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PROSPECTUS
JULY 28, 1997
Dean Witter World Wide Investment Trust (the "Fund") is an
open-end diversified management investment company whose investment objective is
total return on its assets primarily through long-term capital growth and to a
lesser extent from income. The Fund will seek to achieve such objective through
investments in all types of common stocks and equivalents, preferred stocks and
bonds and other debt obligations of domestic and foreign companies and
governments and international organizations.
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. Except as discussed herein, shares of
the Fund held prior to July 28, 1997 have been designated Class B shares. (See
"Purchase of Fund Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated July 28, 1997, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/5
Financial Highlights/7
The Fund and its Management/8
Investment Objective and Policies/8
Risk Considerations and Investment Practices/9
Investment Restrictions/16
Purchase of Fund Shares/17
Shareholder Services/28
Redemptions and Repurchases/30
Dividends, Distributions and Taxes/31
Performance Information/33
Additional Information/33
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Dean Witter
World Wide Investment 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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The The Fund is organized as a trust, commonly known as a Massachusetts business trust, and is
Fund an open-end diversified management investment company investing in all types of common
stocks and equivalents (such as convertible debt securities and warrants), preferred
stocks and bonds and other debt obligations of domestic and foreign companies and
governments and international organizations.
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Shares Shares of beneficial interest with $0.01 par value (see page 33). The Fund offers four
Offered Classes of shares, each with a different combination of sales charges, ongoing fees and
other features (see pages 17-26).
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Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened
Purchase through EasyInvest-SM-). Class D shares are only available to persons investing $5 million
or more and to certain other limited categories of investors. For the purpose of meeting
the minimum $5 million investment for Class D shares, and subject to the $1,000 minimum
initial investment for each Class of the Fund, an investor's existing holdings of Class A
shares and shares of funds for which Dean Witter InterCapital Inc. serves as investment
manager ("Dean Witter Funds") that are sold with a front-end sales charge, and concurrent
investments in Class D shares of the Fund and other Dean Witter Funds that are multiple
class funds, will be aggregated. The minimum subsequent investment is $100 (see
page 17).
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Investment The investment objective of the Fund is total return on its assets primarily through
Objective long-term capital growth and to a lesser extent from income.
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Investment The Fund maintains a flexible investment policy and invests in a diversified portfolio of
Policies securities of companies and countries located throughout the world. The percentage of the
Fund's assets invested in particular geographic sectors will shift from time to time in
accordance with the judgment of the Investment Manager and the Sub-Adviser (see pages
8-16).
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Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and
Manager and its wholly-owned subsidiary, Dean Witter Services Company Inc., serve in various
Sub-Adviser investment management, advisory, management and administrative capacities to 100
investment companies with assets of approximately $96.6 billion at June 30, 1997.
InterCapital has retained Morgan Grenfell Investment Services Limited as Sub-Adviser to
provide investment advice and manage the Fund's non-U.S. portfolio. Morgan Grenfell
Investment Services Limited currently manages assets in excess of $15 billion primarily
for U.S. corporate and public employee benefit plans, endowments, investment companies and
foundations.
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Management Fees The Investment Manager receives a monthly fee from the Fund at the annual rate of 1.0% of
daily net assets not exceeding $500 million and 0.95% of daily net assets exceeding $500
million. The Sub-Adviser receives a monthly fee from the Investment Manager equal to 40%
of the Investment Manager's monthly fee (see page 8). Although the management fee is
higher than that paid by most other investment companies, the fee reflects the specialized
nature of the Fund's investment policies.
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2
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Distributor Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution
and plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with
Distribution respect to the distribution fees paid by the Class A, Class B and Class C shares of the
Fee 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 17
and 25).
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Alternative Four classes of shares are offered:
Purchase
Arrangements - 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 17, 20 and 25).
- 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 (other
than the shares held by certain employee benefit plans established by Dean Witter Reynolds
Inc. and its affiliate, SPS Transaction Services, Inc.) have been designated Class B
shares. Shares held by those employee benefit plans prior to July 28, 1997 have been
designated Class D shares. Shares held before May 1, 1997 that have been designated Class
B shares will convert to Class A shares in May, 2007. In all other instances, Class B
shares convert to Class A shares approximately ten years after the date of the original
purchase (see pages 17, 22 and 25).
- 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 17 and 25).
</TABLE>
3
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- 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
17 and 25).
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Dividends Dividends from net investment income and distributions from net capital gains, if any, are
and paid at least once per year. The Fund may, however, determine to retain all or part of any
Capital Gains net long-term capital gains in any year for reinvestment. Dividends and capital gains
Distributions 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 28 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-SM-, if after twelve months the shareholder has invested less than $1,000 in
the account (see page 30).
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Risks The Fund is intended for long-term investors who can accept the risks involved in
investments in the securities of companies and countries located throughout the world. The
net asset value of the Fund's shares will fluctuate with changes in the market value of
its portfolio securities. It should be recognized that the foreign securities and markets
in which the Fund will invest pose different and greater risks than those customarily
associated with domestic securities and their markets. Furthermore, investors should
consider other risks associated with a portfolio of international securities, including
fluctuations in foreign currency exchange rates (i.e., if a substantial portion of the
Fund's assets is denominated in foreign currencies which decrease in value with respect to
the U.S. dollar, the value of the investor's shares and the distributions made on those
shares will, likewise, decrease in value), foreign securities exchange controls and
foreign tax rates, as well as risks associated with transactions in forward currency
contracts, options and futures contracts (see pages 8-16).
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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 March 31, 1997.
<TABLE>
<CAPTION>
Class A Class B Class C Class D
------- ------- ------- -------
<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)
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Management Fees.................................................. 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (5) (6)............................................... 0.25% 1.00% 1.00% None
Other Expenses................................................... 0.36% 0.36% 0.36% 0.36%
Total Fund Operating Expenses (7)................................ 1.61% 2.36% 2.36% 1.36%
</TABLE>
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(1) REDUCED FOR PURCHASES OF $25,000 AND OVER (SEE "PURCHASE OF FUND
SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES").
(2) INVESTMENTS THAT ARE NOT SUBJECT TO ANY SALES CHARGE AT THE TIME OF PURCHASE
ARE SUBJECT TO A CDSC OF 1.00% THAT WILL BE IMPOSED ON REDEMPTIONS MADE
WITHIN ONE YEAR AFTER PURCHASE, EXCEPT FOR CERTAIN SPECIFIC CIRCUMSTANCES
(SEE "PURCHASE OF FUND SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A
SHARES").
(3) THE CDSC IS SCALED DOWN TO 1.00% DURING THE SIXTH YEAR, REACHING ZERO
THEREAFTER.
(4) ONLY APPLICABLE TO REDEMPTIONS MADE WITHIN ONE YEAR AFTER PURCHASE (SEE
"PURCHASE OF FUND SHARES-- LEVEL LOAD ALTERNATIVE--CLASS C SHARES").
(5) THE 12b-1 FEE IS ACCRUED DAILY AND PAYABLE MONTHLY. THE ENTIRE 12b-1 FEE
PAYABLE BY CLASS A AND A PORTION OF THE 12b-1 FEE PAYABLE BY EACH OF CLASS B
AND CLASS C EQUAL TO 0.25% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS ARE
CURRENTLY EACH CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES AND ARE PAYMENTS
MADE FOR PERSONAL SERVICE AND/OR MAINTENANCE OF SHAREHOLDER ACCOUNTS. THE
REMAINDER OF THE 12b-1 FEE, IF ANY, IS AN ASSET-BASED SALES CHARGE, AND IS A
DISTRIBUTION FEE PAID TO THE DISTRIBUTOR TO COMPENSATE IT FOR THE SERVICES
PROVIDED AND THE EXPENSES BORNE BY THE DISTRIBUTOR AND OTHERS IN THE
DISTRIBUTION OF THE FUND'S SHARES (SEE "PURCHASE OF FUND SHARES--PLAN OF
DISTRIBUTION").
(6) UPON CONVERSION OF CLASS B SHARES TO CLASS A SHARES, SUCH SHARES WILL BE
SUBJECT TO THE LOWER 12b-1 FEE APPLICABLE TO CLASS A SHARES. NO SALES CHARGE
IS IMPOSED AT THE TIME OF CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
CLASS C SHARES DO NOT HAVE A CONVERSION FEATURE AND, THEREFORE, ARE SUBJECT
TO AN ONGOING 1.00% DISTRIBUTION FEE (SEE "PURCHASE OF FUND
SHARES--ALTERNATIVE PURCHASE ARRANGEMENTS").
(7) THERE WERE NO OUTSTANDING SHARES OF CLASS A, CLASS C OR CLASS D PRIOR TO THE
DATE OF THIS PROSPECTUS. ACCORDINGLY, "TOTAL FUND OPERATING EXPENSES," AS
SHOWN ABOVE WITH RESPECT TO THOSE CLASSES, ARE BASED UPON THE SUM OF 12b-1
FEES, MANAGEMENT FEES AND ESTIMATED "OTHER EXPENSES."
5
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<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...................................................... $68 $101 $136 $234
Class B...................................................... $74 $104 $146 $270
Class C...................................................... $34 $ 74 $126 $270
Class D...................................................... $14 $ 43 $ 74 $163
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A...................................................... $68 $101 $136 $234
Class B...................................................... $24 $ 74 $126 $270
Class C...................................................... $24 $ 74 $126 $270
Class D...................................................... $14 $ 43 $ 74 $163
</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 charge permitted by the NASD.
6
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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. All shares of the Fund held prior to July 28,
1997, other than the shares held by certain employee benefit plans established
by Dean Witter Reynolds Inc. and its affiliate, SPS Transaction Services, Inc.,
have been designated Class B shares. Shares held by those employee benefit plans
prior to July 28, 1997 have been designated Class D shares.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
-----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
OPERATING PERFORMANCE:
Net asset value,
beginning of
period............. $ 18.23 $ 15.71 $ 18.20 $ 14.72 $ 14.65 $ 14.57 $ 14.84 $ 14.98 $ 14.93 $ 17.36
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment
income (loss)...... (0.18) (0.06) (0.02) (0.05) -- -- 0.23 0.11 0.08 0.04
Net realized and
unrealized gain
(loss)............. 0.45 2.60 (1.83) 4.24 0.39 1.05 0.18 0.82 1.24 (0.07)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations......... 0.27 2.54 (1.85) 4.19 0.39 1.05 0.41 0.93 1.32 (0.03)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
From net
investment
income........... -- -- -- -- -- (0.05) (0.23) (0.11) (0.08) (0.15)
In excess of net
investment
income........... -- -- (0.02) -- -- -- -- -- -- --
From net realized
gain............. (1.23) (0.02) (0.39) (0.71) (0.32) (0.92) (0.45) (0.96) (1.19) (2.25)
In excess of net
realized gain.... -- -- (0.23) -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions...... (1.23) (0.02) (0.64) (0.71) (0.32) (0.97) (0.68) (1.07) (1.27) (2.40)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end
of period.......... $ 17.27 $ 18.23 $ 15.71 $ 18.20 $ 14.72 $ 14.65 $ 14.57 $ 14.84 $ 14.98 $ 14.93
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL INVESTMENT
RETURN+.............. 1.61% 16.20% (10.37)% 28.40% 2.69% 7.33% 2.80% 6.09% 9.31% 0.39%
Ratios to average
net
assets:
Expenses.......... 2.36% 2.45% 2.41% 2.40% 2.42% 2.27% 2.29% 2.21% 2.18% 2.13%
Net investment
income (loss).... (0.84)% (0.21)% (0.32)% (0.61)% 0.06% 0.03% 1.53% 0.70% 0.50% 0.23%
SUPPLEMENTAL DATA:
Net assets, end of
period,
in millions........ $419 $520 $512 $494 $218 $263 $279 $306 $312 $368
Portfolio turnover
rate............... 48% 126% 67% 68% 139% 89% 68% 75% 67% 70%
Average commission
rate paid.......... $0.0116 $0.0169 -- -- -- -- -- -- -- --
</TABLE>
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+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
7
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THE FUND AND ITS MANAGEMENT
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Dean Witter World Wide Investment Trust (the "Fund") is an open-end
diversified management investment company organized under the laws of the
Commonwealth of Massachusetts as a business trust on July 7, 1983.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover &
Co., a preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses--securities, asset management
and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 100 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined total assets of
approximately $93.1 billion at June 30, 1997. InterCapital also manages
portfolios of pension plans, other institutions and individuals which aggregated
approximately $3.5 billion at such date.
The Fund has retained the Investment Manager to manage its business affairs
and manage the investment of the Fund's United States assets, including the
placing of orders for the purchase and sale of portfolio securities, and to
supervise the investment of all the Fund's assets. In addition, the Fund has
retained InterCapital to provide it with administrative services and
InterCapital has, in turn, retained Dean Witter Services Company Inc. to perform
these administrative services.
Under a Sub-Advisory Agreement between Morgan Grenfell Investment Services
Limited (the "Sub-Adviser") and the Investment Manager, the Sub-Adviser provides
the Fund with investment advice and portfolio management relating to the Fund's
investments in securities issued by issuers located outside the United States,
subject to the overall supervision of the Investment Manager. The Sub-Adviser,
whose address is 20 Finsbury Circus, London, England, currently manages assets
in excess of $15 billion primarily for U.S. corporate and public employee
benefit plans, endowments, investment companies and foundations. The Sub-Adviser
is an indirect subsidiary of Deutsche Bank AG, the largest commercial bank in
Germany.
The Fund's Trustees review the various services provided by the Investment
Manager and the Sub-Adviser to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner. As full
compensation for the services and facilities furnished to the Fund and expenses
of the Fund assumed by the Investment Manager, the Fund pays the Investment
Manager monthly compensation calculated daily by applying the annual rate of
1.0% to the portion of the net assets of the Fund not exceeding $500 million and
0.95% to the portion of the net assets of the Fund exceeding $500 million. As
compensation for the services provided pursuant to the Sub-Advisory Agreement,
the Investment Manager pays the Sub-Adviser monthly compensation equal to 40% of
its monthly compensation. The total fee is greater than that paid by most other
investment companies.
For the fiscal year ended March 31, 1997, the Fund accrued total
compensation to the Investment Manager amounting to 1.00% of the Fund's average
daily net assets and the Fund's total expenses amounted to 2.36% of the Fund's
average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to seek to obtain total return on
its assets primarily through long-term capital growth and to a lesser extent
from income. This objective is fundamental and may not be changed without
shareholder approval. There can be no assurance that the Fund will achieve its
8
<PAGE>
objective. The Fund will seek to achieve such objective through investments in
all types of common stocks and equivalents (such as convertible debt securities
and warrants), preferred stocks and bonds and other debt obligations of domestic
and foreign companies and governments and international organizations. There is
no limitation on the percent or amount of the Fund's assets which may be
invested for growth or income.
The application of the Fund's investment policies is basically dependent
upon the judgment of the Investment Manager and the Sub-Adviser. As a
fundamental policy, the Fund will maintain a flexible investment policy and,
based on a worldwide investment strategy, will invest in a diversified portfolio
of securities of companies and governments located throughout the world.
The percentage of the Fund's assets invested in particular geographic areas
will shift from time to time in accordance with the judgment of the Investment
Manager and the Sub-Adviser. The Investment Manager will meet with the
Sub-Adviser, at least quarterly, to discuss the Fund's overall strategy and the
geographic distribution of the Fund's assets between the United States and the
rest of the world. The final determination of such geographic distribution will
be made by the Investment Manager. Once the determination of such geographic
distribution has been made, each of the Investment Manager and the Sub-Adviser
will be responsible for the individual security selection within its geographic
areas of responsibility and will act on behalf of the Fund in the purchase, sale
and disposition of assets in such areas.
Notwithstanding the Fund's investment objective of seeking total return, the
Fund may, for defensive purposes, without limitation, invest in: obligations of
the United States Government, its agencies or instrumentalities; cash and cash
equivalents in major currencies; repurchase agreements; money market
instruments; and high quality commercial paper.
The Fund may also invest in securities of foreign issuers in the form of
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or
other similar securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement.
Generally, ADRs, in registered form, are designed for use in the United States
securities markets and EDRs, in bearer form, are designed for use in European
securities markets.
The Fund may also invest in repurchase agreements, private placements, zero
coupon securities, foreign investment companies and real estate investment
trusts, may purchase securities on a when-issued or delayed delivery basis, may
purchase securities on a "when, as and if issued" basis, and may lend its
portfolio securities, as discussed under "Risk Considerations and Investment
Practices" below.
To hedge against adverse price movements in the securities held in its
portfolio and the currencies in which they are denominated (as well as in the
securities it might wish to purchase and their denominated currencies) the Fund
may engage in transactions in forward foreign currency exchange contracts,
options on securities and currencies, and futures contracts on securities,
currencies and indexes and options on such futures contracts. The Fund may also
write (sell) put and call options on securities to aid in achieving its
investment objective. A discussion of these transactions follows under "Risk
Considerations and Investment Practices" below and is supplemented by further
disclosure in the Statement of Additional Information.
RISK CONSIDERATIONS AND INVESTMENT PRACTICES
The Fund is intended to provide individual and institutional investors with
the opportunity to invest in a diversified portfolio of securities of companies
and governments located throughout the world and is intended for long-term
investors who can accept the risks involved in such investments. In making the
allocation of assets among the various markets, the Investment Manager or the
Sub-Adviser will con-
9
<PAGE>
sider such factors as recent developments in the various countries, the
condition and growth potential of various economies and securities markets,
currency and tax considerations and other pertinent financial, social, national
and political factors. The Fund has an unlimited right to purchase equity
securities if they are listed on a stock exchange and may invest up to 25% of
the Fund's total assets in such securities not listed on any exchange, including
not more than 10% of the Fund's total assets invested in securities for which no
readily available market exists.
FOREIGN SECURITIES. Investors should carefully consider the risks of
investing in securities of foreign issuers and securities denominated in
non-U.S. currencies. Fluctuations in the relative rates of exchange between the
currencies of different nations will affect the value of the Fund's investments.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in that currency
and thereby impact upon the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of
the Fund will be conducted on a spot (i.e., cash) basis or through forward
foreign currency exchange contracts (see below). The Fund may incur certain
costs in connection with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Political and economic developments in Europe, especially as they
relate to changes in the structure of the European Union and the anticipated
development of a unified common market, may have profound effects upon the value
of a large segment of the Fund's portfolio. Continued progress in the evolution
of, for example, a united European common market may be slowed by unanticipated
political or social events and may, therefore, adversely affect the value of
certain of the securities held in the Fund's portfolio.
Foreign companies are not subject to the regulatory requirements of U.S.
companies and, as such, there may be less publicly available information about
such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Fund trades effected in such markets. Inability to dispose of
portfolio securities due to settlement delays could result in losses to the Fund
due to subsequent declines in value of such securities and the inability of the
Fund to make intended security purchases due to settlement problems could result
in a failure of the Fund to make potentially advantageous investments. In
addition, the tax implications of the Fund's investments in passive foreign
investment companies are discussed below under "Dividends, Distributions and
Taxes."
Certain of the foreign markets in which the Fund may invest will be emerging
markets. These new and incompletely formed markets will have increased risk
levels above those occasioned by investing in foreign markets generally. The
types of these risks are set forth above. The Fund's management will take
cognizance of these risks in allocating
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any of the Fund's investments in either fixed-income or equity securities issued
by issuers in emerging market countries.
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in domestic securities since
the expenses of the Fund, such as the management fee and the custodial costs,
are higher.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") involves an obligation to purchase or
sell a currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. The Fund may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase and the foreign
currency in which the security is denominated during the period between the date
on which the security is purchased or sold and the date on which payment is made
or received.
At other times, when, for example, the Investment Manager or Sub-Adviser
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar or some other foreign currency, the
Fund may enter into a forward contract to sell, for a fixed amount of dollars or
other currency, the amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities (or securities which the Fund has
purchased for its portfolio) denominated in such foreign currency. Under
identical circumstances, the Fund may enter into a forward contract to sell, for
a fixed amount of U.S. dollars or other currency, an amount of foreign currency
other than the currency in which the securities to be hedged are denominated
approximating the value of some or all of the portfolio securities to be hedged.
This method of hedging, called "cross-hedging," will be selected when it is
determined by the Investment Manager or Sub-Adviser that the foreign currency in
which the portfolio securities are denominated has insufficient liquidity or is
trading at a discount as compared with some other foreign currency with which it
tends to move in tandem.
In addition, when the Fund anticipates purchasing securities at some time in
the future, and wishes to lock in the current exchange rate of the currency in
which those securities are denominated against the U.S. dollar or some other
foreign currency, it may enter into a forward contract to purchase an amount of
currency equal to some or all of the value of the anticipated purchase, for a
fixed amount of U.S. dollars or other currency. The Fund may, however, close out
the forward contract without purchasing the security which was the subject of
the "anticipatory" hedge.
Lastly, the Fund is permitted to enter into forward contracts with respect
to currencies in which certain of its portfolio securities are denominated and
on which options have been written (see "Options and Futures Transactions").
In all of the above circumstances, if the currency in which the Fund's
portfolio securities (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered
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<PAGE>
into and the date it matures. The Fund is not required to enter into such
transactions with regard to its foreign currency-denominated securities and will
not do so unless deemed appropriate by the Investment Manager and/or
Sub-Adviser.
The Fund generally will not enter into a forward contract with a term of
greater than one year, although it may enter into forward contracts for periods
of up to five years. To the extent that the Fund enters into forward foreign
currency contracts to hedge against a decline in the value of portfolio holdings
denominated in a particular foreign currency resulting from currency
fluctuations, there is a risk that the Fund may nevertheless realize a gain or
loss as a result of currency fluctuations after such portfolio holdings are sold
if the Fund is unable to enter into an "offsetting" forward foreign currency
contract with the same party or another party. The Fund may be limited in its
ability to enter into hedging transactions involving forward contracts by the
Internal Revenue Code requirements relating to qualifications as a regulated
investment company (see "Dividends, Distributions and Taxes").
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize those risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continually monitored by the Investment
Manager subject to procedures established by the Board of Trustees of the Fund.
In addition, the value of the collateral underlying the repurchase agreement
will be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss. The Fund may not invest in repurchase
agreements that do not mature within seven days if any such investment, together
with any other illiquid assets held by the Fund, amounts to more than 10% of its
total assets.
PRIVATE PLACEMENTS. The Fund may invest 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. 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 is limited by the Fund's investment
restrictions to 10% of the Fund's total 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. Investing in Rule
144A securities could have the effect of increasing the level of Fund
illiquidity to the extent the Fund, at a particular point in time, may be unable
to find qualified institutional buyers interested in purchasing such securities.
CONVERTIBLE SECURITIES. Among the fixed-income securities in which the Fund
may invest are
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"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 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.
Because of the special nature of the Fund's permitted investments in lower
rated convertible securities, the Investment Manager or Sub-Adviser must take
account of certain special considerations in assessing the risks associated with
such investments. The prices of lower rated securities have been found to be
less sensitive to changes in prevailing interest rates than higher rated
investments, but are likely to be more sensitive to adverse economic changes or
individual corporate developments. During an economic downturn or substantial
period of rising interest rates, highly leveraged issuers may experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. If the issuer of a lower rated
convertible security owned by the Fund defaults, the Fund may incur additional
expenses to seek recovery. In addition, periods of economic uncertainty and
change can be expected to result in an increased volatility of market prices of
lower rated securities and a corresponding volatility in the net asset value of
a share of the Fund.
RIGHTS AND WARRANTS. The Fund may acquire rights and/or warrants which are
attached to other securities in its portfolio, or which are issued as a
distribution by the issuer of a security held in its portfolio. Rights and/or
warrants are, in effect, options to purchase equity securities at a specific
price, generally valid for a specific period of time, and have no voting rights,
pay no dividends and have no rights with respect to the corporation issuing
them.
INVESTMENT IN OTHER INVESTMENT VEHICLES. Under the Investment Company Act of
1940, as amended, the Fund generally may invest up to 10% of its total assets in
shares of foreign investment companies. In addition, the Fund may invest in real
estate investment trusts, which pool investors' funds for investments primarily
in commercial real estate properties. Investment in foreign investment companies
may be the sole or most practical means by which the Fund may participate in
certain foreign securities markets, and 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 an investment company or real estate investment
trust, the Fund would bear its ratable share of that entity'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 other investment
companies and in real estate investment trusts.
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<PAGE>
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.
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.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on portfolio
securities which are denominated in either U.S. dollars or foreign currencies,
on stock indexes and on the U.S. dollar and foreign currencies, which are or may
in the future be listed on several U.S. and foreign securities exchanges or are
written in over-the-counter transactions ("OTC options"). OTC options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with the Fund.
The Fund is permitted to write covered put and call options on portfolio
securities, the currencies in which such securities are denominated and stock
indexes, without limit, in order to hedge against the decline in the value of a
security or currency in which such security is denominated (although such hedge
is limited to the value of the premium received), to close out long call option
positions and to generate income. The Fund may write covered put options, under
which the Fund incurs an obligation to buy the security (or currency) underlying
the option from the purchaser of the put at the option's exercise price at any
time during the option period, at the purchaser's election.
The Fund may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Fund may purchase call options to
close out a covered call position or to protect
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<PAGE>
against an increase in the price of a security it anticipates purchasing or, in
the case of call options on a foreign currency, to hedge against an adverse
exchange rate change of the currency in which the security it anticipates
purchasing is denominated vis-a-vis the currency in which the exercise price is
denominated. The Fund may purchase put options on securities which it holds in
its portfolio to protect itself against a decline in the value of the security
and to close out written put positions in a manner similar to call option
closing purchase transactions. There are no limits on the Fund's ability to
purchase call and put options other than compliance with the foregoing policies.
The Fund may purchase and sell futures contracts that are currently traded,
or may in the future be traded, on U.S. and foreign commodity exchanges and that
are based on any currency ("currency" futures), on U.S. and foreign fixed-income
securities ("interest rate" futures) and on such indexes of U.S. or foreign
equity or fixed-income securities as may exist or come into being ("index"
futures). The Fund may purchase or sell interest rate futures contracts for the
purpose of attempting hedging some or all of the value of its portfolio
securities (or anticipated portfolio securities) against anticipated changes in
prevailing interest rates. The Fund may purchase or sell index futures contracts
for the purpose of hedging some or all of its portfolio (or anticipated
portfolio) securities against changes in their prices. The Fund may purchase or
sell currency futures contracts to hedge against an anticipated rise or decline
in the value of the currency in which a portfolio security is denominated
vis-a-vis another currency. As a futures contract purchaser, the Fund incurs an
obligation to take delivery of a specified amount of the obligation underlying
the contract at a specified time in the future for a specified price. As a
seller of a futures contract, the Fund incurs an obligation to deliver the
specified amount of the underlying obligation at a specified time in return for
an agreed upon price.
The Fund also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options may generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer. Also,
exchanges may limit the amount by which the price of any futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Investment Manager or Sub-Adviser could be incorrect
in its expectations as to the direction or extent of various interest rate or
price movements or the time span within which the movements take place. For
example, if the Fund sold futures contracts for the sale of securities in
anticipation of an increase in interest rates, and then interest rates went down
instead, causing bond prices to rise, the Fund would lose money on the sale.
Another risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities is that the prices of securities,
currencies and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the U.S. dollar
cash prices of the Fund's portfolio securities and their denominated currencies.
See the Statement of Additional
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<PAGE>
Information for a further discussion of risks of options and futures
transactions.
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 the Investment Manager and the
Sub-Adviser with a view to achieving the Fund's investment objective. Mark
Bavoso, Senior Vice President of InterCapital, has been the primary portfolio
manager of the Fund with respect to investments in securities of United States
issuers since August, 1995 and has been a portfolio manager at InterCapital for
over five years. Patrick W.W. Disney, Managing Director of the Sub-Adviser, has
been the primary portfolio manager of the Fund with respect to non-United States
investments since August, 1995 and has been a manager of international
portfolios at the Sub-Adviser for over five years.
Personnel of the Investment Manager and Sub-Adviser have substantial
experience in the use of the investment techniques described above under the
heading "Options and Futures Transactions," which techniques require skills
different from those needed to select the portfolio securities underlying
various options and futures contracts.
Orders for transactions in portfolio securities and commodities may be
placed for the Fund with a number of brokers and dealers, including Dean Witter
Reynolds Inc. ("DWR") and other affiliated broker-dealers of the Investment
Manager, and certain affiliated broker-dealers of the Sub-Adviser. 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 the Investment
Manager or the Sub-Adviser.
Although the Fund does not intend to engage in short-term trading as a means
of achieving its investment objective, it may sell portfolio securities without
regard to the length of time they have been held when such sale will, in the
opinion of the Investment Manager or the Sub-Adviser, strengthen the Fund's
position and contribute to its investment objective.
Except as specifically noted, all investment policies and practices
discussed above are not fundamental policies of the Fund and, as such, may be
changed without shareholder approval.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act.
For purposes of the following restrictions: (i) all percentage limitations
apply immediately after a purchase or initial investment; and (ii) any
subsequent change in any applicable percentage resulting from market
fluctuations or other changes in total or net assets does not require
elimination of any security from the portfolio.
The Fund may not:
1. Invest more than 5% of the value of its total
assets in the voting securities of any one issuer or with respect to 75% of the
Fund's total assets invest more than 5% in the securities of any one issuer
(other than obligations of the United States Government, its agencies or
instrumentalities).
2. Purchase more than 10% of the outstanding
voting securities or any class of securities of any one issuer.
3. Invest more than 25% of the value of its total
assets in securities of issuers in any one industry other than for defensive
purposes.
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4. Invest more than 5% of the value of its total
assets in securities of issuers having a record, together with predecessors, of
less than three years of continuous operation. This restriction shall not apply
to any obligation issued or guaranteed by the United States Government, its
agencies or instrumentalities.
5. Purchase securities of other United States
investment companies, except in connection with a merger, consolidation,
reorganization or acquisition
of assets. However, the Fund may invest up to 10% of the value of its total
assets in the securities of foreign investment companies.
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 which have entered into selected dealer agreements with
the Distributor ("Selected Broker-Dealers"). The principal executive office of
the Distributor is located at Two World Trade Center, New York, New York, 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an initial sales charge are
subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a CDSC scaled down from 2.0% to
1.0% if redeemed within three years after purchase.) Class C shares are sold
without an initial sales charge but are subject to a CDSC of 1.0% on most
redemptions made within one year after purchase. Class D shares are sold without
an initial sales charge or CDSC and are available only to investors meeting an
initial investment minimum of $5 million, and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the Fund,
Class A shares may be sold to categories of investors in addition to those set
forth in this prospectus at net asset value without a front-end sales charge,
and Class D shares may be sold to certain other categories of investors, in each
case as may be described in the then current prospectus of the Fund. See
"Alternative Purchase Arrangements--Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million or more and to
certain other limited categories of investors. For the purpose of meeting the
minimum $5 million initial investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of the Fund, an investor's
existing holdings of Class A shares of the Fund and other Dean Witter Funds that
are multiple class funds ("Dean Witter Multi-Class Funds") and shares of Dean
Witter Funds sold with a front-end sales charge ("FSC Funds") and concurrent
investments in Class D shares of the Fund and other Dean Witter Multi-Class
Funds will be aggregated. Subsequent purchases of $100 or more may be made by
sending a check, payable to Dean Witter World Wide Investment Trust, directly to
Dean Witter Trust Company (the "Transfer Agent") at P.O. Box 1040, Jersey City,
NJ 07303 or by contacting an account executive of DWR or other Selected Broker-
Dealer. When purchasing shares of the Fund, investors must specify whether the
purchase is for
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<PAGE>
Class A, Class B, Class C or Class D shares. If no Class is specified, the
Transfer Agent will not process the transaction until the proper Class is
identified. The minimum initial purchase in the case of investments through
EasyInvest-SM-, an automatic purchase plan (see "Shareholder Services"), is
$100, provided that the schedule of automatic investments will result in
investments totalling at least $1,000 within the first twelve months. In the
case of investments pursuant to Systematic Payroll Deduction Plans (including
Individual Retirement Plans), the Fund, in its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required, if the Fund has reason to believe that additional investments will
increase the investment in each account under such Plans to at least $1,000.
Certificates for shares purchased will not be issued unless requested by the
shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal 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 through the Transfer Agent must
be accompanied by payment. Investors will be entitled to receive income
dividends and capital gain distributions if their order is received by the close
of business on the day prior to the record date for such dividends and
distributions. Sales personnel of a Selected Broker-Dealer are compensated for
selling shares of the Fund at the time of their sale by the Distributor or any
of its affiliates and/or the Selected Broker-Dealer. In addition, some sales
personnel of the Selected Broker-Dealer will receive various types of non-cash
compensation as special sales incentives, including trips, educational and/or
business seminars and merchandise. The Fund and the Distributor reserve the
right to reject any purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their needs.
The general public is offered three Classes of shares: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales charges
and rate of expenses to which they are subject. A fourth Class of shares, Class
D shares, is offered only to limited categories of investors (see "No Load
Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class A,
Class B and Class C shares bear the expenses of the ongoing shareholder service
fees, Class B and Class C shares bear the expenses of the ongoing distribution
fees and Class A, Class B and Class C shares which are redeemed subject to a
CDSC bear the expense of the additional incremental distribution costs resulting
from the CDSC applicable to shares of those Classes. The ongoing distribution
fees that are imposed on Class A, Class B and Class C shares will be imposed
directly against those Classes and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Redemptions and
Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by 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."
18
<PAGE>
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified employer-sponsored benefit plans are subject to a CDSC scaled down
from 2.0% to 1.0% if redeemed within three years after purchase.) This CDSC may
be waived for certain redemptions. Class B shares are also subject to an annual
12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate gross sales
of the Fund's Class B shares since the inception of the Fund (not including
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since the
Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B. The Class B shares' distribution fee will
cause that Class to have higher expenses and pay lower dividends than Class A or
Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative--Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares are
sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
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.
19
<PAGE>
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>
<C> <S> <C> <C>
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
A Maximum 5.25% 0.25% No
initial sales
charge reduced
for purchases
of $25,000 and
over; shares
sold without an
initial sales
charge
generally
subject to a
1.0% CDSC
during first
year.
B Maximum 5.0% 1.0% B shares
CDSC during the convert to A
first year shares
decreasing to 0 automatically
after six years after
approximately
ten years
C 1.0% CDSC 1.0% No
during first
year
D None None No
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF AMOUNT
TRANSACTION PRICE INVESTED
- ------------------------- ------------------- ---------------------
<S> <C> <C>
Less than $25,000........ 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
20
<PAGE>
during periods specified in such notice. During periods when 90% or more of the
sales charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of a single employer or
of employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act; and for investments in Individual Retirement
Accounts of employees of a single employer through Systematic Payroll Deduction
plans; or (g) any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months and has
some purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other Dean Witter Multi-Class Funds and shares of FSC Funds. The sales
charge payable on the purchase of the Class A shares of the Fund, the Class A
shares of the other Dean Witter Multi-Class Funds and the shares of the FSC
Funds will be at their respective rates applicable to the total amount of the
combined concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Dean Witter Funds previously
purchased at a price including a front-end sales charge (including shares of the
Fund and other Dean Witter Funds acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions), which are held at the time of such transaction, amounts to
$25,000 or more. If such investor has a cumulative net asset value of shares of
FSC Funds and Class A and Class D shares equal to at least $5 million, such
investor is eligible to purchase Class D shares subject to the $1,000 minimum
initial investment requirement of that Class of the Fund. See "No Load
Alternative-- Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
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.
21
<PAGE>
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1)trusts for which Dean Witter Trust Company
("DWTC") or Dean Witter Trust FSB ("DWTFSB") (each of which is an affiliate of
the Investment Manager) provides discretionary trustee services;
(2)persons participating in a fee-based program
approved by the Distributor, pursuant to which such persons pay an asset based
fee for services in the nature of investment advisory or administrative services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees and restrictions on transferability
of Fund shares);
(3)retirement plans qualified under
Section 401(k) of the Internal Revenue Code ("401(k) plans") and other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code with at least 200 eligible employees and for which DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper;
(4)401(k) plans and other employer-sponsored
plans qualified under Section 401(a) of the Internal Revenue Code for which DWTC
or DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper whose Class B shares have converted to Class A shares,
regardless of the plan's asset size or number of eligible employees;
(5)investors who are clients of a Dean Witter
account executive who joined Dean Witter from another investment firm within six
months prior to the date of purchase of Fund shares by such investors, if the
shares are being purchased with the proceeds from a redemption of shares of an
open-end proprietary mutual fund of the account executive's previous firm which
imposed either a front-end or deferred sales charge, provided such purchase was
made within sixty days after the redemption and the proceeds of the redemption
had been maintained in the interim in cash or a money market fund; and
(6)other categories of investors, at the
discretion of the Board, as disclosed in the then current prospectus of the
Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE-- CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain employer-sponsored benefit
plans, three years) preceding the 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
22
<PAGE>
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 CDSC AS A
PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- --------------------------------- -----------------------
<S> <C>
First............................ 5.0%
Second........................... 4.0%
Third............................ 3.0%
Fourth........................... 2.0%
Fifth............................ 2.0%
Sixth............................ 1.0%
Seventh and thereafter........... None
</TABLE>
In the case of Class B shares of the Fund held by 401 (k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code for which DWTC or DWTFSB serves as Trustee or the 401(k) Support Services
Group of DWR serves as recordkeeper and whose accounts are opened on or after
July 28, 1997, shares held for three years or more after purchase (calculated as
described in the paragraph above) will not be subject to any CDSC upon
redemption. However, shares redeemed earlier than three years after purchase may
be subject to a CDSC (calculated as described in the paragraph above), the
percentage of which will depend on how long the shares have been held, as set
forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- --------------------------------- -----------------------
<S> <C>
First............................ 2.0%
Second........................... 2.0%
Third............................ 1.0%
Fourth and thereafter............ None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain employer-sponsored benefit plans, three
years) preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption; and
(iii) the current net asset value of shares purchased through reinvestment of
dividends or distributions and/or shares acquired in exchange for shares of FSC
Funds or of other Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first. In addition, no CDSC will be imposed on redemptions of shares which are
attributable to reinvestment of dividends or distributions from, or the proceeds
of, certain Unit Investment Trusts.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1)redemptions of shares held at the time a
shareholder dies or becomes disabled, only if the shares are: (a) registered
either in the name of an individual shareholder (not a trust), or in the names
of such shareholder and his or her spouse as joint tenants with right of
survivorship; or (b) held in a qualified corporate or self-employed retirement
plan, Individual Retirement Account ("IRA") or Custodial Account under Section
403(b)(7) of the Internal Revenue Code ("403(b) Custodial Account"), provided in
either case that the redemption is requested within one year of the death or
initial determination of disability;
(2)redemptions in connection with the following
retirement plan distributions: (a) lump-sum or other distributions from a
qualified corporate or self-employed retirement plan following retirement (or,
in the case of a "key employee" of a "top heavy" plan, following attainment of
age 59 1/2); (b) distributions from an IRA or 403(b) Custodial
Account following attainment of age 59 1/2; or (c) a tax-free return of an
excess contribution to an IRA; and
(3)all redemptions of shares held for the
benefit of a participant in a 401(k) plan or other employer-sponsored plan
qualified under Section 401(a) of the Internal Revenue Code which offers
investment companies managed by the Investment Manager or its subsidiary, Dean
Witter Services Company Inc., as self-directed investment alternatives and for
which DWTC or DWTFSB serves as Trustee or the 401(k) Support Services Group of
DWR serves as recordkeeper ("Eligible Plan"), provided that either: (a) the
plan continues to be an Eligible Plan
23
<PAGE>
after the redemption; or (b) the redemption is in connection with the complete
termination of the plan involving the distribution of all plan assets to
participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
CONVERSION TO CLASS A SHARES. All shares of the Fund held prior to July 28,
1997 (other than shares held by certain employee benefit plans established by
DWR and its affiliate, SPS Transaction Services, Inc.) have been designated
Class B shares. Shares held before May 1, 1997 that have been designated Class B
shares will convert to Class A shares in May, 2007. In all other instances Class
B shares will convert automatically to Class A shares, based on the relative net
asset values of the shares of the two Classes on the conversion date, which will
be approximately ten (10) years after the date of the original purchase. The ten
year period is calculated from the last day of the month in which the shares
were purchased or, in the case of Class B shares acquired through an exchange or
a series of exchanges, from the last day of the month in which the original
Class B shares were purchased, provided that shares originally purchased before
May 1, 1997 will convert to Class A shares in May, 2007. The conversion of
shares purchased on or after May 1, 1997 will take place in the month following
the tenth anniversary of the purchase. There will also be converted at that time
such proportion of Class B shares acquired through automatic reinvestment of
dividends and distributions owned by the shareholder as the total number of his
or her Class B shares converting at the time bears to the total number of
outstanding Class B shares purchased and owned by the shareholder. In the case
of Class B shares held by a 401(k) plan or other employer-sponsored plan
qualified under Section 401(a) of the Internal Revenue Code and for which DWTC
or DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper, the plan is treated as a single investor and all Class B shares
will convert to Class A shares on the conversion date of the first shares of a
Dean Witter Multi-Class Fund purchased by that plan. In the case of Class B
shares previously exchanged for shares of an "Exchange Fund" (see "Shareholder
Services--Exchange Privilege"), the period of time the shares were held in the
Exchange Fund (calculated from the last day of the month in which the Exchange
Fund shares were acquired) is excluded from the holding period for conversion.
If those shares are subsequently re-exchanged for Class B shares of a Dean
Witter Multi-Class Fund, the holding period resumes on the last day of the month
in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B 12b-1 fees.
Class B shares purchased before July 28, 1997 by trusts for which DWTC or
DWTFSB provides discretionary trustee services will convert to Class A
24
<PAGE>
shares on or about August 29, 1997. The CDSC will not be applicable to such
shares.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of that
section shall mean one year in the case of Class C shares. Class C shares are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class. Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject to 12b-1
fees applicable to Class C shares for an indefinite period subject to annual
approval by the Fund's Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million and the following
categories of investors: (i) investors participating in the InterCapital mutual
fund asset allocation program pursuant to which such persons pay an asset based
fee; (ii) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory or administrative services (subject to all
of the terms and conditions of such programs, which may include termination fees
and restrictions on transferability of Fund shares); (iii) 401(k) plans
established by DWR and SPS Transaction Services, Inc. (an affiliate of DWR) for
their employees; (iv) certain Unit Investment Trusts sponsored by DWR; (v)
certain other open-end investment companies whose shares are distributed by the
Distributor; and (vi) other categories of investors, at the discretion of the
Board, as disclosed in the then current prospectus of the Fund. Shares of the
Fund held by the employee benefit plans referred to in clause (iii) above prior
to July 28, 1997 have been designated Class D shares. 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
25
<PAGE>
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 March 31, 1997, the Fund accrued payments under
the Plan amounting to $4,941,515, which amount is equal to 1.00% of the Fund's
average daily net assets for the fiscal year. The payments accrued under the
Plan were calculated pursuant to clause (b) of the compensation formula under
the Plan. All shares held prior to July 28, 1997 (other than shares held by
certain employee benefit plans established by DWR and its affiliate, SPS
Transaction Services, Inc.) have been designated Class B shares.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i) the
payments made by the Fund pursuant to the Plan, and (ii) the proceeds of CDSCs
paid by investors upon the redemption of Class B shares. For example, if $1
million in expenses in distributing Class B shares of the Fund had been incurred
and $750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that such
excess amounts, including the carrying charge described above, totalled
$20,399,997 at March 31, 1997, which was equal to 4.87% of the net assets of the
Fund on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses or any requirement that
the Plan be continued from year to year, such excess amount does not constitute
a liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to the Distributor under the
Plan, and the proceeds of CDSCs paid by investors upon redemption of shares, if
for any reason the Plan is terminated the Trustees will consider at that time
the manner in which to treat such expenses. Any cumulative expenses incurred,
but not yet recovered through distribution fees or CDSCs, may or may not be
recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
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
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<PAGE>
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 the result 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 calculated on Good Friday
and on such other federal and non-federal holidays observed by the New York
Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity security
listed or traded on the New York or American Stock Exchange or other domestic or
foreign stock exchange is valued at its latest sale price on that exchange prior
to the time when assets are valued; if there were no sales that day, the
security is valued at the latest bid price (in cases where securities are traded
on more than one exchange, the securities are valued on the exchange designated
as the primary market pursuant to procedures adopted by the Trustees); and (2)
all other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest available bid price prior to the time
of valuation. When market quotations are not readily available, including
circumstances under which it is determined by the Investment Manager or the
Sub-Adviser that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Trustees. For valuation purposes, quotations of foreign portfolio
securities, other assets and liabilities and forward contracts stated in foreign
currency are translated into U.S. dollar equivalents at the prevailing market
rates prior to the close of the New York Stock Exchange. Dividends receivable
are accrued as of the ex-dividend date or as of the time that the relevant
ex-dividend date and amounts become known, if after the ex-dividend date.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange and will therefore not be reflected in
the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees.
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 and 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.
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<PAGE>
SHAREHOLDER SERVICES
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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 OR DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value next determined after receipt by the
Transfer Agent, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. Shares so acquired are acquired at
net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable CDSC
will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase of
Fund Shares"). Therefore, any shareholder participating in the Withdrawal Plan
will have sufficient shares redeemed from his or her account so that the
proceeds (net of any applicable CDSC) to the shareholder will be the designated
monthly or quarterly amount. Withdrawal plan payments should not be considered
as dividends, yields or income. If periodic withdrawal plan payments
continuously exceed net investment income and net capital gains, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Each withdrawal constitutes a redemption of shares and any gain or
loss realized must be recognized for federal income tax
purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other Selected Broker-
Dealer 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
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<PAGE>
with a front-end sales charge ("FSC Funds"). Class B shares may also be
exchanged for shares of Dean Witter Global Short-Term Income Fund Inc., Dean
Witter High Income Securities and Dean Witter National Municipal Trust, which
are Dean Witter Funds offered with a CDSC ("CDSC Funds"). Exchanges may be made
after the shares of the fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend
reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, any CDSC
Fund or any Exchange Fund that is not a money market fund is on the basis of the
next calculated net asset value per share of each fund after the exchange order
is received. When exchanging into a money market fund from the Fund, shares of
the Fund are redeemed out of the Fund at their next calculated net asset value
and the proceeds of the redemption are used to purchase shares of the money
market fund at their net asset value determined the following business day.
Subsequent exchanges between any of the money market funds and any of the Dean
Witter Multi-Class Funds, FSC Funds or CDSC Funds or any Exchange Fund that is
not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a Dean Witter Multi-Class
Fund or shares of a CDSC Fund, the holding period previously frozen when the
first exchange was made resumes on the last day of the month in which shares of
a Dean Witter Multi-Class Fund or shares of a CDSC Fund are reacquired. Thus,
the CDSC is based upon the time (calculated as described above) the shareholder
was invested in shares of a Dean Witter Multi-Class Fund or in shares of a CDSC
Fund (see "Purchase of Fund Shares"). In the case of exchanges of Class A shares
which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in shares of a FSC
Fund. However, in the case of shares exchanged into an Exchange Fund on or after
April 23, 1990, upon a redemption of shares which results in a CDSC being
imposed, a credit (not to exceed the amount of the CDSC) will be given in an
amount equal to the Exchange Fund 12b-1 distribution fees incurred on or after
that date which are attributable to those shares. (Exchange Fund 12b-1
distribution fees, if any, are described in the prospectuses for those funds).
Class B shares of the Fund acquired in exchange for Class B shares of another
Dean Witter Multi-Class Fund or shares of a CDSC Fund having a different CDSC
schedule than that of this Fund will be subject to the higher CDSC schedule,
even if such shares are subsequently re-exchanged for shares of the fund with
the lower CDSC schedule.
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by InterCapital to be abusive and contrary to the best interests of the
Fund's other shareholders and, at InterCapital'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,
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<PAGE>
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 share 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 many
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
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean Witter
Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their account executive or the Transfer Agent.
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 to the Fund's Transfer Agent at P.O. Box 983,
Jersey City, NJ 07303 for redemption is required. If certificates are held by
the shareholder,
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<PAGE>
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 repurchase
order is received by DWR or other Selected Broker-Dealer, reduced by any
applicable CDSC.
The CDSC, if any, will be the only fee imposed by any of the Fund, the
Distributor or DWR. The offer by DWR and other Selected Broker-Dealers to
repurchase shares may be suspended 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 executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at the net asset value next determined after a reinstatement
request, together with the proceeds, is received by the Transfer Agent and
receive a pro rata credit for any CDSC paid in connection with such redemption
or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right, 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 shareholders have a value of less than $100 or such lesser amount as may
be fixed by the Fund's Trustees or, in the case of an account opened through
EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account. However, before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares is less than the applicable amount and allow the shareholder sixty
days to make an additional investment in an amount which will increase the value
of the 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 all of its net investment income
and net capital gains, if any, at least once per year. The Fund may, however,
determine either to distribute or to retain all or part of any net long-term
capital gains in any year for reinvestment.
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<PAGE>
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends be paid in cash. Shares acquired by dividend and
distribution reinvestments will not be subject to any front-end sales charge or
CDSC. Class B shares acquired through dividend and distribution reinvestments
will become eligible for conversion to Class A shares on a pro rata basis.
Distributions paid on Class A and Class D shares will be higher than for Class B
and Class C shares because distribution fees paid by Class B and Class C shares
are higher. (See "Shareholder Services--Automatic Investment of Dividends and
Distributions".)
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise continue
to qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
federal income tax on any such income and capital gains, other than any tax
resulting from investing in passive foreign investment companies, as discussed
below.
Gains or losses on the Fund's transactions in certain listed options on
securities and on futures and options on futures traded on U.S. exchanges
generally are treated as 60% long-term gain or loss and 40% short-term gain or
loss. When the Fund engages in options and futures transactions, various tax
regulations applicable to the Fund may have the effect of causing the Fund to
recognize a gain or loss for tax purposes before that gain or loss is realized,
or to defer recognition of a realized loss for tax purposes. Recognition, for
tax purposes, of an unrealized loss may result in a lesser amount of the Fund's
realized net gains being available for distribution.
As a regulated investment company, the Fund is subject to the requirement
that less than 30% of its gross income be derived from the sale of certain
investments held for less than three months. This requirement may limit the
Fund's ability to engage in options and futures transactions.
Shareholders will normally have to pay federal income taxes, and any state
and local income taxes, on the dividends and distributions they receive from the
Fund. Such dividends and distributions, to the extent they are derived from net
investment income or short-term capital gains, are taxable to the shareholder as
ordinary income regardless of whether the shareholder receives such
distributions in additional shares or in cash. Any dividends declared in the
last quarter of any calendar year which are paid in the following year prior to
February 1 will be deemed, for tax purposes, to have been received by the
shareholder in the prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the corporate dividends received deduction.
The Fund may purchase the securities of certain foreign investment funds or
trusts called passive foreign investment companies. Capital gains on the sale of
such holdings may be deemed to be ordinary income regardless of how long the
Fund holds its investment. In addition, the Fund may be subject to income tax
and an interest charge on certain dividends and capital gains earned from these
investments, regardless of whether such income and gains were distributed to
shareholders.
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 be sent 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 their accuracy.
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<PAGE>
Dividends, interest and gains received by the Fund from foreign sources may
give rise to withholding and other taxes imposed by foreign countries. If it
qualifies for and makes the appropriate election with the Internal Revenue
Service, the Fund will report annually to its shareholders the amount per share
of such taxes to enable shareholders to claim United States foreign tax credits
or deductions with respect to such taxes. In the absence of such an election,
the Fund would deduct such foreign taxes in computing the amount of its
distributable income. The Fund does not intend to make such election for its
fiscal year ended March 31, 1997.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A, Class
B, Class C and Class D shares. The total return of the Fund is based on
historical earnings and is not intended to indicate future performance. The
"average annual total return" of the Fund refers to a figure reflecting the
average annualized percentage increase (or decrease) in the value of an initial
investment in a Class of the Fund of $1,000 over periods of one, five and ten
years. Average annual total return reflects all income earned by the Fund, any
appreciation or depreciation of the Fund's assets, all expenses incurred by the
applicable Class and all sales charges which would 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 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 Fund's property for any share-
33
<PAGE>
holder held personally liable for the obligations of the Fund. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is engaged at the same time in a purchase or sale of the same
security. The Code of Ethics bans the purchase of securities in an initial
public offering, and also prohibits engaging in futures and options transactions
and profiting on short-term trading (that is, a purchase within sixty days of a
sale or a sale within sixty days of a purchase) of a security. In addition,
investment personnel may not purchase or sell a security for their personal
account within thirty days before or after any transaction in any Dean Witter
Fund managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute Advisory
Group on Personal Investing.
The Sub-Adviser also has a Code of Ethics which complies with regulatory
requirements and, insofar as it relates to persons associated with the Fund, the
1994 report by the Investments 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.
34
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THE DEAN WITTER FAMILY OF FUNDS
<TABLE>
<S> <C>
MONEY MARKET FUNDS FIXED-INCOME FUNDS
Dean Witter Liquid Asset Fund Inc. Dean Witter High Yield Securities Inc.
Dean Witter Tax-Free Daily Income Trust Dean Witter Tax-Exempt Securities Trust
Dean Witter New York Municipal Money Market Trust Dean Witter U.S. Government Securities Trust
Dean Witter California Tax-Free Daily Income Trust Dean Witter California Tax-Free Income Fund
Dean Witter U.S. Government Money Market Trust Dean Witter New York Tax-Free Income Fund
EQUITY FUNDS Dean Witter Convertible Securities Trust
Dean Witter American Value Fund Dean Witter Federal Securities Trust
Dean Witter Natural Resource Development Dean Witter World Wide Income Trust
Securities Inc. Dean Witter Intermediate Income Securities
Dean Witter Dividend Growth Securities Inc. Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Developing Growth Securities Trust Dean Witter Multi-State Municipal Series Trust
Dean Witter World Wide Investment Trust Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Value-Added Market Series Dean Witter Diversified Income Trust
Dean Witter Utilities Fund Dean Witter Limited Term Municipal Trust
Dean Witter Precious Metals and Minerals Trust Dean Witter Short-Term Bond Fund
Dean Witter Capital Growth Securities Dean Witter High Income Securities
Dean Witter European Growth Fund Inc. Dean Witter National Municipal Trust
Dean Witter Pacific Growth Fund Inc. Dean Witter Balanced Income Fund
Dean Witter Health Sciences Trust Dean Witter Hawaii Municipal Trust
Dean Witter Global Dividend Growth Securities Dean Witter Intermediate Term U.S. Treasury
Dean Witter Global Utilities Fund Trust
Dean Witter International SmallCap Fund DEAN WITTER RETIREMENT SERIES
Dean Witter Mid-Cap Growth Fund Liquid Asset Series
Dean Witter Balanced Growth Fund U.S. Government Money Market Series
Dean Witter Capital Appreciation Fund U.S. Government Securities Series
Dean Witter Information Fund Intermediate Income Securities Series
Dean Witter Special Value Fund American Value Series
Dean Witter Financial Services Trust Capital Growth Series
Dean Witter Market Leader Trust Dividend Growth Series
ASSET ALLOCATION FUNDS Strategist Series
Dean Witter Strategist Fund Utilities Series
Dean Witter Global Asset Allocation Fund Value-Added Market Series
ACTIVE ASSETS ACCOUNT PROGRAM Global Equity Series
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets Government Securities Trust
Active Assets California Tax-Free Trust
</TABLE>
<PAGE>
Dean Witter
World Wide Investment Trust
Dean Witter
Two World Trade Center
New York, New York 10048
TRUSTEES World Wide
Michael Bozic Investment
Charles A. Fiumefreddo Trust
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Barry Fink
Vice President, Secretary and
General Counsel
Mark Bavoso
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank
One Chase Plaza
New York, New York 10081
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
SUB-ADVISER
Morgan Grenfell Investment Services
Limited
PROSPECTUS -- JULY 28, 1997
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
STATEMENT OF ADDITIONAL
INFORMATION
DEAN WITTER
WORLD WIDE
INVESTMENT TRUST
JULY 28, 1997
- --------------------------------------------------------------------------------
Dean Witter World Wide Investment Trust (the "Fund") is an open-end
diversified management investment company whose investment objective is total
return on its assets primarily through long-term capital growth and to a lesser
extent from income. The Fund will seek to achieve such objective through
investments in all types of common stocks and equivalents, preferred stocks and
bonds and other debt obligations of domestic and foreign companies and
governments and international organizations. (See "Investment Practices and
Policies".)
A Prospectus for the Fund dated July 28, 1997, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the 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
World Wide Investment Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
The Fund and its Management............................................................ 3
Trustees and Officers.................................................................. 9
Investment Practices and Policies...................................................... 15
Investment Restrictions................................................................ 31
Portfolio Transactions and Brokerage................................................... 32
The Distributor........................................................................ 34
Determination of Net Asset Value....................................................... 39
Purchase of Fund Shares................................................................ 39
Shareholder Services................................................................... 42
Redemptions and Repurchases............................................................ 46
Dividends, Distributions and Taxes..................................................... 47
Performance Information................................................................ 49
Custodian and Transfer Agent........................................................... 50
Independent Accountants................................................................ 50
Description of Shares of the Fund...................................................... 51
Reports to Shareholders................................................................ 51
Legal Counsel.......................................................................... 51
Experts................................................................................ 51
Registration Statement................................................................. 51
Financial Statements--March 31, 1997................................................... 52
Report of Independent Accountants...................................................... 74
</TABLE>
2
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THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts business
trust" and was organized under the laws of the Commonwealth of Massachusetts on
July 7, 1983.
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 is conducted by or under the
direction of officers of the Fund and of the Investment Manager and Sub-Adviser,
subject to periodic 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 management investment companies: Active Assets Money Trust, Active
Assets Tax-Free Trust, Active Assets California Tax-Free Trust, Active Assets
Government Securities Trust, InterCapital Income Securities Inc., InterCapital
Insured Municipal Bond Trust, InterCapital Insured Municipal Trust, InterCapital
Insured Municipal Income Trust, InterCapital Insured Municipal Securities,
InterCapital California Insured Municipal Income Trust, InterCapital Insured
California Municipal Securities, 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, High Income Advantage Trust,
High Income Advantage Trust II, High Income Advantage Trust III, Dean Witter
Government Income Trust, Dean Witter High Yield Securities Inc., Dean Witter
Tax-Free Daily Income Trust, Dean Witter Tax-Exempt Securities Trust, Dean
Witter Dividend Growth Securities Inc., Dean Witter Natural Resource Development
Securities Inc., Dean Witter American Value Fund, Dean Witter Developing Growth
Securities Trust, 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 World Wide Income Trust, Dean Witter California Tax-Free
Income Fund, Dean Witter New York Tax-Free Income Fund, Dean Witter Convertible
Securities Trust, Dean Witter Federal Securities Trust, Dean Witter Value-Added
Market Series, Dean Witter Utilities Fund, Dean Witter California Tax-Free Daily
Income Trust, Dean Witter Strategist Fund, Dean Witter Intermediate Income
Securites, Dean Witter Capital Growth Securities, Dean Witter Precious Metals
and Minerals Trust, Dean Witter New York Municipal Money Market Trust, Dean
Witter European Growth Fund Inc., Dean Witter Global Short-Term Income Fund
Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter Multi-State Municipal
Series Trust, Dean Witter Short-Term U.S. Treasury Trust, Dean Witter
Diversified Income Trust, Dean Witter Health Sciences Trust, Dean Witter
Retirement Series, Dean Witter Global Dividend Growth Securities, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter
Global Utilities Fund, Dean Witter High Income Securities, Dean Witter National
Municipal Trust, Dean Witter International SmallCap Fund, Dean Witter Mid-Cap
Growth Fund, Dean Witter Select Dimensions Investment Series, Dean Witter Global
Asset Allocation Fund, Dean Witter Balanced Growth Fund, Dean Witter Balanced
Income Fund, Dean Witter Hawaii Municipal Trust, Dean Witter Capital
Appreciation Fund, Dean Witter Information Fund, Dean Witter Intermediate Term
U.S. Treasury Trust, Dean Witter Japan Fund, Dean Witter Income Builder Fund,
Dean Witter Special Value Fund, Dean Witter Financial Services Trust, Dean
Witter Market Leader Trust, Municipal Income Trust, Municipal Income Trust II,
Municipal Income Trust III, Municipal Income
3
<PAGE>
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 investment
companies for which TCW Funds Management, Inc. is the investment adviser: TCW/DW
Core Equity Trust, TCW/DW North American Government Income Trust, TCW/DW Latin
American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth
Fund, TCW/DW Balanced Fund, TCW/DW Total Return Trust, TCW/DW Mid-Cap Equity
Trust, TCW/DW Global Telecom Trust, TCW/DW Strategic Income Trust, TCW/DW
Emerging Markets 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 "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
manage the investment of the Fund's United States investments, including the
placing of orders for the purchase and sale of portfolio securities, and to
supervise the investment of all of the Fund's assets. The Investment Manager, in
conjunction with Morgan Grenfell Investment Services Ltd. (the "Sub-Adviser"),
obtains and evaluates such information and advice relating to the economy,
securities markets, and specific securities as it considers necessary or useful
to continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Management Agreement, in addition to managing the
Fund's investments, the Investment Manager maintains certain of the Fund's books
and records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and certain legal services as the Fund
may reasonably require in the conduct of its business, including the preparation
of prospectuses, statements of additional information, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone service, heat,
light, power and other utilities provided to the Fund.
Pursuant to a Services Agreement between InterCapital and DWSC, InterCapital
has retained DWSC to provide administrative services to the Fund.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, by the Sub-Adviser pursuant to the Sub-Advisory Agreement
(see below), or by the Distributor of the Fund's shares, Dean Witter
Distributors Inc. ("Distributors" or the "Distributor") (see "The Distributor"),
will be paid by the Fund. These expenses will be allocated among the four
classes of shares of the Fund (each, a "Class") pro rata based on the net assets
of the Fund attributable to each Class, except as described below. The expenses
borne by the Fund include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1 (the "12b-1 fee") (see "The Distributor"),
charges and expenses of any registrar, custodian, stock transfer and dividend
disbursing agent; brokerage commissions; taxes; engraving and printing of share
certificates; registration costs of the Fund and its shares under federal and
state securities laws; the cost and expense of printing, including typesetting,
and distributing prospectuses and statements of additional information of the
Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
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 the Sub-Adviser or any corporate affiliate of the
Investment Manager or the Sub-Adviser; all expenses incident to any dividend,
withdrawal or redemption options; charges and expenses of any outside
4
<PAGE>
service used for pricing of the Fund's shares; fees and expenses of the Fund's
legal counsel, including counsel to the Trustees who are not interested persons
of the Fund or of the Investment Manager or the Sub-Adviser (not including
compensation or expenses of attorneys who are employees of the Investment
Manager or the Sub-Adviser) 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.
The Management 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 Management Agreement in no
way restricts the Investment Manager from acting as investment manager or
adviser to others.
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: 1.00% of the portion of
daily net assets not exceeding $500 million and 0.95% of the portion of daily
net assets exceeding $500 million.
Pursuant to a Sub-Advisory Agreement between the Investment Manager and
Sub-Adviser, the Sub-Adviser has been retained, subject to the overall
supervision of the Investment Manager and the Trustees of the Fund, to
continuously furnish investment advice concerning individual security
selections, asset allocations and overall economic trends with respect to
issuers located outside the United States, and to manage the portion of the
Fund's portfolio invested in securities issued by issuers located outside the
United States.
Morgan Grenfell Investment Services Limited ("MGIS") was organized as a
British corporation in 1972 and currently manages assets in excess of $15
billion primarily for U.S. corporate and public employee benefit plans,
investment companies, endowments and foundations. MGIS' principal office is
located at 20 Finsbury Circus, London, England. MGIS is a subsidiary of London
based Morgan Grenfell Asset Management Limited which is itself a subsidiary of
London-based Morgan Grenfell Group plc (which is owned by Deutsche Bank AG, an
international commercial and investment banking group) and is registered as an
investment adviser under the Investment Advisers Act of 1940. In 1838 Morgan
Grenfell was founded to provide merchant banking services, primarily trade
financing between Great Britain and the United States. In 1958, its investment
management arm began operations. In recent years Morgan Grenfell Group plc has
achieved a prominent position in the securities industry by providing investment
and commercial banking services, financial services, and discretionary
management and advisory services covering all of the world's leading securities
markets. Morgan Grenfell Asset Management Limited, through its various
investment management subsidiaries, which have extensive experience in global
investment management, is currently managing in excess of $118 billion
worldwide.
Both the Investment Manager and the Sub-Adviser have authorized any of their
directors, officers and employees who have been elected as Trustees or officers
of the Fund to serve in the capacities in which they have been elected. Services
furnished by the Investment Manager and the Sub-Adviser may be furnished by
directors, officers and employees of the Investment Manager and the Sub-Adviser.
In connection with the services rendered by the Sub-Adviser, the Sub-Adviser
bears the following expenses: (a) the salaries and expenses of its personnel;
and (b) all expenses incurred by it in connection with performing the services
provided by it as Sub-Adviser, as described above.
5
<PAGE>
As full compensation for the services and facilities furnished to the Fund
and the Investment Manager and expenses of the Fund and the Investment Manager
assumed by the Sub-Adviser, the Investment Manager pays the Sub-Adviser monthly
compensation equal to 40% of the Investment Manager's monthly compensation
payable under the Management Agreement.
The Management Agreement and the Sub-Advisory Agreement (the "Agreements")
were 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 Agreements are substantially identical to prior management and
sub-advisory agreements which were initially approved by the Trustees on July
26, 1995 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on October 31, 1995. These Agreements took effect on May 31,
1997 upon the consummation of the merger of Dean Witter, Discover & Co. with
Morgan Stanley Group Inc. Both Agreements may be terminated at any time, without
penalty, on thirty days' notice by the Trustees of the Fund, by the holders of a
majority, as defined in the Investment Company Act of 1940, as amended (the
"Act"), of the outstanding shares of the Fund, or by the Investment Manager or
(in the case of the Sub-Advisory Agreement) by the Sub-Adviser. The Agreements
will automatically terminate in the event of their assignment (as defined in the
Act).
Under their terms, both Agreements have an initial term ending April 30,
1999 and will continue from year to year thereafter, provided continuance of
each Agreement is approved at least annually by the vote of the holders of a
majority, as defined in the Act, of the outstanding shares of the Fund, or by
the Trustees of the Fund; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees of the Fund who are
not parties to the Agreements or "interested persons" (as defined in the Act) of
any such party (the "Independent Trustees"), which votes must be cast in person
at a meeting called for the purpose of voting on such approval.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use or, at any time,
permit others to use the name "Dean Witter". The Fund has also agreed that in
the event the Investment Management Agreement between InterCapital and the Fund
is terminated, or if the affiliation between InterCapital and its parent company
is terminated, the Fund will eliminate the name "Dean Witter" from its name if
DWR or its parent company shall so request.
FORMER INVESTMENT MANAGEMENT AND INVESTMENT ADVISORY AGREEMENTS. Prior to
August, 1995, the Fund was advised by three separate investment advisers:
InterCapital, Daiwa International Capital Management Corp. ("DICAM") and NatWest
Investment Management Limited ("NWIM"). InterCapital, DICAM and NWIM are
sometimes collectively referred to herein as the "Former Investment Advisers."
Each of the Former Investment Advisers had exclusive investment responsibility
with respect to the Fund's investments in a particular area of the world.
InterCapital was responsible for investing in North America and South America,
pursuant to an Investment Management Agreement with the Fund, DICAM was
responsible for investing in the Pacific Basin pursuant to an Investment
Advisory Agreement with the Fund, and NWIM was responsible for investing in
Europe and all other areas of the world not covered by InterCapital or DICAM,
pursuant to an Investment Advisory Agreement with the Fund. These agreements are
sometimes collectively referred to as the "Former Agreements" and sometimes
individually referred to as the "Former Investment Management Agreement" or the
"Former Investment Advisory Agreement(s)," as applicable. DICAM was assisted in
providing services to the Fund by its parent, Daiwa International Capital
Management Co., Ltd. ("DICAM, Ltd."), at cost, pursuant to a sub-advisory
agreement between DICAM and DICAM, Ltd. (sometimes referred to as the "Former
Sub-Advisory Agreement").
Under the terms of the Former Investment Management Agreement with
InterCapital and the Former Investment Advisory Agreements with DICAM and NWIM,
each of InterCapital, DICAM and NWIM, subject to the supervision of the Fund's
Trustees and in conformity with the stated policies of the
6
<PAGE>
Fund, provided advisory services with regard to the investment operations and
composition of the Fund's portfolio in the respective geographic regions as
noted above, including the purchase, retention, disposition and loan of
securities.
Each of the Former Investment Advisers had authorized any of its directors,
officers and employees who had been elected as Trustees or officers of the Fund
to serve in the capacities in which they had been elected. Services furnished by
the Former Investment Advisers could have been furnished by directors, officers
and employees of the respective Former Investment Adviser. In connection with
the services rendered by each Former Investment Adviser, such Former Investment
Adviser bore the following expenses: (a) the salaries and expenses of all
personnel of such Former Investment Adviser; and (b) all expenses incurred by
such Former Investment Adviser in connection with performing the services
provided by it as described above.
Under the terms of the Former Investment Management Agreement, in addition
to managing the Fund's North and South American investments, InterCapital
maintained the Fund's books and records and InterCapital furnished, at its
expense, such office space, facilities, equipment, clerical help, bookkeeping
and legal services as the Fund may reasonably have required in the conduct of
its business, including the preparation of prospectuses and statements of
additional information, proxy statements and reports required to be filed with
federal and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys was, in the opinion of
InterCapital, necessary or desirable). InterCapital also bore 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 such 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 Former Investment Management Agreement.
Expenses not expressly assumed by the Former Investment Advisers under the
Former Agreements or by the Distributor (see "The Distributor"), were paid by
the Fund. The expenses borne by the Fund included, but were not limited to: fees
pursuant to the Plan of Distribution (see "The Distributor"); charges and
expenses of any registrar, custodian, subcustodian, share transfer and dividend
disbursing agent; brokerage commissions; taxes; engraving and printing of share
certificates; registration costs of the Fund and its shares under federal and
state securities laws; the cost and expense of printing, including typesetting,
and distributing prospectuses and statements of additional information of the
Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who were not employees of
the Former Investment Advisers or any corporate affiliate of the Prior
Investment Advisers; all expenses incident to any dividend, withdrawal or
redemption options; charges and expenses of any outside service used for pricing
of the Fund's shares; fees and expenses of legal counsel, including counsel to
the Trustees who were not interested persons of the Fund or of the Former
Investment Advisers (not including compensation or expenses of attorneys who are
employees of the Former Investment Advisers) 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 inured to its benefit; extraordinary expenses (including, but not
limited to, legal claims and liabilities and litigation costs and any
indemnification relating thereto); and all other costs of the Fund's operation.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Former Investment Advisers, the Fund
paid the Former Investment Advisers aggregate monthly compensation calculated
daily by applying the annual rate of 1.0% to the net assets of the Fund
7
<PAGE>
up to $500 million and 0.95% to the net assets of the Fund over $500 million,
determined as of the close of each business day. Pursuant to their respective
Former Agreements with the Fund, InterCapital, DICAM and NWIM received fees at
the annual rates of 0.55%, 0.225% and 0.225%, respectively, of average daily net
assets up to $500 million and 0.5225%, 0.21375% and 0.21375%, respectively, of
the Fund's average daily net assets over $500 million. This total fee was
greater than that paid by most other investment companies.
The respective Former Agreements provided that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, no Prior Investment Adviser or Sub-adviser was liable to
the Fund or any of its investors for any act or omission by such Prior
Investment Adviser or Sub-adviser or for any losses sustained by the Fund or its
investors.
The Former Investment Management Agreement with InterCapital was initially
approved by the Board of Trustees of the Fund on October 30, 1992 and by the
shareholders of the Fund at a Meeting of Shareholders held on January 12, 1993.
The Former Investment Management Agreement was substantially identical to a
prior investment management agreement which was entered into on August 26, 1983
and originally approved by DWR, the then sole shareholder of the Fund, and by
the Fund's Trustees, including the affirmative vote of a majority of the
Independent Trustees, which vote was cast in person at a meeting called for the
purpose of voting on the approval of such Agreement. The Former Investment
Management Agreement took effect on June 30, 1993 upon the spin-off by Sears,
Roebuck and Co. of its remaining shares of DWDC. The Former Agreement provided
that it could have been terminated at any time, without penalty, on thirty days'
notice by the Trustees of the Fund, by the holders of a majority, as defined in
the Act, of the Fund's shares, or by the Investment Manager. The Former
Investment Management Agreement provided that it would automatically terminate
in the event of its assignment (as defined in the Act and the rules thereunder).
By its terms, the Former Investment Management Agreement had an initial term
ended April 30, 1994 and provided that it would continue from year to year
thereafter, provided continuance of the Agreement was 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 was approved annually by the vote
of a majority of the Independent Trustees, cast in person at a meeting called
for the purpose of voting on such approval. At their meeting held on April 8,
1994, the Fund's Board of Trustees, including all of the Independent Trustees,
approved continuation of the Former Investment Management Agreement until April
30, 1995 and amended its terms to lower management fees charged on average daily
net assets of the Fund in excess of $500 million to 0.5225%. At their meeting
held on April 20, 1995, the Fund's Board of Trustees, including all of the
Independent Trustees, approved continuation of the Former Investment Management
Agreement until April 30, 1996.
The Former Investment Advisory Agreements and the Former Sub-Advisory
Agreement were entered into on August 26, 1983 and were originally approved by
DWR, the then sole shareholder of the Fund, and by the Fund's Trustees,
including the affirmative vote of a majority of the Independent Trustees. By
their terms, these agreements had initial terms ended July 31, 1984 and were
subject to the same renewal and termination provisions as the Former Investment
Management Agreement. At their meeting held on April 8, 1994, the Fund's Board
of Trustees, including all of the Independent Trustees, approved continuation of
the Former Investment Advisory Agreements until April 30, 1995 and amended the
terms of the Former Investment Advisory Agreements to lower advisory fees
charged on average daily net assets of the Fund in excess of $500 million to
0.21375%. At their meeting held on April 20, 1995, the Fund's Board of Trustees,
including all of the Independent Trustees, approved continuation of the Former
Investment Advisory Agreements until April 30, 1996.
At their meeting held on July 26, 1995, the Trustees of the Fund, including
all of the Independent Trustees, approved the present management structure of
the Fund, as described above under "The Investment Manager," and also approved
an Investment Management Agreement with InterCapital and a Sub-Advisory
Agreement with InterCapital and MGIS (the "Interim Agreements"), which took
effect on
8
<PAGE>
August 1, 1995 and terminated on October 31, 1995 upon the effectiveness of the
prior Investment Management and Sub-Advisory Agreements. Other than the
provisions pursuant to which the Interim Agreements took effect and were
terminated, the Interim Agreements were substantially identical to the present
Investment Management and Sub-Advisory Agreements except that under the Interim
Agreements: (i) InterCapital received an investment management fee at the annual
rate of 0.55% on assets up to $500 million and 0.5225% on assets over $500
million, and (ii) MGIS received a sub-advisory fee directly from the Fund at the
annual rate of 0.45% on assets up to $500 million and 0.4275% on assets over
$500 million.
Mellon Bank, N.A., Mutual Funds, P.O. Box 320, Pittsburgh, Pennsylvania
15230-0320, as trustee of the Dean Witter START Plan and the SPS Transaction
Services, Inc. START Plan, employee benefit plans established by DWR and SPS
Transaction Services, Inc. (an affiliate of DWR) for their employees as
qualified under Section 401(k) of the Internal Revenue Code, owned approximately
9.2% of the outstanding shares of the Fund on June 30, 1997.
------------------------
For the fiscal years ended March 31, 1995, 1996 and 1997, the Fund paid to
the Former Investment Advisers (which served the Fund in such capacities until
July 31, 1995) and to the Investment Manager (which has served the Fund in such
capacity since August 1, 1995) compensation totalling $5,588,682, $5,134,018 and
$4,936,673, respectively.
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 investment companies managed or advised by
InterCapital (the "Dean Witter Funds"), as well as with the 14 investment
companies for which InterCapital is the Manager and TCW Funds Management, Inc.
is the Investment Adviser ("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
c/o Levitz Furniture Corporation Funds; formerly President and Chief Executive Officer of Hills
6111 Broken Sound Parkway, N.W. Department Stores (May, 1991-July, 1995); formerly variously
Boca Raton, Florida Chairman, Chief Executive Officer, President and Chief Operating
Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck
and Co.; Director of Eaglemark Financial Services, Inc., the United
Negro College Fund and Weirton Steel Corporation.
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and Director of InterCapital, DWSC
Chairman, President, and Distributors; Executive Vice President and Director of DWR;
Chief Executive Officer and Trustee Chairman, Director or Trustee, President and Chief Executive Officer
Two World Trade Center of the Dean Witter Funds; Chairman, Chief Executive Officer and
New York, New York Trustee of the TCW/DW Funds; Chairman and Director of Dean Witter
Trust Company ("DWTC"); Director and/or officer of various MSDWD
subsidiaries; formerly Executive Vice President and Director of Dean
Witter, Discover & Co. (until February, 1993).
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- --------------------------------------------------------------------
<S> <C>
Edwin J. Garn (64) Director or Trustee of the Dean Witter Funds; formerly United States
Trustee Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee
c/o Huntsman Corporation (1980-1986); formerly Mayor of Salt Lake City, Utah (1971-1974);
500 Huntsman Way formerly Astronaut, Space Shuttle Discovery (April 12-19, 1985);
Salt Lake City, Utah Vice Chairman, Huntsman Corporation (since January, 1993); Director
of Franklin Quest (time management systems) and John Alden Financial
Corp. (health insurance); member of the board of various civic and
charitable organizations.
John R. Haire (72) Chairman of the Audit Committee and Chairman of the Committee of the
Trustee Independent Directors or Trustees and Director or Trustee of the
Two World Trade Center Dean Witter Funds; Chairman of the Audit Committee and Chairman of
New York, New York the Committee of the Independent Trustees and Trustee of the TCW/DW
Funds; formerly President, Council for Aid to Education (1978-1989)
and Chairman and Chief Executive Officer of Anchor Corporation, an
Investment Adviser (1964-1978); Director of Washington National
Corporation (insurance).
Wayne E. Hedien** (63) Retired; Director or Trustee of the Dean Witter Funds (commencing on
Trustee September 1, 1997); Director of The PMI Group, Inc. (private
c/o Gordon Altman Butowsky mortgage insurance); Trustee and Vice Chairman of The Field Museum
Weitzen Shalov & Wein of Natural History; formerly associated with the Allstate Companies
Counsel to the Independent (1966-1994), most recently as Chairman of The Allstate Corporation
Trustees (March, 1993-December, 1994) and Chairman and Chief Executive
114 West 47th Street Officer of its wholly-owned subsidiary, Allstate Insurance Company
New York, New York (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
Trustee firm; Co-Chairman and a founder of the Group of Seven Council (G7C),
c/o Johnson Smick International, Inc. an international economic commission; Director or Trustee of the
1133 Connecticut Avenue, N.W. Dean Witter Funds; Trustee of the TCW/DW Funds; Director of
Washington, DC Greenwich Capital Markets, Inc. (broker-dealer); Director of NASDAQ
(since June, 1995); Trustee of the Financial Accounting Foundation
(oversight organization for the Financial Accounting Standards
Board); formerly Vice Chairman of the Board of Governors of the
Federal Reserve System (1988-1990) and Assistant Secretary of the
U.S. Treasury (1982-1986).
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a private investment
Trustee partnership; Director or Trustee of the Dean Witter Funds; Trustee
c/o Triumph Capital, L.P. of the TCW/DW Funds; formerly Vice President, Bankers Trust Company
237 Park Avenue and BT Capital Corporation (1984-1988); Director of various business
New York, New York organizations.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- --------------------------------------------------------------------
<S> <C>
Philip J. Purcell* (53) Chairman of the Board of Directors and Chief Executive Officer of
Trustee MSDWD, DWR and Novus Credit Services Inc.; Director of InterCapital,
1585 Broadway DWSC and Distributors; Director or Trustee of the Dean Witter Funds;
New York, New York Director and/or officer of various MSDWD subsidiaries.
John L. Schroeder (66) Retired; Director or Trustee of the Dean Witter Funds; Trustee of
Trustee the TCW/DW Funds; Director of Citizens Utilities Company; formerly
c/o Gordon Altman Butowsky Executive Vice President and Chief Investment Officer of the Home
Weitzen Shalov & Wein Insurance Company (August, 1991-September, 1995).
Counsel to the Independent
Trustees
114 West 47th Street
New York, New York
Barry Fink (42) Senior Vice President (since March, 1997) and Secretary and General
Vice President, Secretary and Counsel (since February, 1997) of InterCapital and DWSC; Senior Vice
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.
Mark Bavoso (36) Senior Vice President of InterCapital; Vice President of various
Vice President Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (51) First Vice President and Assistant Treasurer of InterCapital and
Treasurer DWSC; Treasurer of the Dean Witter Funds and the TCW/DW Funds.
Two World Trade Center
New York, New York
<FN>
- ------------------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
** Mr. Hedien's term as Trustee will commence on September 1, 1997.
</TABLE>
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Executive Vice President and Director of DWR, and Director of
SPS Transaction Services, Inc. and various other MSDWD subsidiaries, Joseph J.
McAlinden, Executive Vice President and Chief Investment Officer of InterCapital
and Director of DWTC, Robert S. Giambrone, Senior Vice President of
InterCapital, DWSC, Distributors and DWTC and Director of DWTC, and Kenton J.
Hinchliffe, 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, LouAnne
D. McInnis, Carsten Otto and Ruth Rossi, Vice Presidents and Assistant General
Counsels of InterCapital and DWSC, and Frank Bruttomesso, a staff attorney with
InterCapital, are Assistant Secretaries of the Fund.
11
<PAGE>
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees currently consists of eight (8) trustees; as noted
above, Mr. Hedien's term will commence on September 1, 1997. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of this
Statement of Additional Information, there are a total of 83 Dean Witter Funds,
comprised of 126 portfolios. As of June 30, 1997, the Dean Witter Funds had
total net assets of approximately $87.9 billion and more than six million
shareholders.
Six Trustees and Mr. Hedien (77% of the total number) have no affiliation or
business connection with InterCapital or any of its affiliated persons and do
not own any stock or other securities issued by InterCapital's parent company,
MSDWD. These are the "disinterested" or "independent" Trustees. The other two
Trustees (the "management Trustees") are affiliated with InterCapital. Four of
the six independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Dean Witter Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the current Independent Trustees serve as members of the Audit
Committee and the Committee of the Independent Trustees. Three of them also
serve as members of the Derivatives Committee. During the calendar year ended
December 31, 1996, the three Committees held a combined total of sixteen
meetings. The Committees hold some meetings at InterCapital's offices and some
outside InterCapital. Management Trustees or officers do not attend these
meetings unless they are invited for purposes of furnishing information or
making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Dean Witter Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Trustees to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees will
12
<PAGE>
need to form a judgment on various issues, and arranges to have that information
furnished to Committee members. He also arranges for the services of independent
experts and consults with them in advance of meetings to help refine reports and
to focus on critical issues. Members of the Committees believe that the person
who serves as Chairman of both Committees and guides their efforts is pivotal to
the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment advisory, management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Manager and other service providers. In effect,
the Chairman of the Committees serves as a combination of chief executive and
support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and, since July
1, 1996, as Chairman of the Committee of the Independent Trustees and the Audit
Committee of the TCW/DW Funds. The current Committee Chairman has had more than
35 years experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Trustees serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Trustees, and a Chairman of their Committees,
of the caliber, experience and business acumen of the individuals who serve as
Independent Trustees of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee of
the Independent Trustees an additional annual fee of $1,200). The Fund also
reimburses such Trustees for travel and other out-of-pocket expenses incurred by
them in connection with attending such meetings. Trustees and officers of the
Fund who are or have been employed by the Investment Manager or an affiliated
company receive no compensation or expense reimbursement from the Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended March 31, 1997.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,800
Edwin J. Garn................................................. 1,900
John R. Haire................................................. 3,550
Dr. Manuel H. Johnson......................................... 1,850
Michael E. Nugent............................................. 1,900
John L. Schroeder............................................. 1,900
</TABLE>
13
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1996 for services
to the 82 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 14 TCW/DW Funds that were in operation at December 31, 1996.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Dean Witter Money Market Funds.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS FOR SERVICE
CHAIRMAN OF AS TOTAL CASH
COMMITTEES OF CHAIRMAN OF COMPENSATION
FOR SERVICE INDEPENDENT COMMITTEES OF FOR SERVICES
AS DIRECTOR OR DIRECTORS/ INDEPENDENT TO
TRUSTEE AND FOR SERVICE AS TRUSTEES AND TRUSTEES AND 82 DEAN
COMMITTEE MEMBER TRUSTEE AND AUDIT AUDIT WITTER
OF 82 DEAN COMMITTEE MEMBER COMMITTEES OF COMMITTEES OF FUNDS AND
NAME OF WITTER OF 14 TCW/DW 82 DEAN WITTER 14 TCW/DW 14 TCW/DW
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS FUNDS FUNDS
- --------------------------- ---------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $138,850 -- -- -- $138,850
Edwin J. Garn.............. 140,900 -- -- -- 140,900
John R. Haire.............. 106,400 $64,283 $195,450 $ 12,187 378,320
Dr. Manuel H. Johnson...... 137,100 66,483 -- -- 203,583
Michael E. Nugent.......... 138,850 64,283 -- -- 203,133
John L. Schroeder.......... 137,150 69,083 -- -- 206,233
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, 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.
14
<PAGE>
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended March 31, 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 March 31, 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
ESTIMATED RETIREMENT BENEFITS BENEFITS
CREDITED ACCRUED AS EXPENSES UPON
YEARS ESTIMATED RETIREMENT(2)
OF SERVICE PERCENTAGE ------------------- ----------------
AT 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% $ 378 $20,147 $1,850 $ 51,325
Edwin J. Garn................................ 10 50.0 547 27,772 1,850 51,325
John R. Haire................................ 10 50.0 (437)(3) 46,952 4,492 129,550
Dr. Manuel H. Johnson........................ 10 50.0 229 10,926 1,850 51,325
Michael E. Nugent............................ 10 50.0 392 19,217 1,850 51,325
John L. Schroeder............................ 8 41.7 730 38,700 1,850 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.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Trustee until June 1, 1998
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
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As discussed in the Prospectus, the Fund may enter into forward foreign
currency exchange contracts ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large, commercial and investment banks) and their customers.
Such forward contracts will only be entered into with United States banks and
their foreign branches or foreign banks whose assets total $1 billion or more. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
When management of the Fund believes that the currency of a particular
foreign country may suffer a substantial movement against the U.S. dollar, it
may enter into a forward contract to purchase or sell, for a fixed amount of
dollars or other currency, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The Fund will not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, management of the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will be served. The Fund's custodian bank will place
cash, U.S. Government securities or other appropriate liquid high grade debt
securities in a segregated
15
<PAGE>
account of the Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of forward contracts entered into under the
circumstances set forth above. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of the Fund's commitments with respect to such contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign fixed-income securities denominated in a foreign currency against
exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the forward
contract for delivery by the Fund of a foreign currency, the Fund may either
sell the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the foreign currency (however, the ability of the Fund to terminate a contract
is contingent upon the willingness of the currency trader with whom the contract
has been entered into to permit an offsetting transaction). It is impossible to
forecast the market value of portfolio securities at the expiration of the
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of the foreign currency. Conversely, it may be necessary to sell
on the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Fund has written a call option on a fixed-income security
or the currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a greater
extent than the value of the premium received for the option. The Fund will
maintain with its Custodian at all times, cash, U.S. Government securities, or
other appropriate high grade debt obligations in a segregated account equal in
value to all forward contract obligations and option contract obligations
entered into in hedge situations such as this.
Of course, the Fund is not required to enter into such transactions with
regard to its foreign currency-denominated securities and will not do so unless
deemed appropriate by the Investment Manager or the Sub-Adviser. It also should
be realized that this method of protecting the value of the Fund's portfolio
securities against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange which one can achieve at some future point in time.
Additionally, although such contracts tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
16
<PAGE>
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
PRIVATE PLACEMENTS
The Fund may invest up to 10% of its total assets in securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or which are
otherwise not readily marketable. These securities are generally referred to as
private placements or restricted securities. Limitations on the resale of such
securities may have an adverse effect on their marketability, and may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to bear the expense of registering such securities for resale and the risk of
substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund.
The procedures require that the following factors be taken into account in
making a liquidity determination: (1) the frequency of trades and price quotes
for the security; (2) the number of dealers and other potential purchasers who
have issued quotes on the security; (3) any dealer undertakings to make a market
in the security; and (4) the nature of the security and the nature of the
marketplace trades (the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). If a restricted security is
determined to be "liquid", such security will not be included within the
category "illiquid securities", which is limited by the Fund's investment
restrictions to 10% of the Fund's total assets.
The Rule 144A marketplace of sellers and qualified institutional buyers is
new and still developing and may take a period of time to develop into a mature
liquid market. As such, the market for certain private placements purchased
pursuant to Rule 144A may be initially small or may, subsequent to purchase,
become illiquid. Furthermore, the Investment Manager may not possess all the
information concerning an issue of securities that it wishes to purchase in a
private placement to which it would normally have had access, had the
registration statement necessitated by a public offering been filed with the
Securities and Exchange Commission.
WARRANTS
The Fund may acquire warrants, including warrants which are attached to
fixed-income securities purchased for its portfolio, and hold such warrants
until the relevant Investment Adviser determines it is prudent to sell. Warrants
are, in effect, an option to purchase equity securities at a specific price,
generally valid for a specific period of time, and have no voting rights, pay no
dividends and have no rights with respect to the corporations issuing them.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
United States portfolio securities to brokers, dealers and other financial
institutions, provided that such loans are callable at any time by the Fund
(subject to notice provisions described below), and are at all times secured by
cash or appropriate high grade debt obligations, which are maintained in a
segregated account pursuant to applicable regulations and that are equal to at
least the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Fund continues to receive the income on the
loaned securities while at the same time earning interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations.
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A loan may be terminated by the borrower on one business day's notice, or by
the Fund on four business days' notice. If the borrower fails to deliver the
loaned securities within four days after receipt of notice, the Fund could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases, even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed
by the Fund's management to be creditworthy and when the income which can be
earned from such loans justifies the attendant risks. Upon termination of the
loan, the borrower is required to return the securities to the Fund. Any gain or
loss in the market price during the loan period would inure to the Fund. The
Fund will pay reasonable finder's, administrative and custodial fees in
connection with a loan of its securities. The creditworthiness of firms to which
the Fund lends its portfolio securities will be monitored on an ongoing basis by
the Fund's management pursuant to procedures adopted and reviewed, on an ongoing
basis, by the Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will 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 10% of the value of
its total assets. The Fund may lend its non-United States portfolio securities
after the Trustees adopt procedures consistent with applicable regulatory
requirements. During the fiscal year ended March 31, 1997, the Fund did not loan
any of its portfolio securities.
BORROWING OF MONEY
The Fund did not borrow any money from any source during the fiscal year
ended March 31, 1997.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time the Fund may purchase securities on a when-issued or
delayed delivery basis or may purchase or sell securities on a forward
commitment basis. When such transactions are negotiated, the price is fixed at
the time of the commitment, but delivery and payment can take place a month or
more after the date of commitment. While the Fund will only purchase securities
on a when-issued, delayed delivery or forward commitment basis with the
intention of acquiring the securities, the Fund may sell the securities before
the settlement date, if it is deemed advisable. The securities so purchased or
sold are subject to market fluctuation and no interest or dividends accrue to
the purchaser prior to the settlement date. At the time the Fund makes the
commitment to purchase or sell securities on a when-issued, delayed delivery or
forward commitment basis, it will record the transaction and thereafter reflect
the value, each day, of such security purchased, or if a sale, the proceeds to
be received, in determining its net asset value. At the time of delivery of the
securities, their value may be more or less than the purchase or sale price. The
Fund will also establish a segregated account with its custodian bank in which
it will continually maintain cash or U.S. Government securities or other high
grade debt portfolio securities equal in value to commitments to purchase
securities on a when-issued, delayed delivery or forward commitment basis;
subject to this requirement, the Fund may purchase securities on such basis
without limit. An increase in the percentage of the Fund's assets committed to
the purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Fund's net asset value. The Fund's management and
the Trustees do not believe that the Fund's net asset value or income will be
adversely affected by its purchase of securities on such basis.
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 occurence of a subsequent
event, such as approval of a merger, corporate reorganization or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until InterCapital 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
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account with its custodian bank in which it will maintain cash or U.S.
Government securities or other high grade debt portfolio securities equal in
value to recognized commitments for such securities. The value of the Fund's
commitments to purchase the securities of any one issuer, together with the
value of all securities of such issuer owned by the Fund, may not exceed 5% of
the value of the Fund's total assets at the time the initial commitment to
purchase such securities is made (see "Investment Restrictions"). Subject to the
foregoing, the Fund may purchase securities on such basis without limit. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
its net asset value. The Fund's management and the Trustees do not believe that
the Fund's net asset value will be adversely affected by its purchase of
securities on such basis. The Fund may also sell securities on a "when, as and
if issued" basis provided the issuance of the security will result automatically
from the exchange or conversion of a security owned by the Fund at the time of
sale.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested or
used for payments of obligations of the Fund. A repurchase agreement may be
viewed as a type of secured lending by the Fund which typically involves the
acquisition by the Fund of government securities or other 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 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 and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. Repurchase agreements will be transacted only with large,
well-capitalized and well-established United States financial institutions whose
financial condition will be continuously monitored by the management of the Fund
subject to procedures established by the Trustees. In addition, the collateral
will be maintained in a segregated account and will be marked-to-market daily to
determine that the full value of the collateral, as specified in the agreement,
does not decrease below the purchase price plus accrued interest. If such
decrease occurs, additional collateral will be requested and, when received,
added to maintain full collateralization. In the event of a default or
bankruptcy by a selling financial institution, the Fund will seek to liquidate
such collateral. However, the exercise 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, amount to more than 10% of its total assets. The Fund's
investments in repurchase agreements may at times be substantial when, in the
view of the Investment Manager or the Sub-Adviser, liquidity or other
considerations warrant.
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, the Fund may write (sell) covered call
options and covered put options on eligible portfolio securities (and the
currencies in which they are denominated) and stock indexes to hedge against
potential changes in the market value of its investments (or anticipated
investments) and to aid in achieving its investment objective. For hedging
(including anticipatory hedging) purposes, the Fund may purchase put and call
options on eligible portfolio securities (and the currencies in which they are
denominated) and purchase and sell financial futures contracts and options on
such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and on various
foreign currencies are listed on several U.S. and foreign securities exchanges
and are written in over-the-counter transactions
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("OTC options"). Listed options are issued or guaranteed by the exchange on
which they trade or by a clearing corporation such as the Options Clearing
Corporation ("OCC"). Ownership of a listed call option gives the Fund the right
to buy from the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency covered by the option at the stated exercise
price (the price per unit of the underlying security or currency) by filing an
exercise notice prior to the expiration date of the option. The writer (seller)
of the option would then have the obligation to sell, to the OCC (in the U.S.)
or other clearing corporation or exchange, the underlying security or currency
at that exercise price prior to the expiration date of the option, regardless of
its then current market price. Ownership of a listed put option would give the
Fund the right to sell the underlying security or currency to the OCC (in the
U.S.) or other clearing corporation or exchange at the stated exercise price.
Upon notice of exercise of the put option, the writer of the option would have
the obligation to purchase the underlying security or currency from the OCC (in
the U.S.) or other clearing corporation or exchange at the exercise price.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges on which such securities trade will not continue indefinitely to
introduce options with new expirations to replace expiring options on particular
issues. Instead, the expirations introduced at the commencement of options
trading on a particular issue will be allowed to run their course, with the
possible addition of a limited number of new expirations as the original ones
expire. Options trading on each issue of bonds or notes will thus be phased out
as new options are listed on more recent issues, and options representing a full
range of expirations will not ordinarily be available for every issue on which
options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian, so that they will
be treated as being covered.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Fund may purchase call options on foreign currencies
in which securities it anticipates purchasing are denominated to secure a set
U.S. dollar price for such securities and protect against a decline in the value
of the U.S. dollar against such foreign currency. The Fund may also purchase
call and put options to close out written option positions.
The Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which
it is denominated and the U.S. dollar, then a loss to the Fund occasioned by
such value decline would be ameliorated by receipt of the premium on the option
sold. At the same time, however, the Fund gives up the benefit of any rise in
value of the relevant portfolio securities above the exercise price of the
option and, in fact, only receives a benefit from the writing of the option to
the extent that the value of the portfolio securities falls below the price of
the premium received. The Fund may also write options to close out long call
option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. While in the opinion of the management
of the Fund, the market for such options has developed sufficiently to
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ensure that the risks in connection with such options are not greater than the
risks in connection with the underlying currency, there can be no assurance that
a liquid secondary market will exist for a particular option at any specific
time. In addition, options on foreign currencies are affected by all of those
factors which influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
OTC OPTIONS. Exchange-listed options are issued by the OCC (in the U.S.) or
other clearing corporation or exchange which assures that all transactions in
such options are properly executed. OTC options are purchased from or sold
(written) to dealers or financial institutions which have entered into direct
agreements with the Fund. With OTC options, such variables as expiration date,
exercise price and premium will be agreed upon between the Fund and the
transacting dealer, without the intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities or
amount of foreign currency underlying an option it has written, in accordance
with the terms of the option, the Fund would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Fund will
engage in OTC option transactions only with member banks of the Federal Reserve
System or primary dealers in U.S. Government securities or with affiliates of
such banks or dealers which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
COVERED CALL WRITING. As stated in the Prospectus, the Fund is permitted to
write covered call options on portfolio securities, on stock indexes and on the
U.S. dollar and foreign currencies, without limit, in order to aid in achieving
its investment objectives. Generally, a call option is "covered" if the Fund
owns, or has the right to acquire, without additional cash consideration (or for
additional cash consideration held for the Fund by its Custodian in a segregated
account) the underlying security (currency) subject to the option except that in
the case of call options on U.S. Treasury Bills, the Fund might own U.S.
Treasury Bills of a different series from those underlying the call option, but
with a principal amount and value corresponding to the exercise price and a
maturity date no later than that of the security (currency) deliverable under
the call option. A call option is also covered if the Fund holds a call on the
same security as the underlying security (currency) of the written option, where
the exercise price of the call used for coverage is equal to or less than the
exercise price of the call written or greater than the exercise price of the
call written if the mark to market difference is maintained by the Fund in cash,
U.S. Government securities or other high grade debt obligations which the Fund
holds in a segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium;" i.e., the price of the option. Receipt of these premiums
may better enable the Fund to earn a higher level of current income than it
would earn from holding the underlying securities (currencies) alone. Moreover,
the premium received will offset a portion of the potential loss incurred by the
Fund if the securities
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(currencies) underlying the option are ultimately sold (exchanged) by the Fund
at a loss. Furthermore, a premium received on a call written on a foreign
currency will ameliorate any potential loss of value on the portfolio security
due to a decline in the value of the currency. The value of the premium received
will fluctuate with varying economic market conditions.
As regards listed options and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Fund to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the amount of the premium received
on the call option is more or less than the cost of effecting the closing
purchase transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of the
underlying security (currency). Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part or exceeded by a
decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security
(currency) during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security (currency)
equal to the difference between the purchase price of the underlying security
(currency) and the proceeds of the sale of the security (currency) plus the
premium received on the option less the commission paid.
Options written by the Fund will normally have expiration dates of up to
eighteen months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written. See "Risks of Options and Futures
Transactions," below.
COVERED PUT WRITING. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period, at
the purchaser's election (certain listed and OTC put options written by the Fund
will be exercisable by the purchaser only on a specific date). A put is
"covered" if the Fund maintains, in a segregated account maintained on its
behalf at the Fund's Custodian, cash, U.S. Government securities or other high
grade debt obligations in an amount equal to at least the exercise price of the
option, at all times during the option period. Similarly, a short put position
could be covered by the Fund by its purchase of a put option on the same
security as the underlying security of the written option, where the exercise
price of the purchased option is equal to or more than the exercise price of the
put written or less than the exercise price of the put written if the mark to
market difference is maintained by the Fund in cash, U.S. Government securities
or other high grade debt obligations which the Fund holds in a segregated
account maintained at its Custodian. In the case of listed options, during the
option period, the Fund may be required, at any time, to make payment of the
exercise price against delivery of the underlying security. The operation of and
limitations on covered put options in other respects are substantially identical
to those of call options.
The Fund will write put options for two purposes: (1) to receive the income
derived from the premiums paid by purchasers; and (2) when the Investment
Manager and/or the Sub-Adviser wishes to purchase the security underlying the
option at a price lower than its current market price, in which case it will
write the covered put at an exercise price reflecting the lower purchase price
sought. The potential gain on a covered put option is limited to the premium
received on the option (less the commissions paid
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on the transaction) while the potential loss equals the difference between the
exercise price of the option and the current market price of the underlying
securities when the put is exercised, offset by the premium received (less the
commissions paid on the transaction).
The Fund may also purchase put options to close out written put positions in
a manner similar to call options closing purchase transactions. In addition, the
Fund may sell a put option which it has previously purchased prior to the sale
of the securities (currency) underlying such option. Such a sale would result in
a net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid on the put option
which is sold. Any such gain or loss could be offset in whole or in part by a
change in the market value of the underlying security (currency). If a put
option purchased by the Fund expired without being sold or exercised, the
premium would be lost.
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase a call option in order to close out a
covered call position (see "Covered Call Writing" above), to protect against an
increase in price of a security it anticipates purchasing or, in the case of a
call option on foreign currency, to hedge against an adverse exchange rate move
of the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The purchase
of the call option to effect a closing transaction on a call written
over-the-counter may be a listed or an OTC option. In either case, the call
purchased is likely to be on the same securities (currencies) and have the same
terms as the written option. If purchased over-the-counter, the option would
generally be acquired from the dealer or financial institution which purchased
the call written by the Fund.
The Fund may purchase put options on securities and currencies (or related
currencies) which it holds in its portfolio only to protect itself against a
decline in the value of the security (currency). If the value of the underlying
security (currency) were to fall below the exercise price of the put purchased
in an amount greater than the premium paid for the option, the Fund would incur
no additional loss. In addition, the Fund may sell a put option which it has
previously purchased prior to the sale of the securities (currencies) underlying
such option. Such a sale would result in a net gain or loss depending on whether
the amount received on the sale is more or less than the premium and other
transaction costs paid on the put option which is sold. And such gain or loss
could be offset in whole or in part by a change in the market value of the
underlying security (currency). If a put option purchased by the Fund expired
without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the
ability of the Investment Manager and/or the Sub-Adviser to forecast correctly
interest rates and market movements. If the market value of the portfolio
securities (or the currencies in which they are denominated) upon which call
options have been written increases, the Fund may receive a lower total return
from the portion of its portfolio upon which calls have been written than it
would have had such calls not been written. In writing puts, the Fund assumes
the risk of loss should the market value of the underlying securities (or the
currencies in which they are denominated) decline below the exercise price of
the option (any loss being decreased by the receipt of the premium on the option
written). During the option period, the covered call writer has, in return for
the premium on the option, given up the opportunity for capital appreciation
above the exercise price should the market price of the underlying security (or
the currency in which it is denominated) increase, but has retained the risk of
loss should the price of the underlying security (currency) decline. The covered
put writer also retains the risk of loss should the market value of the
underlying security (currency) decline below the exercise price of the option
less the premium received on the sale of the option. In both cases, the writer
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver or receive the underlying
securities at the exercise price. A covered put option writer who is unable to
effect a closing purchase transaction or to purchase an offsetting OTC option
would continue to bear the risk of decline in the market price of the underlying
security (currency) until the option expires
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or is exercised. In addition, a covered put writer would be unable to utilize
the amount held in cash or U.S. Government or other high grade short-term debt
obligations as security for the put option for other investment purposes until
the exercise or expiration of the option.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call option
writer may not be able to sell (exchange) an underlying security (currency) at a
time when it might otherwise be advantageous to do so.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. However, the Fund may
be able to purchase an offsetting option which does not close out its position
as a writer but constitutes an asset of equal value to the obligation under the
option written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an exchange or
the OCC to handle current trading volume; or (vi) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by the OCC as a result of trades on that
exchange would generally continue to be exercisable in accordance with their
terms.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Fund's management.
Each of the exchanges has established limitations governing the maximum
number of options on the same underlying security or futures contract (whether
or not covered) which may be written by a single investor, whether acting alone
or in concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts or
through one or more brokers). An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
The extent to which the Fund may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification as
a regulated investment company and the Fund's intention to qualify as such (see
"Dividends, Distributions and Taxes" in the Prospectus).
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STOCK INDEX OPTIONS. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The multiplier for an index option
performs a function similar to the unit of trading for a stock option. It
determines the total dollar value per contract of each point in the difference
between the exercise price of an option and the current level of the underlying
index. A multiplier of 100 means that a one-point difference will yield $100.
Options on different indexes may have different multipliers. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Unlike stock options, all settlements are in cash and a gain or
loss depends on price movements in the stock market generally (or in a
particular segment of the market) rather than the price movements in individual
stocks. Currently, options are traded on the Standard & Poor's 100 Index and the
Standard & Poor's 500 Index on the Chicago Board Options Exchange, the Major
Market Index and the Computer Technology Index, Oil Index and Institutional
Index on the American Stock Exchange and the NYSE Index and NYSE Beta Index on
the New York Stock Exchange, The Financial News Composite Index on the Pacific
Stock Exchange and the Value Line Index, National O-T-C Index and Utilities
Index on the Philadelphia Stock Exchange, each of which and any similar index on
which options are traded in the future which include stocks that are not limited
to any particular industry or segment of the market is referred to as a "broadly
based stock market index." Options on stock indexes provide the Fund with a
means of protecting against the risk of market wide price movements. If the
Investment Manager and/or the Sub-Adviser anticipates a market decline, the Fund
would be able to purchase a stock index put option. If the expected market
decline materialized, the resulting decrease in the value of the Fund's
portfolio would be offset to the extent of the increase in the value of the put
option. If the Investment Manager and/or the Sub-Adviser anticipates a market
rise, the Fund would be able to purchase a stock index call option to enable the
Fund to participate in such rise until completion of anticipated common stock
purchases by the Fund. Purchases and sales of stock index options also enable
the Investment Manager and/or the Sub-Adviser to more speedily achieve changes
in the Fund's equity positions.
The Fund will be able to write put options on stock indexes only if such
positions are covered by cash, U.S. Government securities or other high grade
debt obligations equal to the aggregate exercise price of the puts, which cover
is held for the Fund in a segregated account maintained for it by the Fund's
Custodian. All call options on stock indexes written by the Fund will be covered
either by a portfolio of stocks substantially replicating the movement of the
index underlying the call option or by holding a separate call option on the
same stock index with a strike price no higher than the strike price of the call
option sold by the Fund.
RISKS OF INDEX OPTIONS. Because exercises of stock index options are
settled in cash, the Fund, as a call writer, would not be able to provide in
advance for potential settlement obligations by acquiring and holding the
underlying securities. A call writer can offset some of the risk of its writing
position by holding a diversified portfolio of stocks similar to those on which
the underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary from the value of the index. Even if an index call writer could
assemble a stock portfolio that exactly reproduced the composition of the
underlying index, the writer still would not be fully covered from a risk
standpoint because of the "timing risk" inherent in writing index options. When
an index option is exercised, the amount of cash that the holder is entitled to
receive is determined by the difference between the exercise price and the
closing index level on the date when the option is exercised. As with other
kinds of options, the writer will not learn that it has been assigned until the
next business day, at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer of a covered call on a specific
underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
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<PAGE>
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
stocks that exactly match the composition of the underlying index, it will not
be able to satisfy its assignment obligations by delivering those stocks against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; and by the time it
learns that it has been assigned, the index may have declined, with a
corresponding decrease in the value of its stock portfolio. This "timing risk"
is an inherent limitation on the ability of index call writers to cover their
risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
FUTURES CONTRACTS. The Fund will not purchase or sell commodities or
commodity futures contracts, except that the Fund may purchase and sell
financial futures contracts and related options as described herein. As stated
in the Prospectus, the Fund may purchase and sell interest rate, currency, and
index futures contracts ("futures contracts"), that are traded on U.S. and
foreign commodity exchanges, on such underlying securities as U.S. Treasury
bonds, notes and bills and/or any foreign government fixed-income security
("interest rate futures"), on various currencies ("currency futures") and on
such indexes of U.S. and foreign securities as may exist or come into being
("index futures").
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging some or all of the value of
its fixed-income portfolio securities (or anticipated portfolio securities)
against changes in prevailing interest rates. If the Investment Manager and/or
the Sub-Adviser anticipates that interest rates may rise and, concomitantly, the
price of fixed-income securities fall, the Fund may sell an interest rate
futures contract or a bond index futures contract. If declining interest rates
are anticipated, the Fund may purchase an interest rate futures contract to
protect against a potential increase in the price of fixed-income securities the
Fund intends to purchase. Subsequently, appropriate fixed-income securities may
be purchased by the Fund in an orderly fashion; as securities are purchased,
corresponding futures positions would be terminated by offsetting sales of
contracts.
The Fund will purchase or sell stock index futures contracts for the purpose
of hedging some or all of its equity portfolio (or anticipated portfolio)
securities against changes in their prices. If the Investment Manager and/or the
Sub-Adviser anticipates that the prices of stock held by the Fund may fall, the
Fund may sell a stock index futures contract. Conversely, if the Investment
Manager and/or the Sub-Adviser wishes to hedge against anticipated price rises
in those stocks which the Fund intends to purchase, the Fund may purchase a
stock index futures contract.
The Fund will purchase or sell futures contracts on the U.S. dollar and on
foreign currencies to hedge against an anticipated rise or decline in the value
of the U.S. dollar or foreign currency in which a portfolio security of the Fund
is denominated vis-a-vis another currency.
In addition to the above, interest rate, index and currency futures will be
bought or sold in order to close out a short or long position maintained by the
Fund in a corresponding futures contract.
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Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. A futures contract
sale is closed out by effecting a futures contract purchase for the same
aggregate amount of the specific type of security (currency) and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of security (currency) and the same delivery date. If the offsetting sale
price exceeds the purchase price, the purchaser would realize a gain, whereas if
the purchase price exceeds the offsetting sale price, the purchaser would
realize a loss. There is no assurance that the Fund will be able to enter into a
closing transaction.
INTEREST RATE FUTURES. When the Fund enters into an interest rate futures
contract, it is initially required to deposit with the Fund's Custodian, in a
segregated account in the name of the broker performing the transaction, an
"initial margin" of cash or U.S. Government securities or other high grade
short-term obligations equal to approximately 2% of the contract amount. Initial
margin requirements are established by the exchanges on which futures contracts
trade and may, from time to time, change. In addition, brokers may establish
margin deposit requirements in excess of those required by the exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a broker's client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits of cash or U.S. Government
securities called "variation margin," with the Fund's futures contract clearing
broker, which are reflective of price fluctuations in the futures contract.
Currently, interest rate futures contracts can be purchased on debt securities
such as U.S. Treasury Bills and Bonds, U.S. Treasury Notes with Maturities
between 6 1/2 and 10 years, GNMA Certificates and Bank Certificates of Deposit.
CURRENCY FUTURES. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise date, for a
set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and under
the same circumstances as forward foreign currency exchange contracts. The
Investment Manager will assess such factors as cost spreads, liquidity and
transaction costs in determining whether to utilize futures contracts or forward
contracts its in foreign currency transactions and hedging strategy. Currently,
currency futures exist for, among other foreign currencies, the Japanese yen,
German mark, Canadian dollar, British pound, Swiss franc and European currency
unit.
Purchasers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, the Fund must accept or make delivery of the underlying foreign currency
in accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and may be
required to pay any fees, taxes or charges associated with such delivery which
are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the Fund will
not purchase or write options on foreign currency futures contracts unless and
until, in the Investment Manager's opinion, the market for such options has
developed sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying foreign
currency.
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INDEX FUTURES. As discussed in the Prospectus, the Fund may invest in index
futures contracts. Futures contracts on indexes do not require the physical
delivery of securities, but provide for a final cash settlement on the
expiration date which reflects accumulated profits and losses credited or
debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in the
form of variation margin payments. The Fund may be required to make additional
margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or gain.
Currently, index futures contracts can be purchased or sold with respect to,
among others, the Standard & Poor's 500 Stock Price Index and the Standard &
Poor's 100 Stock Price Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Index on the New York Futures Exchange, the Major
Market Index on the American Stock Exchange, the Moody's Investment-Grade
Corporate Bond Index on the Chicago Board of Trade and the Value Line Stock
Index on the Kansas City Board of Trade.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract at the time of exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the Fund's
management wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its fixed-income
portfolio, the Fund might write a call option on an interest rate futures
contract, the underlying security of which correlates with the portion of the
portfolio the Fund seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, provide a further hedge against
losses resulting from price declines in portions of the Fund's portfolio.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to initial margin plus the amount paid for
premiums for unexpired options on futures contracts exceeds 5% of the value of
the Fund's total assets, after taking into account unrealized gains and
unrealized losses on such contracts. In the case of an option that is
in-the-money (the exercise price of the call (put) option is less (more) than
the market price of the underlying security) at the time of purchase, the
in-the-money amount may be excluded in calculating the 5%. However, there is no
overall limitation on the percentage of the Fund's assets which may be subject
to a hedge position. In accordance with the regulations of the
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Commodity Futures Trading Commission ("CFTC") under which the Fund is exempted
from registration as a commodity pool operator, the Fund may only enter into
futures contracts and options on futures contracts transactions in accordance
with the limitation described above. If the CFTC changes its regulations so that
the Fund would be permitted more latitude to write options on futures contracts
for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of futures
and options thereon by the Fund.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The
successful use of futures and related options depends on the ability of the
Investment Manager and/or the Sub-Adviser to accurately predict market, interest
rate and currency movements. As stated in the Prospectus, the Fund may sell a
futures contract to protect against the decline in the value of securities (or
the currency in which they are denominated) held by the Fund. However, it is
possible that the futures market may advance and the value of securities (or the
currency in which they are denominated) held in the portfolio of the Fund may
decline. If this occurred, the Fund would lose money on the futures contract and
also experience a decline in value of its portfolio securities. However, while
this could occur for a very brief period or to a very small degree, over time
the value of a diversified portfolio will tend to move in the same direction as
the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities (currencies) decreases, then the
Fund may determine not to invest in the securities as planned and will realize a
loss on the futures contract that is not offset by a reduction in the price of
the securities.
In addition, if the Fund holds a long position in a futures contract or has
sold a call option on a futures contract, it will hold cash, U.S. Government
securities or other high grade debt obligations equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained for the Fund
by its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Fund.
If the Fund maintains a short position in a futures contract or has sold a
call option on a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government securities
or other high grade debt obligations equal in value (when added to any initial
or variation margin on deposit) to the market value of the securities underlying
the futures contract or the exercise price of the option. Such position may also
be covered by owning the securities underlying the futures contract (in the case
of a stock index futures contract a portfolio of securities substantially
replicating the relevant index), or by holding a call option permitting the Fund
to purchase the same contract at a price no higher than the price at which a
short position was established.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater
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margin requirements may limit the Fund's ability to enter into certain commodity
transactions on foreign exchanges. Moreover, differences in clearance and
delivery requirements on foreign exchanges may occasion delays in the settlement
of the Fund's transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by the Investment Manager.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indexes subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Fund's portfolio securities (and the
currencies in which they are denominated). Another such risk is that prices of
interest rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which the Fund seeks a hedge. A correlation
may also be distorted (a) temporarily, by short-term traders seeking to profit
from the difference between a contract or security price objective and their
cost of borrowed funds; (b) by investors in futures contracts electing to close
out their contracts through offsetting transactions rather than meet margin
deposit requirements; (c) by investors in futures contracts opting to make or
take delivery of underlying securities rather than engage in closing
transactions, thereby reducing liquidity of the futures market; and (d)
temporarily, by speculators who view the deposit requirements in the futures
markets as less onerous than margin requirements in the cash market. Due to the
possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of interest
rate trends may still not result in a successful hedging transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be possible
to close out a futures position, and in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In addition, limitations imposed by an exchange or board of trade on
which futures contracts are traded may compel or prevent the Fund from closing
out a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to make
or take delivery of the underlying securities (currencies) at a time when it may
be disadvantageous to do so.
The extent to which the Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such (see "Dividends, Distributions and Taxes" in the
Prospectus).
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities (currencies).
NEW INSTRUMENTS. New futures contracts, options and other financial
products and various combinations thereof continue to be developed. The Fund may
invest in any such futures, options or products as may be developed, to the
extent consistent with its investment objective and applicable regulatory
requirements.
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PORTFOLIO TRADING
It is anticipated that the Fund's portfolio turnover rate will not exceed
150% in any one year. A 150% turnover rate would occur, for example, if 150% 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.
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 in the Act as the lesser of (a) sixty-seven percent or more
of the shares present at a meeting of shareholders, if the holders of more than
fifty percent of the outstanding shares of the Fund are present or represented
by proxy, or (b) more than fifty percent of the outstanding shares of the Fund.
For purposes of the following restrictions: (i) all percentage limitations apply
immediately after a purchase or initial investment; and (ii) any subsequent
change in any applicable percentage resulting from market fluctuations or other
changes in total or net assets does not require elimination of any security from
the portfolio.
The Fund may not:
1. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or Trustee of the Fund or any officer or director of
InterCapital or MGIS owns more than 1/2 of 1% of the outstanding securities
of such issuer, and such officers, trustees or 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 readily marketable securities of issuers which engage in real
estate operations and securities which are secured by real estate or
interests therein, including real estate investment trusts.
3. 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.
4. Invest more than 5% of the value 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.
5. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of the value of its total assets (not
including the amount borrowed).
6. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(7). (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 10% of its net assets so long as shares of the
Fund are being sold in those states.)
7. 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; (c) lending portfolio securities; (d)
entering into forward foreign currency contracts; or (e) purchasing or
selling futures contracts or options.
8. 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, but not to exceed 10% of its total
assets at the time of the loan.
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9. Make short sales of securities.
10. Purchase securities on margin.
11. 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.
12. Invest for the purpose of exercising control or management of any
other issuer.
13. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which are not otherwise readily marketable
if, regarding all such securities, more than 10% of its total assets, taken
at market value, would be invested in such securities.
In addition, as stated in the Prospectus, the Fund may not purchase
securities of other United States investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets. However,
the Fund may invest up to 10% of the value of its total assets in the securities
of foreign investment companies. The ability to invest in foreign investment
companies increases the Investment Advisers flexibility in the management of the
Fund's portfolio by enabling the Fund to access world markets, such as Korea and
Taiwan, in which markets the Fund may be limited in investing directly, due in
part to foreign laws and regulations. As a non-fundamental policy, the Fund will
not invest in other investment companies in reliance on Sections 12(d)(1)(F),
12(d)(1)(G) or 12(d)(1)(J) of the Act.
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
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Subject to the general supervision of the Fund's Trustees, the Investment
Manager and the Sub-Adviser are responsible for decisions to buy and sell
securities of the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with non-affiliated 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. In the underwritten offerings,
securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments may be
purchased directly from an issuer, in which case no commissions or discounts are
paid. For the fiscal years ended March 31, 1995, 1996 and 1997, the Fund paid a
total of $1,884,537, $2,671,155 and $1,593,672, respectively, in brokerage
commissions.
The Investment Manager and the Sub-Adviser currently serve as investment
advisers 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 each of the Investment Manager and the Sub-Adviser to cause purchase and sale
transactions to be allocated among the Fund and others whose assets it manages
in such manner as it deems equitable. In making such allocations among the Fund
and other client accounts, various factors may be considered, including the
respective investment objectives, the relative size of the portfolio holdings of
the same or comparable securities, the availability of cash for investment, the
size of the 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 or the Sub-Adviser may utilize a pro rata allocation process
based on the size of the Dean Witter Funds involved and the number of shares
available from the public offering. This procedure may, under certain
circumstances, have an adverse effect on the Fund.
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<PAGE>
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest commission cost could impede effective portfolio management and preclude
the Fund and the Investment Manager and the Sub-Adviser 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
Advisers rely on their experience and knowledge regarding commissions generally
charged by various brokers and on their judgment in evaluating the brokerage and
research services received from the broker effecting the transaction. Such
determinations are necessarily subjective and imprecise, as in most cases an
exact dollar value for those services is not ascertainable.
The Fund anticipates that its transactions involving foreign securities will
be effected primarily on a principal stock exchange for such securities. Fixed
commissions on such transactions are generally higher than negotiated
commissions on domestic transactions. There is also generally less government
supervision and regulaton of foreign stock exchanges and brokers than in the
United States.
In seeking to implement the Fund's policies, the Investment Manager and the
Sub-Adviser effect transactions with those brokers and dealers who the
Investment Advisers believe provide the most favorable prices and which are
capable of providing efficient executions. If the Investment Advisers believe
such price and execution are obtainable from more than one broker or dealer,
they will 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 and the Sub-Adviser. 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 investments; wire services; and appraisals
or evaluations of portfolio securities. During the fiscal year ended March 31,
1997, the Fund directed the payment of $113,816 in brokerage commissions in
connection with transactions in the aggregate amount of $82,789,345 to brokers
because of research services provided.
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 or of its Distributor, 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 InterCapital by any amount of the brokerage
commissions it may pay to an affiliated broker or dealer. During the fiscal
years ended March 31, 1995, 1996 and 1997, the Fund paid a total of $89,120,
$69,800 and $16,375, respectively, in brokerage commissions to DWR. During the
fiscal year ended March 31, 1997, the brokerage commissions paid to DWR
represented approximately 1.03% of the total brokerage commissions paid by the
Fund during the year and were paid on account of transactions having a dollar
value equal to approximately 3.87% of the aggregate dollar value of all
portfolio transactions by the Fund during the year for which commissions were
paid.
The information and services received by the Investment Manager and the
Sub-Adviser from brokers and dealers may be of benefit to the Investment Manager
and the Sub-Adviser in the management of accounts of some of their other clients
and may not in all cases benefit the Fund directly. While
33
<PAGE>
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/or the Sub-Adviser, 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.
Under the investment advisory arrangements in effect prior to August 1,
1995, it had been contemplated that, consistent with the above policy, a
substantial amount of the Fund's brokerage transactions with respect to Pacific
Basin equities would be conducted through brokerage affiliates of DICAM, Ltd. In
order for brokerage affiliates of DICAM, Ltd. to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration received
by those affiliates had to 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 allowed such affiliates 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 or of its Distributor, as defined in the Act, had
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to such affiliates were consistent
with the foregoing standard. During the fiscal year ended March 31, 1995, the
Fund paid a total of $2,667 in brokerage commissions to affiliates of DICAM,
Ltd. The Fund did not reduce the advisory fee it paid to DICAM by any amount of
the brokerage commissions it might have paid to such affiliates. The Fund did
not pay any brokerage commissions to affiliates to DICAM, Ltd. during the period
from April 1, 1995 through July 31, 1995.
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 its fiscal years ended March 31, 1995, 1996 and 1997,
the Fund did not effect any principal transactions with DWR.
At March 31, 1997, the Fund held common stock issued by Ford Motor Company,
which issuer was among the ten brokers or the ten dealers which executed
transactions for or with the Fund in the largest dollar amounts during the year,
with a market value of $3,137,500.
The Trustees have considered the possibilities of seeking to recapture, for
the benefit of the Fund, brokerage commissions and other expenses of possible
portfolio transactions by conducting portfolio transactions through affiliated
entities. For example, brokerage commissions received by affiliated brokers
could be offset against the advisory fees paid by the Fund. After considering
all factors deemed relevant, the Trustees made a determination not to seek such
recapture. The Trustees will reconsider this matter from time to time.
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 similar
agreements with other selected broker-dealers. The Distributor, a Delaware
corporation, is a wholly-owned subsidiary of MSDWD. The Trustees who are not,
and were not at the time they voted, interested persons of the Fund, as defined
in the Act (the "Independent Trustees"), approved, at their meeting held on June
30, 1997, the current Distribution Agreement appointing the Distributor as
exclusive distributor of the Fund's shares and providing for the Distributor to
bear distribution expenses not borne by the Fund. By its terms, the Distribution
Agreement has an initial term ending April 30, 1998, and will remain in effect
from year to year thereafter if approved by the Board.
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<PAGE>
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 any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan") pursuant to which each Class, other than Class D, pays the
Distributor compensation accrued daily and payable monthly at the following
annual rates: 0.25% and 1.0% of the average daily net assets of Class A and
Class C, respectively, and, with respect to Class B, 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Fund's Class B shares since the
inception of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or upon which such charge has been
waived, or (b) the average daily net assets of Class B. The Distributor also
receives the proceeds of front-end sales charges and of contingent deferred
sales charges imposed on certain redemptions of shares, which are separate and
apart from payments made pursuant to the Plan (see "Purchase of Fund Shares" in
the Prospectus). The Distributor has informed the Fund that it and/or DWR
received approximately $785,000, $998,000 and $803,000 in contingent deferred
sales charges for the fiscal years ended March 31, 1995, 1996 and 1997,
respectively.
The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class's average daily net assets are
currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers, Inc. (of which
the Distributor is a member). The "service fee" is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion of
the Plan fees payable by a Class, if any, is characterized as an "asset-based
sales charge" as such is defined by the aforementioned Rules of the Association.
The Plan was originally adopted by a majority vote of the Board of Trustees,
including all of the Independent Trustees (none of whom had or have any direct
or indirect financial interest in the operation of the Plan) (the "Independent
12b-1 Trustees"), cast in person at a meeting called for the purpose of voting
on the Plan, at their Meeting held on July 19, 1983 (continued after adjournment
on July 27, 1983), and by DWR, the then sole shareholder of the Fund, on August
6, 1983. The Plan was amended (as a result of the resignation of Daiwa as a
Distributor of the Fund's shares) by the Trustees at their Meeting held on July
17, 1984, and such amendment was ratified by the shareholders holding a
majority, as defined in the Act, of the outstanding shares of the Fund, at their
Annual Meeting held on October 1, 1984. At their meeting held on October 30,
1992, the Trustees of the Fund, including all of the Independent 12b-1 Trustees,
approved certain amendments to the Plan which took effect in January, 1993 and
were designed to reflect the fact that upon an internal reorganization the share
distribution activities theretofore performed for the Fund by DWR were assumed
by the Distributor and DWR's sales activities are now being performed pursuant
to the terms of a selected dealer agreement between the Distributor and DWR. The
amendments provide that payments under the Plan will be made to the Distributor
rather than to DWR as before the amendment, and that the Distributor in turn is
authorized to make payments
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<PAGE>
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 of the Fund, including all of the
Independent 12b-1 Trustees, approved certain technical amendments to the Plan in
connection with recent amendments adopted by the National Association of
Securities Dealers, Inc. to its Rules of 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 by the Distributor under the Plan and
the purpose for which such expenditures were made. The Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended March
31, 1997, of $4,941,515. This amount is equal to payments required to be paid
monthly by the Fund which were computed at the annual rate of 1.0% of the
average daily net assets of the Fund for the fiscal year and was calculated
pursuant to clause (b) under the Plan. This amount is treated by the Fund as an
expense in the year it is accrued. This amount represents amounts paid by Class
B only; there were no Class A or Class C shares outstanding on such date.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set forth
in the Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value of
the respective accounts for which they are the account executives or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by 401(k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code for which Dean Witter Trust Company ("DWTC") or Dean Witter Trust FSB
("DWTFSB") serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper, the Investment Manager compensates DWR's account executives by
paying them, from its own funds, a gross sales credit of 1.0% of the amount
sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission, currently
a residual of up to 0.25% of the current value (not including reinvested
dividends or distributions) of the amount sold in all cases. In the case of
retirement plans qualified under Section 401(k) of the Internal Revenue Code and
other employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which DWTC or DWTFSB serves as Trustee or the 401(k) Support
Services Group of DWR serves as recordkeeper, and which plans are opened on or
after July 28, 1997, DWR compensates its account executives by paying them, from
its own funds, a gross sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value of
the respective accounts for which they are the account executives of record.
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<PAGE>
With respect to Class D shares other than shares held by participants in
InterCapital's mutual fund asset allocation program, the Investment Manager
compensates DWR's account executives by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of up
to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid if
the Class D shares are redeemed in the first year and a chargeback of 50% of the
amount paid if the Class D shares are redeemed in the second year after
purchase. The Investment Manager also compensates DWR's account executives by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the account executives of record (not including accounts of
participants in the InterCapital mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR to
its account executives and DWR's Fund-associated distribution-related expenses,
including sales compensation, and overhead and other branch office
distribution-related expenses including: (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares and (d) other
expenses relating to branch promotion of Fund share sales. The distribution fee
that the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred on behalf of the Fund and, 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 sales credit as it is reduced by amounts received by the Distributor
under the Plan and any contingent deferred sales charges received by the
Distributor upon redemption of shares of the Fund. No other interest charge is
included as a distribution expense in the Distributor's calculation of its
distribution costs for this purpose. The broker's call rate is the interest rate
charged to securities brokers on loans secured by exchange-listed securities.
The Fund paid 100% of the $4,941,515 accrued under the Plan for the fiscal
year ended March 31, 1997 to the Distributor. DWR and the Distributor estimate
that they have spent, pursuant to the Plan, $71,831,535 on behalf of the Fund
since the inception of the Fund. It is estimated that this amount was spent in
approximately the following ways: (i) 6.28% ($4,507,832)--advertising and
promotional expenses; (ii) 0.78% ($561,732)--printing of prospectuses for
distribution to other than current shareholders; and (iii) 92.94%
($66,761,971)--other expenses, including the gross sales credit and the carrying
charge, of which 16.68% ($11,137,491) represents carrying charges, 34.08%
($22,750,412) represents commission credits to DWR branch offices for payments
of commissions to account executives and 49.24% ($32,874,068) represents
overhead and other branch office distribution-related expenses. These amounts
represent amounts paid by Class B only; there were no Class A or Class C shares
outstanding on such date.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of Class
A, and 1.0%, in the case of Class C, of the average net assets of the respective
Class during the month. No interest or other financing charges, if any, incurred
on any distribution expenses on behalf of Class A and Class C will be
reimbursable under the Plan. With respect to Class A, in the case of all
expenses other than expenses representing the service fee, and, with respect to
Class C, in the case of all expenses other than expenses representing a gross
sales credit or a residual to account executives, such amounts shall be
determined at the beginning of each calendar quarter by the Trustees, including
a majority of the Independent 12b-1 Trustees. Expenses representing the service
fee (for Class A) or a gross sales credit or a residual to account executives
(for Class C) may be reimbursed without prior determination. In the event that
the Distributor proposes that monies shall be reimbursed for other than such
expenses, then
37
<PAGE>
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.
At any given time, the expenses in 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 such excess amount, including the carrying charge
designed to approximate the opportunity costs incurred by DWR which arise from
it having advanced monies without having received the amount of any sales
charges imposed at the time of sale of the Fund's Class B shares, totalled
$20,399,997 as of March 31, 1997, which amount constitutes 4.87% of the Fund's
net assets on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all 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, had any direct or indirect
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 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 July 31, 1984, and will
remain in effect 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 Board
requested and received from the Distributor and reviewed all the information
which it 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 by the
Distributor 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 of the shareholders of the
affected Class or Classes of the Fund, and all material amendments of the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) on not more
than thirty days' written notice to any other party to the Plan. So long as the
Plan is in effect, the election and nomination of Independent 12b-1 Trustees
shall be committed to the discretion of the Independent 12b-1 Trustees.
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<PAGE>
DETERMINATION OF NET ASSET VALUE
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As stated in the Prospectus, short-term debt securities with remaining
maturities of sixty days or less at the time of purchase are valued at amortized
cost, unless the Board of Trustees determines 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.
As stated in the Prospectus, InterCapital will compute the net asset value
per share for each Class of shares of the Fund 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 the New York Stock Exchange is open for
trading. The New York Stock Exchange currently observes the following holidays:
New Year's Day; Presidents' Day; Good Friday; Memorial Day; Labor Day;
Independence 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 benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other Dean Witter Funds that are multiple class funds
("Dean Witter Multi-Class Funds") or shares of other Dean Witter Funds sold with
a front-end sales charge purchased at a price including a front-end sales charge
having a current value of $5,000, and purchases $20,000 of additional shares of
the Fund, the sales charge applicable to the $20,000 purchase would be 4.75% of
the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Distributor or Dean Witter Trust Company (the "Transfer
Agent") fails to confirm the investor's represented holdings.
LETTER OF INTENT. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund from
the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
39
<PAGE>
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
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
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<PAGE>
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 OF
PAYMENT MADE AMOUNT REDEEMED
- ------------------------------------------------------------------------------------------ --------------------------
<S> <C>
First..................................................................................... 5.0%
Second.................................................................................... 4.0%
Third..................................................................................... 3.0%
Fourth.................................................................................... 2.0%
Fifth..................................................................................... 2.0%
Sixth..................................................................................... 1.0%
Seventh and thereafter.................................................................... None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund held by 401(k) plans or other employer-sponsored plans
qualified under Section 401(a) of the Internal Revenue Code for which DWTC or
DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves as
recordkeeper and whose accounts are opened on or after July 28, 1997:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE 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.
41
<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 distributrions 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 must
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 another selected broker-dealer, which
will be forwarded to the shareholder, upon the receipt of proper instructions.
TARGETED DIVIDENDS.-SM- In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end Dean Witter Fund
other than Dean Witter World Wide Investment Trust or in another Class of Dean
Witter World Wide Investment 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.-SM- Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing account at the net asset value calculated the same business day the
transfer of funds is effected. For further information or to subscribe to
EasyInvest, shareholders should contact their account executive or the Transfer
Agent.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares of
the applicable Class at net asset value, without the imposition of a CDSC upon
redemption, by returning the check or the proceeds to the Transfer Agent within
thirty days after the payment date. If the shareholder returns the proceeds of a
dividend or distribution, such funds must be accompanied by a signed statement
indicating that the proceeds constitute a dividend or distribution to be
invested. Such investment will be made at the net asset value per share next
determined after receipt of the check or proceeds by the Transfer Agent.
42
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount, not
less than $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable CDSC will be imposed on shares redeemed under
the Withdrawal Plan (see "Purchase of Fund Shares"). Therefore, any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed from
his or her account so that the proceeds (net of any applicable CDSC) to the
shareholder will be the designated monthly or quarterly amount.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent, or amounts credited to a shareholder's DWR 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 DWR or other selected broker-dealer 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. Shareholders
wishing to enroll in the Withdrawal Plan should contact their account executive
or the Transfer Agent.
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 World Wide Investment Trust, and indicating
the selected Class, directly to the Fund's Transfer Agent. In the case of Class
A shares, after deduction of any applicable sales charge, the balance will be
applied to the purchase of Fund shares, and, in the case of shares of the other
Classes, the entire amount will be applied to the purchase of Fund shares, at
the net asset value per share next computed after receipt of the check or
purchase payment by the Transfer Agent. The shares so purchased will be credited
to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of each Class of shares of the Fund
may exchange their shares for shares of
43
<PAGE>
the same Class of shares of any other Dean Witter Multi-Class Fund without the
imposition of any exchange fee. Shares may also be exchanged for shares of any
of the following funds: Dean Witter Short-Term U.S. Treasury Trust, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter
Intermediate Term U.S. Treasury Trust and five Dean Witter Funds which are money
market funds (the foregoing nine funds are hereinafter referred to as the
"Exchange Funds"). Class A shares may also be exchanged for shares of Dean
Witter Multi-State Municipal Series Trust and Dean Witter Hawaii Municipal
Trust, which are Dean Witter Funds sold with a front-end sales charge ("FSC
Funds"). Class B shares may also be exchanged for shares of Dean Witter Global
Short-Term Income Fund Inc., Dean Witter High Income Securities and Dean Witter
National Municipal Trust, which are Dean Witter Funds offered with a CDSC ("CDSC
Funds"). Exchanges may be made after the shares of the fund acquired by purchase
(not by exchange or dividend reinvestment) have been held for thirty days. There
is no waiting period for exchanges of shares acquired by exchange or dividend
reinvestment. An exchange will be treated for federal income tax purposes the
same as a repurchase or redemption of shares, on which the shareholder may
realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the captions "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a Dean Witter
Multi-Class Fund or any CDSC Fund are exchanged for shares of an Exchange Fund,
the exchange is executed at no charge to the shareholder, without the imposition
of the CDSC at the time of the exchange. During the period of time the
shareholder remains in the Exchange Fund (calculated from the last day of the
month in which the Exchange Fund shares were acquired), the holding period or
"year since purchase payment made" is frozen. When shares are redeemed out of
the Exchange Fund, they will be subject to a CDSC which would be based upon the
period of time the shareholder held shares in a Dean Witter Multi-Class Fund or
in a CDSC Fund. However, in the case of shares exchanged into an Exchange Fund
on or after April 23, 1990, upon a redemption of shares which results in a CDSC
being imposed, a credit (not to exceed the amount of the CDSC) will be given in
an amount equal to the Exchange Fund 12b-1 distribution fees incurred on or
after that date which are attributable to those shares. Shareholders acquiring
shares of an Exchange Fund pursuant to this exchange privilege may exchange
those shares back into a Dean Witter Multi-Class Fund or a CDSC Fund from the
Exchange Fund, with no charge 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 a CDSC Fund are reacquired. A CDSC is imposed only upon an
ultimate redemption, based upon the time (calculated as described above) the
shareholder was invested in a Dean Witter Multi-Class Fund or in a CDSC Fund. In
the case of exchanges of Class A shares which are subject to a CDSC, the holding
period also includes the time (calculated as described above) the shareholder
was invested in a FSC Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or in a
CDSC Fund are exchanged for shares of a Dean Witter Multi-Class Fund, shares of
a CDSC Fund, shares of a FSC Fund, or shares of an Exchange Fund, the date of
purchase of the shares of the fund exchanged into, for purposes of the CDSC upon
redemption, will be the last day of the month in which the shares being
exchanged were originally purchased. In allocating the purchase payments between
funds for purposes of the CDSC, the amount which represents the current net
asset value of shares at the time of the exchange which were (i) purchased more
than one, three or six years (depending on the CDSC schedule applicable to the
shares) prior to the exchange, (ii) originally acquired through reinvestment of
44
<PAGE>
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 and 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 various selected broker-dealers 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, at their discretion, accept initial investments
of as low as $1,000. The minimum initial investment for the Exchange Privilege
account of each Class is $10,000 for Dean Witter Short-Term U.S. Treasury Trust,
although that fund may, at its discretion, accept purchases as low as $5,000.
The minimum initial investment for the Exchange Privilege account of each Class
is $5,000 for Dean Witter Special Value Fund. The minimum initial investment for
the Exchange Privilege account of each Class of all other Dean Witter Funds for
which the Exchange Privilege is available is $1,000.) Upon exchange into an
Exchange Fund, the shares of that fund will be held in a special Exchange
Privilege Account separately from accounts of those shareholders who have
acquired their shares directly from that fund. As a result, certain services
normally available to shareholders of those funds, including the check writing
feature, will not be available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege
45
<PAGE>
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 shareholders who
hold shares of Exchange Funds pursuant to this Exchange Privilege, and provided
further that the Exchange Privilege may be terminated or materially revised
without notice at times (a) when the New York Stock Exchange is closed for other
than customary weekends and holidays, (b) when trading on that Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange Commission
by order so permits (provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist) or (e) if the Fund would be unable to invest
amounts effectively in accordance with its investment objective, policies and
restrictions. 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.
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 acccount 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
46
<PAGE>
selected broker-dealers upon the telephonic request of the shareholder. The
repurchase price is the net asset value next computed after such purchase order
is received by DWR or other selected broker-dealer reduced by any applicable
CDSC.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the prospectus,
payment for shares of any Class presented for repurchase or redemption will be
made by check within seven days after receipt by the Transfer Agent of the
certificate and/or written request in good order. Such payment may be postponed
or the right of redemption suspended at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on that Exchange is restricted, (c) when an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check (including a certified or bank cashier's
check), payment of redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another selected
broker-dealer are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all of the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 35 days after the date of
redemption or repurchase, reinstate any portion or all of the proceeds of such
redemption or repurchase in shares of the Fund in the same Class at the net
asset value next determined after a reinstatement request, together with the
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus under "Dividends, Distributions and Taxes,"
the Fund will determine either to distribute or to retain all or part of any net
long-term capital gains in any year for reinvestment. If any such gains are
retained, the Fund will pay federal income tax thereon, and shareholders will
include such undistributed gains in determining their taxable income and will be
able to claim their share of the tax paid by the Fund as a credit against their
individual federal income tax.
Gains or losses on sales of securities by the Fund generally 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 generally will be short-term capital gains or losses.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code").
If so qualified, the Fund will not be subject to
47
<PAGE>
federal income tax on its net investment income and net short-term capital
gains, if any, realized during any fiscal year to the extent that it distributes
such income and capital gains to its shareholders, other than any tax resulting
from investing in passive foreign investment companies, as discussed in the
Prospectus. In addition, the Fund intends to distribute to its shareholders each
calendar year a sufficient amount of ordinary income and capital gains to avoid
the imposition of a 4% excise tax.
Shareholders will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from net
investment income or short-term capital gains, are taxable to the shareholder as
ordinary income regardless of whether the shareholder receives such payments in
additional shares or in cash. Any dividends declared in the last quarter of any
calendar year which are paid in the following year prior to February 1 will be
deemed received by the shareholder in the prior year.
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.
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 investment which the Fund has held for
a minimum period, usually 46 days. Any distributions made by the Fund will not
be eligible for the dividends received deduction with respect to shares which
are held by the shareholder for 45 days or less. Any long-term capital gain
distributions will also not be eligible for the dividends received deduction.
The ability to take the dividends received deduction will also be limited in the
case of a Fund shareholder which incurs or continues indebtedness which is
directly attributable to its investment in the Fund.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and some
portion of the dividends are subject to federal income taxes. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
the payment of dividends or the distribution of realized long-term capital
gains, such payment or distribution would be in part a return of the
shareholder's investment to the extent of such reduction below the shareholder's
cost, but nonetheless would be fully taxable. Therefore, an investor should
consider the tax implications of purchasing Fund shares immediately prior to a
distribution record date.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions and treaties between
certain countries and the United States may reduce or eliminate such taxes.
Investors may be entitled to claim United States foreign tax credits with
respect to such taxes, subject to certain provisions and limitations contained
in the Code. If more than 50% of the Fund's total assets at the close of its
fiscal year consist of securities of foreign corporations, the Fund will be
eligible and will determine whether or not to file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required to
include their respective pro rata portions of such withholding taxes in their
United States income tax returns as gross income, treat such respective pro rata
portions as taxes paid by them, and deduct such respective pro rata portions in
computing their taxable incomes or, alternatively, use them as foreign tax
credits against their United States income taxes. If it qualifies for and elects
to file such election with the Internal Revenue Service, the Fund will report
annually to its shareholders the amount per share of such withholding. The Fund
does not intend to make such election for its fiscal year ended March 31, 1997.
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of certain
technical tax provisions applying to such
48
<PAGE>
companies could result in the imposition of federal income tax with respect to
such investments at the Fund level which could not be eliminated by
distributions to shareholders. It is not anticipated that any taxes on the Fund
with respect to investments in PFICs would be significant.
The Fund may be subject to taxes in foreign countries in which it invests.
In addition, if the Fund were deemed to be a resident of the United Kingdom for
United Kingdom tax purposes or if the Fund were treated as being engaged in a
trading activity through an agent in the United Kingdom, there is a risk that
the United Kingdom would attempt to tax all or a portion of the Fund's gains or
income. In light of the terms and conditions of the Investment Management and
Sub-Advisory Agreements, it is believed by the Investment Manager that any such
risk is minimal.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies are currently considered to be qualifying
income for purposes of determining whether the Fund qualifies as a regulated
investment company. It is currently unclear, however, who will be treated as the
issuer of certain foreign currency instruments or how foreign currency options,
futures, or forward currency contracts will be valued for purposes of the
regulated investment company diversification requirements applicable to the
Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (I.E.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts," and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund would
not be able to make any ordinary dividend distributions.
Shareholders are urged to consult their own attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. These figures are
computed separately for Class A, Class B, Class C and Class D shares. The Fund's
"average annual total return" represents an annualization of the Fund's total
return over a particular period and is computed by finding the annual percentage
rate which will result in the ending redeemable value of a hypothetical $1,000
investment made at the beginning of a one, five or ten year period, or for the
period from the date of commencement of operations, if shorter than any of the
foregoing. The ending redeemable value is reduced by any CDSC at the end of the
one, five or ten year or other period. For the purpose of this calculation, it
is assumed that all dividends and distributions are reinvested. The formula for
computing the average annual total return involves a percentage obtained by
dividing the ending redeemable value by the amount of the initial investment,
taking a root of the quotient (where the root is equivalent to the number of
years in the period) and subtracting 1 from the result. The average annual total
returns of the Fund for the one, five and ten year periods ended March 31, 1997
were -3.13%, 6.58% and 6.02%, respectively. These returns are for Class B only;
there were no other Classes of shares outstanding on such date.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for Class A
or the deduction of the CDSC for each of Class B and Class C which, if
reflected, would reduce the
49
<PAGE>
performance quoted. For example, the average annual total return of the Fund may
be calculated in the manner described in the preceding paragraph, but without
deduction for any applicable sales charge. Based on this calculation, the
average annual total returns of the Fund for the one, five and ten year periods
ended March 31, 1997 were 1.61%, 6.89% and 6.02%, respectively. These returns
are for Class B only; there were no other Classes of shares outstanding on such
date.
In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without reduction for any sales charge) by the initial $1,000 investment
and subtracting 1 from the result. Based on the foregoing calculation, the
Fund's total return for the year ended March 31, 1997 was 1.61%, the total
return for the five years ended March 31, 1997 was 39.55% and the total return
for the ten year period ended March 31, 1997 was 79.36%. These returns are for
Class B only; there were no other Classes of shares outstanding on such date.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge) or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as the
case may be. Investments of $10,000, $50,000 and $100,000 in the Fund at
inception would have grown to $36,853, $184,265 and $368,530, respectively, at
March 31, 1997. This information is for Class B only; there were no other
Classes of shares outstanding on
such date.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, One Chase Plaza, New York, New York 10081 is the
Custodian of the Fund's assets. As Custodian, The Chase Manhattan Bank has
contracted with various foreign banks and depositaries to hold portfolio
securities of non-U.S. issues on behalf of the Fund. Any of the Fund's cash
balances with the Custodian in excess of $100,000 are unprotected by federal
deposit insurance. Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions of Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager, and Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services
Dean Witter Trust Company receives a per shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
serves as the independent accountants of the Fund. The independent accountants
are responsible for auditing the annual financial statements of the Fund.
50
<PAGE>
DESCRIPTION OF SHARES OF THE FUND
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. All of the Trustees have been elected by the shareholders of the Fund,
most recently at a Special Meeting of Shareholders held on May 21, 1997. On that
date, Wayne E. Hedien was also elected as a Trustee of the Fund, with his term
to commence on September 1, 1997. The Trustees themselves have the power to
alter the number and the terms of office of the Trustees, and they may at any
time lengthen their own terms or make their terms of unlimited duration and
appoint their own successors, provided that always at least a majority of the
Trustees has been elected by the shareholders of the Fund. Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove the
Trustees. The voting rights of shareholders are not cumulative, so that holders
of more than 50 percent of the shares voting can, if they choose, elect all
Trustees being selected, while the holders of the remaining shares would be
unable to elect any Trustees. The Fund is not required to hold Annual Meetings
of Shareholders.
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 further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his or its
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. It also provides that all third persons shall look solely to the
Fund's property for satisfaction of claims arising in connection with the
affairs of the Fund. With the exceptions stated, the Declaration of Trust
provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
The Fund shall be of unlimited duration subject to the provisions in the
Declaration of Trust concerning termination by action of the shareholders.
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 the independent accountants, will be sent to
shareholders each year. The Fund's fiscal year ends on March 31. The financial
statements of the Fund must be audited at least once a year by independent
accountants whose selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of InterCapital,
is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund included in this Statement of
Additional Information and incorporated by reference in the Prospectus 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.
51
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS, WARRANTS, RIGHTS
AND BONDS (96.3%)
ARGENTINA (0.2%)
ENERGY
38,500 Yacimentos Petroliferos
Fiscales S.A. (ADR)......... $ 1,020,250
---------------
AUSTRALIA (0.9%)
ENERGY
41,000 Broken Hill Proprietary Co.,
Ltd......................... 547,493
90,000 Woodside Petroleum Ltd........ 664,109
---------------
1,211,602
---------------
FOODS & BEVERAGES
740,000 Goodman Fielder Ltd........... 959,096
---------------
METALS & MINING
600,000 M.I.M. Holdings Ltd........... 805,923
262,000 Pasminco Ltd.................. 506,476
---------------
1,312,399
---------------
RETAIL
225,000 Woolworth's Ltd............... 602,675
---------------
TOTAL AUSTRALIA............... 4,085,772
---------------
AUSTRIA (0.1%)
CONSUMER PRODUCTS
2,665 Wolford AG.................... 298,093
---------------
BELGIUM (0.4%)
RESTAURANTS
1,840 Quick Restaurants S.A......... 95,714
---------------
RETAIL
35,500 G.I.B. Holdings Ltd........... 1,620,958
---------------
TOTAL BELGIUM................. 1,716,672
---------------
BRAZIL (3.1%)
BUILDING & CONSTRUCTION
103,000 Elevadores Atlas S.A.*........ 1,282,037
---------------
INVESTMENT COMPANIES
1,000,000 Brazilian Smaller Co.
Investment Trust PLC........ 1,380,000
200,000 Brazilian Smaller Co.
Investment Trust (Warrants
due 09/30/07)*.............. 146,000
---------------
1,526,000
---------------
RETAIL
80,000 Makro Atacadista S.A. (GDS)... 1,073,600
10,000 Makro Atacadista S.A. (ADR) -
144A**...................... 134,200
---------------
1,207,800
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
STEEL
1,904,000 Companhia Siderurgica Paulista
(Pref.)*.................... $ 1,310,627
---------------
STEEL & IRON
202,000 Companhia Acos Especia
(ADR)*...................... 925,160
---------------
TELECOMMUNICATIONS
24,705 Telecomunicacoes Brasileiras
S.A. (ADR).................. 2,529,174
---------------
UTILITIES - ELECTRIC
120,000 Centrais Electricas
Brasileiras S.A. (Class B)
(ADR)....................... 2,478,000
25,000,000 Companhia de Electricidade do
Estado da Bahia*............ 1,885,903
---------------
4,363,903
---------------
TOTAL BRAZIL.................. 13,144,701
---------------
CANADA (0.4%)
ENERGY
19,500 Talisman Energy, Inc.*........ 578,664
---------------
INDUSTRIALS
22,000 Canadian Pacific, Ltd......... 524,982
---------------
MANUFACTURING
35,000 Bombardier, Inc. (Class B).... 633,033
---------------
TOTAL CANADA.................. 1,736,679
---------------
CHILE (0.5%)
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
100,000 Compania Cervecerias Unidas
S.A. (ADR).................. 1,975,000
---------------
COLOMBIA (0.2%)
FINANCIAL SERVICES
3,465 Corporacion Financiera Valle
(GDR)....................... 12,994
---------------
RETAIL
42,000 Gran Cadena Almacenes (Class
B) (Pref.) (ADR) - 144A**... 414,750
30,000 Gran Cadena Almacenes (ADR) (B
Shares)..................... 292,500
---------------
707,250
---------------
TOTAL COLOMBIA................ 720,244
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
DENMARK (1.3%)
BUSINESS & PUBLIC SERVICES
20,200 Kobenhavns Lufthavne AS....... $ 2,093,232
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
2,270 Oticon Holding AS............. 381,357
---------------
PHARMACEUTICALS
29,000 Novo-Nordisk AS (Series B).... 3,027,900
---------------
TOTAL DENMARK................. 5,502,489
---------------
FRANCE (4.3%)
BUILDING MATERIALS
9,500 IMETAL........................ 1,475,646
---------------
BUSINESS & PUBLIC SERVICES
1,770 Grand Optical-Photoservice.... 273,996
---------------
COMMERCIAL SERVICES
550 Altran Technologies S.A....... 201,258
---------------
CONSUMER PRODUCTS
12,500 Societe BIC S.A............... 1,892,933
---------------
ENERGY
20,000 Elf Aquitaine S.A............. 2,043,925
---------------
FINANCIAL SERVICES
12,000 Cetelem Group................. 1,417,641
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
28,000 SEITA......................... 1,007,722
---------------
HEALTH & PERSONAL CARE
10,640 Sanofi S.A.................... 1,036,486
---------------
INSURANCE
41,000 AXA-UAP....................... 2,703,560
45,000 Scor.......................... 1,829,171
---------------
4,532,731
---------------
RETAIL
2,070 Carrefour Supermarche......... 1,279,910
6,122 Castorama Dubois
Investissement.............. 962,865
FRF 250 Castorama Dubois
Investissement 3.15% due
01/01/03 (Conv.)............ 54,331
2,129 Guilbert S.A.................. 395,935
---------------
2,693,041
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
STEEL & IRON
80,250 Usinor Sacilor................ $ 1,307,651
---------------
TEXTILES
2,433 Deveaux S.A................... 413,688
---------------
WHOLESALE & INTERNATIONAL TRADE
42 Bertrand Faure................ 2,131
---------------
TOTAL FRANCE.................. 18,298,849
---------------
GERMANY (3.8%)
APPAREL
14,400 Adidas AG..................... 1,628,648
---------------
AUTOMOBILES
2,750 Bayerische Motoren Werke (BMW)
AG.......................... 2,215,756
5,975 Volkswagen AG................. 3,287,944
---------------
5,503,700
---------------
CHEMICALS
37,746 BASF AG....................... 1,419,277
28,000 Bayer AG...................... 1,159,773
18,300 SGL Carbon AG................. 2,501,164
---------------
5,080,214
---------------
ENTERTAINMENT
1,043 CeWe Color Holdings AG........ 264,563
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
11,580 Berentzen-Gruppe AG (Pref.)... 352,480
---------------
FURNITURE
3,420 Moebel Walther AG............. 183,706
---------------
INSURANCE
1,452 Marschollek Lautenschlaeger
und Partner AG (Pref.)...... 303,312
---------------
PHARMACEUTICALS
10,500 Gehe AG....................... 717,547
---------------
RETAIL
12,732 Fielmann AG (Pref.)........... 355,630
---------------
TEXTILES
360 Jil Sander AG (Pref.)......... 217,010
3,000 Puma AG*...................... 111,549
---------------
328,559
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
UTILITIES - ELECTRIC
18,500 Veba AG....................... $ 1,042,868
---------------
TOTAL GERMANY................. 15,761,227
---------------
HONG KONG (4.4%)
BANKING
302,000 Guoco Group Ltd............... 1,492,734
77,200 HSBC Holdings PLC............. 1,793,356
39,000 Wing Hang Bank Ltd............ 171,128
---------------
3,457,218
---------------
CONGLOMERATES
367,000 Hutchison Whampoa Ltd......... 2,758,918
305,000 Wharf (Holdings) Ltd.......... 1,167,082
---------------
3,926,000
---------------
REAL ESTATE
241,000 Cheung Kong (Holdings) Ltd.... 2,122,738
580,000 China Overseas Land &
Investment.................. 314,379
140,000 China Resources Enterprise
Ltd......................... 301,732
271,000 Great Eagle Holdings Ltd...... 895,336
172,260 HKR International Ltd......... 227,869
823,000 Hong Kong Land Holdings
Ltd......................... 1,909,360
211,000 New World Development Co.,
Ltd......................... 1,138,244
---------------
6,909,658
---------------
TELECOMMUNICATIONS
1,188,400 Hong Kong Telecommunications
Ltd......................... 2,032,148
---------------
TRANSPORTATION
980,000 China Travel International
Investment Ltd.............. 471,117
---------------
UTILITIES
339,000 China Light & Power Co.,
Ltd......................... 1,491,870
---------------
TOTAL HONG KONG............... 18,288,011
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
INDIA (0.4%)
AUTOMOBILES
30,500 Mahindra & Mahindra Ltd.
(GDR)*...................... $ 343,125
---------------
BANKS
21,200 State Bank of India (GDR)*.... 473,820
---------------
METALS & MINING
22,000 Hindalco Industries Ltd.
(GDR)*...................... 709,500
---------------
TOTAL INDIA................... 1,526,445
---------------
INDONESIA (0.3%)
BANKS
921,000 PT Bank Negara................ 527,656
---------------
MEDICAL PRODUCTS & SUPPLIES
278,000 PT Kalbe Farma................ 312,750
---------------
TOBACCO
55,000 PT Hanjaya Mandala
Sampoerna................... 257,813
---------------
TOTAL INDONESIA............... 1,098,219
---------------
ITALY (1.4%)
APPAREL
7,500 Fila Holding SpA (ADR)........ 407,813
---------------
APPLIANCES & HOUSEHOLD DURABLES
19,375 Industrie Natuzzi SpA (ADR)... 462,578
---------------
ELECTRICAL EQUIPMENT
32,945 Gewiss SpA.................... 465,869
---------------
ELECTRONICS
17,047 Saes Getters Di Risp.......... 166,808
12,791 Saes Getters SpA.............. 183,165
---------------
349,973
---------------
ENERGY
298,000 Ente Nazionale Idrocarburi
SpA......................... 1,506,891
---------------
TELECOMMUNICATIONS
260,000 Seat SpA*..................... 89,976
260,000 Stet Societa Finanziaria
Telefonica SpA.............. 1,130,907
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
546,000 Telecom Italia Mobile SpA..... $ 1,563,723
---------------
2,784,606
---------------
VISION CARE & INSTRUMENTS
7,235 De Rigo SpA (ADR)*............ 49,741
---------------
TOTAL ITALY................... 6,027,471
---------------
JAPAN (17.7%)
AUTO PARTS
20,000 Bridgestone Metalpha Corp..... 156,730
---------------
AUTOMOBILES
433,000 Mitsubishi Motors Corp........ 3,207,796
150,000 Suzuki Motor Co., Ltd......... 1,454,193
---------------
4,661,989
---------------
BANKING
94,000 Asahi Bank, Ltd............... 590,822
133,000 Bank of Tokyo-Mitsubishi
Ltd......................... 2,073,760
161,000 Sumitomo Trust & Banking...... 1,287,688
---------------
3,952,270
---------------
BUILDING & CONSTRUCTION
2,000 Kaneshita Construction........ 14,461
322,000 Sekisui House Ltd............. 3,147,681
---------------
3,162,142
---------------
BUILDING MATERIALS
10,000 Nichiha Corp.................. 144,611
---------------
BUSINESS & PUBLIC SERVICES
5,000 Chuo Warehouse Co............. 34,052
3,000 Nichii Gakkan Co.............. 131,120
67,000 Secom......................... 3,761,916
---------------
3,927,088
---------------
CHEMICALS
600,000 Asahi Chemical Industrial Co.,
Ltd......................... 3,121,667
62,000 Kaneka Corp................... 330,086
323,000 Nippon Shokubai K.K. Co....... 1,925,788
30,000 Sumitomo Bakelite Co., Ltd.... 198,740
---------------
5,576,281
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE
12,000 Ines.......................... $ 142,511
12,000 Meitec........................ 240,427
---------------
382,938
---------------
CONGLOMERATES
554,000 Mitsui & Co................... 4,063,920
13,000 Yamae Hisano.................. 102,609
---------------
4,166,529
---------------
ELECTRICAL EQUIPMENT
195,000 Canon, Inc.................... 4,174,745
40,000 Kyocera Corp.................. 2,268,541
30,700 Mabuchi Motor Co.............. 1,510,446
150,000 Matsushita Electric Industrial
Co., Ltd.................... 2,338,827
11,000 Mitsui High-Tec............... 223,057
Y 1,000K Nippon Densan Corp. 1.00%
09/30/03 (Conv.)............ 9,937
16,500 Nitto Electric Works.......... 254,605
66,000 Rohm Co....................... 4,868,153
---------------
15,648,311
---------------
ELECTRONICS
46,000 Sony Corp..................... 3,214,574
---------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
25,000 Toshiba Ceramics Co., Ltd..... 168,242
---------------
ENGINEERING & CONSTRUCTION
119,000 Kajima Corp................... 553,757
---------------
FINANCIAL SERVICES
405,000 New Japan Securities Co.,
Ltd.*....................... 1,047,019
150,000 Nomura Securities Co., Ltd.... 1,660,204
---------------
2,707,223
---------------
HEALTH & PERSONAL CARE
11,000 Aderans Co., Ltd.............. 238,164
20,000 Kawasumi Laboratories, Inc.... 242,365
15,000 Terumo Corp................... 212,070
---------------
692,599
---------------
INSURANCE
312,000 Tokio Marine & Fire Insurance
Co.......................... 3,175,957
---------------
LEISURE
3,000 H.I.S. Co., Ltd............... 135,725
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
MACHINE TOOLS
6,600 Nitto Kohki Co., Ltd.......... $ 188,221
---------------
MACHINERY
18,000 Aichi Corp.................... 103,975
273,980 Asahi Diamond Industries Co.,
Ltd......................... 2,180,242
225,000 Minebea Co., Ltd.............. 1,872,273
439,000 Mitsubishi Heavy Industries,
Ltd......................... 2,855,025
30,000 OSG Corp...................... 178,139
---------------
7,189,654
---------------
METALS
10,000 Sumitomo Sitix Corp........... 175,311
---------------
REAL ESTATE
15,000 Chubu Sekiwa Real Estate,
Ltd......................... 130,877
400 Japan Industrial Land
Development................. 4,363
9,000 Sekiwa Real Estate............ 59,622
---------------
194,862
---------------
RETAIL
6,000 Circle K Japan Co., Ltd....... 252,060
9,300 Ministop Co., Ltd............. 235,919
11,000 Olympic Corp.................. 227,500
11,000 Shimachu Co., Ltd............. 257,715
---------------
973,194
---------------
STEEL & IRON
1,500,000 NKK Corp...................... 3,150,751
20,000 Yamato Kogyo Co., Ltd......... 171,272
---------------
3,322,023
---------------
TELECOMMUNICATIONS
446 DDI Corp...................... 2,814,073
363 Nippon Telegraph & Telephone
Corp........................ 2,554,314
---------------
5,368,387
---------------
TELECOMMUNICATIONS EQUIPMENT
3,000 Forval Corp................... 76,587
Y 11,000K Forval Corp. 1.35% 09/30/03
(Conv.)..................... 82,647
---------------
159,234
---------------
TEXTILES
192,000 Kuraray Co., Ltd.............. 1,549,588
70,000 Nitto Boseki Co., Ltd......... 202,456
---------------
1,752,044
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION
369,000 Nippon Yusen Kabushiki
Kaish....................... $ 1,305,720
100,000 Yamato Transport Co., Ltd..... 985,620
---------------
2,291,340
---------------
WHOLESALE DISTRIBUTOR
3,960 Fujimi, Inc................... 207,950
---------------
TOTAL JAPAN................... 74,249,186
---------------
MALAYSIA (3.4%)
AGRICULTURE
218,000 IOI Corporated Berhad......... 362,337
---------------
AUTO PARTS
74,000 MBM Resources Berhad.......... 203,001
---------------
AUTOMOBILES
168,000 Diversified Resources
Berhad...................... 548,975
78,000 Perusahaan Otomobil Nasional
Berhad...................... 494,029
---------------
1,043,004
---------------
BANKING
334,000 Arab Malaysian Finance
Berhad...................... 1,010,570
163,000 DCB Holdings Berhad........... 614,834
456,250 Public Finance Berhad......... 754,649
---------------
2,380,053
---------------
BUILDING & CONSTRUCTION
139,999 Gamuda Berhad................. 530,898
18,666 Gamuda Berhad (Warrants)...... 6,024
280,000 Metacorp Berhad............... 807,649
191,000 Road Builder (M) Holdings
Berhad...................... 1,109,569
272,000 Sunway City Berhad............ 696,789
---------------
3,150,929
---------------
ENTERTAINMENT
120,000 Berjaya Sports Toto Berhad.... 614,814
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
40,000 RJ Reynolds Berhad............ 98,435
---------------
LEISURE
1,022,000 Magnum Corporation Berhad..... 1,937,793
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
MACHINERY
100,000 UMW Holdings Berhad........... $ 552,687
338,000 United Engineers Malaysia
Berhad...................... 2,945,296
---------------
3,497,983
---------------
REAL ESTATE
186,000 Bandar Raya Developments
Berhad...................... 366,177
---------------
TELECOMMUNICATIONS
50,000 Telekom Malaysia Berhad....... 389,301
---------------
TOTAL MALAYSIA................ 14,043,827
---------------
MEXICO (2.9%)
BUILDING & CONSTRUCTION
220,000 International de Ceramica S.A.
de C.V. (ADR)*.............. 304,829
---------------
BUILDING MATERIALS
430,000 Cemex, S.A. de C.V. (B
Shares)..................... 1,739,570
---------------
ENGINEERING & CONSTRUCTION
274,240 Corporacion GEO S.A. de C.V.
(Series B)*................. 1,310,528
---------------
FINANCIAL SERVICES
4,500,000 Grupo Financiero Bancomer S.A.
de C.V. (B Shares)*......... 1,609,987
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
124,000 Sigma Alimentos S.A........... 1,332,491
---------------
FOODS & BEVERAGES
273,000 Fomento Economico Mexicano
S.A. de C.V. (Series B)..... 1,211,416
---------------
RETAIL
380,000 Nacional de Drogas S.A. de
C.V. (Series L)............. 1,369,153
---------------
TELECOMMUNICATIONS
87,800 Telefonos de Mexico S.A. de
C.V. (Series L) (ADR)....... 3,380,300
---------------
TOTAL MEXICO.................. 12,258,274
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
NETHERLANDS (4.4%)
APPLIANCES & HOUSEHOLD DURABLES
32,986 Ahrend Groep NV............... $ 2,105,527
---------------
BANKING
52,771 ING Groep NV.................. 2,076,116
---------------
CHEMICALS
11,900 Akzo Nobel.................... 1,706,697
---------------
CONSUMER PRODUCTS
23,770 Gucci Group NV................ 1,736,182
---------------
INSURANCE
22,936 Aegon NV...................... 1,612,993
---------------
MACHINERY
14,740 Aalberts Industries NV........ 337,425
---------------
MEDIA
100,000 Elsevier NV................... 1,623,722
35,000 PolyGram NV................... 1,757,081
60,000 Ver Ned Utigev Ver Bezit NV... 1,232,964
18,620 Wolters Kluwer NV............. 2,239,277
---------------
6,853,044
---------------
MERCHANDISING
31,215 Koninklijke Ahold NV.......... 2,171,955
---------------
TOTAL NETHERLANDS............. 18,599,939
---------------
NORWAY (0.3%)
DATA PROCESSING
18,979 System Etikettering AS........ 275,432
---------------
ENTERTAINMENT
77,001 NCL Holdings AS (Series A)*... 238,627
---------------
MACHINERY
26,485 Tomra Systems AS.............. 532,503
---------------
OIL DRILLING & SERVICES
39,830 Hitec AS*..................... 225,794
---------------
TOTAL NORWAY.................. 1,272,356
---------------
PERU (0.3%)
FOOD SERVICES
400,000 Consorcio Alimentos Fabril
Pacifico.................... 573,585
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
755,917 Cerveceria Backus & Johnston
S.A.*....................... $ 676,046
---------------
TOTAL PERU.................... 1,249,631
---------------
PHILIPPINES (0.2%)
BANKING
3,129 Metropolitan Bank & Trust
Co.......................... 81,373
2,600 Union Bank of Philippines*.... 2,863
---------------
84,236
---------------
CONGLOMERATES
44,712 Ayala Corp. - 144A** *........ 380,052
---------------
ENGINEERING & CONSTRUCTION
405,000 DMCI Holdings, Inc.*.......... 288,297
---------------
OIL DRILLING & SERVICES
112,500 First Philippine Holdings
Corp. (B Shares)............ 207,147
---------------
TRANSPORTATION
26,400 International Container
Terminal.................... 15,786
---------------
TOTAL PHILIPPINES............. 975,518
---------------
PORTUGAL (0.1%)
MEDIA
30,000 Journalgeste*................. 320,532
226,000 TVI-Televisao Independente
S.A.*....................... 114,026
---------------
TOTAL PORTUGAL................ 434,558
---------------
SINGAPORE (1.2%)
BANKING
107,000 Overseas Chinese Banking
Corp., Ltd.................. 1,274,074
---------------
ELECTRICAL EQUIPMENT
110,000 Amtek Engineering Ltd......... 192,662
52,500 Venture Manufacturing Ltd..... 128,660
---------------
321,322
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE
139,000 City Developments Ltd......... $ 1,231,707
334,000 DBS Land Ltd.................. 1,142,236
---------------
2,373,943
---------------
SHIPBUILDING
126,000 Sembawang Corp., Ltd.......... 606,231
---------------
TRANSPORTATION
79,000 Singapore Airlines Ltd........ 634,406
---------------
TOTAL SINGAPORE............... 5,209,976
---------------
SOUTH AFRICA (0.6%)
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
120,000 Malbak Ltd.................... 597,420
---------------
METALS & MINING
21,500 De Beers Consolidated Mines
Ltd. (Units)++.............. 783,322
35,200 Rustenburg Platinum Holdings
Ltd......................... 569,541
---------------
1,352,863
---------------
OIL & GAS
50,000 Sasol Ltd..................... 534,623
---------------
TOTAL SOUTH AFRICA............ 2,484,906
---------------
SOUTH KOREA (0.2%)
ELECTRICAL EQUIPMENT
14,353 Samsung Electronics Co. (GDS)
(Non-voting) - 144A**....... 292,683
---------------
UTILITIES - ELECTRIC
15,000 Korea Electric Power Corp..... 436,730
---------------
TOTAL SOUTH KOREA............. 729,413
---------------
SPAIN (1.6%)
BANKING
25,000 Banco Bilbao Vizcaya S.A...... 1,509,500
11,250 Banco Popular Espanol S.A..... 2,012,491
---------------
3,521,991
---------------
FINANCIAL SERVICES
13,300 Corporacion Financiera Alba... 1,307,537
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
NATURAL GAS
4,360 Gas Natural SDG S.A. (Series
E).......................... $ 947,786
---------------
TELECOMMUNICATIONS
45,000 Telefonica de Espana S.A...... 1,081,457
---------------
TOTAL SPAIN................... 6,858,771
---------------
SWEDEN (2.0%)
AUTO TRUCKS & PARTS
73,400 Scania AB (A Shares).......... 1,829,434
---------------
BUILDING & CONSTRUCTION
5,570 Cardo AB...................... 178,860
---------------
COMMERCIAL SERVICES
42,700 Securitas AB (Series "B"
Free)....................... 1,216,300
---------------
INSURANCE
58,700 Scandia Forsakrings AB........ 1,838,487
---------------
PHARMACEUTICALS
30,000 Astra AB (B Shares)........... 1,402,479
---------------
STEEL & IRON
7,713 SinterCast AB (Series "A"
Free)*...................... 154,606
---------------
TELECOMMUNICATIONS
49,500 Ericsson (L.M.) Telephone Co.
AB (Series "B" Free)........ 1,736,384
---------------
TOTAL SWEDEN.................. 8,356,550
---------------
SWITZERLAND (2.0%)
CHEMICALS - SPECIALTY
2,253 Ciba Specialty Chemicals AG... 185,157
---------------
ELECTRICAL EQUIPMENT
1,280 ABB AG - Bearer............... 1,529,282
---------------
INSURANCE
1,000 Schweizerische
Rueckversicherungs-
Gesellschaft................ 1,056,630
---------------
PHARMACEUTICALS
2,253 Novartis AG................... 2,778,907
312 Roche Holding AG.............. 2,681,519
---------------
5,460,426
---------------
TOTAL SWITZERLAND............. 8,231,495
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
TAIWAN (0.5%)
BUILDING MATERIALS
9,087 Asia Cement Corp. (GDR)....... $ 168,109
---------------
INVESTMENT COMPANIES
100,000 Paribas Emerging Markets Fund
- Taiwan Series*............ 1,043,000
---------------
RETAIL
$ 180K Far Eastern Department Stores
3.00% due 07/06/01 (Conv.) -
144A**...................... 188,550
---------------
STEEL
12,230 China Steel Corp.............. 236,039
---------------
TRANSPORTATION
$ 300K Yang Ming Marine
Transportation 2.00% due
10/06/01 (Conv.) - 144A**... 344,250
---------------
TOTAL TAIWAN.................. 1,979,948
---------------
THAILAND (0.1%)
OIL RELATED
18,000 PTT Exploration & Production
PCL......................... 267,746
---------------
UNITED KINGDOM (12.3%)
AEROSPACE & DEFENSE
46,000 British Aerospace PLC......... 1,027,747
353,000 Rolls-Royce PLC............... 1,318,328
63,000 Smiths Industries PLC......... 821,424
25,800 Vickers PLC................... 101,425
---------------
3,268,924
---------------
APPLIANCES & HOUSEHOLD DURABLES
53,500 MFI Furniture Group PLC....... 127,068
---------------
AUTO PARTS
24,800 Laird Group PLC............... 144,006
---------------
AUTO PARTS - ORIGINAL EQUIPMENT
231,900 BBA Group PLC................. 1,375,065
---------------
BANKING
119,000 Abbey National PLC............ 1,452,169
93,000 National Westminster Bank
PLC......................... 1,056,436
---------------
2,508,605
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
BUILDING & CONSTRUCTION
243,000 Blue Circle Industries PLC.... $ 1,651,841
80,000 CRH PLC....................... 791,482
---------------
2,443,323
---------------
BUILDING MATERIALS
51,800 Scapa Group................... 187,091
---------------
BUSINESS & PUBLIC SERVICES
59,000 Reuters Holdings PLC.......... 599,180
---------------
CHEMICALS
120,000 Albright & Wilson PLC......... 307,616
57,585 Allied Colloids Group PLC..... 116,019
125,000 Courtaulds PLC................ 743,242
---------------
1,166,877
---------------
COMPUTER SOFTWARE
54,363 SEMA Group PLC................ 1,224,168
---------------
CONGLOMERATES
250,000 BTR PLC....................... 1,093,365
---------------
CONSUMER PRODUCTS
110,000 Vendome Luxury Group PLC
(Units)++................... 918,918
---------------
DISTRIBUTION
24,100 Cowie Group PLC............... 155,140
---------------
ELECTRICAL EQUIPMENT
224,000 General Electric Co. PLC...... 1,372,251
221,000 The BICC Group PLC............ 966,535
---------------
2,338,786
---------------
ENERGY
284,000 Lasmo PLC..................... 1,107,157
233,000 Shell Transport & Trading Co.
PLC......................... 4,140,946
---------------
5,248,103
---------------
ENTERTAINMENT
72,000 Granada Group PLC............. 1,083,832
30,100 London Clubs International
PLC......................... 205,104
---------------
1,288,936
---------------
FOOD PROCESSING
146,000 Associated British Foods
PLC......................... 1,312,923
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
71,000 Bass PLC...................... 946,084
33,650 Devro International PLC....... 167,561
186,000 Guinness PLC.................. 1,567,517
---------------
2,681,162
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
FOREST PRODUCTS, PAPER & PACKING
29,700 David S. Smith Holdings PLC... $ 121,135
100,000 De La Rue PLC................. 912,366
---------------
1,033,501
---------------
HEALTH & PERSONAL CARE
169,000 Glaxo Wellcome PLC............ 3,089,334
236,833 Medeva PLC.................... 1,187,073
---------------
4,276,407
---------------
HEALTHCARE
6,600 Amersham International PLC.... 133,838
---------------
INSURANCE
109,000 General Accident PLC.......... 1,460,027
195,000 Prudential Corp. PLC.......... 1,814,249
223,000 Royal & Sun Alliance Insurance
Group PLC................... 1,640,080
---------------
4,914,356
---------------
MACHINERY
10,700 Spirax-Sarco Engineering
PLC......................... 114,536
290,000 Tomkins PLC................... 1,292,054
---------------
1,406,590
---------------
MANUFACTURING
65,700 Bunzl PLC..................... 234,604
9,100 Vosper Thornycroft Holdings
PLC......................... 132,960
---------------
367,564
---------------
MEDIA
6,500 Daily Mail & General Trust
(Class A)................... 175,676
15,900 EMAP PLC...................... 202,363
54,000 Flextech PLC*................. 550,171
85,100 General Cable PLC*............ 254,394
45,100 Mirror Group PLC.............. 154,396
---------------
1,337,000
---------------
MERCHANDISING
107,000 Next PLC...................... 1,091,907
---------------
PHARMACEUTICALS
117,430 British Biotech PLC*.......... 482,799
---------------
REAL ESTATE
20,400 Bradford Properties Trust
PLC......................... 97,572
54,375 Pillar Property Investments
PLC......................... 197,727
---------------
295,299
---------------
RESTAURANTS
9,600 Compass Group PLC............. 103,312
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
484,000 British Telecommunications
PLC......................... $ 3,535,852
371,730 Securicor PLC................. 1,790,148
224,000 Vodafone Group PLC............ 1,023,684
---------------
6,349,684
---------------
TRANSPORTATION
31,400 Associated British Ports
Holdings PLC................ 141,956
102,000 British Airways PLC........... 1,096,019
15,800 Forth Ports PLC............... 168,223
14,088 Stagecoach Holdings PLC....... 156,918
---------------
1,563,116
---------------
TOTAL UNITED KINGDOM.......... 51,437,013
---------------
UNITED STATES (24.7%)
AEROSPACE & DEFENSE
25,000 Boeing Co..................... 2,465,625
43,000 General Motors Corp. (Class
H).......................... 2,332,750
125,000 Watkins-Johnson Co............ 2,859,375
---------------
7,657,750
---------------
AUTOMOBILES
100,000 Ford Motor Co................. 3,137,500
55,000 General Motors Corp........... 3,045,625
---------------
6,183,125
---------------
BANKING
30,000 Citicorp...................... 3,247,500
---------------
BEVERAGES - SOFT DRINKS
56,000 Coca Cola Co.................. 3,129,000
103,000 PepsiCo Inc................... 3,360,375
---------------
6,489,375
---------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE
48,000 Cisco Systems, Inc.*.......... 2,310,000
---------------
COMPUTER SOFTWARE
32,000 Microsoft Corp.*.............. 2,932,000
69,000 Oracle Corp.*................. 2,656,500
---------------
5,588,500
---------------
COMPUTERS - PERIPHERAL EQUIPMENT
59,000 Seagate Technology, Inc.*..... 2,647,625
---------------
COMPUTERS - SYSTEMS
64,000 Hewlett-Packard Co............ 3,408,000
---------------
CONGLOMERATES
51,000 Litton Industries, Inc.*...... 2,052,750
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
ELECTRICAL EQUIPMENT
56,000 Emerson Electric Co........... $ 2,520,000
---------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
97,000 Micron Technology, Inc........ 3,928,500
---------------
ENERGY
28,000 Exxon Corp.................... 3,017,000
21,000 Mobil Corp.................... 2,743,125
26,000 Texaco, Inc................... 2,847,000
---------------
8,607,125
---------------
FINANCIAL SERVICES
81,000 Federal National Mortgage
Assoc....................... 2,926,125
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
30,000 Procter & Gamble Co........... 3,450,000
---------------
FOREST PRODUCTS, PAPER & PACKING
54,000 International Paper Co........ 2,099,250
---------------
HARDWARE & TOOLS
75,000 Black & Decker Corp........... 2,409,375
---------------
HEALTHCARE - MISCELLANEOUS
36,000 PacifiCare Health Systems,
Inc. (Class B)*............. 3,105,000
---------------
HEALTHCARE PRODUCTS & SERVICES
65,000 Baxter International, Inc..... 2,803,125
79,500 Columbia/HCA Healthcare
Corp........................ 2,673,187
---------------
5,476,312
---------------
HOUSEWARES
60,000 Tupperware Corp............... 2,010,000
---------------
INDUSTRIALS
39,000 Honeywell, Inc................ 2,647,125
---------------
INSURANCE
29,000 American International Group,
Inc......................... 3,403,875
---------------
OFFICE EQUIPMENT
18,000 Ikon Office Solutions, Inc.... 603,000
---------------
PAPER & FOREST PRODUCTS
51,000 Champion International
Corp........................ 2,320,500
9,000 Unisource Worldwide, Inc...... 138,375
---------------
2,458,875
---------------
PHARMACEUTICALS
49,000 Johnson & Johnson............. 2,590,875
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
RETAIL
370,000 Charming Shoppes, Inc.*....... $ 1,988,750
54,000 Home Depot, Inc............... 2,889,000
---------------
4,877,750
---------------
RETAIL - SPECIALTY
90,000 Circuit City Stores, Inc...... 3,003,750
---------------
SAVINGS & LOAN ASSOCIATIONS
45,000 Golden West Financial Corp.... 2,823,750
---------------
STEEL & IRON
193,000 Bethlehem Steel Corp.*........ 1,592,250
---------------
UTILITIES - GAS
72,000 Williams Co., Inc............. 3,204,000
---------------
TOTAL UNITED STATES........... 103,321,562
---------------
VENEZUELA (0.1%)
TELECOMMUNICATIONS
13,000 Compania Anonima Nacional
Telefonos de Venezuela
(Class D) (ADR)............. 378,625
---------------
TOTAL COMMON AND PREFERRED
STOCKS, WARRANTS, RIGHTS AND
BONDS
(IDENTIFIED COST
$371,453,404)................. 403,539,416
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (3.1%)
U.S. GOVERNMENT AGENCY
$ 13,000 Federal Home Loan Mortgage
Corp. 6.50% due 04/01/97
(Amortized Cost
$13,000,000)................ 13,000,000
---------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------
<C> <S> <C>
PURCHASED PUT OPTION ON FOREIGN CURRENCY (0.2%)
DEM 24,165 July 17, 1997/DEM 1.611
(IDENTIFIED COST
$287,250)................... $ 627,750
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$384,740,654) (B)........... 99.6% 417,167,166
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES....... 0.4 1,791,008
----- ------------
NET ASSETS.................. 100.0% $418,958,174
----- ------------
----- ------------
<FN>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
GDS Global Depository Shares.
K In thousands.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
++ Consists of one or more class of securities traded together as a unit;
generally stocks with attached warrants.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $62,160,161 and the
aggregate gross unrealized depreciation is $29,733,649, resulting in net
unrealized appreciation of $32,426,512.
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT MARCH 31, 1997:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION
TO DELIVER FOR DATE (DEPRECIATION)
- ------------------------------------------------------------
<S> <C> <C> <C>
L 339,840 $ 550,031 04/01/97 $ (6,627)
CHF 350,179 $ 238,606 04/01/97 (3,230)
NLG 1,396,751 $ 733,935 04/01/97 (9,651)
$ 885,414 Y 109,437,189 04/01/97 (1,288)
Y 83,303,207 $ 673,702 04/02/97 708
--------------
Net Unrealized Depreciation........... $ (20,088)
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
SUMMARY OF INVESTMENTS MARCH 31, 1997
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C>
Aerospace & Defense....................... $ 10,926,674 2.6%
Agriculture............................... 362,337 0.1
Apparel................................... 2,036,461 0.5
Appliances & Household Durables........... 2,695,173 0.6
Auto Parts................................ 503,738 0.1
Auto Parts - Original Equipment........... 1,375,065 0.3
Auto Trucks & Parts....................... 1,829,434 0.4
Automobiles............................... 17,734,944 4.2
Banking................................... 22,502,064 5.4
Banks..................................... 1,001,476 0.2
Beverages - Soft Drinks................... 6,489,375 1.5
Building & Construction................... 10,522,120 2.5
Building Materials........................ 3,715,028 0.9
Business & Public Services................ 6,893,496 1.7
Chemicals................................. 13,530,069 3.2
Chemicals - Specialty..................... 185,157 0.0
Commercial Services....................... 1,417,557 0.3
Communications - Equipment & Software..... 2,310,000 0.6
Computer Software......................... 7,195,606 1.7
Computers - Peripheral Equipment.......... 2,647,625 0.6
Computers - Systems....................... 3,408,000 0.8
Conglomerates............................. 11,618,696 2.8
Consumer Products......................... 4,846,126 1.2
Currency Options.......................... 627,750 0.2
Data Processing........................... 275,432 0.1
Distribution.............................. 155,140 0.0
Electrical Equipment...................... 23,116,253 5.6
Electronics............................... 3,564,547 0.9
Electronics - Semiconductors/
Components.............................. 4,096,742 1.0
Energy.................................... 20,216,561 4.9
Engineering & Construction................ 2,152,581 0.5
Entertainment............................. 2,406,940 0.6
Financial Services........................ 9,981,506 2.4
Food Processing........................... 1,312,923 0.3
Food Services............................. 573,585 0.1
Food, Beverage, Tobacco & Household
Products................................ 12,552,113 3.0
Foods & Beverages......................... 2,170,511 0.5
Forest Products, Paper & Packing.......... 3,132,751 0.7
Furniture................................. 183,706 0.0
Hardware & Tools.......................... 2,409,375 0.6
Health & Personal Care.................... 6,005,493 1.4
Healthcare................................ 133,838 0.0
Healthcare - Miscellaneous................ 3,105,000 0.7
Healthcare Products & Services............ 5,476,312 1.3
Housewares................................ 2,010,000 0.5
Industrials............................... 3,172,107 0.8
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C>
Insurance................................. $ 20,838,342 5.0%
Investment Companies...................... 2,569,000 0.6
Leisure................................... 2,073,517 0.5
Machine Tools............................. 188,221 0.0
Machinery................................. 12,964,155 3.1
Manufacturing............................. 1,000,596 0.2
Media..................................... 8,624,602 2.1
Medical Products & Supplies............... 312,750 0.1
Merchandising............................. 3,263,862 0.8
Metals.................................... 175,311 0.0
Metals & Mining........................... 3,374,762 0.8
Natural Gas............................... 947,786 0.2
Office Equipment.......................... 603,000 0.1
Oil & Gas................................. 534,623 0.1
Oil Drilling & Services................... 432,941 0.1
Oil Related............................... 267,746 0.1
Paper & Forest Products................... 2,458,875 0.6
Pharmaceuticals........................... 13,682,028 3.3
Real Estate............................... 10,139,940 2.4
Restaurants............................... 199,026 0.1
Retail.................................... 14,596,000 3.5
Retail - Specialty........................ 3,003,750 0.7
Savings & Loan Associations............... 2,823,750 0.7
Shipbuilding.............................. 606,231 0.1
Steel..................................... 1,546,666 0.4
Steel & Iron.............................. 7,301,690 1.7
Telecommunications........................ 26,030,067 6.2
Telecommunications Equipment.............. 159,234 0.0
Textiles.................................. 2,494,290 0.6
Tobacco................................... 257,812 0.1
Transportation............................ 5,320,014 1.3
U.S. Government Agency.................... 13,000,000 3.1
Utilities................................. 1,491,869 0.4
Utilities - Electric...................... 5,843,501 1.4
Utilities - Gas........................... 3,204,000 0.8
Vision Care & Instruments................. 49,741 0.0
Wholesale & International Trade........... 2,131 0.0
Wholesale Distributor..................... 207,950 0.1
----------------- -----
$ 417,167,166 99.6%
----------------- -----
----------------- -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks............................. $ 399,753,868 95.4%
Convertible Bonds......................... 679,715 0.1
Preferred Stocks.......................... 2,953,809 0.7
Purchased Option Outstanding.............. 627,750 0.2
Rights and Warrants....................... 152,024 0.1
Short-Term Investments.................... 13,000,000 3.1
----------------- -----
$ 417,167,166 99.6%
----------------- -----
----------------- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $384,740,654)............................ $417,167,166
Cash (including $2,055,643 in foreign currency)............. 2,579,859
Receivable for:
Investments sold........................................ 1,767,206
Dividends............................................... 769,133
Shares of beneficial interest sold...................... 447,053
Foreign withholding taxes reclaimed..................... 133,780
Interest................................................ 16,622
Prepaid expenses and other assets........................... 26,219
------------
TOTAL ASSETS........................................... 422,907,038
------------
LIABILITIES:
Payable for:
Investments purchased................................... 2,252,884
Shares of beneficial interest repurchased............... 473,058
Plan of distribution fee................................ 367,786
Investment management fee............................... 367,786
Accrued expenses and other payables......................... 487,350
------------
TOTAL LIABILITIES...................................... 3,948,864
------------
NET ASSETS:
Paid-in-capital............................................. 381,184,491
Net unrealized appreciation................................. 32,426,602
Net investment loss......................................... (1,043,971)
Accumulated undistributed net realized gain................. 6,391,052
------------
NET ASSETS............................................. $418,958,174
------------
------------
NET ASSET VALUE PER SHARE,
24,260,898 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$17.27
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $642,014 foreign withholding tax)......... $ 7,280,358
Interest.................................................... 234,481
-----------
TOTAL INCOME........................................... 7,514,839
-----------
EXPENSES
Plan of distribution fee.................................... 4,941,515
Investment management fee................................... 4,936,673
Transfer agent fees and expenses............................ 860,950
Custodian fees.............................................. 496,155
Professional fees........................................... 174,924
Shareholder reports and notices............................. 150,159
Registration fees........................................... 47,655
Trustees' fees and expenses................................. 16,595
Other....................................................... 36,856
-----------
TOTAL EXPENSES......................................... 11,661,482
-----------
NET INVESTMENT LOSS.................................... (4,146,643)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments............................................. 19,297,729
Foreign exchange transactions........................... 1,668,371
-----------
NET GAIN............................................... 20,966,100
-----------
Net change in unrealized appreciation/depreciation on:
Investments............................................. (8,008,589)
Translation of forward foreign currency contracts, other
assets and liabilities denominated in foreign
currencies............................................ (713,283)
-----------
NET DEPRECIATION....................................... (8,721,872)
-----------
NET GAIN............................................... 12,244,228
-----------
NET INCREASE................................................ $ 8,097,585
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE YEAR
MARCH 31, ENDED
1997 MARCH 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss......................................... $ (4,146,643) $ (1,087,335)
Net realized gain........................................... 20,966,100 41,362,377
Net change in unrealized appreciation....................... (8,721,872) 36,965,641
------------- --------------
NET INCREASE........................................... 8,097,585 77,240,683
Distributions from net realized gain........................ (31,533,387) (692,945)
Net decrease from transactions in shares of beneficial
interest.................................................. (77,594,246) (68,817,900)
------------- --------------
NET INCREASE (DECREASE)................................ (101,030,048) 7,729,838
NET ASSETS:
Beginning of period......................................... 519,988,222 512,258,384
------------- --------------
END OF PERIOD
(INCLUDING A NET INVESTMENT LOSS OF $1,043,971 AND
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME OF
$903,011, RESPECTIVELY)................................. $ 418,958,174 $ 519,988,222
------------- --------------
------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter World Wide Investment 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 total
return on its assets primarily through long-term capital growth and to a lesser
extent, from income. The Fund seeks to achieve its objective by investing in
common stocks and equivalents, preferred stocks, bonds and other debt
obligations of domestic and foreign companies, governments and international
organizations. The Fund was organized as a Massachusetts business trust on July
7, 1983 and commenced operations on October 31, 1983.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange; the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Dean Witter InterCapital Inc. (the "Investment Manager") or Morgan
Grenfell Investment Services Limited (the "Sub-Adviser") that sale and bid
prices are not reflective of a security's market value, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees (valuation of
debt securities for which market quotations are not readily available may be
based upon current market prices of securities which are comparable in coupon,
rating and maturity or an appropriate matrix utilizing similar factors); and (4)
short-term debt securities having a maturity date of more than sixty days at
time of purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined
67
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997, CONTINUED
by the identified cost method. Dividend income and other distributions are
recorded on the ex-dividend date except for certain dividends on foreign
securities which are recorded as soon as the Fund is informed after the
ex-dividend date. Discounts are accreted over the life of the respective
securities. Interest income is accrued daily.
C. OPTION ACCOUNTING PRINCIPLES -- When the Fund purchases a call or put option,
the premium paid is recorded as an investment which is subsequently
marked-to-market to reflect the current market value. If a purchased option
expires, the Fund will realize a loss to the extent of the premium paid. If the
Fund enters into a closing sale transaction, a gain or loss is realized for the
difference between the proceeds from the sale and the cost of the option. If a
put option is exercised, the cost of the security or currency sold upon exercise
will be increased by the premium originally paid. If a call option is exercised,
the cost of the security purchased upon exercise will be increased by the
premium originally paid.
D. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized gain/loss on foreign exchange transactions. The Fund
records realized gains or losses on delivery of the currency or at the time the
forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery.
F. 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.
68
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997, CONTINUED
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend 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 AND ADVISORY AGREEMENTS
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: 1.0% to the portion of daily net assets not exceeding $500
million and 0.95% to the portion of daily net assets in excess of $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 as the Fund may reasonably
require in the conduct of its business and also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
Under a Sub-Advisory Agreement between the Sub-Adviser and the Investment
Manager, the Sub-Adviser provides the Fund with investment advice and portfolio
management relating to the Fund's non-U.S. investments, subject to the overall
supervision of the Investment Manager. As compensation for its services provided
pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Adviser monthly compensation equal to 40% of its monthly compensation.
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
69
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997, CONTINUED
Rule 12b-1 under the Act pursuant to which the Fund pays the Distributor
compensation, accrued daily and payable monthly, at an annual rate of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's shares
since the Fund's inception (not including reinvestment of dividend or capital
gain distributions) less the average daily aggregate net asset value of the
Fund's shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or upon which such charge has been
waived; or (b) the Fund's average daily net assets. Amounts paid under the Plan
are paid to the Distributor to compensate it for the services provided and the
expenses borne by it and others in the distribution of the Fund's shares,
including the payment of commissions for sales of the Fund's shares and
incentive compensation to, and expenses of, the account executives of Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and other employees or selected broker-dealers who engage in or
support distribution of the Fund's shares or who service shareholder accounts,
including overhead and telephone expenses, printing and distribution of
prospectuses and reports used in connection with the offering of the Fund's
shares to other than current shareholders and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may be compensated under the Plan for its opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses incurred by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered by the Distributor may be recovered through future
distribution fees from the Fund and contingent deferred sales charges from the
Fund's shareholders.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Trustees will consider at that
time the manner in which to treat such expenses. The Distributor has advised the
Fund that such excess amounts, included carrying charges, totaled $20,399,997 at
March 31, 1997.
The Distributor has informed the Fund that for the year ended March 31, 1997, it
received approximately $803,000 in contingent deferred sales charges from
redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended March 31, 1997 aggregated
$232,691,627 and $356,048,768, respectively.
70
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997, CONTINUED
For the year ended March 31, 1997, the Fund incurred brokerage commissions of
$16,375 with DWR for portfolio transactions executed on behalf of the Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At March 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $148,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended March 31, 1997 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$1,290. At March 31, 1997, the Fund had an accrued pension liability of $49,252
which is included in accrued expenses in the Statement of Assets and
Liabilities.
During the year ended March 31, 1997, foreign regulatory authorities initiated
an investigation involving an individual associated with an affiliate of the
Fund's Sub-Adviser. Although this investigation did not at any time involve the
Fund or the Investment Manager, the Sub-Adviser's affiliate purchased from the
Fund two securities whose separate holdings by the affiliate had become part of
the investigation. These securities represented only a very small percentage of
the Fund's portfolio (approximately one-twentieth of one percent) and were
purchased by the Sub-Adviser's affiliate at the Fund's cost plus interest.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Sold............................................................. 3,614,740 $ 65,929,566 5,790,518 $ 100,249,259
Reinvestment of distributions.................................... 1,730,254 29,812,283 37,871 656,681
---------- ------------- ---------- -------------
5,344,994 95,741,849 5,828,389 100,905,940
Repurchased...................................................... (9,610,570) (173,336,095) (9,903,997) (169,723,840)
---------- ------------- ---------- -------------
Net decrease..................................................... (4,265,576) $ (77,594,246) (4,075,608) $ (68,817,900)
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
</TABLE>
71
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997, CONTINUED
6. FEDERAL INCOME TAX STATUS
Foreign currency losses incurred after October 31 ("post-October losses") within
the taxable year are deemed to arise on the first business day of the Fund's
next taxable year. The Fund incurred and will elect to defer net foreign
currency losses of approximately $296,000 during fiscal 1997.
As of March 31, 1997, the Fund had temporary book/tax differences primarily
attributable to post-October losses and income from the mark-to-market of
passive foreign investment companies ("PFICs") and permanent book/tax
differences primarily attributable to a net operating loss, foreign currency
losses and tax adjustments on PFICs sold by the Fund. To reflect
reclassifications arising from permanent book/tax differences for the year ended
March 31, 1997, accumulated undistributed net realized gain was charged
$4,586,743, paid-in-capital was credited $581,060 and net investment loss was
credited $4,005,683.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At March 31, 1997, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions.
72
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT 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 MARCH 31
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............. $ 18.23 $ 15.71 $ 18.20 $14.72 $14.65 $14.57 $14.84 $14.98 $14.93 $17.36
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
Net investment
income (loss)...... (0.18) (0.06) (0.02) (0.05) -- -- 0.23 0.11 0.08 0.04
Net realized and
unrealized gain
(loss)............. 0.45 2.60 (1.83) 4.24 0.39 1.05 0.18 0.82 1.24 (0.07)
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations......... 0.27 2.54 (1.85) 4.19 0.39 1.05 0.41 0.93 1.32 (0.03)
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
Less dividends and
distributions:
From net
investment
income........... -- -- -- -- -- (0.05) (0.23) (0.11) (0.08) (0.15)
In excess of net
investment
income........... -- -- (0.02) -- -- -- -- -- -- --
From net realized
gain............. (1.23) (0.02) (0.39) (0.71) (0.32) (0.92) (0.45) (0.96) (1.19) (2.25)
In excess of net
realized gain.... -- -- (0.23) -- -- -- -- -- -- --
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions...... (1.23) (0.02) (0.64) (0.71) (0.32) (0.97) (0.68) (1.07) (1.27) (2.40)
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of period.......... $ 17.27 $ 18.23 $ 15.71 $18.20 $14.72 $14.65 $14.57 $14.84 $14.98 $14.93
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT
RETURN+............. 1.61% 16.20% (10.37)% 28.40% 2.69% 7.33% 2.80% 6.09% 9.31% 0.39%
RATIOS TO AVERAGE
NET ASSETS:
Expenses............ 2.36% 2.45% 2.41% 2.40% 2.42% 2.27% 2.29% 2.21% 2.18% 2.13%
Net investment
income (loss)...... (0.84)% (0.21)% (0.32)% (0.61)% 0.06% 0.03% 1.53% 0.70% 0.50% 0.23%
SUPPLEMENTAL DATA:
Net assets, end of
period, in
millions........... $419 $520 $512 $494 $218 $263 $279 $306 $312 $368
Portfolio turnover
rate............... 48% 126% 67% 68% 139% 89% 68% 75% 67% 70%
Average commission
rate paid.......... $0.0116 $0.0169 -- -- -- -- -- -- -- --
<FN>
- ---------------------
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
DEAN WITTER WORLD WIDE INVESTMENT TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER WORLD WIDE INVESTMENT 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 World Wide Investment
Trust (the "Fund") at March 31, 1997, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the ten years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at March
31, 1997 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
MAY 16, 1997
1997 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended March 31, 1997, the Fund paid to
shareholders $1.12 per share from long-term capital gains. For
such period, 27.07% of the ordinary dividends qualified for the
dividends received deduction available to corporations.
74
