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<S> <C>
PROSPECTUS TABLE OF CONTENTS
APRIL 19, 1994 Prospectus Summary/2
Dean Witter Dividend Growth Summary of Fund Expenses/3
Securities Inc. (the "Fund") is an open-end Financial Highlights/4
diversified management investment company The Fund and its Management/5
whose investment objective is to provide Investment Objective and Policies/5
reasonable current income and long-term growth Investment Restrictions/6
of income and capital. The Fund invests Purchase of Fund Shares/7
primarily in common stock of companies with a Shareholder Services/9
record of paying dividends and the potential Redemptions and Repurchases/11
for increasing dividends. (See "Investment Dividends, Distributions and Taxes/13
Objective and Policies.") Performance Information/14
Shares of the Fund are Additional Information/14
continuously offered at net asset value. SHARES OF THE FUND ARE NOT DEPOSITS OR
However, redemptions and/or repurchases are OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
subject in most circumstances to a contingent ANY BANK, AND THE SHARES ARE NOT FEDERALLY
deferred sales charge, scaled down from 5% to INSURED BY THE FEDERAL DEPOSIT INSURANCE
1% of the amount redeemed, if made within six CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
years of purchase, which charge will be paid OTHER AGENCY.
to the Fund's Distributor, Dean Witter
Distributors Inc. See "Redemptions and
Repurchases--Contingent Deferred Sales THESE SECURITIES HAVE NOT BEEN
Charge." In addition, the Fund pays the APPROVED OR DISAPPROVED BY THE
Distributor a distribution fee pursuant to a SECURITIES AND EXCHANGE COMMISSION
Plan of Distribution at the annual rate of 1% OR ANY STATE SECURITIES COMMISSION
of the lesser of the (i) average daily NOR HAS THE SECURITIES AND
aggregate net sales since inception of the EXCHANGE COMMISSION OR ANY STATE
Plan of Distribution or (ii) average daily net SECURITIES COMMISSION PASSED UPON
assets of the Fund attributable to shares THE ACCURACY OR ADEQUACY OF THIS
issued since inception of the Plan of PROSPECTUS. ANY REPRESENTATION TO
Distribution. See "Purchase of Fund THE CONTRARY IS A CRIMINAL OFFENSE.
Shares--Plan of Distribution." Dean Witter Distributors Inc.
This Prospectus sets forth Distributor
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 April 19, 1994, which has
been filed with the Securities and Exchange
Commission, and which is available at no
charge upon request of the Fund at the address
or telephone number listed below. The
Statement of Additional Information is
incorporated herein by reference.
Dean Witter
Dividend Growth Securities Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550
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PROSPECTUS SUMMARY
The The Fund, a Maryland corporation, is an open-end diversified management investment
Fund company investing primarily in common stock of companies with a record of paying
dividends and the potential for increasing dividends.
Shares Offered Shares of common stock with $0.01 par value (see page 14).
Offering At net asset value without sales charge (see page 7). Shares redeemed within six
Price years of purchase are subject to a contingent deferred sales charge under most
circumstances (see page 11).
Minimum Minimum initial investment, $1,000; minimum subsequent investment, $100 (see page
Purchase 7).
Investment The investment objective of the Fund is to provide reasonable current income and
Objective long-term growth of income and capital.
Investment Dean Witter InterCapital Inc., ("InterCapital"), the Investment Manager of the Fund,
Manager and its wholly-owned subsidiary, Dean Witter Services Company Inc., serve in various
investment management, advisory, management and administrative capacities to
eighty-three investment companies and other portfolios with assets of approximately
$70.9 billion at March 31, 1994 (see page 5).
Management The Investment Manager receives a monthly fee at an annual rate of 0.625 of 1% of
Fee daily net assets, scaled down on assets over $250 million. The fee should not be
compared with fees paid by other investment companies without also considering
applicable sales loads and distribution fees, including those noted below.
Dividends and Income dividends are paid quarterly; capital gains, if any, are distributed at least
Capital Gains annually or retained for reinvestment by the Fund. Dividends and capital gains
Distributions distributions are automatically reinvested in additional shares at net asset value
unless the shareholder elects to receive cash (see page 13).
Distributor and Dean Witter Distributors Inc. (the "Distributor"). For its services as Distributor,
Distribution which include payment of sales commissions to account executives and various other
Fee promotional and sales-related expenses, the Distributor receives from the Fund a
distribution fee accrued daily and payable monthly at the rate of 1.0% per annum of
the lesser of (i) the Fund's average daily aggregate net sales of the Fund's shares
since the inception of a plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Plan") or (b) the average daily net
assets of the Fund attributable to shares issued, net of related shares redeemed,
since the inception of the Plan. This fee compensates the Distributor for the
services provided in distributing shares of the Fund and for sales related expenses.
The Distributor also receives the proceeds of any contingent deferred sales charges
(see pages 7 and 11).
Redemption-- At net asset value; redeemable involuntarily if total value of the account is less
Contingent than $100. Although no commission or sales charge is imposed upon the purchase of
Deferred Sales shares, a contingent deferred sales charge (scaled down from 5% to 1%) is imposed on
Charge any redemption of shares which causes the aggregate current value of an account with
the Fund to fall below the aggregate amount of the investor's purchase payments made
during the preceding six years. There is no charge imposed on redemption of shares
purchased through reinvestment of dividends or distributions (see page 11).
Retirement Investors can take advantage of tax benefits for personal retirement accounts by
Plans investing in the Fund through an IRA (Individual Retirement Account) or Custodial
Account under Section 403(b)(7) of the Internal Revenue Code (see page 9).
Risks The net asset value of the Fund's shares will fluctuate with changes in market value
of portfolio securities. Dividends payable by the Fund will vary in relation to the
amounts of dividends and interest earned on portfolio securities. Investors should
review the investment objective and policies of the Fund carefully and consider
their ability to assume the risks involved in purchasing shares of the Fund (see
page 5).
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING ELSEWHERE IN THE
PROSPECTUS
AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
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2
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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 for the
fiscal year ended February 28, 1994, except as otherwise noted.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
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<S> <C>
Maximum Sales Charge Imposed on Purchases......... None
Maximum Sales Charge Imposed on Reinvested
Dividends........................................ None
Deferred Sales Charge
(as a percentage of the lesser of original
purchase price or redemption proceeds)........... 5.0%
A contingent deferred sales charge is imposed at
the following declining rates:
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<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
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<S> <C>
First............................................. 5.0%
Second............................................ 4.0%
Third............................................. 3.0%
Fourth............................................ 2.0%
Fifth............................................. 2.0%
Sixth............................................. 1.0%
Seventh and thereafter............................ None
Redemption Fees................................... None
Exchange Fees..................................... None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Management Fees.......................................................................... 0.44%
12b-1 Fees*.............................................................................. 0.81%
Other Expenses........................................................................... 0.12%
Total Fund Operating Expenses............................................................ 1.37%
<FN>
- ------------------------
* A portion of the 12b-1 fee which may not exceed 0.25% of the Fund's average
daily net assets is characterized as a service fee within the meaning of
National Association of Securities Dealers ("NASD") guidelines.
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 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)
5% annual return and (2) redemption at the end of each time period:...... $ 64 $ 73 $ 95 $ 165
You would pay the following expenses on the same investment, assuming no
redemption:.............................................................. $ 14 $ 43 $ 75 $ 165
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Plan of Distribution" and "Redemptions and
Repurchases."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charge permitted by the NASD.
3
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FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of capital stock
outstanding throughout each period have been audited by Price Waterhouse,
independent accountants. The financial highlights should be read in conjunction
with the financial statements and notes thereto and the 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 Stockholders, which may be obtained without charge upon request
to the Fund.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28,
------------------------------------------------------------------------------------------------------------
1994 1993 1992* 1991 1990 1989 1988* 1987 1986 1985
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 28.70 $ 27.01 $ 23.50 $ 22.47 $ 20.32 $ 19.28 $ 20.63 $ 17.56 $ 13.79 $ 12.11
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Investment
income--net... 0.68 0.70 0.71 0.79 0.72 0.68 0.67 0.51 0.49 0.62
Realized and
unrealized
gain (loss) on
investments--
net........... 2.16 1.72 3.63 1.04 2.83 1.78 (0.99) 3.56 3.90 1.64
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from
investment
operations...... 2.84 2.42 4.34 1.83 3.55 2.46 (0.32) 4.07 4.39 2.26
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less dividends
and
distributions:
Dividends from
net investment
income........ (0.68) (0.69) (0.76) (0.80) (0.76) (0.62) (0.73) (0.52) (0.52) (0.56)
Distributions
from net
realized gains
on
investments... -0- (0.04) (0.07) -0- (0.64) (0.80) (0.30) (0.48) (0.10) (0.02)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total dividends
and
distributions... (0.68) (0.73) (0.83) (0.80) (1.40) (1.42) (1.03) (1.00) (0.62) (0.58)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value,
end of period... $ 30.86 $ 28.70 $ 27.01 $ 23.50 $ 22.47 $ 20.32 $ 19.28 $ 20.63 $ 17.56 $ 13.79
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT
RETURN+.......... 9.98% 9.13% 18.82% 8.51% 17.85% 13.26% (1.40)% 23.96% 32.88% 19.41%
RATIOS/
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $6,711,699 $5,385,502 $4,070,537 $3,015,499 $2,759,836 $1,859,527 $1,824,203 $1,652,138 $609,812 $115,382
Ratio of expenses
to average net
assets.......... 1.37% 1.40% 1.42% 1.51% 1.41% 1.55% 1.55% 1.52% 1.55% 1.24%
Ratio of net
investment
income to
average net
assets.......... 2.31% 2.67% 2.91% 3.62% 3.46% 3.44% 3.47% 3.35% 4.73% 6.20%
Portfolio
turnover rate... 13 % 8 % 5 % 5 % 3 % 8 % 7 % 12 % 6 % 10 %(1)
<FN>
- ----------------------------------
* YEAR ENDED FEBRUARY 29.
+ DOES NOT INCLUDE THE DEDUCTION OF SALES LOAD.
(1) EXCLUDES LONG-TERM U.S. GOVERNMENT SECURITIES WHICH ARE INCLUDED IN
SUBSEQUENT YEARS.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
THE FUND AND ITS MANAGEMENT
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Dean Witter Dividend Growth Securities Inc. (the "Fund") is an open-end
diversified management investment company incorporated in Maryland on December
22, 1980.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
investment manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Dean Witter, Discover & Co. ("DWDC"), a
balanced financial services organization providing a broad range of nationally
marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to eighty-three investment companies, thirty of which
are listed on the New York Stock Exchange, with combined total assets of
approximately $68.9 billion at March 31, 1994. The Investment Manager also
manages, and advises managers of, portfolios of
pension plans, other institutions and individuals which aggregated approximately
$2.0 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily at an annual rate
of 0.625% of the daily net assets of the Fund up to $250 million, scaled down at
various asset levels to 0.325% on assets over $8 billion. For the fiscal year
ended February 28, 1994, the Fund accrued total compensation to the Investment
Manager amounting to 0.44% of the Fund's average daily net assets and the Fund's
total expenses amounted to 1.37% of the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to provide reasonable current income
and long-term growth of income and capital. This objective is fundamental and
may not be changed without shareholder approval. There is no assurance that the
objective will be achieved. The Fund seeks to achieve its investment objective
primarily through investments in common stock of companies with a record of
paying dividends and the potential for increasing dividends. Net asset value of
the Fund's shares will fluctuate with changes in market values of portfolio
securities. The Fund will attempt to avoid speculative securities or those with
speculative characteristics.
SPECIFIC INVESTMENT POLICIES
The Fund has adopted the following specific policies which are not
fundamental investment policies and which may be changed by the Fund's Board of
Directors:
(1) Up to 30% of the value of the Fund's total assets may be invested
in: (a) convertible debt securities, convertible preferred securities, U.S.
Government securities (securities issued or guaranteed as to principal and
interest by the United States or its agencies and instrumentalities),
investment grade corporate debt securities and/or money market instruments
when, in the opinion of the Investment Manager, the projected total return
on such securities is equal to or greater than the expected total return on
equity securities or when such holdings might be expected to reduce the
volatility of the portfolio (for purposes of this provision, the term "total
return" means the difference between the cost of a security and the
aggregate of its market value and income earned); or (b) in money market
instruments under any one or more of the following circumstances: (i)
pending investment of proceeds of sale of Fund shares or of portfolio
securities; (ii) pending settlement of purchases of portfolio securities; or
(iii) to maintain liquidity for the purpose of meeting anticipated
redemptions.
(2) Notwithstanding any of the foregoing limitations, the Fund may
invest more than 30% of its total assets in money market instruments to
maintain, temporarily, a "defensive" posture when, in the opinion of the
Investment Manager, it is advisable to do so because of economic or market
conditions.
5
<PAGE>
The foregoing limitations will apply at the time of acquisition based on the
last determined value of the Fund's assets. Any subsequent change in any
applicable percentage resulting from fluctuations in value or other change in
total assets will not require elimination of any security from the portfolio.
The Fund may purchase securities on a when-issued or delayed delivery basis, may
purchase or sell securities on a forward commitment basis and may purchase
securities on a "when, as and if issued" basis.
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 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 at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on
information from various sources, including research, analysis and appraisals of
brokers and dealers, including Dean Witter Reynolds Inc. ("DWR"), a broker-
dealer affiliate of InterCapital, the views of Directors of the Fund and others
regarding economic developments and interest rate trends, and the Investment
Manager's own analysis of factors it deems relevant. The Fund's portfolio is
managed within InterCapital's Large Capitalization Equities Group, which manages
twenty-two equity funds and fund portfolios with approximately $16 billion in
assets as of March 31, 1994. Paul D. Vance, Senior Vice President of
InterCapital and a member of InterCapital's Large Capitalization Equity Group,
has been the primary portfolio manager of the Fund since its inception and has
been a portfolio manager at InterCaptial for over five years.
Although the Fund does not engage in substantial short-term trading as a
means of achieving its investment objective, it may sell portfolio securities
without regard to the length of time they have been held, in accordance with the
investment policies described earlier. Pursuant to an order of the Securities
and Exchange Commission, the Fund may effect principal transactions in certain
money market instruments with DWR. In addition, the Fund may incur brokerage
commissions on transactions conducted through DWR.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act. For purposes of the following limitations: (i)
all percentage limitations apply immediately after a purchase or initial
investment; and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund may not:
1. Invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations
issued or guaranteed by
the United States Government, its agencies or instrumentalities).
2. Purchase more than 10% of all outstanding voting securities or any
class of securities of any one issuer.
3. Invest more than 25% of the value of its total assets in securities
of issuers in any one industry. This restriction does not apply to bank
obligations or obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities.
4. Invest more than 5% of the value of its total assets in securities
of issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction shall not apply to any
obligation issued or guaranteed by the United States Government, its
agencies or instrumentalities.
6
<PAGE>
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and the Distributor, an
affiliate of the Investment Manager, shares of the Fund are distributed by the
Distributor and offered by DWR and others who have entered into agreements with
the Distributor ("Selected Broker-Dealers"). The principal executive office of
the Distributor is located at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Subsequent purchases of $100 or more
may be made by sending a check, payable to Dean Witter Dividend Growth
Securities Inc., 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 Broker-Dealer. 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. The Fund will waive the minimum purchase requirement
for investments in connection with certain Unit Investment Trusts. 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 Distribution on a normal five
business day settlement basis; that is, payment is due on the fifth business day
(settlement date) after the order is placed with the Distributor. Shares of the
Fund purchased through the Distributor are entitled to any dividends declared
beginning on the next business day following settlement date. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. Shares purchased through the Transfer Agent are entitled to dividends
beginning on the next business day following receipt of an order. As noted
above, orders placed directly with the Transfer Agent must be accompanied by
payment.
The offering price will be the net asset value per share next determined
following receipt of an order. While no sales charge is imposed at the time
shares are purchased, a contingent deferred sales charge may be imposed at the
time of redemption (see "Redemptions and Repurchases"). Sales personnel are
compensated for selling shares of the Fund at the time of their sale by the
Distributor and/or Selected Broker-Dealer. In addition, some sales personnel of
the Selected Broker-Dealer will receive non-cash compensation in the form of
trips to educational and/ or business seminars and merchandise as special sales
incentives. The Fund and the Distributor reserve the right to reject any
purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution, pursuant to Rule 12b-1 under
the Act (the "Plan"), under which the Fund will pay the Distributor a fee, which
is accrued daily and payable monthly, at an annual rate of 1.0% of the lesser
of: (a) the average daily aggregate gross sales of the Fund's shares since the
inception of the Plan on July 2, 1984 (not including reinvestments of dividends
or capital gains distributions), less the average daily aggregate net asset
value of the Fund's shares redeemed since the Plan's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the average
daily net assets of the Fund attributable to shares issued, net of related
shares redeemed, since inception of the Plan. This fee is treated by the Fund as
an expense in the year it is accrued.
Amounts paid under the Plan are paid to the Distributor to compensate it for
the services provided and the expenses borne by the Distributor and others in
the distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to and expenses of DWR
account executives and others who engage in or support distribution of shares or
who service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan to compensate DWR and other Selected Broker-Dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses incurred.
7
<PAGE>
For the fiscal year ended February 28, 1994, the Fund accrued payments under
the Plan amounting to $49,135,342, which amount is equal to 0.81% of the Fund's
average daily net assets for the fiscal year. The payments accrued under the
Plan were calculated pursuant to clause (a) of the compensation formula under
the Plan. Of the amount accrued under the Plan, an amount equal to 0.25% of the
Fund's average net assets is characterized as a service fee within the meaning
of NASD guidelines.
At any given time, expenses in distributing 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 contingent deferred sales charges paid by investors
upon the redemption of shares (see "Redemptions and Repurchases--Contingent
Deferred Sales Charge"). For example, if the Distributor incurred $1 million in
expenses in distributing shares of the Fund and $750,000 had been received by
the Distributor as described in (i) and (ii) above, the excess expense would
amount to $250,000. The Distributor has advised the Fund that such excess
amounts, including the carrying charge described above, totalled $171,111,328 at
February 28, 1994, which amount was equal to 2.55% of the Fund's net assets on
such date.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all its expenses or any requirement that the Plan be continued
from year to year, this excess amount does not constitute a liability of the
Fund. Although there is no legal obligation for the Fund to pay expenses
incurred by the Distributor in excess of payments made to the Distributor under
the Plan, if for any reason the Plan is terminated, the Directors will consider
at that time the manner in which to treat such expenses. Any cumulative expenses
incurred by the Distributor, 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.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time, on each day that the New York Stock Exchange is open by
taking the value of all assets of the Fund, subtracting all its liabilities,
dividing by the number of shares outstanding and adjusting to the nearest cent.
The net asset value per share will not be determined on Good Friday and on such
other federal and non-federal holidays as are observed by the New York Stock
Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange is valued
at its latest sale price on that exchange (if there were no sales that day, the
security is valued at the latest bid price); and (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest bid price. When market quotations are not readily
available, including circumstances under which it is determined by the
Investment Manager that sale and bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Fund's Directors (valuation of debt securities for which market
quotations are not readily available may be based upon current market prices of
securities which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors).
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Directors
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
Directors.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Directors. The pricing service utilizes a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
8
<PAGE>
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other open-end
investment company for which InterCapital serves as investment manager
(collectively, with the Fund, the "Dean Witter Funds")), unless the shareholder
requests that they be paid in cash. Shares so acquired are not subject to the
imposition of a contingent deferred sales charge upon their redemption (see
"Redemptions and Repurchases").
EASYINVESTSM Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund.
INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution at the net asset value per
share next determined after receipt by the Transfer Agent, by returning the
check or the proceeds to the Transfer Agent within thirty days after the payment
date. Shares so acquired are not subject to the imposition of a contingent
deferred sales charge upon their redemption (see "Redemptions and Repurchases.")
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable
contingent deferred sales charge will be imposed on shares redeemed under the
Withdrawal Plan (See "Redemptions and Repurchases--Contingent Deferred Sales
Charge"). Therefore, any shareholder participating in the Withdrawal Plan will
have sufficient shares redeemed from his or her account so that the proceeds
(net of any applicable contingent deferred sales charge) to the shareholder will
be the designated monthly or quarterly amount.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for Federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the contingent deferred sales charge
applicable to the redemption of shares purchased during the preceding six years
(see "Redemptions and Repurchases--Contingent Deferred Sales Charge").
Shareholders wishing to enroll in the Withdrawal Plan should contact their
account executive or the Transfer Agent.
TAX SHELTERED RETIREMENT PLANS. Retirement plans are available through DWR
for use by corporations, the self-employed, eligible 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
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of shares of the Fund for shares of other Dean Witter
Funds sold with a contingent deferred sales charge ("CDSC funds"), for shares of
Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund and of five Dean Witter Funds which are
money market funds (the foregoing eight non-CDSC funds are hereinafter referred
to as the "Exchange Funds"). Exchanges may be made after the shares of the Fund
acquired by purchase (not by exchange or dividend reinvestment) have been held
9
<PAGE>
for thirty days. There is no waiting period for exchanges of shares acquired by
exchange or dividend reinvestment.
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share of
each fund after the exchange order is received. When exchanging into a money
market fund from the Fund, shares of the Fund are redeemed out of the Fund at
their next calculated net asset value and the proceeds of the redemption are
used to purchase shares of the money market fund at their net asset value
determined the following business day. Subsequent exchanges between any of the
money market funds and any of the CDSC funds can be effected on the same basis.
No contingent deferred sales charge ("CDSC") is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate redemption.
Shares of the Fund acquired in exchange for shares of another CDSC fund having a
different CDSC schedule than that of this Fund will be subject to the CDSC
schedule of this Fund, even if such shares are subsequently re-exchanged for
shares of the CDSC fund originally purchased. During the period of time the
shareholder remains in the 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 reexchanged for shares of a CDSC fund, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a CDSC fund are reacquired. Thus, the CDSC is based
upon the time (calculated as described above) the shareholder was invested in a
CDSC fund (see "Redemptions and Repurchases--Contingent Deferred Sales Charge").
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 the Exchange Fund 12b-1 distribution fees incurred on or after that date
which are attributable to those shares. (Exchange fund 12b-1 distribution fees
are described in the prospectuses for those funds.)
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds"), but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter Funds for which shares of a front-end sales charge fund
have been exchanged) are not subject to any CDSC upon their redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders and,
at the Investment Manager's discretion, may be limited by the Fund's refusal to
accept additional purchases and/or exchanges from the investor. Although the
Fund does not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive and contrary to the best interests of
the Fund and its other shareholders, investors should be aware that the Fund and
each of the other Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange.
The Exchange Privilege may be terminated or revised at any time by the Fund
and/or any of such Dean Witter Funds for which shares of the Fund may be
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain one and examine it carefully before
investing. Exchanges are subject to the minimum investment requirement and any
other conditions imposed by each fund. In the case of any shareholder holding a
share certificate or certificates, no exchanges may be made until all applicable
share certificates have been received by the Transfer Agent
10
<PAGE>
and deposited in the shareholder's account. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares, on
which the shareholder may realize a capital gain or loss. However, the ability
to deduct capital losses on an exchange may be limited in situations where there
is an exchange of shares within ninety days after the shares are purchased. The
Exchange Privilege is only available in states where an exchange may legally be
made.
If DWR or another Selected Broker-Dealer is the current broker-dealer of
record and its account numbers are part of the account information, shareholders
may initiate an exchange of shares of the Fund for shares of any of the Dean
Witter Funds (for which the Exchange Privilege is available) pursuant to this
Exchange Privilege by contacting their account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another 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 by contacting the Transfer
Agent at (800) 526-3143 (toll free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures
include requiring various forms of personal identification such as name, mailing
address,social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions will also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her 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 concerning the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds may
be reduced by the amount of any applicable contingent deferred sales charges
(see below). If shares are held in a Shareholder Investment Account without a
share certificate, a written request for redemption to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption, along with any additional information
required by the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE. Shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any charge upon redemption.
Shares redeemed sooner than six years after purchase may, however, be subject to
a charge upon redemption. This charge is called a "contingent deferred sales
charge" ("CDSC"), which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long
11
<PAGE>
the shares have been held, as set forth in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE 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>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption; (ii)
the current net asset value of shares purchased more than six years prior to the
redemption; and (iii) the current net asset value of shares purchased through
reinvestment of dividends or distributions and/or shares acquired in exchange
for shares of Dean Witter Funds sold with a front-end sales charge or of other
Dean Witter Funds acquired in exchange for such shares. Moreover, in determining
whether a CDSC is applicable it will be assumed that amounts described in (i),
(ii), and (iii) above (in that order) are redeemed first. In addition, no CDSC
will be imposed on redemptions of shares which were purchased by the employee
benefit plans established by DWR and SPS Transaction Services, Inc. (an
affiliate of DWR) for their employees as qualified under Section 401(k) of the
Internal Revenue Code.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of (i) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship, or (b) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account or Custodial Account under Section 403(b)(7) of the Internal Revenue
Code, provided in either case that the redemption is requested within one year
of the death or initial determination of disability, and (ii) redemptions in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an Individual
Retirement Account or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code following attainment of age 59 1/2; and (c) a tax-free return of an
excess contribution to an IRA. For the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. All waivers will be granted only following receipt by the
Distributor of confirmation of the investor's entitlement.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a stock certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a stock
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic or telegraphic request of the shareholder. The repurchase
price is the net asset value next determined (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 or other Selected Broker-Dealer. The offer by the
Distributor and other Selected Broker-Dealers to repurchase shares may be
suspended without notice by the Distributor at any time. In that event,
shareholders may redeem their shares through the Fund's Transfer Agent as set
forth above under "Redemption".
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-
12
<PAGE>
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 30 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund at the net asset value next determined after a reinstatement
request, together with the proceeds, is received by the Transfer Agent and
receive a pro rata credit for any CDSC paid in connection with such redemption
or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, upon 60
days' notice and at net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or custodial account under
Section 403(b)(7) of the Internal Revenue Code) whose shares have a value of
less than $100, or such lesser amount as may be fixed by the Fund's Board of
Directors. However, before the Fund redeems such shares and sends the proceeds
to the shareholder, it will notify the shareholder that the value of the shares
is less than $100 and allow the shareholder to make an additional investment in
an amount which will increase the value of the account to $100 or more before
the redemption is processed. No CDSC will be imposed on any involuntary
redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to pay quarterly dividends
and to distribute substantially all of the Fund's net investment income and net
short-term capital gains, if there are any, at least once each year. The Fund
may, however, determine either to distribute or to retain all or part of any net
long-term capital gains for reinvestment.
All dividends and any capital gains distributions will be paid in additional
Fund shares and will be automatically credited to the shareholder's account
without issuance of a stock certificate unless the shareholder requests in
writing that all dividends be paid in cash. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions".)
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and remain qualified as
a regulated investment company under Subchapter M of the Internal Revenue Code,
it is not expected that the Fund will be required to pay any federal income tax
on such income and capital gains. 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 net short-term capital gains, are
taxable to the shareholder as ordinary dividend income regardless of whether the
shareholder receives such payments in additional shares or in cash. 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. Dividend distributions will be eligible for the
Federal dividends received deduction available to the Fund's corporate
shareholders only to the extent the aggregate dividends received by the Fund
would be eligible for the deduction if the Fund were the shareholder claiming
the dividends received deduction. In this regard, a 46-day holding period
generally must be met.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the dividends received deduction.
After the end of the year, shareholders will be sent full information on
their dividends and capital gains distributions for tax purposes, including
information as to the portion taxable as ordinary income, the portion taxable as
capital gains, and the amount of dividends eligible for the Federal dividends
received deduction available to corporations. To avoid being subject to a 31%
Federal backup withholding tax on taxable dividends, capital gains distributions
and the proceeds of redemptions and repurchases, shareholders' taxpayer
identification numbers must be furnished and certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
13
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. The "average annual
total return" of the Fund refers to a figure reflecting the average annualized
percentage increase (or decrease) in the value of an initial investment in the
Fund of $1,000 over periods of one, five and ten years. Average annual total
return reflects all income earned by the Fund, any appreciation or depreciation
of the Fund's assets, all expenses incurred by the Fund and all sales charges
which would be incurred by redeeming shareholders, for the stated periods. It
also assumes reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. The Fund may also advertise the growth of a
hypothetical investment of $10,000, $50,000 or $100,000 in shares of the Fund.
Such calculations may or may not reflect the deduction of the contingent
deferred sales charge which, if reflected, would reduce the performance quoted.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations,
such as mutual fund performance rankings of Lipper Analytical Services, Inc.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of common stock of the Fund are of $0.01 par
value and are equal as to earnings, assets and voting privileges. There are no
conversion, pre-emptive or other subscription rights. In the event of
liquidation, each share of common stock of the Fund is entitled to its portion
of all of the Fund's assets after all debts and expenses have been paid. The
shares do not have cumulative voting rights.
Under ordinary circumstances, the Fund is not required, nor does it intend,
to hold Annual Meetings of Shareholders. The Directors may call Special Meetings
of Shareholders for action by shareholder vote as may be required by the Act or
the Fund's By-Laws.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone number or address set forth on the front cover of
this Prospectus.
14
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS
Dean Witter Liquid Asset Fund Inc.
Dean Witter U.S. Government Money Market Trust
Dean Witter Tax-Free Daily Income Trust
Dean Witter California Tax-Free Daily Income Trust
Dean Witter New York Municipal Money Market Trust
EQUITY FUNDS
Dean Witter American Value Fund
Dean Witter Natural Resource Development Securities Inc.
Dean Witter Dividend Growth Securities Inc.
Dean Witter Developing Growth Securities Trust
Dean Witter World Wide Investment Trust
Dean Witter Value-Added Market Series
Dean Witter Utilities Fund
Dean Witter Capital Growth Securities
Dean Witter European Growth Fund Inc.
Dean Witter Precious Metals and Minerals Trust
Dean Witter Pacific Growth Fund Inc.
Dean Witter Health Sciences Trust
Dean Witter Global Dividend Growth Securities
Dean Witter Global Utilities Fund
FIXED-INCOME FUNDS
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities Trust
Dean Witter Federal Securities Trust
Dean Witter Convertible Securities Trust
Dean Witter California Tax-Free Income Fund
Dean Witter New York Tax-Free Income Fund
Dean Witter World Wide Income Trust
Dean Witter Intermediate Income Securities
Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Multi-State Municipal Series Trust
Dean Witter Premier Income Trust
Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal Trust
Dean Witter Short-Term Bond Fund
DEAN WITTER RETIREMENT SERIES
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Strategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
ASSET ALLOCATION FUNDS
Dean Witter Managed Assets Trust
Dean Witter Strategist Fund
ACTIVE ASSETS ACCOUNT PROGRAM
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
<PAGE>
Dean Witter ---------------------------------------
Dividend Growth Securities Inc. Dean Witter
Two World Trade Center Dividend Growth
New York, New York 10048 Securities
BOARD OF DIRECTORS
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Paul D. Vance
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
110 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
4/19/94 PROSPECTUS --APRIL 19, 1994
<PAGE>
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION DeanWitter
APRIL 19, 1994 DIVIDEND
GROWTH
SECURITIES INC.
</TABLE>
- ------------------------------------------------------------
Dean Witter Dividend Growth Securities Inc. (the "Fund") is an open-end
diversified management investment company whose investment objective is to
provide reasonable current income and long-term growth of income and capital.
The Fund invests primarily in common stock of companies with a record of paying
dividends and the potential for increasing dividends. (See "Investment Practices
and Policies".)
A Prospectus for the Fund dated April 19, 1994, 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 number listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc., at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
Dean Witter
Dividend Growth Securities Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Fund and its Management...................................... 3
Directors and Officers........................................... 6
Investment Practices and Policies................................ 8
Investment Restrictions.......................................... 11
Portfolio Transactions and Brokerage............................. 12
The Distributor.................................................. 14
Shareholder Services............................................. 17
Redemptions and Repurchases...................................... 21
Dividends, Distributions and Taxes............................... 24
Performance Information.......................................... 25
Shares of the Fund............................................... 25
Custodian and Transfer Agent..................................... 26
Independent Accountants.......................................... 26
Reports to Shareholders.......................................... 26
Legal Counsel.................................................... 26
Experts.......................................................... 26
Registration Statement........................................... 26
Financial Statements............................................. 27
Report of Independent Accountants................................ 34
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund was incorporated in the state of Maryland on December 22, 1980
under the name InterCapital Dividend Growth Securities Inc. On March 16, 1983
the Fund's shareholders approved a change in the Fund's name, effective March
21, 1983, to Dean Witter Dividend Growth Securities Inc.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
a Delaware corporation whose address is Two World Trade Center, New York, New
York 10048, is the Fund's investment manager. InterCapital is a wholly-owned
subsidiary of Dean Witter, Discover & Co. ("DWDC"), a Delaware corporation. In
an internal reorganization which took place in January, 1993, InterCapital
assumed the investment advisory, administrative and management activities
previously performed by the InterCapital Division of Dean Witter Reynolds Inc.
("DWR"), a broker-dealer affiliate of InterCapital. (As hereinafter used in this
Statement of Additional Information, the terms "InterCapital" and "Investment
Manager" refer to DWR's InterCapital Division prior to the internal
reorganization and to Dean Witter InterCapital Inc. thereafter.) The daily
management of the Fund and research relating to the Fund's portfolio is
conducted by or under the direction of officers of the Fund and of the
Investment Manager, subject to review of investments by the Fund's Board of
Directors. In addition, Directors of the Fund provide guidance on economic
factors and interest rate trends. Information as to these Directors and Officers
is contained under the caption "Directors and Officers."
The Investment Manager is also the investment manager of the following
investment companies: Dean Witter Liquid Asset Fund, Inc., InterCapital Income
Securities Inc., Dean Witter High Yield Securities Inc., Dean Witter Tax-Free
Daily Income Trust, Dean Witter Developing Growth Securities Trust, Dean Witter
Tax-Exempt Securities Trust, Dean Witter Natural Resource Development Securities
Inc., Dean Witter American Value Fund, Dean Witter U.S. Government Money Market
Trust, Dean Witter Variable Investment Series, Dean Witter World Wide Investment
Trust, Dean Witter Select Municipal Reinvestment Fund, Dean Witter U.S.
Government Securities Trust, Dean Witter California Tax-Free Income Fund, Dean
Witter New York Tax-Free Income Fund, Dean Witter Convertible Securities Trust,
Dean Witter Federal Securities Trust, Dean Witter Value-Added Market Series,
High Income Advantage Trust, Dean Witter Government Income Trust, InterCapital
Insured Municipal Bond Trust, Dean Witter Utilities Fund, Dean Witter Managed
Assets Trust, High Income Advantage Trust II, Dean Witter California Tax-Free
Daily Income Trust, Dean Witter Strategist Fund, High Income Advantage Trust
III, Dean Witter World Wide Income Trust, Dean Witter Intermediate Income
Securities, Dean Witter New York Municipal Money Market Trust, Dean Witter
Capital Growth Securities, Dean Witter European Growth Fund Inc., Dean Witter
Pacific Growth Fund Inc., Dean Witter Precious Metals and Minerals Trust, Dean
Witter Global Short-Term Income Fund Inc., Dean Witter Multi-State Municipal
Series Trust, Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Premier
Income Trust, InterCapital Quality Municipal Investment Trust, InterCapital
Insured Municipal Trust, Dean Witter Diversified Income Trust, Dean Witter
Health Sciences Trust, Dean Witter Retirement Series, Dean Witter Global
Dividend Growth Securities, InterCapital California Insured Municipal Income
Trust, InterCapital Insured Municipal Income Trust, InterCapital Insured
California Municipal Securities, InterCapital Insured Municipal Securities,
InterCapital Quality Municipal Income Trust, InterCapital California Quality
Municipal Securities, InterCapital Quality Municipal Securities, InterCapital
New York Quality Municipal Securities, Dean Witter Limited Term Municipal Trust,
Dean Witter Short-Term Bond Fund, Active Assets Money Trust, Active Assets
Tax-Free Trust, Active Assets California Tax-Free Trust, Active Assets
Government Securities Trust, Municipal Income Trust, Municipal Income Trust II,
Municipal Income Trust III, Municipal Income Opportunities Trust, Municipal
Income Opportunities Trust II, Municipal Income Opportunities Trust III, Prime
Income Trust and Municipal Premium Income Trust. The foregoing investment
companies, together with the Fund, are collectively referred to as the Dean
Witter Funds.
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
3
<PAGE>
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 Emerging Markets
Opportunities Trust, TCW/DW Emerging Markets Government Income Trust, TCW/DW
North American Intermediate Income Trust, TCW/DW Term Trust 2000, TCW/DW Term
Trust 2001, TCW/DW Term Trust 2002 and TCW/DW Term Trust 2003 (the "TCW/DW
Funds"). InterCapital also serves as: (i) sub-adviser to Templeton Global
Opportunities Trust,
an open-end investment company; (ii) administrator of The BlackRock Strategic
Term Trust Inc., a
closed-end investment company; and (iii) sub-administrator of MassMutual
Participation Investors and
Templeton Global Governments Income Trust, closed-end investment companies.
The Investment Manager also serves as an investment adviser for Dean Witter
World Wide Investment Fund, an investment company organized under the laws of
Luxembourg, shares of which are not available for purchase in the United States
or by American citizens outside of the United States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective and policies.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help, bookkeeping and certain legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of
prospectuses, proxy statements and reports required to be filed with federal and
state securities commissions (except insofar as the participation or assistance
of independent accountants and attorneys is, in the opinion of the Investment
Manager, necessary or desirable). In addition, the Investment Manager pays the
salaries of all personnel, including officers of the Fund, who are employees of
the Investment Manager. The Investment Manager also bears the cost of telephone
service, heat, light, power and other utilities provided to the Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to the
Fund which were previously performed directly by InterCapital. The foregoing
internal reorganization did not result in any change in the nature or scope of
the administrative services being provided to the Fund or any of the fees being
paid by the Fund for the overall services being performed under the terms of the
existing Management Agreement.
Expenses not expressly assumed by the Investment Manager under the Agreement
or by the Distributor of the Fund's shares, Dean Witter Distributors Inc.
("Distributors" or the "Distributor") (see "The Distributor"), will be paid by
the Fund. The expenses borne by the Fund include, but are not limited to:
expenses of the Plan of Distribution pursuant to Rule 12b-1 (see "The
Distributor"); charges and expenses of any registrar, custodian, stock transfer
and dividend disbursing agent; brokerage commissions; taxes; engraving and
printing stock 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 directors' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and travel
expenses of directors or members of any advisory board or committee who are not
employees of the Investment Manager or any corporate affiliate of the Investment
Manager; all expenses incident to any dividend, withdrawal or redemption
options; charges and expenses of any outside service used for pricing of the
Fund's shares; fees and expenses of legal counsel, including counsel to the
directors who are not interested persons of the Fund or of the Investment
Manager (not including compensation or expenses of attorneys who are employees
of the Investment Manager), and independent accountants; membership dues of
industry associations; interest on Fund borrowings; postage; insurance premiums
on property or personnel
4
<PAGE>
(including officers and directors) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto); and
all other costs of the Fund's operation.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.625% of the portion of daily net assets not exceeding
$250 million; 0.50% of the portion of daily net assets exceeding $250 million
but not exceeding $1 billion; 0.475% of the portion of daily net assets
exceeding $1 billion but not exceeding $2 billion; 0.45% of the portion of daily
net assets exceeding $2 billion but not exceeding $3 billion; 0.425% of the
portion of daily net assets exceeding $3 billion but not exceeding $4 billion;
0.40% of the portion of daily net assets exceeding $4 billion but not exceeding
$5 billion; 0.375% of the portion of daily net assets exceeding $5 billion but
not exceeding $6 billion; 0.350% of the portion of daily net assets exceeding $6
billion but not exceeding $8 billion; and 0.325% of the portion of daily net
assets exceeding $8 billion. For the fiscal years ended February 29, 1992,
February 28, 1993 and February 28, 1994, the Fund accrued to the Investment
Manager total compensation of $16,422,196, $21,227,909 and $26,921,563,
respectively.
Pursuant to the Agreement, total operating expenses of the Fund are subject
to applicable limitations under rules and regulations of states where the Fund
is authorized to sell its shares. Therefore, operating expenses are effectively
subject to the most restrictive of such limitations as the same may be amended
from time to time. Presently, the most restrictive limitation is as follows. If,
in any fiscal year, the Fund's total operating expenses, exclusive of taxes,
interest, brokerage fees, distribution fees and extraordinary expenses (to the
extent permitted by applicable state securities laws and regulations), exceed
2 1/2% of the first $30,000,000 of average daily net assets, 2% of the next
$70,000,000 of average daily net assets and 1 1/2% of any excess over
$100,000,000, the Investment Manager will reimburse the Fund for the amount of
such excess. Such amount, if any, will be calculated daily and credited on a
monthly basis. During the fiscal years ended February 29, 1992, February 28,
1993 and February 28, 1994, the Fund's expenses did not exceed the limitation
set forth above.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or adviser to others.
The Agreement was initially approved by the Board of Directors on October
30, 1992 and by the stockholders at a Meeting of Stockholders held on January
12, 1993. The Agreement is substantially identical to a prior investment
management agreement which was initially approved by the Board of Directors on
January 18, 1983, and by the stockholders of the Fund on March 16, 1983 (as such
agreement had been amended prior thereto to provide for breakpoints in the
management fee). The Agreement took effect on June 30, 1993 upon the spin-off by
Sears, Roebuck and Co. of its remaining shares of DWDC. The Agreement may be
terminated at any time, without penalty, on thirty days' notice by the Board of
Directors 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. The Agreement will
automatically terminate in the event of its assignment (as defined in the Act).
Under its terms, the Agreement will continue in effect until April 30, 1994
and from year to year thereafter, provided continuance of the Agreement is
approved at least annually by the vote of the holders of a majority, as defined
in the Act, of the outstanding shares of the Fund, or by the Board of Directors
of the Fund; provided that in either event such continuance is approved annually
by the vote of a majority of the Directors of the Fund who are not parties to
the Agreement or "interested persons" (as defined in the Act) of any such party
(the "Independent Directors"), which vote must be cast in person at a meeting
called for the purpose of voting on such approval.
5
<PAGE>
At their meeting held on April 8, 1994 the Fund's Board of Directors,
including all of the Independent Directors, approved the Agreement's
continuation until April 30, 1995, and amended its terms to lower management
fees charged on average daily net assets of the Fund in excess of $8 billion to
0.325%.
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 contract between the Investment Manager and
the Fund is terminated, or if the affiliation between the Investment Manager and
its parent is terminated, the Fund will eliminate the name "Dean Witter" from
its name if DWR or its parent shall so request.
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
The Directors and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Dean Witter Funds and the TCW/DW Funds, are shown below.
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- --------------------------------------------------------------------
<S> <C>
Jack F. Bennett Retired; Director or Trustee of the Dean Witter Funds; formerly
Director Senior Vice President and Director of Exxon Corporation
141 Taconic Road (1975-January, 1989) and Under Secretary of the U.S. Treasury for
Greenwich, Connecticut Monetary Affairs (1974-1975); Director of Philips Electronics N.V.,
Tandem Computers Inc. and Massachusetts Mutual Insurance Co.;
director or trustee of various not-for-profit and business
organizations.
Michael Bozic President and Chief Executive Officer of Hills Department Stores
Director (since May, 1991); formerly Chairman and Chief Executive Officer
c/o Hills Stores Inc. (January, 1987-August, 1990) and President and Chief Operating
15 Dan Road Officer (August, 1990-February, 1991) of the Sears Merchandise Group
Canton, Massachusetts of Sears, Roebuck and Co.; Director or Trustee of the Dean Witter
Funds; Director of Harley Davidson Credit Inc., the United Negro
College Fund and Domain Inc. (home decor retailer).
Charles A. Fiumefreddo* Chairman, Chief Executive Officer and Director of InterCapital,
Chairman, President, Distributors and DWSC; Executive Vice President and Director of DWR;
Chief Executive Officer and Director 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; Director and/or officer of various DWDC subsidiaries;
formerly Executive Vice President and Director of DWDC (until
February, 1993).
Edwin J. Garn Director or Trustee of the Dean Witter Funds; formerly United States
Director Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee
2000 Eagle Gate Tower (1980-1986); formerly Mayor of Salt Lake City, Utah (1971-1974);
Salt Lake City, Utah formerly Astronaut, Space Shuttle Discovery (April 12-19, 1985);
Vice Chairman, Huntsman Chemical Corporation (since January, 1993);
member of the board of various civic and charitable organizations.
John R. Haire Chairman of the Audit Committee and Chairman of the Committee of
Director Independent Directors or Trustees and Director or Trustee of each of
439 East 51st Street the Dean Witter Funds; Trustee of the TCW/DW Funds; formerly
New York, New York President, Council for Aid to Education (1978-October, 1989) and
formerly Chairman and Chief Executive Officer of Anchor Corporation,
an Investment Adviser (1964-1978); Director of Washington National
Corporation (insurance) and Bowne & Co. Inc., (printing).
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- --------------------------------------------------------------------
Dr. John E. Jeuck Retired; Director or Trustee of the Dean Witter Funds; formerly
Director Robert Law Professor of Business Administration, Graduate School of
70 East Cedar Street Business, University of Chicago (until July 1989); Business
Chicago, Illinois Consultant.
<S> <C>
Dr. Manuel H. Johnson Senior Partner, Johnson Smick International, Inc., a consulting firm
Director (since June, 1985); Koch Professor of International Economics and
7521 Old Dominion Drive Director of the Center for Global Market Studies at George Mason
Maclean, Virginia University (since September, 1990); Co-Chairman and a founder of the
Group of Seven Counsel (G7C), an international economic commission
(since September, 1990); Director or Trustee of the Dean Witter
Funds; Trustee of the TCW/DW Funds; Director of Greenwich Capital
Markets Inc. (broker-dealer); formerly Vice Chairman of the Board of
Governors of the Federal Reserve System (February, 1986-August,
1990) and Assistant Secretary of the U.S. Treasury (1982-1986).
Paul Kolton Director or Trustee of the Dean Witter Funds; Chairman of the Audit
Director Committee and Committee of Independent Trustees and Trustee of the
9 Hunting Ridge Road TCW/DW Funds; formerly Chairman of the Financial Accounting
Stamford, Connecticut Standards Advisory Council; formerly Chairman and Chief Executive
Officer of the American Stock Exchange; Director of UCC Investors
Holding Inc. (Uniroyal Chemical Company); director or trustee of
various not-for profit organizations.
Michael E. Nugent General Partner, Triumph Capital, LP., a private investment
Director partnership (since April, 1988); Director or Trustee of the Dean
237 Park Avenue Witter Funds; Trustee of the TCW/DW Funds; formerly Vice President,
New York, New York Bankers Trust Company and BT Capital Corporation (September,
1984-March 1988); Director of various business organizations.
Philip J. Purcell* Chairman of the Board of Directors and Chief Executive Officer of
Director DWDC, DWR and Novus Credit Services Inc.; Director of InterCapital,
Two World Trade Center DWSC and Distributors; Director or Trustee of the Dean Witter Funds;
New York, New York Director and/or officer of various DWDC subsidiaries.
John L. Schroeder Executive Vice President and Chief Investment Officer of the Home
Director Insurance Company (since August, 1991); Director or Trustee of the
Northgate 3A Dean Witter Funds; Director of Citizens Utilities Company; formerly
Alger Court Chairman and Chief Investment Officer of Axe-Houghton Management and
Bronxville, New York the Axe-Houghton Funds (April, 1983-June, 1991) and President of
USF&G Financial Services, Inc. (June 1990-June, 1991).
Edward R. Telling* Retired; Director or Trustee of the Dean Witter Funds; formerly
Director Chairman of the Board of Directors and Chief Executive Officer
Sears Tower (until December 31, 1985) and President (from January 1981-March
Chicago, Illinois 1982 and from February 1984-August 1984) of Sears, Roebuck and Co.;
formerly Director of Sears, Roebuck and Co.
Sheldon Curtis Senior Vice President and General Counsel of InterCapital and DWSC;
Vice President, Senior Vice President and Secretary of Dean Witter Trust Company;
Secretary and General Counsel Senior Vice President, Assistant Secretary and Assistant General
Two World Trade Center Counsel of Distributors; Assistant Secretary of DWR; and Vice
New York, New York President, Secretary and General Counsel of the Dean Witter Funds
and the TCW/DW Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- --------------------------------------------------------------------
Paul D. Vance Senior Vice President of InterCapital; Vice President of various
Vice President Dean Witter Funds.
Two World Trade Center
New York, New York
<S> <C>
Thomas F. Caloia First Vice President (since May, 1991) of InterCapital and Assistant
Treasurer Treasurer (since April, 1988) of InterCapital; Treasurer of the Dean
Two World Trade Center Witter Funds and the TCW/DW Funds; previously Vice President of
New York, New York InterCapital; Treasurer of the TCW/DW Funds.
</TABLE>
- ------------
*Denotes Directors who are "interested persons" of the Fund, as defined in the
Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer, of
InterCapital, David A. Hughey and Edmund C. Puckhaber, Executive Vice Presidents
of InterCapital, Thomas H. Connelly and Kenton J. Hinchliffe, Senior Vice
Presidents of InterCapital and Peter M. Avelar and Ira N. Ross, Vice Presidents
of InterCapital, are Vice Presidents of the Fund. Barry Fink, First Vice
President and Assistant General Counsel and Marilyn K. Cranney, Lawrence S.
Lafer, Lou Anne D. McInnis and Ruth Rossi, Vice Presidents and Assistant General
Counsels of InterCapital, are Assistant Secretaries of the Fund.
The Fund pays each Director who is not an employee or former employee of the
Investment Manager or an affiliated company an annual fee of $1,200 ($1,600
prior to December 31, 1993) plus $50 for each meeting of the Board of Directors,
the Audit Committee or of the Committee of Independent Directors, attended by
the Director in person (the Fund pays the Chairman of the Audit Committee an
additional annual fee of $1,000 ($1,200 prior to December 31, 1993) and pays the
Chairman of the Committee of Independent Directors an annual fee of $2,400, in
each case inclusive of the Committee meeting fees). The Fund also reimburses
Directors for travel and other out-of-pocket expenses incurred by them in
connection with attending such meetings. Directors 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 Fund has
adopted a retirement program under which a Director who is not an "interested
person" of the Fund and who retires after a minimum required period of service
would be entitled to retirement payments upon reaching the eligible retirement
date (normally, after attaining age 72) based upon length of service and
computed as a percentage of one-fifth of the total compensation earned by such
Director for service to the Fund in the five-year period prior to the date of
the Director's retirement. No Independent Director has retired since the
adoption of the program and no payments by the Fund have been made under the
program to any Director. For the fiscal year ended February 28, 1994, the Fund
accrued a total of $35,790 for directors' fees and expenses and benefits under
the retirement program. As of the date of this Statement of Additional
Information, the aggregate shares of the Fund owned by the Fund's officers and
Directors as a group was less than one percent of the Fund's shares outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
PORTFOLIO TRADING
It is anticipated that the Fund's portfolio turnover rate will not exceed
90% in any one year. A 90% turnover rate would occur, for example, if 90% 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.
SECURITY LOANS
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund (subject to notice
provisions described below), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value, determined daily,
of the loaned securities. The advantage of such
8
<PAGE>
loans is that the Fund continues to receive the income on the loaned securities
while at the same time earning interest on the cash amounts deposited as
collateral, which will be invested in short-term obligations.
A loan may be terminated by the borrower on one business day's notice, or by
the Fund on four business days' notice. If the borrower fails to deliver the
loaned securities within four days after receipt of notice, the Fund could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and, in some cases, even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed
by the Fund's management to be creditworthy and when the income which can be
earned from such loans justifies the attendant risks. Upon termination of the
loan, the borrower is required to return the securities to the Fund. Any gain or
loss in the market price of the securities during the period of the loan 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.
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. During its fiscal year ended February 28, 1994, the Fund
did not loan any of its portfolio securities and it has no intention of doing so
in the foreseeable future.
BORROWING OF MONEY
The Fund did not borrow any money during its fiscal year ended February 28,
1994 and it has no intention of borrowing any money in the foreseeable future.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase
agreements until such time as it may otherwise be invested or used for payments
of obligations of the Fund. These agreements, which may be viewed as a type of
secured lending by the Fund, typically involve the acquisition by the Fund of
debt securities from a selling financial institution such as a bank, savings and
loan association or broker-dealer. The agreement provides that the Fund will
sell back to the institution, and that the institution will repurchase, the
underlying security ("collateral") at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The Fund
will receive 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. These procedures include effecting repurchase transactions only with
large, well capitalized and well established financial institutions under
guidelines established and monitored by the Board of Directors of the Fund. In
addition, the value of the collateral underlying the repurchase agreement will
always be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss. It is the current policy of the Fund not to
invest in repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Fund, amounts to
more than 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, liquidity or other considerations warrant. However, during its fiscal
year ended February 28, 1994 the Fund did not enter into any repurchase
agreements to the extent that more than 5% of the Fund's net assets were at
risk, and the Fund does not intend to enter into any repurchase agreements to
the extent that more than 5% of the Fund's net assets will be at risk in the
foreseeable future.
9
<PAGE>
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time the Fund may purchase securities on a when-issued or
delayed delivery basis or may purchase or sell securities on a forward
commitment basis. When such transactions are negotiated, the price is fixed at
the time of the commitment, but delivery and payment can take place a month or
more after the date of commitment. While the Fund will only purchase securities
on a when-issued, delayed delivery or forward commitment basis with the
intention of acquiring the securities, the Fund may sell the securities before
the settlement date, if it is deemed advisable. The securities so purchased or
sold are subject to market fluctuation and no interest or dividends accrue to
the purchaser prior to the settlement date. At the time the Fund makes the
commitment to purchase or sell securities on a when-issued, delayed delivery or
forward commitment basis, it will record the transaction and thereafter reflect
the value, each day, of such security purchased, or if a sale, the proceeds to
be received, in determining its net asset value. At the time of delivery of the
securities, their value may be more or less than the purchase or sale price.
The Fund will also establish a segregated account with its custodian bank in
which it will continually maintain cash or cash equivalents or other high grade
debt portfolio securities equal in value to commitments to purchase securities
on a when-issued, delayed delivery or forward commitment basis. During the
fiscal year ended February 28, 1994, the Fund's commitments to purchase
securities on a when-issued, delayed delivery or forward commitment basis did
not exceed 5% of the Fund's net assets.
WHEN, AS AND IF ISSUED SECURITIES
The Fund may purchase securities on a "when, as and if issued" basis under
which the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger, corporate reorganization or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until the Investment Manager determines
that issuance of the security is probable. At such time, the Fund will record
the transaction and, in determining its net asset value, will reflect the value
of the security daily. At such time, the Fund will also establish a segregated
account with its custodian bank in which it will maintain cash or cash
equivalents or other high grade debt portfolio securities equal in value to
recognized commitments for such securities. The value of the Fund's commitments
to purchase the securities of any one issuer, together with the value of all
securities of such issuer owned by the Fund, may not exceed 5% of the value of
the Fund's total assets at the time the initial commitment to purchase such
securities is made (see "Investment Restrictions"). An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
"when, as and if issued" basis may increase the volatility of its net asset
value. The Investment Manager and the Board of Directors do not believe that the
net asset value of the Fund will be adversely affected by its purchase of
securities on such basis. During the fiscal year ended February 28, 1994, the
Fund did not purchase any securities on a "when, as and if issued" basis and it
does not intend to in the foreeable future. The Fund may also sell securities on
a "when, as and if issued" basis provided that the issuance of the security will
result automatically from the exchange or conversion of a security owned by the
Fund at the time of sale.
10
<PAGE>
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act of 1933, which will permit the Fund to sell restricted securities
to qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Board of Directors of the Fund, will make
a determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid", such security will
not be included within the category "illiquid securities", which under current
policy may not exceed 15% of the Fund's total assets. 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 be possessed of 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.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders of the Fund, if the holders of more than 50% of the
outstanding shares are present or represented by proxy; or (b) more than 50% of
the outstanding shares of the Fund. 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 director of the Fund or of the Investment Manager owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers and directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
2. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities which are
secured by real estate or interests therein.
3. Purchase or sell commodities or commodity futures contracts.
4. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Fund may invest in the securities of companies which operate, invest in, or
sponsor such programs.
5. Write, purchase or sell puts, calls, or combinations thereof.
6. Invest more than 5% of the value of its net assets in warrants,
including not more than 2% of such assets in warrants not listed on
either the New York or American Stock Exchange. However, the acquisition of
warrants attached to other securities is not subject to this restriction.
7. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or
acquisition of assets.
8. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at
the lower of cost or current value) of its total assets (not including the
amount borrowed).
11
<PAGE>
9. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in
restriction (8). 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 4.5% of its net assets so long as
shares of the Fund are being sold in those states.
10. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement; (b) borrowing money in accordance
with restrictions described above; or (c) lending portfolio securities.
11. 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.
12. Make short sales of securities.
13. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities.
14. 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 and then only in an aggregate amount not
to exceed 5% of the Fund's total assets.
15. Invest for the purpose of exercising control or management of any
other issuer.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the general supervision of the Board of Directors, the Investment
Manager is responsible for decisions to buy and sell securities for the Fund,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts without
a stated commission, although the price of the security usually includes a
profit to the dealer. The Fund also expects that securities will be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
On occasion, the Fund may also purchase certain money market instruments
directly from an issuer, in which case no commissions or discounts are paid. For
the fiscal years ended February 29, 1992, February 28, 1993 and February 28,
1994, the Fund paid a total of $799,186, $1,288,435 and $1,280,476 respectively,
in brokerage commissions.
The Investment Manager currently serves as investment manager or advisor to
a number of clients, including other investment companies, and may in the future
act as investment manager or adviser to others. It is the practice of the
Investment Manager to cause purchase and sale transactions to be allocated among
the Fund and others whose assets it manages in such manner as it deems
equitable. In making such allocations among the Fund and other client accounts,
the main factors considered are the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio
12
<PAGE>
management and preclude the Fund and the Investment Manager from obtaining a
high quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Investment
Manager relies upon its experience and knowledge regarding commissions generally
charged by various brokers and on its judgment in evaluating the brokerage and
research services received from the broker effecting the transaction. Such
determinations are necessarily subjective and imprecise, as in most cases an
exact dollar value for those services is not ascertainable.
In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes such price and execution are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Investment Manager. Such services
may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities. During the
fiscal year ended February 28, 1994, the Fund directed the payment of $896,225
in brokerage commissions in connection with transactions in the aggregate amount
of $635,840,625 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. In order for DWR to effect any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by DWR must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. This standard would allow DWR to receive no more than the remuneration
which would be expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction. Furthermore, the Directors of the Fund,
including a majority of the Directors who are not "interested" persons of the
Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to DWR
are consistent with the foregoing standard. During the fiscal years ended
February 29, 1992, February 28, 1993 and February 28, 1994, the Fund paid a
total of $242,750, $377,702 and $199,065, respectively, in brokerage commissions
to DWR. The Fund does not reduce the management fee it pays to the Investment
Manager by any amount of the brokerage commissions it may pay to DWR. During the
year ended February 28, 1994, the brokerage commissions paid to DWR represented
approximately 15.6% 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 18.97% of the aggregate dollar value of all portfolio transactions
of the Fund during the year for which commissions were paid.
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 their 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 February 29, 1992, February
28, 1993 and February 28, 1994, the Fund did not effect any principal
transactions with DWR.
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Fund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the Fund does not reduce the management fee it
pays to the Investment Manager by any amount that may be attributable to the
value of such services.
13
<PAGE>
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"), on a continuous basis. 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 DWDC. The Directors who are not, and were not at the time they
voted, interested persons of the Fund, as defined in the Act (the "Independent
Directors"), approved, at their meeting held on October 30, 1992, 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, 1994, and provides that it will remain in effect
from year to year thereafter if approved by the Board. At their meeting held on
April 8, 1994, the Directors of the Fund, including all of the Independent
Directors, approved the continuation of the Distribution Agreement for an
additional year until April 30, 1994.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws. The Fund and the Distributor
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the Distribution
Agreement, the Distributor uses its best efforts in rendering services to the
Fund, but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations, the Distributor is not liable to the Fund
or any of its shareholders for any error of judgement or mistake of law or for
any act or omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
To compensate the Distributor for the services provided and for the expenses
borne under the Distribution Agreement, the Fund has adopted a Plan of
Distribution pursuant to Rule 12b-1 under the Act (the "Plan"), pursuant to
which the Fund pays the Distributor compensation accrued daily and payable
monthly at the annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the inception of the Plan on
July 2, 1984 (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
shares redeemed since the Plan's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived, or (b)
the average daily net assets of the Fund attributable to shares issued, net of
related shares redeemed, since the inception of the Plan. The Distributor also
receives the proceeds of contingent deferred sales charges imposed on certain
redemptions of shares (see "Redemptions and Repurchases -- Contingent Deferred
Sales Charge" in the Prospectus). The Distributor has informed the Fund that it
and/or DWR received approximately $4,649,000, $4,594,000 and $6,568,000 in
contingent deferred sales charges during the fiscal years ended February 29,
1992, February 28, 1993 and February 28, 1994.
The Distributor has informed the Fund that a portion of the fees payable by
the Fund each year pursuant to the Plan, which may not exceed 0.25% of the
Fund's average daily net assets, is characterized as a "service fee" under the
Rules of Fair Practice of the National Association of Securities Dealers (of
which the Distributor is a member). Such portion of the fee is a payment made
for personal service and/or the maintenance of shareholder accounts. The
remaining portion of the Plan fees payable by the Fund is characterized as an
"asset-based sales charge" as such is defined by the aforementioned Rules of
Fair Practice.
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<PAGE>
The Plan was originally adopted by a majority vote of the Board of
Directors, including all of the Directors who are not "interested persons" of
the Fund (the "Independent Directors") (none of whom had or have any direct or
indirect financial interest in the operation of the Plan) (the "Independent
12b-1 Directors"), cast in person at a meeting called for the purpose of voting
on the Plan, on April 16, 1984, and by the shareholders holding a majority, as
defined in the Act, of the outstanding shares of the Fund, at the Fund's Annual
Meeting of Shareholders held on June 22, 1984.
Pursuant to the Plan and as required by Rule 12b-1, the Distributor shall
provide the Fund, for review by the Directors, and the Directors shall review,
quarterly, a written report of the amounts expended under the Plan and the
purpose for which such expenditures were made.
The Fund accrued $49,135,342 to the Distributor, pursuant to the Plan, for
its fiscal year ended February 28, 1994. This is an accrual at an annual rate of
1% of the average daily aggregate gross sales of the Fund's shares since the
inception of the Plan on July 2, 1984 (not including reinvestments of dividends
or capital gains distributions), less the average daily aggregate net asset
value of the Fund's shares redeemed since the Plan's inception upon which a
contingent deferred sales charge has been imposed or upon which such charge has
been waived.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method shares of the Fund are
sold without a sales load being deducted at the time of purchase, so that the
full amount of an investor's purchase payment will be invested in shares without
any deduction for sales charges. Shares of the Fund may be subject to a
contingent deferred sales charge, payable to the Distributor, if redeemed during
the six years after their purchase. DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of the Fund's shares,
currently a gross sales credit of up to 5% of the amount sold and an annual
residual commission of up to .25 of 1% of the current value (not including
reinvested dividends or distributions) of the amount sold. The gross sales
credit is a charge which reflects commissions paid by DWR to its account
executives and DWR's Fund associated distribution-related expenses, including
sales compensation, and overhead and other branch office distribution-related
expenses including: (a) the expenses of operating DWR's branch offices in
connection with the sale of Fund shares, including lease costs, the salaries and
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares and (d) other expenses relating to branch
promotion of Fund share sales. The distribution fee that the Distributor
receives from the Fund under the Plan, in effect, offsets distribution expenses
incurred on behalf of the Fund and DWR's opportunity costs, such as the gross
sales credit and an assumed interest charge thereon ("carrying charge"). In the
Distributor's reporting of its distribution expenses to the Fund, such assumed
interest (computed at the "broker's call rate") has been calculated on the gross
sales credit as it is reduced by amounts received by DWR under the Plan and any
contingent deferred sales charges received by the Distributor upon redemption of
shares of the Fund. No other interest charge is included as a distribution
expense in the Distributor's calculation of its distribution costs for this
purpose. The broker's call rate is the interest rate charged to securities
brokers on loans secured by exchange-listed securities.
The Fund paid 100% of the $49,135,342 accrued under the Plan for the fiscal
year ended February 28, 1994 to the Distributor and DWR. DWR and the Distributor
estimate that they spent, pursuant to the Plan, $413,106,330 on behalf of the
Fund since the inception of the Plan through February 28, 1994. It is estimated
that this amount was spent in approximately the following ways: (i) 0.94%
($3,864,278) -- advertising and promotional expenses; (ii) 0.20% ($834,122) --
printing of prospectuses for distribution to other than current shareholders;
and (iii) 98.86% ($408,407,930) -- other expenses, including the gross sales
credit and the carrying charge, of which 10.72% ($43,787,057) represents
carrying charges, 35.86% ($146,468,205) represents commission credits to DWR
branch offices for payments of commissions to account executives and 53.42%
($218,152,668) represents overhead and other branch office distribution-related
expenses.
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<PAGE>
At any given time, the expenses incurred 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
such excess amount, including the carrying charge designed to approximate the
opportunity costs incurred by DWR which arise from it having advanced monies
without having received the amount of any sales charges imposed at the time of
sale of the Fund's shares, totalled $171,111,328 as of February 28, 1994, which
amount constitutes 2.55% of the Fund's net assets on such date. Because there is
no requirement under the Plan that the Distributor be reimbursed for all its
expenses or any requirement that the Plan be continued from year to year, this
excess amount does not constitute a liability of the Fund. Although there is no
legal obligation for the Fund to pay expenses incurred 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 Directors 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 Director 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
Investment Manager or certain of its 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 December 31, 1984, and
provides that it will remain in effect from year to year thereafter, provided
such continuance is approved annually by a vote of the Directors in the manner
described above. Continuance of the Plan for one year, until April 30, 1995, was
approved by the Board of Directors of the Fund, including a majority of the
Independent 12b-1 Directors, at a Board meeting held on April 8, 1994. 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 Directors 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 stockholders.
Based upon their review, the Directors of the Fund, including each of the
Independent 12b-1 Directors, 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 Directors' 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
Fund, and all material amendments of the Plan must also be approved by the
Directors 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 Directors who are
not interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan, or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) on not more
than thirty days' written notice to any other party to the Plan. The Plan will
automatically terminate in the event of its assignment 12b-1 (as defined in the
Act). So long as the Plan is in effect, the election and nomination of
Independent Directors shall be committed to the discretion of the Independent
Directors.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term debt securities with remaining
maturities of 60 days or less at the time of purchase are valued at amortized
cost, unless the Board of Directors 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 Directors. Other short-term debt securities will
be valued on a mark-to-market basis
16
<PAGE>
until such time as they reach a remaining maturity of 60 days, whereupon they
will be valued at amortized cost using their value on the 61st day unless the
Directors 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
Directors. Listed options on debt securities are valued at the latest sale price
on the exchange on which they are listed unless no sales of such options have
taken place that day, in which case they will be valued at the mean between
their latest bid and asked prices. Unlisted options on debt securities and all
options on equity securities are valued at the mean between their latest bid and
asked prices. Futures are valued at the latest sale price on the commodities
exchange on which they trade unless the Directors determine that such price does
not reflect their market value, in which case they will be valued at their fair
value as determined by the Directors. 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 Directors.
The net asset value per share of the Fund is determined once daily at 4:00
p.m. New York time on each day that the New York Stock Exchange is open by
taking the value of all assets of the Fund, subtracting its liabilities,
dividing by the number of shares outstanding and adjusting to the nearest cent.
The New York Stock Exchange currently observes the following holidays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by the Fund's
transfer agent, Dean Witter Trust Company (the "Transfer Agent"). This is an
open account in which shares owned by the investor are credited by the Transfer
Agent in lieu of issuance of a stock certificate. If a stock 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 written confirmation of the
transaction from the Fund or from DWR or another broker-dealer.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the Fund, unless the
shareholder requests that they be paid in cash. Each purchase of shares of the
Fund is made upon the condition that the Transfer Agent is thereby automatically
appointed as agent of the investor to receive all dividends and capital gains
distributions on shares owned by the investor. Such dividends and distributions
will be paid, at the net asset value per share, in shares of the Fund (or in
cash if the shareholder so requests) as of the close of business on the record
date. At any time an investor may request the Transfer Agent, in writing, to
have subsequent dividends and/or capital gains distributions paid to him or her
in cash rather than shares. To assure sufficient time to process the change,
such request 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 other 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 an open-end Dean Witter Fund other than Dean
Witter Dividend Growth Securities Inc. Such investment will be made as described
above for automatic investment in shares of the Fund, at the net asset value per
share of the selected Dean Witter Fund as of the close of business on the
payment date of the dividend or distribution and will begin to earn dividends,
if any, in the selected Dean Witter Fund the next business day. To participate
in the Targeted Dividends program, shareholders should contact their DWR or
other selected broker-dealer account executive or the Transfer Agent.
Shareholders of Dean Witter Dividend Growth
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<PAGE>
Securities Inc. must be shareholders of the Dean Witter Fund targeted to receive
investments from dividends at the time they enter the Targeted Dividends
program. Investors should review the prospectus of the targeted Dean Witter Fund
before entering the program.
EASYINVEST.SM Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing account at the net asset value calculated the same business day the
transfer of funds is effected. For further information or to subscribe to
EasyInvest, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or capital gains distribution may invest such dividend or distribution
at net asset value, without the imposition of a contingent deferred sales charge
upon redemption, by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. If the shareholder returns the proceeds
of a dividend or distribution, such funds must be accompanied by a signed
statement indicating that the proceeds constitute a dividend or distribution to
be invested. Such investment will be made at the net asset value per share next
determined after receipt of the check or the proceeds by the Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any amount, not less
than $25, or in any whole percentage of the account balance, on an annualized
basis. Any applicable contingent deferred sales charge will be imposed on shares
redeemed under the Withdrawal Plan (see "Redemptions and Repurchases--Contingent
Deferred Sales Charge" in the Prospectus). Therefore, any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed from
his or her account so that the proceeds (net of any applicable contingent
deferred sales charge) to the shareholder will be the designated monthly or
quarterly amount.
Withdrawal Plan payments should not be considered as dividends, yields or
income, If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for Federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the contingent deferred sales charge
applicable to the redemption of shares purchased during the preceding six years
(see "Redemptions and Repurchases-- Contingent Deferred Sales Charge").
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent, or amounts credited to a shareholder's DWR brokerage
account, within five business days after the date of redemption. The Withdrawal
Plan may be terminated at any time by the Fund.
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
18
<PAGE>
guarantor). A shareholder may, at any time, change the amount and interval of
withdrawal payments through his or her account executive or by written
notification to the Transfer Agent. In addition, the party and/or the address to
which checks are mailed may be changed by written notification to the Transfer
Agent, with signature guarantees required in the manner described above. The
shareholder may also terminate the Withdrawal Plan at any time by written notice
to the Transfer Agent. In the event of such termination, the account will be
continued as a regular shareholder investment account. The shareholder may also
redeem all or part of the shares held in the Withdrawal Plan account (see
"Redemptions and Repurchases" in the Prospectus) at any time.
DIRECT INVESTMENT THROUGH TRANSFER AGENT. As discussed in the Prospectus, a
shareholder may make additional investments in Fund shares at any time by
sending a check in any amount, not less than $100, payable to Dean Witter
Dividend Growth Securities Inc., directly to the Fund's Transfer Agent. Such
amounts will be applied to the purchase of Fund shares at the net asset value
per share next computed after receipt of the check or purchase payment by the
Transfer Agent. The shares so purchased will be credited to the investor's
account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of the Fund may exchange their shares
for shares of other Dean Witter Funds sold with a contingent deferred sales
charge ("CDSC funds"), for shares of Dean Witter Limited Term Municipal Trust,
Dean Witter Short-Term Bond Fund, Dean Witter Short-Term U.S. Treasury Trust and
for shares of five Dean Witter Funds which are money market funds (the foregoing
eight non-CDSC funds are hereinafter referred to as the "Exchange Funds").
Exchanges may be made after the shares of the Fund acquired by purchase (not by
exchange or dividend reinvestment) have been held for thirty days. There is no
waiting period for exchanges of shares acquired by exchange or dividend
reinvestment. An exchange 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 "Exchange
Privilege" and "Contingent Deferred Sales Charge", a contingent deferred sales
charge ("CDSC") may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of the Fund or any
other CDSC fund are exchanged for shares of an Exchange Fund, the exchange 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 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 CDSC fund. However, in the case of shares of the Fund 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 CDSC fund from the Exchange
Fund, with no charge being imposed on such exchange. The holding period
previously frozen
19
<PAGE>
when shares were first exchanged for shares of the Exchange Fund resumes on the
last day of the month in which shares of a CDSC fund are reacquired. A CDSC is
imposed only upon an ultimate redemption, based upon the time (calculated as
discribed above) the shareholder was invested in a CDSC fund.
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds") but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter Funds for which shares of a front-end sales charge fund
have been exchanged) are not subject to any CDSC upon their redemption.
When shares initially purchased in a CDSC fund are exchanged for shares of
another CDSC fund, or for shares of an Exchange Fund, the date of purchase of
the shares of the fund exchanged into, for purposes of the CDSC upon redemption,
will be the last day of the month in which the shares being exchanged were
originally purchased. In allocating the purchase payments between funds for
purposes of the CDSC, the amount which represents the current net asset value of
shares at the time of the exchange which were (i) purchased more than three or
six years (depending on the CDSC schedule applicable to those shares) prior to
the exchange, (ii) originally acquired through reinvestment of dividends or
distributions and (iii) acquired in exchange for shares of front-end sales
charge funds, or for shares of other Dean Witter Funds for which shares of
front-end sales charge funds have been exchanged (all such shares called "Free
Shares"), will be exchanged first. Shares of Dean Witter American Value Fund
(formerly Dean Witter Industry-Valued Securities Inc.) acquired prior to April
30, 1984, shares of the Fund and Dean Witter Natural Resource Development
Securities Inc. acquired prior to July 2, 1984, and shares of Dean Witter
Strategist Fund acquired prior to November 8, 1989, are also considered Free
Shares and will be the first Free Shares to be exchanged. After an exchange, all
dividends earned on shares in an Exchange Fund will be considered Free Shares.
If the exchanged amount exceeds the value of such Free Shares, an exchange is
made, on a block-by-block basis, of non-Free Shares held for the longest period
of time (except that if shares held for identical periods of time but subject to
different CDSC schedules are held in the same Exchange Privilege account, the
shares of that block that are subject to a lower CDSC rate will be exchanged
prior to the shares of that block that are subject to a higher CDSC rate).
Shares equal to any appreciation in the value of non-Free Shares exchanged will
be treated as Free Shares, and the amount of the purchase payments for the
non-Free Shares of the fund exchanged into will be equal to the lesser of (a)
the purchase payments for, or (b) the current net asset value of, the exchanged
non-Free Shares. If an exchange between funds would result in exchange of only
part of a particular block of non-Free Shares, then shares equal to any
appreciation in the value of the block (up to the amount of the exchange) will
be treated as Free Shares and exchanged first, and the purchase payment for that
block will 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 "Contingent Deferred Sales Charge", any applicable
CDSC will be imposed upon the ultimate redemption of shares of any fund,
regardless of the number of exchanges since those shares were originally
purchased.
The Transfer Agent acts as agent for shareholders of the Fund in effecting
redemptions of Fund shares and in applying the proceeds to the purchase of other
fund shares. In the absence of negligence on its part, neither the Transfer
Agent nor the Fund shall be liable for any redemption of Fund shares caused by
unauthorized telephone or telegraph instructions. Accordingly, in such event the
investor shall bear the risk of loss. The staff of the Securities and Exchange
Commission is currently considering the propriety of such a policy.
20
<PAGE>
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
Dealer, if any, in the performance of such functions.
With respect to exchanges, redemptions or repurchases, the Transfer Agent
shall be liable for its own negligence and not for the default or negligence of
its correspondents or for losses in transit. The Fund shall not be liable for
any default or negligence of the Transfer Agent, the Distributor or any broker-
dealer.
The Distributor and various 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 broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000 for
Dean Witter Liquid Asset Fund Inc., Dean WItter Tax-Free Daily Income Trust,
Dean Witter New York Municipal Money Market Trust and Dean Witter California
Tax-Free Daily Income Trust although those funds may, at their discretion,
accept initial investments of as low as $1,000. The minimum initial investment
is $10,000 for Dean Witter Short-Term U.S. Treasury Trust, although that fund,
in its discretion, may accept purchases as low as $5,000. The minimum initial
investment for all other Dean Witter Funds for which the Exchange Privilege is
available is $1,000.) Upon exchange into Dean Witter Short-Term U.S. Treasury
Trust or a money market fund, the shares of that fund will be held in a special
Exchange Privilege Account separately from accounts of those shareholders who
have acquired their shares directly from that fund. As a result, certain
services normally available to shareholders of those funds, including the check
writing feature, will not be available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days for termination or material
revision), provided that six months' prior written notice of termination will be
given to the shareholders who hold shares of Exchange Funds pursuant to 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.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of the Fund can be redeemed
for cash at any time at the net asset value per share next determined; however,
such redemption proceeds may be reduced by the amount of any applicable
contingent deferred sales charges (see below). If shares are held in a
shareholder's account without a share certificate, a written request for
redemption to the Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303
is required. if certificates are held by the shareholder, the shares may be
redeemed by surrendering the certificates with a written request for
redemp-
21
<PAGE>
tion. The share certificate, or an accompanying stock power, and the request for
redemption, must be signed by the shareholder or shareholders exactly as the
shares are registered. Each request for redemption, whether or not accompanied
by a share certificate, must be sent to the Fund's Transfer Agent, which will
redeem the shares at their net asset value next computed (see "Purchase of Fund
Shares" in the Prospectus) after it receives the request, and certificate, if
any, in good order. Any redemption request received after such computation will
be redeemed at the next determined net asset value. The term "good order" means
that the share certificate, if any, and request for redemption are properly
signed, accompanied by any documentation required by the Transfer Agent, and
bear signature guarantees when required by the Fund or the Transfer Agent. If
redemption is requested by a corporation, partnership, trust or fiduciary, the
Transfer Agent may require that written evidence of authority acceptable to the
Transfer Agent be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular institution is
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a new
prospectus.
CONTINGENT DEFERRED SALES CHARGE. As stated in the Prospectus, a contingent
deferred sales charge ("CDSC") will be imposed on any redemption by an investor
if after such redemption the current value of the investor's shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Fund shares during the preceding six years. However, no CDSC will be
imposed to the extent that the net asset value of the shares redeemed does not
exceed: (a) the current net asset value of shares purchased more than six years
prior to the redemption, plus (b) the current net asset value of shares
purchased through reinvestment of dividends or distributions of the Fund or
another Dean Witter Fund (see "Shareholder Services -- Targeted Dividends"),
plus (c) the current net asset value of shares acquired in exchange for (i)
shares of Dean Witter front-end sales charge funds, or (ii) shares of other Dean
Witter Funds for which shares of front-end sales charge funds have been
exchanged (see "Shareholder Services -- Exchange Privilege"), plus (d) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of Fund shares made during the preceding six years. In
addition, no CDSC will be imposed on redemptions of shares which were purchased
by the employee benefit plans established by DWR and SPS Transaction Services,
Inc. (an affiliate of DWR) for their employees as qualified under Section 401(k)
of the Internal Revenue Code. The CDSC will be paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than six years prior to the redemption and/or shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of Dean Witter front-end sales charge funds or for shares of
other Dean Witter funds for which shares of front-end sales charge funds have
been exchanged. A portion of the amount redeemed which exceeds an amount which
represents both such increase in value and the value of shares purchased more
than six years prior to the redemption and/or shares purchased through
reinvestment of dividends or distributions and/or shares acquired in the
above-described exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Fund shares until the time of
redemption of such shares. For purposes of
22
<PAGE>
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:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS
PURCHASE 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>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year period. This will result in any such CDSC being imposed at
the lowest possible rate. Accordingly, shareholders may redeem, without
incurring any CDSC, amounts equal to any net increase in the value of their
shares above the amount of their purchase payments made within the past six
years and amounts equal to the current value of shares purchased more than six
years prior to the redemption and shares purchased through reinvestment of
dividends or distributions or acquired in exchange for shares of Dean Witter
front-end sales charge funds, or for shares of other Dean Witter Funds for which
shares of front-end sales charge funds have been exchanged. The CDSC will be
imposed, in accordance with the table shown above, on any redemptions within six
years of purchase which are in excess of these amounts and which redemptions are
not (a) requested within one year of death or initial determination of
disability of a shareholder, or (b) made pursuant to certain taxable
distributions from retirement plans or retirement accounts, as described in the
Prospectus.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for shares presented for repurchase or redemption will be made by check
within seven days after receipt by the Transfer Agent of the certificate and/or
written request in good order. The term "good order" means that the share
certificate, if any, and request for redemption are properly signed, accompanied
by any documentation required by the Transfer Agent, and bear signature
guarantees when required by the Fund or the Transfer Agent. Such payment may be
postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check (including a 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 investment 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 accounts.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the contingent deferred sales charge or free of such charge
(and with regard to the length of time shares subject to the charge have been
held), any transfer involving less than all the shares in an account will be
made on a pro-rata basis (that is, by transferring
23
<PAGE>
shares in the same proportion that the transferred shares bear to the total
shares in the account immediately prior to the transfer). The transferred shares
will continue to be subject to any applicable contingent deferred sales charge
as if they had not been so transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may reinstate any portion or all of the
proceeds of such redemption or repurchase in shares of the Fund at the net asset
value next determined after a reinstatement request, together with the proceeds,
is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus under "Dividends, Distributions and Taxes,"
the Fund will determine either to distribute or to retain all or part of any net
long-term capital gains in any year for reinvestment. If any such gains are
retained, the Fund will pay federal income tax thereon, and shareholders 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 will be long-term capital
gains or losses if the securities have been held by the Fund for more than one
year. Gains or losses on the sale of securities held for one year or less will
be short-term gains or losses.
The Fund has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code. If so
qualified, the Fund will not be subject to 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.
At February 28, 1994, the Fund had a net capital loss carryover of
approximately $27,955,000, which will be available through February 28, 2001.
Capital losses incurred after October 31 within the taxable year are deemed to
arise on the first business day of the Fund's next taxable year. To the extent
that this capital loss carryover is used to offset future capital gains, it is
probable that the gains so offset will not be distributed to shareholders.
Dividends and interest received by the Fund with respect to foreign
securities in its portfolio may give rise to withholding and other taxes imposed
by foreign countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes.
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 distribution would be in part a return of capital but nonetheless
would be taxable to the shareholder. Therefore, an investor should consider the
tax implications of purchasing Fund shares immediately prior to a distribution
record date.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
24
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. The Fund's "average
annual total return" represents an annualization of the Fund's total return over
a particular period and is computed by finding the annual percentage rate which
will result in the ending redeemable value of a hypothetical $1,000 investment
made at the beginning of a one, five or ten year period, or for the period from
the date of commencement of the Fund's operations, if shorter than any of the
foregoing. The ending redeemable value is reduced by any contingent deferred
sales charge ("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 February 28, 1994, were 4.98%, 12.52% and 14.89%, respectively.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. Such calculations may or may not reflect the
deduction of the CDSC which, if reflected, would reduce the performance quoted.
For example, the average annual total return of the Fund may be calculated in
the manner described above, but without deduction for any applicable CDSC. Based
on this calculation, the average annual total returns of the Fund for the one,
five and ten year periods ended February 28, 1994, were 9.98%, 12.77% and
14.89%, respectively.
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without the
reduction for any CDSC) 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 February 28, 1994 was 9.98%, the total return for the five year
period ended February 28, 1994 was 82.83%, and the total return for the ten year
period ended February 28, 1994 was 300.61%.
The Fund may also advertise the growth of a hypothetical investment of
$10,000, $50,000 and $100,000 in shares of the Fund by adding 1 to the Fund's
aggregate total return to date (expressed as a decimal and without taking into
account the effect of any applicable CDSC) and multiplying by $10,000, $50,000
or $100,000. Investments of $10,000, $50,000 and $100,000 in the Fund at
inception would have grown to $59,228, $296,140 and $592,280, respectively.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
SHARES OF THE FUND
- --------------------------------------------------------------------------------
The Fund is authorized to issue 500,000,000 shares of common stock of $0.01
par value. Shares of the Fund, when issued, are fully paid, non-assessable,
fully transferrable and redeemable at the option of the holder. Except for
agreements entered into by the Fund in its ordinary course of business within
the limitations of the Fund's fundamental investment policies (which may be
modified only by shareholder vote), the Fund will not issue any securities other
than common stock.
The shares of the Fund do not have cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so, and in such
event, the holders of the remaining shares voting for the election of directors
will not be able to elect any person or persons to the Board of Directors.
25
<PAGE>
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 110 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager and Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts; disbursing
cash dividends and reinvesting dividends; processing account registration
changes; handling purchase and redemption transactions; mailing prospectuses and
reports; mailing and tabulating proxies; processing share certificate
transactions; and maintaining shareholder records and lists. For these services,
Dean Witter Trust Company receives a per shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse, 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.
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 the last day of February. 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 Directors.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund included in the Statement of Additional
Information and incorporated by reference in the Prospectus, have been so
included and incorporated in reliance on the report of Price Waterhouse,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
26
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
- --------- ---------------
<C> <S> <C>
COMMON STOCKS (85.1%)
AEROSPACE (4.1%)
1,800,000 Martin Marietta Corp........... $ 82,800,000
1,450,000 Raytheon Co.................... 89,900,000
1,525,000 United Technologies Corp....... 103,700,000
---------------
276,400,000
---------------
ALUMINUM (2.3%)
2,250,000 Alcan Aluminium, Ltd. (ADR)+... 53,437,500
1,335,000 Aluminum Co. of America........ 100,458,750
---------------
153,896,250
---------------
APPAREL (0.8%)
1,000,000 V.F. Corp...................... 51,000,000
---------------
AUTO PARTS (1.2%)
1,100,000 TRW, Inc....................... 80,437,500
---------------
AUTOMOBILES (3.7%)
1,850,000 Ford Motor Co.................. 114,931,250
2,250,000 General Motors Corp............ 131,062,500
---------------
245,993,750
---------------
BANKS (4.9%)
2,000,000 BankAmerica Corp............... 86,250,000
1,275,000 Morgan (J.P.) & Co., Inc....... 86,859,375
1,750,000 NationsBank Corp............... 85,531,250
2,175,000 Society Corp................... 68,512,500
---------------
327,153,125
---------------
BEVERAGES (2.7%)
2,250,000 Coca Cola Co. (The)............ 95,906,250
2,250,000 PepsiCo, Inc................... 88,031,250
---------------
183,937,500
---------------
CHEMICALS (5.9%)
1,600,000 Dow Chemical Co. (The)......... 101,800,000
1,975,000 Du Pont (E.I.) De Nemours &
Co........................... 105,415,625
468,750 Eastman Chemical Co............ 19,570,312
1,400,000 Grace (W.R.) & Co.............. 62,650,000
1,425,000 Monsanto Co.................... 109,190,625
---------------
398,626,562
---------------
COAL (0.5%)
500,000 MAPCO, Inc..................... 30,562,500
---------------
COMPUTERS (2.4%)
2,100,000 Honeywell, Inc................. 70,350,000
1,700,000 International Business Machines
Corp......................... 89,887,500
---------------
160,237,500
---------------
CONGLOMERATES (3.0%)
900,000 Minnesota Mining &
Manufacturing Co............. 94,837,500
1,925,000 Tenneco, Inc................... 107,318,750
---------------
202,156,250
---------------
COSMETICS (2.7%)
300,000 Avon Products, Inc............. 17,362,500
1,725,000 Gillette Co. (The)............. 106,518,750
1,592,500 International Flavors &
Fragrances, Inc.............. 59,121,563
---------------
183,002,813
---------------
<CAPTION>
Number
of Shares Value
- --------- ---------------
<C> <S> <C>
DRUGS (6.5%)
3,250,000 Abbott Laboratories............ $ 89,781,250
1,500,000 American Home Products Corp.... 89,812,500
1,600,000 Bristol-Myers Squibb Co........ 88,400,000
1,500,000 Schering-Plough Corp........... 89,625,000
2,750,000 SmithKline Beechman PLC
(ADR)+....................... 75,968,750
---------------
433,587,500
---------------
ELECTRIC--MAJOR (1.9%)
935,000 General Electric Co............ 98,525,625
2,200,000 Westinghouse Electric Corp..... 31,900,000
---------------
130,425,625
---------------
FINANCE (1.3%)
1,000,000 Beneficial Corp................ 37,750,000
1,360,000 Household International,
Inc.......................... 47,090,000
---------------
84,840,000
---------------
FOODS (1.1%)
1,150,000 Quaker Oats Co. (The).......... 73,025,000
---------------
HOUSEHOLD APPLIANCES (1.4%)
1,400,000 Whirlpool Corp................. 94,850,000
---------------
INSURANCE (1.4%)
1,600,000 Aetna Life & Casualty Co....... 96,000,000
---------------
METALS & MINING (0.6%)
700,000 Phelps Dodge Corp.............. 39,287,500
---------------
NATURAL GAS (3.2%)
1,600,000 Arkla, Inc..................... 12,800,000
1,100,000 Burlington Resources, Inc...... 47,300,000
600,000 El Paso Natural Gas Co......... 23,175,000
2,950,000 Enron Corp..................... 94,031,250
1,700,000 Panhandle Eastern Corp......... 37,187,500
---------------
214,493,750
---------------
OFFICE EQUIPMENT (2.9%)
2,000,000 Pitney Bowes, Inc.............. 87,750,000
1,100,000 Xerox Corp..................... 106,700,000
---------------
194,450,000
---------------
OIL--DOMESTIC (2.7%)
1,750,000 Amoco Corp..................... 91,437,500
900,000 Atlantic Richfield Co.......... 90,675,000
---------------
182,112,500
---------------
OIL INTEGRATED--INTERNATIONAL (4.5%)
1,525,000 Exxon Corp..................... 98,934,375
1,300,000 Mobil Corp..................... 102,212,500
975,000 Royal Dutch Petroleum Co. (ADR)
+............................ 104,203,125
---------------
305,350,000
---------------
PAPER & FOREST PRODUCTS (2.6%)
1,050,000 Georgia Pacific Corp........... 74,812,500
2,150,000 Weyerhaeuser Co................ 102,125,000
---------------
176,937,500
---------------
PHOTOGRAPHY (1.4%)
2,175,000 Eastman Kodak Co............... 93,525,000
---------------
RAILROADS (4.6%)
1,575,000 Burlington Northern, Inc....... 99,028,125
1,700,000 Conrail, Inc................... 105,612,500
</TABLE>
27
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1994 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
- --------- ---------------
<C> <S> <C>
1,200,000 CSX Corp....................... $ 105,600,000
---------------
310,240,625
---------------
RETAIL (1.9%)
3,400,000 K-Mart Corp.................... 64,600,000
470,000 Petrie Stores Corp............. 12,807,500
2,250,000 Woolworth (F.W.) Co............ 49,500,000
---------------
126,907,500
---------------
SOAP & HOUSEHOLD PRODUCTS (1.6%)
1,850,000 Procter & Gamble Co............ 106,143,750
---------------
TELECOMMUNICATIONS (1.4%)
2,250,000 U.S. West, Inc................. 92,250,000
---------------
TELEPHONES (5.0%)
1,675,000 Bell Atlantic Corp............. 91,706,250
2,850,000 GTE Corp....................... 92,981,250
4,080,000 Sprint Corp.................... 151,470,000
---------------
336,157,500
---------------
UNCLASSIFIED (0.1%)
150,000 Chemed Corp.................... 4,856,250
---------------
UTILITIES--ELECTRIC (4.8%)
3,025,000 Commonwealth Edison Co......... 80,918,750
2,300,000 FPL Group, Inc................. 77,625,000
1,975,000 Houston Industries, Inc........ 79,740,625
2,575,000 Pacific Gas & Electric Co...... 81,434,375
---------------
319,718,750
---------------
TOTAL COMMON STOCKS (IDENTIFIED
COST $3,993,305,764)......... 5,708,562,500
---------------
<CAPTION>
Principal
Amount
(in
thousands)
- ---------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (14.2%)
$ 50,000 U.S. Treasury Bond
8.125% due 8/15/19............ 57,671,875
90,000 U.S. Treasury Bond
8.00% due 11/15/21............ 103,204,687
50,000 U.S. Treasury Bond
7.125% due 2/15/23............ 52,203,125
250,000 U.S. Treasury Bond
6.250% due 8/15/23............ 236,484,375
110,000 U.S. Treasury Note
4.625% due 11/30/94........... 110,515,625
<CAPTION>
Principal
Amount (in
thousands) Value
- ----------- ---------------
<C> <S> <C>
$ 250,000 U.S. Treasury Note 4.00% due
1/31/96....................... $ 246,992,187
30,000 U.S. Treasury Note 8.875% due
2/15/96....................... 32,325,000
85,000 U.S. Treasury Note 6.375% due
1/15/99....................... 87,842,188
25,000 U.S. Treasury Note 8.00% due
5/15/01....................... 27,929,688
---------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS (IDENTIFIED COST
$929,114,015)................. 955,168,750
---------------
SHORT-TERM INVESTMENTS (0.8%)
COMMERCIAL PAPER (a) (0.1%)
10,000 Ford Motor Credit Co. 3.40% due
3/1/94 (Amortized Cost
$10,000,000).................. 10,000,000
---------------
REPURCHASE AGREEMENT (0.1%)
5,773 The Bank of New York 3.375% due
3/1/94 (dated 2/28/94;
proceeds $5,773,342;
collateralized by $585,654
U.S. Treasury Bond 8.125% due
8/15/21 valued at $629,472 and
$5,257,088 U.S. Treasury Bill
due 6/02/94 valued at
$5,208,785) (Identified Cost
$5,772,801)................... 5,772,801
---------------
U.S. GOVERNMENT AGENCY (a) (0.6%)
37,000 Federal Home Loan Mortgage Corp.
3.30% due 3/1/94 (Amortized
Cost $37,000,000)............. 37,000,000
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST
$52,772,801).................. 52,772,801
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $4,975,192,580)(B)........ 100.1% 6,716,504,051
LIABILITIES IN EXCESS
OF OTHER ASSETS................ (0.1) (4,805,347)
---------- ---------------
NET ASSETS....................... 100.0% $ 6,711,698,704
---------- ---------------
---------- ---------------
<FN>
- ------------------
+ American Depository Receipt.
(a) Commercial paper and U.S. Government Agency were purchased on a discount
basis. The rates shown have been adjusted to reflect a bond equivalent
yield.
(b) The aggregate cost for federal income tax purposes is $4,975,192,580; the
aggregate gross unrealized appreciation is $1,865,726,273 and the aggregate
gross unrealized depreciation is $124,414,802, resulting in net unrealized
appreciation of $1,741,311,471.
</TABLE>
See Notes to Financial Statements
28
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
STATEMENT OF OPERATIONS FOR THE YEAR ENDED
FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $4,975,192,580)....... $6,716,504,051
Receivable for:
Capital stock sold.................... 27,364,396
Dividends............................. 26,033,125
Interest.............................. 6,443,186
Prepaid expenses and other assets....... 11,520
---------------
TOTAL ASSETS.................... 6,776,356,278
---------------
LIABILITIES:
Payable for:
Investments purchased................. 52,634,460
Capital stock repurchased............. 3,940,472
Plan of distribution fee (Note 3)..... 4,191,510
Investment management fee (Note 2).... 2,349,369
Accrued expenses and other payables
(Note 4)............................... 1,541,763
---------------
TOTAL LIABILITIES............... 64,657,574
---------------
NET ASSETS:
Paid-in-capital......................... 4,972,477,382
Accumulated undistributed net investment
income................................. 25,864,803
Accumulated net realized loss on
investments............................ (27,954,952)
Net unrealized appreciation on
investments............................ 1,741,311,471
---------------
NET ASSETS...................... $ 6,711,698,704
---------------
---------------
NET ASSET VALUE PER SHARE, 217,480,921
shares outstanding (500,000,000 shares
authorized of $.01 par value).......... $30.86
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
INCOME
Dividends (net of $736,725 foreign
withholding tax)....................... $170,511,702
Interest................................ 54,397,921
-------------
TOTAL INCOME...................... 224,909,623
-------------
EXPENSES
Plan of distribution fee (Note 3)....... 49,135,342
Investment management fee (Note 2)...... 26,921,563
Transfer agent fees and expenses (Note
4)..................................... 6,100,641
Registration fees....................... 720,773
Shareholder reports and notices......... 291,629
Custodian fees.......................... 288,745
Professional fees....................... 70,107
Directors' fees and expenses (Note 4)... 35,790
Other................................... 57,932
-------------
TOTAL EXPENSES.................... 83,622,522
-------------
NET INVESTMENT INCOME........... 141,287,101
-------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (Note 1) :
Net realized gain on investments........ 25,830,137
Net change in unrealized appreciation on
investments............................ 396,814,113
-------------
NET GAIN ON INVESTMENTS........... 422,644,250
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..... $ 563,931,351
-------------
-------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE
ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1994 1993
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................................... $ 141,287,101 $ 122,938,892
Net realized gain (loss) on investments................................. 25,830,137 (53,785,088)
Net change in unrealized appreciation on investments.................... 396,814,113 359,912,029
---------------- ----------------
Net increase in net assets resulting from operations................ 563,931,351 429,065,833
---------------- ----------------
Dividends and distributions to shareholders from:
Net investment income................................................... (137,991,103) (116,675,177)
Net realized gain on investments........................................ -0- (6,169,166)
---------------- ----------------
Total dividends and distributions................................... (137,991,103) (122,844,343)
---------------- ----------------
Net increase from capital stock transactions (Note 5)..................... 900,256,045 1,008,744,141
---------------- ----------------
Total increase...................................................... 1,326,196,293 1,314,965,631
NET ASSETS:
Beginning of period....................................................... 5,385,502,411 4,070,536,780
---------------- ----------------
END OF PERIOD (including undistributed net investment income of
$25,864,803 and $22,568,805, respectively)............................... $6,711,698,704 $5,385,502,411
---------------- ----------------
---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Organization and Accounting Policies--Dean Witter Dividend Growth Securities
Inc. (the "Fund") is registered under the Investment Company Act of 1940, as
amended (the "Act"), as a diversified, open-end management investment company
and was incorporated in Maryland on December 22, 1980.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS--(1) an equity portfolio security listed or
traded on the New York or American Stock Exchange is valued at its latest
sale price taken at 4:00 p.m. New York time on that exchange (if there were
no sales that day, the security is valued at the latest bid price); (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest bid price; (3) when market
quotations are not readily available, including circumstances under which it
is determined by the Investment Manager that sale and bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by
and under the general supervision of the Fund's Board of Directors
(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); (4) the fair value of short-term debt securities which
mature at a date less than sixty days subsequent to the valuation date are
determined on an amortized cost or amortized value basis; and (5) the value
of other assets will be determined in good faith at fair value under
procedures established by and under the general supervision of the Fund's
Board of Directors.
B. ACCOUNTING FOR INVESTMENTS--Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined on the identified cost
method. Dividend income is recorded on the ex-dividend date. Interest income
is accrued daily.
C. FEDERAL INCOME TAX STATUS--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassifications.
Dividends and distributions which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax
purposes, they are reported as distributions of paid-in-capital.
E. REPURCHASE AGREEMENTS--The Fund's custodian takes possession on behalf of
the Fund of the collateral pledged for investments in repurchase agreements.
It is the policy of the Fund to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued interest.
In the event of default of the obligation to repurchase, the Fund has the
right to liquidate the collateral and apply the proceeds in satisfaction of
the obligation.
2. Investment Management Agreement--Pursuant to an Investment Management
Agreement (the "Agreement") with Dean Witter InterCapital Inc. (the "Investment
Manager"), the Fund pays its Investment Manager a management fee, accrued daily
and payable monthly, by applying the following annual rates to the net assets of
the Fund determined as of the close of each business day: 0.625% of the portion
of the daily net assets not exceeding $250 million; 0.50% of the portion of the
daily net assets exceeding $250 million but not exceeding $1 billion; 0.475% of
the portion of the daily net assets exceeding $1 billion but not exceeding $2
billion; 0.45% of the portion of the daily net assets exceeding $2 billion but
not exceeding $3 billion; 0.425% of the portion of the daily net assets
exceeding $3 billion but not exceeding $4 billion; 0.40% of the portion of the
daily net assets exceeding $4 billion
30
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
but not exceeding $5 billion; 0.375% of the portion of the daily net assets
exceeding $5 billion but not exceeding $6 billion and 0.35% of the portion of
the daily net assets exceeding $6 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes office space and facilities, equipment, clerical,
bookkeeping and certain legal services, and pays the salaries of all personnel,
including officers of the Fund who are employees of the Investment Manager. The
Investment Manager also bears the cost of telephone services, heat, light, power
and other utilities provided to the Fund.
3. Plan of Distribution--Shares of the Fund are distributed by Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager.
The Fund has adopted a Plan of Distribution (the "Plan"), pursuant to Rule 12b-1
under the Act, pursuant to which the Fund pays the Distributor a fee, which is
accrued daily and payable monthly, at an annual rate of 1.0% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's shares since the
inception of the Plan on July 2, 1984 (not including reinvestments of dividends
or capital gains distributions), less the average daily aggregate net asset
value of the Fund's shares redeemed since the Plan's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the average
daily net assets of the Fund attributable to shares issued, net of related
shares redeemed, since inception of the Plan. Amounts paid under the Plan are
paid to the Distributor to compensate it for the services it provided and the
expenses borne by it and others in the distribution of the Fund's shares,
including the payment of commissions for sales of the Fund's shares and
incentive compensation to and expenses of the account executives of Dean Witter
Reynolds Inc., an affiliate of the Investment Manager, and other employees or
selected 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, and the opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
Provided that the Plan continues in effect, any cumulative expenses
incurred, but not yet recovered, may be recovered through future distribution
fees from the Fund and contingent deferred sales charges from the Fund's
shareholders.
The Distributor has informed the Fund that it received approximately
$6,568,000 in contingent deferred sales charges from certain redemptions of the
Fund's shares for the year ended February 28, 1994. The Fund's shareholders pay
such charges which are not an expense of the Fund.
4. Security Transactions and Transactions with Affiliates--The cost of
purchases and the proceeds from sales of portfolio securities for the year ended
February 28, 1994, excluding short-term investments, aggregated $1,832,397,805
and $777,382,830, respectively, including purchases and sales of U.S. Government
securities of $992,884,719 and $767,396,125, respectively. For the same period,
the Fund paid brokerage commissions of $199,065 to Dean Witter Reynolds Inc. for
transactions executed on behalf of the Fund.
Included in the Fund's payable for investments purchased is $8,039,175 for
unsettled trades with Dean Witter Reynolds Inc.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At February 28, 1994, the Fund had
transfer agent fees and expenses payable of approximately $1,058,000.
On April 1, 1991, the Fund established an unfunded noncontributory defined
benefit pension plan covering all Independent Directors of the Fund who will
have served as an Independent Director 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 February 28, 1994, included in Directors' fees and expenses in
the Statement of Operations, amounted to $11,554. At February 28, 1994, the Fund
had an accrued pension liability of $40,660 which is included in accrued
expenses in the Statement of Assets and Liabilities.
31
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
5. Capital Stock--Transactions in capital stock were as follows:
<TABLE>
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED FOR THE YEAR ENDED
FEBRUARY 28, 1994 FEBRUARY 28, 1993
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
Sold.................................................... 52,400,350 $1,583,778,568 54,290,034 $1,483,462,274
Reinvestment of dividends and distributions............. 4,255,666 128,128,068 4,193,664 114,004,567
----------- -------------- ----------- --------------
56,656,016 1,711,906,636 58,483,698 1,597,466,841
Repurchased............................................. (26,834,265) (811,650,591) (21,557,199) (588,722,700)
----------- -------------- ----------- --------------
Net increase............................................ 29,821,751 $ 900,256,045 36,926,499 $1,008,744,141
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
</TABLE>
6. Federal Income Tax Status--During the year ended February 28, 1994, the Fund
utilized approximately $5,956,000 of its net capital loss carryovers. At
February 28, 1994, the Fund had a net capital loss carryover of approximately
$27,955,000, which will be available through February 28, 2001. To the extent
that this capital loss carryover is used to offset future capital gains, it is
probable that the gains so offset will not be distributed to shareholders.
The Fund had permanent book/tax differences primarily attributable to
dividend redesignations. To reflect cumulative reclassifications arising from
permanent book/tax differences for the year ended February 28, 1993, accumulated
undistributed net investment income was charged and accumulated net realized
loss on investments was credited for $120,303.
1994 FEDERAL INCOME TAX NOTICE (UNAUDITED)
During the fiscal year ended February 28, 1994, 100% of the income dividends
qualified for the dividends received deduction available to corporations.
32
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data and ratios for a share of capital stock outstanding throughout
each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28,
------------------------------------------------------------------------------------------------------------
1994 1993 1992* 1991 1990 1989 1988* 1987 1986 1985
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of
period.......... $ 28.70 $ 27.01 $ 23.50 $ 22.47 $ 20.32 $ 19.28 $ 20.63 $ 17.56 $ 13.79 $ 12.11
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Investment
income--net... 0.68 0.70 0.71 0.79 0.72 0.68 0.67 0.51 0.49 0.62
Realized and
unrealized
gain (loss) on
investments--net... 2.16 1.72 3.63 1.04 2.83 1.78 (0.99) 3.56 3.90 1.64
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from
investment
operations...... 2.84 2.42 4.34 1.83 3.55 2.46 (0.32) 4.07 4.39 2.26
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less dividends
and
distributions:
Dividends from
net investment
income........ (0.68) (0.69) (0.76) (0.80) (0.76) (0.62) (0.73) (0.52) (0.52) (0.56)
Distributions
from net
realized gains
on
investments... -0- (0.04) (0.07) -0- (0.64) (0.80) (0.30) (0.48) (0.10) (0.02)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total dividends
and
distributions... (0.68) (0.73) (0.83) (0.80) (1.40) (1.42) (1.03) (1.00) (0.62) (0.58)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value,
end of period... $ 30.86 $ 28.70 $ 27.01 $ 23.50 $ 22.47 $ 20.32 $ 19.28 $ 20.63 $ 17.56 $ 13.79
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT
RETURN+.......... 9.98% 9.13% 18.82% 8.51% 17.85% 13.26% (1.40)% 23.96% 32.88% 19.41%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $6,711,699 $5,385,502 $4,070,537 $3,015,499 $2,759,836 $1,859,527 $1,824,203 $1,652,138 $609,812 $115,382
Ratio of expenses
to average net
assets.......... 1.37% 1.40% 1.42% 1.51% 1.41% 1.55% 1.55% 1.52% 1.55% 1.24%
Ratio of net
investment
income to
average net
assets.......... 2.31% 2.67% 2.91% 3.62% 3.46% 3.44% 3.47% 3.35% 4.73% 6.20%
Portfolio
turnover rate... 13 % 8 % 5 % 5 % 3 % 8 % 7 % 12 % 6 % 10 %(1)
<FN>
- -----------------
* YEAR ENDED FEBRUARY 29.
+ DOES NOT INCLUDE THE DEDUCTION OF SALES LOAD.
(1) EXCLUDES LONG-TERM U.S. GOVERNMENT SECURITIES WHICH ARE INCLUDED IN
SUBSEQUENT YEARS.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of Dean Witter Dividend Growth
Securities Inc.
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 Dividend Growth
Securities Inc. (the "Fund") at February 28, 1994, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the ten years
in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at February 28, 1994 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE
New York, New York
March 30, 1994
34
