<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-?????
PROSPECTUS
JULY 28, 1997
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Dean Witter Developing Growth Securities Trust (the "Fund") is an
open-end diversified management investment company whose investment objective
is long-term capital growth. While the Fund may invest in all types of equity
and debt securities, it invests primarily in common stocks of smaller and
medium-sized companies that, in the opinion of the Investment Manager, have the
potential for growing more rapidly than the economy and which may benefit from
new products or services, technological developments or changes in management.
(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. Shares of the Fund held prior to July
28, 1997 have been designated Class B shares. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should know
before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated July 28, 1997, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
DEAN WITTER DISTRIBUTORS INC.,
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary / 2
Summary of Fund Expenses / 5
Financial Highlights / 7
The Fund and its Management / 8
Investment Objective and Policies / 8
Risk Considerations / 9
Investment Restrictions / 13
Purchase of Fund Shares / 14
Shareholder Services / 24
Redemptions and Repurchases / 27
Dividends, Distributions and Taxes / 28
Performance Information / 29
Additional Information / 30
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Dean Witter
Developing Growth Securities Trust
Two World Trade Center
New York, New York 10048
(212)392-2550 or
(800) 869-NEWS (toll-free)
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PROSPECTUS SUMMARY
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<TABLE>
<CAPTION>
<S> <C>
The The Fund is organized as a Trust, commonly known as a
Fund Massachusetts business trust, and is an open-end
diversified management investment company investing
primarily in securities of smaller and medium-sized
companies that have the potential to grow much more rapidly
than the economy (see page 8).
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Shares Shares of beneficial interest with $0.01 par value (see
Offered page 29). The Fund offers four Classes of shares, each with
a different combination of sales charges, ongoing fees and
other features (see pages 14-24).
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Minimum The minimum initial investment for each Class is $1,000
Purchase ($100 if the account is opened through EasyInvest
(Service Mark) ). Class D shares are only available to
persons investing $5 million or more and to certain other
limited categories of investors. For the purpose of meeting
the minimum $5 million investment for Class D shares, and
subject to the $1,000 minimum initial investment for each
Class of the Fund, an investor's existing holdings of
Class A shares and shares of funds for which Dean
Witter InterCapital Inc. serves as investment manager
("Dean Witter Funds") that are sold with a front-end
sales charge, and concurrent investments in Class D shares
of the Fund and other Dean Witter Funds that are multiple
class funds, will be aggregated. The minimum subsequent
investment is $100 (see page 14).
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Investment The investment objective of the Fund is long-term capital
Objective growth.
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Investment The Fund invests primarily in common stock of companies
Policies believed to have potential for significant growth. However,
it may also invest in convertible securities, preferred
stocks, bonds and warrants of such companies and may engage
in certain portfolio techniques, including leveraging (see
page 8).
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Investment Dean Witter InterCapital Inc. ("InterCapital"), the s
Manager Investment Manager of the Fund, and it wholly-owned
subsidiary, Dean Witter Services Company Inc., serve in
various investment management, advisory, management and
administrative capacities to 100 investment companies and
other portfolio with net assets of approximately $96.6
billion at June 30, 1997 (see page 8).
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Management The Investment Manager receives a monthly fee at the annual
Fee rate of 0.50% of the Fund's daily net assets on assets not
exceeding $500 million and 0.475% of the Fund's daily net
assets on assets exceeding $500 million (see page 8).
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Distributor and Dean Witter Distributors Inc. (the "Distributor"). The Fund
Distribution has adopted a distribution plan pursuant to Rule 12b-1 under
Fee 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 14
and 23).
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2
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Alternative Four classes of shares are offered:
Purchase o Class A shares are offered with a front-end sales charge,
Arrangements starting at 5.25% and reduced for larger purchases.
Investments of $1 million or more (and investments by certain
other limited categories of investors) are not subject to
any sales charge at the time of purchase but a contingent
deferred sales charge ("CDSC") of 1.0% may be imposed on
redemptions within one year of purchase. The Fund is
authorized to reimburse the Distributor for specific expenses
incurred in promoting the distribution of the Fund's Class A
shares and servicing shareholder accounts pursuant to the
Fund's 12b-1 Plan. Reimbursement may in no event exceed an
amount equal to payments at an annual rate of 0.25% of
average daily net assets of the Class (see pages 14, 17
and 23).
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 net sales of the Fund's Class B shares or (b) the
average daily net assets of Class B. All shares of the Fund
held prior to July 28, 1997 have been designated Class B
shares. Shares held before May 1, 1997 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 14, 19
and 23).
o Class C shares are offered without a front-end
sales charge, but will in most cases be subject to a CDSC of
1.0% if redeemed within one year after purchase. The Fund is
authorized to reimburse the Distributor for specific expenses
incurred in promoting the distribution of the Fund's Class C
shares and servicing shareholder accounts pursuant to the
Fund's 12b-1 Plan. Reimbursement may in no event exceed an
amount equal to payments at an annual rate of 1.0% of average
daily net assets of the Class (see pages 14, 22 and 23).
o Class D shares are offered only to investors meeting an
initial investment minimum of $5 million and to certain other
limited categories of investors. Class D shares are offered
without a front-end sales charge or CDSC and are not subject
to any 12b-1 fee (see pages 14, 22 and 23).
3
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Dividends Dividends from net investment income and distributions from0
and net capital gains, if any, are paid at least once per year.
Capital Dividends and capital gains distributions are automatically
Gains reinvested in additional shares of the Fund unless the
Distributions shareholder elects to receive cash. 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 24 and 28).
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Redemption Shares are redeemable by the shareholder at net asset value
less any applicable CDSC on Class A, Class B or Class C
shares. An account may be involuntarily redeemed if the total
value of the account is less than $100 or, if the account was
opened through EasyInvest (Service Mark), if after twelve
months the shareholder has invested less than $1,000 in the
account (see page 27).
- ----------------- --------------------------------------------------------------
Risks The net asset value of the Fund's shares will fluctuate
with changes in the market value of its portfolio
securities. 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
more established companies. In addition, investors should
consider the risks which may be involved in certain of the
investment policies and techniques which the Fund may
employ in its operations, including leveraging and
investments in foreign securities (see pages 9-12).
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</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
4
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of 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 September 30, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
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<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
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Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ..................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments .... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds)............................... None(2) 5.00%(3) 1.00%(4) None
Redemption Fees..................................... None None None None
Exchange Fee........................................ None None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
- ----------------------------------------------------------------------
Management Fees .................................... 0.49% 0.49% 0.49% 0.49%
12b-1 Fees (5)(6)................................... 0.25% 1.00% 1.00% None
Other Expenses ..................................... 0.20% 0.20% 0.20% 0.20%
Total Fund Operating Expenses (7)................... 0.94% 1.69% 1.69% 0.69%
</TABLE>
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(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down 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
the date of this Prospectus. Accordingly, "Total Fund Operating
Expenses," as shown above with respect to those Classes, are based upon
the sum of 12b-1 Fees, Management Fees and estimated "Other Expenses."
5
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<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<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 ...................................................... $62 $81 $102 $162
Class B ...................................................... $67 $83 $112 $200
Class C....................................................... $27 $53 $ 92 $200
Class D ...................................................... $ 7 $22 $ 38 $ 86
You would pay the following expenses on the same $1,000 investment assuming no
redemption at the end of the period:
Class A ...................................................... $62 $81 $102 $162
Class B ...................................................... $17 $53 $ 92 $200
Class C ...................................................... $17 $53 $ 92 $200
Class D ...................................................... $ 7 $22 $ 38 $ 86
</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.
6
<PAGE>
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each of the periods through September 30, 1996 have been
audited by Price Waterhouse LLP, independent accountants. The information for
the six-month period ended March 31, 1997 is unaudited. The financial
highlights should be read in conjunction with the financial statements, notes
thereto and the unqualified report of independent accountants, which are
contained in the Statement of Additional Information. Further information about
the performance of the Fund is contained in the Fund's Annual Report to
Shareholders, which may be obtained without charge upon request to the Fund.
All shares of the Fund held prior to July 28, 1997 have been designated Class B
shares.
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE XIS FOR THE YEAR ENDED SEPTEMBER 30
MONTHS ENDED --------------------------------
MARCH 31, 1997 1996 1995 1994 1993
- ---------------------------- -------------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period......... $ 27.71 $25.54 $17.55 $20.50 $12.20
-------------- -------- -------- -------- --------
Net investment income
(loss)...................... (0.15) (0.23) (0.19) -- (0.12)
Net realized and
unrealized gain (loss)...... (3.95) 4.32 8.34 (1.82) 8.42
-------------- -------- -------- -------- --------
Total from investment
operations.................. (4.10) 4.09 8.15 (1.82) 8.30
-------------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income ..... -- -- -- -- --
Net realized gain.......... (3.89) (1.92) (0.16) (1.13) --
-------------- -------- -------- -------- --------
Total dividends and
distributions............... (3.89) (1.92) (0.16) (1.13) --
-------------- -------- -------- -------- --------
Net asset value,
end of period............... $ 19.72 $27.71 $25.54 $17.55 $20.50
============== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ .... (16.43)%(1) 17.53 % 46.87 % (8.88)% 67.95 %
RATIOS TO AVERAGE NET
ASSETS:
Expenses..................... 1.67 %(2) 1.69 % 1.77 % 1.78 % 1.84 %
Net investment income
(loss)...................... (1.24)%(2) (1.03)% (1.04)% (1.32)% (1.52)%
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands................ $652,883 $799,201 $534,869 $340,169 $240,389
Portfolio turnover rate ..... 77%(1) 149% 114 % 160 % 203 %
Average commission rate
paid........................ $0.0573 $0.0571 -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988 1987
- ---------------------------- ---------- -------- ---------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period......... $ 14.05 $ 8.92 $11.33 $ 9.67 $10.96 $ 8.57
---------- -------- ---------- ------- --------- --------
Net investment income
(loss)...................... (0.12) (0.07) (0.15) 0.04 (0.03) (0.02)
Net realized and
unrealized gain (loss)...... (1.73) 5.20 (2.21) 1.62 (1.26) 2.42
---------- -------- ---------- ------- --------- --------
Total from investment
operations.................. (1.85) 5.13 (2.36) 1.66 (1.29) 2.40
---------- -------- ---------- ------- --------- --------
Less dividends and distributions from:
Net investment income ..... -- -- (0.05) -- -- (0.01)
Net realized gain.......... -- -- -- -- -- --
---------- -------- ---------- ------- --------- --------
Total dividends and
distributions............... -- -- (0.05) -- -- (0.01)
---------- -------- ---------- ------- --------- --------
Net asset value,
end of period............... $ 12.20 $ 14.05 $ 8.92 $ 11.33 $ 9.67 $10.96
========== ======== ======= ======= ======= ========
TOTAL INVESTMENT RETURN+ .... (13.17)% 57.51% (20.87)% 17.17% (11.77)% 28.07%
RATIOS TO AVERAGE NET
ASSETS:
Expenses..................... 1.86% 1.92% 2.02% 1.89% 1.90 % 1.83%
Net investment income
(loss)...................... (1.14)% (0.73)% (1.32)% 0.59% (0.28)% (0.20)%
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands................ $112,982 $115,337 $67,604 $89,236 $108,411 $179,276
Portfolio turnover rate ..... 153% 88% 53% 84% 70 % 68%
Average commission rate
paid........................ -- -- -- -- -- --
</TABLE>
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+ 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>
THE FUND AND ITS MANAGEMENT
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Dean Witter Developing Growth Securities Trust (the "Fund") is an open-end
diversified management investment company. The Fund is a trust of the type
commonly known as a "Massachusetts business trust" and was organized under the
laws of Massachusetts on December 28, 1982.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the
Fund's Investment Manager. The Investment Manager, which was incorporated in
July, 1992, is a wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co., a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses--securities,
asset management and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 100 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined total assets of
approximately $93.1 billion as of June 30, 1997. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.5 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
The Fund's Board of Trustees reviews the various services provided by or
under the direction of the Investment Manager to ensure that the Fund's general
investment policies and programs are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory
manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.50% to the Fund's net assets not exceeding $500 million and
0.475% to the Fund's net assets exceeding $500 million. For the fiscal year
ended September 30, 1996, the Fund accrued total compensation to the Investment
Manager amounting to 0.49% of the Fund's average daily net assets and the
Fund's total expenses amounted to 1.69% of the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is long-term capital growth. There is
no assurance that the objective will be achieved. This objective is fundamental
and may not be changed without shareholder approval. The following policies may
be changed by the Board of Trustees without shareholder approval.
The Fund seeks to achieve capital growth which significantly exceeds the
historical total return of common stocks as measured by the Standard & Poor's
500 index. The primary emphasis is on the securities of smaller and
medium-sized companies that, in the opinion of the Investment Manager, have the
potential to grow much more rapidly than the economy; at times, investments may
also be made in the securities of larger, established companies which also have
such growth potential. The Fund will normally invest at least 65% of its total
assets in the securities of such companies. In addition to common stock, this
portion of the portfolio may also include convertible securities, preferred
stocks and warrants.
The Investment Manager attempts to identify companies whose earnings growth
will be significantly higher than the average. Dividend income is not generally
a consideration in the selection of stocks for purchase.
8
<PAGE>
The Investment Manager focuses its stock selection for the Fund upon a
diversified group of emerging growth companies which have moved beyond the
difficult and extremely risky "start-up" phase and which at the time of
selection show positive earnings with the prospects of achieving significant
further profit gains in at least the next two-to-three years after acquisition.
New technologies, techniques, products or services, cost-reducing measures,
changes in management, capitalization or asset deployment, changes in
government regulations or favorable shifts in other external circumstances may
all contribute to the anticipated phase of growth.
The application of the Fund's investment policies is basically dependent
upon the judgment of the Investment Manager. The proportions of the Fund's
assets invested in particular industries will shift from time to time in
accordance with the judgment of the Investment Manager.
The Fund may invest up to 35% of its total assets in corporate debt
securities which are rated at the time of purchase Baa or better by Moody's
Investors Service Inc. or BBB or better by Standard & Poor's Corporation or
which, if not rated, are deemed to be of comparable quality by the Investment
Manager, and money market instruments. There may be periods during which, in
the opinion of the Investment Manager, general market conditions warrant
reduction of some or all of the Fund's securities holdings. During such
periods, the Fund may adopt a temporary "defensive" posture in which greater
than 35% of its total assets are invested in cash or money market instruments,
including obligations issued or guaranteed as to principal or interest by the
United States Government, its agencies or instrumentalities, certificates of
deposit, bankers' acceptances and other obligations of domestic banks having
total assets of $1 billion or more, and short-term commercial paper of
corporations organized under the laws of any state or political subdivision of
the United States.
The securities in which the Fund invests may or may not be listed on a
national stock exchange, but if they are not so listed, will generally have an
established over-the-counter market.
The Fund may invest in foreign securities, real estate investment trusts and
private placements, enter into repurchase agreements, borrow money for the
purpose of leveraging its investments, purchase securities on a when-issued or
delayed delivery basis, purchase or sell securities on a forward commitment
basis, purchase securities on a "when, as and if issued" basis, and lend its
portfolio securities, as discussed under "Risk Considerations" below.
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. The Fund may invest in securities of foreign companies.
However, the Fund will not invest more than 10% of the value of its total
assets, at the time of purchase, in foreign securities (other than securities
of Canadian issuers registered under the Securities Exchange Act of 1934 or
American Depository Receipts, on which there is no such limit). 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.
9
<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 in 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 Canadian
issuers may be speculative due to certain political risks and may be subject to
substantial price fluctuations.
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, 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. In addition, 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.
The Fund may not 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.
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
10
<PAGE>
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or which are otherwise not readily marketable. (Securities
eligible for resale pursuant to Rule 144A under the Securities Act, and
determined to be liquid pursuant to the procedures discussed below, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. The Securities and Exchange
Commission has adopted Rule 144A under the Securities Act, which permits the
Fund to sell restricted securities to qualified institutional buyers without
limitation. The Investment Manager, pursuant to procedures adopted by the
Trustees of the Fund, will make a determination as to the liquidity of each
restricted security purchased by the Fund. If a restricted security is
determined to be "liquid," such security will not be included within the
category "illiquid securities", which under current policy may not exceed 15%
of the Fund's net assets. Limitations on the resale of private placements 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. In the case of restricted securities
determined to be "liquid" pursuant to Rule 144A under the Securities Act, the
Fund's illiquidity could increase if qualified institutional buyers become
unavailable.
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, 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.
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.
Leveraging. The Fund may borrow money, but only from a bank and in an amount
up to 25% of the value of the Fund's total assets (including the amount
borrowed) less its liabilities (not including any borrowings but including the
fair market value at the time of computation of any other senior securities
then outstanding). When the Fund borrows it will be because it seeks to enhance
capital appreciation by leveraging its investments through purchasing
11
<PAGE>
securities with the borrowed funds. The Fund will be required to maintain an
asset coverage (including the proceeds of borrowings) of at least 300% of such
borrowings in accordance with the provisions of the Investment Company Act of
1940 (the "Act"). The investment policy also provides that the Fund may not
purchase or sell a security on margin.
Borrowings for leveraging will be subject to current margin requirements of
the Federal Reserve Board and where necessary the Fund may use any or all of
its securities as collateral for such borrowings. Any investment gains made
with the additional monies in excess of interest paid will cause the net asset
value of the Fund's shares to rise to a greater extent than would otherwise be
the case. Conversely, if the investment performance of the additional monies
fails to cover their cost to the Fund, net asset value will decrease to a
greater extent than would otherwise be the case. This is the speculative factor
involved in leverage. If, due to market fluctuations or other reasons, the
value of the Fund's assets (including the proceeds of borrowings) becomes at
any time less than three times the amount of any outstanding bank debt, the
Fund, within three business days, will reduce its bank debt to the extent
necessary to meet the required 300% asset coverage. In doing this, the Fund may
have to sell a portion of its investments at a time when it may be
disadvantageous to do so.
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.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at any
time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account pursuant
to applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans of portfolio securities will only be made to firms deemed by the
Investment Manager to be creditworthy and when the income which can be earned
from such loans justifies the attendant risks.
For additional risk disclosure, please refer to the "Investment Objective
and Policies" section of the Prospectus and to the "Investment Practices and
Policies" section of the Statement of Additional Information.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. No particular empha-
12
<PAGE>
sis is given to investments in securities for the purpose of earning current
income. 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") and other broker-dealer affiliates
of InterCapital, the views of others regarding economic developments and
interest rate trends, and the Investment Manager's own analysis of factors it
deems relevant. The Fund is managed within InterCapital's Growth Group, which
manages 31 funds and fund portfolios, with approximately $13.5 billion in
assets at June 30, 1997. Jayne Stevlingson, Senior Vice President of
InterCapital and a member of InterCapital's Growth Group, is the primary
portfolio manager of the Fund. Ms. Stevlingson has been a portfolio manager of
the Fund since September, 1994 and has been the sole portfolio manager of the
Fund since November, 1995. She has been a portfolio manager with InterCapital
since October, 1992, prior to which time she was an analyst with Bankers Trust
New York Corp.
Orders for transactions in portfolio securities are placed for the Fund with
a number of brokers, including DWR and other broker-dealer affiliates of
InterCapital. 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 and other brokers and dealers that are affiliates of
InterCapital.
The portfolio trading engaged in by the Fund may result in its portfolio
turnover rate exceeding 200%, although it is not anticipated that this rate
will exceed 300%. The Fund will incur brokerage costs commensurate with its
portfolio turnover rate, and thus a higher level (over 100%) of portfolio
transactions will increase the Fund's overall brokerage expenses. 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.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below have been adopted by the Fund as
fundamental policies, along with certain other investment restrictions. 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.
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. Concentrate its investments in any particular industry, but if deemed
appropriate for attainment of its investment objective, up to 25% of its total
assets (valued at the time of investment) may be invested in any one industry
classification used by the Fund for investment purposes. 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 of
the United States Government, its agencies or instrumentalities.
5. Borrow money, except from banks for investment purposes or as a temporary
measure for extraordinary or emergency purposes, within the limits set forth in
the Act (see "Leveraging," above).
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in
13
<PAGE>
percentage resulting from a change in values of portfolio securities or amount
of total or net assets will not be considered a violation of any of the
foregoing restrictions.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment 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 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.
The Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an initial sales charge are
subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a CDSC scaled down from 2.0% to
1.0% if redeemed within three years after purchase.) Class C shares are sold
without an initial sales charge but are subject to a CDSC of 1.0% on most
redemptions made within one year after purchase. Class D shares are sold
without an initial sales charge or CDSC and are available only to investors
meeting an initial investment minimum of $5 million, and to certain other
limited categories of investors. At the discretion of the Board of Trustees of
the Fund, Class A shares may be sold to categories of investors in addition to
those set forth in this prospectus at net asset value without a front-end sales
charge, and Class D shares may be sold to certain other categories of
investors, in each case as may be described in the then current prospectus of
the Fund. See "Alternative Purchase Arrangements--Selecting a Particular Class"
for a discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million or more and
to certain other limited categories of investors. For the purpose of meeting
the minimum $5 million initial investment for Class D shares, and subject to
the $1,000 minimum initial investment for each Class of the Fund, an investor's
existing holdings of Class A shares of the Fund and other Dean Witter Funds
that are multiple class funds ("Dean Witter Multi-Class Funds") and shares of
Dean Witter Funds sold with a front-end sales charge ("FSC Funds") and
concurrent investments in Class D shares of the Fund and other Dean Witter
Multi-Class Funds will be aggregated. Subsequent purchases of $100 or more may
be made by sending a check, payable to Dean Witter Developing Growth Securities
Trust, directly to Dean Witter Trust Company (the "Transfer Agent") at P.O. Box
1040, Jersey City, NJ 07303 or by contacting an account executive of DWR or
other Selected Broker-Dealer. 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
14
<PAGE>
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 months. In the case of investments
pursuant to Systematic Payroll Deduction Plans (including Individual Retirement
Plans), the Fund, in its discretion, may accept investments without regard to
any minimum amounts which would otherwise be required, if the Fund has reason
to believe that additional investments will increase the investment in all
accounts under such Plans to at least $1,000. Certificates for shares purchased
will not be issued unless 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 dividends and
distributions. While no sales charge is imposed at the time shares are
purchased, a contingent deferred sales charge may be imposed at the time of
redemption (see "Redemptions and Repurchases"). Sales personnel of a Selected
Broker-Dealer are compensated for selling shares of the Fund by the Distributor
or any of its affiliates and/or the Selected Broker-Dealer. In addition, some
sales personnel of the Selected Broker-Dealer will receive various types of
non-cash compensation as special sales incentives, including trips, educational
and/or business seminars and merchandise. The Fund and the Distributor reserve
the right to reject any purchase 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 detailed discussion of each Class that
follows this summary.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative--Class A Shares."
15
<PAGE>
Class B Shares. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified employer-sponsored benefit plans are subject to a CDSC scaled down
from 2.0% to 1.0% if redeemed within three years after purchase.) This CDSC may
be waived for certain redemptions. Class B shares are also subject to an annual
12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate gross sales
of the Fund's Class B shares since the inception of the Fund (not including
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since the
Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B. The Class B shares' distribution fee will
cause that Class to have higher expenses and pay lower dividends than Class A
or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class
to have higher expenses and pay lower dividends than Class A or Class D shares.
See "Level Load Alternative--Class C Shares."
Class D Shares. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are
not subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
Selecting a Particular Class. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to an
ongoing 12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A
shares) for an indefinite period of time. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks. Other investors, however, may elect to purchase Class C shares if,
for example, they
16
<PAGE>
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million minimum investment amount for
Class D shares, holdings of Class A shares in all Dean Witter Multi-Class
Funds, shares of FSC Funds and shares of Dean Witter Funds for which such
shares have been exchanged will be included together with the current
investment amount.
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- --------- ------------------------- ------------- --------------------
<S> <C> <C> <C>
A MAXIMUM 5.25% 0.25% No
INITIAL SALES CHARGE
REDUCED FOR
PURCHASES OF
$25,000 AND OVER;
SHARES SOLD WITHOUT
AN INITIAL SALES
CHARGE GENERALLY
SUBJECT TO A 1.0%
CDSC DURING FIRST
year.
- --------- ------------------------- ------------- --------------------
B Maximum 5.0% 1.0% B shares convert
CDSC during the first to A shares
year decreasing automatically
to 0 after six years after
approximately
ten years
- --------- ------------------------- ------------- --------------------
C 1.0% CDSC during 1.0% No
first year
- --------- ------------------------- ------------- --------------------
D None None No
- --------- ------------------------- ------------- --------------------
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for 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:
17
<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 equal to at least $5 million, such
investor is eligible to purchase Class D shares subject to the $1,000 minimum
initial investment requirement of that Class of the Fund. See "No Load
Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm
the investor's represented holdings.
18
<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 Dean Witter Trust Company ("DWTC") or Dean Witter Trust
FSB ("DWTFSB") (each of which is an affiliate of the Investment Manager)
provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory or administrative services (such
investments are subject to all of the terms and conditions of such programs,
which may include termination fees and restrictions on transferability of Fund
shares);
(3) retirement plans qualified under Section 401(k) of the Internal Revenue
Code ("401(k) plans") and other employer-sponsored plans qualified under
Section 401(a) of the Internal Revenue Code with at least 200 eligible
employees and for which DWTC or DWTFSB serves as Trustee or the 401(k) Support
Services Group of DWR serves as recordkeeper;
(4) 401(k) plans and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code for which DWTC or DWTFSB serves as Trustee
or the 401(k) Support Services Group of DWR serves as recordkeeper whose Class
B shares have converted to Class A shares, regardless of the plan's asset size
or number of eligible employees;
(5) investors who are clients of a Dean Witter account executive who joined
Dean Witter from another investment firm within six months prior to the date of
purchase of Fund shares by such investors, if the shares are being purchased
with the proceeds from a redemption of shares of an open-end proprietary mutual
fund of the account executive's previous firm which imposed either a front-end
or deferred sales charge, provided such purchase was made within sixty days
after the redemption and the proceeds of the redemption had been maintained in
the interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain employer-sponsored benefit
plans, three years) preceding the
19
<PAGE>
redemption. In addition, Class B shares are 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 Fund (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
Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may, however,
be subject to a CDSC which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First...................... 5.0%
Second..................... 4.0%
Third...................... 3.0%
Fourth..................... 2.0%
Fifth...................... 2.0%
Sixth...................... 1.0%
Seventh and thereafter .... None
</TABLE>
In the case of Class B shares of the Fund held by 401 (k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code for which DWTC or DWTFSB serves as Trustee or the 401(k) Support Services
Group of DWR serves as recordkeeper and whose accounts are opened on or after
July 28, 1997, shares held for three years or more after purchase (calculated
as described in the paragraph above) will not be subject to any CDSC upon
redemption. However, shares redeemed earlier than three years after purchase
may be subject to a CDSC (calculated as described in the paragraph above), the
percentage of which will depend on how long the shares have been held, as set
forth in the following table:
<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 employer-sponsored benefit plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption; and
(iii) the current net asset value of shares purchased through reinvestment of
dividends or distributions and/or shares acquired in exchange for shares of FSC
Funds or of other Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first. In addition, no CDSC will be imposed on redemptions of shares which are
attributable to reinvestment of dividends or distributions from, or the
proceeds of, certain Unit Investment Trusts.
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
20
<PAGE>
tenants with right of survivorship; or (B) held in a qualified corporate or
self-employed retirement plan, Individual Retirement Account ("IRA") or
Custodial Account under Section 403(b)(7) of the Internal Revenue Code ("403(b)
Custodial Account"), provided in either case that the redemption is requested
within one year of the death or initial determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a
"key employee" of a "top heavy" plan, following attainment of age 59 1/2); (B)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (C) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
401(k) plan or other employer-sponsored plan qualified under Section 401(a) of
the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper
("Eligible Plan"), provided that either: (A) the plan continues to be an
Eligible Plan after the redemption; or (B) the redemption is in connection with
the complete termination of the plan involving the distribution of all plan
assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
Conversion to Class A Shares. All shares of the Fund held prior to July 28,
1997 have been designated Class B shares. Shares held before May 1, 1997 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 401(k) plan or other employer-sponsored plan
qualified under Section 401(a) of the Internal Revenue Code and for which DWTC
or DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper, the plan is treated as a single investor and all Class B
shares will convert to Class A shares on the conversion date of the first
shares of a Dean Witter Multi-Class Fund purchased by that plan. In the case of
Class B shares previously exchanged for shares of an "Exchange Fund" (see
"Shareholder Services--Exchange Privilege"), the period of time the shares were
held in the Exchange Fund (calculated from the last day of the month in which
the Exchange Fund shares were acquired) is excluded from the holding period for
conversion. If those shares are subsequently re-exchanged for Class B shares of
a Dean Witter Multi-Class Fund, the holding period resumes on the last day of
the month in which Class B shares are reacquired.
21
<PAGE>
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that
are not received by the Transfer Agent at least one week prior to any
conversion date will be converted into Class A shares on the next scheduled
conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
Class B shares purchased before July 28, 1997 by trusts for which DWTC or
DWTFSB provides discretionary trustee services will convert to Class A shares
on or about August 29, 1997. The CDSC will not be applicable to such shares.
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 and the following
categories of investors: (i) investors participating in the InterCapital mutual
fund asset allocation program pursuant to which such persons pay an asset based
fee; (ii) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory or administrative services (subject to all
of the terms and conditions of such programs, which may include termination
fees and restrictions on transferability of Fund shares); (iii) 401(k) plans
established by DWR and SPS Transaction Services, Inc. (an affiliate of DWR) for
their employees; (iv) certain Unit Investment Trusts sponsored by DWR; (v)
certain other open-end investment companies whose shares are distributed by the
Distributor; and (vi) other categories of investors, at the discretion of the
Board, as disclosed in the then current prospectus of the Fund. Investors who
require a $5 million minimum initial investment to qualify to purchase Class D
shares may satisfy that requirement by investing that amount in a single
transaction in Class D shares of the Fund and other Dean Witter Multi-Class
Funds, subject to the $1,000 minimum initial investment required for that Class
of the Fund. In addition, for the purpose of meeting the $5 million minimum
investment amount, holdings of Class A shares in all Dean Witter Multi-Class
Funds, shares of FSC Funds and shares of Dean Witter Funds for which such
shares have been exchanged will be included together with the current
investment amount. If a shareholder redeems Class A shares and purchases Class
D shares, such redemption may be a taxable event.
22
<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 inception of
the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Fund's inception upon which a CDSC has been
imposed or waived, or (b) the average daily net assets of Class B. The fee is
treated by the Fund as an expense in the year it is accrued. In the case of
Class A shares, the entire amount of the fee currently represents a service fee
within the meaning of the NASD guidelines. In the case of Class B and Class C
shares, a portion of the fee payable pursuant to the Plan, equal to 0.25% of
the average daily net assets of each of these Classes, is currently
characterized as a service fee. A service fee is a payment made for personal
service and/or the maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses borne
by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of DWR's account executives
and others who engage in or support distribution of shares or who service
shareholder accounts, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering
of the Fund's shares to other than current shareholders; and preparation,
printing and distribution of sales literature and advertising materials. In
addition, the Distributor may utilize fees paid pursuant to the Plan in the
case of Class B shares to compensate DWR and other Selected Broker-Dealers for
their opportunity costs in advancing such amounts, which compensation would be
in the form of a carrying charge on any unreimbursed expenses.
For the fiscal year ended September 30, 1996, the Fund accrued payments
under the Plan amounting to $6,461,408, which amount is equal to 1.0% of the
Fund's average daily net assets for the fiscal year. The payments accrued under
the Plan were calculated pursuant to clause (b) of the compensation formula
under the Plan. All shares held prior to July 28, 1997 have been designated
Class B shares.
In the case of Class B shares, at any given time, the expenses of
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 redemption of Class B shares (see "Redemptions and
Repurchases--Contingent Deferred Sales Charge"). 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
$28,270,501 at September 30, 1996, which was equal to 3.54% of the Fund's net
assets on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses or any requirement that
the Plan be continued from year to year, this excess amount does not constitute
a liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of CDSCs paid by investors upon redemption of shares, if
for any reason the Plan is terminated the Trustees will consider at that time
the manner in which to treat such expenses. Any cumulative expenses incurred,
23
<PAGE>
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
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to account executives at the time of sale may
be reimbursed in the subsequent calendar year. No interest or other financing
charges will be incurred on any Class A or Class C distribution expenses
incurred by the Distributor under the Plan or on any unreimbursed expenses due
to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day that the New York Stock Exchange is
open by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the
Class A, Class B, Class C and Class D shares will be invested together in a
single portfolio. The net asset value of each Class, however, will be
determined separately by subtracting each Class's accrued expenses and
liabilities. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by
the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign exchange is valued at its latest sale price on that
exchange prior to the time assets are valued; if there were no sales that day,
the security is valued at the latest bid price (in cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market pursuant to procedures adopted by the
Trustees), and (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest bid price.
When market quotations are not readily available, including circumstances under
which it is determined by the Investment Manager that sale and bid prices are
not reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by
and under the general supervision of the Board of Trustees (valuation of debt
securities for which market quotations are not readily available may be based
upon current market prices of securities which are comparable in coupon, rating
and maturity or an appropriate matrix utilizing similar factors).
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 securitieswill be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research evaluations by its staff,
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
share-
24
<PAGE>
holder requests that they be paid in cash. Shares so acquired are acquired at
net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
Investment of Dividends and Distributions Received in Cash. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the proceeds to the Transfer
Agent within thirty days after the payment date. Shares so acquired are
acquired at net asset value and are not subject to the imposition of a
front-end sales charge or a CDSC (see "Redemptions and Repurchases").
EasyInvest (Service Mark). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable CDSC
will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase of
Fund Shares"). Therefore, any shareholder participating in the Withdrawal Plan
will have sufficient shares redeemed from his or her account so that the
proceeds (net of any applicable CDSC) to the shareholder will be the designated
monthly or quarterly amount. Withdrawal plan payments should not be considered
as dividends, yields or income. If periodic withdrawal plan payments
continuously exceed net investment income and net capital gains, the
shareholder's original investment will be correspondingly reduced and
ultimately exhausted. Each withdrawal constitutes a redemption of shares and
any gain or loss realized must be recognized for federal income tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of
the above services.
Tax Sheltered Retirement Plans. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the Transfer
Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Dean Witter Multi-Class Fund without the imposition of any exchange fee.
Shares may also be exchanged for shares of the following funds: Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust
and five Dean Witter funds which are money market funds (the "Exchange Funds").
Class A shares may also be exchanged for shares of Dean Witter Multi-State
Municipal Series Trust and Dean Witter Hawaii Municipal Trust, which are Dean
Witter Funds sold with a front-end sales charge ("FSC Funds"). Class B shares
may also be exchanged for shares of Dean Witter Global Short-Term Income Fund
Inc., Dean Witter High Income Securities and Dean Witter National Municipal
Trust, which are Dean Witter Funds offered with a CDSC ("CDSC Funds").
Exchanges may be made after the shares of the Fund acquired by purchase (not by
exchange or dividend
25
<PAGE>
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, any CDSC
Fund or any Exchange Fund that is not a money market fund is on the basis of
the next calculated net asset value per share of each fund after the exchange
order is received. When exchanging into a money market fund from the Fund,
shares of the Fund are redeemed out of the Fund at their next calculated net
asset value and the proceeds of the redemption are used to purchase shares of
the money market fund at their net asset value determined the following
business day. Subsequent exchanges between any of the money market funds and
any of the Dean Witter Multi-Class Funds, FSC Funds or CDSC Funds or any
Exchange Fund that is not a money market fund can be effected on the same
basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If
those shares are subsequently re-exchanged for shares of a Dean Witter
Multi-Class Fund or shares of a CDSC Fund, the holding period previously frozen
when the first exchange was made resumes on the last day of the month in which
shares of a Dean Witter Multi-Class Fund or shares of a CDSC Fund are
reacquired. Thus, the CDSC is based upon the time (calculated as described
above) the shareholder was invested in shares of a Dean Witter Multi-Class Fund
or in shares of a CDSC Fund (see "Purchase of Fund Shares"). In the case of
exchanges of Class A shares which are subject to a CDSC, the holding period
also includes the time (calculated as described above) the shareholder was
invested in shares of a FSC Fund. However, in the case of shares exchanged into
an Exchange Fund on or after April 23, 1990, upon a redemption of shares which
results in a CDSC being imposed, a credit (not to exceed the amount of the
CDSC) will be given in an amount equal to the Exchange Fund 12b-1 distribution
fees incurred on or after that date which are attributable to those shares.
(Exchange Fund 12b-1 distribution fees are described in the prospectuses for
those funds.) Class B shares of the Fund acquired in exchange for Class B
shares of another Dean Witter Multi-Class Fund or shares of a CDSC Fund having
a different CDSC schedule than that of this Fund will be subject to the higher
CDSC schedule, even if such shares are subsequently re-exchanged for shares of
the fund with the lower CDSC schedule.
Additional Information Regarding Exchanges. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional purchases
and/or exchanges from the investor. Although the Fund does not have any
specific definition of what constitutes a pattern of frequent exchanges, and
will consider all relevant factors in determining whether a particular
situation is abusive and contrary to the best interests of the Fund and its
other shareholders, investors should be aware that the Fund and each of the
other Dean Witter Funds may in their discretion limit or otherwise restrict the
number of times this Exchange Privilege may be exercised by any investor. Any
such restriction will be made by the Fund on a prospective basis only, upon
notice to the shareholder not later than ten days following such shareholder's
most recent exchange. Also, the Exchange Privilege may be terminated or revised
at any time by the Fund and/or any of such Dean Witter Funds for which shares
of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies. Shareholders maintaining margin accounts with
DWR or another Selected Broker-Dealer are referred to their account executive
regarding restrictions on exchange of shares of the Fund pledged in the margin
account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it care-
26
<PAGE>
fully 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 account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization Form,
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made in writing
or by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name,
mailing address, social security or other tax identification number and DWR or
other Selected Broker-Dealer account number (if any). Telephone instructions
may also be recorded. If such procedures are not employed, the Fund may be
liable for any losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean
Witter Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. Shares of each Class of the Fund can be redeemed for cash at any
time at the net asset value per share next determined less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see
"Purchase of Fund Shares"). If shares are held in a shareholder's account
without a share certificate, a written request for redemption to the Fund's
Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along with
any additional information 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 next computed (see "Purchase of Fund Shares")
27
<PAGE>
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 by the Fund, the Distributor,
DWR or other Selected Broker-Dealers. The offer by DWR and other Selected
Broker-Dealers to repurchase shares may be suspended without notice by them at
any time. In that event, shareholders may redeem their shares through the
Fund's Transfer Agent as set forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented for
repurchase or redemption will be made by check within seven days after receipt
by the Transfer Agent of the certificate and/or written request in good order.
Such payment may be postponed or the right of redemption suspended under
unusual circumstances, e.g., when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum
time needed to verify that the check used for investment has been honored (not
more than fifteen days from the time of receipt of the check by the Transfer
Agent). Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executives 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 their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or custodial account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100, or such lesser amount as may
be fixed by the Board of 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 the
shareholder sixty days to make an additional investment in an amount which will
increase the value of his or her account to at least the applicable amount
before the redemption is processed. No CDSC will be imposed on any involuntary
redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Dividends and Distributions. The Fund declares dividends separately for each
Class of shares and intends to distribute substantially all of its net
investment income and net realized short-term and long-term capital gains, if
any, at least once each year. The Fund may, however, determine to retain all or
part of any net long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's
account without issuance of a share certificate unless the shareholder requests
in writing that all dividends and/or distributions be paid in cash. Shares
acquired by dividend and distribution reinvestments will not be subject to any
front-end sales charge or CDSC. Class B shares acquired through dividend and
distribution reinvestments will become eligible for conversion to Class A
shares on a pro rata basis. Distributions paid on Class A and Class D shares
will be higher than for Class B and Class C shares because distribution fees
paid by Class B and Class
28
<PAGE>
C shares are higher. (See "Shareholder Services--Automatic Investment of
Dividends and Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and net capital gains (to the extent not offset by capital loss
carryovers) to shareholders and 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 any dividends and distributions
they receive from the Fund. Such dividends and distributions, to the extent
they are derived from net investment income and net short-term capital gains,
are taxable to the shareholder as ordinary dividend income regardless of
whether the shareholder receives such payments in additional shares or in cash.
All 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 corporate dividends received deduction.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return
of a portion of each shareholder's investment. All, or a portion, of such
payments will not be taxable to shareholders.
After the end of the calendar year, shareholders will receive full
information on their dividends and capital gains distributions for tax
purposes. To avoid being subject to a 31% federal backup withholding tax on
taxable dividends, capital gains distributions and the proceeds of redemptions
and repurchases, shareholders' taxpayer identification numbers must be
furnished and certified as to accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A, Class
B, Class C and Class D shares. The total return of the Fund is based on
historical earnings and is not intended to indicate future performance. The
"average annual total return" of the Fund refers to a figure reflecting the
average annualized percentage increase (or decrease) in the value of an initial
investment in a Class of the Fund of $1,000 over periods of one, five and ten
years. 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.
29
<PAGE>
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges 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
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 Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the property of the Fund for any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
Code of Ethics. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to ensure
that the interests of shareholders and other clients are placed ahead of any
personal interest, that no undue personal benefit is obtained from a person's
employment activities and that actual and potential conflicts of interest are
avoided. To achieve these goals and comply with regulatory requirements, the
Code of Ethics requires, among other things, that personal securities
transactions by employees of the companies be subject to an advance clearance
process to monitor that no Dean Witter Fund is engaged at the same time in a
purchase or sale of the same security. The Code of Ethics bans the purchase of
securities in an initial public offering, and also prohibits engaging in
futures and options transactions and profiting on short-term trading (that is,
a purchase within sixty days of a sale or a sale within sixty days of a
purchase) of a security. In addition, investment personnel may not purchase or
sell a security for 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.
30
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS
Dean Witter Liquid Asset Fund Inc.
Dean Witter Tax-Free Daily Income Trust
Dean Witter U.S. Government Money Market Trust
Dean Witter California Tax-Free Daily Income Trust
Dean Witter New York Municipal Money Market Trust
EQUITY FUNDS
Dean Witter American Value Fund
Dean Witter Natural Resource Development
Securities Inc.
Dean Witter Dividend Growth Securities Inc.
Dean Witter Developing Growth Securities Trust
Dean Witter World Wide Investment Trust
Dean Witter Value-Added Market Series
Dean Witter Utilities Fund
Dean Witter Capital Growth Securities
Dean Witter European Growth Fund Inc.
Dean Witter Pacific Growth Fund Inc.
Dean Witter Precious Metals and Minerals Trust
Dean Witter Health Sciences Trust
Dean Witter Global Dividend Growth Securities
Dean Witter Global Utilities Fund
Dean Witter International SmallCap Fund
Dean Witter Mid-Cap Growth Fund
Dean Witter Balanced Growth Fund
Dean Witter Capital Appreciation Fund
Dean Witter Information Fund
Dean Witter Japan Fund
Dean Witter Income Builder Fund
Dean Witter Special Value Fund
Dean Witter Financial Services Trust
Dean Witter Market Leader Trust
ASSET ALLOCATION FUNDS
Dean Witter Strategist Fund
Dean Witter Global Asset Allocation Fund
ACTIVE ASSETS ACCOUNT PROGRAM
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
FIXED-INCOME FUNDS
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities Trust
Dean Witter Federal Securities Trust
Dean Witter Convertible Securities Trust
Dean Witter California Tax-Free Income Fund
Dean Witter New York Tax-Free Income Fund
Dean Witter World Wide Income Trust
Dean Witter Intermediate Income Securities
Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Multi-State Municipal Series Trust
Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal Trust
Dean Witter Short-Term Bond Fund
Dean Witter National Municipal Trust
Dean Witter High Income Securities
Dean Witter Balanced Income Fund
Dean Witter Hawaii Municipal Trust
Dean Witter Intermediate Term U.S. Treasury Trust
DEAN WITTER RETIREMENT SERIES
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Stategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
<PAGE>
Dean Witter
Developing Growth Serurities Trust
Two World Trade Center
New York, New York 10048
BOARD OF TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
Jayne Stevlingson
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
DEAN WITTER
DEVELOPING
GROWTH
SECURITIES
PROSPECTUS -- JULY 28, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JULY 28, 1997
DEAN WITTER
DEVELOPING
GROWTH
SECURITIES TRUST
- -----------------------------------------------------------------------------
Dean Witter Developing Growth Securities Trust (the "Fund") is an open-end
diversified management investment company whose investment objective is
long-term capital growth. While the Fund may invest in all types of equity and
debt securities, it will invest primarily in common stocks of smaller and
medium sized companies that, in the opinion of the Investment Manager, have the
potential for growing more rapidly than the economy and which may benefit from
new products or services, technological developments or changes in management.
(See "Investment Practices and Policies.")
A Prospectus for the Fund dated July 28, 1997, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge 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
Developing Growth Securities Trust
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.......................... 15
Portfolio Transactions and Brokerage............. 16
The Distributor.................................. 17
Determination of Net Asset Value................. 21
Purchase of Fund Shares.......................... 22
Shareholder Services............................. 24
Redemptions and Repurchases...................... 29
Dividends, Distributions and Taxes............... 30
Performance Information.......................... 31
Description of Shares of The Fund................ 32
Custodian and Transfer Agent..................... 32
Independent Accountants.......................... 33
Reports to Shareholders.......................... 33
Legal Counsel.................................... 33
Experts.......................................... 33
Registration Statement........................... 33
Financial Statements--September 30, 1996 ....... 34
Report of Independent Accountants................ 46
Financial Statements--March 31, 1997 (unaudited) 47
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
THE FUND
The Fund was organized under the laws of the Commonwealth of Massachusetts
on December 28, 1982 and is a trust of the type commonly known as a
"Massachusetts Business Trust."
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 Dean Witter InterCapital Inc.
thereafter.) The daily management of the Fund and research relating to the
Fund's portfolio are conducted by or under the direction of officers of the
Fund and of the Investment Manager, subject to review by the Fund's Board of
Trustees. In addition, Trustees of the Fund provide guidance on economic
factors and interest rate trends. Information as to these Trustees and officers
is contained under the caption "Trustees and Officers."
InterCapital is also the investment manager or investment adviser of the
following investment companies: Dean Witter Liquid Asset Fund Inc.,
InterCapital Income Securities Inc., Dean Witter High Yield Securities Inc.,
Dean Witter Tax-Free Daily Income Trust, Dean Witter Value-Added Market Series,
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, 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, InterCapital Insured Municipal Bond Trust, InterCapital Insured
Municipal Trust, InterCapital Insured Municipal Income Trust, InterCapital
California Insured Municipal Income Trust, InterCapital Quality Municipal
Investment Trust, InterCapital Quality Municipal Income Trust, InterCapital
Quality Municipal Securities, InterCapital California Quality Municipal
Securities, InterCapital New York Quality Municipal Securities, Dean Witter
Diversified Income Trust, Dean Witter Health Sciences Trust, Dean Witter
Retirement Series, Dean Witter Global Dividend Growth Securities, Dean Witter
Limited Term Municipal Trust, InterCapital Insured Municipal Securities,
InterCapital Insured California Municipal Securities, Dean Witter Short-Term
Bond Fund, Dean Witter Global Utilities Fund, Dean Witter National Municipal
Trust, Dean Witter High Income Securities, Dean Witter International SmallCap
Fund, Dean Witter Mid-Cap Growth Fund, Dean Witter Select Dimensions Investment
Series, Dean Witter Balanced Growth Fund, Dean Witter Balanced Income Fund,
Dean Witter Hawaii Municipal Trust, Dean Witter Capital Appreciation Fund, Dean
Witter Information Fund, Dean Witter Intermediate Term U.S. Treasury Trust,
Dean Witter Capital Appreciation Fund, Dean Witter Information Fund, Dean
Witter Japan Fund, Dean Witter Income Builder Fund, Dean Witter Special Value
Fund, Dean Witter Financial Services Trust, Dean Witter Market Leader Trust,
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,
3
<PAGE>
Municipal Income Opportunities Trust III, Municipal Premium Income Trust and
Prime Income Trust. The foregoing investment companies, together with the Fund,
are collectively referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following companies for
which TCW Funds Management, Inc. is the investment adviser: TCW/DW Core Equity
Trust, TCW/DW North American Government Income Trust, TCW/DW Latin American
Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth Fund,
TCW/DW Balanced Fund, TCW/DW Total Return Trust, TCW/DW Mid-Cap Equity Trust,
TCW/DW Global Telecom Trust, TCW/DW Strategic Income Trust, TCW/DW Emerging
Markets 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 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, 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 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 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. The expenses borne by
the Fund include, but are not limited to: expenses of the Plan of Distribution
pursuant to Rule 12b-1 (the "12b-1 fee") (see "The Distributor"); charges and
expenses of any registrar, custodian, share 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 expenses of printing, including typesetting, and
distributing prospectuses of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing 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
4
<PAGE>
expenses of legal counsel, including counsel to the Trustees who are not
interested persons of the Fund or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager) and independent accountants; membership dues of industry associations;
interest on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Trustees) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims
and liabilities and litigation costs and any indemnification relating thereto);
and all other costs of the Fund's operation. The 12b-1 fees relating to a
particular Class will be allocated directly to that Class. In addition, other
expenses associated with a particular Class (except advisory or custodial fees)
may be allocated directly to that Class, provided that such expenses are
reasonably identified as specifically attributable to that Class and the direct
allocation to that Class is approved by the Trustees.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
following annual rates to the Fund's daily net assets: 0.50% of the portion of
the daily net assets not exceeding $500 million and 0.475% of the portion of
the daily net assets exceeding $500 million. For the fiscal years ended
September 30, 1994, 1995 and 1996, the Fund accrued to the Investment Manager
total compensation in the amounts of $1,515,547, $1,916,827 and $3,194,151,
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. 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 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.
5
<PAGE>
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 83 Dean Witter Funds and the 14 TCW/DW Funds are
shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------
<S> <C>
Michael Bozic (56) Chairman and Chief Executive Officer of Levitz Furniture Corporation
Trustee (since November, 1995); Director or Trustee of the Dean Witter Funds;
c/o Levitz Furniture Corporation formerly President and Chief Executive Officer of Hills Department
6111 Broken Sound Parkway, N.W. Stores (May, 1991-July, 1995); formerly variously Chairman, Chief
Boca Raton, Florida Executive Officer, President and Chief Operating Officer (1987-1991)
of the Sears Merchandise Group of Sears, Roebuck and Co.; Director
of Eaglemark Financial Services, Inc., the United Negro College Fund
and Weirton Steel Corporation.
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and Director of InterCapital, DWSC
Chairman of the Board, and Distributors; Executive Vice President and Director of DWR; Chairman,
President, Chief Executive Officer Director or Trustee, President and Chief Executive Officer of the Dean
and Trustee Witter Funds; Chairman, Chief Executive Officer and Trustee of the
Two World Trade Center TCW/DW Funds; Chairman and Director of Dean Witter Trust Company ("DWTC");
New York, New York Director and/or officer of various MSDWD subsidiaries; formerly Executive
Vice President and Director of Dean Witter, Discover & Co. (until February,
1993).
Edwin J. Garn (64) Director or Trustee of the Dean Witter Funds; formerly United States
Trustee Senator (R-Utah)(1974-1992) and Chairman, Senate Banking Committee
c/o Huntsman Chemical Corporation (1980-1986); formerly Mayor of Salt Lake City, Utah (1971-1974); formerly
500 Huntsman Way Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice Chairman,
Salt Lake City, Utah 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 of the
Trustee Independent Directors or Trustees and Director or Trustee of the Dean
Two World Trade Center Witter Funds; Chairman of the Audit Committee and Chairman of the Committee
New York, New York 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 Advisor
(1964-1978); Director of Washington National Corporation (insurance).
6
<PAGE>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------
Wayne E. Hedien** (63) Retired; Director or Trustee of the Dean Witter Funds (commencing on
Trustee September 1, 1997); Director of The PMI Group, Inc. (private mortgage
c/o Gordon Altman Butowsky insurance); Trustee and Vice Chairman of The Field Museum of Natural
Weitzen Shalov & Wein History; 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 of its
New York, New York wholly-owned subsidiary, Allstate Insurance Company (July,
1989-December, 1994); director of various other business and charitable
organizations.
Dr. Manuel H. Johnson (48) Senior Partner, Johnson Smick International, Inc., a consulting firm;
Trustee Co-Chairman and a founder of the Group of Seven Council (G7C), an
c/o Johnson Smick International, Inc. international economic commission; Director or Trustee of the Dean
1133 Connecticut Avenue, N.W. Witter Funds; Trustee of the TCW/DW Funds; Director of NASDAQ (since
Washington, DC June, 1995); Director of Greenwich Capital Markets Inc. (broker-dealer);
Trustee of the Financial Accounting Foundation (oversight organization
for the Financial Accounting Standards Board); formerly Vice Chairman
of the Board of Governors of the Federal Reserve System (1986-1990)
and Assistant Secretary of the U.S. Treasury (1982-1986).
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a private investment partnership;
Trustee Director or Trustee of the Dean Witter Funds; Trustee of the TCW/DW
c/o Triumph Capital, L.P. Funds; formerly Vice President, Bankers Trust Company and BT Capital
237 Park Avenue Corporation (1984-1988); Director of various business organizations.
New York, New York
Philip J. Purcell* (53) Chairman of the Board of Directors and Chief Executive Officer of DWDC,
Trustee DWR and Novus Credit Services Inc.; Director of InterCapital, DWSC
1585 Broadway and Distributors; Director or Trustee of the Dean Witter Funds; Director
New York, New York and/or officer of various DWDC subsidiaries.
John L. Schroeder (66) Retired; Director or Trustee of the Dean Witter Funds; Trustee of the
Trustee TCW/DW Funds; Director of Citizens Utilities Company; formerly Executive
c/o Gordon Altman Butowsky Vice President and Chief Investment Officer of the Home Insurance Company
Weitzen Shalov & Wein (August, 1991-September, 1995) and Chairman and Chief Investment Officer
Counsel to the Independent Trustees of Axe-Houghton Management and the Axe-Houghton Funds (April, 1983-June,
114 West 47th Street 1991).
New York, New York
7
<PAGE>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------
Barry Fink (42) Senior Vice President (since March, 1997) and Secretary and General
Vice President, Secretary Counsel (since February, 1997) of InterCapital and DWSC; Senior Vice
and General Counsel President (since March, 1997) and Assistant Secretary and Assistant
Two World Trade Center General Counsel (since February, 1997) of Distributors; Assistant
New York, New York 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.
Jayne Stevlingson (37) Senior Vice President of InterCapital (since June, 1997); Vice President
Vice President of various Dean Witter Funds; formerly Vice President of InterCapital
Two World Trade Center (October, 1992-June, 1997) and prior thereto Assistant Vice President
New York, New York of Bankers Trust New York Corp.
Thomas F. Caloia (51) First Vice President and Assistant Treasurer of InterCapital and DWSC;
Treasurer Treasurer of the Dean Witter Funds and the TCW/DW Funds.
Two World Trade Center
New York, New York
</TABLE>
- ------------
* Denotes Trustees who are "interested persons", as defined in the Act.
** Mr. Hedien's term as Trustee will commence on September 1, 1997.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Executive Vice President and Director of DWR, and Director of
SPS Transaction Services, Inc. and various other MSDWD subsidiaries, Robert S.
Giambrone, Senior Vice President of InterCapital, DWSC, Distributors and DWTC
and Director of DWTC, Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of InterCapital and Director of DWTC, and Ronald J. Worobel,
Ira N. Ross and Paul D. Vance, Senior Vice Presidents of InterCapital, are Vice
Presidents of the Fund, and Marilyn K. Cranney, First Vice President and
Assistant General Counsel of InterCapital and DWSC, Lou Anne D. McInnis,
Carsten Otto and Ruth Rossi, Vice Presidents and Assistant General Counsels of
InterCapital and DWSC, and Frank Bruttomesso, a Staff Attorney with
InterCapital, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees currently consists of eight (8) trustees; as noted
above, Mr. Hedien's term will commence on September 1, 1997. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of this
Statement of Additional Information, there are a total of 83 Dean Witter Funds,
comprised of 126 portfolios. As of June 30, 1997, the Dean Witter Funds had
total net assets of approximately $87.9 billion and more than six million
shareholders.
Six Trustees and Mr. Hedien (77% of the total number) have no affiliation or
business connection with InterCapital or any of its affiliated persons and do
not own any stock or other securities issued by InterCapital's parent company,
MSDWD. These are the "disinterested" or "independent" Trustees. The other two
Trustees (the "management Trustees") are affiliated with InterCapital. Four of
the six independent Trustees are also Independent Trustees of the TCW/DW Funds.
8
<PAGE>
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Dean Witter Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the current Independent Trustees serve as members of the Audit
Committee and the Committee of the Independent Trustees. Three of them also
serve as members of the Derivatives Committee. During the calendar year ended
December 31, 1996, the three Committees held a combined total of sixteen
meetings. The Committees hold some meetings at InterCapital's offices and some
outside InterCapital. Management Trustees or officers do not attend these
meetings unless they are invited for purposes of furnishing information or
making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to
time. The Independent Trustees are required to select and nominate individuals
to fill any Independent Trustee vacancy on the Board of any Fund that has a
Rule 12b-1 plan of distribution. Most of the Dean Witter Funds have such a
plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Trustees to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees will need to form a judgment on various issues,
and arranges to have that information furnished to Committee members. He also
arranges for the services of independent experts and consults with them in
advance of meetings to help refine reports and to focus on critical issues.
Members of the Committees believe that the person who serves as Chairman of
both Committees and guides their efforts is pivotal to the effective
functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service providers.
In effect, the Chairman of the Committees serves as a combination of chief
executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as
9
<PAGE>
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). 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 September 30, 1996.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME OF INDEPENDENT COMPENSATION
TRUSTEE FROM THE FUND
- -------------------------- ---------------
<S> <C>
Michael Bozic ............. $1,780
Edwin J. Garn ............. 1,850
John R. Haire ............. 3,850
Dr. Manuel H. Johnson .... 1,800
Michael E. Nugent ......... 1,750
John L. Schroeder.......... 1,800
</TABLE>
10
<PAGE>
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
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 82 AND AUDIT 82 DEAN WITTER
NAME OF OF 82 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 ......... $138,850 -- -- -- $138,850
Edwin J. Garn ......... 140,900 -- -- -- 140,900
John R. Haire ......... 106,400 $64,283 $195,450 $12,187 378,320
Dr. Manuel H. Johnson 137,100 66,483 -- -- 203,583
Michael E. Nugent .... 138,850 64,283 -- -- 203,133
John L. Schroeder...... 137,150 69,083 -- -- 206,233
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have adopted a retirement program under which
an Independent Trustee who retires after serving for at least five years (or
such lesser period as may be determined by the Board) as an Independent
Director or Trustee of any Dean Witter Fund that has adopted the retirement
program (each such Fund referred to as an "Adopting Fund" and each such Trustee
referred to as an "Eligible Trustee") is entitled to retirement payments upon
reaching the eligible retirement age (normally, after attaining age 72). Annual
payments are based upon length of service. Currently, upon retirement, each
Eligible Trustee is entitled to receive from the Adopting Fund, commencing as
of his or her retirement date and continuing for the remainder of his or her
life, an annual retirement benefit (the "Regular Benefit") equal to 25.0% of
his or her Eligible Compensation plus 0.4166666% of such Eligible Compensation
for each full month of service as an Independent Director or Trustee of any
Adopting Fund in excess of five years up to a maximum of 50.0% after ten years
of service. The foregoing percentages may be changed by the Board.(1)
"Eligible Compensation" is one-fifth of the total compensation earned by such
Eligible Trustee for service to the Adopting Fund in the five year period prior
to the date of the Eligible Trustee's retirement. Benefits under the retirement
program are not secured or funded by the Adopting Funds.
- ------------
(1) An Eligible Trustee may elect alternate payments of his or her
retirement benefits based upon the combined life expectancy of such
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. The amount estimated to be payable under this
method, through the remainder of the later of the lives of such Eligible
Trustee and spouse, will be the actuarial equivalent of the Regular
Benefit. In addition, the Eligible Trustee may elect that the surviving
spouse's periodic payment of benefits will be equal to either 50% or
100% of the previous periodic amount, an election that, respectively,
increases or decreases the previous periodic amount so that the
resulting payments will be the actuarial equivalent of the Regular
Benefit.
11
<PAGE>
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended September 30,
1996 and by the 57 Dean Witter Funds (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 Fund as of
September 30, 1996 and from the 57 Dean Witter Funds as of December 31, 1996.
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
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- --------------------------- --------------- --------------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic .............. 10 50.0% $ 399 $20,147 $ 950 $ 51,325
Edwin J. Garn .............. 10 50.0 675 27,772 950 51,325
John R. Haire .............. 10 50.0 4,576 46,952 2,343 129,550
Dr. Manuel H. Johnson ..... 10 50.0 268 10,926 950 51,325
Michael E. Nugent .......... 10 50.0 507 19,217 950 51,325
John L. Schroeder........... 8 41.7 776 38,700 792 42,771
</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.
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
- -----------------------------------------------------------------------------
Leveraging. As discussed in the Prospectus, the Fund may borrow money, but
only from a bank and in an amount up to 25% of the value of the Fund's total
assets (including the amount borrowed) less its liabilities (not including any
borrowings but including the fair market value at the time of computation of
any other senior securities then outstanding), in an effort to enhance capital
appreciation by leveraging its investments through purchasing securities with
the borrowed funds. Such borrowings will be subject to current margin
requirements of the Federal Reserve Board and where necessary the Fund may use
any or all of its securities as collateral for such borrowings. Any investment
gains made with the additional monies in excess of interest paid will cause the
net asset value of the Fund's shares to rise to a greater extent than would
otherwise be the case. Conversely, if the investment performance of the
additional monies fails to cover their cost to the Fund, net asset value will
decrease to a greater extent than would otherwise be the case. This is the
speculative factor involved in leverage.
The Fund will be required to maintain an asset coverage (including the
proceeds of borrowings) of at least 300% of such borrowings in accordance with
the provisions of the Act. If, due to market fluctuations or other reasons, the
value of the Fund's assets (including the proceeds of borrowings) becomes at
any time less than three times the amount of any outstanding bank debt, the
Fund, within three business days, will reduce its bank debt to the extent
necessary to meet the required 300% asset coverage. In restoring the 300% asset
coverage, the Fund may have to sell a portion of its investments at a time when
it may be disadvantageous to do so.
The investment policy provides that the Fund may not purchase or sell a
security on margin. The margin and bank borrowing restrictions will prevent the
ordinary purchase of a security which involves a cash borrowing from a broker
of any part of the purchase price of a security.
12
<PAGE>
In addition to borrowings for leverage, the Fund may also borrow from banks
an additional amount as a temporary measure for extraordinary or emergency
purposes, and for these purposes, in no event an amount greater than 5% of the
value of the Fund's total assets. The Fund did not borrow any money during its
fiscal year ended September 30, 1996.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at any
time by the Fund, 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 at least equal to the market value, determined daily, of the
loaned securities. The advantage of such loans is that the Fund continues to
receive the income on the loaned securities while at the same time earning
interest on the cash amounts deposited as collateral, which will be invested in
short-term obligations. The Fund will not lend its portfolio securities if such
loans are not permitted by the laws or regulations of any state in which its
shares are qualified for sale and will not lend more than 25% of the value of
its total assets.
A loan may be terminated by the borrower on one business day's notice, or by
the Fund on four business days' notice. If the borrower fails to deliver the
loaned securities within four days after receipt of notice, the Fund could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over the value of the collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities
fail financially. However, these loans of portfolio securities will only be
made to firms deemed by the Fund's management to be creditworthy and when the
income which can be earned from such loans justifies the attendant risks. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss in the value of the securities during the period
would inure to the Fund. The creditworthiness of firms to which the Fund lends
its portfolio securities will be monitored on an ongoing basis by the
Investment Manager pursuant to procedures adopted and reviewed, on an ongoing
basis, by the Board of Trustees of the Fund. The Fund will pay reasonable
finder's, administrative and custodial fees in connection with a loan of its
securities.
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 has not to date lent any of its portfolio
securities.
Repurchase Agreements. As discussed in the Prospectus, when cash may be
available for only a few days, it may be invested by the Fund in repurchase
agreements until such time as it may otherwise be invested or used for payments
of obligations of the Fund. These agreements, which may be viewed as a type of
secured lending by the Fund, typically involve the acquisition by the Fund of
debt securities from a selling financial institution such as a bank, savings
and loan association or broker-dealer. The agreement provides that the Fund
will sell back to the institution, and that the institution will repurchase,
the underlying security ("collateral") at a specified price and at a fixed time
in the future, usually not more than seven days from the date of purchase. The
collateral will be maintained in a segregated account and will be marked to
market daily to determine that the value of the collateral, as specified in the
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 always be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. In the event
of a default or bankruptcy by a selling financial institution, the Fund will
seek to liquidate such collateral. However, the exercising of the Fund's right
to liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the
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<PAGE>
repurchase price, the Fund could suffer a loss. It is the current policy of the
Fund not to invest in repurchase agreements that do not mature within seven
days if any such investment, together with any other illiquid assets held by
the Fund, amounts to more than 15% of its total assets. The Fund's investments
in repurchase agreements may at times be substantial when, in the view of the
Investment Manager, liquidity, tax or other considerations warrant.
Warrants. The Fund may invest in warrants, which 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 Fund's
investment in them will be lost. The prices of warrants do not necessarily move
parallel to the prices of the underlying securities.
When-Issued and Delayed Delivery Securities and Forward Commitments. As
discussed in the Prospectus, from time to time the Fund may purchase securities
on a when-issued or delayed delivery basis or may purchase or sell securities
on a forward commitment basis. When such transactions are negotiated, the price
is fixed at the time of the commitment, but delivery and payment can take place
a month or more after the date of the commitment. While the Fund will only
purchase securities on a when-issued, delayed delivery or forward commitment
basis with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date, if it is deemed advisable. The
securities so purchased or sold are subject to market fluctuation and no
interest 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 U.S. Government securities or other liquid portfolio
securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis. It is anticipated
that the aggregate amount of the Fund's commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis will not exceed 5% of
the Fund's total assets.
When, As and If Issued Securities. As discussed in the Prospectus, the Fund
may purchase securities on a "when, as and if issued" basis under which the
issuance of the security depends upon the occurrence of a subsequent event,
such as approval of a merger, corporate reorganization, leveraged buy-out or
debt restructuring. The commitment for the purchase of any such security will
not be recognized in the portfolio of the Fund until the Investment Manager
determines that issuance of the security is probable. At such time, the Fund
will record the transaction and, in determining its net asset value, will
reflect the value of the security daily. At such time, the Fund will also
establish a segregated account with its custodian bank in which it will
maintain cash or U.S. Government securities or other liquid portfolio
securities equal in value to recognized commitments for such securities. Once a
segregated account has been established, if the anticipated event does not
occur and the securities are not issued the Fund will have lost an investment
opportunity. It is anticipated that the aggregate amount of the Fund's
commitments to purchase securities on a "when, as and if issued" basis at any
one time will not exceed 5% of the Fund's total assets. 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. In addition, 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"). The Fund may also sell
securities on a "when, as and if issued" basis provided that the issuance of
the security will result automatically from the exchange or conversion of a
security owned by the Fund at the time of the sale.
Portfolio Trading. It is anticipated that the Fund's portfolio turnover rate
will not exceed 300% in any one year. A 300% turnover rate would occur, for
example, if 300% of the securities held in the Fund's portfolio (excluding all
securities whose maturities at acquisition were one year or less) were sold and
replaced within one year.
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<PAGE>
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, 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 of the Fund, if the holders of more than 50% of the
outstanding shares are present or represented by proxy, or (b) more than 50% of
the outstanding shares of the Fund.
The Fund may not:
1. 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
issuer.
2. Purchase or sell real estate or interests therein, although the Fund may
purchase securities of issuers which engage in real estate operations and
securities which are secured by real estate or interests therein.
3. Purchase or sell commodities or commodity futures contracts.
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. Write, purchase or sell puts, calls, or combinations thereof.
6. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
7. Invest more than 5% of its total assets in warrants, including not more
than 2% of such assets in warrants not listed on either the New York or
American Stock Exchange. However, the acquisition of warrants attached to
other securities is not subject to this restriction.
8. Pledge its assets or assign or otherwise encumber them except to secure
borrowings effected within the limitations set forth in restriction (5) in
the Prospectus. To meet the requirements of regulations in certain states,
the Fund, as a matter of operating policy but not as a fundamental policy,
will limit any pledge of its assets to 5% of its net assets so long as
shares of the Fund are being sold in those states.
9. 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 and in the Prospectus; or (c) lending
portfolio securities.
10. 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.
11. Make short sales of securities.
12. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities.
13. 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.
14. Invest for the purpose of exercising control or management of any
other issuer.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
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<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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- -----------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the Investment
Manager is responsible for decisions to buy and sell securities for the Fund,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually
includes a profit to the dealer. The Fund also expects that securities will be
purchased at times in underwritten offerings where the price includes a fixed
amount of compensation, generally referred to as the underwriter's concession
or discount. On occasion, the Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid. During the fiscal years ended September 30, 1994, 1995 and 1996, the
Fund paid a total of $938,464, $662,758 and $1,361,260, 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 are considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain
initial and secondary public offerings, the Investment Manager may utilize a
pro rata allocation process based on the size of the Dean Witter Funds involved
and the number of shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient execution 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 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 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. During the
fiscal year ended September 30, 1996, the Fund directed the payment of
$1,041,291 in brokerage commissions in connection with transactions in the
aggregate amount of $469,988,319 to brokers because of research services
provided.
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<PAGE>
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 thus reduce its expenses, it
is of indeterminable value and the management fee paid to the Investment
Manager is not reduced by any amount that may be attributable to the value of
such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. 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 September 30, 1994, 1995 and
1996, the Fund did not effect any principal transactions with DWR.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR and other affiliated brokers and dealers. In order for
an affiliated broker or dealer to effect 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 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 September 30, 1994, 1995 and 1996, the Fund paid a total of
$118,670, $91,840 and $133,555, respectively, in brokerage commissions to DWR.
For the fiscal year ended September 30, 1996, the brokerage commissions paid to
DWR represented approximately 9.81% of the total brokerage commissions paid by
the Fund for the year and were paid on account of transactions having an
aggregate dollar value equal to approximately 11.26% of the aggregate dollar
value of all portfolio transactions of the Fund during the year for which
commissions were paid.
During the fiscal year ended September 30, 1996, the Fund did not acquire
any securities of the ten brokers who executed the largest dollar amounts of
the Fund's portfolio transactions or of the ten dealers who executed the
largest dollar amounts of principal transactions with the Fund during the
period, or securities of the parents of those broker-dealers.
THE DISTRIBUTOR
- -----------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into
a selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund. In addition, the Distributor may enter into selected
dealer agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDWD. The Trustees of
the Fund, including a majority of the Trustees who are not, and were not at the
time they voted, interested persons of the Fund, as defined in the Act (the
"Independent Trustees"), approved, at their meeting held on 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 incentive compensation to account
executives. The Distributor also pays certain expenses in connection
17
<PAGE>
with the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears the
costs of initial typesetting, printing and distribution of prospectuses and
supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal securities laws and pays
filing fees in accordance with state securities laws. The Fund and the
Distributor have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for 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 Fund (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 Fund'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. The Distributor
also receives the proceeds of front-end sales charges and of contingent
deferred sales charges imposed on certain redemptions of shares, which are
separate and apart from payments made pursuant to the Plan (see "Purchase of
Fund Shares" in the Prospectus). The Distributor has informed the Fund that it
and/or DWR received approximately $450,000, $991,000 and $810,000 in contingent
deferred sales charges for the fiscal years ended September 30, 1994, 1995 and
1996, respectively.
The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class's average daily net assets
are currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers, Inc. (of which
the Distributor is a member). The "service fee" is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion
of the Plan fees payable by a Class, if any, is characterized as an
"asset-based sales charge" as such is defined by the aforementioned Rules of
the Association.
The Plan was adopted by a 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 January 18, 1983,
by DWR as the then sole shareholder of the Fund on March 1, 1983 and by the
shareholders holding a majority, as defined in the Act, of the outstanding
voting securities of the Fund at a Special Meeting of Shareholders of the Fund
held on July 16, 1984.
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
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
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<PAGE>
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. The Fund accrued amounts payable
to the Distributor under the Plan, during the fiscal year ended September 30,
1996, of $6,461,408. This amount is equal to 1.0% of the Fund's average daily
net assets for the fiscal year and was calculated pursuant to clause (b) of the
compensation formula under the Plan. This amount is treated by the Fund as an
expense in the year it is accrued. This amount represents amounts paid by Class
B only; there were no Class A or Class C shares outstanding on such date.
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 401(k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code for which Dean Witter Trust Company ("DWTC") or Dean Witter Trust FSB
("DWTFSB") serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper, the Investment Manager compensates DWR's account executives by
paying them, from its own funds, a gross sales credit of 1.0% of the amount
sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 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 retirement plans qualified under Section 401(k) of the Internal Revenue
Code and other employer-sponsored plans qualified under Section 401(a) of the
Internal Revenue Code for which DWTC or DWTFSB serves as Trustee or the 401(k)
Support Services Group of DWR serves as recordkeeper, and which plans are
opened on or after July 28, 1997, DWR compensates its account executives by
paying them, from its own funds, a gross sales credit of 3.0% of the amount
sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value of
the respective accounts for which they are the account executives of record.
With respect to Class D shares other than shares held by participants in the
InterCapital mutual fund asset allocation program, the Investment Manager
compensates DWR's account executives by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of
up to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid
if the Class D shares are redeemed in the first year and a chargeback of 50% of
the amount paid if the Class D shares are
19
<PAGE>
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 paid 100% of the $6,461,408 accrued under the Plan for the fiscal
year ended September 30, 1996 to the Distributor. The Distributor and DWR
estimate that they have spent, pursuant to the Plan, $66,280,910 on behalf of
the Fund since the inception of the Plan. It is estimated that this amount was
spent in approximately the following ways: (i) 6.42% ($4,258,503)--advertising
and promotional expenses; (ii) 0.51% ($334,858)--printing of prospectuses for
distribution to other than current shareholders; and (iii) 93.07%
($61,687,549)--other expenses, including the gross sales credit and the
carrying charge, of which 18.84% ($11,624,343) represents carrying charges,
33.58% ($20,716,155) represents commission credits to DWR branch offices for
payments of commissions to account executives and 47.58% ($29,347,051)
represents overhead and other branch office distribution-related expenses.
These amounts represent amounts paid by Class B only; there were no Class A or
Class C shares outstanding on such date.
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.
20
<PAGE>
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 $28,270,501 as of September 30, 1996. 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, 1983 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.
DETERMINATION OF NET ASSET VALUE
- -----------------------------------------------------------------------------
As stated in the Prospectus, short-term securities with remaining maturities
of sixty days or less at the time of purchase are valued at amortized cost,
unless the Trustees determine such does not reflect the securities' market
value, in which case these securities will be valued at their fair value as
determined by the Trustees. Other short-term debt securities will be valued on
a mark-to-market basis until such time as they reach a remaining maturity of
sixty days, whereupon they will be valued at amortized cost using their value
on the 61st day unless the Trustees determine such does not reflect the
securities' market
21
<PAGE>
value, in which case these securities will be valued at their fair value as
determined by the Trustees. All other securities and other assets are valued at
their fair value as determined in good faith under procedures established by
and under the supervision of the Trustees.
The net asset value per share for each Class of shares of the Fund is
determined once daily 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; Presidents' Day;
Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and
Christmas Day.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
Right of Accumulation. As discussed in the Prospectus, investors may combine
the current value of shares purchased in separate transactions for purposes of
benefiting from the reduced sales charges available for purchases of shares of
the Fund totalling at least $25,000 in net asset value. For example, if any
person or entity who qualifies for this privilege holds Class A shares of the
Fund and/or other Dean Witter Funds that are multiple class funds ("Dean Witter
Multi-Class Funds") or shares of other Dean Witter Funds sold with a front-end
sales charge purchased at a price including a front-end sales charge having a
current value of $5,000, and purchases $20,000 of additional shares of the
Fund, the sales charge applicable to the $20,000 purchase would be 4.75% of the
offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Distributor or Dean Witter Trust Company (the
"Transfer Agent") fails to confirm the investor's represented holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund
from the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced
sales commission applicable to the amount represented by the goal, as if it
were a single purchase. A number of shares equal in value to 5% of the dollar
amount of the Letter of Intent will be held in escrow by the Transfer Agent, in
the name of the shareholder. The initial purchase under a Letter of Intent must
be equal to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation,"
but there will be no retroactive reduction of sales charges on previous
purchases. For the
22
<PAGE>
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 employer-sponsored benefit plans, three years). However,
no CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption, plus
(b) the current net asset value of shares purchased through reinvestment of
dividends or distributions of the Fund or another Dean Witter Fund (see
"Shareholder Services--Targeted Dividends"), plus (c) the current net asset
value of shares acquired in exchange for (i) shares of Dean Witter front-end
sales charge funds, or (ii) shares of other Dean Witter Funds for which shares
of front-end sales charge funds have been exchanged (see "Shareholder
Services--Exchange Privilege"), plus (d) increases in the net asset value of
the investor's shares above the total amount of payments for the purchase of
Fund shares made during the preceding six (three) years. The CDSC will be paid
to the Distributor. In addition, no CDSC will be imposed on redemptions of
shares which are attributable to reinvestment of dividends or distributions
from, or the proceeds of, certain Unit Investment Trusts.
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years (or, in the case of shares held by certain employer-sponsored
benefit plans, three years) will be redeemed first. In the event the redemption
amount exceeds such increase in value, the next portion of the amount redeemed
will be the amount which represents the net asset value of the investor's
shares purchased more than six (three) years prior to the redemption and/or
shares purchased through reinvestment of dividends or distributions and/or
shares acquired in exchange for shares of Dean Witter front-end sales charge
funds, or for shares of other Dean Witter funds for which shares of front-end
sales charge funds have been exchanged. A portion of the amount redeemed which
exceeds an amount which represents both such increase in value and the value of
shares purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption and/or
shares purchased through reinvestment of dividends or distributions and/or
shares acquired in the above-described exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number
of years from the time of any payment for the purchase of shares, all payments
made during a month will be aggregated and deemed to have been made on the last
day
23
<PAGE>
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 held by 401(k) plans or other employer-sponsored plans
qualified under Section 401(a) of the Internal Revenue Code for which DWTC or
DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves as
recordkeeper and whose accounts are opened on or after July 28, 1997:
<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 employer-sponsored benefit plans, three
years) of purchase which are in excess of these amounts and which redemptions
do not qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund 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
24
<PAGE>
appointed as agent of the investor to receive all dividends and capital gains
distributions on shares owned by the investor. Such dividends and distributions
will be paid, at the net asset value per share, in shares of the applicable
Class of the Fund (or in cash if the shareholder so requests) as of the close
of business on the record date. At any time an investor may request the
Transfer Agent, in writing, to have subsequent dividends and/or capital gains
distributions paid to him or her in cash rather than shares. To assure
sufficient time to process the change, such request should be received by the
Transfer Agent at least five business days prior to the record date of the
dividend or distribution. In the case of recently purchased shares for which
registration instructions have not been received on the record date, cash
payments will be made to DWR or other selected broker-dealer, and will be
forwarded to the shareholder, upon the receipt of proper instructions.
Targeted Dividends. (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 Developing Growth Securities Trust or in
another Class of Dean Witter Developing Growth Securities Trust. Such
investment will be made as described above for automatic investment in shares
of the applicable Class of the Fund, at the net asset value per share of the
selected Dean Witter Fund as of the close of business on the payment date of
the dividend or distribution and will begin to earn dividends, if any, in the
selected Dean Witter Fund the next business day. To participate in the Targeted
Dividends program, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent. Shareholders of the Fund
must be shareholders of the selected Class of the Dean Witter Fund targeted to
receive investments from dividends at the time they enter the Targeted
Dividends program. Investors should review the prospectus of the targeted Dean
Witter Fund before entering the program.
EasyInvest. (Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated the same
business day the transfer of funds is effected. For further information or to
subscribe to EasyInvest, shareholders should contact their DWR or other
selected broker-dealer account executive or the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares of
the applicable Class at net asset value, without the imposition of a CDSC upon
redemption, by returning the check or the proceeds to the Transfer Agent within
thirty days after the payment date. If the shareholder returns the proceeds of
a dividend or distribution, such funds must be accompanied by a signed
statement indicating that the proceeds constitute a dividend or distribution to
be invested. Such investment will be made at the net asset value per share next
determined after receipt of the check or the proceeds by the Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own
or purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount,
not less than $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable contingent deferred sales charge will be
imposed on shares redeemed under the Withdrawal Plan (see "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
25
<PAGE>
and normally a check for the proceeds will be mailed by the Transfer Agent, or
amounts credited to a shareholder's DWR or other selected broker-dealer
brokerage account, within five business days after the date of redemption. The
Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her account executive or by written notification to the Transfer Agent.
In addition, the party and/or the address to which checks are mailed may be
changed by written notification to the Transfer Agent, with signature
guarantees required in the manner described above. The shareholder may also
terminate the Withdrawal Plan at any time by written notice to the Transfer
Agent. In the event of such termination, the account will be continued as a
regular shareholder investment account. The shareholder may also redeem all or
part of the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
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 Developing Growth Securities Trust, 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 the Fund may exchange their
shares for shares of the same Class of shares of any other Dean Witter
Multi-Class Fund without the imposition of any exchange fee. Shares may also be
exchanged for shares of any of the following funds: Dean Witter Short-Term U.S.
Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean Witter
Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust and
five Dean Witter Funds which are money market funds (the foregoing nine funds
are hereinafter referred to as the "Exchange Funds"). Class A shares may also
be exchanged for shares of Dean Witter Multi-State Municipal Series Trust and
Dean Witter Hawaii Municipal Trust, which are Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"). Class B shares may also be exchanged for
shares of Dean Witter Global Short-Term Income Fund Inc., Dean Witter High
Income Securities and Dean Witter National Municipal Trust, which are Dean
Witter Funds offered with a CDSC ("CDSC Funds"). Exchanges may be made after
the shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment. An exchange
will be treated for federal income tax purposes the same as a repurchase or
redemption of shares, on which the shareholder may realize a capital gain or
loss.
26
<PAGE>
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a Dean Witter
Multi-Class Fund or any CDSC fund are exchanged for shares of an Exchange Fund,
the exchange is executed at no charge to the shareholder, without the
imposition of the CDSC at the time of the exchange. During the period of time
the shareholder remains in the Exchange Fund (calculated from the last day of
the month in which the Exchange Fund shares were acquired), the holding period
or "year since purchase payment made" is frozen. When shares are redeemed out
of the Exchange Fund, they will be subject to a CDSC which would be based upon
the period of time the shareholder held shares in a Dean Witter Multi-Class
Fund or in a CDSC Fund. However, in the case of shares exchanged into an
Exchange Fund on or after April 23, 1990, upon a redemption of shares which
results in a CDSC being imposed, a credit (not to exceed the amount of the
CDSC) will be given in an amount equal to the Exchange Fund 12b-1 distribution
fees incurred on or after that date which are attributable to those shares.
Shareholders acquiring shares of an Exchange Fund pursuant to this exchange
privilege may exchange those shares back into a Dean Witter Multi-Class Fund or
a CDSC Fund from the Exchange Fund, with no CDSC being imposed on such
exchange. The holding period previously frozen when shares were first exchanged
for shares of the Exchange Fund resumes on the last day of the month in which
shares of a Dean Witter Multi-Class Fund or of a CDSC Fund are reacquired. A
CDSC is imposed only upon an ultimate redemption, based upon the time
(calculated as described above) the shareholder was invested in a Dean Witter
Multi-Class Fund or in a CDSC Fund. In the case of exchanges of Class A shares
which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or in a
CDSC Fund are exchanged for shares of a Dean Witter Multi-Class Fund, shares of
a CDSC Fund, shares of a FSC Fund, or shares of an Exchange Fund, the date of
purchase of the shares of the fund exchanged into, for purposes of the CDSC
upon redemption, will be the last day of the month in which the shares being
exchanged were originally purchased. In allocating the purchase payments
between funds for purposes of the CDSC, the amount which represents the current
net asset value of shares at the time of the exchange which were (i) purchased
more than one, three or six years (depending on the CDSC schedule applicable to
the shares) prior to the exchange, (ii) originally acquired through
reinvestment of dividends or distributions and (iii) acquired in exchange for
shares of FSC Funds, or for shares of other Dean Witter Funds for which shares
of FSC Funds have been exchanged (all such shares called "Free Shares"), will
be exchanged first. After an exchange, all dividends earned on shares in an
Exchange Fund will be considered Free Shares. If the exchanged amount exceeds
the value of such Free Shares, an exchange is made, on a block-by-block basis,
of non-Free Shares held for the longest period of time (except that, with
respect to Class B shares, if shares held for identical periods of time but
subject to different CDSC schedules are held in the same Exchange Privilege
account, the shares of that block that are subject to a lower CDSC rate will be
exchanged prior to the shares of that block that are subject to a higher CDSC
rate). Shares equal to any appreciation in the value of non-Free Shares
exchanged will be treated as Free Shares, and the amount of the purchase
payments for the non-Free Shares of the fund exchanged into will be equal to
the lesser of (a) the purchase payments for, or (b) the current net asset value
of, the exchanged non-Free Shares. If an exchange between funds would result in
exchange of only part of a particular block of non-Free Shares, then shares
equal to any appreciation in the value of the block (up to the amount of the
exchange) will be treated as Free Shares and exchanged first, and the purchase
payment for that block will be allocated on a pro rata basis between the
non-Free Shares of that block
27
<PAGE>
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 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 which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days' prior written notice for
termination or material revision), provided that six months' prior written
notice of termination will be given to the shareholders who hold shares of
Exchange Funds pursuant to the Exchange Privilege, and provided further that
the Exchange Privilege may be terminated or materially revised without notice
at times (a) when the New York Stock Exchange is closed for other than
customary weekends and holidays, (b) when trading on that Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange Commission
by order so permits (provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist) or (e) if the Fund would be unable to invest
amounts effectively in accordance with its investment objective, policies and
restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
28
<PAGE>
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC (see below). If shares are held in a shareholder's account
without a share certificate, a written request for redemption to the Fund's
Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption. The share
certificate, or an accompanying stock power, and the request for redemption,
must be signed by the shareholder or shareholders exactly as the shares are
registered. Each request for redemption, whether or not accompanied by a share
certificate, must be sent to the Fund's Transfer Agent, which will redeem the
shares at their net asset value next computed (see "Purchase of Fund Shares" in
the Prospectus) after it receives the request, and certificate, if any, in good
order. Any redemption request received after such computation will be redeemed
at the next determined net asset value. The term "good order" means that the
share certificate, if any, and request for redemption are properly signed,
accompanied by any documentation required by the Transfer Agent, and bear
signature guarantees when required by the Fund or the Transfer Agent. If
redemption is requested by a corporation, partnership, trust or fiduciary, the
Transfer Agent may require that written evidence of authority acceptable to the
Transfer Agent be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other
than the Distributor or a selected broker-dealer for the account of the
shareholder), partnership, trust or fiduciary, or sent to the shareholder at an
address other than the registered address, signatures must be guaranteed by an
eligible guarantor acceptable to the Transfer Agent (shareholders should
contact the Transfer Agent for a determination as to whether a particular
institution is such an eligible guarantor). A stock power may be obtained from
any dealer or commercial bank. The Fund may change the signature guarantee
requirements from time to time upon notice to shareholders, which may be by
means of a new prospectus.
Repurchase. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by
DWR and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
Payment for Shares Redeemed or Repurchased. As discussed in the Prospectus,
payment for shares of any Class presented for repurchase or redemption will be
made by check within seven days after receipt by the Transfer Agent of the
certificate and/or written request in good order. The term good order means
that the share certificate, if any, and request for redemption are properly
signed, accompanied by any documentation required by the Transfer Agent, and
bear signature guarantees when required by the Fund or the Transfer Agent. Such
payment may be postponed or the right of redemption suspended at times (a) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (d) during any other
period when the Securities and Exchange Commission by order so permits;
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist. If the shares to be redeemed have recently been purchased by check
(including a certificate or bank cashier's check), payment of redemption
proceeds may be delayed for the minimum time needed to verify that the check
used for investment has been honored (not more than fifteen days from the time
of receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another selected broker-dealer are referred to their
account executive regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
29
<PAGE>
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the
length of time shares subject to the charge have been held), any transfer
involving less than all the shares in an account will be made on a pro rata
basis (that is, by transferring shares in the same proportion that the
transferred shares bear to the total shares in the account immediately prior to
the transfer). The transferred shares will continue to be subject to any
applicable CDSC as if they had not been so transferred.
Reinstatement Privilege. As 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
the redemption or repurchase, reinstate any portion or all of the proceeds of
such redemption or repurchase in shares of the Fund in the same Class at the
net asset value next determined after a reinstatement request, together with
such proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and
reinstatement is made in shares of the Fund, some or all of the loss, depending
on the amount reinstated, will not be allowed as a deduction for federal income
tax purposes but will be applied to adjust the cost basis of the shares
acquired upon reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and will notify shareholders that, following an election by the
Fund, the shareholders will be required to include such undistributed gains in
determining their taxable income and may claim their share of the tax paid by
the Fund as a credit against their individual federal income tax.
Because the Fund intends to distribute all of its net investment income and
capital gains to shareholders and otherwise continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, it is not
expected that the Fund will be required to pay any federal income tax.
Shareholders will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from 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 calendar year.
Gains or losses on the sales of securities by the Fund will be long-term
capital gains or losses if the securities have been held by the Fund for more
than one year. Gains or losses on the sale of securities held for one year or
less will be short-term capital 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.
Any ordinary income dividends or capital gains distributions received by a
shareholder from any investment company will have the effect of reducing the
net asset value of the shareholder's shares in that company by the exact amount
of the dividend or capital gains distribution. Furthermore, capital gains
distributions and ordinary income dividends are subject to federal income
taxes. If the net asset value of the shares should be reduced below a
shareholder's cost as a result of the payment of dividends or realized
long-term capital gains, such payment would be in part a return of the
shareholder's investment to the extent of such reduction below the
shareholder's cost, but nonetheless would be taxable to the shareholder.
Therefore, an investor should consider the tax implications of purchasing Fund
shares immediately prior to a dividend or distribution record date.
30
<PAGE>
Dividend payments will be eligible for the federal dividends received
deduction available to the Fund's corporate shareholders only to the extent the
aggregate dividends received by the Fund would be eligible for the deduction if
the Fund were the shareholder claiming the dividends received deduction. The
amount of dividends paid by the Fund which may qualify for the dividends
received deduction is limited to the aggregate amount of qualifying dividends
which the Fund derives from its portfolio investments which the Fund has held
for a minimum period, usually 46 days. Any distributions made by the Fund will
not be eligible for the dividends received deduction with respect to shares
which are held by the shareholder for 45 days or less. Any long-term capital
gain distributions will also not be eligible for the dividends received
deduction. The ability to take the dividends received deduction will also be
limited in the case of a Fund shareholder which incurs or continues
indebtedness which is directly attributable to its investment in the Fund.
After 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 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 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 specified period and is computed by finding the annual
percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. The ending redeemable value
is reduced by any CDSC at the end of the one, five or ten year or other period.
For the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing the average annual
total return involves a percentage obtained by dividing the ending redeemable
value by the amount of the initial investment, taking a root of the quotient
(where the root is equivalent to the number of years in the period) and
subtracting 1 from the result. The average annual total returns of the Fund for
the one, five and ten year periods ended September 30, 1996 were 12.53%, 17.86%
and 14.24%, respectively. These returns are for Class B only; there were no
other Classes of shares outstanding on such date.
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 in the
preceding paragraph, but without deduction for any applicable sales charge.
Based on this calculation, the average annual total returns of the Fund for the
one, five and ten year periods ended September 30, 1996 were 17.53%, 18.06% and
14.24%, respectively. These returns are for Class B only; there were no other
Classes of shares outstanding on such date.
In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed
that all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without reduction for any sales charge) by the initial $1,000 investment
and subtracting 1 from the result. Based on the foregoing calculation, the
Fund's total return for the year ended September 30, 1996 was 17.53%, the total
return for the five-year period ended
31
<PAGE>
September 30, 1996 was 129.38%, and the total return for the ten-year period
ended September 30, 1996 was 278.50%. These returns are for Class B only; there
were no other Classes of shares outstanding on such date.
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 the Fund at
inception would have grown to $33,935, $169,675 and $339,350, respectively, at
September 30, 1996. This information is for Class B only; there were no other
Classes of shares outstanding on such date.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF SHARES OF THE FUND
- -----------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. All of the Trustees have been elected by the shareholders of the Fund,
most recently at a Special Meeting of Shareholders held on May 21, 1997. On
that date, Wayne E. Hedien was also elected as a Trustee of the Fund, with his
term to commence on September 1, 1997. The Trustees themselves have the power
to alter the number and the terms of office of the Trustees, and they may at
any time lengthen their own terms or make their terms of unlimited duration and
appoint their own successors, provided that always at least a majority of the
Trustees has been elected by the shareholders of the Fund. Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove the
Trustees. The voting rights of shareholders are not cumulative, so that holders
of more than 50 percent of the shares voting can, if they choose, elect all
Trustees being selected, while the holders of the remaining shares would be
unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future
regulations or other unforeseen circumstances). The Trustees have not
authorized any such additional series or classes of shares other than as set
forth in the Prospectus.
The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his/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 above, 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.
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.
32
<PAGE>
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager, and of Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses
and reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services
Dean Witter Trust Company receives a per shareholder account fee 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 ends on September 30. 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 year ended September 30, 1996
included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
33
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (100.1%)
Advertising (0.6%)
183,100 Eagle River Interactive, Inc.* ..................... $ 1,876,775
11,500 Lamar Advertising Co.* ............................. 468,625
58,300 Outdoor Systems, Inc.* ............................. 2,710,950
--------------
5,056,350
--------------
Aerospace (0.9%)
175,000 Hexcel Corp.* ...................................... 3,390,625
242,300 Orbital Sciences Corp.* ............................ 4,300,825
--------------
7,691,450
--------------
Biotechnology (4.0%)
40,000 Alteon, Inc.* ...................................... 330,000
100,500 Biochem Pharma, Inc.* .............................. 3,994,875
95,000 Centocor, Inc.* .................................... 3,360,625
50,000 Genetics Institute, Inc.* .......................... 3,450,000
160,000 Genzyme Corp. General Division* .................... 4,020,000
115,000 Gilead Sciences, Inc.* ............................. 3,248,750
225,000 Liposome Co., Inc.* ................................ 4,246,875
140,000 PathoGenesis Corp.* ................................ 2,450,000
100,000 Regeneron Pharmaceuticals, Inc.* ................... 2,000,000
103,000 SangStat Medical Corp.* ............................ 2,613,625
83,000 Vertex Pharmaceuticals, Inc.* ...................... 2,407,000
--------------
32,121,750
--------------
Broadcast Media (2.9%)
80,000 American Radio Systems Corp.* ...................... 2,940,000
93,200 Cinar Films Inc. (Class B)* (Canada) ............... 2,399,900
89,800 Film Roman, Inc.* .................................. 898,000
50,000 Infinity Broadcasting Corp. (Class A)* ............. 1,575,000
95,000 Jacor Communications, Inc.* ........................ 3,230,000
130,000 Lin Television Corp.* .............................. 5,330,000
160,000 Mecklermedia Corp.* ................................ 2,880,000
85,000 SFX Broadcasting, Inc. (Class A)* .................. 3,846,250
--------------
23,099,150
--------------
Building Materials (0.1%)
100,000 Universal Forest Products, Inc. ................... 1,262,500
--------------
Business Services (3.1%)
48,700 CCC Information Services, Inc.* .................... 1,010,525
185,000 CFI Proservices, Inc.* ............................. 3,515,000
239,750 Checkfree Corp.* ................................... 4,795,000
120,000 CSG Systems International, Inc.* ................... 2,340,000
119,500 Dendrite International, Inc.* ...................... 3,614,875
95,000 DST Systems, Inc.* ................................. 3,040,000
30,000 Gartner Group, Inc. (Class A)* ..................... 1,005,000
70,000 Restrac, Inc.* ..................................... 1,312,500
29,200 RMH Teleservices, Inc.* ............................ 430,700
70,000 Sitel Corp.* ....................................... $ 3,115,000
23,800 USCS International, Inc.* .......................... 407,575
--------------
24,586,175
--------------
Commercial Equipment (0.8%)
130,000 Checkpoint Systems, Inc.* .......................... 3,445,000
140,000 Watsco, Inc. ....................................... 2,852,500
--------------
6,297,500
--------------
Commercial Services (4.8%)
25,900 Abacus Direct Corp.* ............................... 524,475
52,000 APAC Teleservices, Inc.* ........................... 2,665,000
74,100 Barnett, Inc.* ..................................... 1,704,300
120,000 Career Horizons, Inc.* ............................. 4,665,000
132,900 Coinmach Laundry Corp.* ............................ 2,691,225
5,800 International Network Services* .................... 203,725
200,000 Iron Mountain, Inc.* ............................... 5,900,000
105,000 On Assignment, Inc.* ............................... 3,491,250
110,000 Pittston Services Group ............................ 3,451,250
73,400 Precision Response Corp.* .......................... 2,770,850
240,000 Reynolds & Reynolds Co. (Class A) .................. 6,270,000
100,000 Sunguard Data Systems, Inc.* ....................... 4,500,000
--------------
38,837,075
--------------
Communications - Equipment &
Software (1.9%)
130,000 Cellular Technical Services Co.* ................... 2,567,500
135,000 Geoworks* .......................................... 3,493,125
72,000 Proxim, Inc. ....................................... 2,034,000
95,000 Raptor Systems, Inc.* .............................. 1,615,000
60,000 Shiva Corp.* ....................................... 3,435,000
120,000 Sync Research, Inc.* ............................... 1,845,000
--------------
14,989,625
--------------
Communications -
Equipment/Manufacturers (0.7%)
115,000 Dynatech Corp.* .................................... 5,261,250
54,000 TCSI Corp.* ........................................ 715,500
--------------
5,976,750
--------------
Computer - Aided Design (0.8%)
75,000 IKOS Systems, Inc.* ................................ 1,490,625
231,000 Silicon Valley Research Inc.* ...................... 1,126,125
80,000 Synopsys, Inc.* .................................... 3,680,000
--------------
6,296,750
--------------
Computer Software (5.3%)
62,500 Aspect Development, Inc.* .......................... 2,078,125
25,000 Axent Technologies, Inc.* .......................... 581,250
14,100 Check Point Software Technologies Ltd.* (Israel) ... 475,875
170,000 Cheyenne Software, Inc. ............................ 3,655,000
SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
95,000 Citrix Systems, Inc.* .............................. $ 4,821,250
106,000 Edify Corp.* ....................................... 2,067,000
42,000 HNC Software, Inc.* ................................ 1,680,000
58,000 Integrated Systems, Inc.* .......................... 1,885,000
42,600 Lightbridge, Inc.* ................................. 500,550
50,000 Manugistics Group, Inc.* ........................... 1,975,000
165,500 MetaTools, Inc.* ................................... 3,475,500
90,000 Peoplesoft, Inc.* .................................. 7,470,000
15,000 Remedy Corp.* ...................................... 1,196,250
45,000 Security Dynamics Technologies, Inc.* .............. 3,223,125
200,000 Symantec Corp.* .................................... 2,175,000
200,000 TriTeal Corp.* ..................................... 2,900,000
135,000 Visigenic Software, Inc.* .......................... 1,518,750
50,000 Yahoo! Inc.* ....................................... 1,056,250
--------------
42,733,925
--------------
Computer Software & Services (4.6%)
46,500 Affiliated Computer Services, Inc.* ................ 2,708,625
100,000 American Management Systems, Inc.* ................. 2,800,000
40,000 Analysts International Corp. ....................... 1,840,000
130,000 Ciber, Inc.* ....................................... 4,940,000
240,000 Document Sciences Corp.* ........................... 3,030,000
55,000 ISG International Software Group Ltd.* (Israel) .... 935,000
72,100 Renaissance Solutions, Inc.* ....................... 2,974,125
120,000 Saville Systems Ireland PLC (ADR)* (Ireland) ....... 4,230,000
58,400 Sykes Enterprises, Inc.* ........................... 2,744,800
15,900 The Registry, Inc.* ................................ 592,275
200,000 Transaction Network Services, Inc.* ................ 2,850,000
90,000 Transaction Systems Architects, Inc. (Class A)* .... 3,802,500
21,100 Transition Systems, Inc.* .......................... 432,550
125,000 Vanstar Corp.* ..................................... 3,031,250
--------------
36,911,125
--------------
Computers (0.6%)
55,000 Network Appliance, Inc.* ........................... 1,650,000
42,000 Verifone, Inc.* .................................... 1,879,500
35,500 VideoServer, Inc.* ................................. 1,220,312
--------------
4,749,812
--------------
Computers - Peripheral Equipment (0.5%)
80,000 Lexmark International Group, Inc.* ................. 1,630,000
1,900 Nimbus CD International, Inc.* ..................... 18,525
180,000 Proxima Corp.* ..................................... 2,070,000
--------------
3,718,525
--------------
Consumer Products (0.8%)
85,000 Blyth Industries, Inc.* ............................ $ 4,122,500
72,000 Galoob (Lewis) Toys, Inc.* ......................... 2,106,000
20,000 Gargoyles, Inc.* ................................... 415,000
17,800 RockShox, Inc.* .................................... 267,000
--------------
6,910,500
--------------
Consumer Services (1.1%)
102,400 Apollo Group, Inc. (Class A)* ...................... 2,739,200
100,000 Protection One, Inc.* .............................. 1,250,000
180,000 Spyglass, Inc.* .................................... 3,375,000
35,000 Sylvan Learning Systems, Inc.* ..................... 1,426,250
--------------
8,790,450
--------------
Distribution (1.4%)
65,000 Arrow Electronics, Inc.* ........................... 2,892,500
65,000 Avnet Inc. ........................................ 3,152,500
32,500 Central Garden & Pet Co.* .......................... 654,062
80,000 Peak Technologies Group (The)* ..................... 1,700,000
95,000 Tech Data Corp.* ................................... 2,624,375
--------------
11,023,437
--------------
Education (0.4%)
15,000 Learning Tree International, Inc.* ................. 551,250
165,400 National Education Corp.* .......................... 3,163,275
--------------
3,714,525
--------------
Electronics (3.1%)
145,000 Gemstar International Group Ltd.* 4,277,500
130,000 ITI Technologies, Inc.* ............................ 4,582,500
135,000 Komag Inc.* ........................................ 2,835,000
45,000 Linear Technology Corp. ........................... 1,653,750
7,300 Orckit Communications Ltd. (Israel)* ............... 134,137
174,000 Ortel Corp.* ....................................... 4,089,000
50,000 Read Rite Corp.* ................................... 787,500
75,000 SCI Systems, Inc.* ................................. 4,218,750
130,000 Trimble Navigation Ltd.* ........................... 2,128,750
--------------
24,706,887
--------------
Entertainment/Gaming (1.4%)
135,000 International Game Technology ...................... 2,767,500
43,000 Premier Parks, Inc.* ............................... 1,252,375
135,000 Primadonna Resorts, Inc.* .......................... 2,430,000
100,000 Showboat, Inc. ..................................... 2,200,000
114,000 Sodak Gaming, Inc.* ................................ 2,565,000
--------------
11,214,875
--------------
Environmental (2.1%)
145,000 Memtec Ltd. (ADR)* (Australia) ..................... 4,060,000
200,000 Philip Environmental, Inc.* (Canada) ............... 1,900,000
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
104,500 U.S. Filter Corp.* ................................. $ 3,566,062
51,000 U.S.A. Waste Services, Inc.* ....................... 1,606,500
160,000 United Waste Systems, Inc.* ........................ 5,480,000
--------------
16,612,562
--------------
Financial Services (4.2%)
70,000 CMAC Investment Corp. .............................. 4,445,000
90,000 Finova Group Inc. .................................. 5,400,000
110,000 GreenPoint Financial Corp. ......................... 4,193,750
70,000 NAC Re Corp. ...................................... 2,520,000
80,000 PennFed Financial Services, Inc.* .................. 1,450,000
140,000 People's Bank ...................................... 3,447,500
181,400 Sterling Commerce, Inc.* ........................... 5,351,300
190,000 SunAmerica, Inc. .................................. 6,555,000
--------------
33,362,550
--------------
Forest Products, Paper &
Packaging (0.3%)
100,000 Buckeye Cellulose Corp.* ........................... 2,600,000
--------------
Healthcare - Distribution (0.4%)
75,000 Physician Support Systems, Inc. ................... 1,762,500
45,000 Schein (Henry), Inc.* .............................. 1,732,500
--------------
3,495,000
--------------
Healthcare Services (3.5%)
100,000 Access Health, Inc.* ............................... 5,625,000
150,000 ADAC Laboratories .................................. 2,962,500
22,500 National Surgery Centers, Inc.* .................... 601,875
40,200 NCS HealthCare, Inc. (Class A)* .................... 1,261,275
240,000 Orthodontic Centers of America, Inc.* .............. 4,890,000
120,000 PhyCor, Inc.* ...................................... 4,560,000
96,000 Total Renal Care Holdings, Inc.* ................... 3,816,000
200,000 Veterinary Centers of America, Inc.* ............... 4,350,000
--------------
28,066,650
--------------
Hospital Management & Health
Maintenance Organizations (1.5%)
185,000 American Oncology Resources, Inc.* ................. 2,035,000
80,000 Healthsouth Corp.* ................................. 3,070,000
90,000 Inphynet Medical Management, Inc.* ................. 1,597,500
100,000 Oxford Health Plans, Inc.* ......................... 4,975,000
--------------
11,677,500
--------------
Hotels/Motels (2.6%)
190,000 HFS, Inc.* ......................................... 12,706,250
200,000 La Quinta Inns, Inc. ............................... 3,900,000
70,000 Red Roof Inns, Inc.* ............................... 953,750
110,000 Renaissance Hotel Group NV* (Hong Kong) ............ $ 2,200,000
50,100 Suburban Lodges of America, Inc.* ................. 1,052,100
--------------
20,812,100
--------------
Household Furnishings &
Appliances (0.1%)
24,500 Alrenco, Inc.* ..................................... 505,312
--------------
Insurance (2.3%)
67,700 CRA Managed Care, Inc.* ............................ 3,621,950
170,000 Delphi Financial Group, Inc. (Class A)* ............ 4,675,000
105,900 Fremont General Corp. .............................. 3,124,050
100,000 HCC Insurance Holdings, Inc. ...................... 2,887,500
70,000 Triad Guaranty, Inc.* .............................. 1,960,000
50,000 Vesta Insurance Group, Inc. ....................... 1,918,750
--------------
18,187,250
--------------
Local Area Networking (0.5%)
160,000 Network General Corp.* ............................. 3,660,000
--------------
Manufacturing (0.4%)
72,500 Shelby Williams Industries, Inc. ................... 924,375
75,000 Waters Corp.* ...................................... 2,456,250
--------------
3,380,625
--------------
Medical Products & Supplies (2.7%)
150,000 Capstone Pharmacy Services* ........................ 1,856,250
100,000 ClinTrials Research Inc.* .......................... 3,950,000
80,000 Dentsply International, Inc. ....................... 3,540,000
35,000 ESC Medical Systems Ltd. (Israel)* ................. 1,102,500
60,000 Guidant Corp. ..................................... 3,315,000
220,000 Physician Sales & Service, Inc.* ................... 5,170,000
170,000 TECNOL Medical Products, Inc.* .................... 2,443,750
--------------
21,377,500
--------------
Medical Services (3.2%)
30,000 Advanced Technology Laboratories, Inc.* ............ 952,500
135,000 Amisys Managed Care Systems* ....................... 3,223,125
8,700 Applied Analytical Industries, Inc.* ............... 196,837
75,000 Boston Scientific Corp.* ........................... 4,312,500
80,000 Envoy Corp.* ....................................... 3,080,000
300,000 Novacare, Inc.* .................................... 2,812,500
83,000 Protocol Systems, Inc.* ............................ 1,359,125
200,000 Staar Surgical Co.* ................................ 2,625,000
65,000 Thermolase Corp.* .................................. 1,616,875
150,000 Vivra, Inc.* ....................................... 4,893,750
--------------
25,072,212
--------------
Metals (0.3%)
65,100 Mueller Industries, Inc.* .......................... 2,644,688
--------------
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
Office Equipment & Supplies (2.8%)
95,000 Corporate Express, Inc.* ........................... $ 3,669,375
52,000 Daisytek International Corp.* ...................... 2,249,000
130,000 Danka Business Systems PLC (ADR)(United Kingdom) ... 5,151,250
48,700 Diebold, Inc. ..................................... 2,842,863
165,800 Staples, Inc.* ..................................... 3,668,325
162,000 Viking Office Products, Inc.* ...................... 4,839,750
--------------
22,420,563
--------------
Oil & Gas Exploration (0.4%)
80,000 Noble Affiliates, Inc. ............................. 3,380,000
--------------
Oil & Gas Products (1.6%)
60,000 Cairn Energy USA, Inc.* ............................ 577,500
52,000 Chesapeake Energy Corp.* ........................... 3,256,500
155,000 Comstock Resources Inc.* ........................... 1,724,375
60,400 Stone Energy Corp.* ................................ 1,117,400
203,000 Tesoro Petroleum Corp.* ............................ 2,613,625
80,000 Triton Energy Ltd.* ................................ 3,580,000
--------------
12,869,400
--------------
Oil Drilling & Services (3.1%)
95,000 ENSCO International, Inc.* ......................... 3,087,500
220,000 Global Industries Ltd.* ............................ 3,465,000
150,000 Global Marine, Inc.* ............................... 2,362,500
100,000 Input/Output, Inc.* ................................ 2,975,000
259,000 Marine Drilling Company, Inc.* ..................... 2,460,500
140,000 Noble Drilling Corp.* .............................. 2,117,500
130,000 Smith International, Inc.* ......................... 4,566,250
55,000 Western Atlas, Inc.* ............................... 3,423,750
--------------
24,458,000
--------------
Pharmaceuticals (3.0%)
130,500 Alliance Pharmaceutical Corp.* ..................... 2,234,813
47,000 Depotech Corp.* .................................... 763,750
200,000 Dura-Pharmaceuticals, Inc.* ........................ 7,350,000
79,200 Guilford Pharmaceuticals, Inc.* .................... 2,138,400
140,000 IDEC Pharmaceuticals Corp.* ........................ 3,307,500
60,000 Interneuron Pharmaceuticals, Inc.* ................. 1,680,000
100,000 Jones Medical Industries, Inc. .................... 4,775,000
28,200 Medicis Pharmaceutical Corp. (Class A)* ............ 1,360,650
--------------
23,610,113
--------------
Retail - Department Stores (0.9%)
60,000 Neiman-Marcus Group, Inc.* ......................... 2,115,000
32,000 Saks Holdings, Inc.* ............................... 1,120,000
160,000 Stein Mart, Inc.* .................................. 3,540,000
--------------
6,775,000
--------------
Retail - Specialty (6.3%)
36,400 Abercrombie & Fitch Co. (Class A)* ................ $ 891,800
100,000 Bed Bath & Beyond, Inc.* ........................... 2,737,500
110,000 Borders Group, Inc. ................................ 4,097,500
40,000 CDW Computer Centers, Inc.* ........................ 2,730,000
65,000 CompUSA, Inc.* ..................................... 3,510,000
74,700 Consolidated Stores Corp.* ......................... 2,988,000
150,000 Damark International, Inc.* ........................ 1,912,500
115,000 Dollar Tree Stores, Inc.* .......................... 4,355,625
91,700 Eagle Hardware & Garden, Inc.* ..................... 2,475,900
50,000 Finish Line, Inc.* ................................. 2,362,500
35,000 Gucci Group NV (ADR)(Italy) ........................ 2,537,500
70,000 Marks Bros. Jewelers, Inc.* ........................ 1,890,000
135,000 Movie Gallery, Inc. ............................... 1,755,000
142,000 PetSmart, Inc.* .................................... 3,638,750
270,000 Sports & Recreation, Inc.* ......................... 2,261,250
207,000 Stride Rite Corp. .................................. 1,863,000
102,100 TAG Heuer International S.A. (ADR)(Luxembourg)* .... 2,016,475
172,500 The Sports Authority, Inc.* ........................ 4,592,813
70,000 Williams-Sonoma Inc.* .............................. 1,986,250
--------------
50,602,363
--------------
Retail - Specialty Apparel (2.0%)
90,000 Gymboree Corp. (The)* .............................. 2,733,750
11,100 Hot Topic, Inc.* ................................... 253,913
65,000 Loehmann's, Inc.* .................................. 1,738,750
115,000 Men's Wearhouse, Inc. (The)* ....................... 2,788,750
60,000 Pacific Sunwear of California, Inc.* ............... 1,950,000
103,000 Talbot's, Inc. (The) ............................... 3,090,000
90,000 Wet Seal, Inc. ..................................... 3,240,000
--------------
15,795,163
--------------
Semiconductors (1.9%)
70,000 Altera Corp.* ...................................... 3,543,750
35,000 Analog Devices, Inc.* .............................. 949,375
80,000 Atmel Corp.* ....................................... 2,460,000
160,000 S3, Inc.* .......................................... 3,160,000
210,000 Triquint Semiconductor, Inc.* ...................... 4,882,500
--------------
14,995,625
--------------
Steel & Iron (0.8%)
99,500 Gibraltar Steel Corp.* ............................. 2,238,750
150,000 Olympic Steel, Inc.* ............................... 4,031,250
--------------
6,270,000
--------------
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
Telecommunication Equipment (1.8%)
9,800 Advanced Fibre Communications*...................... $ 245,000
95,000 Andrew Corp.* ...................................... 4,726,250
70,000 Aspect Telecommunications Corp.* ................... 4,357,500
80,000 Comverse Technology, Inc.* ......................... 3,110,000
60,000 Picturetel Corp.* .................................. 2,100,000
--------------
14,538,750
--------------
Telecommunications (2.1%)
164,500 Boston Communications Group, Inc.* ................. 2,652,563
100,000 ICG Communications, Inc.* .......................... 2,100,000
150,000 IDT Corp.* ......................................... 2,475,000
120,000 Intercel, Inc.* .................................... 2,460,000
120,000 Intermedia Communications of Florida, Inc.* ........ 3,510,000
120,000 LCI International, Inc.* ........................... 3,780,000
--------------
16,977,563
--------------
Telecommunications - Wireless (1.2%)
100,000 Arch Communications Group, Inc.* ................... 1,362,500
115,000 CommNet Cellular, Inc.* ............................ 3,320,625
70,000 Globalstar Telecommunications Ltd.* (Bermuda) ...... 3,500,000
80,000 Paging Network, Inc.* .............................. 1,580,000
--------------
9,763,125
--------------
Textiles - Apparel Manufacturers (1.8%)
70,000 Jones Apparel Group, Inc.* ......................... 4,462,500
75,000 Kenneth Cole Productions, Inc. (Class A)* .......... 1,415,625
120,000 Nautica Enterprises, Inc.* ......................... 3,870,000
18,600 The North Face, Inc.* .............................. 523,125
157,500 Wolverine World Wide, Inc. ........................ 4,370,625
--------------
14,641,875
--------------
Transportation (1.7%)
90,000 Atlas Air, Inc.* ................................... 3,825,000
100,000 Hub Group, Inc.* ................................... 2,125,000
100,000 Midwest Express Holdings, Inc.* .................... 2,987,500
210,000 Offshore Logistics, Inc.* .......................... 2,992,500
74,600 Team Rental Group, Inc. ........................... 1,361,450
--------------
13,291,450
--------------
Truckers (0.4%)
70,000 Miller Industries, Inc.* ........................... 2,765,000
--------------
Wide Area Networking (4.0%)
90,000 ACT Networks, Inc.* ................................ 2,497,500
65,000 ADC Telecommunications, Inc.* ...................... 4,143,750
60,000 Adtran, Inc.* ...................................... 2,970,000
70,000 Ascend Communications, Inc.* ....................... 4,620,000
78,000 Cascade Communications Corp.* ...................... 6,347,250
90,000 Tellabs, Inc.* ..................................... $ 6,345,000
115,000 Teltrend, Inc.* .................................... 4,830,000
--------------
31,753,500
--------------
Wireless Communication (0.4%)
90,000 Cellular Communications International, Inc.* ....... 3,015,000
--------------
TOTAL COMMON STOCKS (Identified Cost $644,748,437) . 800,065,575
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.9%)
U.S. GOVERNMENT AGENCY (a) (1.3%)
$9,955 Federal Home Loan Mortgage Corp. 5.70% due 10/01/96 ............. 9,955,000
--------------
REPURCHASE AGREEMENT (0.6%)
5,142 The Bank of New York 5.00% due 10/01/96 (dated 09/30/96; proceeds
$5,142,605; collateralized by $5,136,631 U.S. Treasury Note 5.625%
due 10/31/97 valued at $5,244,729)(Identified Cost $5,141,891) .. 5,141,891
--------------
TOTAL SHORT-TERM
INVESTMENTS
(Identified Cost $15,096,891) .................................. 15,096,891
--------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $659,845,328)(b) . 102.0% 815,162,466
LIABILITIES IN EXCESS OF
OTHER ASSETS ...................... (2.0) (15,961,962)
-------- --------------
NET ASSETS ........................ 100.0% $799,200,504
======== ==============
</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 was $661,411,180.
The aggregate gross unrealized appreciation was $177,724,047 and the
aggregate gross unrealized depreciation was $23,972,761, resulting in
net unrealized appreciation of $153,751,286.
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $659,845,328) ............ $815,162,466
Receivable for:
Investments sold ......................... 11,338,194
Shares of beneficial interest sold ...... 1,782,183
Dividends ................................ 79,255
Interest ................................. 714
Prepaid expenses and other assets .......... 36,865
--------------
TOTAL ASSETS ............................. 828,399,677
--------------
LIABILITIES:
Payable for:
Investments purchased .................... 25,507,131
Shares of beneficial interest
repurchased ............................ 2,466,048
Plan of distribution fee ................. 648,071
Investment management fee ................ 318,421
Accrued expenses and other payables ....... 259,502
--------------
TOTAL LIABILITIES ........................ 29,199,173
--------------
NET ASSETS:
Paid-in-capital ............................ 532,239,205
Net unrealized appreciation ................ 155,317,138
Accumulated net investment loss ............ (39,118 )
Accumulated undistributed net realized
gain....................................... 111,683,279
--------------
NET ASSETS ............................... $799,200,504
==============
NET ASSET VALUE PER SHARE,
28,838,582 shares outstanding (unlimited
shares authorized of $.01 par value) ..... $ 27.71
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended September 30, 1996
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest .............................. $ 3,545,756
Dividends (net of $10,018 foreign
withholding tax) ..................... 760,163
--------------
TOTAL INCOME ........................ 4,305,919
--------------
EXPENSES
Plan of distribution fee .............. 6,461,408
Investment management fee ............. 3,194,151
Transfer agent fees and expenses ..... 893,014
Registration fees ..................... 119,398
Custodian fees ........................ 86,966
Shareholder reports and notices ...... 78,448
Professional fees ..................... 51,738
Trustees' fees and expenses ........... 37,475
Other ................................. 12,915
--------------
TOTAL EXPENSES ...................... 10,935,513
--------------
NET INVESTMENT LOSS ................. (6,629,594)
--------------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized gain ..................... 132,830,087
Net change in unrealized appreciation (16,804,216)
--------------
NET GAIN ............................ 116,025,871
--------------
NET INCREASE .......................... $109,396,277
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
- ------------------------------------------------------ ------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ................................... $ (6,629,594) $ (3,969,410)
Net realized gain ..................................... 132,830,087 32,573,927
Net change in unrealized appreciation ................. (16,804,216) 129,339,870
------------------ ------------------
NET INCREASE ........................................ 109,396,277 157,944,387
Distributions from net realized gain .................. (42,760,549) (2,979,381)
Net increase from transactions in shares of beneficial
interest ............................................. 197,696,272 39,734,514
------------------ ------------------
TOTAL INCREASE ...................................... 264,332,000 194,699,520
NET ASSETS:
Beginning of period ................................... 534,868,504 340,168,984
------------------ ------------------
END OF PERIOD
(Including accumulated net investment loss of
$39,118 and $33,774, respectively) .................. $799,200,504 $534,868,504
================== ==================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Developing Growth Securities Trust (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
long-term capital growth. The Fund was organized as a Massachusetts business
trust on December 28, 1982 and commenced operations on April 29, 1983.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on
the New York or American Stock Exchange is valued at its latest sale price on
that exchange prior to the time when assets are valued; if there were no sales
that day, the security is valued at the latest bid price; (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest available bid price prior to the time of
valuation; (3) when market quotations are not readily available, including
circumstances under which it is determined by the Investment Manager that sale
or bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees
(valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); 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. 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.
41
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996, continued
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), the Fund pays the Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.50% to the portion of the daily net assets not exceeding $500
million and 0.475% to the portion of the daily net assets exceeding $500
million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such
42
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996, continued
charge has been waived; or (b) the Fund's average daily net assets. Amounts
paid under the Plan are paid to the Distributor to compensate it for the
services provided and the expenses borne by it and others in the distribution
of the Fund's shares, including the payment of commissions for sales of the
Fund's shares and incentive compensation to, and expenses of, the account
executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager and Distributor, and other employees or selected broker-dealers who
engage in or support distribution of the Fund's shares or who service
shareholder accounts, including overhead and telephone expenses, printing and
distribution of prospectuses and reports used in connection with the offering
of the Fund's shares to other than current shareholders and preparation,
printing and distribution of sales literature and advertising materials. In
addition, the Distributor may be compensated under the Plan for its opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses incurred by the Distributor.
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 amount, including carrying charges, totaled
$28,270,501 at September 30, 1996.
Provided that the Plan continues in effect, any cumulative expenses incurred by
the Distributor but not yet recovered may be recovered through future
distribution fees from the Fund and contingent deferred sales charges from the
Fund's shareholders.
The Distributor has informed the Fund that for the year ended September 30,
1996, it received approximately $810,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended September 30, 1996
aggregated $1,095,944,214 and $881,579,783, respectively.
For the year ended September 30, 1996, the Fund incurred $133,555 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
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 September 30, 1996
included in Trustees'
43
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996, continued
fees and expenses in the Statement of Operations amounted to $23,261. At
September 30, 1996, the Fund had an accrued pension liability of $39,122 which
is included in accrued expenses in the Statement of Assets and Liabilities.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At September 30, 1996, the Fund had
transfer agent fees and expenses payable of approximately $88,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold .......................... 20,988,017 $ 532,804,011 20,063,775 $ 404,852,064
Reinvestment of distributions.. 1,750,437 40,382,573 166,910 2,830,799
-------------- --------------- -------------- ---------------
22,738,454 573,186,584 20,230,685 407,682,863
Repurchased ................... (14,839,539) (375,490,312) (18,669,019) (367,948,349)
-------------- --------------- -------------- ---------------
Net increase .................. 7,898,915 $ 197,696,272 1,561,666 $ 39,734,514
============== =============== ============== ===============
</TABLE>
6. FEDERAL INCOME TAX STATUS
As of September 30, 1996, 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 book/tax differences for the year
ended September 30, 1996, accumulated undistributed net realized gain was
charged $6,660,503, paid-in-capital was credited $36,253 and accumulated net
investment loss was credited $6,624,250.
44
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
--------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE
OPERATING PERFORMANCE:
Net asset value,
beginning of period......... $25.54 $17.55 $20.50 $12.20 $ 14.05
---------- ---------- ---------- ---------- ------------
Net investment income
(loss)...................... (0.23) (0.19) -- (0.12) (0.12)
Net realized and
unrealized gain (loss)...... 4.32 8.34 (1.82) 8.42 (1.73)
---------- ---------- ---------- ---------- ------------
Total from investment
operations.................. 4.09 8.15 (1.82) 8.30 (1.85)
---------- ---------- ---------- ---------- ------------
Less dividends and distributions from:
Net investment income ..... -- -- -- -- --
Net realized gain.......... (1.92) (0.16) (1.13) -- --
---------- ---------- ---------- ---------- ------------
Total dividends and
distributions............... (1.92) (0.16) (1.13) -- --
---------- ---------- ---------- ---------- ------------
Net asset value,
end of period............... $27.71 $25.54 $17.55 $20.50 $ 12.20
========== ========== ========== ========== ============
TOTAL INVESTMENT RETURN+ .... 17.53% 46.87 % (8.88)% 67.95 % (13.17)%
RATIOS TO
AVERAGE NET ASSETS:
Expenses..................... 1.69% 1.77 % 1.78 % 1.84 % 1.86 %
Net investment income
(loss)...................... (1.03%) (1.04)% (1.32)% (1.52)% (1.14)%
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands................ $799,201 $534,869 $340,169 $240,389 $112,982
Portfolio turnover rate ..... 149% 114 % 160 % 203 % 153 %
Average commission rate --
paid........................ $0.0571 -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987
- ---------------------------- ---------- ------------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE
OPERATING PERFORMANCE:
Net asset value,
beginning of period......... $ 8.92 $ 11.33 $ 9.67 $ 10.96 $ 8.57
---------- ------------ --------- ----------- ----------
Net investment income
(loss)...................... (0.07) (0.15) 0.04 (0.03) (0.02)
Net realized and
unrealized gain (loss)...... 5.20 (2.21) 1.62 (1.26) 2.42
---------- ------------ --------- ----------- ----------
Total from investment
operations.................. 5.13 (2.36) 1.66 (1.29) 2.40
---------- ------------ --------- ----------- ----------
Less dividends and distributions from:
Net investment income ..... -- (0.05) -- -- (0.01)
Net realized gain.......... -- -- -- -- --
---------- ------------ --------- ----------- ----------
Total dividends and
distributions............... -- (0.05) -- -- (0.01)
---------- ------------ --------- ----------- ----------
Net asset value,
end of period............... $ 14.05 $ 8.92 $ 11.33 $ 9.67 $ 10.96
========== ============ ========= =========== ==========
TOTAL INVESTMENT RETURN+ .... 57.51% (20.87)% 17.17% (11.77)% 28.07 %
RATIOS TO
AVERAGE NET ASSETS:
Expenses..................... 1.92% 2.02% 1.89% 1.90 % 1.83 %
Net investment income
(loss)...................... (0.73)% (1.32)% 0.59% (0.28)% (0.20)%
<PAGE>
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands................ $115,337 $67,604 $89,236 $108,411 $179,276
Portfolio turnover rate ..... 88% 53% 84% 70% 68%
Average commission rate
paid........................ -- -- -- -- --
</TABLE>
- ------------
+ 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
45
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
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 Developing Growth
Securities Trust (the "Fund") at September 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the ten years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1996 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
November 8, 1996
1996 FEDERAL TAX NOTICE (unaudited)
During the year ended September 30, 1996, the Fund paid to shareholders
$1.68 per share from long-term capital gains.
46
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (90.5%)
Advertising (1.4%)
126,000 Eagle River Interactive, Inc.* .................................. $ 1,323,000
100,000 HA-LO Industries, Inc.* ......................................... 1,500,000
111,500 Lamar Advertising Co. (Class A)* ................................ 2,202,125
180,000 Sitel Corp.* .................................................... 2,407,500
66,300 Universal Outdoor Holdings, Inc.* ............................... 1,922,700
--------------
9,355,325
--------------
Aerospace & Defense (1.4%)
112,100 Aviation Sales Co.* ............................................. 2,816,512
51,500 DONCASTERS PLC (ADR)* (United Kingdom) ......................... 997,812
185,000 Hexcel Corp.* ................................................... 3,260,625
150,000 Orbital Sciences Corp.* ......................................... 2,062,500
--------------
9,137,449
--------------
Air Freight (1.6%)
130,000 Air Express International Corp. ................................. 4,111,250
100,000 Hub Group, Inc. (Class A)* ...................................... 2,450,000
210,000 Offshore Logistics, Inc.* ....................................... 3,333,750
40,700 OMI Corp.* ...................................................... 396,825
--------------
10,291,825
--------------
Airlines (1.2%)
140,000 Alaska Air Group, Inc.* ......................................... 3,587,500
110,000 Midwest Express Holdings, Inc.* ................................. 4,166,250
--------------
7,753,750
--------------
Auto Parts (0.7%)
210,000 Miller Industries, Inc.* ........................................ 2,520,000
50,000 Tower Automotive, Inc.* ......................................... 1,950,000
--------------
4,470,000
--------------
Biotechnology (5.6%)
83,300 ArQule, Inc.* ................................................... 1,239,088
101,000 Biochem Pharma, Inc.* ........................................... 4,305,125
58,500 Cytyc Corp.* .................................................... 1,096,875
24,800 Dekalb Genetics Corp. (Class B) ................................. 1,308,200
200,000 DUSA Pharmaceuticals, Inc.* ..................................... 1,275,000
115,000 IDEC Pharmaceuticals Corp.* ..................................... 2,731,250
200,000 Ligand Pharmaceuticals, Inc. (Class B)* ......................... 2,225,000
175,000 Liposome Co., Inc.* ............................................. 3,543,750
140,000 MiniMed, Inc.* .................................................. 3,605,000
100,000 Mycogen Corp.* .................................................. 2,325,000
100,000 Neurocrine Biosciences, Inc.* ................................... 862,500
100,000 PathoGenesis Corp.* ............................................. 2,475,000
138,000 SangStat Medical Corp.* ......................................... 3,743,250
100,000 Sonus Pharmaceuticals, Inc.* .................................... $ 2,625,000
83,000 Vertex Pharmaceuticals, Inc.* ................................... 3,340,750
--------------
36,700,788
--------------
Building Materials (0.5%)
160,000 Cameron Ashley Building Products, Inc.* ......................... 2,140,000
74,000 Diamond Home Services, Inc.* .................................... 1,295,000
--------------
3,435,000
--------------
Business Services (5.9%)
200,000 Affiliated Computer Services, Inc. (Class A)* ................... 4,575,000
115,000 CFI Proservices, Inc.* .......................................... 1,868,750
65,000 Globalstar Telecommunications Ltd.* (Bermuda) .................. 3,380,000
90,000 Metzler Group, Inc.* ............................................ 1,946,250
215,000 Reynolds & Reynolds Co. (Class A) .............................. 5,133,125
145,000 Saville Systems Ireland PLC (ADR)* (Ireland) ................... 4,096,250
75,000 SCI Systems, Inc.* .............................................. 3,796,875
177,000 Sterling Commerce, Inc.* ........................................ 5,133,000
50,000 Sungard Data Systems, Inc.* ..................................... 2,175,000
38,400 Sykes Enterprises, Inc.* ........................................ 1,214,400
66,000 The Registry, Inc.* ............................................. 2,310,000
115,000 Transaction Systems Architects, Inc. (Class A)* ................. 3,119,375
--------------
38,748,025
--------------
Commercial Services (2.2%)
132,900 Coinmach Laundry Corp.* ......................................... 2,076,562
22,600 International Telecommunication Data Systems, Inc.* ............. 367,250
180,000 Iron Mountain, Inc.* ............................................ 4,455,000
65,000 Pittway Corp. (Class A) ......................................... 3,152,500
93,400 Precision Response Corp.* ....................................... 2,206,575
121,000 U.S. Rentals, Inc.* ............................................. 2,193,125
--------------
14,451,012
--------------
Computer Software (5.3%)
70,000 Aspect Development, Inc.* ....................................... 1,575,000
83,500 Cotelligent Group, Inc.* ........................................ 751,500
58,000 Hyperion Software Corp.* ........................................ 928,000
81,450 IA Corporation I* ............................................... 437,794
150,000 Infinity Financial Technology, Inc.* ............................ 2,587,500
91,600 Information Management Resources, Inc.* ......................... 1,396,900
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited) continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
52,400 IONA Technologies PLC (ADR)* (United Kingdom) .................. $ 930,100
90,000 ISG International Software Group Ltd.* (Israel) ................ 866,250
125,000 Legato Systems, Inc.* ........................................... 2,093,750
100,000 MetaTools, Inc.* ................................................ 1,000,000
100,000 ONTRACK Data International, Inc.* ............................... 1,462,500
80,000 Peoplesoft, Inc.* ............................................... 3,200,000
150,000 Platinum Technology, Inc.* ...................................... 1,743,750
145,000 Raptor Systems, Inc.* ........................................... 1,866,875
90,000 Remedy Corp.* ................................................... 3,442,500
150,000 Segue Software, Inc.* ........................................... 1,443,750
107,500 Simulation Sciences, Inc.* ...................................... 1,075,000
235,000 TriTeal Corp.* .................................................. 2,673,125
115,000 Viasoft, Inc.* .................................................. 3,737,500
7,500 Visigenic Software, Inc.* ....................................... 66,562
64,000 Wind River Systems, Inc.* ....................................... 1,488,000
--------------
34,766,356
--------------
Computers - Peripheral Equipment (2.0%)
175,000 Creative Technology Ltd.* (Singapore) .......................... 1,596,875
125,000 Lexmark International Group, Inc. (Class A)* .................... 3,031,250
80,000 Network Appliance, Inc.* ........................................ 2,520,000
195,000 Read Rite Corp.* ................................................ 4,923,750
82,500 Sync Research, Inc.* ............................................ 250,078
45,000 VideoServer, Inc.* .............................................. 1,063,125
--------------
13,385,078
--------------
Consumer Products (2.1%)
70,000 Blyth Industries, Inc.* ......................................... 2,528,750
190,000 Gemstar International Group Ltd.* ............................... 2,232,500
81,000 General Cigar Holdings, Inc. (Class A)* ......................... 1,802,250
165,000 NBTY, Inc.* ..................................................... 2,495,625
45,000 Northland Cranberries, Inc. (Class A) .......................... 810,000
170,000 USA Detergents, Inc.* ........................................... 3,910,000
--------------
13,779,125
--------------
Education (1.1%)
70,000 Education Management Corp.* ..................................... 1,592,500
249,000 National Education Corp.* ....................................... 3,143,625
104,500 Sylvan Learning Systems, Inc.* .................................. 2,534,125
--------------
7,270,250
--------------
Electronics (1.3%)
100,000 Kent Electronics Corp.* ......................................... $ 2,300,000
215,000 MagneTek, Inc.* ................................................. 3,466,875
200,000 Supertex, Inc.* ................................................. 2,350,000
--------------
8,116,875
--------------
Entertainment/Gaming & Lodging (1.1%)
87,200 Cinar Films, Inc. (Class B)* (Canada) .......................... 2,114,600
94,000 Fairfield Communities, Inc.* .................................... 2,350,000
183,100 U.S. Franchise Systems, Inc. (Class A)* ......................... 1,396,137
52,500 Vail Resorts, Inc.* ............................................. 1,023,750
--------------
6,884,487
--------------
Finance & Brokerage (2.2%)
75,000 Alex. Brown, Inc. ............................................... 3,187,500
100,000 Legg Mason, Inc. ............................................... 4,225,000
130,000 McDonald & Co. Investments, Inc. ................................ 4,712,500
143,500 Morgan Keegan, Inc. ............................................. 2,367,750
--------------
14,492,750
--------------
Finance - Diversified (1.5%)
145,600 Amresco, Inc.* .................................................. 2,402,400
50,000 Finova Group Inc. ............................................... 3,381,250
40,900 Nationwide Financial Services, Inc. (Class A)* .................. 1,053,175
85,000 SunAmerica, Inc. ............................................... 3,198,125
--------------
10,034,950
--------------
Healthcare (3.2%)
130,000 EmCare Holdings, Inc.* .......................................... 3,493,750
60,000 HCIA, Inc.* ..................................................... 982,500
150,000 Healthsouth Corp.* .............................................. 2,868,750
340,000 Novacare, Inc.* ................................................. 4,122,500
36,000 Pediatric Services of America, Inc.* ............................ 670,500
130,000 PhyCor, Inc.* ................................................... 3,526,250
2,500 Schein (Henry), Inc.* ........................................... 72,187
61,000 Total Renal Care Holdings, Inc.* ................................ 1,852,875
125,000 Vivra, Inc.* .................................................... 3,375,000
--------------
20,964,312
--------------
Healthcare - Drugs (1.4%)
150,000 Dura-Pharmaceuticals, Inc.* ..................................... 5,343,750
160,000 Jones Medical Industries, Inc. ................................. 3,800,000
--------------
9,143,750
--------------
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited) continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Heating & Air Conditioning (1.0%)
40,000 American Precision Industries, Inc. ............................ $ 680,000
70,000 American Standard Companies, Inc.* .............................. 3,150,000
100,000 Watsco, Inc. .................................................... 2,550,000
--------------
6,380,000
--------------
Hotels/Motels (0.3%)
30,000 HFS, Inc.* ...................................................... 1,766,250
--------------
Housing & Home Furnishings (2.0%)
60,000 Ethan Allen Interiors, Inc. .................................... 2,610,000
230,000 Furniture Brands International, Inc.* ........................... 3,450,000
48,000 HON INDUSTRIES, Inc. ........................................... 1,776,000
190,000 O'Sullivan Industries Holdings, Inc.* ........................... 2,398,750
69,300 Samsonite Corp.* ................................................ 2,997,225
--------------
13,231,975
--------------
Insurance (2.8%)
118,000 CMAC Investment Corp. ........................................... 3,938,250
80,000 Conseco, Inc. .................................................. 2,850,000
140,000 Delphi Financial Group, Inc. (Class A)* ......................... 4,655,000
130,000 Fremont General Corp. ........................................... 3,656,250
125,000 HCC Insurance Holdings, Inc. ................................... 3,062,500
--------------
18,162,000
--------------
Internet (1.3%)
95,000 America Online, Inc.* ........................................... 4,025,625
44,900 AmeriTrade Holding Corp. (Class A)* ............................. 701,563
198,000 E*TRADE Group, Inc.* ............................................ 3,564,000
--------------
8,291,188
--------------
Leasing (0.6%)
50,000 Leasing Solutions, Inc.* ........................................ 912,500
58,600 Prime Service, Inc.* ............................................ 1,113,400
104,600 Team Rental Group, Inc.* ........................................ 2,144,300
--------------
4,170,200
--------------
Machinery - Diversified (0.3%)
70,000 DT Industries, Inc. ............................................ 1,785,000
--------------
Manufacturing - Diversified (2.1%)
125,000 Buckeye Cellulose Corp.* ........................................ 3,718,750
130,000 Memtec Ltd. (ADR)(Australia) .................................... 3,298,750
100,100 Mueller Industries, Inc.* ....................................... 3,916,413
79,500 U.S. Filter Corp.* .............................................. 2,454,563
--------------
13,388,476
--------------
Medical Products & Supplies (5.0%)
100,000 ADAC Laboratories ............................................... $ 2,062,500
67,800 Ballard Medical Products ........................................ 1,415,325
147,000 Biopsys Medical, Inc.* .......................................... 3,601,500
145,000 Endovascular Technologies, Inc.* ................................ 1,993,750
105,000 ESC Medical Systems Ltd.* (Israel) ............................. 2,638,125
105,000 Lunar Corp.* .................................................... 3,517,500
69,700 Molecular Dynamics, Inc.* ....................................... 1,001,938
140,000 Neoprobe Corp.* ................................................. 1,872,500
126,000 Safeskin Corp.* ................................................. 2,220,750
120,000 Sofamor Danek Group, Inc.* ...................................... 4,335,000
80,000 Sterile Recoveries, Inc.* ....................................... 1,400,000
170,000 Steris Corp.* ................................................... 4,143,750
60,000 Vivus, Inc.* .................................................... 2,392,500
--------------
32,595,138
--------------
Miscellaneous (0.0%)
1,300 Assisted Living Concepts, Inc.* ................................. 27,300
--------------
Office Equipment & Supplies (3.6%)
220,500 American Pad & Paper Co.* ....................................... 3,307,500
35,000 Consolidated Graphics, Inc.* .................................... 1,001,875
100,000 Danka Business Systems PLC (ADR)(United Kingdom) ................ 3,137,500
85,000 Ikon Office Solutions, Inc. ..................................... 2,847,500
155,000 Mail-Well, Inc.* ................................................ 3,061,250
116,500 Mecklermedia Corp.* ............................................. 2,708,625
170,000 Valassis Communications, Inc.* .................................. 3,803,750
175,000 Viking Office Products, Inc.* ................................... 3,390,625
--------------
23,258,625
--------------
Oil & Gas Drilling (6.2%)
70,000 ENSCO International, Inc.* ...................................... 3,447,500
150,000 Forest Oil Corp.* ............................................... 1,987,500
220,000 Global Industries Ltd.* ......................................... 4,675,000
130,000 Global Marine, Inc.* ............................................ 2,795,000
77,000 Helmerich & Payne, Inc. ........................................ 3,561,250
170,000 Marine Drilling Company, Inc.* .................................. 2,996,250
100,000 Newpark Resources, Inc.* ........................................ 4,375,000
155,000 Noble Drilling Corp.* ........................................... 2,673,750
160,000 Reading & Bates Corp.* .......................................... 3,620,000
190,000 Rowan Companies, Inc.* .......................................... 4,298,750
100,000 Smith International, Inc.* ...................................... 4,562,500
90,000 Veritas DGC, Inc.* .............................................. 1,777,500
--------------
40,770,000
--------------
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited) continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Oil - Exploration & Production (1.8%)
82,500 Basic Petroleum International, Ltd.* ............................ $ 2,722,500
130,000 Belden & Blake Corp.* ........................................... 3,315,000
145,000 Comstock Resources Inc.* ........................................ 1,250,625
70,000 Stone Energy Corp.* ............................................. 1,680,000
80,000 Triton Energy Ltd.* ............................................. 3,100,000
--------------
12,068,125
--------------
Retail - General Merchandise (2.1%)
20,600 99 Cents Only Stores* ........................................... 414,575
100,000 Consolidated Stores Corp.* ...................................... 3,525,000
60,000 Dollar Tree Stores, Inc.* ....................................... 2,212,500
80,000 Fred Meyer, Inc.* ............................................... 3,300,000
180,000 Loehmann's, Inc.* ............................................... 3,150,000
32,000 Saks Holdings, Inc.* ............................................ 920,000
--------------
13,522,075
--------------
Retail - Specialty (1.9%)
200,000 Borders Group, Inc.* ............................................ 3,775,000
150,000 Central Garden & Pet Co.* ....................................... 2,681,250
170,000 Hollywood Entertainment Corp.* .................................. 4,143,750
100,000 PetSmart, Inc.* ................................................. 2,012,500
--------------
12,612,500
--------------
Retail - Specialty Apparel (1.7%)
145,000 Finish Line, Inc. (Class A)* .................................... 3,190,000
98,000 Kenneth Cole Productions, Inc. (Class A)* ....................... 2,058,000
100,000 Men's Wearhouse, Inc. (The)* .................................... 2,750,000
85,000 Wolverine World Wide, Inc. ..................................... 3,102,500
--------------
11,100,500
--------------
Savings & Loan Associations (2.6%)
86,000 Astoria Financial Corp. ........................................ 3,085,250
102,900 Bank United Corp. (Class A) ..................................... 2,919,788
81,000 First Federal Savings Bank of Colorado .......................... 1,336,500
90,000 GreenPoint Financial Corp. ...................................... 4,635,000
80,000 PennFed Financial Services, Inc. ............................... 1,880,000
90,000 People's Bank ................................................... 2,857,500
--------------
16,714,038
--------------
Semiconductor Capital Equipment (3.1%)
95,000 Applied Magnetics Corp.* ........................................ 2,683,750
45,000 ASM Lithography Holding NV* (Netherlands) ...................... 3,369,375
150,000 Cyberoptics Corp.* .............................................. 2,456,250
118,000 Fusion Systems Corp.* ........................................... 2,802,500
80,000 PRI Automation, Inc.* ........................................... $ 3,760,000
80,000 Tencor Instruments* ............................................. 2,880,000
80,000 Teradyne, Inc.* ................................................. 2,310,000
--------------
20,261,875
--------------
Semiconductors (4.0%)
85,000 Altera Corp.* ................................................... 3,655,000
120,000 Analog Devices, Inc.* ........................................... 2,700,000
150,000 Cyrix Corp.* .................................................... 2,793,750
80,000 Linear Technology Corp. ........................................ 3,540,000
100,000 Maxim Integrated Products, Inc.* ................................ 4,837,500
85,000 Microchip Technology, Inc.* ..................................... 2,539,375
100,000 Quad Systems Corp.* ............................................. 1,050,000
108,000 Technitrol, Inc. ................................................ 2,025,000
30,000 Triquint Semiconductor, Inc.* ................................... 701,250
75,000 Vitesse Semiconductor Corp.* .................................... 2,071,875
--------------
25,913,750
--------------
Steel (0.1%)
28,000 Steel Dynamics, Inc.* ........................................... 490,000
--------------
Telecommunications Equipment (3.3%)
85,000 Comverse Technology, Inc.* ...................................... 3,336,250
60,000 Davox Corp.* .................................................... 1,785,000
60,000 DSP Communications, Inc.* ....................................... 570,000
92,500 Dynatech Corp.* ................................................. 2,775,000
100,000 Interlink Computer Sciences, Inc.* .............................. 1,075,000
140,000 Network General Corp.* .......................................... 3,010,000
98,000 Ortel Corp.* .................................................... 1,237,250
90,000 PairGain Technologies, Inc.* .................................... 2,666,250
160,000 SDL, Inc.* ...................................................... 2,680,000
78,190 Uniphase Corp.* ................................................. 2,220,000
--------------
21,354,750
--------------
Textiles - Apparel (0.7%)
90,000 Jones Apparel Group, Inc.* ...................................... 3,341,250
50,000 Nautica Enterprises, Inc.* ...................................... 1,250,000
--------------
4,591,250
--------------
Waste Management (2.3%)
250,000 Allied Waste Industries, Inc.* .................................. 2,031,250
270,000 Philip Environmental, Inc.* (Canada) ........................... 4,083,750
18,000 Superior Services, Inc.* ........................................ 400,500
130,000 Tetra Technologies, Inc.* ....................................... 2,827,500
160,000 United Waste Systems, Inc.* ..................................... 5,960,000
--------------
15,303,000
--------------
TOTAL COMMON STOCKS
(Identified Cost $562,767,629) .................................. 590,939,122
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (10.3%)
COMMERCIAL PAPER (a)(6.2%)
Automotive -Finance (3.1%)
$20,000 Ford Motor Credit Co. 5.33% due 04/03/97 ........................ $19,994,078
--------------
Electric -Major (3.1%)
20,000 General Electric Capital Corp. 5.65% due 04/07/97 ............... 19,981,166
--------------
TOTAL COMMERCIAL PAPER
(Amortized Cost $39,975,244) .................................... 39,975,244
--------------
U.S. GOVERNMENT AGENCY (a) (3.9%)
25,700 Federal Home Loan Mortgage Corp. 6.50% due 04/01/97
(Amortized Cost $25,700,000) .................................... 25,700,000
--------------
REPURCHASE AGREEMENT (0.2%)
1,496 The Bank of New York 5.375% due 04/01/97 (dated 03/31/97; proceeds
$1,496,238; collateralized by $260,386 U.S. Treasury Note 6.25%
due 08/31/00 valued at $258,583 and $1,194,498 U.S. Treasury Note
7.875% due 11/15/99 valued at $1,267,352)(Identified
Cost $1,496,015) .............................................. 1,496,015
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $67,171,259) .................................. 67,171,259
--------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- ---------------------------------- -------- --------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $629,938,888)(b) . 100.8% $658,110,381
LIABILITIES IN EXCESS OF
CASH AND OTHER ASSETS............. (0.8) (5,227,529)
-------- --------------
NET ASSETS......................... 100.0% $652,882,852
======== ==============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(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
$78,479,265 and the aggregate gross unrealized depreciation is
$50,307,772, resulting in net unrealized appreciation of $28,171,493.
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $629,938,888)....................................... $658,110,381
Cash.................................................................. 950,929
Receivable for:
Investments sold.................................................... 28,631,873
Shares of beneficial interest sold.................................. 795,486
Dividends........................................................... 100,507
Prepaid expenses and other assets..................................... 87,259
--------------
TOTAL ASSETS ....................................................... 688,676,435
--------------
LIABILITIES:
Payable for:
Investments purchased............................................... 32,249,143
Shares of beneficial interest repurchased........................... 2,359,848
Plan of distribution fee............................................ 599,686
Investment management fee........................................... 295,467
Accrued expenses and other payables................................... 289,439
--------------
TOTAL LIABILITIES .................................................. 35,793,583
--------------
NET ASSETS:
Paid-in-capital....................................................... 630,152,530
Net unrealized appreciation........................................... 28,171,493
Accumulated net investment loss....................................... (4,818,504)
Accumulated net realized loss......................................... (622,667)
--------------
NET ASSETS.......................................................... $652,882,852
==============
NET ASSET VALUE PER SHARE,
33,099,992 shares outstanding (unlimited shares authorized of $.01
par value)........................................................... $19.72
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest ......................................... $ 1,068,060
Dividends (net of $3,437 foreign withholding
tax)............................................. 580,810
---------------
TOTAL INCOME ................................... 1,648,870
---------------
EXPENSES
Plan of distribution fee.......................... 3,845,964
Investment management fee......................... 1,889,163
Transfer agent fees and expenses.................. 511,085
Registration fees ................................ 56,568
Custodian fees.................................... 44,214
Shareholder reports and notices .................. 38,367
Professional fees ................................ 26,610
Trustees' fees and expenses....................... 10,256
Other............................................. 6,029
---------------
TOTAL EXPENSES ................................. 6,428,256
---------------
NET INVESTMENT LOSS ............................ (4,779,386)
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain................................. 1,263,492
Net change in unrealized appreciation............. (127,145,645)
---------------
NET LOSS ....................................... (125,882,153)
---------------
NET DECREASE ..................................... $(130,661,539)
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 1997 SEPTEMBER 30, 1996
- ------------------------------------------------------ -------------- ------------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................................... $ (4,779,386) $ (6,629,594)
Net realized gain...................................... 1,263,492 132,830,087
Net change in unrealized appreciation.................. (127,145,645) (16,804,216)
-------------- ------------------
NET INCREASE (DECREASE).............................. (130,661,539) 109,396,277
Distributions from net realized gain................... (113,569,438) (42,760,549)
Net increase from transactions in shares of beneficial
interest.............................................. 97,913,325 197,696,272
-------------- ------------------
NET INCREASE (DECREASE).............................. (146,317,652) 264,332,000
NET ASSETS:
Beginning of period.................................... 799,200,504 534,868,504
-------------- ------------------
END OF PERIOD
(Including accumulated net investment losses of
$4,818,504 and $39,118, respectively)................ $ 652,882,852 $799,200,504
============== ==================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Developing Growth Securities Trust (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
long-term capital growth. The Fund was organized as a Massachusetts business
trust on December 28, 1982 and commenced operations on April 29, 1983.
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;
(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 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. 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.
55
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) continued
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.50% to the portion of the daily net assets not
exceeding $500 million and 0.475% to the portion of the daily net assets
exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such
56
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) continued
charge has been waived; or (b) the Fund's average daily net assets. Amounts
paid under the Plan are paid to the Distributor to compensate it for the
services provided and the expenses borne by it and others in the distribution
of the Fund's shares, including the payment of commissions for sales of the
Fund's shares and incentive compensation to, and expenses of, the account
executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager and Distributor, and other employees or selected broker-dealers who
engage in or support distribution of the Fund's shares or who service
shareholder accounts, including overhead and telephone expenses, printing and
distribution of prospectuses and reports used in connection with the offering
of the Fund's shares to other than current shareholders and preparation,
printing and distribution of sales literature and advertising materials. In
addition, the Distributor may be compensated under the Plan for its opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses incurred by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred by
the Distributor but not yet recovered may be recovered through future
distribution fees from the Fund and contingent deferred sales charges from the
Fund's shareholders.
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
$28,825,782 at March 31, 1997.
The Distributor has informed the Fund that for the six months ended March 31,
1997, it received approximately $638,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the six months ended March 31, 1997
aggregated $551,762,905 and $634,925,811, respectively.
For the six months ended March 31, 1997, the Fund incurred $28,599 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
At March 31, 1997, the Fund's receivable for investments sold included
unsettled trades with DWR of $1,298,375.
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
57
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) continued
years of service. Aggregate pension costs for the six months ended March 31,
1997 included in Trustees' fees and expenses in the Statement of Operations
amounted to $2,892. At March 31, 1997, the Fund had an accrued pension
liability of $40,434 which is included in accrued expenses in the Statement of
Assets and Liabilities.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At March 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $158,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 1997 SEPTEMBER 30, 1996
----------------------------- ------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold .......................... 6,335,170 $ 155,929,705 20,988,017 $ 532,804,011
Reinvestment of distributions 4,819,691 107,527,322 1,750,437 40,382,573
------------- --------------- -------------- ---------------
11,154,861 263,457,027 22,738,454 573,186,584
Repurchased ................... (6,893,451) (165,543,702) (14,839,539) (375,490,312)
------------- --------------- -------------- ---------------
Net increase .................. 4,261,410 $ 97,913,325 7,898,915 $ 197,696,272
============= =============== ============== ===============
</TABLE>
6. FEDERAL INCOME TAX STATUS
At September 30, 1996, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
58
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED SEPTEMBER 30
MONTHS ENDED -----------------------------------------------------
MARCH 31, 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(unaudited)
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 27.71 $25.54 $17.55 $20.50 $12.20 $ 14.05
-------------- -------- ---------- ---------- ---------- ----------
Net investment loss ....................... (0.15) (0.23) (0.19) -- (0.12) (0.12)
Net realized and unrealized gain (loss) .. (3.95) 4.32 8.34 (1.82) 8.42 (1.73)
-------------- -------- ---------- ---------- ---------- ----------
Total from investment operations .......... (4.10) 4.09 8.15 (1.82) 8.30 (1.85)
-------------- -------- ---------- ---------- ---------- ----------
Less distributions from net realized gain (3.89) (1.92) (0.16) (1.13) -- --
-------------- -------- ---------- ---------- ---------- ----------
Net asset value, end of period ............ $ 19.72 $27.71 $25.54 $17.55 $20.50 $ 12.20
============== ======== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN+ .................. (16.43)%(1) 17.53% 46.87% (8.88)% 67.95% (13.17)%
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.67%(2) 1.69% 1.77% 1.78% 1.84% 1.86%
Net investment loss ....................... (1.24)%(2) (1.03)% (1.04)% (1.32)% (1.52)% (1.14)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $652,883 $799,20 $534,869 $340,169 $240,389 $112,982
Portfolio turnover rate ................... 77%(1) 149% 114% 160% 203% 153%
Average commission rate paid .............. $0.0573 $0.0571 -- -- -- --
</TABLE>
- ------------
+ 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
59
