<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 2-81157
PROSPECTUS
NOVEMBER 26, 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. (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 November 26, 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/ 10
Investment Objective and Policies/ 10
Risk Considerations/ 11
Investment Restrictions/ 15
Purchase of Fund Shares/ 16
Shareholder Services/ 27
Redemptions and Repurchases/ 30
Dividends, Distributions and Taxes/ 31
Performance Information/ 32
Additional Information/ 32
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE 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 Massachusetts business trust, and is an
Fund 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 10).
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Shares Shares of beneficial interest with $0.01 par value (see page 32). The Fund offers four Classes
Offered of shares, each with a different combination of sales charges, ongoing fees and other features
(see pages 16-26).
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Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened through
Purchase 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 16).
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Investment The investment objective of the Fund is long-term capital growth (see page 10).
Objective
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Investment The Fund invests primarily in common stock of companies believed to have potential for
Policies significant growth. However, it may also invest in convertible securities, preferred stock,
bonds and warrants of such companies and may engage in certain portfolio techniques, including
leveraging (see page 10).
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Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its
Manager wholly-owned subsidiary, Dean Witter Services Company Inc., serve in various investment
management, advisory, management and administrative capacities to 100 investment companies and
other portfolios with net assets of approximately $100.7 billion at
October 31, 1997 (see page 10).
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Management The Investment Manager receives a monthly fee at the annual rate of 0.50% of the Fund's daily
Fee 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 10).
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Distributor and Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution plan
Distribution pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with respect to the
Fee 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 16 and 25).
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2
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Alternative Four classes of shares are offered:
Purchase
Arrangements o Class A shares are offered with a front-end sales charge, starting at 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 16, 19
and 25).
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 16, 22
and 25).
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 16, 24 and 25).
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 16, 24 and 25).
3
<PAGE>
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Dividends and Dividends from net investment income and distributions from net capital gains, if any, are paid
Capital Gains at least once per year. Dividends and capital gains distributions are automatically reinvested
Distributions in additional shares of the Fund unless the 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 27 and 31).
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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 30).
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Risks The net asset value of the Fund's shares will fluctuate with changes in the market value of its
portfolio securities. The Fund 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 11-15).
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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, 1997.
<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 ..................................... 0.19% 0.19% 0.19% 0.19%
Total Fund Operating Expenses (7)................... 0.93% 1.68% 1.68% 0.68%
</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 July 28, 1997. Accordingly, "Total Fund Operating Expenses," as
shown above with respect to those Classes, are estimates based upon the
sum of 12b-1 Fees, Management Fees and estimated "Other Expenses."
5
<PAGE>
<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 ...................................................... $61 $81 $101 $161
Class B ...................................................... $67 $83 $111 $199
Class C....................................................... $27 $53 $ 91 $199
Class D ...................................................... $ 7 $22 $ 38 $ 85
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ...................................................... $61 $81 $101 $161
Class B ...................................................... $17 $53 $ 91 $199
Class C ...................................................... $17 $53 $ 91 $199
Class D ...................................................... $ 7 $22 $ 38 $ 85
</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 period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in
conjunction with the financial statements, notes thereto and the unqualified
report of independent accountants, which are contained in the Statement of
Additional Information. Further information about the performance of the Fund
is contained in the Fund's Annual Report to Shareholders, which may be
obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------------------
1997*++ 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............. $27.71 $25.54 $17.55 $20.50 $12.20 $14.05 $8.92 $11.33 $9.67 $10.96
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- ------
Net investment
income (loss)...... (0.28) (0.23) (0.19) -- (0.12) (0.12) (0.07) (0.15) 0.04 (0.03)
Net realized and
unrealized gain
(loss)............. 3.92 4.32 8.34 (1.82) 8.42 (1.73) 5.20 (2.21) 1.62 (1.26)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- ------
Total from
investment
operations......... 3.64 4.09 8.15 (1.82) 8.30 (1.85) 5.13 (2.36) 1.66 (1.29)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- ------
Less dividends and
distributions
from:
Net investment
income............ -- -- -- -- -- -- -- (0.05) -- --
Net realized gain . (3.89) (1.92) (0.16) (1.13) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- ------
Total dividends and
distributions...... (3.89) (1.92) (0.16) (1.13) -- -- -- (0.05) -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- ------
Net asset value,
end of period...... $27.46 $27.71 $25.54 $17.55 $20.50 $12.20 $14.05 $8.92 $11.33 $9.67
========== ========== ========== ========== ========== ========== ========== ========== ========= ======
TOTAL INVESTMENT
RETURN+............ 16.38% 17.53% 46.87% (8.88)% 67.95% (13.17)% 57.51% (20.87)% 17.17% (11.77)%
RATIOS TO AVERAGE
NET ASSETS:
Expenses............ 1.68% 1.69% 1.77% 1.78% 1.84% 1.86% 1.92% 2.02% 1.89% 1.90%
Net investment
income (loss)...... (1.21)% (1.03)% (1.04)% (1.32)% (1.52)% (1.14)% (0.73)% (1.32)% 0.59% (0.28)%
SUPPLEMENTAL DATA:
Net assets, end of
period, in
thousands.......... $877,539 $799,201 $534,869 $340,169 $240,389 $112,982 $115,337 $67,604 $89,236 $108,411
Portfolio turnover
rate............... 154% 149% 114% 160% 203% 153% 88% 53% 84% 70%
Average commission
rate paid.......... $0.0572 $0.0571 -- -- -- -- -- -- -- --
</TABLE>
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* Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated
Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
7
<PAGE>
FINANCIAL HIGHLIGHTS, continued
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<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
- ---------------------------------------- -------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 24.62
-------
Net investment loss ..................... (0.02)
Net realized and unrealized gain ....... 2.90
-------
Total from investment operations ....... 2.88
-------
Net asset value, end of period .......... $ 27.50
=======
TOTAL INVESTMENT RETURN+ ................ 11.70% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 0.99% (2)
Net investment loss ..................... (0.46)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 978
Portfolio turnover rate ................. 154%
Average commission rate paid ............ $0.0572
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 24.62
-------
Net investment loss ..................... (0.05)
Net realized and unrealized gain ....... 2.89
-------
Total from investment operations ....... 2.84
-------
Net asset value, end of period .......... $ 27.46
=======
TOTAL INVESTMENT RETURN+ ................ $ 11.54% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 1.71% (2)
Net investment loss ..................... (1.19)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 1,066
Portfolio turnover rate ................. 154%
Average commission rate paid ............ $0.0572
</TABLE>
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* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
8
<PAGE>
FINANCIAL HIGHLIGHTS, continued
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<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
- ---------------------------------------- -------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 24.62
-------
Net investment loss ..................... (0.01)
Net realized and unrealized gain (loss) 2.90
-------
Total from investment operations ....... 2.89
-------
Net asset value, end of period .......... $ 27.51
=======
TOTAL INVESTMENT RETURN+ ................ 11.74%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 0.70%(2)
Net investment loss ..................... (0.20)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 22
Portfolio turnover rate ................. 154%
Average commission rate paid ............ $0.0572
</TABLE>
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* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
9
<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 $97 billion as of October 31, 1997. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.7 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets including the placing of orders for the purchase and sale of portfolio
securities. 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, 1997, the Fund accrued total compensation to the
Investment Manager amounting to 0.49% of the Fund's average daily net assets
and the total expenses of Class B amounted to 1.68% of the average daily net
assets of Class B. Shares of Class A, Class C and Class D were first issued
on July 28, 1997. The expenses of the Fund include: the fee of the Investment
Manager; the fee pursuant to the Plan of Distribution (see "Purchase of Fund
Shares"); taxes; transfer agent, custodian and auditing fees; certain legal
fees; and printing and other expenses relating to the Fund's operations which
are not expressly assumed by the Investment Manager under its Investment
Management Agreement with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
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 &
10
<PAGE>
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.
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 fixed-income
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, 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 (including zero coupon
securities), 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 U.S. 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 rec-
11
<PAGE>
ognized 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.
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
12
<PAGE>
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 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 invest-
13
<PAGE>
ment 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 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
14
<PAGE>
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 emphasis 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 32 funds and fund portfolios, with
approximately $14.1 billion in assets at October 31, 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 for over five years.
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).
15
<PAGE>
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 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
16
<PAGE>
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 FSB (the "Transfer Agent" or "DWT") at P.O. Box
1040, Jersey City, NJ 07303 or by contacting an account executive of DWR or
other Selected Broker-Dealer. When purchasing shares of the Fund, investors
must specify whether the purchase is for Class A, Class B, Class C or Class D
shares. If no Class is specified, the Transfer Agent will not process the
transaction until the proper Class is identified. The minimum initial
purchase in the case of investments through EasyInvest(Service Mark), an
automatic purchase plan (see "Shareholder Services"), is $100, provided that
the schedule of automatic investments will result in investments totalling
$1,000 within the first twelve months. The minimum initial purchase in the
case of an "Education IRA" is $500, if the Distributor has reason to believe
that additional investments will increase the investment in the account to
$1,000 within three years. In the case of investments pursuant to (i)
Systematic Payroll Deduction Plans (including Individual Retirement Plans),
(ii) the InterCapital mutual fund asset allocation program and (iii)
fee-based programs approved by the Distributor, pursuant to which
participants pay an asset based fee for services in the nature of investment
advisory or administrative services, the Fund, in its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required, provided, in the case of Systematic Payroll Deduction Plans, that
the Distributor has reason to believe that additional investments will
increase the investment in all accounts under such Plans to at least $1,000.
Certificates for shares purchased will not be issued unless requested by the
shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is
made prior thereto. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment. Investors will be entitled to receive
income dividends and capital gains distributions if their order is received
by the close of business on the day prior to the record date for such
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
17
<PAGE>
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."
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:
18
<PAGE>
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 theFund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to
an ongoing 12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A
shares) for an indefinite period of time. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks. Other investors, however, may elect to purchase Class C shares if,
for example, they determine that they do not wish to be subject to a
front-end sales charge and they are uncertain as to the length of time they
intend to hold their shares.
For the purpose of meeting the $5 million minimum investment amount for
Class D shares, holdings of Class A shares in all Dean Witter Multi-Class
Funds, shares of FSC Funds and shares of Dean Witter Funds for which such
shares have been exchanged will be included together with the current
investment amount.
Sales personnel may receive different compensation for selling each Class
of shares. Investors should understand that the purpose of a CDSC is the same
as that of the initial sales charge in that the sales charges applicable to
each Class provide for the financing of the distribution of shares of that
Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- --------- ------------------------- ------------- --------------------
<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. 0.25% No
- --------- ------------------------- ------------- --------------------
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 inves-
19
<PAGE>
tors) 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:
<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
20
<PAGE>
and other Dean Witter Funds acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions), which are held at the time of such transaction, amounts to
$25,000 or more. If such investor has a cumulative net asset value of shares
of FSC Funds and Class A and Class D shares equal to at least $5 million,
such investor is eligible to purchase Class D shares subject to the $1,000
minimum initial investment requirement of that Class of the Fund. See "No
Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Selected Broker-Dealer or the Transfer Agent
fails to confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from DWR or other Selected Broker-Dealers. The cost of Class A
shares of the Fund or shares of other Dean Witter Funds which were previously
purchased at a price including a front-end sales charge during the 90-day
period prior to the date of receipt by the Distributor of the Letter of
Intent, or of Class A shares of the Fund or shares of other Dean Witter Funds
acquired in exchange for shares of such funds purchased during such period at
a price including a front-end sales charge, which are still owned by the
shareholder, may also be included in determining the applicable reduction.
Additional Net Asset Value Purchase Options. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value
by the following:
(1) trusts for which DWT (an affiliate of the Investment Manager) provides
discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for
services in the nature of investment advisory or administrative services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares);
(3) retirement plans qualified under Section 401(k) of the Internal
Revenue Code ("401(k) plans") and other employer-sponsored plans qualified
under Section 401(a) of the Internal Revenue Code with at least 200 eligible
employees and for which DWT serves as Trustee or the 401(k) Support Services
Group of DWR serves as recordkeeper;
(4) 401(k) plans and other employer-sponsored plans qualified under
Section 401(a) of the Internal Revenue Code for which DWT serves as Trustee
or the 401(k) Support Services Group of DWR serves as recordkeeper whose
Class B shares have converted to Class A shares, regardless of the plan's
asset size or number of eligible employees;
(5) investors who are clients of a Dean Witter account executive who
joined Dean Witter from another investment firm within six months prior to
the date of purchase of Fund shares by such investors, if the shares are
being purchased with the proceeds from a redemption of shares of an open-end
proprietary mutual fund of the account executive's previous firm which
imposed either a front-end or deferred sales charge, provided such purchase
was made within sixty days after the redemption and the proceeds of the
redemption had been maintained in the interim in cash or a money market fund;
and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
21
<PAGE>
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--
CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase
payment may be immediately invested in the Fund. A CDSC, however, will be
imposed on most Class B shares redeemed within six years after purchase. The
CDSC will be imposed on any redemption of shares if after such redemption the
aggregate current value of a Class B account with the Fund falls below the
aggregate amount of the investor's purchase payments for Class B shares made
during the six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) preceding the redemption. In
addition, Class B shares are subject to an annual 12b-1 fee of 1.0% of the
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 DWT serves as Trustee or the 401(k) Support Services
Group of DWR serves as recordkeeper and whose accounts are opened on or after
July 28, 1997, shares held for three years or more after purchase (calculated
as described in the paragraph above) will not be subject to any CDSC upon
redemption. However, shares redeemed earlier than three years after purchase
may be subject to a CDSC (calculated as described in the paragraph above),
the percentage of which will depend on how long the shares have been held, as
set forth in the following table:
<TABLE>
<CAPTION>
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
22
<PAGE>
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 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 DWT serves as Trustee or
the 401(k) Support Services Group of DWR serves as recordkeeper ("Eligible
Plan"), provided that either: (A) the plan continues to be an Eligible Plan
after the redemption; or (B) the redemption is in connection with the
complete termination of the plan involving the distribution of all plan
assets to participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to
engage in gainful employment. With reference to (2) above, the term
"distribution" does not encompass a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee. All
waivers will be granted only following receipt by the Distributor of
confirmation of the shareholder's entitlement.
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
23
<PAGE>
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 DWT 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.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior
to the date for conversion. Class B shares evidenced by share certificates
that are not received by the Transfer Agent at least one week prior to any
conversion date will be converted into Class A shares on the next scheduled
conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions
made within one year after purchase (calculated from the last day of the
month in which the shares were purchased). The CDSC will be assessed on an
amount equal to the lesser of the current market value or the cost of the
shares being redeemed. The CDSC will not be imposed in the circumstances set
forth above in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case
of Class C shares. Class C shares are subject to an annual 12b-1 fee of up to
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 referred to in (i) and (ii) above, which may include termination
fees, mandatory redemption upon termination and such other circumstances as
specified in the programs' agreements, and restrictions on transferability of
Fund shares); (iii) 401(k) plans established by DWR and SPS Transaction
Services, Inc. (an affiliate of DWR) for their employ-
24
<PAGE>
ees; (iv) certain Unit Investment Trusts sponsored by DWR; (v) certain other
open-end investment companies whose shares are distributed by the
Distributor; and (vi) other categories of investors, at the discretion of the
Board, as disclosed in the then current prospectus of the Fund. Investors who
require a $5 million minimum initial investment to qualify to purchase Class
D shares may satisfy that requirement by investing that amount in a single
transaction in Class D shares of the Fund and other Dean Witter Multi-Class
Funds, subject to the $1,000 minimum initial investment required for that
Class of the Fund. In addition, for the purpose of meeting the $5 million
minimum investment amount, holdings of Class A shares in all Dean Witter
Multi-Class Funds, shares of FSC Funds and shares of Dean Witter Funds for
which such shares have been exchanged will be included together with the
current investment amount. If a shareholder redeems Class A shares and
purchases Class D shares, such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act with respect to the distribution of Class A, Class B and Class C
shares of 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, 1997, Class B shares of the Fund
accrued payments under the Plan amounting to $7,587,412, which amount is
equal to 1.0% of the average daily net assets of Class B for the fiscal year.
These payments 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. For the fiscal period July 28 through September
30, 1997, Class A and Class C shares of the Fund accrued payments under the
Plan amount-
25
<PAGE>
ing to $201 and $728, respectively, which amounts on an annualized basis are
equal to 0.25% and 1.0% of the average daily net assets of Class A and Class
C, respectively, for such period.
In the case of Class B shares, at any given time, the expenses 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 $28,020,948 at September 30, 1997, which was equal to 3.19% of the
net assets of Class B on such date. Because there is no requirement under the
Plan that the Distributor be reimbursed for all distribution expenses or any
requirement that the Plan be continued from year to year, 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, 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
26
<PAGE>
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
shareholder requests that they be paid in cash. Shares so acquired are
acquired at net asset value and are not subject to the imposition of a
front-end sales charge or a CDSC (see "Redemptions and Repurchases").
Investment of Dividends and Distributions Received in Cash. Any
shareholder who receives a cash payment representing a dividend or capital
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 Repur
chases--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 Cus-
27
<PAGE>
todial 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. ("Global Short-Term"), which is a Dean
Witter Fund offered with a CDSC. Exchanges may be made after the shares of
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, Global
Short-Term or any Exchange Fund that is not a money market fund is on the
basis of the next calculated net asset value per share of each fund after the
exchange order is received. When exchanging into a money market fund from the
Fund, shares of the Fund are redeemed out of the Fund at their next
calculated net asset value and the proceeds of the redemption are used to
purchase shares of the money market fund at their net asset value determined
the following business day. Subsequent exchanges between any of the money
market funds and any of the Dean Witter Multi-Class Funds, FSC Funds, Global
Short-Term or any Exchange Fund that is not a money market fund can be
effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period
of time the shareholder remains in an Exchange Fund (calculated from the last
day of the month in which the Exchange Fund shares were acquired), the
holding period (for the purpose of determining the rate of the CDSC) is
frozen. If those shares are subsequently re-exchanged for shares of a Dean
Witter Multi-Class Fund or shares of Global Short-Term, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a Dean Witter Multi-Class Fund or shares of
Global Short-Term are reacquired. Thus, the CDSC is based upon the time
(calculated as described above) the shareholder was invested in shares of a
Dean Witter Multi-Class Fund or in shares of Global Short-Term (see "Purchase
of Fund Shares"). In the case of exchanges of Class A shares which are
subject to a CDSC, the holding period also includes the time (calculated as
described above) the shareholder was invested in shares of a FSC Fund. In the
case of shares exchanged into an Exchange Fund on or after April 23, 1990,
upon a redemption of shares which results in a CDSC being imposed, a credit
(not to exceed the amount of the CDSC) will be given in an amount equal to
the Exchange Fund 12b-1 distribution fees incurred on or after that date
which are attributable to those shares. (Exchange Fund 12b-1 distribution
fees are described in the prospectuses for those funds.) Class B shares of
the Fund acquired in exchange for shares of Global Short-Term or Class B
shares of another Dean Witter Multi-Class Fund having a different CDSC
schedule than that of this Fund will be subject to the higher CDSC schedule,
even if such shares are subsequently re-exchanged for shares of the fund with
the lower CDSC schedule.
Additional Information Regarding Exchanges. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent
28
<PAGE>
exchanges may be deemed by the Investment Manager to be abusive and contrary
to the best interests of the Fund's other shareholders and, at the Investment
Manager's discretion, may be limited by the Fund's refusal to accept
additional purchases and/or exchanges from the investor. Although the Fund
does not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive and contrary to the best interests
of the Fund and its other shareholders, investors should be aware that the
Fund and each of the other Dean Witter Funds may in their discretion limit or
otherwise restrict the number of times this Exchange Privilege may be
exercised by any investor. Any such restriction will be made by the Fund on a
prospective basis only, upon notice to the shareholder not later than ten
days following such shareholder's most recent exchange. Also, the Exchange
Privilege may be terminated or revised at any time by the Fund and/or any of
such Dean Witter Funds for which shares of the Fund have been exchanged, upon
such notice as may be required by applicable regulatory agencies.
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions
on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
of each Class of shares and any other conditions imposed by each fund. In the
case of a shareholder holding a share certificate or certificates, no
exchanges may be made until all applicable share certificates have been
received by the Transfer Agent and deposited in the shareholder's account. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean
Witter Funds (for which the Exchange Privilege is available) pursuant to this
Exchange Privilege by contacting their 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. Share-
29
<PAGE>
holders 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") 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 or the
Distributor. The offer by DWR and other Selected Broker-Dealers to repurchase
shares may be suspended without notice by them at any time. In that event,
shareholders may redeem their shares through the Fund's Transfer Agent as set
forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances, 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
30
<PAGE>
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 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.
31
<PAGE>
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A,
Class B, Class C and Class D shares. The total return of the Fund is based on
historical earnings and is not intended to indicate future performance. The
"average annual total return" of the Fund refers to a figure reflecting the
average annualized percentage increase (or decrease) in the value of an
initial investment in a Class of the Fund of $1,000 over periods of one, five
and ten years. Average annual total return reflects all income earned by the
Fund, any appreciation or depreciation of the Fund's assets, all expenses
incurred by the applicable Class and all sales charges which will be incurred
by shareholders, for the stated periods. It also assumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year by year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations, such as mutual fund performance rankings of Lipper
Analytical Services, Inc.
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
32
<PAGE>
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.
33
<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
Dean Witter S&P 500 Index Fund
Dean Witter Fund of Funds
ASSET ALLOCATION FUNDS
Dean Witter Strategist Fund
Dean Witter Global Asset Allocation Fund
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 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
ACTIVE ASSETS ACCOUNT PROGRAM
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
31
<PAGE>
Dean Witter
Developing Growth Securities Trust
Two World Trade Center
New York, New York 10048
BOARD OF TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
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 FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
DEAN WITTER
DEVELOPING
GROWTH
SECURITIES
PROSPECTUS -- NOVEMBER 26, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 26, 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 November 26, 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................. 16
Portfolio Transactions and Brokerage ... 17
The Distributor......................... 18
Determination of Net Asset Value ....... 23
Purchase of Fund Shares................. 23
Shareholder Services.................... 26
Redemptions and Repurchases............. 30
Dividends, Distributions and Taxes ..... 31
Performance Information................. 33
Description of Shares of The Fund ...... 34
Custodian and Transfer Agent............ 34
Independent Accountants................. 35
Reports to Shareholders................. 35
Legal Counsel........................... 35
Experts................................. 35
Registration Statement.................. 35
Financial Statements--September 30,
1997 .................................. 36
Report of Independent Accountants ...... 52
</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.
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 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, Dean Witter S&P 500 Index Fund, Dean Witter Fund of Funds, 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
3
<PAGE>
III, Municipal Income Opportunities Trust, Municipal Income Opportunities
Trust II, Municipal Income Opportunities Trust III, Municipal Premium Income
Trust and Prime Income Trust. The foregoing investment companies, together
with the Fund, are collectively referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following 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. Such expenses include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1 (the "12b-1 fee") (see "The
Distributor"); charges and expenses of any registrar, custodian, 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 expenses of legal
4
<PAGE>
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. The management fee is
allocated among the Classes pro rata based on the net assets of the Fund
attributable to each Class. For the fiscal years ended September 30, 1995,
1996 and 1997, the Fund accrued to the Investment Manager total compensation
in the amounts of $1,916,827, $3,194,151 and $3,729,759, 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 following owned 5% or more of the outstanding shares of Class A on
October 31, 1997: Dean Witter Trust FSB Trustee FBO Alban Charitable
Remainder Unitrust, P.O. Box 957, Jersey City, NJ 07303 -41.4%; Dean Witter
Reynolds Inc. Custodian for Michael F. Gentile IRA Std/Rollover, 4708 Johnson
Avenue, Western Springs, IL 60558 -11.7%; Dean Witter Trust FSB Trustee FBO
Daniel P. Lubarsky Charitable Remainder Unitrust, P.O. Box 957, Jersey City,
NJ 07311 -6.3%.
The following owned 5% or more of the outstanding shares of Class C on
October 31, 1997: Dean Witter Reynolds Inc. Custodian for Darrell G. Owens
IRA Rollover, 22406 West 73 Terrace, Shawnee Mission, KS 66227 -5.0%.
The following owned 5% or more of the outstanding shares of Class D on
October 31, 1997: Dean Witter InterCapital Inc., Attn. Frank DeVito, Two
World Trade Center, New York, NY 10048 -12.9%; Dean
5
<PAGE>
Witter Reynolds Inc. Custodian for Dean F. Krasomil IRA Rollover, 9357
Swinton Avenue, North Hills, CA 91343 -7.0%; Dean Witter Reynolds Inc.
Custodian for George G. Seifert Profit Sharing Plan, 1276 Estate Drive, Los
Altos, CA 94024 -8.9%; Elizabeth A. Vetell, Portfolio Architect, 15 Glenwood
Street, Clifton, NJ 07013 -7.2%; Dean Witter Reynolds Inc. Custodian for
Joseph M. Doyle IRA Rollover, 1333A Cheney Highway, Titusville, FL 32780
- -6.1%; Dean Witter Reynolds Inc. Custodian for Dorothy A. Philipovitch IRA
Rollover, Portfolio Architect, P.O. Box 10144, Pleasanton, CA 94588 -5.6%;
Yoshio Inamasu and Takeko Inamasu and Jeannie L. Hashimoto, Jt Ten, 695 Pio
Drive, Wailuku, HI 96793 -7.7%.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR. The Fund has agreed that DWR or its parent company may use or, at any
time, permit others to use, the name "Dean Witter." The Fund has also agreed
that in the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate
the name "Dean Witter" from its name if DWR or its parent company shall so
request.
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 83 Dean Witter Funds and the 14 TCW/DW Funds are
shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------
<S> <C>
Michael Bozic (56) ........................ Chairman and Chief Executive Officer of Levitz Furniture 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 FSB ("DWT");
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 (65) ....................... 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 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 Covey
(time management systems), John Alden Financial Corp. (health insurance),
United Space Alliance (joint venture between Lockheed Martin and the
Boeing Company) and Nuskin Asia Pacific (multilevel marketing); member
of the board of various civic and charitable organizations.
6
<PAGE>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------
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).
Wayne E. Hedien (63) ..................... Retired; Director or Trustee of the Dean Witter Funds; Director of
Trustee The PMI Group, Inc. (private mortgage insurance); Trustee and Vice
c/o Gordon Altman Butowsky Chairman of The Field Museum of Natural History; formerly associated
Weitzen Shalov & Wein with the Allstate Companies (1966-1994), most recently as Chairman
Counsel to the Independent Trustees of The Allstate Corporation (March, 1993-December, 1994) and Chairman
114 West 47th Street and Chief Executive Officer of its wholly-owned subsidiary, Allstate
New York, New York 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);
Chairman and 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* (54)................... Chairman of the Board of Directors and Chief Executive Officer of MSDWD,
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 MSDWD subsidiaries.
John L. Schroeder (67).................... 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).
Counsel to the Independent Trustees
114 West 47th Street
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).
New York, New York
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.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Executive Vice President and Director of DWR, and Director
of SPS Transaction Services, Inc. and various other MSDWD subsidiaries,
Robert S. Giambrone, Senior Vice President of InterCapital, DWSC,
Distributors and DWT and Director of DWT, Joseph J. McAlinden, Executive Vice
President and Chief Investment Officer of InterCapital and Director of DWT,
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
and Todd Lebo, staff attorneys with InterCapital, are Assistant Secretaries
of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees currently consists of nine (9) trustees. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of
this Statement of Additional Information, there are a total of 83 Dean Witter
Funds, comprised of 126 portfolios. As of October 31, 1997, the Dean Witter
Funds had total net assets of approximately $91.8 billion and more than six
million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own
any stock or other securities issued by InterCapital's parent company, MSDWD.
These are the "disinterested" or "independent" Trustees. The other two
Trustees (the "management Trustees") are affiliated with InterCapital. Four
of the seven independent Trustees are also Independent Trustees of the TCW/DW
Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Dean Witter Funds seek as Independent
Trustees individuals of distinction and experience in business and finance,
government service or academia; these are people whose advice and counsel
8
<PAGE>
are in demand by others and for whom there is often competition. To accept a
position on the Funds' Boards, such individuals may reject other attractive
assignments because the Funds make substantial demands on their time. Indeed,
by serving on the Funds' Boards, certain Trustees who would otherwise be
qualified and in demand to serve on bank boards would be prohibited by law
from doing so.
All of the Independent Trustees serve as members of the Audit Committee
and the Committee of the Independent Trustees. Three of them also serve as
members of the Derivatives Committee. During the calendar year ended December
31, 1996, the three Committees held a combined total of sixteen meetings. The
Committees hold some meetings at InterCapital's offices and some outside
InterCapital. Management Trustees or officers do not attend these meetings
unless they are invited for purposes of furnishing information or making a
report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading
among Funds in the same complex; and approving fidelity bond and related
insurance coverage and allocations, as well as other matters that arise from
time to time. The Independent Trustees are required to select and nominate
individuals to fill any Independent Trustee vacancy on the Board of any Fund
that has a Rule 12b-1 plan of distribution. Most of the Dean Witter Funds
have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance of such
services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting
Committee meeting minutes to the full Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and
the Funds' operations and management. He screens and/or prepares written
materials and identifies critical issues for the Independent Trustees to
consider, develops agendas for Committee meetings, determines the type and
amount of information that the Committees will need to form a judgment on
various issues, and arranges to have that information furnished to Committee
members. He also arranges for the services of independent experts and
consults with them in advance of meetings to help refine reports and to focus
on critical issues. Members of the Committees believe that the person who
serves as Chairman of both Committees and guides their efforts is pivotal to
the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service
providers. In effect, the Chairman of the Committees serves as a combination
of chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee
9
<PAGE>
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 ($800 after
December 31, 1997) plus a per meeting fee of $50 for meetings of the Board of
Trustees or committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an annual fee of $750 and pays
the Chairman of the Committee of the Independent Trustees an additional
annual fee of $1,200). If a Board meeting and a Committee meeting, or more
than one Committee meeting, take place on a single day, the Trustees are paid
a single meeting fee by the Fund. The Fund also reimburses such Trustees for
travel and other out-of-pocket expenses incurred by them in connection with
attending such meetings. Trustees and officers of the Fund who are or have
been employed by the Investment Manager or an affiliated company receive no
compensation or expense reimbursement from the Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended September 30,
1997.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME OF INDEPENDENT COMPENSATION
TRUSTEE FROM THE FUND
- -------------------------- ---------------
<S> <C>
Michael Bozic ............. $1,650
Edwin J. Garn ............. 1,850
John R. Haire ............. 3,800
Wayne E. Hedien............ 250
Dr. Manuel H. Johnson .... 1,800
Michael E. Nugent ......... 1,850
John L. Schroeder.......... 1,850
</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. Mr.
Hedien's term as Director or Trustee of each Dean Witter Fund commenced on
September 1, 1997.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF
COMMITTEES OF FOR SERVICE AS
INDEPENDENT CHAIRMAN OF
FOR SERVICE DIRECTORS/ COMMITTEES OF TOTAL CASH
AS DIRECTOR OR FOR SERVICE AS TRUSTEES AND INDEPENDENT COMPENSATION
TRUSTEE AND TRUSTEE AND AUDIT TRUSTEES FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER COMMITTEES OF 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, 1997 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, 1997 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% $372 $20,147 $ 925 $ 51,325
Edwin J. Garn .............. 10 50.0 621 27,772 925 51,325
John R. Haire .............. 10 50.0 565 46,952 2,246 129,550
Wayne E. Hedien............. 9 42.9 0 Not Applicable 794 Not Applicable
Dr. Manuel H. Johnson ..... 10 50.0 250 10,926 925 51,325
Michael E. Nugent .......... 10 50.0 469 19,217 925 51,325
John L. Schroeder........... 8 41.7 716 38,700 771 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
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U.S. Government Securities. As discussed in the Prospectus, the Fund may
invest in, among other securities, securities issued by the U.S. Government,
its agencies or instrumentalities. Such securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from three months
to 30 years.
(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its
obligations, from an existing line of credit with the U.S. Treasury. Among
the agencies and instrumentalities issuing such obligations are the
Tennessee Valley Authority, the Federal National Mortgage Association
("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and the
U.S. Postal Service.
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<PAGE>
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal
Farm Credit System and the Federal Home Loan Banks.
Neither the value nor the yield of the U.S. Government securities which
may be invested in by the Fund are guaranteed by the U.S. Government. Such
values and yields will fluctuate with changes in prevailing interest rates
and other factors. Generally, as prevailing interest rates rise, the value of
any U.S. Government securities held by the Fund will fall. Such securities
with longer maturities generally tend to produce higher yields and are
subject to greater market fluctuation as a result of changes in interest
rates rather than debt securities with shorter maturities. The Fund is not
limited as to the maturities of the U.S. Government securities in which it
may invest.
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.
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, 1997.
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
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<PAGE>
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 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
14
<PAGE>
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.
Zero Coupon Securities. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payments in cash
on the security during the year.
Portfolio Turnover. 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, 1995, 1996 and 1997, the Fund paid a total of $662,758,
$1,361,260 and $1,739,634, 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, 1997, the Fund directed the payment of $1,495,259 in brokerage
commissions in connection with transactions in the aggregate amount of
$646,221,216 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, 1995, 1996 and 1997, the Fund did not effect any principal
transactions with DWR.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR 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, 1995, 1996 and 1997,
the Fund paid a total of $91,840, $133,555 and $39,264, respectively, in
brokerage commissions to DWR. For the fiscal year ended September 30, 1997,
the brokerage commissions paid to DWR represented approximately 2.26% 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 3.25% of the aggregate dollar value of all portfolio
transactions of the Fund during the year for which commissions were paid.
During the period June 1 through September 30, 1997, the Fund paid a total of
$23,533 in brokerage commissions to Morgan Stanley & Co., Inc., which
broker-dealer became an affiliate of the Investment Manager on May 31, 1997
upon consummation of the merger of Dean Witter, Discover & Co. with Morgan
Stanley Group Inc. The brokerage commissions paid to Morgan Stanley & Co.,
Inc. represented approximately 1.35% of the total brokerage commissions paid
by the Fund for this period and were paid on account of transactions having
an aggregate dollar value equal to approximately 0.76% of the aggregate
dollar value of all portfolio transactions of the Fund during the period for
which commissions were paid.
During the fiscal year ended September 30, 1997, 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
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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
18
<PAGE>
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
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 (a)
approximately $991,000, $810,000 and $1,278,000 in contingent deferred sales
charges from Class B for the fiscal years ended September 30, 1995, 1996 and
1997, respectively, and (b) approximately $4,800 in front-end sales charges
from Class A for the fiscal year ended September 30, 1997, none of which was
retained by the Distributor. No contingent deferred sales charges were
received from Class A or Class C for the fiscal year ended September 30,
1997.
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.
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<PAGE>
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 Independent
12b-1 Trustees, approved certain technical amendments to the Plan in
connection with amendments adopted by the National Association of Securities
Dealers, Inc. to its Rules of the Association. At their meeting held on
October 26, 1995, the Trustees of the Fund, including all of the Independent
12b-1 Trustees, approved an amendment to the Plan to permit payments to be
made under the Plan with respect to certain distribution expenses incurred in
connection with the distribution of shares, including personal services to
shareholders with respect to holdings of such shares, of an investment
company whose assets are acquired by the Fund in a tax-free reorganization.
At their meeting held on June 30, 1997, the Trustees, including a majority of
the Independent 12b-1 Trustees, approved amendments to the Plan to reflect
the multiple-class structure for the Fund, which took effect on July 28,
1997.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report
provided by the Distributor of the amounts expended under the Plan and the
purpose for which such expenditures were made. Class B shares of the Fund
accrued amounts payable to the Distributor under the Plan, during the fiscal
year ended September 30, 1997, of $7,587,412. This amount is equal to 1.0% of
the average daily net assets of Class B for the fiscal year and was
calculated pursuant to clause (b) of the compensation formula under the Plan.
For the fiscal period July 28 through September 30, 1997, Class A and Class C
shares of the Fund accrued payments under the Plan amounting to $201 and
$728, respectively, which amounts are equal to 0.25% and 1.0% of the average
daily net assets of Class A and Class C, respectively, for such period.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set
forth in the Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the account executives or
dealers of record in all cases. On orders of $1 million or more (for which no
sales charge was paid) or net asset value purchases by 401(k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which Dean Witter Trust FSB ("DWT") 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 DWT 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.
20
<PAGE>
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 redeemed in the second year
after purchase. The Investment Manager also compensates DWR's account
executives by paying them, from its own funds, an annual residual commission,
currently a residual of up to 0.10% of the current value of the respective
accounts for which they are the account executives of record (not including
accounts of participants in the InterCapital mutual fund asset allocation
program).
The gross sales credit is a charge which reflects commissions paid by DWR
to its account executives and DWR's Fund-associated distribution-related
expenses, including sales compensation, and overhead and other branch office
distribution-related expenses including (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery
and supplies, (b) the costs of client sales seminars, (c) travel expenses of
mutual fund sales coordinators to promote the sale of Fund shares and (d)
other expenses relating to branch promotion of Fund sales. The distribution
fee that the Distributor receives from the Fund under the Plan, in effect,
offsets distribution expenses incurred under the Plan on behalf of the Fund
and, in the case of Class B shares, opportunity costs, such as the gross
sales credit and an assumed interest charge thereon ("carrying charge"). In
the Distributor's reporting of the distribution expenses to the Fund, in the
case of Class B shares, such assumed interest (computed at the "broker's call
rate") has been calculated on the gross credit as it is reduced by amounts
received by the Distributor under the Plan and any contingent deferred sales
charges received by the Distributor upon redemption of shares of the Fund. No
other interest charge is included as a distribution expense in the
Distributor's calculation of its distribution costs for this purpose. The
broker's call rate is the interest rate charged to securities brokers on
loans secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments
at the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case
of Class A, and 1.0%, in the case of Class C, of the average net assets of
the respective Class during the month. No interest or other financing
charges, if any, incurred on any distribution expenses on behalf of Class A
and Class C will be reimbursable under the Plan. With respect to Class A, in
the case of all expenses other than expenses representing the service fee,
and, with respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to account executives, such
amounts shall be determined at the beginning of each calendar quarter by the
Trustees, including, a majority of the Independent 12b-1 Trustees. Expenses
representing the service fee (for Class A) or a gross sales credit or a
residual to account executives (for Class C) may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall
be reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Trustees will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund,
together with a report explaining the purposes and anticipated benefits of
incurring such expenses. The Trustees will determine which particular
expenses, and the portions thereof, that may be borne by the Fund, and in
making such a determination shall consider the scope of the Distributor's
commitment to promoting the distribution of the Fund's Class A and Class C
shares.
21
<PAGE>
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended September 30, 1997 to the Distributor.
The Distributor and DWR estimate that they have spent, pursuant to the Plan,
$74,968,614 on behalf of Class B since the inception of the Plan. It is
estimated that this amount was spent in approximately the following ways: (i)
6.42% ($4,814,991)--advertising and promotional expenses; (ii) 0.49%
($364,975)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 93.09% ($69,788,648)--other expenses, including the
gross sales credit and the carrying charge, of which 18.45% ($12,876,653)
represents carrying charges, 33.58% ($23,436,360) represents commission
credits to DWR branch offices for payments of commissions to account
executives and 47.97% ($33,475,635) represents overhead and other branch
office distribution-related expenses. The amounts accrued by Class A and
Class C for distribution during the fiscal period July 28 through September
30, 1997 were for expenses which relate to compensation of sales personnel
and associated overhead expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of
shares. The Distributor has advised the Fund that in the case of Class B
shares the excess distribution expenses, including the carrying charge
designed to approximate the opportunity costs incurred by DWR which arise
from it having advanced monies without having received the amount of any
sales charges imposed at the time of sale of the Fund's Class B shares,
totalled $28,020,948 as of September 30, 1997. Because there is no
requirement under the Plan that the Distributor be reimbursed for all
distribution expenses with respect to Class B shares or any requirement that
the Plan be continued from year to year, this excess amount does not
constitute a liability of the Fund. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. Any cumulative expenses incurred, but not yet
recovered through distribution fees or contingent deferred sales charges, may
or may not be recovered through future distribution fees or contingent
deferred sales charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct
financial interest in the operation of the Plan except to the extent that the
Distributor, InterCapital, DWR, DWSC or certain of their employees may be
deemed to have such an interest as a result of benefits derived from the
successful operation of the Plan or as a result of receiving a portion of the
amounts expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending December 31, 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
22
<PAGE>
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 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, Reverend
Dr. Martin Luther King, Jr. 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 FSB (the "Transfer Agent") fails to confirm the investor's represented
holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges
are available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase of Class A shares made during the
23
<PAGE>
period will receive the reduced sales commission applicable to the amount
represented by the goal, as if it were a single purchase. A number of shares
equal in value to 5% of the dollar amount of the Letter of Intent will be
held in escrow by the Transfer Agent, in the name of the shareholder. The
initial purchase under a Letter of Intent must be equal to at least 5% of the
stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to
pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the
Distributor is authorized by the shareholder to liquidate a sufficient number
of his or her escrowed shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced
sales charges in the same manner as set forth above under "Right of
Accumulation," but there will be no retroactive reduction of sales charges on
previous purchases. For the purpose of determining whether the investor is
entitled to a further reduced sales charge applicable to purchases at or
above a sales charge level which exceeds the stated goal of a Letter of
Intent, the cumulative current net asset value of any shares owned by the
investor in any other Dean Witter Funds held by the shareholder which were
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Dean Witter Funds acquired in exchange for those
shares, and including in each case shares acquired through reinvestment of
dividends and distributions) will be added to the cost or net asset value of
shares of the Fund owned by the investor. However, shares of "Exchange Funds"
(see "Shareholder Services--Exchange Privilege") and the purchase of shares
of other Dean Witter Funds will not be included in determining whether the
stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As
stated in the Prospectus, a CDSC will be imposed on any redemption by an
investor if after such redemption the current value of the investor's Class B
shares of the Fund is less than the dollar amount of all payments by the
shareholder for the purchase of Class B shares during the preceding six years
(or, in the case of shares held by certain 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
24
<PAGE>
benefit plans, three years) will be redeemed first. In the event the
redemption amount exceeds such increase in value, the next portion of the
amount redeemed will be the amount which represents the net asset value of
the investor's shares purchased more than six (three) years prior to the
redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of Dean Witter
front-end sales charge funds, or for shares of other Dean Witter funds for
which shares of front-end sales charge funds have been exchanged. A portion
of the amount redeemed which exceeds an amount which represents both such
increase in value and the value of shares purchased more than six years (or,
in the case of shares held by certain employer-sponsored benefit plans, three
years) prior to the redemption and/or shares purchased through reinvestment
of dividends or distributions and/or shares acquired in the above-described
exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number
of years from the time of any payment for the purchase of shares, all
payments made during a month will be aggregated and deemed to have been made
on the last day of the month. The following table sets forth the rates of the
CDSC applicable to most Class B shares of the Fund:
<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 DWT
serves as Trustee or the 401(k) Support Services Group of DWR serves as
recordkeeper and whose accounts are opened on or after July 28, 1997:
<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.
25
<PAGE>
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund and maintained by the
Transfer Agent. This is an open account in which shares owned by the investor
are credited by the Transfer Agent in lieu of issuance of a share
certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares
and may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder instituted
transaction takes place in the Shareholder Investment Account, the
shareholder will be mailed a confirmation of the transaction from the Fund or
from DWR or other selected broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of
the Fund, unless the shareholder requests that they be paid in cash. Each
purchase of shares of the Fund is made upon the condition that the Transfer
Agent is thereby automatically appointed as agent of the investor to receive
all dividends and capital gains distributions on shares owned by the
investor. Such dividends and distributions will be paid, at the net asset
value per share, in shares of the applicable Class of the Fund (or in cash if
the shareholder so requests) as of the close of business on the record date.
At any time an investor may request the Transfer Agent, in writing, to have
subsequent dividends and/or capital gains distributions paid to him or her in
cash rather than shares. To assure sufficient time to process the change,
such request should be received by the Transfer Agent at least five business
days prior to the record date of the dividend or distribution. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payments will be made to DWR or other
selected broker-dealer, and will be forwarded to the shareholder, upon the
receipt of proper instructions. It has been and remains the Fund's policy and
practice that, if checks for dividends or distributions paid in cash remain
uncashed, no interest will accrue on amounts represented by such uncashed
checks.
Targeted Dividends. (Service Mark) In states where it is legally
permissible, shareholders may also have all income dividends and capital
gains distributions automatically invested in shares of any Class of an
open-end Dean Witter Fund other than Dean Witter 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 (subject to any applicable
sales charges). Shares of the Dean Witter money market funds redeemed in
connection with EasyInvest are redeemed on the business day preceding the
transfer of funds. For further information or to subscribe to EasyInvest,
shareholders should contact their DWR or other selected broker-dealer account
executive or the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares
of the applicable Class at net asset value, without the imposition of a CDSC
upon redemption, by returning the check or the proceeds to the Transfer Agent
within thirty days
26
<PAGE>
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 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.
27
<PAGE>
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. ("Global Short-Term"), which is a Dean Witter Fund offered with a CDSC.
Exchanges may be made after the shares of the Fund acquired by purchase (not
by exchange or dividend reinvestment) have been held for thirty days. There
is no waiting period for exchanges of shares acquired by exchange or dividend
reinvestment. An exchange will be treated for federal income tax purposes the
same as a repurchase or redemption of shares, on which the shareholder may
realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to
the contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit
should not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number
of factors, including the number of years from the time of purchase until the
time of redemption or exchange ("holding period"). When shares of a Dean
Witter Multi-Class Fund or Global Short-Term are exchanged for shares of an
Exchange Fund, the exchange is executed at no charge to the shareholder,
without the imposition of the CDSC at the time of the exchange. During the
period of time the shareholder remains in the Exchange Fund (calculated from
the last day of the month in which the Exchange Fund shares were acquired),
the holding period or "year since purchase payment made" is frozen. When
shares are redeemed out of the Exchange Fund, they will be subject to a CDSC
which would be based upon the period of time the shareholder held shares in a
Dean Witter Multi-Class Fund or in Global Short-Term. However, in the case of
shares exchanged into an Exchange Fund on or after April 23, 1990, upon a
redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the
Exchange Fund 12b-1 distribution fees incurred on or after that date which
are attributable to those shares. Shareholders acquiring shares of an
Exchange Fund pursuant to this exchange privilege may exchange those shares
back into a Dean Witter Multi-Class Fund or Global Short-Term from the
Exchange Fund, with no CDSC being imposed on such exchange. The holding
period previously frozen when shares were first exchanged for shares of the
Exchange Fund resumes on the last day of the month in which shares of a Dean
Witter Multi-Class Fund or of Global Short-Term are reacquired. A CDSC is
imposed only upon an ultimate redemption, based upon the time (calculated as
described above) the shareholder was invested in a Dean Witter Multi-Class
Fund or in Global Short-Term. In the case of exchanges of Class A shares
which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or in
Global Short-Term are exchanged for shares of a Dean Witter Multi-Class Fund,
shares of Global Short-Term, shares of a FSC Fund, or shares of an Exchange
Fund, the date of purchase of the shares of the fund exchanged into, for
purposes of the CDSC upon redemption, will be the last day of the month in
which the shares being exchanged were originally purchased. In allocating the
purchase payments between funds for purposes of the CDSC, the amount which
represents the current net asset value of shares at the time of the
28
<PAGE>
exchange which were (i) purchased more than one, three or six years
(depending on the CDSC schedule applicable to the shares) prior to the
exchange, (ii) originally acquired through reinvestment of dividends or
distributions and (iii) acquired in exchange for shares of FSC Funds, or for
shares of other Dean Witter Funds for which shares of FSC Funds have been
exchanged (all such shares called "Free Shares"), will be exchanged first.
After an exchange, all dividends earned on shares in an Exchange Fund will be
considered Free Shares. If the exchanged amount exceeds the value of such
Free Shares, an exchange is made, on a block-by-block basis, of non-Free
Shares held for the longest period of time (except that, with respect to
Class B shares, if shares held for identical periods of time but subject to
different CDSC schedules are held in the same Exchange Privilege account, the
shares of that block that are subject to a lower CDSC rate will be exchanged
prior to the shares of that block that are subject to a higher CDSC rate).
Shares equal to any appreciation in the value of non-Free Shares exchanged
will be treated as Free Shares, and the amount of the purchase payments for
the non-Free Shares of the fund exchanged into will be equal to the lesser of
(a) the purchase payments for, or (b) the current net asset value of, the
exchanged non-Free Shares. If an exchange between funds would result in
exchange of only part of a particular block of non-Free Shares, then shares
equal to any appreciation in the value of the block (up to the amount of the
exchange) will be treated as Free Shares and exchanged first, and the
purchase payment for that block will be allocated on a pro rata basis between
the non-Free Shares of that block to be retained and the non-Free Shares to
be exchanged. The prorated amount of such purchase payment attributable to
the retained non-Free Shares will remain as the purchase payment for such
shares, and the amount of purchase payment for the exchanged non-Free Shares
will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the Prospectus under the
caption "Purchase of Fund Shares," any applicable CDSC will be imposed upon
the ultimate redemption of shares of any fund, regardless of the number of
exchanges since those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any
other of the funds and the general administration of the Exchange Privilege,
the Transfer Agent acts as agent for the Distributor and for the
shareholder's selected broker-dealer, if any, in the performance of such
functions. With respect to exchanges, redemptions or repurchases, the
Transfer Agent shall be liable for its own negligence and not for the default
or negligence of its correspondents or for losses in transit. The Fund shall
not be liable for any default or negligence of the Transfer Agent, the
Distributor or any selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Dean Witter Liquid
Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter
California Tax-Free Daily Income Trust and Dean Witter New York Municipal
Money Market Trust, although those funds may, in their discretion, accept
initial investments of as low as $1,000. The 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.
29
<PAGE>
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.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount
of any applicable CDSC. If shares are held in a shareholder's account without
a share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption. The share certificate, or
an accompanying stock power, and the request for redemption, must be signed
by the shareholder or shareholders exactly as the shares are registered. Each
request for redemption, whether or not accompanied by a share certificate,
must be sent to the Fund's Transfer Agent, which will redeem the shares at
their net asset value next computed (see "Purchase of Fund Shares" 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.
30
<PAGE>
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares of any Class presented for repurchase or
redemption will be made by check within seven days after receipt by the
Transfer Agent of the certificate and/or written request in good order. Such
payment may be postponed or the right of redemption suspended at times (a)
when the New York Stock Exchange is closed for other than customary weekends
and holidays, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) during
any other period when the Securities and Exchange Commission by order so
permits; provided that applicable rules and regulations of the Securities and
Exchange Commission shall govern as to whether the conditions prescribed in
(b) or (c) exist. If the shares to be redeemed have recently been purchased
by check (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). It has been and
remains the Fund's policy and practice that, if checks for redemption
proceeds remain uncashed, no interest will accrue on amounts represented by
such uncashed checks. Shareholders maintaining margin accounts with DWR or
another selected broker-dealer are referred to their account executive
regarding restrictions on redemption of shares of the Fund pledged in the
margin account.
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the
length of time shares subject to the charge have been held), any transfer
involving less than all 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
31
<PAGE>
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. It is expected that the
Treasury will issue regulations or other guidance to permit shareholders to
take into account their proportionate share of the Fund's capital gains
distributions that will be subject to a reduced rate under the Taxpayer
Relief Act of 1997. The Taxpayer Relief Act reduces the maximum tax on
long-term capital gains from 28% to 20%; however, it also lengthens the
required holding period to obtain the lower rate from more than 12 months to
more than 18 months. The lower rates do not apply to collectibles and certain
other assets. Additionally, the maximum capital gain rate for assets that are
held more than five years and that are acquired after December 31, 2000 is
18%.
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.
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 within a 90-day period
beginning 45 days before the ex-dividend date of each qualifying dividend.
Shareholders must meet a similar holding period requirement with respect to
their shares to claim the dividends received deduction with respect to any
distribution of qualifying dividends. 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.
32
<PAGE>
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 Class B for the one, five and ten year periods ended September 30, 1997
were 11.42%, 25.02% and 13.15%, respectively.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class C and Class D for specified periods by
determining the aggregate percentage rate which will result in the ending
value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value by the
initial $1,000 investment and subtracting 1 from the result. The ending
redeemable value is reduced by any CDSC at the end of the period. Based on
the foregoing calculations, the total returns for the period July 28, 1997
through September 30, 1997 were 5.83%, 10.54% and 11.74% for Class A, Class C
and Class D, respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for
Class A or the deduction of the CDSC for each of Class B and Class C which,
if reflected, would reduce the performance quoted. For example, the average
annual total return of the Fund may be calculated in the manner described in
the preceding paragraph, but without deduction for any applicable sales
charge. Based on this calculation, the average annual total returns of Class
B for the one, five and ten year periods ended September 30, 1997 were
16.38%, 25.18% and 13.15%, respectively.
In addition, the Fund may compute its aggregate total return for each
Class for specified periods by determining the aggregate percentage rate
which will result in the ending value of a hypothetical $1,000 investment
made at the beginning of the period. For the purpose of this calculation, it
is assumed that all dividends and distributions are reinvested. The formula
for computing aggregate total return involves a percentage obtained by
dividing the ending value (without reduction for any sales charge) by the
initial $1,000 investment and subtracting 1 from the result. Based on the
foregoing calculation, the total returns for Class B for the year ended
September 30, 1997, for the five-year period ended September 30, 1997 and for
the ten-year period ended September 30, 1997 were 16.38%, 207.43% and
243.95%, respectively. Based on the foregoing calculations, the total returns
for Class A, Class C and Class D for the period July 28 through September 30,
1997 were 11.70%, 11.54% and 11.74%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1
to the Fund's aggregate total return to date (expressed as a decimal and
without taking into account the effect of any applicable CDSC) and
multiplying by $9,475, $48,000 and $97,000 in the case of Class A
(investments of $10,000, $50,000 and $100,000 adjusted for the initial sales
charge) or by $10,000, $50,000 and $100,000 in the case of each of Class B,
Class C and Class D, as the case may be. Investments of $10,000, $50,000 and
$100,000
33
<PAGE>
in each Class at inception of the Class would have grown to the following
amounts at September 30, 1997:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION -----------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ----- --------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Class A... 07/28/97 $10,584 $ 53,616 $108,349
Class B... 04/29/83 39,493 197,465 394,930
Class C... 07/28/97 11,154 55,770 111,540
Class D... 07/28/97 11,174 55,870 111,740
</TABLE>
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. 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.
Dean Witter Trust FSB, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and
Dividend Disbursing Agent for payment of dividends and distributions on Fund
shares and Agent for shareholders under various investment plans described
herein. Dean Witter Trust FSB is an affiliate of Dean Witter InterCapital
Inc., the Fund's Investment Manager, and of Dean Witter Distributors Inc.,
the Fund's Distributor. As Transfer Agent and Dividend
34
<PAGE>
Disbursing Agent, Dean Witter Trust FSB'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 FSB receives a per shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund.
The independent accountants are responsible for auditing the annual financial
statements of 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, 1997
included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in
reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
35
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.8%)
Advertising (2.9%)
100,000 CKS Group, Inc.* ................................................ $ 3,700,000
230,000 HA-LO Industries, Inc.* ......................................... 6,555,000
232,500 Outdoor Systems, Inc.* .......................................... 6,103,125
142,100 Universal Outdoor Holdings, Inc.* ............................... 5,257,700
130,000 Valassis Communications, Inc.* .................................. 4,143,750
--------------
25,759,575
--------------
Aerospace (1.1%)
150,000 Aviation Sales Co.* ............................................. 4,537,500
93,000 BE Aerospace, Inc.* ............................................. 3,348,000
45,600 Triumph Group, Inc.* ............................................ 1,521,900
--------------
9,407,400
--------------
Air Freight (1.3%)
202,500 Air Express International Corp. ................................. 7,365,937
115,000 Hub Group, Inc. (Class A)* ...................................... 4,240,625
--------------
11,606,562
--------------
Airlines (0.4%)
120,000 Midwest Express Holdings, Inc.* ................................. 3,847,500
--------------
Apparel (0.5%)
30,100 Big Dog Holdings, Inc.* ......................................... 421,400
90,000 Quiksilver, Inc.* ............................................... 3,285,000
41,500 Tefron Ltd* ..................................................... 830,000
--------------
4,536,400
--------------
Auto Parts -Equipment (0.6%)
48,000 Citation Corp.* ................................................. 930,000
70,000 Hayes Wheels International, Inc.* ............................... 2,371,250
50,000 Tower Automotive, Inc.* ......................................... 2,250,000
--------------
5,551,250
--------------
Automotive (0.6%)
65,100 Avis Rent-A-Car, Inc.* .......................................... 1,554,262
104,600 Budget Group, Inc. (Class A)* ................................... 3,451,800
--------------
5,006,062
--------------
Biotechnology (3.7%)
90,000 BioChem Pharma, Inc. (Canada)* .................................. 2,835,000
79,600 Dekalb Genetics Corp. (Class B) ................................. 3,532,250
100,000 Gilead Sciences, Inc.* .......................................... 4,437,500
100,000 IDEC Pharmaceuticals Corp.* ..................................... 4,175,000
50,000 Miravant Medical Technologies Inc.* ............................. 2,750,000
120,000 PathoGenesis Corp.* ............................................. 4,245,000
60,000 Protein Design Labs, Inc.* ...................................... 2,295,000
138,000 SangStat Medical Corp.* ......................................... 4,226,250
100,000 Vertex Pharmaceuticals, Inc.* ................................... 3,775,000
--------------
32,271,000
--------------
Broadcast Media (0.7%)
135,000 Jacor Communications, Inc.* ..................................... 5,956,875
--------------
Business Services (2.7%)
65,000 Billing Information Concepts Corp.* ............................. 2,258,750
147,100 Hagler Bailly, Inc.* ............................................ 3,732,662
136,000 Metzler Group, Inc.* ............................................ 5,338,000
18,300 ProBusiness Services, Inc.* ..................................... 347,700
140,000 Saville Systems Ireland PLC (ADR)(Ireland)* ..................... 9,800,000
140,000 Transaction Network Services, Inc.* ............................. 2,485,000
--------------
23,962,112
--------------
Commercial Services (3.9%)
46,200 Action Performance Companies, Inc.* ............................. 1,334,025
165,000 Checkfree Corp.* ................................................ 3,475,312
160,000 Coinmach Laundry Corp.* ......................................... 3,820,000
66,800 Galileo International, Inc. ..................................... 1,866,225
45,000 International Total Services, Inc.* ............................. 686,250
180,000 Iron Mountain, Inc.* ............................................ 6,300,000
164,000 Lason Holdings, Inc.* ........................................... 4,510,000
69,100 Pierce Leahy Corp.* ............................................. 1,874,337
65,000 Pittway Corp. (Class A) ......................................... 4,225,000
140,000 U.S. Rentals, Inc.* ............................................. 3,683,750
150,000 Vestcom International, Inc.* .................................... 2,850,000
--------------
34,624,899
--------------
Computer Hardware (1.1%)
53,900 Box Hill Systems Corp.* ......................................... 943,250
105,000 Creative Technology Ltd. (Singapore)* ........................... 2,684,062
200,000 Intergraph Corp.* ............................................... 2,162,500
150,000 Telxon Corp ..................................................... 3,618,750
--------------
9,408,562
--------------
Computer Services (3.1%)
190,000 Affiliated Computer Services, Inc. (Class A)* ................... 4,702,500
100,000 Computer Task Group, Inc. ....................................... 4,193,750
162,500 Information Management Resources, Inc.* ......................... 4,509,375
126,000 Keane, Inc.* .................................................... 4,000,500
150,000 ONTRACK Data International, Inc.* ............................... 3,431,250
60,600 Pomeroy Computer Resources, Inc.* ............................... 2,575,500
150,000 Safeguard Scientifics, Inc.* .................................... 4,387,500
--------------
27,800,375
--------------
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1997, continued
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
Computer Software (4.5%)
85,000 Arbor Software Corp.* ........................................... $ 3,931,250
100,000 Aspect Development, Inc.* ....................................... 4,075,000
200,000 BEA Systems, Inc.* .............................................. 3,575,000
116,000 Cognos, Inc. (Canada)* .......................................... 2,747,750
130,000 Credit Management Solutions, Inc.* .............................. 2,307,500
120,000 CyberMedia, Inc.* ............................................... 3,202,500
120,000 Harbinger Corp.* ................................................ 4,365,000
200,000 Intersolv, Inc.* ................................................ 3,087,500
24,800 Pervasive Software Inc.* ........................................ 279,000
68,000 Quickturn Design System, Inc.* .................................. 994,500
100,000 Rational Software Corp.* ........................................ 1,593,750
100,000 System Software Associates, Inc.* ............................... 1,462,500
90,000 Viasoft, Inc.* .................................................. 4,443,750
90,000 Wind River Systems, Inc.* ....................................... 3,690,000
--------------
39,755,000
--------------
Computer Software & Services (2.1%)
22,900 Best Software, Inc.* ............................................ 334,912
85,000 Computer Management Sciences, Inc.* ............................. 1,944,375
50,000 Documentum, Inc.* ............................................... 1,650,000
150,000 Indus International, Inc.* ...................................... 2,325,000
55,300 Information Management Associates, Inc.* ........................ 677,425
11,500 J.D. Edwards & Co.* ............................................. 385,250
150,000 MAPICS, Inc.* ................................................... 1,912,500
220,000 Simulation Sciences, Inc.* ...................................... 4,331,250
115,000 Transaction Systems Architects, Inc. (Class A)* ................. 4,657,500
--------------
18,218,212
--------------
Consumer Products (0.8%)
150,000 Chattem, Inc.* .................................................. 2,625,000
100,000 Samsonite Corp.* ................................................ 4,375,000
--------------
7,000,000
--------------
Distributors (1.2%)
65,000 Black Box Corp.* ................................................ 2,811,250
JLK Direct Distribution Inc.
88,100 (Class A)* ...................................................... 2,637,494
180,000 MicroAge, Inc.* ................................................. 5,175,000
--------------
10,623,744
--------------
Drugs (2.9%)
143,000 Alpharma Inc. (Class A) ......................................... 3,199,625
145,000 Dura Pharmaceuticals, Inc.* ..................................... 6,325,625
330,000 Ivax Corp.* ..................................................... 3,877,500
130,000 Jones Medical Industries, Inc. .................................. 4,095,000
110,000 Medicis Pharmaceutical Corp. (Class A)* ......................... 5,005,000
165,000 Twinlab Corp.* .................................................. 3,341,250
--------------
25,844,000
--------------
Education (0.5%)
140,000 Education Management Corp.* ..................................... 3,640,000
34,700 EduTrek International, Inc. (Class A)* .......................... 910,875
--------------
4,550,875
--------------
Electrical Equipment (1.3%)
41,000 AFC Cable Systems, Inc.* ........................................ 1,445,250
220,000 MagneTek, Inc.* ................................................. 4,922,500
120,000 Technitrol, Inc. ................................................ 4,777,500
--------------
11,145,250
--------------
Electronics (0.4%)
37,800 FARO Technologies, Inc.* ........................................ 618,975
53,000 Flextronics International, Ltd.* ................................ 2,510,875
--------------
3,129,850
--------------
Electronics -Instrumentation (1.4%)
65,000 Applied Power, Inc. (Class A) .................................. 4,090,937
117,000 Datum, Inc.* .................................................... 5,338,125
54,000 National Instruments Corp.* ..................................... 2,477,250
--------------
11,906,312
--------------
Entertainment (0.7%)
70,000 Cinar Films, Inc. (Class B)(Canada)* ............................ 2,668,750
135,000 Gemstar International Group Ltd.* ............................... 3,375,000
--------------
6,043,750
--------------
Environmental (3.5%)
290,000 Allied Waste Industries, Inc.* .................................. 5,546,250
100,000 Memtec Ltd. (ADR)(Australia)* ................................... 3,437,500
190,000 Newpark Resources, Inc.* ........................................ 7,469,375
260,000 Philip Services Corp. (Canada)* ................................. 4,745,020
243,190 Tetra Technologies, Inc.* ....................................... 5,203,307
100,000 U.S. Filter Corp.* .............................................. 4,306,250
--------------
30,707,702
--------------
Finance & Brokerage (2.1%)
133,333 Legg Mason, Inc. ............................................... 7,033,333
260,000 McDonald & Co. Investments, Inc. ................................ 7,572,500
215,250 Morgan Keegan, Inc. ............................................. 4,264,641
--------------
18,870,474
--------------
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1997, continued
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
Financial (1.2%)
300,000 Cadiz Land Company, Inc.* ....................................... $ 2,118,750
50,000 Finova Group Inc. ............................................... 4,731,250
125,000 HealthCare Financial Partners, Inc.* ............................ 3,796,875
--------------
10,646,875
--------------
Food Distribution (0.3%)
140,000 Ralcorp Holdings, Inc.* ......................................... 2,616,250
--------------
Food Processing (0.4%)
110,000 Smithfield Foods, Inc.* ......................................... 3,300,000
--------------
Health Services (3.7%)
250,000 Assisted Living Concepts, Inc.* ................................. 4,000,000
100,000 Complete Management, Inc.* ...................................... 1,893,750
2,600 HealthPlan Services Corp. ....................................... 54,925
165,000 HPR Inc.* ....................................................... 3,619,687
117,000 Magellan Health Services, Inc.* ................................. 3,714,750
340,000 NovaCare, Inc.* ................................................. 5,865,000
65,000 Rehabcare Group, Inc.* .......................................... 2,307,500
70,000 Total Renal Care Holdings, Inc.* ................................ 3,500,000
200,000 Trigon Healthcare, Inc.* ........................................ 4,962,500
100,000 United Wisconsin Services, Inc. ................................. 2,962,500
--------------
32,880,612
--------------
Home Building (0.6%)
100,000 Continental Homes Holding Corp. ................................. 2,931,250
100,000 Crossmann Communities, Inc.* .................................... 2,225,000
--------------
5,156,250
--------------
Hotels/Motels (0.9%)
110,000 Bristol Hotel Co.* .............................................. 3,073,125
160,000 Prime Hospitality Corp.* ........................................ 3,610,000
155,000 U.S. Franchise Systems, Inc. (Class A)* ......................... 1,104,375
--------------
7,787,500
--------------
Insurance (2.2%)
118,000 CMAC Investment Corp. ........................................... 6,327,750
100,000 Delphi Financial Group, Inc. (Class A)* ......................... 4,293,750
100,000 Fremont General Corp. ........................................... 4,775,000
17,800 Philadelphia Consolidated Holding Corp.* ........................ 770,962
165,000 Presidential Life Corp. ......................................... 3,279,375
--------------
19,446,837
--------------
Internet (0.4%)
19,000 DBT Online, Inc.* ............................................... 1,189,875
60,000 Lycos, Inc.* .................................................... 2,032,500
6,700 Network Solutions, Inc. (Class A)* .............................. 142,375
--------------
3,364,750
--------------
Leisure Time (1.0%)
170,000 Fairfield Communities, Inc.* .................................... 6,385,625
75,000 Steiner Leisure Ltd.* ........................................... 2,765,625
--------------
9,151,250
--------------
Manufacturing -Diversified (1.0%)
120,000 Buckeye Cellulose Corp.* ........................................ 4,837,500
80,000 Mueller Industries, Inc.* ....................................... 3,635,000
--------------
8,472,500
--------------
Medical Products & Supplies (3.8%)
210,000 Ballard Medical Products ........................................ 5,066,250
55,000 Closure Medical Corp.* .......................................... 1,897,500
100,000 Coventry Corp.* ................................................. 1,643,750
59,500 Orthofix International N.V.* .................................... 736,313
95,000 Sabratek Corp.* ................................................. 3,420,000
165,000 Safeskin Corp.* ................................................. 7,280,625
60,000 Schick Technologies, Inc.* ...................................... 1,110,000
60,000 Sofamor Danek Group, Inc.* ...................................... 3,427,500
200,000 Steris Corp.* ................................................... 8,212,500
20,000 Techne Corp.* ................................................... 705,000
--------------
33,499,438
--------------
Medical Services (1.6%)
41,100 Coast Dental Services, Inc.* .................................... 1,222,725
110,000 ESC Medical Systems Ltd. (Israel)* .............................. 4,138,750
75,000 Lincare Holdings, Inc.* ......................................... 3,768,750
97,000 Mentor Corp. .................................................... 3,067,625
169,000 Vision Twenty-One, Inc.* ........................................ 2,281,500
--------------
14,479,350
--------------
Medical Supplies (1.0%)
166,250 Cyberonics Inc.* ................................................ 2,670,391
65,900 Gulf South Medical Supply, Inc.* ................................ 1,754,588
115,000 Schein (Henry), Inc.* ........................................... 4,082,500
--------------
8,507,479
--------------
Metals & Mining (0.4%)
23,500 AMCOL International Corp. ...................................... 487,625
165,000 National Steel Corp. (Class B)* ................................. 2,949,375
--------------
3,437,000
--------------
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1997, continued
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
Office Equipment & Supplies (2.1%)
80,000 American Pad & Paper Co.* ....................................... $ 995,000
105,000 Consolidated Graphics, Inc.* .................................... 5,223,750
100,000 Danka Business Systems PLC (ADR)(United Kingdom) ................ 4,437,500
255,000 Mail-Well, Inc.* ................................................ 6,916,875
50,000 Viking Office Products, Inc.* ................................... 1,087,500
--------------
18,660,625
--------------
Oil & Gas Drilling (3.8%)
110,000 Cliffs Drilling Co.* ............................................ 7,658,750
110,000 ENSCO International, Inc. ....................................... 4,338,125
77,000 Helmerich & Payne, Inc. ......................................... 6,160,000
210,000 Marine Drilling Company, Inc.* .................................. 6,510,000
155,000 Noble Drilling Corp.* ........................................... 4,998,750
105,000 Rowan Companies, Inc.* .......................................... 3,740,625
--------------
33,406,250
--------------
Oil & Gas -Equipment & Services (4.5%)
30,000 BJ Services Co.* ................................................ 2,227,500
82,000 Carbo Ceramics, Inc. ............................................ 2,706,000
50,000 Cooper Cameron Corp.* ........................................... 3,590,625
215,000 Global Industries Ltd.* ......................................... 8,573,125
100,000 Key Energy Group, Inc.* ......................................... 3,256,250
130,000 Lone Star Technologies, Inc.* ................................... 6,784,375
95,000 Smith International, Inc.* ...................................... 7,380,313
110,000 Veritas DGC Inc.* ............................................... 4,681,875
--------------
39,200,063
--------------
Oil & Gas Exploration (0.7%)
89,100 Gulf Indonesia Resources Ltd. (Indonesia)* ...................... 1,982,475
110,000 Lomak Petroleum, Inc. ........................................... 2,124,375
70,000 Petsec Energy Ltd (ADR)(Australia)* ............................. 1,802,500
--------------
5,909,350
--------------
Real Estate Investment Trust (0.3%)
90,000 Golf Trust of America, Inc. .................................... 2,435,625
--------------
Restaurants (0.3%)
105,000 Cheesecake Factory (The)* ....................................... 2,887,500
--------------
Retail (1.5%)
26,820 99 Cents Only Stores* ........................................... 880,031
175,000 Ames Department Stores Inc.* .................................... 2,581,250
80,000 Fred Meyer, Inc.* ............................................... 4,260,000
100,000 Fred's, Inc. .................................................... 2,062,500
100,000 Neiman-Marcus Group, Inc.* ...................................... 3,200,000
--------------
12,983,781
--------------
Savings & Loan (1.3%)
86,000 Astoria Financial Corp. ........................................ 4,321,500
113,000 Bank United Corp. (Class A) ..................................... 4,993,188
80,000 PennFed Financial Services, Inc. ................................ 2,510,000
--------------
11,824,688
--------------
Semiconductor Capital Equipment (4.9%)
132,000 Advanced Energy Industries, Inc.* ............................... 3,729,000
190,000 Asyst Technologies, Inc.* ....................................... 8,383,750
180,800 BE Semiconductor Industries N.V. (Netherlands)* ................. 3,322,200
100,000 Brooks Automation, Inc.* ........................................ 3,812,500
25,000 Cerprobe Corp.* ................................................. 628,125
190,000 GaSonics International Corp.* ................................... 3,918,750
45,000 Helix Technology Corp. .......................................... 2,784,375
5,000 Intest Corp.* ................................................... 83,750
45,700 Powerone Inc.* .................................................. 639,800
50,000 PRI Automation, Inc.* ........................................... 2,925,000
85,000 Quad Systems Corp.* ............................................. 695,938
90,000 Semtech Corp.* .................................................. 6,187,500
60,000 Teradyne, Inc.* ................................................. 3,228,750
74,100 Watkins-Johnson Co. ............................................ 2,482,350
--------------
42,821,788
--------------
Semiconductors (3.2%)
50,000 Integrated Device Technology, Inc.* ............................. 600,000
60,000 Maxim Integrated Products, Inc.* ................................ 4,267,500
250,000 Oak Technology, Inc.* ........................................... 3,000,000
160,100 RF Micro Devices, Inc.* ......................................... 2,981,863
150,000 Supertex, Inc.* ................................................. 2,456,250
153,000 Trident Microsystems, Inc.* ..................................... 2,677,500
135,000 TriQuint Semiconductor, Inc.* ................................... 4,919,063
45,000 Uniphase Corp.* ................................................. 3,577,500
75,000 Vitesse Semiconductor Corp.* .................................... 3,712,500
--------------
28,192,176
--------------
<PAGE>
Shipbuilding (1.0%)
190,000 Halter Marine Group, Inc.* ...................................... 9,191,250
--------------
Specialty -Retail (2.7%)
180,000 Borders Group, Inc.* ............................................ 4,950,000
80,000 Braun's Fashions Corp.* ......................................... 1,120,000
100,000 Claire's Stores, Inc. .......................................... 2,237,500
90,000 Cole National Corp. (Class A)* .................................. 3,740,625
175,000 CompUSA, Inc.* .................................................. 6,125,000
122,000 Guitar Center Inc.* ............................................. 3,004,250
100,000 Talbot's, Inc. (The) ............................................ 2,856,250
--------------
24,033,625
--------------
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1997, continued
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
Telecommunications (1.0%)
80,000 ACC Corp.* ...................................................... $ 2,600,000
64,400 Bell Canada International Inc.* ................................. 1,215,550
66,700 NEXTLINK Communications, Inc. (Class A)* ........................ 1,600,800
100,000 Star Telecommunications, Inc.* .................................. 2,300,000
--------------
7,716,350
--------------
Telecommunications Equipment (4.5%)
100,000 ACE*COMM Corp.* ................................................. 2,162,500
80,000 Adtran, Inc.* ................................................... 3,360,000
326,000 Boston Communications Group, Inc.* .............................. 4,767,750
60,000 Comverse Technology, Inc.* ...................................... 3,165,000
120,000 Davox Corp.* .................................................... 4,020,000
150,000 Digital Microwave Corp.* ........................................ 6,712,500
75,000 GeoTel Communications Corp.* .................................... 1,406,250
110,600 Melita International Corp.* ..................................... 1,244,250
63,500 Omtool, Ltd.* ................................................... 841,375
100,000 Ortel Corp.* .................................................... 2,200,000
85,000 Positron Fiber Systems Corp. (Canada)* .......................... 871,250
175,000 Premisys Communications, Inc.* .................................. 4,451,563
124,900 REMEC, Inc.* .................................................... 4,543,238
--------------
39,745,676
--------------
Trucking (0.4%)
110,000 U S Freightways Corp.* .......................................... 3,657,500
--------------
Wireless Communication (1.1%)
200,000 Clearnet Communications Inc. (Class A)(Canada)* ................. 3,450,000
300,000 Metrocall, Inc.* ................................................ 2,212,500
120,000 Powertel, Inc.* ................................................. 2,250,000
101,200 Vanguard Cellular Systems, Inc. (Class A)* ...................... 1,581,250
--------------
9,493,750
--------------
TOTAL COMMON STOCKS
(Identified Cost $602,240,531) .................................. 842,439,829
--------------
RIGHTS (0.0%)
Pharmaceuticals
16,334 Alpharma Inc. (due 11/15/97)* ................................... 91,879
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (4.3%)
<S> <C> <C>
U.S. GOVERNMENT AGENCY (a)(4.0%)
$35,000 Federal Home Loan Mortgage Corp. 6.05% due 10/01/97 (Amortized
Cost $35,000,000) .............................................. 35,000,000
--------------
REPURCHASE AGREEMENT (0.3%)
3,364 The Bank of New York
5.25% due 10/01/97
(dated 09/30/97; proceeds
$3,364,284)(b)
(Identified Cost $3,363,793) .................................... 3,363,793
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $38,363,793) ................................... 38,363,793
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $640,604,324)(c) . 100.1% 880,895,501
LIABILITIES IN EXCESS OF
OTHER ASSETS....................................................... (0.1) (1,290,379)
-------- -------------
NET ASSETS......................................................... 100.0% $879,605,122
======== =============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $868,518 U.S. Treasury Note 5.875% due 08/31/99
valued at $873,100 and $2,567,598 U.S. Treasury Note 5.00% due
02/15/99 valued at $2,557,969.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$245,477,328 and the aggregate gross unrealized depreciation is
$5,186,151, resulting in net unrealized appreciation of $240,291,177.
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $640,604,324).......................... $880,895,501
Receivable for:
Investments sold....................................... 18,762,884
Shares of beneficial interest sold..................... 1,299,288
Dividends.............................................. 78,071
Prepaid expenses and other assets........................ 88,829
--------------
TOTAL ASSETS........................................... 901,124,573
--------------
LIABILITIES:
Payable for:
Investments purchased.................................. 19,532,833
Shares of beneficial interest repurchased.............. 739,122
Plan of distribution fee............................... 738,687
Investment management fee.............................. 362,104
Accrued expenses and other payables...................... 146,705
--------------
TOTAL LIABILITIES...................................... 21,519,451
--------------
NET ASSETS............................................. $879,605,122
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital.......................................... $598,375,588
Net unrealized appreciation.............................. 240,291,177
Accumulated net investment loss.......................... (41,190)
Accumulated undistributed net realized gain.............. 40,979,547
--------------
NET ASSETS............................................. $879,605,122
==============
CLASS A SHARES:
Net Assets............................................... $ 978,205
Shares Outstanding (unlimited authorized, $.01 par
value).................................................. 35,575
NET ASSET VALUE PER SHARE.............................. $ 27.50
==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ...... $ 29.02
==============
CLASS B SHARES:
Net Assets............................................... $877,539,283
Shares Outstanding (unlimited authorized, $.01 par
value).................................................. 31,953,536
NET ASSET VALUE PER SHARE.............................. $ 27.46
==============
CLASS C SHARES:
Net Assets............................................... $ 1,066,008
Shares Outstanding (unlimited authorized, $.01 par
value).................................................. 38,816
NET ASSET VALUE PER SHARE.............................. $ 27.46
==============
CLASS D SHARES:
Net Assets............................................... $ 21,626
Shares Outstanding (unlimited authorized, $.01 par
value).................................................. 786
NET ASSET VALUE PER SHARE.............................. $ 27.51
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended September 30, 1997*
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.......................................... $ 2,417,432
Dividends (net of $5,252 foreign withholding
tax)............................................. 1,169,809
-------------
TOTAL INCOME.................................... 3,587,241
-------------
EXPENSES
Plan of distribution fee (Class B shares) ........ 7,587,412
Investment management fee......................... 3,729,759
Transfer agent fees and expenses.................. 1,097,536
Shareholder reports and notices................... 93,785
Registration fees................................. 88,998
Custodian fees.................................... 74,208
Professional fees................................. 60,094
Trustees' fees and expenses....................... 18,538
Other............................................. 12,817
-------------
TOTAL EXPENSES.................................. 12,763,147
-------------
NET INVESTMENT LOSS............................. (9,175,906)
-------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain................................. 42,865,706
Net change in unrealized appreciation............. 84,974,039
-------------
NET GAIN ....................................... 127,839,745
-------------
NET INCREASE...................................... $118,663,839
=============
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
42
<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, 1997* SEPTEMBER 30, 1996
- ----------------------------------------------------- ------------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss................................... $ (9,175,906) $ (6,629,594)
Net realized gain..................................... 42,865,706 132,830,087
Net change in unrealized appreciation................. 84,974,039 (16,804,216)
------------------- ------------------
NET INCREASE........................................ 118,663,839 109,396,277
------------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET
REALIZED GAIN
Class B shares....................................... (113,569,438) (42,760,549)
------------------- ------------------
Net increase from transactions in shares of
beneficial interest.................................. 75,310,217 197,696,272
------------------- ------------------
NET INCREASE........................................ 80,404,618 264,332,000
NET ASSETS:
Beginning of period................................... 799,200,504 534,868,504
------------------- ------------------
END OF PERIOD
(Including accumulated net investment losses of
$41,190 and $39,118, respectively).................. $ 879,605,122 $799,200,504
=================== ==================
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
Notes to Financial Statements September 30, 1997
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. On July 28, 1997, the Fund commenced offering three
additional classes of shares, with the then current shares designated as
Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class
C shares incur distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price; (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.
44
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997, continued
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date. Discounts are accreted over the life of the respective
securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, 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
45
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997, continued
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A -0.25% of the
average daily net assets of Class A; (ii) Class B -1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C -1.0% of the average daily net assets of Class C. In
the case of Class A shares, amounts paid under the Plan are paid to the
Distributor for services provided. In the case of Class B and Class C shares,
amounts paid under the Plan are paid to the Distributor for services provided
and the expenses borne by it and others in the distribution of the shares of
these Classes, including the payment of commissions for sales of these Classes
and incentive compensation to, and expenses of, the account executives of Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and others who engage in or support distribution of the shares or
who service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of these shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan, in the case of Class B shares, to compensate DWR and other selected
broker-dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the
46
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997, continued
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 $28,020,948 at September 30, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant
to the Plan in any calendar year in excess of 0.25% or 1.0% of the average
daily net assets of Class A or Class C, respectively, will not be reimbursed
by the Fund through payments in any subsequent year, except that expenses
representing a gross sales credit to account executives may be reimbursed in
the subsequent calendar year. For the period ended September 30, 1997, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the year ended September 30,
1997, it received contingent deferred sales charges from certain redemptions
of the Fund's Class B shares of $1,278,394 and received $4,827 in front-end
sales charges from sales of the Fund's Class A shares. The respective
shareholders pay such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended September 30, 1997
aggregated $1,115,116,536 and $1,199,929,321, respectively.
For the year ended September 30, 1997, the Fund incurred $39,264 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the
Fund.
For the period May 31, 1997 through September 30, 1997, the Fund incurred
brokerage commissions of $23,533 with Morgan Stanley & Co., Inc., an
affiliate of the Investment Manager since May 31, 1997, 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, 1997 included in Trustees' fees and expenses in the
Statement of Operations amounted to $5,232. At September 30, 1997, the Fund
had an accrued pension liability of $41,194 which is included in accrued
expenses in the Statement of Assets and Liabilities.
Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At September 30, 1997, the Fund
had transfer agent fees and expenses payable of approximately $9,600.
47
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997, continued
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, 1997 SEPTEMBER 30, 1996
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold.......................... 35,616 $ 899,495 -- --
Redeemed...................... (41) (1,100) -- --
-------------- --------------- -------------- ---------------
Net increase -Class A ........ 35,575 898,395 -- --
-------------- --------------- -------------- ---------------
CLASS B SHARES
Sold.......................... 14,447,649 343,330,085 20,988,017 $ 532,804,011
Reinvestment of
distributions................ 4,819,692 107,527,322 1,750,437 40,382,573
Redeemed...................... (16,152,387) (377,477,428) (14,839,539) (375,490,312)
-------------- --------------- -------------- ---------------
Net increase -Class B......... 3,114,954 73,379,979 7,898,915 197,696,272
-------------- --------------- -------------- ---------------
CLASS C SHARES*
Sold.......................... 38,996 1,016,199 -- --
Redeemed...................... (180) (4,719) -- --
-------------- --------------- -------------- ---------------
Net increase -Class C......... 38,816 1,011,480 -- --
-------------- --------------- -------------- ---------------
CLASS D SHARES*
Sold.......................... 786 20,363 -- --
-------------- --------------- -------------- ---------------
Net increase in Fund.......... 3,190,131 $ 75,310,217 7,898,915 $ 197,696,272
============== =============== ============== ===============
</TABLE>
- ------------
* For the period July 28, 1997 (issue date) through September 30, 1997.
6. FEDERAL INCOME TAX STATUS
As of September 30, 1997, the Fund had temporary book/tax differences
primarily attributable to capital loss deferrals on wash sales and permanent
book/tax differences attributable to a net operating loss. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged and accumulated net investment loss was credited $9,173,834.
48
<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,
------------------------------------------------------------------------------------------
1997*++ 1996 1995 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $27.71 $25.54 $17.55 $20.50 $12.20 $14.05 $8.92 $11.33
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME (LOSS)......... (0.28) (0.23) (0.19) -- (0.12) (0.12) (0.07) (0.15)
NET REALIZED AND UNREALIZED GAIN
(LOSS).............................. 3.92 4.32 8.34 (1.82) 8.42 (1.73) 5.20 (2.21)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS .... 3.64 4.09 8.15 (1.82) 8.30 (1.85) 5.13 (2.36)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS
FROM:
NET INVESTMENT INCOME............... -- -- -- -- -- -- -- (0.05)
NET REALIZED GAIN................... (3.89) (1.92) (0.16) (1.13) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL DIVIDENDS AND DISTRIBUTIONS ... (3.89) (1.92) (0.16) (1.13) -- -- -- (0.05)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD ...... $27.46 $27.71 $25.54 $17.55 $20.50 $12.20 $14.05 $8.92
========== ========== ========== ========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN+............. 16.38% 17.53% 46.87% (8.88)% 67.95% (13.17)% 57.51% (20.87)%
RATIOS TO AVERAGE NET ASSETS:
EXPENSES............................. 1.68% 1.69% 1.77% 1.78% 1.84% 1.86% 1.92% 2.02%
NET INVESTMENT INCOME (LOSS)......... (1.21)% (1.03)% (1.04)% (1.32)% (1.52)% (1.14)% (0.73)% (1.32)%
SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD, IN
THOUSANDS........................... $877,539 $799,201 $534,869 $340,169 $240,389 $112,982 $115,337 $67,604
PORTFOLIO TURNOVER RATE.............. 154% 149% 114% 160% 203% 153% 88% 53%
AVERAGE COMMISSION RATE PAID......... $0.0572 $0.0571 -- -- -- -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
----------------------
1989 1988
- ------------------------------------------------------------
<S> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $9.67 $10.96
--------- ----------
NET INVESTMENT INCOME (LOSS)......... 0.04 (0.03)
NET REALIZED AND UNREALIZED GAIN
(LOSS).............................. 1.62 (1.26)
--------- ----------
TOTAL FROM INVESTMENT OPERATIONS .... 1.66 (1.29)
--------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS
FROM:
NET INVESTMENT INCOME............... -- --
NET REALIZED GAIN................... -- --
--------- ----------
TOTAL DIVIDENDS AND DISTRIBUTIONS ... -- --
--------- ----------
NET ASSET VALUE, END OF PERIOD ...... $11.33 $9.67
========= ==========
TOTAL INVESTMENT RETURN+............. 17.17% (11.77)%
RATIOS TO AVERAGE NET ASSETS:
EXPENSES............................. 1.89% 1.90%
NET INVESTMENT INCOME (LOSS)......... 0.59% (0.28)%
SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD, IN
THOUSANDS........................... $89,236 $108,411
PORTFOLIO TURNOVER RATE.............. 84% 70%
AVERAGE COMMISSION RATE PAID......... -- --
</TABLE>
- ------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated
Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
- ---------------------------------------- -------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 24.62
-------
Net investment loss ..................... (0.02)
Net realized and unrealized gain ....... 2.90
-------
Total from investment operations ....... 2.88
-------
Net asset value, end of period .......... $ 27.50
=======
TOTAL INVESTMENT RETURN+ ................ 11.70 % (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 0.99 % (2)
Net investment loss ..................... (0.46)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 978
Portfolio turnover rate ................. 154 %
Average commission rate paid ............ $0.0572
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 24.62
-------
Net investment loss ..................... (0.05)
Net realized and unrealized gain ....... 2.89
-------
Total from investment operations ....... 2.84
-------
Net asset value, end of period .......... $ 27.46
=======
TOTAL INVESTMENT RETURN+ ................ $ 11.54 % (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 1.71 % (2)
Net investment loss ..................... (1.19)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 1,066
Portfolio turnover rate ................. 154 %
Average commission rate paid ............ $0.0572
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
- ---------------------------------------- -------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 24.62
-------
Net investment loss ..................... (0.01)
Net realized and unrealized gain (loss) 2.90
-------
Total from investment operations ....... 2.89
-------
Net asset value, end of period .......... $ 27.51
=======
TOTAL INVESTMENT RETURN+ ................ 11.74 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 0.70 %(2)
Net investment loss ..................... (0.20)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 22
Portfolio turnover rate ................. 154 %
Average commission rate paid ............ $0.0572
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
51
<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, 1997, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 1997
by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
November 4, 1997
1997 FEDERAL TAX NOTICE (unaudited)
During the year ended September 30, 1997, the Fund paid to shareholders
$3.32 per share from long-term capital gains.
52
