<PAGE>
PROSPECTUS
AUGUST 26, 1996
Dean Witter Value-Added Market Series (the "Fund") is an open-end
diversified management investment company presently consisting of a single
investment portfolio, the Equity Portfolio, whose investment objective is to
achieve a high level of total return on its assets through a combination of
capital appreciation and current income. The Fund seeks to attain the Equity
Portfolio's investment objective by investing on an equally-weighted basis in a
diversified portfolio of common stocks of the companies which are represented in
the Standard & Poor's 500 Composite Stock Price Index. See "Investment Objective
and Policies." The Fund is neither sponsored by, nor affiliated with, Standard &
Poor's Corporation.
Shares of the Fund are continuously offered at net asset value
without the imposition of a sales charge. However, redemptions and/or
repurchases are subject in most cases to a contingent deferred sales charge,
scaled down from 5% to 1% of the amount redeemed, if made within six years of
purchase, which charge will be paid to the Fund's Distributor. See "Redemptions
and Repurchases--Contingent Deferred Sales Charge." In addition, the Fund pays
the Distributor a distribution fee pursuant to a Plan of Distribution at the
annual rate of 1% of the lesser of the (i) average daily aggregate net sales or
(ii) average daily net assets of the Fund. See "Purchase of Fund Shares--Plan of
Distribution."
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated August 26, 1996, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/3
Financial Highlights/4
The Fund and its Management/5
Investment Objective and Policies/5
Risk Considerations/7
Investment Restrictions/8
Purchase of Fund Shares/9
Shareholder Services/11
Redemptions and Repurchases/14
Dividends, Distributions and Taxes/16
Performance Information/17
Additional Information/17
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Dean Witter
Value-Added Market Series
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
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PROSPECTUS SUMMARY
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<TABLE>
<S> <C>
The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an
Fund open-end diversified management investment company. The Fund currently consists of a single
portfolio, the Equity Portfolio, which invests on an equally-weighted basis in the common stocks of
the companies represented in the Standard & Poor's 500 Composite Stock Price Index.
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Shares Offered Shares of beneficial interest with $.01 par value (see page 17).
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Offering At net asset value without a front-end sales charge (see page 9). Shares redeemed within six years
Price of purchase are subject to a contingent deferred sales charge under most circumstances (see page
14).
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Minimum The minimum initial investment is $1,000 ($100 if the account is opened through Easy Invest-SM-) and
Purchase the minimum subsequent investment is $100 (see page 9).
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Investment The investment objective of the Equity Portfolio, currently the Fund's single investment portfolio,
Objective is to achieve a high level of total return on its assets through a combination of capital
appreciation and current income.
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Investment Dean Witter InterCapital Inc., the Investment Manager of the Fund, and its wholly-owned subsidiary,
Manager Dean Witter Services Company Inc., serve in various investment management, advisory, management and
administrative capacities to ninety-eight investment companies and other portfolios with assets of
approximately $83.4 billion at July 31, 1996 (see page 5).
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Management The Investment Manager receives a monthly fee at the annual rate of 0.50% of average daily net
Fee assets, scaled down on assets over $500 million (see page 5).
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Dividends Dividends from net investment income and distributions from net capital gains, if any, are paid at
least once per year. Dividends and capital gains distributions are automatically reinvested in
additional shares at net asset value unless the shareholder elects to receive cash (see page 16).
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Distributor and Dean Witter Distributors Inc. (the "Distributor") is the distributor of the Fund's shares. The
Distribution Fee Distributor receives from the Fund a distribution fee, accrued daily and payable monthly, at the
rate of 1% per annum of the lesser of: (i) the Fund's average daily aggregate net sales or (ii) the
Fund's average daily net assets. 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 10 and 14).
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Redemption-- Shares are redeemable by the shareholder at net asset value. An account may be involuntarily
Contingent redeemed if the total value of the account is less than $100 or, if the account was opened through
Deferred Sales Easy Invest-SM-, if after twelve months the shareholder has invested less than $1,000 in the
Charge account. Although no commission or sales load is imposed upon the purchase of shares, a contingent
deferred sales charge (scaled down from 5% to 1%) is imposed on any redemption of shares if after
such redemption the aggregate current value of an account with the Fund is less than the aggregate
amount of the investor's purchase payments made during the six years preceding the redemption.
However, there is no charge imposed on redemption of shares purchased through reinvestment of
dividends or distributions (see pages 14-16).
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Special Risk The net asset value of the Fund's shares will fluctuate with changes in the market value of its
Considerations portfolio securities. Dividends payable by the Fund will vary in relation to the amount of income
earned on portfolio securities. The Fund may engage in transactions involving stock index futures
contracts (see pages 7-8).
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Shareholder Automatic Investment of Dividends and Distributions; Investment of Distributions Received in Cash;
Services Systematic Withdrawal Plan; Exchange Privilege; Easy Invest-SM-; Tax-Sheltered Retirement Plans (see
pages 11-14).
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</TABLE>
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE
IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
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 June 30, 1996.
<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:
</TABLE>
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT MADE PERCENTAGE
------------------------------------------------------- -------
<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>
<TABLE>
<S> <C>
Redemption Fees.................................................. None
Exchange Fee..................................................... None
</TABLE>
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
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Management Fees.................................................. 0.48%
12b-1 Fees*...................................................... 0.87%
Other Expenses................................................... 0.16%
Total Fund Operating Expenses.................................... 1.51%
<FN>
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* A PORTION OF THE 12b-1 FEE EQUAL TO 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, INC. ("NASD") GUIDELINES (SEE "PURCHASE OF
FUND SHARES").
</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............................................... $ 65 $ 78 $ 102 $ 180
You would pay the following expenses on the same investment,
assuming no redemption......................................... $ 15 $ 48 $ 82 $ 180
</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
charges 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 beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, notes thereto, and the unqualified report of
independent accountants which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE
PERIOD
DECEMBER 1,
1987*
FOR THE YEAR ENDED JUNE 30 THROUGH
----------------------------------------------------------------------- JUNE 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- ------ ------ ------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 23.06 $19.23 $19.17 $16.29 $14.73 $14.21 $13.86 $12.47 $10.00
-------- ------ ------ ------ ------ ------ ------ ------ ------------
Net investment income... 0.18 0.19 0.14 0.14 0.17 0.20 0.23 0.24 0.12
Net realized and
unrealized gain........ 4.23 3.88 0.30 2.86 1.57 0.59 0.62 1.56 2.43
-------- ------ ------ ------ ------ ------ ------ ------ ------------
Total from investment
operations............. 4.41 4.07 0.44 3.00 1.74 0.79 0.85 1.80 2.55
-------- ------ ------ ------ ------ ------ ------ ------ ------------
Less dividends and
distributions from:
Net investment
income............... (0.26) (0.09) (0.09) (0.12) (0.18) (0.21) (0.24) (0.24) (0.08)
Net realized gain..... (0.12) (0.15) (0.29) -- -- (0.06) (0.26) (0.17) --
-------- ------ ------ ------ ------ ------ ------ ------ ------------
Total dividends and
distributions.......... (0.38) (0.24) (0.38) (0.12) (0.18) (0.27) (0.50) (0.41) (0.08)
-------- ------ ------ ------ ------ ------ ------ ------ ------------
Net asset value, end of
period................. $ 27.09 $23.06 $19.23 $19.17 $16.29 $14.73 $14.21 $13.86 $12.47
-------- ------ ------ ------ ------ ------ ------ ------ ------------
-------- ------ ------ ------ ------ ------ ------ ------ ------------
TOTAL INVESTMENT
RETURN+.................. 19.27% 21.41% 2.26% 18.50% 11.83% 5.82% 6.17% 16.87% 25.56%(1)
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ 1.51% 1.64% 1.68% 1.71% 1.80% 1.80% 1.80% 1.90% 1.60%(2)(3)
Net investment income... 0.81% 1.01% 0.86% 0.86% 1.10% 1.40% 1.90% 2.30% 1.90%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of
period, in millions.... $ 962 $ 642 $ 456 $ 311 $ 193 $ 139 $ 148 $ 78 $ 37
Portfolio turnover
rate................... 10% 11% 19% 6% 9% 20% 10% 10% 12%(1)
Average commission rate
paid................... $0.0302 -- -- -- -- -- -- -- --
<FN>
- ---------------
* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE REIMBURSED OR WAIVED BY THE
INVESTMENT MANAGER, THE ABOVE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
RATIOS WOULD HAVE BEEN 2.30% AND 1.20%, RESPECTIVELY.
</TABLE>
4
<PAGE>
THE FUND AND ITS MANAGEMENT
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Dean Witter Value-Added Market Series (the "Fund") is an open-end
diversified management investment company. The Fund is a trust of the type
commonly known as a "Massachusetts business trust" and was organized under the
laws of Massachusetts on May 27, 1987. The Fund currently consists of a single
portfolio, the Equity Portfolio. References herein to the Fund also refer to the
Equity Portfolio if the context so indicates.
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 ninety-eight investment companies, thirty of which
are listed on the New York Stock Exchange, with combined assets of approximately
$80.7 billion as of July 31, 1996. The Investment Manager also manages
portfolios of pension plans, other institutions and individuals which aggregated
approximately $2.7 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by or under the
direction of the Investment Manager to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily at an annual rate
of 0.50% of the daily net assets of the Fund up to $500 million, scaled down at
various asset levels to 0.425% on assets over $1 billion. For the fiscal year
ended June 30, 1996, the Fund accrued total compensation to the Investment
Manager amounting to 0.48% of the Fund's average daily net assets and the Fund's
total expenses amounted to 1.51% of the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Equity Portfolio, currently the Fund's
single investment portfolio, is to achieve a high level of total return on its
assets through a combination of capital appreciation and current income. This is
a fundamental policy and cannot be changed without the approval of the
shareholders of the Equity Portfolio. There can be no assurance that the Equity
Portfolio's investment objective will be achieved.
The Fund will seek to attain the Equity Portfolio's investment objective by
investing on an equally-weighted basis in a diversified portfolio of common
stocks of the companies which are included in the Standard & Poor's 500
Composite Stock Price Index (the "S&P Index"). The S&P Index consists of 500
common stocks selected by Standard & Poor's Corporation, most of which are
listed on the New York Stock Exchange. Inclusion of a
5
<PAGE>
stock in the S&P Index implies no opinion by Standard & Poor's Corporation
("S&P") as to the quality of the stock as an investment. The S&P Index is
determined, composed and calculated by S&P without regard to the Fund. S&P is
neither a sponsor of, nor in any way affiliated with, the Fund, and S&P makes no
representation or warranty, express or implied, on the advisability of investing
in the Fund or as to the ability of the S&P Index to track general stock market
performance, and S&P disclaims all warranties of merchantability or fitness for
a particular purpose or use with respect to the S&P Index or any data included
therein. S&P has no connection with the Fund other than the licensing to the
Investment Manager of the use of the S&P Index in connection with the Fund.
The Fund invests in the stocks included in the S&P Index on an
equally-weighted basis; that is, to the extent practicable and subject to the
specific investment policies and restrictions described below, an equal portion
of the Fund's assets is invested in each of the 500 securities in the S&P Index.
This differs from the S&P Index and nearly all other major indexes, which
generally are weighted on a market-capitalization basis. For example, the 50
largest capitalization issuers in the S&P Index represent approximately 45% of
the S&P Index. However, in accordance with its investment policies, the Fund
will strive to maintain each stock holding equally, so that, subject to the
specific investment policies and investment restrictions described below,
approximately 0.20 of 1% of the Fund's total invested assets will be invested in
each of the 500 companies included in the S&P Index. The equal-weighting
technique is based on the Investment Manager's statistical analysis that most
portfolio performance is usually generated by only one-quarter to one-third of
the portfolio. Since there is no certainty that any specific company or industry
selection, even within a broad-based index such as the S&P Index, will achieve
superior performance, the Investment Manager believes equal-weighting may
benefit the Fund in seeking to attain its investment objective.
The holdings of the Fund will be adjusted by the Investment Manager not less
than quarterly to reflect changes in the Fund's asset levels and in the relative
values of the common stocks in the Fund's portfolio so that following each
adjustment the value of the Fund's investment in each security will be equal to
the extent practicable. In addition, whenever a company is eliminated from or
added to the S&P Index, the Fund will sell or purchase the stock of such
company, as the case may be, as soon as practicable. Accordingly, securities may
be purchased and sold by the Fund when such purchases and sales would not be
made under traditional investment criteria.
In addition, the Investment Manager may eliminate one or more securities (or
elect not to increase the Fund's position in such securities), notwithstanding
the continued listing of such securities in the S&P Index, in the following
circumstances: (a) the stock is no longer publicly traded, such as in the case
of a leveraged buyout or merger; (b) an unexpected adverse development with
respect to a company, such as bankruptcy or insolvency; (c) in the view of the
Investment Manager, there is a high degree of risk with respect to a company
that bankruptcy or insolvency will occur; or (d) in the view of the Investment
Manager, based on its consideration of the price of a company's securities, the
depth of the market in those securities and the amount of those securities held
or to be held by the Fund, retaining shares of a company or making any
additional purchases would be inadvisable because of liquidity risks. The
Investment Manager will monitor on an ongoing basis all companies falling within
any of the circumstances described in this paragraph, and will return such
company's shares to the Fund's portfolio, or recommence purchases, when and if
those conditions cease to exist.
The investment policies of the Fund are not fundamental and may be changed
by the Trustees without shareholder approval.
STOCK INDEX FUTURES TRANSACTIONS. The Fund may purchase futures contracts
on stock indexes
6
<PAGE>
such as the S&P Index and the New York Stock Exchange Composite Index. Purchase
of a futures contract by the Fund serves as a temporary substitute for the
purchase of individual stocks which may then be purchased in orderly fashion.
The Fund will not enter into futures contracts on stock indexes for speculative
purposes. The Fund may not enter into futures contracts if immediately
thereafter the amount committed to margin exceeds 5% of the value of the Fund's
total assets. There is no overall limitation on the percentage of the Fund's
portfolio securities with respect to which the Fund may purchase or sell futures
contracts. For a discussion of the risks of stock index futures transactions,
see "Risk Considerations" below.
FOREIGN SECURITIES. The Fund may purchase common stock, including American
Depository Receipts, of foreign corporations represented in the S&P Index (such
securities are listed on the New York Stock Exchange, the American Stock
Exchange or the NASDAQ Market System). For a discussion of the risks of
investing in foreign securities, see "Risk Considerations" below.
TEMPORARY INVESTMENTS A portion of the Fund's assets, not exceeding 25% of
its total assets, may be invested temporarily in money market instruments under
any one or more of the following circumstances: (a) pending investment of
proceeds of sale of shares of the Fund; (b) pending settlement of purchases of
portfolio securities; or (c) to maintain liquidity for the purposes of meeting
anticipated redemptions. The money market instruments in which the Fund may
invest are certificates of deposit of U.S. domestic banks with assets of $1
billion or more; bankers' acceptances; time deposits; U.S. Government and U.S.
Government agency securities; or commercial paper rated within the two highest
grades by S&P or Moody's Investors Service, Inc., or, if not rated, are of
comparable quality as determined by the Trustees, and which mature within one
year from the date of purchase.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. For a discussion of the risks of investing in repurchase agreements,
see "Risk Considerations" below.
PRIVATE PLACEMENTS. The Fund may purchase securities which are sold without
registration under the federal securities laws. Such securities may be held by
the Fund as liquid investments pursuant to procedures adopted by the Fund's
Trustees.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities. Dividends payable by the Fund will
vary in relation to the amount of income earned on portfolio securities.
STOCK INDEX FUTURES TRANSACTIONS. A risk in employing futures contracts to
protect against the price volatility of portfolio securities is that the prices
of securities subject to futures contracts may correlate imperfectly with the
behavior of the cash prices of the Fund's portfolio securities. This risk is
enhanced for the Fund because no existing index correlates perfectly with both
the composition and equal-weighting policy of the Equity Portfolio. Also, the
correlation may be distorted by the fact that the futures market is dominated by
short-term traders seeking to profit from the difference between a contract or
security price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.
The extent to which the Fund may enter into transactions involving futures
contracts may be limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company
7
<PAGE>
and the Fund's intention to qualify as such. See "Dividends, Distributions and
Taxes."
REPURCHASE AGREEMENTS. While repurchase agreements involve certain risks
not associated with direct investments in debt securities, the Fund follows
procedures designed to minimize those risks. These procedures include effecting
repurchase transactions only with large, well-capitalized and well-established
financial institutions whose financial condition will be continually monitored
by the Investment Manager subject to procedures established by the Board of
Trustees of the Fund. In addition, as described above, the value of the
collateral underlying the repurchase agreement will be at least equal to the
repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, the Fund will seek to liquidate such collateral. However, the
exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss. The Fund may not invest in repurchase agreements that
do not mature within seven days if any such investment, together with any other
illiquid assets held by the Fund, amounts to more than 10% of its total assets.
FOREIGN SECURITIES. Foreign securities investments may be affected by
changes in governmental administration or economic policy (in the United States
and abroad) or changed circumstances in dealings between nations. Foreign
companies may be subject to less governmental regulation than U.S. companies.
Securities of foreign companies may be more volatile than securities of U.S.
companies. As noted above, the Fund's investment in common stock of foreign
corporations represented in the S&P Index may also be in the form of American
Depository Receipts (ADRs). ADRs are receipts typically issued by a United
States bank or trust company evidencing ownership of the underlying securities
and are designed for use in the U.S. securities markets.
For additional risk disclosure, please refer to the "Investment Objective
and Policies" section of the Prospectus and to the "Investment Practices and
Policies" section of the Statement of Additional Information.
PORTFOLIO MANAGEMENT
The Fund's portfolio is managed by its Investment Manager with a view to
achieving the Fund's investment objective. The Fund's portfolio is managed
within InterCapital's Growth Group, which manages twenty-six funds and fund
portfolios, with approximately $10.3 billion in assets as of July 31, 1996.
Kenton J. Hinchliffe, Senior Vice President of InterCapital and a member of
InterCapital's Growth Group, has been the primary portfolio manager of the Fund
since July, 1993 and has been a portfolio manager at InterCapital for over five
years. Since the Fund does not intend generally to engage in short-term trading,
it is anticipated that the Fund's portfolio turnover rate will not exceed 100%.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with Dean
Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate of InterCapital. 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
8
<PAGE>
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 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
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 Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other dealers who have entered into selected dealer agreements with the
Distributor ("Selected Broker-Dealers"). The principal executive office of the
Distributor is located at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Minimum subsequent purchases of $100
or more may be made by sending a check, payable to Dean Witter Value-Added
Market Series, Equity Portfolio, directly to Dean Witter Trust Company (the
"Transfer Agent") at P.O. Box 1040, Jersey City, NJ 07303 or by contacting an
account executive of DWR or other Selected Broker-Dealer. The minimum initial
purchase in the case of investments through EasyInvest-SM-, an automatic
purchase plan (see "Shareholder Services"), is $100, provided that the schedule
of automatic investments will result in investments totalling at least $1,000
within the first twelve months. In the case of investments pursuant to
Systematic Payroll Deduction Plans (including Individual Retirement Plans), the
Fund, in its discretion, may accept investments without regard to any minimum
amounts which would otherwise be required if the Fund has reason to believe that
additional investments will increase the investment in all accounts under such
Plans to at least $1,000. Certificates for shares purchased will not be issued
unless a request is made by the shareholder in writing to the Transfer Agent.
The offering price will be the net asset value per share next determined
following receipt of an order (see "Determination of Net Asset Value" below).
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive dividends and
capital gains distributions if their order is received by the close of business
on the day prior to the record date for such dividends and distributions. While
no sales charge is imposed at the time shares are purchased, a contingent
deferred sales charge may be
9
<PAGE>
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 various types of non-cash
compensation as special sales incentives, including trips, educational and/or
business seminars and merchandise. The Fund and the Distributor reserve the
right to reject any purchase orders.
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 pays the Distributor a fee, which is
accrued daily and payable monthly, at an annual rate of 1% of the lesser of: (a)
the average daily aggregate gross sales of the Fund's shares since the inception
of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the Fund's average daily net
assets. This fee is treated by the Fund as an expense in the year it is accrued.
A portion of the fee payable pursuant to the Plan, equal to 0.25% of the Fund's
average daily net assets, is characterized as a service fee within the meaning
of NASD guidelines. The service fee is a payment made for personal service
and/or the maintenance of shareholder accounts.
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 distribution expenses.
For the fiscal year ended June 30, 1996, the Fund accrued payments under the
Plan amounting to $7,035,667, which amount is equal to 0.87% of the Fund's
average daily net assets for the fiscal year. These payments accrued under the
Plan were calculated pursuant to clause (a) of the compensation formula under
the Plan.
At any given time, the 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 $1 million in expenses in distributing
shares of the Fund had been incurred and $750,000 had been received as described
in (i) and (ii) above, the excess expense would amount to $250,000. The
Distributor has advised the Fund that such excess amounts, including the
carrying charge described above, totalled $53,226,045 at June 30, 1996, which
was equal to 5.5% of the Fund's net assets on such date. Of this amount,
$28,379,160 represents excess distribution expenses of Dean Witter Equity Income
Trust, the net assets of which were combined with those of the Fund on April 18,
1994 pursuant to an Agreement and Plan of Reorganization. Because there is no
requirement under the Plan that the Distributor be reimbursed for all 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
10
<PAGE>
shares, if for any reason the Plan is terminated, the Trustees will consider at
that time the manner in which to treat such expenses. Any cumulative expenses
incurred, but not yet recovered through distribution fees or contingent deferred
sales charges, may or may not be recovered through future distribution fees or
contingent deferred sales charges.
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 (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time), on each day that the New York Stock
Exchange is open by taking the 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 or quoted
by NASDAQ is valued at its latest sale price on that exchange or quotation
service prior to the time assets are valued; if there were no sales that day,
the security is valued at the latest bid price (in cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market pursuant to procedures adopted by the
Trustees); and (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest bid price. When
market quotations are not readily available, including circumstances under which
it is determined by the Investment Manager that sale and bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Fund's Trustees.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain debt securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the 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").
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution 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.
11
<PAGE>
Shares so acquired are not subject to the imposition of a contingent deferred
sales charge upon their redemption (see "Redemptions and Repurchases").
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Fund's Transfer Agent for investment in
shares of the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases -- Involuntary Redemption").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable
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.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other Selected Broker-
Dealer account executive or the Transfer Agent.
EXCHANGE PRIVILEGE
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"), and for
shares of Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term
Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter Balanced Growth
Fund, Dean Witter Balanced Income Fund, Dean Witter Intermediate Term U.S.
Treasury Trust and five Dean Witter Funds which are money market funds (the
foregoing eleven 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 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 reexchanged for
12
<PAGE>
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 Exchange Fund 12b-1 distribution fees, if any, 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. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Dean Witter
Funds for which shares of the Fund have been exchanged, upon such notice as may
be required by applicable regulatory agencies. Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on exchange of shares of the Fund
pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares, on
which the shareholder may realize a capital gain or loss. However, the ability
to deduct capital losses on an exchange may be limited in situations where there
is an exchange of shares within ninety days after the shares are purchased. The
Exchange Privilege is only available in states where an exchange may legally be
made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their account executive (no Exchange Privilege
Authorization
13
<PAGE>
Form is required). Other shareholders (and those shareholders who are clients of
DWR or another Selected Broker-Dealer but who wish to make exchanges directly by
writing or telephoning the Transfer Agent) must complete and forward to the
Transfer Agent an Exchange Privilege Authorization Form, copies of which may be
obtained from the Transfer Agent, to initiate an exchange. If the Authorization
Form is used, exchanges may be made in writing or by contacting the Transfer
Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean Witter
Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds
will be reduced by the amount of any applicable 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 redemption along with any additional documentation
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 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>
14
<PAGE>
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:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (b) held in
a qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2);
(b) distributions from an IRA or 403(b) Custodial Account following attainment
of age 59 1/2; or (c) a tax-free return of an excess contribution to an IRA;
and
(3) all redemptions of shares held for the benefit of a participant in a
corporate or self-employed retirement plan qualified under Section 401(k) of the
Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which Dean Witter Trust Company,
an affiliate of the Investment Manager, serves as recordkeeper or Trustee
("Eligible 401(k) Plan"), provided that either: (a) the plan continues to be an
Eligible 401(k) Plan after the redemption; or (b) the redemption is in
connection with the complete termination of the plan involving the distribution
of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value next computed (see "Purchase of Fund Shares") after such repurchase
order is received by DWR or other Selected Broker-Dealer, reduced by any
applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund, the Distributor,
DWR or other Selected Broker-Dealers. The offer by DWR and other
15
<PAGE>
Selected Broker-Dealers to repurchase shares may be suspended without notice by
them at any time. In that event, shareholders may redeem their shares through
the Fund's Transfer Agent as set forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances, e.g., when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of 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 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 thirty 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 net asset value next determined after a
reinstatement request, together with the proceeds, is received by the Transfer
Agent and receive a pro-rata credit for any CDSC paid in connection with such
redemption or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right, on sixty days' notice,
to redeem, at their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or custodial account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100 or such lesser amount as may
be fixed by the Trustees or, in the case of an account opened through
EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account. However, before the Fund redeems such shares and sends
the proceeds to the shareholder it will notify the shareholder that the value of
the shares is less than the applicable amount and allow the shareholder sixty
days to make an additional investment in an amount which will increase the value
of the account to at least the applicable amount before the redemption is
processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to distribute all of its net
investment income and net realized short-term and long-term capital gains, if
any, at least once per year. The Fund may, however, determine either to
distribute or to retain all or part of any net long-term capital gains in any
year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
Fund shares and automatically credited to the shareholder's account without
issuance of a share certificate unless the shareholder requests in writing that
all dividends and/or distributions be paid in cash. (See "Shareholder
Services -- Automatic Investment of Dividends and Distributions".)
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise continue
to qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
federal income tax. Shareholders who are required to pay taxes on their income
will normally have to pay federal income taxes, and any state
16
<PAGE>
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 income regardless of whether the shareholder receives
such payments in additional shares or in cash.
One of the requirements for the Fund to remain qualified as a regulated
investment company is that less than 30% of the Fund's gross income be derived
from gains from the sale or other disposition of securities held for less than
three months. Accordingly, the Fund may be restricted in its ability to engage
in transactions involving futures contracts.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the corporate dividends received deduction.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. 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, or over the life of the
Fund, if less than any of the foregoing. 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
hypothetical investments of $10,000, $50,000 and $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.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges. There are
no conversion, pre-emptive or other subscription rights. In the event of a
liquidation, each share of beneficial interest of the Fund is entitled to its
portion of all the Fund's assets after all debts and expenses have been paid.
The shares do not have cumulative voting rights.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances
17
<PAGE>
the Fund does not intend to hold such meetings. The Trustees may call Special
Meetings of Shareholders for action by shareholder vote as may be required by
the Act or the Declaration of Trust. Under certain circumstances, the Trustees
may be removed by action of the Trustees or by the Shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for obligations of
the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is engaged at the same time in a purchase or sale of the same
security. The Code of Ethics bans the purchase of securities in an initial
public offering, and also prohibits engaging in futures and options transactions
and profiting on short-term trading (that is, a purchase within sixty days of a
sale or a sale within sixty days of a purchase) of a security. In addition,
investment personnel may not purchase or sell a security for their personal
account within thirty days before or after any transaction in any Dean Witter
Fund managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute Advisory
Group on Personal Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
18
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS FIXED INCOME FUNDS
Dean Witter Liquid Asset Fund Inc. Dean Witter High Yield Securities Inc.
Dean Witter U.S. Government Money Dean Witter Tax-Exempt Securities Trust
Market Trust Dean Witter U.S. Government Securities
Dean Witter Tax-Free Daily Income Trust Trust
Dean Witter California Tax-Free Daily Dean Witter Federal Securities Trust
Income Trust Dean Witter Convertible Securities
Dean Witter New York Municipal Money Trust
Market Trust Dean Witter California Tax-Free Income
EQUITY FUNDS Fund
Dean Witter American Value Fund Dean Witter New York Tax-Free Income
Dean Witter Natural Resource Fund
Development Securities Inc. Dean Witter World Wide Income Trust
Dean Witter Dividend Growth Securities Dean Witter Intermediate Income
Inc. Securities
Dean Witter Developing Growth Dean Witter Global Short-Term Income
Securities Trust Fund Inc.
Dean Witter World Wide Investment Trust Dean Witter Multi-State Municipal
Dean Witter Value-Added Market Series Series Trust
Dean Witter Utilities Fund Dean Witter Premier Income Trust
Dean Witter Capital Growth Securities Dean Witter Short-Term U.S. Treasury
Dean Witter European Growth Fund Inc. Trust
Dean Witter Precious Metals and Dean Witter Diversified Income Trust
Minerals Trust Dean Witter Limited Term Municipal
Dean Witter Pacific Growth Fund Inc. Trust
Dean Witter Health Sciences Trust Dean Witter Short-Term Bond Fund
Dean Witter Global Dividend Growth Dean Witter National Municipal Trust
Securities Dean Witter High Income Securities
Dean Witter Global Utilities Fund Dean Witter Balanced Income Fund
Dean Witter International SmallCap Fund Dean Witter Hawaii Municipal Trust
Dean Witter Mid-Cap Growth Fund Dean Witter Intermediate Term U.S.
Dean Witter Balanced Growth Fund Treasury Trust
Dean Witter Capital Appreciation Fund DEAN WITTER RETIREMENT SERIES
Dean Witter Information Fund Liquid Asset Series
Dean Witter Japan Fund U.S. Government Money Market Series
Dean Witter Income Builder Fund U.S. Government Securities Series
ASSET ALLOCATION FUNDS Intermediate Income Securities Series
Dean Witter Strategist Fund American Value Series
Dean Witter Global Asset Allocation Capital Growth Series
Fund Dividend Growth Series
ACTIVE ASSETS ACCOUNT PROGRAM Strategist Series
Active Assets Money Trust Utilities Series
Active Assets Tax-Free Trust Value-Added Market Series
Active Assets California Tax-Free Trust Global Equity Series
Active Assets Government Securities
Trust
<PAGE>
Dean Witter
Value-Added Market Series
Dean Witter
Two World Trade Center
New York, New York 10048
TRUSTEES Value-Added
Michael Bozic Market Series
Charles A. Fiumefreddo EQUITY PORTFOLIO
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Kenton J. Hinchliffe
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
PROSPECTUS -- AUGUST 26, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DEAN WITTER
VALUE-ADDED
MARKET SERIES
AUGUST 26, 1996
- --------------------------------------------------------------------------------
Dean Witter Value-Added Market Series (the "Fund") is an open-end
diversified management investment company presently consisting of a single
investment portfolio, the Equity Portfolio, whose investment objective is to
achieve a high level of total return on its assets through a combination of
capital appreciation and current income. The Fund seeks to attain the Equity
Portfolio's investment objective by investing on an equally-weighted basis in a
diversified portfolio of common stocks of the companies which are represented in
the Standard & Poor's 500 Composite Stock Price Index. (References herein to the
Fund refer also to the Equity Portfolio if the context so indicates.) The Fund
is neither sponsored by, nor affiliated with, Standard & Poor's Corporation.
A Prospectus for the Fund dated August 26, 1996, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc. at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
Dean Witter
Value-Added Market Series
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management............................................................ 3
Trustees and Officers.................................................................. 6
Investment Practices and Policies...................................................... 12
Investment Restrictions................................................................ 14
Portfolio Transactions and Brokerage................................................... 15
The Distributor........................................................................ 16
Shareholder Services................................................................... 20
Redemptions and Repurchases............................................................ 24
Dividends, Distributions and Taxes..................................................... 27
Performance Information................................................................ 28
Description of Shares.................................................................. 29
Custodian and Transfer Agent........................................................... 30
Independent Accountants................................................................ 30
Reports to Shareholders................................................................ 30
Legal Counsel.......................................................................... 30
Experts................................................................................ 30
Registration Statement................................................................. 30
Financial Statements -- June 30, 1996.................................................. 31
Report of Independent Accountants...................................................... 47
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund is a Trust of the type commonly known as a "Massachusetts business
trust" and was organized under the laws of the Commonwealth of Massachusetts on
May 27, 1987.
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 are
conducted by or under the direction of officers of the Fund and of the
Investment Manager, subject to review by the Fund's Trustees. In addition,
Trustees of the Fund provide guidance on economic factors and interest rate
trends. Information as to these Trustees and officers is contained under the
caption "Trustees and Officers".
InterCapital is also the investment manager or investment adviser of the
following investment companies: Dean Witter Liquid Asset Fund Inc., InterCapital
Income Securities Inc., InterCapital Insured Municipal Bond Trust, InterCapital
Insured Municipal Trust, InterCapital Insured Municipal Income Trust,
InterCapital California Insured Municipal Income Trust, InterCapital Insured
Municipal Securities, InterCapital Insured California Municipal Securities,
InterCapital Quality Municipal Investment Trust, InterCapital Quality Municipal
Income Trust, InterCapital Quality Municipal Securities, InterCapital California
Quality Municipal Securities, InterCapital New York Quality Municipal
Securities, High Income Advantage Trust, High Income Advantage Trust II, High
Income Advantage Trust III, Dean Witter Government Income Trust, Dean Witter
High Yield Securities Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter
Developing Growth Securities Trust, Dean Witter Tax-Exempt Securities Trust,
Dean Witter Natural Resource Development Securities Inc., Dean Witter Dividend
Growth Securities Inc., Dean Witter American Value Fund, Dean Witter U.S.
Government Money Market Trust, Dean Witter Variable Investment Series, Dean
Witter World Wide Investment Trust, Dean Witter Select Municipal Reinvestment
Fund, Dean Witter U.S. Government Securities Trust, Dean Witter California
Tax-Free Income Fund, Dean Witter New York Tax-Free Income Fund, Dean Witter
Convertible Securities Trust, Dean Witter Federal Securities Trust, Dean Witter
Utilities Fund, Dean Witter California Tax-Free Daily Income Trust, Dean Witter
New York Municipal Money Market Trust, Dean Witter Strategist Fund, Dean Witter
World Wide Income Trust, Dean Witter Intermediate Income Securities, Dean Witter
Capital Growth Securities, Dean Witter European Growth Fund Inc., Dean Witter
Precious Metals and Minerals Trust, Dean Witter Global Short-Term Income Fund
Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter Multi-State Municipal
Series Trust, Dean Witter Premier Income Trust, Dean Witter Short-Term U.S.
Treasury Trust, Dean Witter Diversified Income Trust, Dean Witter Health
Sciences Trust, Dean Witter Retirement Series, Dean Witter Global Dividend
Growth Securities, Dean Witter Limited Term Municipal Trust, Dean Witter
Short-Term Bond Fund, Dean Witter Global Utilities Fund, Dean Witter National
Municipal Trust, Dean Witter High Income Securities, Dean Witter International
SmallCap Fund, Dean Witter Mid-Cap Growth Fund, Dean Witter Select Dimensions
Investment Series, Dean Witter Balanced Growth Fund, Dean Witter Balanced Income
Fund, Dean Witter Hawaii Municipal Trust, Dean Witter Intermediate Term U.S.
Treasury Trust, Dean Witter Capital Appreciation Fund, Dean Witter Information
Fund, Dean Witter Japan Fund, Dean Witter Income Builder 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
3
<PAGE>
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 investment adviser: TCW/DW
Core Equity Trust, TCW/DW North American Government Income Trust, TCW/DW Latin
American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth
Fund, TCW/DW Balanced Fund, TCW/DW Total Return Trust, TCW/DW Mid-Cap Equity
Trust, TCW/DW Global Telecom Trust, TCW/DW Emerging Markets Opportunities Trust,
TCW/DW Term Trust 2000, TCW/DW Term Trust 2002 and TCW/DW Term Trust 2003 (the
"TCW/DW Funds"). InterCapital also serves as: (i) 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.
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. 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, statements of additional
information, proxy statements and reports required to be filed with federal and
state securities commissions (except insofar as the participation or assistance
of independent accountants and attorneys is, in the opinion of the Investment
Manager, necessary or desirable). In addition, the Investment Manager pays the
salaries of all personnel, including officers of the Fund, who are employees of
the Investment Manager. The Investment Manager also bears the cost of telephone
service, heat, light, power and other utilities provided to the Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to the
Fund which were previously performed directly by InterCapital. On April 17,
1995, DWSC was reorganized in the State of Delaware, necessitating the entry
into a new Services Agreement by InterCapital and DWSC on such date. The
foregoing internal reorganizations did not result in any change in the nature or
scope of the administrative services being provided to the Fund or any of the
fees being paid by the Fund for the overall services being performed under the
terms of the existing Agreement.
Expenses not expressly assumed by the Investment Manager under the Agreement
or by the Distributor of the Fund's shares, Dean Witter Distributors Inc.
("Distributors" or the "Distributor") (see "The Distributor"), will be paid by
the Fund. 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 of share certificates; registration costs of the Fund and its shares
under federal and state securities laws; the cost and expense of printing,
including typesetting, and distributing Prospectuses and Statements of
Additional Information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Trustees or members of any advisory board or
committee who are not employees of the Investment Manager or any corporate
affiliate of the Investment Manager; all expenses incident to any dividend,
withdrawal or redemption options; charges and expenses of any outside service
used for pricing of the Fund's shares; fees and expenses of legal counsel,
including counsel to the Trustees who are not interested persons of the Fund or
of the Investment Manager (not including compensation or expenses of attorneys
who are employees of the Investment Manager) and independent accountants;
membership dues of industry associations; interest on Fund borrowings; postage;
insurance premiums
4
<PAGE>
on property or personnel (including officers and Trustees) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
relating thereto); and all other costs of the Fund's operation.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
following annual rates to the Fund's net assets determined as of the close of
each business day: 0.50% of the portion of daily net assets not exceeding $500
million; 0.45% of the portion exceeding $500 million but not exceeding $1
billion; and 0.425% of the portion of daily net assets exceeding $1 billion. For
the fiscal years ended June 30, 1994, 1995 and 1996, the Fund accrued to the
Investment Manager total compensation of $1,810,709, $2,603,517 and $3,897,002,
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. The Fund did not exceed such limitation during the fiscal years
ended June 30, 1994, 1995 and 1996.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or adviser to others.
The Agreement was initially approved by the Board of Trustees on October 30,
1992 and by the shareholders of the Fund at a Meeting of Shareholders held on
January 12, 1993. The Agreement is substantially identical to a prior investment
management agreement which was initially approved by the Trustees on July 29,
1987, by DWR as the then sole shareholder on September 21, 1987 and by the
shareholders of the Fund at a Special Meeting of Shareholders held on December
29, 1988. 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 Trustees of the
Fund, by the holders of a majority, as defined in the Investment Company Act of
1940, as amended (the "Act"), of the outstanding shares of the Fund, or by the
Investment Manager. The Agreement will automatically terminate in the event of
its assignment (as defined in the Act).
Under its terms, the Agreement had an initial term ending April 30, 1994 and
will continue in effect from year to year thereafter, provided continuance of
the Agreement is approved at least annually by the vote of the holders of a
majority, as defined in the Act, of the outstanding shares of the Fund, or by
the Trustees of the Fund; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees of the Fund who are
not parties to the Agreement or "interested persons" (as defined in the Act) or
any such party (the "Independent Trustees"), which vote must be cast in person
at a meeting called for the purpose of voting on such approval. At their meeting
held on April 8, 1994, the Fund's Board of Trustees, including all of the
Independent Trustees, amended the Agreement to provide a breakpoint in the
management fee that reduces the compensation received by the Investment Manager
under the Agreement on assets exceeding $500 million. At their meeting held on
April 17, 1996, the Fund's Board of Trustees, including all of the Independent
Trustees, amended the Agreement to provide an additional breakpoint in the
management fee that reduces the compensation received by the Investment Manager
under the Agreement on assets exceeding $1 billion and approved continuation of
the Agreement, as so amended, until April 30, 1997.
5
<PAGE>
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use, or at any time
permit others to use, the name "Dean Witter". The Fund has also agreed that in
the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate the
name "Dean Witter" from its name if DWR or its parent company shall so request.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 81 Dean Witter Funds and the 13 TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- -----------------------------------------------------------------
<S> <C>
Michael Bozic (55) Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of the
c/o Levitz Furniture Corporation Dean Witter Funds; formerly President and Chief Executive Officer
6111 Broken Sound Parkway, N.W. of Hills Department Stores (May, 1991-July, 1995); formerly
Boca Raton, Florida variously Chairman, Chief Executive Officer, President and Chief
Operating Officer (1987-1991) of the Sears Merchandise Group of
Sears, Roebuck and Co.; Director of Eaglemark Financial Services,
Inc., the United Negro College Fund and Weirton Steel
Corporation.
Charles A. Fiumefreddo* (63) Chairman and Chief Executive Officer and Director of
Chairman of the Board, InterCapital, DWSC and Distributors, Executive Vice President and
President and Chief Executive Director of DWR; Chairman, Director or Trustee, President and
Officer and Trustee Chief Executive Officer of the Dean Witter Funds; Chairman, Chief
Two World Trade Center Executive Officer and Trustee of the TCW/DW Funds; Chairman and
New York, New York Director of Dean Witter Trust Company ("DWTC"); Director and/or
officer of various DWDC subsidiaries.
Edwin J. Garn (63) Director or Trustee of the Dean Witter Funds; formerly United
Trustee States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking
c/o Huntsman Chemical Corporation Committee (1980-1986); formerly Mayor of Salt Lake City, Utah
500 Huntsman Way (1972-1974); formerly Astronaut, Space Shuttle Discovery (April
Salt Lake City, Utah 12-19, 1985); Vice Chairman, Huntsman Chemical Corporation (since
January, 1993); Director of Franklin Quest (time management
systems) and John Alden Financial Corp.; member of the board of
various civic and charitable organizations.
John R. Haire (71) Chairman of the Audit Committee and Chairman of the Committee of
Trustee the Independent Directors or Trustees and Director or Trustee of
Two World Trade Center the Dean Witter Funds; Chairman of the Audit Committee and
New York, New York Chairman of the Committee of the Independent Trustees and Trustee
of the TCW/DW Funds; formerly President, Council for Aid to
Education (1978-October, 1989) and Chairman and Chief Executive
Officer of Anchor Corporation, an Investment Adviser (1964-1978);
Director of Washington National Corporation (insurance).
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- -----------------------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (47) Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm (since June, 1985); Koch Professor of International
c/o Johnson Smick Economics and Director of the Center for Global Market Studies at
International, Inc. George Mason University (since September, 1990); Co-Chairman and
1133 Connecticut Avenue, N.W. a founder of the Group of Seven Council (G7C), an international
Washington, DC economic commission (since September, 1990); Director or Trustee
of the Dean Witter Funds; Trustee of the TCW/DW Funds; Director
of NASDAQ (since June, 1995); Director of Greenwich Capital
Markets Inc. (broker-dealer); formerly Vice Chairman of the Board
of Governors of the Federal Reserve System (February,
1986-August, 1990) and Assistant Secretary of the U.S. Treasury
(1982-1986).
Michael E. Nugent (60) General Partner, Triumph Capital, L.P., a private investment
Trustee partnership (since 1988); Director or Trustee of the Dean Witter
c/o Triumph Capital, L.P. Funds; Trustee of the TCW/DW Funds; formerly Vice President,
237 Park Avenue, Bankers Trust Company and BT Capital Corporation (1984-1988);
New York, New York director of various business organizations.
Philip J. Purcell* (52) Chairman of the Board of Directors and Chief Executive Officer of
Trustee DWDC, DWR and Novus Credit Services Inc.; Director of
Two World Trade Center InterCapital, DWSC and Distributors; Director or Trustee of the
New York, New York Dean Witter Funds; Director and/or officer of various DWDC
subsidiaries.
John L. Schroeder (66) Retired; Director or Trustee of the Dean Witter Funds; Trustee of
Trustee the TCW/DW Funds; Director of Citizens Utilities Company;
c/o Gordon Altman Butowsky formerly Executive Vice President and Chief Investment Officer of
Weitzen Shalov & Wein the Home Insurance Company (August, 1991-September, 1995),
Counsel to the Independent Trustees Chairman and Chief Investment Officer of Axe-Houghton Management
114 West 47th Street and the Axe-Houghton Funds (April, 1983-June, 1991) and President
New York, New York of USF&G Financial Services, Inc. (June, 1990-June, 1991).
Sheldon Curtis (64) Senior Vice President, Secretary and General Counsel of
Vice President, Secretary InterCapital; Senior Vice President and Secretary of DWTC; Senior
and General Counsel Vice President, Assistant Secretary and Assistant General Counsel
Two World Trade Center of Distributors; Assistant Secretary of DWR and Vice President,
New York, New York Secretary and General Counsel of the Dean Witter Funds and the
TCW/ DW Funds.
Kenton J. Hinchliffe (51) Senior Vice President of InterCapital; Vice President of various
Vice President Dean Witter Funds.
Two World Trade Center
New York, New York
Alice S. Weiss (48) Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- -----------------------------------------------------------------
<S> <C>
Thomas F. Caloia (50) First Vice President and Assistant Treasurer of InterCapital and
Treasurer DWSC; Treasurer of the Dean Witter Funds and the TCW/DW Funds.
Two World Trade Center
New York, New York
<FN>
- ------------------------
*Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
</TABLE>
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Robert S. Giambrone, Senior Vice President of InterCapital,
DWSC, Distributors and DWTC, and Director of DWTC, and Joseph J. McAlinden,
Executive Vice President and Chief Investment Officer of InterCapital and
Director of DWTC, are Vice Presidents of the Fund, and Marilyn K. Cranney and
Barry Fink, First Vice Presidents and Assistant General Counsels of InterCapital
and DWSC, Lou Anne McInnis and Ruth Rossi, Vice Presidents and Assistant General
Counsels of InterCapital and DWSC, and Carsten Otto, a Staff Attorney with
InterCapital, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of eight (8) trustees. These same individuals
also serve as directors or trustees for all of the Dean Witter Funds, and are
referred to in this section as Trustees. As of the date of this Statement of
Additional Information, there are a total of 81 Dean Witter Funds, comprised of
121 portfolios. As of July 31, 1996, the Dean Witter Funds had total net assets
of approximately $75.3 billion and more than five million shareholders.
Six Trustees (75% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own any
stock or other securities issued by InterCapital's parent company, DWDC. These
are the "disinterested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with InterCapital. Four of the six
independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Dean Witter Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee and
the Committee of the Independent Trustees. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1995,
the three Committees held a combined total of fifteen meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Trustees or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Dean Witter Funds have such a plan.
8
<PAGE>
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Trustees to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees will need to form a judgment on various issues,
and arranges to have that information furnished to Committee members. He also
arranges for the services of independent experts and consults with them in
advance of meetings to help refine reports and to focus on critical issues.
Members of the Committees believe that the person who serves as Chairman of both
Committees and guides their efforts is pivotal to the effective functioning of
the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment advisory, management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Manager and other service providers. In effect,
the Chairman of the Committees serves as a combination of chief executive and
support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and, since July
1, 1996, as Chairman of the Committee of the Independent Trustees and the Audit
Committee of the TCW/DW Funds. The current Committee Chairman has had more than
35 years experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Trustees serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Trustees, and a Chairman of their Committees,
of the caliber, experience and business acumen of the individuals who serve as
Independent Trustees of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the
9
<PAGE>
Fund pays the Chairman of the Audit Committee an annual fee of $750 and pays the
Chairman of the Committee of the Independent Trustees an additional annual fee
of $1,200). The Fund also reimburses such Trustees for travel and other
out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended June 30 , 1996.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,750
Edwin J. Garn................................................. 1,850
John R. Haire................................................. 3,963(1)
Dr. Manuel H. Johnson......................................... 1,800
Michael E. Nugent............................................. 1,750
John L. Schroeder............................................. 1,850
</TABLE>
- ------------------------
(1) Of Mr. Haire's compensation from the Fund, $3,150 was paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($750).
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1995 for services
to the 79 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 11 TCW/DW Funds that were in operation at December 31, 1995.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Dean Witter Money Market Funds. Mr. Schroeder was elected as a Trustee
of the TCW/DW Funds on April 20, 1995.
COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
TOTAL
FOR SERVICE AS COMPENSATION
FOR SERVICE CHAIRMAN OF PAID
AS DIRECTOR OR COMMITTEES OF FOR SERVICES
TRUSTEE AND FOR SERVICE AS INDEPENDENT TO
COMMITTEE MEMBER TRUSTEE AND DIRECTORS/ 79 DEAN
OF 79 DEAN COMMITTEE MEMBER TRUSTEES AND WITTER
WITTER OF 11 TCW/DW AUDIT FUNDS AND 11
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS COMMITTEES TCW/DW FUNDS
- --------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Michael Bozic.............. $126,050 -- -- $126,050
Edwin J. Garn.............. 136,450 -- -- 136,450
John R. Haire.............. 98,450 $82,038 $217,350(2) 397,838
Dr. Manuel H. Johnson...... 136,450 82,038 -- 218,488
Michael E. Nugent.......... 124,200 75,038 -- 199,238
John L. Schroeder.......... 136,450 46,964 -- 183,414
</TABLE>
- ------------------------
(2) For the 79 Dean Witter Funds in operation at December 31, 1995. As noted
above, on July 1, 1996, Mr. Haire became Chairman of the Committee of the
Independent Trustees and the Audit Committee of the TCW/DW Funds in addition
to continuing to serve in such positions for the Dean Witter Funds.
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have adopted a retirement program under which
an Independent Trustee who retires after serving for at least five years (or
such lesser period as may be determined by the Board) as an Independent Director
or Trustee of any Dean Witter Fund that has adopted the retirement program (each
such Fund
10
<PAGE>
referred to as an "Adopting Fund" and each such Trustee referred to as an
"Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Trustee
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing for the remainder of his or her life, an annual
retirement benefit (the "Regular Benefit") equal to 25.0% of his or her Eligible
Compensation plus 0.4166666% of such Eligible Compensation for each full month
of service as an Independent Director or Trustee of any Adopting Fund in excess
of five years up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the Board.(3) "Eligible Compensation" is one-fifth
of the total compensation earned by such Eligible Trustee for service to the
Adopting Fund in the five year period prior to the date of the Eligible
Trustee's retirement. Benefits under the retirement program are not secured or
funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended June 30, 1996
and by the 57 Dean Witter Funds (including the Fund) as of December 31, 1995,
and the estimated retirement benefits for the Fund's Independent Trustees from
the Fund as of June 30, 1996 and from the 57 Dean Witter Funds as of December
31, 1995.
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS ESTIMATED ANNUAL
-------------------------------------- RETIREMENT BENEFITS BENEFITS
ESTIMATED ACCRUED AS EXPENSES UPON RETIREMENT(4)
CREDITED YEARS ESTIMATED ---------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND(5) FUNDS FUND(5) FUNDS
- --------------------------------- ------------------- ----------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic.................... 10 50.0% $ 418 $ 26,359 $ 950 $ 51,550
Edwin J. Garn.................... 10 50.0 4 41,901 950 51,550
John R. Haire.................... 10 50.0 3,744 261,763 4,687 130,404
Dr. Manuel H. Johnson............ 10 50.0 (159) 16,748 950 51,550
Michael E. Nugent................ 10 50.0 (269) 30,370 950 51,550
John L. Schroeder................ 8 41.7 815 51,812 792 42,958
</TABLE>
- ------------------------
(3) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
(4) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (3) above.
(5) These numbers reflect the effect of the combination of the net assets of
Dean Witter Equity Income Trust with those of the Fund on April 18, 1994
pursuant to an Agreement and Plan of Reorganization.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
11
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund (subject to 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 equal to at least the market value, determined daily,
of the loaned securities. The advantage of such loans is that the Fund continues
to receive the income on the loaned securities while at the same time earning
interest on the cash amounts deposited as collateral, which will be invested in
short-term obligations. The Fund will not lend its portfolio securities if such
loans are not permitted by the laws or regulations of any state in which its
shares are qualified for sale and will not lend more than 25% of the value of
its total assets. A loan may be terminated by the borrower on one business day's
notice, or by the Fund on four business days' notice. If the borrower fails to
deliver the loaned securities within four days after receipt of notice, the Fund
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Fund's management to be creditworthy and when the income
which can be earned from such loans justifies the attendant risks. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss in the market price during the loan period would
inure to the Fund. The creditworthiness of firms to which the Fund lends its
portfolio securities will be monitored on an ongoing basis by the Investment
Manager pursuant to procedures adopted and reviewed, on an ongoing basis, by the
Fund's Trustees.
When voting or consent rights which accompany loaned securities pass to the
borrower, however, the Fund will follow the policy of calling the loaned
securities, to be delivered within one day after notice, to permit the exercise
of such rights if the matters involved would have a material effect on the
Fund's investment in such loaned securities. The Fund will pay reasonable
finder's, administrative and custodial fees in connection with a loan of its
securities. However, the Fund does not presently intend to lend any of its
portfolio securities in the forseeable 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. A repurchase agreement may be
viewed as a type of secured lending by the Fund which typically involves the
acquisition by the Fund of government securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral") at a
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The collateral will be maintained in a
segregated account and will be marked to market daily to determine that the
value of the collateral, as specified in the agreement, does not decrease below
the purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to the account to
maintain full collateralization. The Fund will accrue interest from the
institution until the time when the repurchase is to occur. Although such date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to any
limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Investment Manager
subject to procedures established by the Board of Trustees of the Fund. In
addition, as described above, the value
12
<PAGE>
of the collateral underlying the repurchase agreement will be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, the Fund will seek to liquidate such collateral. However, the
exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss. It is the current policy of the Fund not to invest in
repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Fund, amounts to
more than 10% of its total assets.
FUTURES CONTRACTS
As discussed in the Prospectus, the Fund may invest in stock index futures
contracts. A stock index futures contract is a bilateral agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value at
the close of the last trading day of the contract and the futures contract
price. Futures contracts on stock indexes do not involve the physical delivery
of securities, but provide for a final cash settlement on the expiration date
which reflects accumulated profits and losses credited or debited to each
party's account. It should be recognized that the use of futures contracts
involves skills different from those used in selecting portfolio securities.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts. In addition, due to current
industry practice, daily variations in gains and losses on open contracts are
required to be reflected in cash in the form of variation margin payments. The
Fund may be required to make additional margin payments during the term of the
contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
Currently, stock index futures contracts can be purchased or sold with
respect to, among others, the Standard & Poor's 500 Composite Stock Price Index
and the Standard & Poor's 100 Composite Stock Price Index on the Chicago
Mercantile Exchange, the New York Stock Exchange Composite Index on the New York
Futures Exchange, the Major Market Index on the American Stock Exchange and the
Value Line Stock Index on the Kansas City Board of Trade.
PRIVATE PLACEMENTS
The Fund may invest up to 10% of its total assets in securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or which are
otherwise not readily marketable. These securities are generally referred to as
private placements or restricted securities. Limitations on the resale of such
securities may have an adverse effect on their marketability, and may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to bear the expense of registering such securities for resale and the risk of
substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid," such security will
not be included within the category "illiquid securities," which is limited by
the Fund's investment restrictions to 10% of the Fund's total assets.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate will not exceed
100%. A 100% turnover rate would occur, for example, if 100% 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.
13
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.
The Fund may not:
1. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee/ director of the Fund or of the Investment Manager
owns more than 1/2 of 1% of the outstanding securities of such issuer, and
such officers and trustees/directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuers.
2. Purchase or sell real estate or interests therein, although the Fund
may purchase securities of issuers which engage in real estate operations
and securities secured by real estate or interests therein.
3. Purchase or sell commodities except that the Fund may purchase or
sell (write) futures contracts and related options.
4. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
6. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
7. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(6). For the purpose of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect
to initial or variation margin for futures are not deemed to be pledges of
assets.
8. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of borrowing
money in accordance with restrictions described above.
9. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objective and policies; (b) by investment in
repurchase agreements; or (c) by lending its portfolio securities.
10. Make short sales of securities.
11. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the purchase
of a security on margin.
12. Invest more than 10% of its total assets in "illiquid securities"
(securities for which market quotations are not readily available),
restricted securities and repurchase agreements which have a maturity of
longer than seven days.
14
<PAGE>
13. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
14. Invest for the purpose of exercising control or management of any
other issuer.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. Futures transactions are usually effected through a broker and a
commission will be charged. On occasion, the Fund may also purchase certain
money market instruments directly from an issuer, in which case no commissions
or discounts are paid. During the fiscal years ended June 30, 1994, 1995 and
1996, the Fund paid a total of $233,703, $204,236 and $311,923, respectively, in
brokerage commissions.
The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors may be considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain initial
and secondary public offerings, the Investment Manager may utilize a pro-rata
allocation process based on the size of the Dean Witter Funds involved and the
number of shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager from obtaining a high quality of
brokerage and research services. In seeking to determine the reasonableness of
brokerage commissions paid in any transaction, the Investment Manager relies
upon its experience and knowledge regarding commissions generally charged by
various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. Such determinations
are necessarily subjective and imprecise, as in most cases an exact dollar value
for those services is not ascertainable.
In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes such prices and executions are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Investment Manager. Such services
may include, but are not limited to, any one or more of the
15
<PAGE>
following: information as to the availability of securities for purchase or
sale; statistical or factual information or opinions pertaining to investment;
wire services; and appraisals or evaluations of portfolio securities.
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Fund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the management fee paid to the Investment
Manager is not reduced by any amount that may be attributable to the value of
such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., 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.
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 Board of Trustees of the
Fund, including a majority of the Trustees who are not "interested" persons of
the Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to DWR
are consistent with the foregoing standard. During the fiscal year ended June
30, 1995, the Fund paid a total of $1,540 in brokerage commissions to DWR. The
Fund did not pay any brokerage commissions to DWR during the fiscal years ended
June 30, 1994 and 1996.
During the fiscal year ended June 30, 1996, the Fund purchased common stock
issued by Morgan Stanley Group, Inc., which issuer was among the ten brokers or
the ten dealers which executed transactions for or with the Fund in the largest
dollar amounts during the year. At June 30, 1996, the Fund held common stock
issued by Morgan Stanley Group, Inc. with a market value of $1,915,875.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund. In addition, the Distributor may enter into selected
dealer agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of DWDC. The Trustees of the
Fund, including a majority of the Trustees who are not, and were not at the time
they voted, "interested persons" of the Fund, as defined in the Act (the
"Independent Trustees"), approved, at their meeting held on October 30, 1992,
the current Distribution Agreement appointing the Distributor exclusive
distributor of the Fund's shares and providing for the Distributor to bear
distribution expenses not borne by the Fund. The present Distribution Agreement
is substantively identical to the Fund's previous distribution agreements. The
Distribution Agreement took effect on June 30, 1993 upon the spin-off by Sears,
Roebuck and Co. of its remaining shares of DWDC. By its terms, the Distribution
Agreement had an initial term ending April 30, 1994 and provides that it will
remain in effect from year to year thereafter if approved by the Trustees. At
their meeting held on April 17, 1996, the Trustees, including all of the
Independent Trustees, approved the continuation of the Agreement until April 30,
1997.
16
<PAGE>
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor will also pay 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 will bear 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 judgment or mistake of law or 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 it provides and for the
expenses it bears 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 Fund (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
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived; or (b) the Fund's average daily net
assets. The Distributor also receives the proceeds of contingent deferred sales
charges imposed on certain redemptions of shares, which are separate and apart
from payments made pursuant to the Plan (see "Redemptions and Repurchases --
Contingent Deferred Sales Charge" in the Prospectus). The Distributor has
informed the Fund that it and/or DWR received approximately $419,000, $716,000
and $831,000 in contingent deferred sales charges for the fiscal years ended
June 30, 1994, 1995 and 1996, respectively, none of which was retained by the
Distributor.
The Distributor has informed the Fund that a portion of the fees payable by
the Fund each year pursuant to the Plan equal to 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, Inc. (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.
The Plan was adopted by a vote of the Trustees of the Fund on July 29, 1987,
at a Meeting of the Trustees called for the purpose of voting on such Plan. The
vote included the vote of a majority of the Trustees of the Fund who are not
"interested persons" of the Fund (as defined in the Act) and who have no direct
or indirect financial interest in the operation of the Plan (the "Independent
12b-1 Trustees"). In making their decision to adopt the Plan, the Trustees
requested from DWR and received such information as they deemed necessary to
make an informed determination as to whether or not adoption of the Plan was in
the best interests of the shareholders of the Fund. After due consideration of
the information received, the Trustees, including the Independent 12b-1
Trustees, determined that adoption of the Plan would benefit the shareholders of
the Fund. DWR, as the then sole shareholder of the Fund, approved the Plan on
September 21, 1987, whereupon the Plan went into effect. The Plan was approved
by shareholders of the Fund at a Meeting of Shareholders on December 29, 1988.
At their meeting held on October 30, 1992, the Trustees of the Fund,
including all of the Independent 12b-1 Trustees, approved certain amendments to
the Plan which took effect in January, 1993 and were designed to reflect the
fact that upon the reorganization described above the share distribution
activities
17
<PAGE>
theretofore performed for the Fund by DWR were assumed by the Distributor and
DWR's sales activities are now being performed pursuant to the terms of a
selected dealer agreement between the Distributor and DWR. The amendments
provide that payments under the Plan will be made to the Distributor rather than
to DWR as before the amendment, and that the Distributor in turn is authorized
to make payments to DWR, its affiliates or other selected broker-dealers (or
direct that the Fund pay such entities directly). The Distributor is also
authorized to retain part of such fee as compensation for its own distribution-
related expenses. At their meeting held on April 28, 1993, the Trustees,
including a majority of the Independent 12b-1 Trustees, also approved certain
technical amendments to the Plan in connection with amendments adopted by the
National Association of Securities Dealers, Inc. to its Rules of Fair Practice.
At their meeting held on April 14, 1994, the shareholders of the Fund approved
an amendment to the Plan to permit payments to be made under the Plan with
respect to distribution expenses incurred in connection with the distribution of
shares of an investment company whose assets are acquired by the Fund in a
tax-free reorganization.
Under the Plan and as required by Rule 12b-1, the Trustees will receive and
review promptly after the end of each fiscal quarter a written report provided
by the Distributor of the amounts expended by the Distributor under the Plan and
the purpose for which such expenditures were made. The Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended June 30,
1996, of $7,035,667. This amount is equal to 0.87% of the Fund's average daily
net assets for the fiscal year and was calculated pursuant to clause (a) of the
compensation formula under the Plan. This amount is treated by the Fund as an
expense in the year it is accrued.
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 are subject in most cases 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 0.25 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 opportunity costs, such as the gross sales
credit and an assumed interest charge thereon ("carrying charge"). In the
Distributor's reporting of the distribution expenses to the Fund, such assumed
interest (computed at the "broker's call rate") has been calculated on the gross
sales credit as it is reduced by amounts received by the Distributor under the
Plan and any contingent deferred sales charges received by the Distributor upon
redemption of shares of the Fund. No other interest charge is included as a
distribution expense in the Distributor's calculation of 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 $7,035,667 accrued under the Plan for the fiscal
year ended June 30, 1995 to the Distributor. The Distributor and DWR estimate
that they have spent, pursuant to the Plan, $79,412,573 on behalf of the Fund
since the inception of the Plan. It is estimated that this amount was spent in
approximately the following ways: (i) 3.99% ($3,166,945) -- advertising and
promotional expenses; (ii) 0.25% ($200,517) -- printing of prospectuses for
distribution to other than current shareholders; and (iii) 95.76% ($76,045,111)
- -- other expenses, including the gross sales credit and the
18
<PAGE>
carrying charge, of which 8.55% ($6,499,507) represents carrying charges, 21.51%
($16,359,545) represents commission credits to DWR branch offices for payments
of commissions to account executives, 32.62% ($24,806,899) represents overhead
and other branch office distribution-related expenses, and 37.32% ($28,379,160)
represents excess distribution expenses of Dean Witter Equity Income Trust, the
net assets of which were combined with those of the Fund on April 18, 1994
pursuant to an Agreement and Plan of Reorganization.
At any given time the expenses in distributing shares of the Fund may be
more or less than the total of (i) the payments made by the Fund pursuant to the
Plan and (ii) the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares. The Distributor has advised the Fund that
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 $53,226,045 as of June 30, 1996. Of this
amount, $28,379,160 represents excess distribution expenses of Dean Witter
Equity Income Trust, the net assets of which, as noted above, have been combined
with those of the Fund. Because there is no requirement under the Plan that the
Distributor be reimbursed for all 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
distribution expenses in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
Any cumulative expenses incurred, but not yet recovered through distribution
fees or contingent deferred sales charges, may or may not be recovered through
future distribution fees or contingent deferred sales charges.
No interested person of the Fund, nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, had any direct or indirect
financial interest in the operation of the Plan except to the extent that the
Distributor, InterCapital, DWR or certain of their employees may be deemed to
have such an interest as a result of benefits derived from the successful
operation of the Plan or as a result of receiving a portion of the amounts
expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1988 and will
remain in effect from year to year thereafter, provided such continuance is
approved annually by a vote of the Trustees in the manner described above. Most
recent continuation of the Plan for one year, until April 30, 1997, was approved
by the Trustees of the Fund, including all of the Independent 12b-1 Trustees, at
a meeting held on April 17, 1996. Prior to approving the continuation of the
Plan, the Trustees requested and received from the Distributor and reviewed all
the information which they deemed necessary to arrive at an informed
determination. In making their determination to continue the Plan, the Trustees
considered: (1) the Fund's experience under the Plan and whether such experience
indicates that the Plan is operating as anticipated; (2) the benefits the Fund
had obtained, was obtaining and would be likely to obtain under the Plan; and
(3) what services had been provided and were continuing to be provided under the
Plan to the Fund and its shareholders. Based upon their review, the Trustees of
the Fund, including each of the Independent 12b-1 Trustees, determined that
continuation of the Plan would be in the best interest of the Fund and would
have a reasonable likelihood of continuing to benefit the Fund and its
shareholders. In the Trustees' quarterly review of the Plan, they will consider
its continued appropriateness and the level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
Fund, and all material amendments of the Plan must also be approved by the
Trustees in the manner described above. The Plan may be terminated at any time,
without payment of any penalty, by vote of a majority of the Independent 12b-1
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the Act) on not more than thirty days' written notice to any
other party to the Plan. So long as the Plan is in effect, the election and
nomination of Independent Trustees shall be committed to the discretion of the
Independent Trustees.
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<PAGE>
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term securities with remaining maturities
of sixty days or less at the time of purchase are valued at amortized cost,
unless the Trustees determine such does not reflect the securities' market
value, in which case these securities will be valued at their fair value as
determined by the Trustees. Other short-term debt securities will be valued on a
mark-to-market basis until such time as they reach a remaining maturity of sixty
days, whereupon they will be valued at amortized cost using their value on the
61st day unless the Trustees determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. Futures are valued at the latest sale price on
the commodities exchange on which they trade unless the Trustees determine such
price does not reflect their market value, in which case they will be valued at
their fair value as determined by the Trustees. All other securities and other
assets are valued at their fair value as determined in good faith under
procedures established by and under the supervision of the Trustees.
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time), on each day that the New York Stock
Exchange is open by taking the 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, Presidents' 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 (the "Transfer Agent"). This is an open account in which shares
owned by the investor are credited by the Transfer Agent in lieu of issuance of
a share certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares and
may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder-instituted
transaction takes place in the Shareholder Investment Account, the shareholder
will be mailed a confirmation of the transaction from the Fund or from DWR or
other selected broker-dealer.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the 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 should be received by the Transfer Agent at least five business
days prior to the record date of the dividend or distribution. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payments will be made to the Distributor,
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 a Dean Witter Fund other than Dean Witter
Value-Added Market Series. 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 the Fund
must be shareholders of the Dean
20
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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 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
thirty days after the payment date. If the shareholder returns the proceeds of a
dividend or distribution, such funds must be accompanied by a signed statement
indicating that the proceeds constitute a dividend or distribution to be
invested. Such investment will be made at the net asset value per share next
determined after receipt of the check or proceeds by the Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount, not
less than $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable contingent deferred sales charge will be
imposed on shares redeemed under the Withdrawal Plan (see "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.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent, or amounts credited to a shareholder's DWR or other
selected broker-dealer brokerage account, within five business days after the
date of redemption. The Withdrawal Plan may be terminated at any time by the
Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of 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").
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
21
<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. Shareholders
wishing to enroll in the Withdrawal Plan should contact their account executive
or the Transfer Agent.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
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
Value-Added Market Series, 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.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent.
EXCHANGE PRIVILEGE
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"), and for shares of Dean Witter Short-Term U.S. Treasury
Trust, Dean Witter Limited Term Municipal Trust, Dean Witter Short-Term Bond
Fund, Dean Witter Balanced Growth Fund, Dean Witter Balanced Income Fund, Dean
Witter Intermediate Term U.S. Treasury Trust and five Dean Witter Funds which
are money market funds (the foregoing eleven 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 shares were acquired), the holding period or "year since purchase
payment made" is frozen. When shares are redeemed out of the Exchange Fund, they
will be subject to a CDSC which would be based upon the period of time the
shareholder held shares in a CDSC fund. However, in the
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<PAGE>
case of shares exchanged into an Exchange Fund on or after April 23, 1990, upon
a redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the Exchange
Fund 12b-1 distribution fees, if any, 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 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 described 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 the 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
acquired prior to April 30, 1984, shares of Dean Witter Dividend Growth
Securities Inc. 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.
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
23
<PAGE>
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000 for
Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust,
Dean Witter California Tax-Free Daily Income Trust and Dean Witter New York
Municipal Money Market Trust although those funds may, at their discretion,
accept initial investments of as low as $1,000. The minimum initial investment
is $10,000 for Dean Witter Short-Term U.S. Treasury Trust, although that fund
may, in its discretion, accept initial 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 an Exchange Fund, the
shares of that fund will be held in a special Exchange Privilege Account
separately from accounts of those shareholders who have acquired their shares
directly from that fund. As a result, certain services normally available to
shareholders of those funds, including the check writing feature, will not be
available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days' prior written notice for
termination or material revision), provided that six months' prior written
notice of termination will be given to 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 redemption.
The share certificate, or an accompanying stock power, and the request for
redemption, must be signed by the shareholder or shareholders exactly as the
shares are registered. Each request for redemption, whether or not accompanied
by a share certificate, must be sent to the Fund's Transfer Agent, which will
redeem the shares at their net asset value next computed (see "Purchase of Fund
Shares") after it receives the request, and certificate, if any, in good order.
Any redemption request
24
<PAGE>
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. 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.
The CDSC will be paid to the Distributor. 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 determining the applicability of a 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.
25
<PAGE>
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 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
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>
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 above.
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, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for investment
has been honored (not more than fifteen days from the time of receipt of the
check by the Transfer Agent). Shareholders maintaining margin accounts with DWR
or another selected broker-dealer are referred to their account executive
regarding restrictions on redemption of shares of the Fund pledged in the margin
account.
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 times shares subject to the charge have been
held), any transfer involving less than all of the shares in an account will be
made on a pro-rata basis (that is, by transferring
26
<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 within thirty days after the date of
redemption or repurchase reinstate any portion or all of the proceeds of such
redemption or repurchase in shares of the Fund 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, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and will notify shareholders that, following an election by the
Fund, the shareholders will be required to include such undistributed gains in
determining their taxable income and may claim their share of the tax paid by
the Fund as a credit against their individual federal income tax.
Because the Fund intends to distribute all of its net investment income and
capital gains to shareholders and otherwise continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, it is not
expected that the Fund will be required to pay any federal income tax.
Shareholders will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from net
investment income or net short-term capital gains, are taxable to the
shareholder as ordinary income regardless of whether the shareholder receives
such payments in additional shares or in cash. Any dividends declared in the
last quarter of any calendar year which are paid in the following year prior to
February 1 will be deemed received by the shareholder in the prior calendar
year.
Gains or losses on 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
twelve months. Gains or losses on the sale of securities held for twelve months
or less will be short-term capital gains or losses.
Gains or losses on the Fund's transactions, if any, in futures generally are
treated as 60% long-term and 40% short-term capital gains or losses. When the
Fund engages in futures transactions, various tax regulations applicable to the
Fund may have the effect of causing the Fund to recognize a gain or loss for tax
purposes before that gain or loss is realized, or to defer recognition of a
realized loss for tax purposes. Recognition, for tax purposes, of an unrealized
loss may result in a lesser amount of the Fund's realized net gains being
available for distribution.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the dividends received deduction.
Any 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
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced
27
<PAGE>
below a shareholder's cost as a result of the payment of dividends or the
distribution of realized net long-term capital gains, such payment or
distribution would be in part a return of the shareholder's investment to the
extent of such reduction below the shareholder's cost, but nonetheless would be
fully taxable. Therefore, an investor should consider the tax implications of
purchasing Fund shares immediately prior to a dividend or distribution record
date.
Dividend payments will be eligible for the federal dividends received
deduction available to the Fund's corporate shareholders only to the extent the
aggregate dividends received by the Fund would be eligible for the deduction if
the Fund were the shareholder claiming the dividends received deduction. The
amount of dividends paid by the Fund which may qualify for the dividends
received deduction is limited to the aggregate amount of qualifying dividends
which the Fund derives from its portfolio investments which the Fund has held
for a minimum period, usually 46 days. Any distributions made by the Fund will
not be eligible for the dividends received deduction with respect to shares
which are held by the shareholder for 45 days or less. Any long-term capital
gain distributions will also not be eligible for the dividends received
deduction. The ability to take the dividends received deduction will also be
limited in the case of a Fund shareholder which incurs or continues indebtedness
which is directly attributable to its investment in the Fund.
After the end of the year, shareholders will be sent full information on
their dividends and capital gains distributions for tax purposes, including
information as to the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the portion eligible for the dividends received
deduction. To avoid being subject to a 31% federal backup withholding tax on
taxable dividends, capital gains distributions and the proceeds of redemptions
and repurchases, shareholders' taxpayer indentification numbers must be
furnished and certified as to their accuracy.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature.
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 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 fiscal year ended June 30, 1996, for the five year period ended
June 30, 1996 and for the period from December 1, 1987 (commencement of
operations) through June 30, 1996, were 14.27%, 14.20% and 14.66%, 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 contingent deferred sales charge which, if reflected, would
reduce the performance quoted. For example, the average annual total returns of
the Fund may be calculated in the manner described above, but without deduction
for any applicable contingent deferred sales charge. Based on this calculation,
the average annual total return of the Fund for the fiscal year ended June 30,
1996, for the five year period ended June 30, 1996 and for the period from
December 1, 1987 through June 30, 1996, were 19.27%, 14.43% and 14.66%,
respectively.
28
<PAGE>
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 contingent deferred sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the Fund's total return for the fiscal year ended June 30, 1996 was
19.27%, the total return for the five year period ended June 30, 1996 was
96.24%, and the total return for the period from December 1, 1987 through June
30, 1996 was 223.53%.
The Fund may also advertise the growth of hypothetical investments 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, as the case may be. Investments of $10,000, $50,000 and $100,000 in
the Fund at inception would have grown to $32,353, $161,765 and $323,530,
respectively, at June 30, 1996.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the shareholders of the Fund are entitled to
a full vote for each full share held. All of the Trustees, except for Messrs.
Bozic, Purcell and Schroeder, have been elected by the shareholders of the Fund
at Special Meetings of Shareholders held on December 29, 1988 and January 12,
1993. Messrs. Bozic, Purcell and Schroeder were elected by the other Trustees of
the Fund on April 8, 1994. The Trustees themselves have the power to alter the
number and the terms of office of the Trustees, and they may at any time
lengthen their own terms or make their terms of unlimited duration and appoint
their own successors, provided that always at least a majority of the Trustees
has been elected by the shareholders of the Fund. Under certain circumstances
the Trustees may be removed by action of the Trustees. The shareholders also
have the right under certain circumstances to remove the Trustees. The voting
rights of shareholders are not cumulative, so that holders of more than 50
percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to elect any
Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances). However, the Trustees have not authorized
any such additional series or classes of shares.
The Declaration of Trust further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his/her or
its own bad faith, willful misfeasance, gross negligence, or reckless disregard
of his/her or its duties. It also provides that all third persons shall look
solely to the Fund's property for satisfaction of claims arising in connection
with the affairs of the Fund. With the exceptions stated, the Declaration of
Trust provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders.
29
<PAGE>
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions of Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager, and of Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts, including
providing subaccounting and recordkeeping services for certain retirement
accounts; disbursing cash dividends and reinvesting dividends; processing
account registration changes; handling purchase and redemption transactions;
mailing prospectuses and reports; mailing and tabulating proxies; processing
share certificate transactions; and maintaining shareholder records and lists.
For these services Dean Witter Trust Company receives a per shareholder account
fee from the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on June 30. The financial statements of the Fund
must be audited at least once a year by independent accountants whose selection
is made annually by the Fund's Trustees.
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 annual financial statements of the Fund for the year ended June 30, 1996
included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
30
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.0%)
AEROSPACE & DEFENSE (1.5%)
21,200 Boeing Co........................... $ 1,847,050
28,000 General Dynamics Corp............... 1,736,000
21,000 Lockheed Martin Corp................ 1,764,000
35,600 McDonnell Douglas Corp.............. 1,726,600
28,500 Northrop Grumman Corp............... 1,941,562
35,500 Raytheon Co......................... 1,832,687
33,500 Rockwell International Corp......... 1,917,875
16,000 United Technologies Corp............ 1,840,000
---------------
14,605,774
---------------
AIRLINES (0.7%)
21,500 AMR Corp.*.......................... 1,956,500
22,000 Delta Air Lines, Inc................ 1,826,000
62,000 Southwest Airlines Co............... 1,805,750
105,000 USAir Group, Inc.*.................. 1,890,000
---------------
7,478,250
---------------
ALUMINUM (0.4%)
58,000 Alcan Aluminum Ltd. (Canada)........ 1,769,000
30,500 Aluminum Co. of America............. 1,749,937
33,000 Reynolds Metals Co.................. 1,720,125
---------------
5,239,062
---------------
AUTO PARTS - AFTER MARKET (0.7%)
79,000 Cooper Tire & Rubber Co............. 1,757,750
52,000 Echlin, Inc......................... 1,969,500
37,500 Genuine Parts Co.................... 1,715,625
37,000 Goodyear Tire & Rubber Co........... 1,785,250
---------------
7,228,125
---------------
AUTOMOBILES (0.5%)
29,500 Chrysler Corp....................... 1,829,000
58,500 Ford Motor Co....................... 1,893,937
34,000 General Motors Corp................. 1,780,750
---------------
5,503,687
---------------
BANKS - MONEY CENTER (1.1%)
24,000 BankAmerica Corp.................... 1,818,000
26,000 Bankers Trust New York Corp......... 1,920,750
28,000 Chase Manhattan Corp................ 1,977,500
22,000 Citicorp............................ 1,817,750
46,000 First Chicago NBD Corp.............. 1,799,750
21,200 Morgan (J.P.) & Co., Inc............ 1,794,050
---------------
11,127,800
---------------
BANKS - REGIONAL (4.1%)
53,500 Banc One Corp....................... 1,819,000
36,000 Bank of Boston Corp................. 1,782,000
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
37,000 Bank of New York Co., Inc........... $ 1,896,250
28,500 Barnett Banks, Inc.................. 1,738,500
43,500 Boatmen's Bancshares, Inc........... 1,734,562
41,500 Comerica, Inc....................... 1,851,937
46,500 Corestates Financial Corp........... 1,790,250
32,000 Fifth Third Bancorp................. 1,720,000
31,000 First Bank System, Inc.............. 1,798,000
30,500 First Union Corp.................... 1,856,687
44,000 Fleet Financial Group, Inc.......... 1,914,000
48,000 KeyCorp............................. 1,860,000
32,000 Mellon Bank Corp.................... 1,824,000
53,000 National City Corp.................. 1,861,625
23,500 NationsBank Corp.................... 1,941,687
51,000 Norwest Corp........................ 1,778,625
59,000 PNC Bank Corp....................... 1,755,250
30,500 Republic New York Corp.............. 1,898,625
48,500 SunTrust Banks, Inc................. 1,794,500
49,500 U.S. Bancorp........................ 1,782,000
43,000 Wachovia Corp....................... 1,881,250
8,000 Wells Fargo & Co.................... 1,911,000
---------------
40,189,748
---------------
BEVERAGES - ALCOHOLIC (0.7%)
25,500 Anheuser-Busch Companies, Inc....... 1,912,500
45,500 Brown-Forman Corp. (Class B)........ 1,820,000
100,000 Coors (Adolph) Co................... 1,787,500
52,200 Seagram Co. Ltd. (Canada)........... 1,755,225
---------------
7,275,225
---------------
BEVERAGES - SOFT DRINKS (0.4%)
39,600 Coca Cola Co........................ 1,935,450
55,000 PepsiCo Inc......................... 1,945,625
---------------
3,881,075
---------------
BROADCAST MEDIA (0.6%)
99,000 Comcast Corp.
(Class A Special)................... 1,806,750
100,000 Tele-Communications, Inc. (Class
A)*................................. 1,800,000
105,000 U.S. West Media Group*.............. 1,916,250
---------------
5,523,000
---------------
BUILDING MATERIALS (0.6%)
61,000 Masco Corp.......................... 1,845,250
46,500 Owens-Corning Fiberglas Corp........ 1,999,500
40,000 Sherwin-Williams Co................. 1,860,000
---------------
5,704,750
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
CHEMICALS (1.9%)
32,000 Air Products & Chemicals, Inc....... $ 1,848,000
22,500 Dow Chemical Co..................... 1,710,000
23,500 Du Pont (E.I.) de Nemours & Co...... 1,859,437
29,500 Eastman Chemical Co................. 1,795,812
48,000 Goodrich (B.F.) Co.................. 1,794,000
31,500 Hercules, Inc....................... 1,740,375
60,000 Monsanto Co......................... 1,950,000
48,500 Praxair, Inc........................ 2,049,125
28,000 Rohm & Haas Co...................... 1,757,000
44,500 Union Carbide Corp.................. 1,768,875
---------------
18,272,624
---------------
CHEMICALS - DIVERSIFIED (0.7%)
32,500 Avery Dennison Corp................. 1,783,437
78,000 Engelhard Corp...................... 1,794,000
27,500 FMC Corp.*.......................... 1,794,375
35,500 PPG Industries, Inc................. 1,730,625
---------------
7,102,437
---------------
CHEMICALS - SPECIALTY (0.9%)
25,000 Grace (W.R.) & Co................... 1,771,875
29,000 Great Lakes Chemical Corp........... 1,805,250
50,000 Morton International, Inc........... 1,862,500
56,500 Nalco Chemical Co................... 1,779,750
33,500 Sigma-Aldrich Corp.................. 1,775,500
---------------
8,994,875
---------------
COMMUNICATIONS - EQUIPMENT/MANUFACTURERS (2.0%)
42,000 3Com Corp.*......................... 1,916,250
37,000 Andrew Corp.*....................... 1,998,000
71,500 Bay Networks, Inc.*................. 1,841,125
27,000 Cabletron Systems, Inc.*............ 1,852,875
34,500 Cisco Systems, Inc.*................ 1,953,562
64,000 DSC Communications Corp.*........... 1,920,000
62,000 General Instrument Corp.*........... 1,790,250
37,000 Northern Telecom Ltd. (Canada)...... 2,011,875
115,000 Scientific-Atlanta, Inc............. 1,782,500
29,000 Tellabs, Inc.*...................... 1,935,750
---------------
19,002,187
---------------
COMPUTER SOFTWARE & SERVICES (2.0%)
62,000 Autodesk, Inc....................... 1,844,500
49,000 Automatic Data Processing, Inc...... 1,892,625
39,000 Ceridian Corp.*..................... 1,969,500
26,000 Computer Associates International,
Inc................................. 1,852,500
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
24,500 Computer Sciences Corp.*............ $ 1,831,375
24,500 First Data Corp..................... 1,950,812
16,500 Microsoft Corp.*.................... 1,980,000
135,000 Novell, Inc.*....................... 1,856,250
50,000 Oracle Corp......................... 1,968,750
30,000 Shared Medical Systems Corp......... 1,927,500
---------------
19,073,812
---------------
COMPUTERS - SYSTEMS (2.5%)
194,000 Amdahl Corp.*....................... 2,085,500
85,000 Apple Computer, Inc.*............... 1,774,375
40,000 COMPAQ Computer Corp.*.............. 1,970,000
141,000 Data General Corp.*................. 1,833,000
40,000 Digital Equipment Corp.*............ 1,800,000
93,000 EMC Corp.*.......................... 1,732,125
18,000 Hewlett-Packard Co.................. 1,793,250
154,000 Intergraph Corp.*................... 1,867,250
18,000 International Business Machines
Corp................................ 1,782,000
74,000 Silicon Graphics, Inc.*............. 1,776,000
33,500 Sun Microsystems, Inc.*............. 1,968,125
181,000 Tandem Computers Inc.*.............. 2,239,875
262,000 Unisys Corp.*....................... 1,866,750
---------------
24,488,250
---------------
CONGLOMERATES (0.6%)
54,000 Teledyne, Inc....................... 1,950,750
620 Teledyne, Inc. (Series E) (Pref.)
$1.20+.............................. 9,532
34,000 Tenneco Inc......................... 1,738,250
23,300 Textron Inc......................... 1,861,087
---------------
5,559,619
---------------
CONTAINERS - METAL & GLASS (0.4%)
65,000 Ball Corp........................... 1,868,750
38,500 Crown Cork & Seal Co., Inc.*........ 1,732,500
---------------
3,601,250
---------------
CONTAINERS - PAPER (0.6%)
56,500 Bemis Company, Inc.................. 1,977,500
128,000 Stone Container Corp................ 1,760,000
38,500 Temple-Inland Inc................... 1,799,875
---------------
5,537,375
---------------
COSMETICS (0.8%)
42,000 Alberto-Culver Co. (Class B)........ 1,947,750
40,000 Avon Products, Inc.................. 1,805,000
31,500 Gillette Co......................... 1,964,812
37,000 International Flavors & Fragrances
Inc................................. 1,762,125
---------------
7,479,687
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
DISTRIBUTORS - CONSUMER PRODUCTS (0.6%)
120,000 Fleming Cos., Inc................... $ 1,725,000
61,000 SuperValu Stores, Inc............... 1,921,500
52,600 Sysco Corp.......................... 1,801,550
---------------
5,448,050
---------------
ELECTRICAL EQUIPMENT (1.7%)
43,500 AMP, Inc............................ 1,745,437
20,000 Emerson Electric Co................. 1,807,500
21,500 General Electric Co................. 1,859,750
49,000 General Signal Corp................. 1,855,875
24,500 Grainger (W.W.), Inc................ 1,898,750
34,000 Honeywell, Inc...................... 1,853,000
27,000 Raychem Corp........................ 1,940,625
47,000 Thomas & Betts Corp................. 1,762,500
93,000 Westinghouse Electric Corp.......... 1,743,750
---------------
16,467,187
---------------
ELECTRONICS - DEFENSE (0.2%)
90,000 EG & G, Inc......................... 1,923,750
---------------
ELECTRONICS - INSTRUMENTATION (0.4%)
39,000 Perkin-Elmer Corp................... 1,881,750
45,000 Tektronix, Inc...................... 2,013,750
---------------
3,895,500
---------------
ELECTRONICS - SEMICONDUCTORS (1.5%)
134,000 Advanced Micro Devices, Inc.*....... 1,825,750
59,000 Applied Materials, Inc.*............ 1,792,125
27,000 Intel Corp.......................... 1,981,125
67,000 LSI Logic Corp.*.................... 1,742,000
72,000 Micron Technology, Inc.............. 1,863,000
30,500 Motorola, Inc....................... 1,917,687
118,500 National Semiconductor Corp.*....... 1,836,750
35,000 Texas Instruments Inc............... 1,745,625
---------------
14,704,062
---------------
ENGINEERING & CONSTRUCTION (0.4%)
28,500 Fluor Corp.......................... 1,863,187
39,500 Foster Wheeler Corp................. 1,772,562
---------------
3,635,749
---------------
ENTERTAINMENT (0.8%)
50,000 King World Productions Inc.*........ 1,818,750
46,000 Time Warner, Inc.................... 1,805,500
48,000 Viacom, Inc. (Class B)*............. 1,866,000
29,591 Walt Disney Co...................... 1,860,534
---------------
7,350,784
---------------
FINANCIAL - MISCELLANEOUS (1.4%)
41,500 American Express Co................. 1,851,937
52,000 American General Corp............... 1,891,500
22,000 Federal Home Loan Mortgage Corp..... 1,881,000
58,000 Federal National Mortgage Assoc..... 1,943,000
60,500 Green Tree Financial Corp........... 1,890,625
67,000 MBNA Corp........................... 1,909,500
21,800 Transamerica Corp................... 1,765,800
---------------
13,133,362
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
FOODS (2.5%)
93,000 Archer-Daniels-Midland Co........... $ 1,778,625
27,000 Campbell Soup Co.................... 1,903,500
43,800 ConAgra, Inc........................ 1,987,425
25,000 CPC International Inc............... 1,800,000
32,500 General Mills, Inc.................. 1,771,250
58,000 Heinz (H.J.) Co..................... 1,761,750
24,000 Hershey Foods Corp.................. 1,761,000
24,000 Kellogg Co.......................... 1,758,000
52,500 Quaker Oats Company (The)........... 1,791,562
29,000 Ralston-Ralston Purina Group........ 1,859,625
57,000 Sara Lee Corp....................... 1,845,375
13,500 Unilever NV (ADR) (Netherlands)..... 1,959,187
35,500 Wrigley (Wm.) Jr. Co. (Class A)..... 1,792,750
---------------
23,770,049
---------------
GOLD MINING (1.1%)
67,500 Barrick Gold Corp. (Canada)......... 1,830,937
162,000 Echo Bay Mines Ltd. (Canada)........ 1,741,500
106,000 Homestake Mining Co................. 1,815,250
34,500 Newmont Mining Corp................. 1,703,437
73,000 Placer Dome Inc. (Canada)........... 1,742,875
130,000 Santa Fe Pacific Gold Corp.......... 1,836,250
---------------
10,670,249
---------------
HARDWARE & TOOLS (0.6%)
50,000 Black & Decker Corp................. 1,931,250
37,500 Snap-On, Inc........................ 1,776,562
66,000 Stanley Works....................... 1,963,500
---------------
5,671,312
---------------
HEALTHCARE - DIVERSIFIED (1.4%)
45,500 Abbott Laboratories................. 1,979,250
49,500 Allergan, Inc....................... 1,942,875
33,000 American Home Products Corp......... 1,984,125
22,000 Bristol-Myers Squibb Co............. 1,980,000
38,000 Johnson & Johnson................... 1,881,000
48,000 Mallinckrodt Group, Inc............. 1,866,000
36,000 Warner-Lambert Co................... 1,980,000
---------------
13,613,250
---------------
HEALTHCARE - DRUGS (1.0%)
29,000 Lilly (Eli) & Co.................... 1,885,000
28,000 Merck & Co., Inc.................... 1,809,500
26,400 Pfizer, Inc......................... 1,884,300
45,500 Pharmacia & Upjohn, Inc............. 2,019,062
30,000 Schering-Plough Corp................ 1,882,500
---------------
9,480,362
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE - MISCELLANEOUS (0.8%)
65,000 Alza Corp.*......................... $ 1,779,375
32,000 Amgen Inc.*......................... 1,720,000
160,000 Beverly Enterprises, Inc.*.......... 1,920,000
46,000 Manor Care, Inc..................... 1,811,250
---------------
7,230,625
---------------
HEALTHCARE HMOS (0.6%)
96,000 Humana, Inc.*....................... 1,716,000
36,500 U.S. Healthcare, Inc................ 2,002,937
38,000 United Healthcare Corp.............. 1,919,000
---------------
5,637,937
---------------
HEAVY DUTY TRUCKS & PARTS (1.2%)
45,500 Cummins Engine Co., Inc............. 1,837,062
60,000 Dana Corp........................... 1,860,000
32,000 Eaton Corp.......................... 1,876,000
73,000 ITT Industries, Inc................. 1,834,125
185,000 Navistar International Corp.*....... 1,826,875
39,000 PACCAR, Inc......................... 1,901,250
---------------
11,135,312
---------------
HOME BUILDING (0.6%)
60,000 Centex Corp......................... 1,867,500
126,000 Kaufman & Broad Home Corp........... 1,827,000
65,000 Pulte Corp.......................... 1,738,750
---------------
5,433,250
---------------
HOSPITAL MANAGEMENT (0.6%)
34,000 Columbia/HCA Healthcare Corp........ 1,814,750
190,000 Community Psychiatric Centers*...... 1,805,000
88,500 Tenet Healthcare Corp.*............. 1,891,687
---------------
5,511,437
---------------
HOTELS/MOTELS (0.8%)
67,000 Harrah's Entertainment, Inc.*....... 1,892,750
17,800 Hilton Hotels Corp.*................ 2,002,500
30,000 ITT Corp.*.......................... 1,987,500
38,000 Marriot International Inc........... 2,042,500
---------------
7,925,250
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES (0.6%)
33,500 Armstrong World Industries Inc...... 1,930,438
89,000 Maytag Corp......................... 1,857,875
36,500 Whirlpool Corp...................... 1,811,313
---------------
5,599,626
---------------
HOUSEHOLD PRODUCTS (0.8%)
21,500 Clorox Co........................... 1,905,438
23,500 Colgate-Palmolive Co................ 1,991,625
23,000 Kimberly-Clark Corp................. 1,776,750
20,000 Procter & Gamble Co................. 1,812,500
---------------
7,486,313
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
HOUSEWARES (0.6%)
60,000 Newell Co........................... $ 1,837,500
66,000 Rubbermaid, Inc..................... 1,798,500
47,000 Tupperware Corp.*................... 1,985,750
---------------
5,621,750
---------------
INSURANCE BROKERS (0.6%)
88,000 Alexander & Alexander Services,
Inc................................. 1,738,000
36,000 Aon Corp............................ 1,827,000
18,500 Marsh & McLennan Cos., Inc.......... 1,785,250
---------------
5,350,250
---------------
INVESTMENT BANKING/BROKERAGE (1.0%)
33,500 Dean Witter, Discover & Co. (Note
4).................................. 1,917,875
30,500 Merrill Lynch & Co., Inc............ 1,986,313
39,000 Morgan Stanley Group, Inc........... 1,915,875
43,000 Salomon, Inc........................ 1,892,000
44,250 Travelers Group, Inc................ 2,018,906
---------------
9,730,969
---------------
LEISURE TIME (0.6%)
93,000 Bally Entertainment Corp.*.......... 2,557,500
87,000 Brunswick Corp...................... 1,740,000
95,000 Outboard Marine Corp................ 1,721,875
---------------
6,019,375
---------------
LIFE INSURANCE (1.2%)
36,500 Jefferson-Pilot Corp................ 1,884,313
38,500 Lincoln National Corp............... 1,780,625
43,000 Providian Corp...................... 1,843,625
43,000 Torchmark Corp...................... 1,881,250
32,000 UNUM Corp........................... 1,992,000
60,500 USLIFE Corp......................... 1,988,938
---------------
11,370,751
---------------
MACHINE TOOLS (0.4%)
83,000 Cincinnati Milacron, Inc............ 1,992,000
111,000 Giddings & Lewis, Inc............... 1,803,750
---------------
3,795,750
---------------
MACHINERY - DIVERSIFIED (1.9%)
44,000 Briggs & Stratton Corp.............. 1,809,500
36,000 Case Corp........................... 1,728,000
29,500 Caterpillar, Inc.................... 1,998,625
44,000 Cooper Industries, Inc.............. 1,826,000
47,000 Deere & Co.......................... 1,880,000
53,000 Harnischfeger Industries, Inc....... 1,762,250
46,000 Ingersoll-Rand Co................... 2,012,500
33,000 NACCO Industries, Inc. (Class A).... 1,827,375
48,500 Timken Co........................... 1,879,375
41,500 Varity Corp.*....................... 1,997,188
---------------
18,720,813
---------------
MANUFACTURED HOUSING (0.2%)
64,000 Fleetwood Enterprises, Inc.......... 1,984,000
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
MANUFACTURING - DIVERSIFIED (1.9%)
31,500 AlliedSignal, Inc................... $ 1,799,438
45,000 Crane Co............................ 1,845,000
40,500 Dover Corp.......................... 1,868,063
26,000 Illinois Tool Works Inc............. 1,758,250
25,500 Johnson Controls, Inc............... 1,772,250
42,500 Millipore Corp...................... 1,779,688
76,000 Pall Corp........................... 1,833,500
47,000 Parker-Hannifin Corp................ 1,991,625
55,000 Trinova Corp........................ 1,835,625
46,000 Tyco International Ltd.............. 1,874,500
---------------
18,357,939
---------------
MEDICAL PRODUCTS & SUPPLIES (1.8%)
53,500 Bard (C.R.), Inc.................... 1,819,000
47,000 Bausch & Lomb, Inc.................. 1,997,500
41,500 Baxter International, Inc........... 1,960,875
22,500 Becton, Dickinson & Co.............. 1,805,625
134,000 Biomet, Inc.*....................... 1,892,750
43,000 Boston Scientific Corp.*............ 1,935,000
35,000 Medtronic Inc....................... 1,960,000
52,500 St. Jude Medical, Inc.*............. 1,745,625
60,000 United States Surgical Corp......... 1,860,000
---------------
16,976,375
---------------
METALS - MISCELLANEOUS (0.9%)
64,000 ASARCO, Inc......................... 1,768,000
75,500 Cyprus Amax Minerals Co............. 1,708,188
60,500 Freeport-McMoran Copper & Gold, Inc.
(Class B)........................... 1,928,438
54,500 Inco Ltd. (Canada).................. 1,757,625
28,000 Phelps Dodge Corp................... 1,746,500
---------------
8,908,751
---------------
MISCELLANEOUS (2.1%)
64,000 Airtouch Communications, Inc.*...... 1,808,000
70,500 American Greetings Corp. (Class
A).................................. 1,921,125
51,000 Corning, Inc........................ 1,957,125
63,000 Dial Corp........................... 1,803,375
39,500 Harcourt General, Inc............... 1,975,000
30,000 Harris Corp......................... 1,830,000
93,000 Jostens, Inc........................ 1,836,750
26,000 Minnesota Mining & Manufacturing
Co.................................. 1,794,000
34,000 Pioneer Hi-Bred International,
Inc................................. 1,797,750
20,500 TRW, Inc............................ 1,842,438
72,000 Whitman Corp........................ 1,737,000
---------------
20,302,563
---------------
MULTI-LINE INSURANCE (0.8%)
24,500 Aetna Life & Casualty Co............ 1,751,750
20,000 American International Group,
Inc................................. 1,972,500
15,000 CIGNA Corp.......................... 1,768,125
37,000 ITT Hartford Group, Inc.*........... 1,970,250
---------------
7,462,625
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
OFFICE EQUIPMENT & SUPPLIES (0.8%)
38,500 Alco Standard Corp.................. $ 1,742,125
100,000 Moore Corp. Ltd. (Canada)........... 1,887,500
37,000 Pitney Bowes, Inc................... 1,766,750
37,000 Xerox Corp.......................... 1,979,500
---------------
7,375,875
---------------
OIL & GAS DRILLING (0.4%)
55,500 Helmerich & Payne, Inc.............. 2,032,688
132,000 Rowan Companies, Inc.*.............. 1,947,000
---------------
3,979,688
---------------
OIL - DOMESTIC INTEGRATED (2.2%)
34,000 Amerada Hess Corp................... 1,823,250
46,000 Ashland Oil, Inc.................... 1,822,750
15,000 Atlantic Richfield Co............... 1,777,500
31,500 Kerr-McGee Corp..................... 1,917,563
35,000 Louisiana Land & Exploration Co..... 2,016,875
70,000 Occidental Petroleum Corp........... 1,732,500
43,500 Pennzoil Co......................... 2,011,875
48,000 Phillips Petroleum Co............... 2,010,000
62,000 Sun Co., Inc........................ 1,883,250
56,500 Unocal Corp......................... 1,906,875
90,000 USX-Marathon Group.................. 1,811,250
---------------
20,713,688
---------------
OIL - EXPLORATION & PRODUCTION (0.6%)
43,500 Burlington Resources, Inc........... 1,870,500
121,000 Oryx Energy Co.*.................... 1,966,250
155,000 Santa Fe Energy Resources, Inc.*.... 1,840,625
---------------
5,677,375
---------------
OIL - INTERNATIONAL INTEGRATED (1.1%)
26,000 Amoco Corp.......................... 1,881,750
31,000 Chevron Corp........................ 1,829,000
20,500 Exxon Corp.......................... 1,780,938
16,000 Mobil Corp.......................... 1,794,000
11,600 Royal Dutch Petroleum Co.
(Netherlands)....................... 1,783,500
21,000 Texaco, Inc......................... 1,761,375
---------------
10,830,563
---------------
OIL WELL EQUIPMENT & SERVICE (1.2%)
60,000 Baker Hughes Inc.................... 1,972,500
62,000 Dresser Industries, Inc............. 1,829,000
36,000 Halliburton Co...................... 1,998,000
84,000 McDermott International, Inc........ 1,753,500
24,000 Schlumberger, Ltd................... 2,022,000
31,000 Western Atlas, Inc.*................ 1,805,750
---------------
11,380,750
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
PAPER & FOREST PRODUCTS (2.3%)
49,000 Boise Cascade Corp.................. $ 1,794,625
43,000 Champion International Corp......... 1,795,250
26,000 Georgia-Pacific Corp................ 1,846,000
47,000 International Paper Co.............. 1,733,125
72,000 James River Corp. of Virginia....... 1,899,000
77,000 Louisiana-Pacific Corp.............. 1,703,625
37,000 Mead Corp........................... 1,919,375
46,000 Potlatch Corp....................... 1,799,750
35,500 Union Camp Corp..................... 1,730,625
60,000 Westvaco Corp....................... 1,792,500
43,000 Weyerhaeuser Co..................... 1,827,500
32,000 Willamette Industries, Inc.......... 1,896,000
---------------
21,737,375
---------------
PERSONAL LOANS (0.4%)
32,500 Beneficial Corp..................... 1,824,063
26,500 Household International, Inc........ 2,014,000
---------------
3,838,063
---------------
PHOTOGRAPHY/IMAGING (0.4%)
23,000 Eastman Kodak Co.................... 1,788,250
40,000 Polaroid Corp....................... 1,825,000
---------------
3,613,250
---------------
POLLUTION CONTROL (0.6%)
60,000 Browning-Ferris Industries, Inc..... 1,740,000
180,000 Laidlaw Inc. (Class B) (Canada)..... 1,822,500
56,500 WMX Technologies, Inc............... 1,850,375
---------------
5,412,875
---------------
PROPERTY - CASUALTY INSURANCE (1.4%)
41,000 Allstate Corp....................... 1,870,625
40,000 Chubb Corp.......................... 1,995,000
11,500 General Re Corp..................... 1,750,875
23,000 Loews Corp.......................... 1,814,125
56,000 SAFECO Corp......................... 1,981,000
35,000 St. Paul Companies, Inc............. 1,872,500
110,000 USF&G Corp.......................... 1,801,250
---------------
13,085,375
---------------
PUBLISHING (0.5%)
28,000 Dun & Bradstreet Corp............... 1,750,000
39,000 McGraw-Hill, Inc.................... 1,784,250
40,000 Meredith Corp....................... 1,670,000
---------------
5,204,250
---------------
PUBLISHING - NEWSPAPER (1.2%)
48,000 Dow Jones & Co., Inc................ 2,004,000
25,300 Gannett Co., Inc.................... 1,789,975
25,000 Knight-Ridder Newspapers, Inc....... 1,812,500
56,000 New York Times Co. (Class A)........ 1,827,000
45,500 Times Mirror Co. (Class A).......... 1,979,250
26,000 Tribune Co.......................... 1,888,250
---------------
11,300,975
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
RAILROADS (0.9%)
22,000 Burlington Northern Santa Fe
Corp................................ $ 1,779,250
26,000 Conrail, Inc........................ 1,725,750
38,500 CSX Corp............................ 1,857,625
21,500 Norfolk Southern Corp............... 1,822,125
25,500 Union Pacific Corp.................. 1,781,813
---------------
8,966,563
---------------
RESTAURANTS (1.2%)
170,000 Darden Restaurants, Inc............. 1,827,500
80,000 Luby's Cafeterias, Inc.............. 1,880,000
37,500 McDonald's Corp..................... 1,753,125
205,000 Ryan's Family Steak Houses, Inc.*... 1,896,250
170,000 Shoney's Inc.*...................... 1,848,750
103,000 Wendy's International, Inc.......... 1,918,375
---------------
11,124,000
---------------
RETAIL - DEPARTMENT STORES (1.1%)
53,000 Dillard Department Stores, Inc.
(Class A)*.......................... 1,934,500
55,100 Federated Department Stores,
Inc.*............................... 1,880,288
40,000 May Department Stores Co............ 1,750,000
30,500 Mercantile Stores Co., Inc.......... 1,788,063
41,500 Nordstrom, Inc...................... 1,836,375
33,500 Penney (J.C.) Co., Inc.............. 1,758,750
---------------
10,947,976
---------------
RETAIL - DRUG STORES (0.6%)
45,000 Longs Drug Stores Corp.............. 2,008,125
61,000 Rite Aid Corp....................... 1,814,750
52,500 Walgreen Co......................... 1,758,750
---------------
5,581,625
---------------
RETAIL - FOOD CHAINS (1.2%)
45,000 Albertson's Inc..................... 1,861,875
53,000 American Stores Co.................. 2,186,250
55,000 Giant Food, Inc. (Class A).......... 1,973,125
59,500 Great Atlantic & Pacific Tea Co.,
Inc................................. 1,956,063
49,000 Kroger Co.*......................... 1,935,500
53,000 Winn-Dixie Stores, Inc.............. 1,874,875
---------------
11,787,688
---------------
RETAIL - GENERAL MERCHANDISE (0.8%)
19,300 Dayton-Hudson Corp.................. 1,990,313
165,000 Kmart Corp.*........................ 2,041,875
38,000 Sears, Roebuck & Co................. 1,847,750
71,500 Wal-Mart Stores, Inc. (Class A)..... 1,814,313
---------------
7,694,251
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
RETAIL - SPECIALTY (1.8%)
56,000 Circuit City Stores, Inc............ $ 2,023,000
37,000 Home Depot, Inc..................... 1,998,000
49,500 Lowe's Companies, Inc............... 1,788,188
48,000 Melville Corp....................... 1,944,000
55,000 Pep Boys-Manny Moe & Jack........... 1,870,000
94,000 Price/Costco, Inc.*................. 2,009,250
38,000 Tandy Corp.......................... 1,800,250
69,000 Toys 'R' Us, Inc.*.................. 1,966,500
93,000 Woolworth Corp.*.................... 2,092,500
---------------
17,491,688
---------------
RETAIL - SPECIALTY APPAREL (0.8%)
288,000 Charming Shoppes, Inc............... 1,998,000
62,000 Gap, Inc............................ 1,991,750
92,000 Limited (The), Inc.................. 1,978,000
62,000 TJX Companies, Inc.................. 2,092,500
---------------
8,060,250
---------------
SAVINGS & LOAN COMPANIES (0.6%)
70,000 Ahmanson (H.F.) & Co................ 1,890,000
35,000 Golden West Financial Corp.......... 1,960,000
76,000 Great Western Financial Corp........ 1,814,500
---------------
5,664,500
---------------
SHOES (0.8%)
117,000 Brown Group Inc..................... 2,032,875
19,500 Nike, Inc. (Class B)................ 2,003,625
62,000 Reebok International Ltd. (United
Kingdom)............................ 2,084,750
212,000 Stride Rite Corp.................... 1,749,000
---------------
7,870,250
---------------
SPECIALIZED SERVICES (1.6%)
53,500 Block (H.&R.), Inc.................. 1,745,438
55,000 CUC International, Inc.*............ 1,952,500
54,500 Ecolab, Inc......................... 1,798,500
38,000 Interpublic Group of Companies,
Inc................................. 1,781,250
49,000 National Service Industries, Inc.... 1,917,125
102,000 Ogden Corp.......................... 1,848,750
117,500 Safety-Kleen Corp................... 2,056,250
34,500 Service Corp. International......... 1,983,750
---------------
15,083,563
---------------
SPECIALTY PRINTING (0.6%)
53,000 Deluxe Corp......................... 1,881,500
50,000 Donnelley (R.R.) & Sons Co.......... 1,743,750
73,000 Harland (John H.) Co................ 1,797,625
---------------
5,422,875
---------------
STEEL (1.1%)
354,000 Armco, Inc.*........................ 1,770,000
150,000 Bethlehem Steel Corp.*.............. 1,781,250
90,000 Inland Steel Industries, Inc........ 1,766,250
36,000 Nucor Corp.......................... 1,822,500
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
63,000 USX-U.S. Steel Group................ $ 1,787,625
93,000 Worthington Industries, Inc......... 1,918,125
---------------
10,845,750
---------------
TELECOMMUNICATIONS - LONG DISTANCE (0.8%)
30,000 AT&T Corp........................... 1,860,000
73,000 MCI Communications Corp............. 1,861,500
44,000 Sprint Corp......................... 1,848,000
32,500 WorldCom, Inc.*..................... 1,795,625
---------------
7,365,125
---------------
TEXTILES (1.0%)
67,000 Fruit of the Loom, Inc. (Class
A)*................................. 1,708,500
53,500 Liz Claiborne, Inc.................. 1,852,438
69,000 Russell Corp........................ 1,906,125
40,500 Springs Industries, Inc. (Class
A).................................. 2,045,250
30,000 VF Corp............................. 1,788,750
---------------
9,301,063
---------------
TOBACCO (0.6%)
40,000 American Brands, Inc................ 1,815,000
19,000 Philip Morris Companies, Inc........ 1,976,000
57,500 UST, Inc............................ 1,969,375
---------------
5,760,375
---------------
TOYS (0.4%)
49,000 Hasbro Inc.......................... 1,751,750
65,625 Mattel, Inc......................... 1,878,516
---------------
3,630,266
---------------
TRANSPORTATION - MISCELLANEOUS (0.4%)
24,500 Federal Express Corp.*.............. 2,009,000
70,000 Ryder System, Inc................... 1,968,750
---------------
3,977,750
---------------
TRUCKERS (0.5%)
52,000 Caliber System, Inc................. 1,768,000
81,000 Consolidated Freightways, Inc....... 1,711,125
130,000 Yellow Corp.*....................... 1,706,250
---------------
5,185,375
---------------
UTILITIES - ELECTRIC (5.2%)
45,000 American Electric Power Co., Inc.... 1,918,125
68,000 Baltimore Gas & Electric Co......... 1,929,500
52,000 Carolina Power & Light Co........... 1,976,000
64,000 Central & South West Corp........... 1,856,000
59,000 CINergy Corp........................ 1,888,000
67,500 Consolidated Edison Co. of New York,
Inc................................. 1,974,375
47,000 Dominion Resources, Inc............. 1,880,000
63,000 DTE Energy Co....................... 1,945,125
34,500 Duke Power Co....................... 1,768,125
110,000 Edison International................ 1,938,750
69,000 Entergy Corp........................ 1,957,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
43,000 FPL Group, Inc...................... $ 1,978,000
57,000 General Public Utilities Corp....... 2,009,250
81,000 Houston Industries, Inc............. 1,994,625
236,000 Niagara Mohawk Power Corp.*......... 1,829,000
41,000 Northern States Power Co............ 2,024,375
84,000 Ohio Edison Co...................... 1,837,500
81,000 Pacific Gas & Electric Co........... 1,883,250
88,000 PacifiCorp.......................... 1,958,000
74,000 PECO Energy Co...................... 1,924,000
78,000 PP&L Resources, Inc................. 1,842,750
71,000 Public Service Enterprise Group,
Inc................................. 1,943,625
77,000 Southern Co......................... 1,896,125
45,000 Texas Utilities Co.................. 1,923,750
66,000 Unicom Corp......................... 1,839,750
45,000 Union Electric Co................... 1,811,250
---------------
49,727,125
---------------
UTILITIES - NATURAL GAS (2.8%)
42,900 Coastal Corp........................ 1,791,075
38,000 Columbia Gas System, Inc............ 1,980,750
37,000 Consolidated Natural Gas Co......... 1,933,250
57,000 Eastern Enterprises................. 1,895,250
45,000 Enron Corp.......................... 1,839,375
91,000 ENSERCH Corp........................ 1,979,250
62,500 NICOR, Inc.......................... 1,773,438
187,500 NorAm Energy Corp................... 2,039,063
78,000 ONEOK, Inc.......................... 1,950,000
66,000 Pacific Enterprises................. 1,955,250
55,000 PanEnergy Corp...................... 1,808,125
52,500 Peoples Energy Corp................. 1,758,750
44,000 Sonat, Inc.......................... 1,980,000
37,000 Williams Cos., Inc.................. 1,831,500
---------------
26,515,076
---------------
UTILITIES - TELEPHONE (1.8%)
58,500 Alltel Corp......................... 1,798,875
32,500 Ameritech Corp...................... 1,929,688
29,000 Bell Atlantic Corp.................. 1,848,750
48,500 BellSouth Corp...................... 2,055,188
42,000 GTE Corp............................ 1,879,500
39,500 NYNEX Corp.......................... 1,876,250
59,000 Pacific Telesis Group............... 1,991,250
36,000 SBC Communications, Inc............. 1,773,000
58,000 U.S. West Communications Group...... 1,848,750
---------------
17,001,251
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $670,112,037)...... 932,348,426
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (2.7%)
U.S. GOVERNMENT AGENCY
$ 26,150 Federal Home Loan Mortgage Corp.
5.52% due 07/01/96 (Amortized Cost
$26,150,000)........................ $ 26,150,000
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$696,262,037) (B)........... 99.7% 958,498,426
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES....... 0.3 3,095,970
----- ------------
NET ASSETS.................. 100.0% $961,594,396
----- ------------
----- ------------
<FN>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
+ Acquired through a special stock dividend.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation was $282,973,317 and the
aggregate gross unrealized depreciation was $20,736,928, resulting in net
unrealized appreciation of $262,236,389.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $696,262,037)............................ $958,498,426
Cash........................................................ 84,909
Receivable for:
Investments sold........................................ 14,048,545
Shares of beneficial interest sold...................... 2,438,158
Dividends............................................... 1,338,317
Dividends from affiliate (Note 4)....................... 7,370
Prepaid expenses............................................ 46,691
------------
TOTAL ASSETS........................................... 976,462,416
------------
LIABILITIES:
Payable for:
Investments purchased................................... 13,274,642
Plan of distribution fee................................ 667,244
Investment management fee............................... 373,553
Shares of beneficial interest repurchased............... 240,293
Accrued expenses............................................ 312,288
------------
TOTAL LIABILITIES...................................... 14,868,020
------------
NET ASSETS:
Paid-in-capital............................................. 679,820,640
Net unrealized appreciation................................. 262,236,389
Accumulated undistributed net investment income............. 3,193,088
Accumulated undistributed net realized gain................. 16,344,279
------------
NET ASSETS............................................. $961,594,396
------------
------------
NET ASSET VALUE PER SHARE,
35,497,139 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$27.09
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $50,936 foreign withholding tax).......... $ 16,990,132
Dividends from affiliates (Note 4).......................... 23,940
Interest.................................................... 1,788,704
------------
TOTAL INCOME........................................... 18,802,776
------------
EXPENSES
Plan of distribution fee.................................... 7,035,667
Investment management fee................................... 3,897,002
Transfer agent fees and expenses............................ 792,662
Registration fees........................................... 137,241
S&P license fee............................................. 121,567
Shareholder reports and notices............................. 99,090
Custodian fees.............................................. 63,489
Professional fees........................................... 58,277
Trustees' fees and expenses................................. 17,178
Other....................................................... 4,908
------------
TOTAL EXPENSES......................................... 12,227,081
------------
NET INVESTMENT INCOME.................................. 6,575,695
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 22,043,253
Net change in unrealized appreciation....................... 110,384,142
------------
NET GAIN............................................... 132,427,395
------------
NET INCREASE................................................ $139,003,090
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, JUNE 30,
1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 6,575,695 $ 5,303,965
Net realized gain........................................... 22,043,253 7,157,102
Net change in unrealized appreciation....................... 110,384,142 92,711,754
------------ ------------
NET INCREASE........................................... 139,003,090 105,172,821
------------ ------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (8,195,588) (2,290,649)
Net realized gain........................................... (3,791,857) (3,801,171)
------------ ------------
TOTAL.................................................. (11,987,445) (6,091,820)
------------ ------------
Net increase from transactions in shares of beneficial
interest.................................................. 192,491,722 87,296,348
------------ ------------
TOTAL INCREASE......................................... 319,507,367 186,377,349
NET ASSETS:
Beginning of period......................................... 642,087,029 455,709,680
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$3,193,088 AND $4,812,981, RESPECTIVELY)................ $961,594,396 $642,087,029
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Value-Added Market Series -- Equity Portfolio (the "Fund") is
registered under the Investment Company Act of 1940, amended (the "Act"), as a
diversified, open-end management investment company. The Fund's investment
objective is high level of total return on its assets through a combination of
capital appreciation and current income. The Fund seeks to achieve its objective
by investing, on an equally-weighted basis, in a diversified portfolio of common
stocks of the companies which are represented in the Standard & Poor's 500
Composite Stock Price Index. The Fund was organized as a Massachusetts business
trust on May 27, 1987 and commenced operations on December 1, 1987.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York or American Stock Exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued; if there were no sales that
day, the security is valued at the latest bid price; (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation; (3)
when market quotations are not readily available, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees; and (4)
short-term debt securities having a maturity date of more than sixty days at
time of purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st day.
Short-term securities having a maturity date of sixty days or less at the time
of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the respective life of the securities. Interest
income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
42
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996, CONTINUED
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), the Fund pays the Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.50% to the portion of daily net assets not exceeding $500
million and 0.45% to the portion of daily net assets exceeding $500 million.
Effective May 1, 1996, the annual rate was reduced to 0.425% of daily net assets
in excess of $1 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Fund's shares
43
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996, CONTINUED
redeemed since the Fund's inception upon which a contingent deferred sales
charge has been imposed or upon which such charge has been waived; or (b) the
Fund's average daily net assets. Amounts paid under the Plan are paid to the
Distributor to compensate it for the services provided and the expenses borne by
it and others in the distribution of the Fund's shares, including the payment of
commissions for sales of the Fund's shares and incentive compensation to, and
expenses of, the account executives of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor, and other employees and
selected broker-dealers who engage in or support distribution of the Fund's
shares or who service shareholder accounts, including overhead and telephone
expenses, printing and distribution of prospectuses and reports used in
connection with the offering of the Fund's shares to other than current
shareholders and preparation, printing and distribution of sales literature and
advertising materials. In addition, the Distributor may be compensated under the
Plan for its opportunity costs in advancing such amounts, which compensation
would be in the form of a carrying charge on any unreimbursed expenses incurred
by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Trustees will consider at that
time the manner in which to treat such expenses. The Distributor has advised the
Fund that such excess amounts, included carrying charges, totalled $53,266,045
at June 30, 1996.
The Distributor has informed the Fund that for the year ended June 30, 1996, it
received approximately $831,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended June 30, 1996 aggregated $257,705,399
and $74,300,735, respectively. Included in the aforementioned are purchases of
common stock of Dean Witter, Discover & Co., an affiliate of the Investment
Manager, of $314,695.
44
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996, CONTINUED
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At June 30, 1996, the Fund had
transfer agent fees and expenses payable of approximately $76,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. At June 30, 1996, the Fund had an accrued pension liability of
$80,102 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 12,467,241 $ 314,913,953 8,577,823 $179,873,239
Reinvestment of dividends and distributions...................... 435,932 10,776,245 277,119 5,434,300
----------- -------------- ----------- ------------
12,903,173 325,690,198 8,854,942 185,307,539
Repurchased...................................................... (5,249,483) (133,198,476) (4,704,190) (98,011,191)
----------- -------------- ----------- ------------
Net increase..................................................... 7,653,690 $ 192,491,722 4,150,752 $ 87,296,348
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
During the year ended June 30, 1996, the Fund utilized its net capital loss
carryover of approximately $857,000.
As of June 30, 1996, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
45
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD
DECEMBER
1, 1987*
FOR THE YEAR ENDED JUNE 30 THROUGH
----------------------------------------------------------------------------------------- JUNE 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 23.06 $ 19.23 $ 19.17 $ 16.29 $ 14.73 $ 14.21 $ 13.86 $ 12.47 $ 10.00
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
Net investment
income.......... 0.18 0.19 0.14 0.14 0.17 0.20 0.23 0.24 0.12
Net realized and
unrealized
gain............ 4.23 3.88 0.30 2.86 1.57 0.59 0.62 1.56 2.43
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
Total from
investment
operations...... 4.41 4.07 0.44 3.00 1.74 0.79 0.85 1.80 2.55
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
Less dividends
and
distributions
from:
Net investment
income........ (0.26) (0.09) (0.09) (0.12) (0.18) (0.21) (0.24) (0.24) (0.08)
Net realized
gain.......... (0.12) (0.15) (0.29) -- -- (0.06) (0.26) (0.17) --
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
Total dividends
and
distributions... (0.38) (0.24) (0.38) (0.12) (0.18) (0.27) (0.50) (0.41) (0.08)
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
Net asset value,
end of period... $ 27.09 $ 23.06 $ 19.23 $ 19.17 $ 16.29 $ 14.73 $ 14.21 $ 13.86 $ 12.47
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
TOTAL INVESTMENT
RETURN+.......... 19.27% 21.41% 2.26% 18.50% 11.83% 5.82% 6.17% 16.87% 25.56%(1)
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.51% 1.64% 1.68% 1.71% 1.80% 1.80% 1.80% 1.90% 1.60%(2)(3)
Net investment
income.......... 0.81% 1.01% 0.86% 0.86% 1.10% 1.40% 1.90% 2.30% 1.90%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end
of period, in
millions........ $962 $642 $456 $311 $193 $139 $148 $78 $37
Portfolio
turnover rate... 10% 11% 19% 6% 9% 20% 10% 10% 12%(1)
Average
commission rate
paid............ $0.0302 -- -- -- -- -- -- -- --
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were reimbursed or waived by the
Investment Manager, the above annualized expense and net investment income
ratios would have been 2.30% and 1.20%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
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 Value-Added Market
Value Series -- Equity Portfolio (the "Fund") at June 30, 1996, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the eight years in the period then ended and for the period December 1, 1987
(commencement of operations) through June 30, 1988, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1996 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
AUGUST 9, 1996
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1996 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended June 30, 1996, Fund paid to shareholders
$0.086 per share from long-term capital gains. For such period,
100% of the ordinary dividend qualified for the dividends received
deduction available to corporations.
47
