time because of economic conditions. Duff applies modifiers of
(+) and (-) to the AA category.
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations rated AA have
a very low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic
or financial conditions may increase investment risk albeit not very
significantly.
IBCA also assigns a rating to certain international and U.S. banks. An
IBCA bank rating represents IBCA's current assessment of the strength of the
bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long-and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support by central banks or
shareholders if it experienced difficulties, and such ratings are considered
by IBCA to be a prime factor in its assessment of credit risk. Individual
Ratings, which range in gradations from A through E, represent IBCA's
assessment of a bank's economic merits and address the question of how the
bank would be viewed if it were entirely independent and could not rely on
support from state authorities or its owners.
Companies rated A are considered by Thomson to possess an exceptionally
strong balance sheet and earnings record, translating into an excellent
reputation and unquestioned access to their natural money markets; if
weakness or vulnerability exists in any aspect of a company's business, it is
entirely mitigated by the strengths of the organization. Companies rated
A/B-by Thomson are judged by Thomson to be financially very solid with a
favorable track record and no readily apparent weakness; their overall risk
profiles, while low, are not quite as favorable as for companies in the
highest rating category.
108
<PAGE>
DEAN WITTER AMERICAN VALUE FUND
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated herein by reference to Item 27
of, and Exhibit 1 to, Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A, dated July 28, 1997, which was filed
electronically pursuant to Regulation S-T on July 21, 1997 ("Post-Effective
Amendment No. 21") as an amendment to Registrant's Registration Statement on
Form N-1A (File Nos. 811-2978 and 2-66269) filed on July 21, 1997 (the
"Registration Statement").
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
(1) (a) Declaration of Trust dated April 6, 1987 ("Declaration of Trust") (incorporated herein by
reference to Exhibit 1 of Registrant's initial Registration Statement)
(b) Amendment Establishing and Designating Additional Classes of Shares to Declaration of
Trust (incorporated herein by reference to Exhibit 1 to Post-Effective Amendment No. 21)
(2) Amended and Restated By-Laws of Registrant
(3) Not Applicable
(4) Copy of Agreement and Plan of Reorganization (filed herewith as Exhibit A to the Proxy
Statement and Prospectus)
(5) Not Applicable
(6) Investment Management Agreement (incorporated herein by reference to Exhibit 5 to
Post-Effective Amendment No. 21)
(7) (a) Distribution Agreement between Registrant and Dean Witter Distributors Inc. (incorporated
herein by reference to Exhibit 6(a) to Post-Effective Amendment No. 21)
(b) Multiple Class Distribution Agreement between Registrant and Dean Witter Distributors,
Inc. (incorporated herein by reference to Exhibit 6(b) of Post-Effective Amendment
No. 21)
(c) Form of Selected Dealer's Agreement (incorporated herein by reference to Exhibit 6 to
Post-Effective Amendment No. 19 to Registrant's Registration Statement ("Post-Effective
Amendment No. 19"))
(8) Not Applicable
(9) (a) Custody Agreement dated September 20, 1991 (incorporated herein by reference to Exhibit
8 to Post-Effective Amendment No. 19)
(b) Amendment to the Custodian Agreement dated April 17, 1996 (incorporated herein by
reference to Exhibit 8 to Post-Effective Amendment No. 20)
(c) Amended and Restated Transfer Agency and Services Agreement
(10) (a) Amended and Restated Plan of Distribution pursuant to Rule 12b-1, dated July 28, 1997
(incorporated herein by reference to Exhibit 15 to Post-Effective Amendment No. 21)
(b) Dean Witter Funds Multiple Class Plan pursuant to rule 18f-3 (incorporated herein by
reference to Exhibit Other to Post-Effective Amendment No. 21)
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens LLP
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein regarding tax matters
(13) Form of Services Agreement between Dean Witter InterCapital Inc. and Dean Witter Services
Company Inc. (incorporated herein by reference to Exhibit 9 to Post-Effective Amendment
No. 19)
(14) Consent of Independent Accountants
(15) Not Applicable
(16) Powers of Attorney
(17) (a) Registrant's Rule 24f-2 Notice pursuant to Rule 24f-2 under the Investment Company Act
of 1940, for its fiscal year ended December 31, 1997 (incorporated herein by reference to
Form 24f-2 filed with the Securities and Exchange Commission on March 2, 1998)
(b) Form of Proxy
</TABLE>
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of the prospectus which is a part
of this registration statement on Form N-14 by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the Securities
Act of 1933, the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to this
registration statement on Form N-14 and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering of
them.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York and State of
New York, on the 30th day of April 1998.
DEAN WITTER AMERICAN VALUE FUND
By: /s/ Barry Fink
Barry Fink
Vice President and Secretary
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- ---------------
<S> <C> <C>
1. Principal Executive Officer
/s/ Charles A. Fiumefreddo Chief Executive Officer, April 30, 1998
........................... Trustee and Chairman
Charles A. Fiumefreddo
2. Principal Financial Officer
/s/ Thomas F. Caloia Treasurer and Principal April 30, 1998
........................... Accounting Officer
Thomas F. Caloia
3. Majority of Trustees April 30, 1998
/s/ Michael Bozic Trustee
...........................
Michael Bozic
/s/ Edwin J. Garn Trustee April 30, 1998
...........................
Edwin J. Garn
/s/ John R. Haire Trustee April 30, 1998
...........................
John R. Haire
/s/ Manuel H. Johnson Trustee April 30, 1998
...........................
Manuel H. Johnson
/s/ Michael E. Nugent Trustee April 30, 1998
...........................
Michael E. Nugent
/s/ John L. Schroeder Trustee April 30, 1998
...........................
John L. Schroeder
/s/ Philip J. Purcell Trustee April 30, 1998
...........................
Philip J. Purcell
/s/ Wayne E. Hedien Trustee April 30, 1998
...........................
Wayne E. Hedien
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ----------- ------------------------------------------------------------------------ -------
<S> <C> <C>
(2) Amended and Restated By-Laws of Registrant
(9) (c) Amended and Restated Transfer Agency and Services Agreement
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens LLP
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
regarding tax matters
(14) Consent of Independent Accountants
(16) Powers of Attorney
(17) (b) Form of Proxy
</TABLE>
<PAGE>
BY-LAWS
OF
DEAN WITTER AMERICAN VALUE FUND
AMENDED AND RESTATED AS OF OCTOBER 23, 1997
ARTICLE I
DEFINITIONS
The terms "Commission," "Declaration," "Distributor," "Investment
Adviser," "Majority Shareholder Vote," "1940 Act," "Shareholder," "Shares,"
"Transfer Agent," "Trust," "Trust Property," and "Trustees" have the respective
meanings given them in the Declaration of Trust of Dean Witter American Value
Fund (formerly known as InterCapital Industry-Valued Securities Inc.) dated
April 6, 1987, as amended from time to time.
ARTICLE II
OFFICES
SECTION 2.1. Principal Office. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
SECTION 2.2. Other Offices. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or the
business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. Place of Meetings. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. Meetings. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the provisions
of Section 16(a) of the 1940 Act, for that purpose. Meetings of Shareholders
shall also be called by the Secretary upon the written request of the holders
of Shares entitled to vote not less than twenty-five percent (25%) of all the
votes entitled to be cast at such meeting except to the extent otherwise
required by Section 16(c) of the 1940 Act , as is made applicable to the Trust
by the provisions of Section 2.3 of the Declaration. Such request shall state
the purpose or purposes of such meeting and the matters proposed to be acted on
thereat. The Secretary shall inform such Shareholders of the reasonable
estimated cost of preparing and mailing such notice of the meeting, and upon
payment to the Trust of such costs, the Secretary shall give notice stating the
purpose or purposes of the meeting to all entitled to vote at such meeting. No
meeting need be called upon the request of the holders of Shares entitled to
cast less than a majority of all votes entitled to be cast at such meeting, to
consider any matter which is substantially the same as a matter voted upon at
any meeting of Shareholders held during the preceding twelve months.
SECTION 3.3. Notice of Meetings. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes thereof,
shall be given by the Secretary not less than ten (10) nor more than ninety
(90) days before such meeting to each Shareholder entitled to vote at such
meeting. Such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, directed to the Shareholder at his address as it
appears on the records of the Trust.
<PAGE>
SECTION 3.4 Quorum and Adjournment of Meetings. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders, the holders of a majority of the Shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
be requisite and shall constitute a quorum for the transaction of business. In
the absence of a quorum, the Shareholders present or represented by proxy and
entitled to vote thereat shall have the power to adjourn the meeting from time
to time. The Shareholders present in person or represented by proxy at any
meeting and entitled to vote thereat also shall have the power to adjourn the
meeting from time to time if the vote required to approve or reject any
proposal described in the original notice of such meeting is not obtained (with
proxies being voted for or against adjournment consistent with the votes for
and against the proposal for which the required vote has not been obtained).
The affirmative vote of the holders of a majority of the Shares then present in
person or represented by proxy shall be required to adjourn any meeting. Any
adjourned meeting may be reconvened without further notice or change in record
date. At any reconvened meeting at which a quorum shall be present, any
business may be transacted that might have been transacted at the meeting as
originally called.
SECTION 3.5. Voting Rights, Proxies. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy, executed in writing by the Shareholder or his duly
authorized attorney-in-fact, for each Share of beneficial interest of the Trust
and for the fractional portion of one vote for each fractional Share entitled
to vote so registered in his name on the records of the Trust on the date fixed
as the record date for the determination of Shareholders entitled to vote at
such meeting. No proxy shall be valid after eleven months from its date, unless
otherwise provided in the proxy. At all meetings of Shareholders, unless the
voting is conducted by inspectors, all questions relating to the qualification
of voters and the validity of proxies and the acceptance or rejection of votes
shall be decided by the chairman of the meeting. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of one or more
Trustees or Officers of the Trust.
SECTION 3.6. Vote Required. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority Shareholder
Vote.
SECTION 3.7. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any Shareholder or his proxy shall, appoint Inspectors of Election of the
meeting. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees
in advance of the convening of the meeting or at the meeting by the person
acting as chairman. The Inspectors of Election shall determine the number of
Shares outstanding, the Shares represented at the meeting, the existence of a
quorum, the authenticity, validity and effect of proxies, shall receive votes,
ballots or consents, shall hear and determine all challenges and questions in
any way arising in connection with the right to vote, shall count and tabulate
all votes or consents, determine the results, and do such other acts as may be
proper to conduct the election or vote with fairness to all Shareholders. On
request of the chairman of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
SECTION 3.8. Inspection of Books and Records. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under the Corporations and Associations Law of the
State of Maryland.
SECTION 3.9. Action by Shareholders Without Meeting. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
2
<PAGE>
SECTION 3.10. Presence at Meetings. Presence at meetings of shareholders
requires physical attendance by the shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other
electronic means.
ARTICLE IV
TRUSTEES
SECTION 4.1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the Chairman and shall be
called by the President or the Secretary upon the written request of any two
(2) Trustees.
SECTION 4.2. Notice of Special Meetings. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed to
be given when deposited in the United States mail, postage prepaid, directed to
the Trustee at his address as it appears on the records of the Trust. Subject
to the provisions of the 1940 Act, notice or waiver of notice need not specify
the purpose of any special meeting.
SECTION 4.3. Telephone Meetings. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such committee,
as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. Quorum, Voting and Adjournment of Meetings. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act of
the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall have been obtained.
SECTION 4.5. Action by Trustees Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of the Trustees may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all of the Trustees entitled to
vote upon the action and such written consent is filed with the minutes of
proceedings of the Trustees.
SECTION 4.6. Expenses and Fees. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of said
persons shall receive for services rendered as a Trustee of the Trust such
compensation as may be fixed by the Trustees. Nothing herein contained shall be
construed to preclude any Trustee from serving the Trust in any other capacity
and receiving compensation therefor.
SECTION 4.7. Execution of Instruments and Documents and Signing of Checks
and Other Obligations and Transfers. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all checks,
notes, drafts and other obligations for the payment of money by the Trust shall
be signed, and all transfer of securities standing in the name of the Trust
shall be executed, by the Chairman, the President, any Vice President or the
Treasurer or by any one or more officers or agents of the Trust as shall be
designated for that purpose by vote of the Trustees; notwithstanding the above,
nothing in this Section 4.7 shall be deemed to preclude the electronic
authorization, by designated persons, of the Trust's Custodian (as described
herein in Section 9.1) to transfer assets of the Trust, as provided for herein
in Section 9.1.
3
<PAGE>
SECTION 4.8. Indemnification of Trustees, Officers, Employees and
Agents. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Trustee, officer, employee, or agent of the Trust. The
indemnification shall be against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement, actually and reasonably
incurred by him in connection with the action, suit, or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Trust, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Trust to obtain a judgment or decree in its favor
by reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Trust; except that no indemnification shall be made in respect of any
claim, issue, or matter as to which the person has been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Trust,
except to the extent that the court in which the action or suit was brought, or
a court of equity in the county in which the Trust has its principal office,
determines upon application that, despite the adjudication of liability but in
view of all circumstances of the case, the person is fairly and reasonably
entitled to indemnity for those expenses which the court shall deem proper,
provided such Trustee, officer, employee or agent is not adjudged to be liable
by reason of his willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections (a) or
(b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which consists of
Trustees who were not parties to the action, suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person shall
be entitled to indemnification for any liability, whether or not there is
an adjudication of liability, arising by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of duties as described
in Section 17(h) and (i) of the Investment Company Act of 1940 ("disabling
conduct"). A person shall be deemed not liable by reason of disabling
conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct; or
4
<PAGE>
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by
reason of disabling conduct, is made by either--
(A) a majority of a quorum of Trustees who are neither "interested
persons" of the Trust, as defined in Section 2(a)(19) of the Investment
Company Act of 1940, nor parties to the action, suit or proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition thereof
if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the Trustee,
officer, employee or agent of the Trust to repay the advance if it is not
ultimately determined that such person is entitled to be indemnified by
the Trust; and
(3) either, (i) such person provides a security for his undertaking,
or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available facts,
that there is reason to believe that such person ultimately will be
found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in Section
2(a)(19) of the 1940 Act, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding the office, and shall continue as to a person who has ceased to
be a Trustee, officer, employee, or agent and inure to the benefit of the
heirs, executors and administrators of such person; provided that no person may
satisfy any right of indemnity or reimbursement granted herein or to which he
may be otherwise entitled except out of the property of the Trust, and no
Shareholder shall be personally liable with respect to any claim for indemnity
or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such. However, in no event will the Trust purchase
insurance to indemnify any officer or Trustee against liability for any act for
which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. Executive and Other Committees. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the Trustees
of the Trust and may delegate to such committees, in the intervals between
meetings of the Trustees, any or all of the powers of the Trustees in the
management of the business and affairs of the Trust. In the absence of any
member of any such committee, the members thereof present
5
<PAGE>
at any meeting, whether or not they constitute a quorum, may appoint a Trustee
to act in place of such absent member. Each such committee shall keep a record
of its proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. Advisory Committee. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in any
other capacity and which shall have advisory functions with respect to the
investments of the Trust but which shall have no power to determine that any
security or other investment shall be purchased, sold or otherwise disposed of
by the Trust. The number of persons constituting any such advisory committee
shall be determined from time to time by the Trustees. The members of any such
advisory committee may receive compensation for their services and may be
allowed such fees and expenses for the attendance at meetings as the Trustees
may from time to time determine to be appropriate.
SECTION 5.3. Committee Action Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of any Committee of the Trustees appointed pursuant to Section 5.1 of
these By-Laws may be taken without a meeting if a consent in writing setting
forth the action shall be signed by all members of the Committee entitled to
vote upon the action and such written consent is filed with the records of the
proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. Executive Officers. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The executive officers of the Trust shall be elected annually by the
Trustees and each executive officer so elected shall hold office until his
successor is elected and has qualified.
SECTION 6.2. Other Officers and Agents. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers
and may elect, or may delegate to the President the power to appoint, such
other officers and agents as the Trustees shall at any time or from time to
time deem advisable.
SECTION 6.3. Term and Removal and Vacancies. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any officer
or agent of the Trust may be removed by the Trustees whenever, in their
judgment, the best interests of the Trust will be served thereby, but such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
SECTION 6.4. Compensation of Officers. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the President to the
extent provided by the Trustees with respect to officers appointed by the
President.
SECTION 6.5. Power and Duties. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
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SECTION 6.6. The Chairman. The Chairman shall preside at all meetings of
the Shareholders and of the Trustees; shall be a signatory on all Annual and
Semi-Annual Reports as may be sent to shareholders, and he shall perform such
other duties as the Trustees may from time to time prescribe.
SECTION 6.7. The President. (a) The President shall be the chief executive
officer of the Trust; he shall have general and active management of the
business of the Trust, shall see that all orders and resolutions of the Board
of Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.
(b) In the absence of the Chairman, the President shall preside at all
meetings of the shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time prescribe.
SECTION 6.8. The Vice Presidents. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by the
Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President, and
he or they shall perform such other duties as the Trustees or the President may
from time to time prescribe.
SECTION 6.9. The Assistant Vice Presidents. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the President.
SECTION 6.10. The Secretary. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
President, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or by
the signature of an Assistant Secretary.
SECTION 6.11. The Assistant Secretaries. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the President, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
President may from time to time prescribe.
SECTION 6.12. The Treasurer. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and he
shall render to the Trustees and the President, whenever any of them require
it, an account of his transactions as Treasurer and of the financial condition
of the Trust; and he shall perform such other duties as the Trustees, or the
President, may from time to time prescribe.
SECTION 6.13. The Assistant Treasurers. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order determined
by the Trustees or the President, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Trustees, or
the President, may from time to time prescribe.
SECTION 6.14. Delegation of Duties. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
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ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in Shares,
from any sources permitted by law, all as the Trustees shall from time to time
determine.
Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary from
the computation thereof on the records of the Trust, the Trustees shall have
power, in their discretion, to distribute as income dividends and as capital
gain distributions, respectively, amounts sufficient to enable the Trust to
avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. Certificates of Shares. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of the
Trust by the President, or a Vice President, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer and an Assistant Treasurer of the
Trust; shall be sealed with the seal; and shall contain such recitals as may be
required by law. Where any certificate is signed by a Transfer Agent or by a
Registrar, the signature of such officers and the seal may be facsimile,
printed or engraved. The Trust may, at its option, determine not to issue a
certificate or certificates to evidence Shares owned of record by any
Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Trust, such certificate or certificates shall,
nevertheless, be adopted by the Trust and be issued and delivered as though the
person or persons who signed such certificate or certificates or whose
facsimile signature or signatures shall appear therein had not ceased to be
such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. Lost, Stolen, Destroyed and Mutilated Certificates. The
Trustees may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Trust alleged to have
been lost, stolen or destroyed, upon satisfactory proof of such loss, theft, or
destruction; and the Trustees may, in their discretion, require the owner of
the lost, stolen or destroyed certificate, or his legal representative, to give
to the Trust and to such Registrar, Transfer Agent and/or Transfer Clerk as may
be authorized or required to countersign such new certificate or certificates,
a bond in such sum and of such type as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be
against them or any of them on account of or in connection with the alleged
loss, theft or destruction of any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. Appointment and Duties. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at least
five million dollars ($5,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as
may be contained in these By-Laws and the 1940 Act:
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(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may
direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon between
the custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to such notice and filed with the records of the meeting, whether before or
after the holding thereof, or actual attendance at the meeting of Shareholders,
Trustees or committee, as the case may be, in person, shall be deemed
equivalent to the giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Location of Books and Records. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2 Record Date. The Trustees may fix in advance a date as the
record date for the purpose of determining the Shareholders entitled to (i)
receive notice of, or to vote at, any meeting of Shareholders, or (ii) receive
payment of any dividend or the allotment of any rights, or in order to make a
determination of Shareholders for any other proper purpose. The record date, in
any case, shall not be more than one hundred eighty (180) days, and in the case
of a meeting of Shareholders not less than ten (10) days, prior to the date on
which such meeting is to be held or the date on which such other particular
action requiring determination of Shareholders is to be taken, as the case may
be. In the case of a meeting of Shareholders, the meeting date set forth in the
notice to Shareholders accompanying the proxy statement shall be the date used
for purposes of calculating the 180 day or 10 day period, and any adjourned
meeting may be reconvened without a change in record date. In lieu of fixing a
record date, the Trustees may provide that the transfer books shall be closed
for a stated period but not to exceed, in any case, twenty (20) days. If the
transfer books are closed for the purpose of determining Shareholders entitled
to notice of a vote at a meeting of Shareholders, such books shall be closed
for at least ten (10) days immediately preceding the meeting.
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SECTION 11.3. Seal. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from time
to time provide. The seal of the Trust may be affixed to any document, and the
seal and its attestation may be lithographed, engraved or otherwise printed on
any document with the same force and effect as if it had been imprinted and
attested manually in the same manner and with the same effect as if done by a
Massachusetts business corporation under Massachusetts law.
SECTION 11.4. Fiscal Year. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. Orders for Payment of Money. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement between
the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees; provided,
however, that no By-Law may be amended, adopted or repealed by the Trustees if
such amendment, adoption or repeal requires, pursuant to law, the Declaration,
or these By-Laws, a vote of the Shareholders. The Trustees shall in no event
adopt By-Laws which are in conflict with the Declaration, and any apparent
inconsistency shall be construed in favor of the related provisions in the
Declaration.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Dean Witter American Value Fund,
dated April 6, 1987, a copy of which, together with all amendments thereto, 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.
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AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
WITH
DEAN WITTER TRUST FSB
[OPEN-END FUNDS]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Article 1 Terms of Appointment .................................... 1
Article 2 Fees and Expenses ....................................... 2
Article 3 Representations and Warranties of DWTFSB ................ 3
Article 4 Representations and Warranties of the Fund .............. 3
Article 5 Duty of Care and Indemnification ........................ 3
Article 6 Documents and Covenants of the Fund and DWTFSB .......... 4
Article 7 Duration and Termination of Agreement ................... 5
Article 8 Assignment .............................................. 5
Article 9 Affiliations ............................................ 6
Article 10 Amendment ............................................... 6
Article 11 Applicable Law .......................................... 6
Article 12 Miscellaneous ........................................... 6
Article 13 Merger of Agreement ..................................... 7
Article 14 Personal Liability ...................................... 7
</TABLE>
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AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 23rd day of October, 1997 by
and between each of the 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 FSB ("DWTFSB"), a
federally chartered savings bank, having its principal office and place of
business at Harborside Financial Center, Plaza Two, Jersey City, New Jersey
07311.
WHEREAS, the Fund desires to appoint DWTFSB as its transfer agent,
dividend disbursing agent and shareholder servicing agent and DWTFSB desires to
accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of DWTFSB
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints DWTFSB to act as, and DWTFSB 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 DWTFSB agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and DWTFSB, DWTFSB 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");
(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 dividends 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
(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. DWTFSB shall also provide to the Fund on a regular basis
the total number of Shares that 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
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would result in an overissue, DWTFSB shall refuse to issue such Shares
and shall not countersign and issue any certificates requested for such
Shares. When recording the issuance of Shares, DWTFSB 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), DWTFSB shall:
(i) perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, shareholder servicing 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, 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 confirmable 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 that 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 DWTFSB in writing those transactions and assets to be
treated as exempt from Blue Sky reporting for each State; and
(ii) verify the inclusion on the system prior to activation of each
State in which Fund shares may be sold and thereafter monitor the daily
purchases and sales for shareholders in each State. The responsibility
of DWTFSB for the Fund's status under the securities laws of any State
or other jurisdiction is limited to the inclusion on the system of each
State as to which the Fund has informed DWTFSB that shares may be sold
in compliance with state securities laws and the reporting of purchases
and sales in each such State to the Fund as provided above and as agreed
from time to time by the Fund and DWTFSB.
(d) DWTFSB shall provide such additional services and functions not
specifically described herein as may be mutually agreed between DWTFSB and
the Fund. Procedures applicable to such services may be established from
time to time by agreement between the Fund and DWTFSB.
Article 2 Fees and Expenses
2.1 For performance by DWTFSB pursuant to this Agreement, each Fund agrees
to pay DWTFSB 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 DWTFSB.
2.2 In addition to the fees paid under Section 2.1 above, the Fund agrees
to reimburse DWTFSB for out of pocket expenses in connection with the services
rendered by DWTFSB hereunder. In addition, any other expenses incurred by
DWTFSB 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 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 DWTFSB by the Fund
upon request prior to the mailing date of such materials.
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Article 3 Representations and Warranties of DWTFSB
DWTFSB represents and warrants to the Fund that:
3.1 It is a federally chartered savings bank whose principal office is 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.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to DWTFSB 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.
Article 5 Duty of Care and Indemnification
5.1 DWTFSB shall not be responsible for, and the Fund shall indemnify and
hold DWTFSB 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 DWTFSB 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 DWTFSB or its agents or subcontractors of
information, records and documents which (i) are received by DWTFSB 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 DWTFSB or its agents or
subcontractors of, any instructions or requests of the Fund.
(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 notice of
3
<PAGE>
offering of such Shares 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 DWTFSB 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 DWTFSB as a result of the lack of good faith, negligence or willful
misconduct of DWTFSB, its officers, employees or agents.
5.3 At any time, DWTFSB 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 DWTFSB
under this Agreement, and DWTFSB 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.
DWTFSB, its 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 DWTFSB 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. DWTFSB, 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.
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 DWTFSB
6.1 The Fund shall promptly furnish to DWTFSB the following, unless
previously furnished to Dean Witter Trust Company, the prior transfer agent of
the Fund:
(a) If a corporation:
(i) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of DWTFSB and the execution and
delivery of this Agreement;
(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;
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(b) If a business trust:
(i) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of DWTFSB 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;
(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 DWTFSB deems to be
appropriate or necessary for the proper performance of its duties.
6.2 DWTFSB 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 DWTFSB 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 Section
31 of the 1940 Act, and the rules and regulations thereunder, DWTFSB agrees
that all such records prepared or maintained by DWTFSB relating to the services
performed by DWTFSB 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 DWTFSB 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 DWTFSB and
the Fund.
6.5 In case of any request or demands for the inspection of the
Shareholder records of the Fund, DWTFSB will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. DWTFSB 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.
Article 7 Duration and Termination of Agreement
7.1 This Agreement shall remain in full force and effect until August 1,
2000 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 DWTFSB 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, DWTFSB 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.
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8.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
8.3 DWTFSB 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 DWTFSB; provided, however, that such person
or entity has and maintains the qualifications, if any, required to perform
such obligations and duties, and that DWTFSB 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 DWTFSB 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 Morgan Stanley, 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 Fund's
investment adviser and/or distributor, are or may be interested in DWTFSB as
directors, officers, employees, agents and shareholders or otherwise, and that
the directors, officers, employees, agents and shareholders of DWTFSB 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 DWTFSB to act as transfer agent,
dividend disbursing agent and/or shareholder servicing agent, and DWTFSB
desires to render such services, such services shall be provided pursuant to a
letter agreement, substantially in the form of Exhibit A hereto, between DWTFSB
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 DWTFSB 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 DWTFSB and the Fund
issued by a surety company satisfactory to DWTFSB, except that DWTFSB may
accept an affidavit of loss and indemnity agreement executed by the registered
holder (or legal representative) without surety in such form as DWTFSB deems
appropriate indemnifying DWTFSB and the Fund for the issuance of a replacement
certificate, in cases where the alleged loss is in the amount of $1,000 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, DWTFSB 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 DWTFSB may, in its sole discretion,
deem appropriate or as the Fund and, if applicable, the Distributor may
instruct DWTFSB.
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12.4 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to DWTFSB 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 DWTFSB:
Dean Witter Trust FSB
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.
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.
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.
DEAN WITTER FUNDS
MONEY MARKET FUNDS
1. Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Dean Witter U.S. Government Money Market Trust
4. Active Assets Government Securities Trust
5. Dean Witter Tax-Free Daily Income Trust
6. Active Assets Tax-Free Trust
7. Dean Witter California Tax-Free Daily Income Trust
8. Dean Witter New York Municipal Money Market Trust
9. Active Assets California Tax-Free Trust
EQUITY FUNDS
10. Dean Witter American Value Fund
11. Dean Witter Mid-Cap Growth Fund
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12. Dean Witter Dividend Growth Securities Inc.
13. Dean Witter Capital Growth Securities
14. Dean Witter Global Dividend Growth Securities
15. Dean Witter Income Builder Fund
16. Dean Witter Natural Resource Development Securities Inc.
17. Dean Witter Precious Metals and Minerals Trust
18. Dean Witter Developing Growth Securities Trust
19. Dean Witter Health Sciences Trust
20. Dean Witter Capital Appreciation Fund
21. Dean Witter Information Fund
22. Dean Witter Value-Added Market Series
23. Dean Witter World Wide Investment Trust
24. Dean Witter European Growth Fund Inc.
25. Dean Witter Pacific Growth Fund Inc.
26. Dean Witter International SmallCap Fund
27. Dean Witter Japan Fund
28. Dean Witter Utilities Fund
29. Dean Witter Global Utilities Fund
30. Dean Witter Special Value Fund
31. Dean Witter Financial Services Trust
32. Dean Witter Market Leader Trust
33. Dean Witter Managers' Select Fund
34. Dean Witter Fund of Funds
35. Dean Witter S&P 500 Index Fund
BALANCED FUNDS
36. Dean Witter Balanced Growth Fund
37. Dean Witter Balanced Income Trust
ASSET ALLOCATION FUNDS
38. Dean Witter Strategist Fund
39. Dean Witter Global Asset Allocation Fund
FIXED INCOME FUNDS
40. Dean Witter High Yield Securities Inc.
41. Dean Witter High Income Securities
42. Dean Witter Convertible Securities Trust
43. Dean Witter Intermediate Income Securities
44. Dean Witter Short-Term Bond Fund
45. Dean Witter World Wide Income Trust
46. Dean Witter Global Short-Term Income Fund Inc.
47. Dean Witter Diversified Income Trust
48. Dean Witter U.S. Government Securities Trust
49. Dean Witter Federal Securities Trust
50. Dean Witter Short-Term U.S. Treasury Trust
51. Dean Witter Intermediate Term U.S. Treasury Trust
52. Dean Witter Tax-Exempt Securities Trust
53. Dean Witter National Municipal Trust
55. Dean Witter Limited Term Municipal Trust
55. Dean Witter California Tax-Free Income Fund
56. Dean Witter New York Tax-Free Income Fund
57. Dean Witter Hawaii Municipal Trust
58. Dean Witter Multi-State Municipal Series Trust
59. Dean Witter Select Municipal Reinvestment Fund
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SPECIAL PURPOSE FUNDS
60. Dean Witter Retirement Series
61. Dean Witter Variable Investment Series
62. Dean Witter Select Dimensions Investment Series
TCW/DW FUNDS
63. TCW/DW Core Equity Trust
64. TCW/DW North American Government Income Trust
65. TCW/DW Latin American Growth Fund
66. TCW/DW Income and Growth Fund
67. TCW/DW Small Cap Growth Fund
68. TCW/DW Balanced Fund
69. TCW/DW Total Return Trust
70. TCW/DW Global Telecom Trust
71. TCW/DW Strategic Income Trust
72. TCW/DW Mid-Cap Equity Trust
By:
-------------------------------
Barry Fink
Vice President and General
Counsel
ATTEST:
- -----------------------------
Assistant Secretary
DEAN WITTER TRUST FSB
By: -------------------------------
John Van Heuvelen
President
ATTEST:
- -----------------------------
Executive Vice President
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<PAGE>
EXHIBIT A
Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, (insert name of investment company) a (Massachusetts
business trust/Maryland corporation) (the "Fund"), desires to employ and
appoint Dean Witter Trust FSB ("DWTFSB") 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 DWTFSB of fees as set out in the fee schedule attached hereto as Schedule A,
DWTFSB 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.
Please indicate DWTFSB'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 fund)
By:
-----------------------------------
Barry Fink
Vice President and General Counsel
ACCEPTED AND AGREED TO:
DEAN WITTER TRUST FSB
By:
---------------------------------
Its:
---------------------------------
Date:
-------------------------------
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<PAGE>
SCHEDULE A
Fund: Dean Witter American Value Fund
Fees: (1) Annual maintenance fee of $12.65 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.
<PAGE>
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
April 30, 1998
Dean Witter American Value Fund
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This opinion is being furnished to Dean Witter American Value Fund, a
Massachusetts business trust (the "Trust"), in connection with the Registration
Statement on Form N-14 (the "Registration Statement") under the Securities Act
of 1933, as amended (the "1933 Act"), to be filed by the Trust in connection
with the acquisition by the Trust of substantially all the assets of American
Value Series ("American Value"), one of eleven portfolios of Dean Witter
Retirement Series ("Retirement Series"), in exchange for shares of beneficial
interest, par value $.01, of the Trust ("Shares") and the assumption by the
Trust of certain stated liabilities of American Value pursuant to an Agreement
and Plan of Reorganization dated as of April 30, 1998, between the Trust and
Retirement Series, on behalf of American Value (the "Reorganization
Agreement"). We have examined such statutes, regulations, corporate records and
other documents and reviewed such questions of law as we deemed necessary or
appropriate for the purposes of this opinion.
As to matters of Massachusetts law contained in this opinion, we have
relied upon the opinion of Lane Altman & Owens LLP, dated April 30, 1998.
Based upon the foregoing, we are of the opinion that the Shares when
issued, as described in the Reorganization Agreement, will be duly authorized
and, assuming receipt of the consideration to be paid therefor, upon delivery
as provided in the Reorganization Agreement, will be legally issued, fully paid
and non-assessable (except for the potential liability of shareholders
described in the Trust's current Prospectus under the caption "Additional
Information").
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. We do
not thereby admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Gordon Altman Butowsky Weitzen
Shalov & Wein
-------------------------------------
<PAGE>
[LANE ALTMAN & OWENS LLP LETTERHEAD]
April 30, 1998
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, NY 10036
Dear Sirs:
We understand that the trustees of Dean Witter American Value Fund, a
Massachusetts business trust (the "Trust"), intend, on or about April 30, 1998,
to cause to be filed on behalf of the Trust a Registration Statement on Form
N-14 (the "Registration Statement") in connection with the acquisition (the
"Acquisition") by the Trust of substantially all the assets of American Value
Series, one of eleven Portfolios of Dean Witter Retirement Series ("Retirement
Series"), in exchange for shares of beneficial interest of the Trust (the
"Shares"), and the assumption by the Trust of certain stated liabilities of
American Value Series pursuant to an Agreement and Plan of Reorganization dated
as of April 30, 1998 between the Trust and Retirement Series (the "Agreement").
We further understand that the Shares will be issued pursuant to the Agreement.
You have requested that we act as special counsel to the Trust with
respect to the laws of the Commonwealth of Massachusetts on certain specified
matters, and in such capacity we are furnishing you with this opinion. You have
not asked for, and we do not offer, an opinion on any other matter or
transaction related to the Trust, American Value Series, Retirement Series, the
Acquisition, the Agreement or any matter related thereto, except as
specifically set forth below.
The Trust is a business trust created under an Agreement and Declaration
of Trust finally executed and delivered in Boston, Massachusetts on April 6,
1987 (as amended, the "Trust Agreement"). The Board of Trustees of the Trust
(as defined in the Trust Agreement) (the "Trustees") have the powers set forth
in the Trust Agreement, subject to the terms, provisions and conditions
provided therein.
In connection with our opinions delivered herein, we have examined the
following items some of which have been provided to us by, or on behalf of,
you: (i) a copy of the Agreement in the form to be executed by the Trust and
Retirement Series; (ii) a copy of the Trust Agreement; (iii) a copy of the
Amended and Restated By-laws of the Trust effective as of October 23, 1997
("By-laws"); (iv) a Certificate of Legal Existence for the Trust provided by
the Secretary of State of the Commonwealth of Massachusetts dated April 27,
1998; and (v) copies of the Registration Statement on Form N-14 to be filed by
the Trust and the Trust's current Prospectus and Statement of Additional
Information.
In rendering this opinion we have assumed, without independent
verification, (i) the due authority of all individuals signing in
representative capacities and the genuineness of signatures, (ii) the
authenticity, completeness and continued effectiveness of all documents or
copies furnished to us, (iii) that resolutions approving the Registration
Statement, the Acquisition and the Agreement have been duly adopted by the
Trustees, (iv) that no amendments, agreements, resolutions or actions have been
approved, executed or adopted which would limit, supersede or modify the items
described above, and (v) that the Trust Agreement and the By-laws provided to
us have been duly adopted by the Trustees, have not been amended, modified or
replaced since the date of adoption thereof, and remain in full force and
effect as of the date hereof. We have also examined such questions of law as we
have concluded necessary or appropriate for purposes of the opinions expressed
below. Where documents relevant to this opinion are referred to in the
Registration Statement, we assume such documents are the same as in the most
<PAGE>
recent form provided to us, whether as an exhibit to the Registration
Statement, or otherwise. When any opinion set forth below relates to the
existence or standing of the Trust, such opinion is based entirely upon and is
limited by the items referred to above, and we understand that the foregoing
assumptions, limitations and qualifications are acceptable to you.
Based upon the foregoing, and with respect to Massachusetts law only
(except that no opinion is herein expressed with respect to compliance with the
Massachusetts Uniform Securities Act), to the extent that Massachusetts law may
be applicable, and without reference to the laws of any of the other several
states or of the United States of America, including State and Federal
securities laws, we are of the opinion that:
1. The Trust is a business trust with transferable shares, organized in
compliance with the requirements of The Commonwealth of Massachusetts, and the
Trust Agreement is legal and valid.
2. The Shares to be issued as described in the Registration Statement,
including any Exhibits thereto, have been duly authorized and, assuming receipt
of the consideration to be paid therefor, upon delivery as provided in the
Agreement, will be validly issued, fully paid and nonassessable (except for the
potential liability of shareholders described in the Trust's Prospectus dated
July 28, 1997, under the caption "Additional Information").
We understand that you will rely on this opinion solely in connection with
your opinion to be filed with the Securities and Exchange Commission as an
Exhibit to the Registration Statement. We hereby consent to such use of this
opinion and we also consent to the filing of said opinion with the Securities
and Exchange Commission. In so consenting, we do not thereby admit to be within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Lane Altman & Owens LLP
LANE ALTMAN & OWENS LLP
2
<PAGE>
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
April 30, 1998
Dean Witter American Value Fund
Two World Trade Center
New York, New York 10048
Dean Witter Retirement Series
American Value Series
Two World Trade Center
New York, New York 10048
Gentlemen:
You have requested our opinion as to the Federal income tax consequences
of the transaction (the "Reorganization") described below pursuant to which (i)
substantially all assets of American Value Series ("American Value"), one of
eleven portfolios of Dean Witter Retirement Series ("Retirement Series"), a
Massachusetts business trust, will be combined with those of Dean Witter
American Value Fund, a Massachusetts business trust (the "Trust"), in exchange
for shares of the Trust ("Trust Shares"), and the assumption by the Trust of
certain liabilities of American Value (the "Liabilities"); (ii) American Value
will be liquidated; and (iii) the Trust Shares will be distributed to the
holders ("American Value Shareholders") of shares in American Value ("American
Value Shares").
We have examined and are familiar with such documents, records and other
instruments as we have deemed appropriate for purposes of this opinion letter,
including the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 on Form N-14, relating to the Trust
Shares (the "Registration Statement") which includes, as a part thereof, the
proxy statement of Retirement Series, on behalf of American Value (the
"American Value Proxy"), which will be used to solicit proxies of American
Value Shareholders in connection with the Special Meeting of American Value
Shareholders and the Agreement and Plan of Reorganization by and between the
Trust and Retirement Series, on behalf of American Value (the "Plan").
In rendering this opinion, we have assumed that such documents as yet
unexecuted will, when executed, conform to the proposed forms of such documents
that we have examined. We have further assumed that the Reorganization will be
carried out pursuant to the terms of the Plan, that factual statements and
information contained in the Registration Statement, the American Value Proxy
and other documents, records and instruments supplied to us are correct and
that there will be no material change with respect to such facts or information
prior to the time of the Reorganization. In rendering our opinion, we have also
relied on the representations and facts discussed below which have been
provided to us by Dean Witter InterCapital Inc. ("InterCapital"), the Trust and
Retirement Series, and we have assumed that such representations and facts will
remain correct at the time of the Reorganization.
FACTS
The Trust is an open-end diversified management investment company engaged
in the continuous offering of its shares to the public. Since its inception,
the Trust has conducted its affairs so as to qualify, and has elected to be
taxed, as a regulated investment company under Section 851 of the Internal
Revenue Code of 1986, as amended (the "Code").
Retirement Series is an open-end diversified management investment company
engaged in the continuous offering of shares of American Value to the public.
American Value is one of eleven portfolios of Retirement Series, a series fund.
Since its inception, American Value has conducted its affairs so as to qualify,
and has elected to be taxed, as a regulated investment company under Section
851 of the Code.
1
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The Board of Trustees of each of the Trust and Retirement Series have
determined, for valid business reasons, that it is advisable to combine the
assets of the Trust and American Value into one fund.
In view of the above, the Board of Trustees of Retirement Series adopted
the Plan, subject to, among other things, approval by American Value
Shareholders. Pursuant to the Plan, American Value will transfer all of its
assets to the Trust in exchange for the Trust Shares (including fractional
Trust Shares) and the assumption by the Trust of the Liabilities. Immediately
thereafter, American Value will distribute the Trust Shares to American Value
Shareholders in exchange for and in cancellation of their American Value Shares
and in complete liquidation of American Value.
Each of the following representations, among other representations, has
been made to us in connection with the Reorganization by InterCapital,
Retirement Series and by the Trust.
(1) To the best of the knowledge of the management of InterCapital,
Retirement Series, the Trust, and their affiliates, there is no plan or
intention on the part of American Value Shareholders, to redeem, sell, exchange
or otherwise dispose of a number of Trust Shares that would reduce American
Value Shareholders' ownership of Trust Shares to a number of Trust Shares
having a value, as of the date of the Reorganization, of less than fifty
percent of the value of all of the formerly outstanding American Value Shares
as of such date;
(2) The Trust has no plan or intention to reacquire any of the Trust
Shares to be issued pursuant to the Reorganization except to the extent
necessary to comply with its legal obligation to redeem its own shares;
(3) The Liabilities to be assumed by or transferred to the Trust were
incurred by American Value in the ordinary course of business and are
associated with the assets being transferred to the Trust;
(4) The amount of the Liabilities will not exceed the aggregate adjusted
basis of American Value for its assets transferred to the Trust;
(5) The Trust has no plan or intention to sell or otherwise dispose of
more than fifty percent of the assets of American Value acquired in the
Reorganization, except for dispositions made in the ordinary course of
business;
(6) There is no indebtedness between American Value and the Trust that was
issued, acquired or will be settled at a discount;
(7) American Value has been a regulated investment company within the
meaning of Section 851 of the Code since the date of its organization through
the end of its last complete taxable year and will qualify as a regulated
investment company for its taxable year ending on the date of the
Reorganization;
(8) The Trust has been a regulated investment company within the meaning
of Section 851 of the Code since the date of its organization through the date
hereof and will qualify as a regulated investment company for its taxable year
ending on December 31, 1997;
(9) American Value will have no accumulated earnings and profits as of the
close of its taxable year ending on the date of the Reorganization.
OPINION
Based on the Code, Treasury Regulations issued thereunder, Internal
Revenue Service Rulings and the relevant case law, as of the date hereof, and
on the facts, representations and assumptions set forth above, and the
documents, records and other instruments we have reviewed, it is our opinion
that the Federal income tax consequences of the Reorganization to the Trust,
American Value and the American Value Shareholders will be as follows:
(1) The transfer of substantially all of American Value's assets in
exchange for the Trust Shares and the assumption by the Trust of certain stated
Liabilities of American Value, followed by the distribution by American Value
of the Trust Shares to the American Value Shareholders in exchange for their
American Value Shares, will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code, and American Value and the Trust will each be
a "party to a reorganization" within the meaning of Section 368(b) of the Code;
2
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(2) No gain or loss will be recognized by the Trust upon the receipt of
the assets of American Value solely in exchange for the Trust Shares and the
assumption of the Liabilities by the Trust;
(3) No gain or loss will be recognized by American Value upon the transfer
of the assets of American Value to the Trust, in exchange for the Trust Shares
and the assumption of the Liabilities by the Trust, or upon the distribution of
the Trust Shares to American Value Shareholders in exchange for their American
Value Shares as provided in the Plan;
(4) No gain or loss will be recognized by American Value Shareholders upon
the exchange of their American Value Shares for the Trust Shares;
(5) The aggregate tax basis for the Trust Shares received by each American
Value Shareholder pursuant to the Reorganization will be the same as the
aggregate tax basis of the American Value Shares held by each such American
Value Shareholder immediately prior to the Reorganization;
(6) The holding period of the Trust Shares to be received by each American
Value Shareholder will include the period during which the American Value
Shares surrendered in exchange therefor were held (provided such American Value
Shares were held as capital assets on the date of the Reorganization);
(7) The tax basis of the assets of American Value acquired by the Trust
will be the same as the tax basis of such assets to American Value immediately
prior to the Reorganization; and
(8) The holding period of the assets of American Value in the hands of the
Trust will include the period during which those assets were held by American
Value.
We are not expressing an opinion as to any aspect of the Reorganization
other than those opinions expressly stated above.
As noted above, this opinion is based upon our analysis of the Code,
Treasury Regulations issued thereunder, Internal Revenue Service Rulings and
case law which we deem relevant as of the date hereof. No assurances can be
given that there will not be a change in the existing law or that the Internal
Revenue Service will not alter its present views, either prospectively or
retroactively, or adopt new views with regard to any of the matters upon which
we are rendering this opinion, nor can any assurances be given that the
Internal Revenue Service will not audit or question the treatment accorded to
the Reorganization on the Federal income tax returns of the Trust, American
Value or the American Value Shareholders.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our firm
in the Registration Statement and the American Value Proxy constituting a part
thereof.
Very truly yours,
/s/ Gordon Altman Butowsky Weitzen
Shalov & Wein
----------------------------------
3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement
and Prospectus and the Statement of Additional Information constituting parts
of this registration statement on Form N-14 (the "Registration Statement") of
our report dated February 6, 1998, relating to the financial statements and
financial highlights appearing in the December 31, 1997 Annual Report to
Shareholders of Dean Witter American Value Fund (the "Fund"), which is also
incorporated by reference into the Registration Statement and to the
reference to us under the heading "Financial Statements and Experts" in such
Proxy Statement and Prospectus. We also consent to the references to us under
the headings "Independent Accountants" and "Experts" in the Fund's Statement
of Additional Information dated May 1, 1998 and to the reference to us under
the heading "Financial Highlights" in the Fund's Prospectus dated May 1,
1998, which Statement of Additional Information and Prospectus have been
incorporated by reference into this Registration Statement. We also consent
to the incorporation by reference in the Proxy Statement and Prospectus of
our report dated September 12, 1997 relating to the July 31, 1997 financial
statements and financial highlights of Dean Witter Retirement Series
- -American Value Portfolio, which appears in that fund's Statement of
Additional Information dated October 31, 1997 which is incorporated by
reference into this Registration Statement and to the incorporation by
reference of our report into that fund's Prospectus dated October 31, 1997
which is incorporated by reference into this Registration Statement. We also
consent to the references to us under the headings "Independent Accountants"
and "Experts" in that fund's Statement of Additional Information and to the
reference to us under the heading "Financial Highlights" in that fund's
Prospectus.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
May 6, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David M. Butowsky, Stuart M. Strauss and Ronald
M. Feiman and each and any one of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacitites, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-14 relating to each of the funds listed on Appendix A attached
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------ -----------------
<S> <C> <C>
/s/ Michael Bozic Trustee/Director January 29, 1998
- -------------------------
Michael Bozic
/s/ Edwin J. Garn Trustee/Director January 29, 1998
- -------------------------
Edwin J. Garn
/s/ John R. Haire Trustee/Director January 29, 1998
- -------------------------
John R. Haire
/s/ Manuel H. Johnson Trustee/Director January 29, 1998
- -------------------------
Manuel H. Johnson
/s/ Michael E. Nugent Trustee/Director January 29, 1998
- -------------------------
Michael E. Nugent
/s/ John L. Schroeder Trustee/Director January 29, 1998
- -------------------------
John L. Schroeder
/s/ Wayne E. Hedien Trustee/Director January 29, 1998
- -------------------------
Wayne E. Hedien
</TABLE>
<PAGE>
APPENDIX A
DEAN WITTER LIQUID ASSET FUND INC.
DEAN WITTER U.S. GOVERNMENT MONEY MARKET TRUST
DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
DEAN WITTER CAPITAL GROWTH SECURITIES
DEAN WITTER UTILITIES FUND
DEAN WITTER INTERMEDIATE INCOME SECURITIES
DEAN WITTER STRATEGIST FUND
DEAN WITTER GLOBAL DIVIDEND GROWTH SECURITIES
DEAN WITTER AMERICAN VALUE FUND
DEAN WITTER VALUE-ADDED MARKET SERIES
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry Fink and Marilyn K. Cranney and each and
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacitites, to sign any or all amendments (including
post-effective amendments) to the Registration Statement on Form N-14 relating
to each of the funds listed on Appendix A attached hereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- ------------------ -----------------
<S> <C> <C>
/s/ Charles A. Fiumefreddo Trustee/Director January 29, 1998
- -------------------------
Charles A. Fiumefreddo
/s/ Philip J. Purcell Trustee/Director January 29, 1998
- -------------------------
Philip J. Purcell
</TABLE>
<PAGE>
APPENDIX A
DEAN WITTER LIQUID ASSET FUND INC.
DEAN WITTER U.S. GOVERNMENT MONEY MARKET TRUST
DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
DEAN WITTER CAPITAL GROWTH SECURITIES
DEAN WITTER UTILITIES FUND
DEAN WITTER INTERMEDIATE INCOME SECURITIES
DEAN WITTER STRATEGIST FUND
DEAN WITTER GLOBAL DIVIDEND GROWTH SECURITIES
DEAN WITTER AMERICAN VALUE FUND
DEAN WITTER VALUE-ADDED MARKET SERIES
<PAGE>
DEAN WITTER RETIREMENT SERIES
AMERICAN VALUE SERIES
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 19, 1998
The undersigned shareholder of the American Value Series ("American Value"),
one of eleven portfolios of Dean Witter Retirement Series, does hereby appoint
BARRY FINK, ROBERT M. SCANLAN, and ROBERT GIAMBRONE and each of them, as
attorneys-in-fact and proxies of the undersigned, each with the full power of
substitution, to attend the Special Meeting of Shareholders of American Value
to be held on August 19, 1998, at the Career Development Room, 61st Floor, Two
World Trade Center, New York, New York at 9:00 A.M., New York time, and at all
adjournments thereof and to vote the shares held in the name of the undersigned
on the record date for said meeting for the Proposal specified on the reverse
side hereof. Said attorneys-in-fact shall vote in accordance with their best
judgment as to any other matter.
(Continued on reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL SET FORTH ON THE REVERSE HEREOF AND AS RECOMMENDED BY
THE BOARD OF TRUSTEES.
IMPORTANT--THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE>
X PLEASE MARK BOXES
IN BLACK OR BLUE INK
The Proposal: FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Approval of the Agreement and Plan of
Reorganization, dated as of April 30, 1998,
pursuant to which substantially all of the assets
of American Value would be combined with those
of Dean Witter American Value Fund and shareholders of American Value would
become shareholders of Dean Witter American Value Fund receiving shares in
Dean Witter American Value Fund with a value equal to the value of their
holdings in American Value.
Please Sign personally. If the shares are registered in more than one name,
each joint owner or each fiduciary
should sign personally. Only authorized officers should sign for
corporations.
Date
--------------------------
Please make sure to sign and date this Proxy using black or blue ink.
- ------------------------------------------------------------------------
Shareholder sign in the box above
- ------------------------------------------------------------------------
Co-Owner (if any) sign in the box above
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PRX 00107 PLEASE DETACH AT PERFORATION
DEAN WITTER RETIREMENT SERIES
AMERICAN VALUE SERIES
IMPORTANT
PLEASE SEND IN YOUR PROXY.........TODAY!
- ------------------------------------------------------------------------------
YOU ARE URGED TO DATE AND SIGN THE ATTACHED PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE. THIS WILL HELP SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO
SHAREHOLDERS WHO HAVE NOT RESPONDED.
- ------------------------------------------------------------------------------
