<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1995
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
------------------------
DEAN WITTER STRATEGIST FUND
(Exact Name of Registrant as Specified in Charter)
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(Address of Principal Executive Offices)
212-392-2550
(Registrant's Telephone Number)
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(Name and Address of Agent for Service)
------------------------
COPY TO:
Stuart M. Strauss, Esq.
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON THE THIRTIETH DAY
AFTER THE DATE OF FILING, PURSUANT TO RULE 488.
The Exhibit Index is located on page [ ]
No filing fee is due because the Registrant has previously registered an
indefinite number of shares pursuant to Section (a)(1) of Rule 24f-2 under the
Investment Company Act of 1940, as amended. The Registrant filed the Rule 24f-2
Notice, for its fiscal year ended July 31, 1995, with the Securities and
Exchange Commission on August 17, 1995.
Pursuant to Rule 429, this Registration Statement relates to shares
previously registered by the Registrant on Form N-1A (Registration No.
33-23669).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FORM N-14
DEAN WITTER STRATEGIST FUND
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PART A OF
FORM N-14
ITEM NO. PROXY STATEMENT AND PROSPECTUS HEADING
- ------------ -----------------------------------------------------------------
<C> <S>
1(a) Cross Reference Sheet
(b) Front Cover Page
(c) *
2(a) *
(b) Table of Contents
3(a) Fee Table
(b) Synopsis
(c) Principal Risk Factors
4(a) The Reorganization
(b) The Reorganization -- Capitalization Table (Unaudited)
5(a) Registrant's Prospectus
(b) *
(c) *
(d) *
(e) Available Information
(f) Available Information
6(a) Prospectus of Dean Witter Strategist Fund
(b) Available Information
(c) *
(d) *
7(a) Introduction - Proxies
(b) *
(c) Introduction; The Reorganization -- Appraisal Rights
8(a) The Reorganization
(b) *
9 *
<CAPTION>
PART B OF
FORM N-14
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ------------ -----------------------------------------------------------------
<C> <S>
10(a) Cover Page
(b) *
11 Table of Contents
12(a) Registrant's Statement of Additional Information
(b) *
13(a) *
(b) *
(c) *
14 Registrant's Statement of Additional Information dated August 28,
1995; Dean Witter Managed Assets Trust Statement of Additional
Information dated May 30, 1995
<CAPTION>
PART C OF
FORM N-14
ITEM NO. OTHER INFORMATION HEADING
- ------------ -----------------------------------------------------------------
<C> <S>
15 Indemnification
16 Exhibits
17 Undertakings
</TABLE>
- ------------------------
* Not Applicable or negative answer
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 19, 1995
TO THE SHAREHOLDERS OF DEAN WITTER MANAGED ASSETS TRUST:
Notice is hereby given of a Special Meeting of the Shareholders of Dean
Witter Managed Assets Trust ("Managed Assets") to be held at the Conference
Center, 44th Floor, Two World Trade Center, New York, New York, at 10:00 A.M.,
New York time, on December 19, 1995, and any adjournments thereof (the
"Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization, dated as
of August 24, 1995 (the "Reorganization Agreement") by and between Managed
Assets and Dean Witter Strategist Fund ("Strategist"), pursuant to which
substantially all of the assets of Managed Assets will be combined with
those of Strategist and shareholders of Managed Assets will become
shareholders of Strategist, receiving shares of Strategist with a value
equal to the value of their holdings in Managed Assets (the
"Reorganization"); and
2. To act upon such other matters as may properly come before the Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is attached
as Exhibit A thereto. Shareholders of record at the close of business on October
20, 1995 are entitled to notice of, and to vote at, the Meeting. Please read the
Proxy Statement and Prospectus carefully before telling us, through your proxy
or in person, how you wish your shares to be voted. The Board of Trustees of
Managed Assets recommends a vote in favor of the Reorganization. WE URGE YOU TO
SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
Sheldon Curtis,
SECRETARY
October , 1995
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE TO
BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY IN
ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE ENCLOSED
ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
DEAN WITTER STRATEGIST FUND
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(212) 392-2550
ACQUISITION OF THE ASSETS OF
DEAN WITTER MANAGED ASSETS TRUST
BY AND IN EXCHANGE FOR SHARES OF
DEAN WITTER STRATEGIST FUND
This Proxy Statement and Prospectus is being furnished to shareholders of
Dean Witter Managed Assets Trust ("Managed Assets") in connection with an
Agreement and Plan of Reorganization dated as of August 24, 1995 (the
"Reorganization Agreement") by and between Managed Assets and Dean Witter
Strategist Fund ("Strategist"), pursuant to which substantially all the assets
of Managed Assets will be combined with those of Strategist and shareholders of
Managed Assets will become shareholders of Strategist, receiving shares of
Strategist with a value equal to the value of their holdings in Managed Assets
on the date of such transaction (the "Reorganization"). The terms and conditions
of this transaction are more fully described in this Proxy Statement and
Prospectus and in the Reorganization Agreement attached hereto as Exhibit A.
This Proxy Statement also constitutes a Prospectus of Strategist filed by
Strategist with the Securities and Exchange Commission (the "Commission") as
part of its Registration Statement on Form N-14 (the "Registration Statement").
Strategist is an open-end, non-diversified management investment company
whose investment objective is to maximize the total return on its investments.
Strategist seeks to achieve its investment objective by actively allocating its
assets among the major asset categories of equity securities, fixed-income
securities and money market instruments.
This Proxy Statement and Prospectus sets forth concisely information about
Strategist that shareholders of Managed Assets should know before voting on the
Reorganization Agreement. A copy of the Prospectus for Strategist, dated August
28, 1995, is enclosed and incorporated herein by reference. Also enclosed and
incorporated herein by reference is a copy of Strategist's Annual Report for the
fiscal year ended July 31, 1995. A Statement of Additional Information relating
to the Reorganization, described in this Proxy Statement and Prospectus (the
"Additional Statement"), dated , 1995, has been filed with the
Commission and is also incorporated herein by reference. Also incorporated
herein by reference are Managed Assets' Prospectus, dated May 30, 1995, and
Managed Assets' Annual Report for the fiscal year ended March 31, 1995. Such
documents are available without charge, as noted under "Available Information"
below.
INVESTORS ARE ADVISED TO READ AND RETAIN THIS PROXY STATEMENT AND PROSPECTUS FOR
FUTURE REFERENCE.
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 ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROXY STATEMENT AND PROSPECTUS IS DATED , 1995.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION..................................................................................................... 1
General........................................................................................................ 1
Record Date; Share Information................................................................................. 1
Proxies........................................................................................................ 2
Expenses of Solicitation....................................................................................... 2
Vote Required.................................................................................................. 3
SYNOPSIS......................................................................................................... 3
The Reorganization............................................................................................. 3
Fee Table...................................................................................................... 4
Tax Consequences of the Reorganization......................................................................... 5
Comparison of Managed Assets and Strategist.................................................................... 5
PRINCIPAL RISK FACTORS........................................................................................... 7
THE REORGANIZATION............................................................................................... 7
The Proposal................................................................................................... 7
The Board's Consideration...................................................................................... 8
The Reorganization Agreement................................................................................... 9
Amendment to Strategist's Plan of Distribution Under Rule 12b-1................................................ 11
Tax Aspects of the Reorganization.............................................................................. 12
Description of Shares.......................................................................................... 13
Capitalization Table (unaudited)............................................................................... 13
Appraisal Rights............................................................................................... 13
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS................................................... 14
Investment Objectives and Policies............................................................................. 14
Investment Restrictions........................................................................................ 14
ADDITIONAL INFORMATION ABOUT MANAGED ASSETS AND STRATEGIST....................................................... 14
General........................................................................................................ 14
Financial Information.......................................................................................... 14
Management..................................................................................................... 14
Description of Securities and Shareholder Inquiries............................................................ 15
Dividends, Distributions and Taxes............................................................................. 15
Purchases, Repurchases and Redemptions......................................................................... 15
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE...................................................................... 15
FINANCIAL STATEMENTS AND EXPERTS................................................................................. 15
LEGAL MATTERS.................................................................................................... 15
AVAILABLE INFORMATION............................................................................................ 15
OTHER BUSINESS................................................................................................... 16
Exhibit A - Agreement and Plan of Reorganization, dated as of August 24, 1995 by and between Dean Witter Managed
Assets Trust and Dean Witter Strategist Fund................................................................... A-1
</TABLE>
i
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
------------------------
PROXY STATEMENT AND PROSPECTUS
------------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 19, 1995
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of Dean Witter Managed Assets Trust ("Managed Assets"), an open-end,
non-diversified management investment company, in connection with the
solicitation by the Board of Trustees of Managed Assets (the "Board") of proxies
to be used at the Special Meeting of Shareholders of Managed Assets to be held
at the Conference Center, 44th floor, Two World Trade Center, New York, New York
10048 at 10:00 A.M., New York time, on December 19, 1995, and any adjournments
thereof (the "Meeting"). It is expected that the mailing of this Proxy Statement
and Prospectus will be made on or about October 24, 1995.
At the Meeting, Managed Assets shareholders will consider and vote upon an
Agreement and Plan of Reorganization, dated as of August 24 (the "Reorganization
Agreement"), 1995, by and between Managed Assets and Dean Witter Strategist Fund
("Strategist") pursuant to which substantially all of the assets of Managed
Assets will be combined with those of Strategist and shareholders of Managed
Assets will become shareholders of Strategist, receiving shares of Strategist
with a value equal to the value of their holdings in Managed Assets on the date
of such transaction (the "Reorganization"). The shares to be issued by
Strategist (the "Strategist Shares") pursuant to the Reorganization will be
issued at net asset value without an initial sales charge. The holding period of
such Strategist Shares received by each Managed Assets shareholder for purposes
of calculation of any contingent deferred sales charge applicable to future
redemptions will include the period during which Managed Assets' shares
exchanged therefor were held by such Managed Assets shareholder. Further
information relating to Strategist is set forth in the current Prospectus of
Strategist accompanying this Proxy Statement and Prospectus and is incorporated
herein by reference.
The information concerning Managed Assets contained herein has been supplied
by Managed Assets and the information concerning Strategist contained herein has
been supplied by Strategist.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on October 20, 1995 as the record
date (the "Record Date") for the determination of the holders of shares of
beneficial interest of Managed Assets entitled to notice of, and to vote at, the
Meeting. As of the Record Date, there were shares of Managed Assets
issued and outstanding. The holders of record on the Record Date of shares of
Managed Assets are entitled to one vote per share on each matter submitted to a
vote at the Meeting. A majority of the outstanding shares entitled to vote,
represented in person or by proxy, will constitute a quorum at the Meeting.
1
<PAGE>
To the knowledge of the Board, as of the Record Date, no person owned of
record or beneficially 5% or more of the outstanding shares of Managed Assets.
As of the Record Date, the trustees and officers of Managed Assets, as a group,
owned less than 1% of the outstanding shares of Managed Assets.
To the knowledge of Strategist's Board of Trustees, as of the Record Date,
no person owned of record or beneficially 5% or more of the outstanding shares
of Strategist. As of the Record Date, the trustees and officers of Strategist,
as a group, owned less than 1% of the outstanding shares of Strategist.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be voted
in accordance with the choice specified thereon. The proxy will be voted in
favor of the Reorganization Agreement unless a choice is indicated to vote
against or to abstain from voting on the Reorganization Agreement. The Board
knows of no business, other than that set forth in the Notice of Special
Meeting, that will be presented for consideration at the Meeting. However, the
proxy confers discretionary authority upon the persons named therein to vote as
they determine on other business, not currently contemplated, which may come
before the Meeting. Shares owned of record by a broker-dealer for the benefit of
its customers will be voted by the broker-dealer based on instructions received
from its customers and will not be voted if no such instructions are received.
Abstentions and broker "non-votes" will be counted as present for the purpose of
determining a quorum and will have the same effect as a vote against the
Reorganization Agreement. If a shareholder executes and returns a proxy but
fails to indicate how the votes should be cast, the proxy will be voted in favor
of the Reorganization Agreement. The proxy may be revoked at any time prior to
the voting thereof by: (i) delivering written notice of revocation to the
Secretary of Managed Assets at Two World Trade Center, New York, New York 10048;
(ii) attending the Meeting and voting in person; or (iii) signing and returning
a new proxy (if returned and received in time to be voted). Attendance at the
Meeting will not in and of itself revoke a proxy.
In the event that the quorum for the Meeting cannot be obtained, or, subject
to approval of the Board, for other reasons, an adjournment or adjournments of
the Meeting may be sought. Any adjournment would require a vote in favor of the
adjournment by the holders of a majority of the shares present at the Meeting
(or any adjournment thereof) in person or by proxy. The persons named as proxies
will vote all shares represented by proxies which they are required to vote in
favor of the Reorganization Agreement, in favor of an adjournment, and will vote
all shares which they are required to vote against the Reorganization Agreement,
against an adjournment.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by Managed Assets.
The expenses of soliciting the proxies of Strategist shareholders to approve an
amendment to Strategist's Plan of Distribution under Rule 12b-1 will be borne by
Dean Witter InterCapital Inc. (the "Investment Manager"). See "The
Reorganization -- Amendment to Strategist's Plan of Distribution Under Rule
12b-1." Managed Assets and Strategist will bear all of their respective other
expenses associated with the Reorganization. In addition to the solicitation of
proxies by mail, proxies may be solicited by officers and regular employees of
Managed Assets, without compensation other than regular compensation, personally
or by mail, telephone, telegraph or otherwise. Brokerage houses, banks and other
fiduciaries may be requested to forward soliciting material to the beneficial
owners of shares and to obtain authorization for the execution of proxies. For
those services, if any, they will be reimbursed by Managed Assets for their
reasonable out-of-pocket expenses.
2
<PAGE>
VOTE REQUIRED
Approval of the Reorganization Agreement by Managed Assets' shareholders
requires the affirmative vote of a majority (i.e., more than 50%) of the
outstanding shares of Managed Assets represented in person or by proxy and
entitled to vote at the Meeting, provided a quorum is present at the Meeting. If
the Reorganization Agreement is not approved by shareholders, Managed Assets
will continue in existence and the Board will consider alternative actions.
Although approval or consent of Strategist shareholders of the
Reorganization Agreement is not required for the Reorganization and is not being
solicited, Strategist's shareholders are being solicited separately to approve
an amendment to Strategist's Plan of Distribution under Rule 12b-1 (the
"Amendment") to authorize explicitly payments of expenses associated with
distribution of shares of an acquired fund (including Managed Assets).
Consummation of the Reorganization is conditioned upon such approval by a
"majority of the voting securities" of Strategist, as defined in the 1940 Act.
See "The Reorganization -- The Reorganization Agreement" and "-- Amendment to
Strategist's Plan of Distribution Under Rule 12b-1."
SYNOPSIS
THE FOLLOWING IS A SYNOPSIS OF CERTAIN INFORMATION CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROXY STATEMENT AND PROSPECTUS. THIS SYNOPSIS IS ONLY A
SUMMARY AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT AND PROSPECTUS
AND THE REORGANIZATION AGREEMENT. SHAREHOLDERS SHOULD CAREFULLY REVIEW THIS
PROXY STATEMENT AND PROSPECTUS AND THE REORGANIZATION AGREEMENT IN THEIR
ENTIRETY AND, IN PARTICULAR, THE CURRENT PROSPECTUS OF STRATEGIST WHICH
ACCOMPANIES THIS PROXY STATEMENT AND WHICH IS INCORPORATED HEREIN BY REFERENCE.
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially all
of the assets of Managed Assets, subject to stated liabilities, to Strategist in
exchange for Strategist Shares of beneficial interest, par value $.01. The net
asset value of the Strategist Shares issued in the exchange will equal the value
of the net assets of Managed Assets received by Strategist. On or after the
closing date scheduled for the Reorganization (the "Closing Date"), Managed
Assets will distribute the Strategist Shares received by Managed Assets on the
Closing Date to holders of shares of beneficial interest of Managed Assets
issued and outstanding as of the Valuation Date (as hereinafter defined) in
complete liquidation of Managed Assets and Managed Assets will thereafter be
dissolved and deregistered under the Investment Company Act of 1940, as amended
(the "1940 Act"). As a result of the Reorganization, each Managed Assets
shareholder will receive that number of full and fractional Strategist Shares
equal in value to such shareholder's pro rata interest in the net assets
transferred to Strategist. Managed Assets shareholders holding certificates
representing their shares will not be required to surrender their certificates
in connection with the Reorganization. However, such shareholders will have to
surrender such certificates in order to receive certificates representing
Strategist Shares or to redeem, transfer or exchange the Strategist Shares
received. The Board has determined that the interests of existing Managed Assets
shareholders will not be diluted as a result of the Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION -- THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING A MAJORITY OF THE TRUSTEES WHO ARE NOT
"INTERESTED PERSONS" OF MANAGED ASSETS AS THAT TERM IS DEFINED IN THE 1940 ACT
("INDEPENDENT TRUSTEES"), HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST
INTERESTS OF MANAGED ASSETS AND ITS SHAREHOLDERS AND RECOMMENDS APPROVAL OF THE
REORGANIZATION AGREEMENT.
3
<PAGE>
FEE TABLE
The following table illustrates all expenses and fees that a shareholder of
Managed Assets and Strategist currently incurs and that would be incurred if the
Reorganization is consummated. The expenses and fees set forth in the table for
Managed Assets and Strategist are for the fiscal year ended March 31, 1995, and
the fiscal year ended July 31, 1995, respectively.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MANAGED PRO
ASSETS STRATEGIST FORMA
------- ---------- -----
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases......... None None None
Maximum Sales Charge Imposed on Reinvested
Dividends........................................ None None None
Deferred Sales Charge (as a percentage of the
lesser of original purchase price or redemption
proceeds)........................................ 5.0% 5.0% 5.0%
</TABLE>
A contingent deferred sales charge is imposed at the following declining
rates:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT MADE
<S> <C> <C> <C>
First............................................ 5.0% 5.0% 5.0%
Second.......................................... 4.0% 4.0% 4.0%
Third........................................... 3.0% 3.0% 3.0%
Fourth.......................................... 2.0% 2.0% 2.0%
Fifth........................................... 2.0% 2.0% 2.0%
Sixth........................................... 1.0% 1.0% 1.0%
Seventh and thereafter.......................... None None None
Redemption Fees................................... None None None
Exchange Fee...................................... None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET ASSETS
<TABLE>
<CAPTION>
MANAGED PRO
ASSETS STRATEGIST FORMA
------- ---------- -----
<S> <C> <C> <C>
Management and Advisory Fees..................... 0.60% 0.58% 0.56%
12b-1 Fees*..................................... 1.00% 0.91% 0.94%
Other Expenses.................................. 0.17% 0.14% 0.13%
Total Fund Operating Expenses................... 1.77% 1.63% 1.63%
</TABLE>
- ------------------------
* Pursuant to the distribution plan (the "Plan") pursuant to Rule 12b-1 under
the 1940 Act of each fund, Managed Assets with respect to all of such fund's
shares and Strategist with respect to the aggregate sales of its shares since
the effectiveness of the first amendment of its Plan on November 8, 1989, pay
to Dean Witter Distributors Inc. a fee, which is accrued daily and payable
monthly, at the annual rate of 1% of the lesser of (a) the average daily
aggregate gross sales of such fund's shares since its inception (not
including reinvestments of dividends or capital gains distributions), less
the average daily aggregate net asset value of such fund's shares redeemed
since its inception upon which a contingent deferred sales charge has been
imposed or waived; or (b) the average daily net assets of the fund. With
respect to shares issued prior to the effectiveness of the first
4
<PAGE>
amendment to its Plan, Strategist pays the Distributor 0.25% of the fund's
average daily net assets. A portion of the 12b-1 fee equal to 0.25% of
average daily net assets is characterized as a service fee within the meaning
of National Association of Securities Dealers, Inc. guidelines.
HYPOTHETICAL EXPENSES
To attempt to show the effect of these expenses on an investment over time,
the hypotheticals shown below have been created. Assume that an investor makes a
$1,000 investment in either Managed Assets or Strategist or the new combined
fund, that the annual return is 5% and that the operating expenses for each fund
are the ones shown in the chart above, if the investment was redeemed at the end
of each period shown below, the investor would incur the following expenses by
the end of each period shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Managed Assets................ $ 68 $ 86 $ 116 $ 208
Strategist.................... $ 67 $ 81 $ 109 $ 193
Pro Forma Combined Fund....... $ 67 $ 81 $ 109 $ 193
</TABLE>
If such investment was not redeemed, the investor would incur the following
expenses:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Managed Assets................ $ 18 $ 56 $ 96 $ 208
Strategist.................... $ 17 $ 51 $ 89 $ 193
Pro Forma Combined Fund....... $ 17 $ 51 $ 89 $ 193
</TABLE>
The above example should not be considered a representation of past or
future expenses or performance. Actual operating expenses may be greater or less
than those shown. Long-term shareholders of either fund may pay more in sales
charges and distribution fees than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers, Inc. ("NASD").
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, Managed Assets will receive an opinion
of Gordon Altman Butowsky Weitzen Shalov & Wein to the effect that the
Reorganization will constitute a tax-free reorganization for Federal income tax
purposes, and that no gain or loss will be recognized by Managed Assets or the
shareholders of Managed Assets for Federal income tax purposes as a result of
the transactions included in the Reorganization. For further information about
the tax consequences of the Reorganization, see "The Reorganization -- Tax
Aspects of the Reorganization" below.
COMPARISON OF MANAGED ASSETS AND STRATEGIST
INVESTMENT OBJECTIVES AND POLICIES. Managed Assets and Strategist have
substantially similar investment objectives. Managed Assets' investment
objective is a high level of total return on its investments while Strategist's
investment objective is to maximize the total return on its investments. Managed
Assets seeks to achieve its investment objective through a managed investment
policy utilizing equity, fixed-income and money market securities. An asset
allocation model is utilized by the Investment Manager to assist it in making
asset allocation decisions. Strategist seeks to achieve its investment objective
by actively allocating assets among the major asset categories of equity
securities, fixed-income securities and money market instruments. The investment
policies of Strategist and Managed Assets are substantially similar. The
investment policies of both Managed Assets and Strategist, including the use by
Managed Assets of an asset allocation model, are not fundamental and may be
5
<PAGE>
changed by their respective Board of Trustees. For a more detailed comparison of
the investment objectives, policies and restrictions of Managed Assets and
Strategist see "Comparison of Investment Objectives, Policies and Restrictions,"
below.
INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. Both Managed Assets and
Strategist obtain investment management services from the Investment Manager.
The management fee is payable monthly, computed on the net asset value of such
fund as of the close of business each day. Managed Assets pays a management fee
at the rate of 0.60% of the portion of daily net assets not exceeding $500
million and 0.55% of the portion of daily net assets exceeding $500 million.
Strategist pays a management fee at the rate of 0.60% of the portion of the
daily net assets not exceeding $500 million, 0.55% of the portion of daily net
assets exceeding $500 million and 0.50% of the portion of daily net assets
exceeding $1 billion.
Both Managed Assets and Strategist have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the 1940 Act. Pursuant to the Plan of each
fund, Managed Assets with respect to all of such fund's shares and Strategist
with respect to the aggregate sales of its shares since the effectiveness of the
first amendment of its Plan on November 8, 1989, pay to Dean Witter Distributors
Inc. (the "Distributor") a fee, which is accrued daily and payable monthly, at
the annual rate of 1% of the lesser of (a) the average daily aggregate gross
sales of such fund's shares since its inception (not including reinvestments of
dividends or capital gains distributions), less the average daily aggregate net
asset value of such fund's shares redeemed since its inception upon which a
contingent deferred sales charge ("CDSC") has been imposed or waived; or (b) the
average daily net assets of the fund. With respect to shares issued prior to the
effectiveness of the first amendment to its Plan, Strategist pays the
Distributor 0.25% of the fund's average daily net assets. These fees compensate
the Distributor for the services provided and the expenses borne by the
Distributor and others in distribution of such fund's shares. The Distributor
also receives the proceeds of any CDSC. For the treatment of excess distribution
expenses, see "The Reorganization -- The Reorganization Agreement" and " --
Amendment to Strategist's Plan of Distribution Under Rule 12b-1."
OTHER SIGNIFICANT FEES. Both Managed Assets and Strategist pay additional
fees in connection with their operations, including legal, auditing, transfer
agent and custodial fees. See "Synopsis -- Fee Table" above for the percentage
of average net assets represented by such other expenses.
PURCHASES, EXCHANGES AND REDEMPTIONS. Managed Assets and Strategist each
continuously issue their shares to investors at a price equal to net asset value
at the time of such issuance. However, redemptions and/or repurchases are
subject in most circumstances to a CDSC, scaled down from 5% to 1% of the amount
redeemed, if made within six years of purchase, which charge is paid to the
Distributor. Shares of Managed Assets and Strategist are distributed by the
Distributor and offered by Dean Witter Reynolds Inc. ("DWR") and other dealers
who have entered into selected dealer agreements with the Distributor.
Each of Managed Assets and Strategist makes available to its shareholders
substantially identical exchange privileges allowing exchange of shares for
shares of certain other funds sold with a CDSC ("CDSC funds"), certain other
funds sold without a CDSC and five Dean Witter Funds which are money market
funds.
In addition, shares of both Managed Assets and Strategist 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 neither Managed Assets nor
Strategist, however acquired, may 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. Both Managed Assets and
Strategist provide telephone exchange privileges to their shareholders.
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Shareholders of Managed Assets and Strategist may redeem their shares for
cash at any time at the net asset value per share next determined; however, such
redemption proceeds will be reduced by the amount of any applicable CDSC. For
purpose of calculation of the CDSC applicable to future redemptions, the holding
period of Strategist Shares received by each Managed Assets shareholder in the
Reorganization will include the period during which the Managed Assets shares
exchanged therefor were held by such Managed Assets shareholder. Both Managed
Assets and Strategist offer a reinstatement privilege whereby a shareholder who
has not previously exercised such privilege whose shares have been redeemed or
repurchased may, within thirty days after the date of redemption or repurchase,
reinstate any portion or all of the proceeds thereof and receive a pro rata
credit for any CDSC paid in connection with such redemption or repurchase.
Managed Assets and Strategist may redeem involuntarily, at net asset value, most
accounts valued at less than $100.
For a more detailed discussion of purchasing, exchanging and redeeming
Strategist shares, see "Purchase of Fund Shares," "Shareholder Services" and
"Redemptions and Repurchases" in Strategist's current Prospectus.
DIVIDENDS. Dividends from both Managed Assets' and Strategist's net
investment income are declared and paid quarterly. Managed Assets' distributions
from net long-term capital gains and net short-term capital gains, if any, are
paid at least annually. Strategist's net realized short-term capital gains, if
any, may be distributed quarterly and net long-term capital gains, if any, are
distributed at least annually. Dividends and capital gains distributions of both
Managed Assets and Strategist are automatically reinvested in additional shares
at net asset value unless the shareholder elects to receive cash.
PRINCIPAL RISK FACTORS
The net asset value of Managed Assets' and Strategist's shares will
fluctuate with changes in the market value of their respective portfolio
securities. Because both Managed Assets and Strategist allocate their assets
among the major asset categories of equity securities, fixed-income securities
and money market instruments, based upon the Investment Manager's assessment of
the effects of economic and market trends on different sectors of the market,
the risks of investment in both funds are similar. However, the methodology
utilized to make asset allocation decisions differs between the two funds. The
Investment Manager employs an asset allocation model to assist it in making its
allocation determinations for Managed Assets. The investment performance of
Managed Assets is, therefore, influenced by the effectiveness of a computer
model whereas the investment performance of Strategist is influenced to a
greater degree by the subjective judgments of the Investment Manager.
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of Managed Assets, including the trustees who are not
"interested persons" of Managed Assets, having reviewed Managed Assets'
financial position and its prospects for future growth, and determined that the
Reorganization is in the best interests of Managed Assets and its shareholders
and that the interests of Managed Assets shareholders will not be diluted as a
result thereof, recommends approval of the Reorganization by Managed Assets
shareholders. The Board believes that a combination of Managed Assets with
Strategist is generally consistent with Managed Assets' stated investment
objective.
The Board's decision to recommend the Reorganization to Managed Assets
shareholders reflects the Investment Manager's belief that the change will
improve value for Managed Assets shareholders while maintaining the essential
nature of their investment decision. As discussed above, the Investment Manager
utilizes an asset allocation model for Managed Assets to assist it in making
allocation decisions. Upon evaluation of the overall
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<PAGE>
historical performance of Managed Assets, the Investment Manager has determined
that discontinuing reliance on the model would facilitate its ability to achieve
the investment objective of the Fund. The Investment Manager further determined
that, rather than continuing to operate two asset allocation funds managed in
the same manner (I.E., Managed Assets and Strategist), it would be in the best
interests of shareholders of Managed Assets to combine the assets of Managed
Assets with those of Strategist.
THE BOARD'S CONSIDERATION
At a meeting held on August 24, 1995, the Board unanimously adopted, and
voted to recommend to the shareholders of Managed Assets that they approve, the
Reorganization Agreement. In reaching its decision to recommend shareholder
approval of the Reorganization Agreement, the Board made an extensive inquiry
into a number of factors, particularly the comparative investment performance of
Managed Assets and Strategist, the comparative expenses currently incurred in
the operations of Managed Assets and Strategist and the impact on Managed Assets
shareholders if Managed Assets was not reorganized. The Board also considered
other factors, including, but not limited to: the past growth in assets of
Managed Assets and Strategist; the compatibility of the investment objectives,
policies, restrictions and portfolios of Managed Assets and Strategist; the
terms and conditions of the Reorganization which would affect the price of
Strategist Shares to be issued in the Reorganization; the tax-free nature of the
Reorganization; and any direct or indirect costs to be incurred by Managed
Assets and Strategist in connection with the Reorganization.
In recommending the Reorganization to the shareholders of Managed Assets,
the Board considered that the Reorganization would have the following benefits
for shareholders of Managed Assets:
1. The expenses borne by shareholders of the combined fund should be lower
on a percentage basis than the actual expenses per share of Managed
Assets. This is because the rate of the investment management fee payable by
Strategist after the combination will be lower, on a percentage basis, than the
rate of the investment management fee currently paid by Managed Assets on the
portion of Strategist's net assets which will exceed $1 billion. See "Synopsis
- -- Comparison of Managed Assets and Strategist -- Investment Management and
Distribution Plan Fees" above. Furthermore, to the extent that the
Reorganization would result in Managed Assets shareholders becoming shareholders
of a larger fund, various fixed and relatively fixed expenses (E.G., auditing
and legal) can be spread over a larger number of shares. In this regard, the
Board noted that Managed Assets' expense ratio for the fiscal year ended March
31, 1995 was 1.77%, whereas the expense ratio for Strategist was 1.63% for the
fiscal year ended July 31, 1995.
2. Shareholders of Managed Assets would have a continued participation in
the equity, fixed-income and money market instruments markets through
investment in Strategist, which has a similar investment objective and similar
investment restrictions to those of Managed Assets, without having to sell their
shares. Strategist's CDSC is no higher than Managed Assets' and shareholders
will receive the benefit of the period during which they held the Managed Assets
shares which are converted to shares of Strategist in the Reorganization, in
calculating the appropriate CDSC upon redemption.
3. Shareholders of Managed Assets will be able to purchase shares of
Strategist at net asset value and pursue similar investment goals in a
larger and more economically viable fund.
4. Managed Assets' shareholders would retain the capabilities and resources
of InterCapital and its affiliates in the areas of investment management,
distribution, shareholder servicing and marketing.
5. The Reorganization would enable Managed Assets' shareholders to continue
to enjoy a broad range of mutual fund investment options. The Dean Witter
Funds complex includes 39 mutual fund portfolios which will be available for
exchange by Managed Assets shareholders that receive Strategist Shares in the
Reorganization.
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<PAGE>
6. The Reorganization will constitute a tax-free reorganization for Federal
income tax purposes, and no gain or loss will be recognized by Managed
Assets or its shareholders for Federal income tax purposes as a result of the
transactions included in the Reorganization.
The Board of Trustees of Strategist, including a majority of such trustees
who are not "interested persons" of Strategist, have also determined that the
Reorganization is in the best interests of Strategist and that the interests of
existing shareholders of Strategist will not be diluted as a result thereof. As
noted above, the addition of Managed Assets' assets to Strategist's portfolio
should result in economies of scale that inure to the benefit of shareholders.
THE REORGANIZATION AGREEMENT
At a meeting held on August 24, 1995, the Board unanimously adopted, and
voted to recommend to the shareholders of Managed Assets that they approve, the
Reorganization Agreement. The terms and conditions under which the
Reorganization would be consummated are set forth in the Reorganization
Agreement and are summarized below. This summary is qualified in its entirety by
reference to the Reorganization Agreement, a copy of which is attached as
Exhibit A to this Proxy Statement and Prospectus.
The Reorganization Agreement provides that (i) Managed Assets will transfer
all of its assets, including portfolio securities, cash (other than cash amounts
retained by Managed Assets as a "Cash Reserve" in the amount sufficient to
discharge its liabilities not discharged prior to the Valuation Date and for the
expenses of dissolution), cash equivalents and receivables to Strategist on the
Closing Date in exchange for the assumption by Strategist of Managed Assets'
stated liabilities, including all expenses, costs, charges and reserves, as
reflected on an unaudited statement of assets and liabilities of Managed Assets
prepared by the Treasurer of Managed Assets as of the Valuation Date in
accordance with generally accepted accounting principles consistently applied
from the prior audited period, and the delivery of Strategist Shares, (ii) such
Strategist Shares will be distributed to the shareholders of Managed Assets on
the Closing Date or as soon as practicable thereafter, (iii) Managed Assets will
be dissolved and (iv) the outstanding shares of Managed Assets will be canceled.
For technical reasons, certain of Managed Assets' existing investment
limitations may be deemed to preclude Managed Assets from consummating the
Reorganization to the extent that the Reorganization would involve Managed
Assets holding all of its assets as Strategist Shares until such shares are
distributed to Managed Assets' shareholders. By approving the Reorganization
Agreement, Managed Assets' shareholders will be deemed to have agreed to waive
each of these limitations. It is anticipated that the distribution of the
Strategist Shares to Managed Assets' shareholders will occur on the Closing Date
or as soon as practicable thereafter.
The number of Strategist Shares to be delivered to Managed Assets will be
determined by dividing the value of Managed Assets' assets acquired by
Strategist (net of stated liabilities assumed by Strategist) by the net asset
value of a Strategist Share; these values will be calculated as of the close of
business of the New York Stock Exchange on the fifth business day following the
receipt of the requisite approval by the shareholders of Managed Assets of the
Reorganization Agreement or at such other time as Managed Assets and Strategist
may agree (the "Valuation Date"). As an illustration, if on the Valuation Date
Managed Assets were to have securities with a market value of $95,000 and cash
in the amount of $10,000 (of which $5,000 was to be retained by it as the Cash
Reserve), the value of the assets which would be transferred to Strategist would
be $100,000. If the net asset value per share of Strategist were $10 per share
at the close of business on the Valuation Date, the number of shares to be
issued would be 10,000 ($100,000 DIVIDED BY $10). These 10,000 Strategist Shares
would be distributed to the former shareholders of Managed Assets. This example
is given for illustration purposes only and does not bear any relationship to
the dollar amounts or shares expected to be involved in the Reorganization.
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<PAGE>
On the Closing Date or as soon as practicable thereafter, Managed Assets
will distribute pro rata to its shareholders of record as of the close of
business on the Valuation Date ("Managed Assets Shareholders"), the Strategist
Shares it receives. Strategist will cause its transfer agent to credit and
confirm an appropriate number of Strategist Shares to each Managed Assets
Shareholder. Certificates for Strategist Shares will be issued upon written
request of a former Managed Assets Shareholder but only for whole shares with
fractional shares credited to the name of the shareholder on the books of
Strategist. Such shareholders who wish certificates representing their
Strategist Shares must, after receipt of their confirmations, make a written
request to Strategist's transfer agent, Dean Witter Trust Company, Harborside
Financial Center, Plaza Two, Jersey City, New Jersey 07311. Managed Assets
Shareholders holding certificates representing their shares will not be required
to surrender their certificates to anyone in connection with the Reorganization.
After the Reorganization, however, it will be necessary for such shareholders to
surrender such certificates (or provide indemnities reasonably acceptable to
Managed Assets in respect of lost certificates) in order to receive certificates
representing Strategist Shares or to redeem, transfer or exchange the Strategist
Shares received.
The Closing Date will be the next business day following the Valuation Date.
The consummation of the Reorganization is contingent upon the approval of the
Reorganization by the shareholders of Managed Assets and the receipt of the
other opinions and certificates set forth in Sections 6, 7 and 8 of the
Reorganization Agreement and the occurrence of the events described in those
Sections, certain of which may be waived by Managed Assets or Strategist. In
addition, consummation of the Reorganization is contingent upon the approval of
the Amendment by Strategist's shareholders. See "The Reorganization -- Amendment
to Strategist's Plan of Distribution Under Rule 12b-1." The Reorganization
Agreement may be amended in any mutually agreeable manner, except that no
amendment may be made subsequent to the Meeting which would detrimentally affect
the value of the shares of Strategist to be distributed. Managed Assets and
Strategist will bear all of their respective expenses associated with the
Reorganization, other than expenses associated with the costs of soliciting
approval of Strategist's shareholders of the Amendment. Management estimates
that such expenses associated with the Reorganization to be borne by Managed
Assets will not exceed $118,000.
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Managed Assets Shareholders,
by mutual consent of Managed Assets and Strategist. In addition, either party
may terminate the Reorganization Agreement upon the occurrence of a material
breach of the Reorganization Agreement by the other party or if, by February 29,
1996, any condition set forth in the Reorganization Agreement has not been
fulfilled or waived by the party entitled to its benefits.
Under the Reorganization Agreement, within one year after the Closing Date,
Managed Assets shall either pay or make provision for all of its liabilities and
distribute any remaining amount of the Cash Reserve (after paying or making
provision for such liabilities and the estimated cost of making the
distribution) to Managed Assets Shareholders. Managed Assets shall be dissolved
and deregistered as an investment company promptly following the distributions
of shares of Strategist to Managed Assets Shareholders.
The effect of the Reorganization is that shareholders of Managed Assets who
vote their shares in favor of the Reorganization Agreement are electing to sell
their shares of Managed Assets (at net asset value on the Valuation Date
calculated after subtracting the Cash Reserve) and reinvest the proceeds in
Strategist Shares at net asset value and without recognition of taxable gain or
loss for Federal income tax purposes. See "The Reorganization -- Tax Aspects of
the Reorganization" below. As noted in "The Reorganization -- Tax Aspects of the
Reorganization" below, if Managed Assets recognizes net gain from the sale of
securities prior to the Closing Date, such gain, to the extent not offset by
capital loss carry forwards, will be distributed to shareholders prior to the
Closing Date and will be taxable to shareholders as capital gain.
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<PAGE>
Shareholders of Managed Assets will continue to be able to redeem their
shares at net asset value next determined after receipt of the redemption
request (subject to any applicable CDSC) until the close of business on the
business day next preceding the Closing Date. Redemption requests received by
Managed Assets thereafter will be treated as requests for redemption of shares
of Strategist.
AMENDMENT TO STRATEGIST'S PLAN OF DISTRIBUTION UNDER RULE 12B-1
In any given year, the Distributor may incur expenses in distributing shares
of Managed Assets and Strategist, respectively, which may be in excess of the
total payments pursuant to the Plans and the proceeds of the CDSC's paid by
investors upon the redemption of shares. In connection with the Reorganization,
the excess distribution charges of Managed Assets will be combined with the
excess distribution charges of Strategist and reflected in reports provided to
Strategist's Board of Trustees in its annual review of management and
distribution arrangements. Strategist shareholders are being solicited
separately to approve the Amendment to authorize explicitly payments of expenses
associated with distribution of shares of an acquired fund (including Managed
Assets).
As of July 31, 1995, Managed Assets' and Strategist's respective excess
distribution charges amounted to $13,814,020 and $24,218,844, representing 3.45%
and 2.76% of Managed Assets' and Strategist's respective net assets. Giving
effect to the Reorganization, the combined fund's total excess distribution
charges would be equal to $38,032,864 (or 2.98% of the pro forma combined assets
of $1,278,407,662). The Board of Trustees of Strategist is of the view that
reports of excess distribution charges will serve as a useful reminder of the
Distributor's unreimbursed distribution expenses which the trustees may accord
such weight as they deem appropriate in making their annual determination as to
whether to continue Strategist's 12b-1 Plan.
Paragraph 2 of Strategist's current Plan sets forth the purposes for which
payments may be made under its Plan. That paragraph provides that:
"The amount set forth in paragraph 1 of this Plan shall be paid for
services of the Distributor, DWR, its affiliates and other
broker-dealers it may select in connection with the distribution of the
Fund's shares . . ."
Strategist has been advised that the Plan, as currently in effect,
authorizes the proposed treatment of excess distribution expenses. Nevertheless,
shareholder approval of the Amendment by Strategist shareholders is being
solicited to authorize explicitly payments with respect to expenses associated
with the distribution of shares of an acquired fund (including Managed Assets).
Specifically, the Amendment would add the following sentence to paragraph 2 of
Strategist's Plan:
"Payments may also be made with respect to distribution expenses
incurred in connection with the distribution of shares of an investment
company whose assets are acquired by [Strategist] in a tax-free
Reorganization."
Adoption of the Amendment will have no immediate implications for
Strategist. Payments under the Plan would continue to be made at the annual
rates specified in the Plan. While the Distributor may hope to recover its
excess distribution expenses over an extended period of time, Strategist is not
obligated to assure that such amounts are recouped by the Distributor. These
charges do not currently appear as an expense or liability on the books of
Managed Assets nor will they so appear on the books of Strategist subsequent to
the Reorganization. They do not enter into the calculation of net asset value
and do not enter into the formula for calculation of 12b-1 fees. Even in the
event of termination or non-continuance of Strategist's 12b-1 Plan, Strategist
is not legally committed, and is not required to commit, to the payment of those
charges upon termination or non-continuation of the Plan. Nor has Strategist's
Board made any determination as to whether it would be appropriate for
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<PAGE>
Strategist to pay amounts attributable to expenses associated with the
distribution of Strategist's shares. Rather, Strategist's Board has taken the
position that in the event Strategist's Plan is terminated or not continued for
any reason, the Board will determine at that time how the excess distribution
charges will be treated. The Amendment would simply make clear that (i) excess
distribution expenses associated with Managed Assets may appropriately be
reflected in reports provided to Strategist's Board of Trustees and (ii)
Strategist is authorized to pay the expenses of the Distributor incurred in
distribution of shares of Managed Assets to the extent Strategist's Board of
Trustees determines it is appropriate to do so.
Although approval or consent of Strategist shareholders of the
Reorganization Agreement is not required for the Reorganization and is not being
solicited, Strategist shareholders are being solicited separately to approve the
Amendment. Consummation of the Reorganization is conditioned upon such approval
by a "majority of the voting securities" of Strategist, as defined in the 1940
Act (I.E., the affirmative vote of the lesser of (a) 67% or more of the shares
of Strategist present at the Strategist Meeting or represented by proxy if the
holders of more than 50% of the outstanding shares are present or represented by
proxy or (b) more than 50% of Strategist's outstanding shares).
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation Date,
Managed Assets will declare and pay a dividend or dividends which, together with
all previous such dividends, will have the effect of distributing to Managed
Assets' shareholders all of Managed Assets' investment company taxable income
for all periods since inception of Managed Assets through and including the
Valuation Date (computed without regard to any dividends paid deduction), and
all of Managed Assets' net capital gain, if any, realized in such periods (after
reduction for any capital loss carry-forward).
The Reorganization is intended to qualify for Federal income tax purposes as
a tax-free reorganization under Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended (the "Code"). Managed Assets and Strategist have represented
that, to their best knowledge, there is no plan or intention by Managed Assets
shareholders to redeem, sell, exchange or otherwise dispose of a number of
Strategist Shares received in the transaction that would reduce Managed Assets
shareholders' ownership of Strategist Shares to a number of shares having a
value, as of the Closing Date, of less than 50% of the value of all of the
formerly outstanding Managed Assets shares as of the same date. Managed Assets
and Strategist have each further represented that, as of the Closing Date,
Managed Assets and Strategist will qualify as regulated investment companies.
As a condition to the Reorganization, Managed Assets and Strategist will
receive an opinion of Gordon Altman Butowsky Weitzen Shalov & Wein that, based
on certain assumptions, facts, the terms of the Reorganization Agreement and
additional representations set forth in the Reorganization Agreement or provided
by Managed Assets and Strategist:
1. The transfer of substantially all of Managed Assets' assets in exchange
for the Strategist Shares and the assumption by Strategist of certain
stated liabilities of Managed Assets followed by the distribution by Managed
Assets of the Strategist Shares to Managed Assets' shareholders in exchange for
their Managed Assets shares will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code, and Managed Assets and Strategist will
each be a "party to a reorganization" within the meaning of Section 368 (b) of
the Code;
2. No gain or loss will be recognized by Strategist upon the receipt of the
assets of Managed Assets solely in exchange for the Strategist Shares and
the assumption by Strategist of the stated liabilities of Managed Assets;
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3. No gain or loss will be recognized by Managed Assets upon the transfer
of the assets of Managed Assets to Strategist in exchange for the
Strategist Shares and the assumption by Strategist of the stated liabilities or
upon the distribution of Strategist Shares to Managed Assets' shareholders in
exchange for their Managed Assets shares;
4. No gain or loss will be recognized by the shareholders of Managed Assets
upon the exchange of the shares of Managed Assets for the Strategist
Shares;
5. The aggregate tax basis for the Strategist Shares received by each of
Managed Assets' shareholders pursuant to the reorganization will be the
same as the aggregate tax basis of the shares in Managed Assets held by each
such shareholder of Managed Assets immediately prior to the reorganization;
6. The holding period of the Strategist Shares to be received by each
shareholder of Managed Assets will include the period during which the
shares in Managed Assets surrendered in exchange therefor were held (provided
such shares in Managed Assets were held as capital assets on the date of the
Reorganization);
7. The tax basis of the assets of Managed Assets acquired by Strategist
will be the same as the tax basis of such assets to Managed Assets
immediately prior to the Reorganization; and
8. The holding period of the assets of Managed Assets in the hands of
Strategist will include the period during which those assets were held by
Managed Assets.
The Reorganization will be treated as a "change in ownership" under Section
382 of the Code. It is not anticipated that any resulting limitations on the use
of any capital loss carryovers of Managed Assets will be material. In addition,
the economic benefit of any capital loss carryovers of Managed Assets would be
available to shareholders of the combined entity with a resulting benefit to
Strategist shareholders. It is not anticipated that any such benefit will be
material.
SHAREHOLDERS OF MANAGED ASSETS SHOULD CONSULT THEIR TAX ADVISORS REGARDING
THE EFFECT, IF ANY, OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL
CIRCUMSTANCES. BECAUSE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL
INCOME TAX CONSEQUENCES OF THE PROPOSED TRANSACTION, SHAREHOLDERS OF MANAGED
ASSETS SHOULD ALSO CONSULT THEIR TAX ADVISORS AS TO STATE AND LOCAL TAX
CONSEQUENCES, IF ANY, OF THE PROPOSED TRANSACTION.
DESCRIPTION OF SHARES
Shares of Strategist to be issued pursuant to the Reorganization Agreement
will, when issued, be fully paid and non-assessable by Strategist and
transferable without restrictions and will have no preemptive or conversion
rights.
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of Managed Assets and
Strategist as of July 31, 1995 and on a pro forma combined basis as if the
Reorganization had occurred on that date:
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
-------------- ----------- ---------
<S> <C> <C> <C>
Dean Witter Managed Assets Trust.................. $ 400,812,336 38,418,901 $10.43
Dean Witter Strategist Fund....................... 877,595,326 55,289,486 15.87
As the Surviving Fund (Pro Forma Combined)........ 1,278,407,662 80,545,462 15.87
</TABLE>
APPRAISAL RIGHTS
Shareholders of Managed Assets will have no appraisal rights in connection
with the Reorganization.
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COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of Managed Assets and Strategist are
substantially similar. Managed Assets' investment objective is a high level of
total return on its investments and Strategist's investment objective is to
maximize the total return on its investments. Both Managed Assets and Strategist
allocate resources to the equity, debt and money market sectors of the market as
opposed to relying on just one market. Therefore, at any given time, each of
Managed Assets' and Strategist's assets may be invested in either equity,
fixed-income or money market securities or in any combination thereof, including
an equally weighted portfolio. The Investment Manager utilizes an asset
allocation model in Managed Assets to assist it in making asset allocation
decisions while Strategist does not.
Both Managed Assets and Strategist may purchase and write call and put
options on U.S. Treasury notes, bonds and bills and equity securities listed on
Exchanges and written in over-the-counter ("OTC") transactions. Both funds are
permitted to write covered call options on portfolio securities without limit
and may purchase listed and OTC call and put options in amounts up to 5% of the
value of the fund's total assets. Both funds may also purchase call options to
close out covered call positions and may purchase put options on securities it
holds to protect against declines in the value of the security or to close out
written put positions. Both funds may also purchase and sell interest rate stock
index and bond index futures contracts. Both Managed Assets and Strategist may
also purchase and write call and put options on futures contracts which are
traded on an Exchange and enter into closing transactions with respect to such
options to terminate an existing position. Finally, both Managed Assets and
Strategist may purchase securities on a when-issued or delayed delivery basis,
may purchase or sell securities on a forward commitment basis and may purchase
securities on a "when, as and if issued" basis.
INVESTMENT RESTRICTIONS
The investment restrictions adopted by Managed Assets and Strategist as
fundamental policies are substantially similar and are summarized under the
caption "Investment Restrictions" in their respective Prospectuses and
Statements of Additional Information. A fundamental investment restriction
cannot be changed without the vote of a majority of the outstanding voting
securities of a fund, as defined in the 1940 Act. For a more detailed comparison
of each fund's policies see "Investment Objectives and Policies" in each fund's
respective Prospectus and "Investment Practices and Policies" in each fund's
respective Statement of Additional Information.
ADDITIONAL INFORMATION ABOUT MANAGED ASSETS AND STRATEGIST
GENERAL
For a discussion of the organization and operation of Managed Assets and
Strategist, see "The Fund and its Management" and "Investment Objective and
Policies" in their respective prospectuses.
FINANCIAL INFORMATION
For certain financial information about Managed Assets and Strategist, see
"Financial Highlights" and "Summary of Fund Expenses" in their respective
prospectuses.
MANAGEMENT
For information about Managed Assets' and Strategist's Board of Trustees,
investment manager and distributor, see "The Fund and its Management" in their
respective prospectuses.
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DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares of
Managed Assets and Strategist, and information regarding shareholder inquiries,
see "Additional Information" in their respective prospectuses.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Managed Assets' and Strategist's policies with respect
to dividends, distributions and taxes, see "Dividends, Distributions and Taxes"
in their respective prospectuses.
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how Managed Assets' and Strategist's shares may be
purchased, repurchased and redeemed, see "Purchase of Fund Shares" and
"Redemptions and Repurchases" in their respective prospectuses.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For management's discussion of Managed Assets' performance during its fiscal
year ended March 31, 1995, see Managed Assets' Annual Report for such fiscal
year, which is incorporated herein by reference. For management's discussion of
Strategist's performance during its fiscal year ended July 31, 1995, see
Strategist's Annual Report for such fiscal year, which accompanies this Proxy
Statement and Prospectus and is incorporated herein by reference. Such Annual
Reports are available without charge as noted under "Available Information"
below.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Managed Assets and Strategist incorporated by
reference in the Statement of Additional Information relating to the
Registration Statement on Form N-14 of which this Proxy Statement and Prospectus
forms a part have been audited by Price Waterhouse LLP, independent accountants,
for the periods indicated in its respective reports thereon. Such financial
statements have been incorporated by reference in reliance upon such reports
given upon the authority of Price Waterhouse LLP as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Strategist will
be passed upon by Gordon Altman Butowsky Weitzen Shalov & Wein, New York, New
York. Such firm will rely on Lane Altman & Owens as to matters of Massachusetts
law.
AVAILABLE INFORMATION
Additional information about Managed Assets and Strategist is available, as
applicable, in the following documents which are incorporated herein by
reference: (i) Strategist's Prospectus dated August 28, 1995, accompanying this
Proxy Statement and Prospectus, which Prospectus forms a part of Post-Effective
Amendment No. 8 to Strategist's Registration Statement on Form N-1A (File Nos.
33-23669; 811-5634); (ii) Managed Assets' Prospectus dated May 30, 1995 which
Prospectus forms a part of Post-Effective Amendment No. 9 to Managed Assets'
Registration Statement on Form N-1A (File Nos. 33-17865; 811-5359); (iii)
Strategist's Annual Report for the fiscal year ended July 31, 1995, accompanying
this Proxy Statement and Prospectus and (iv) Managed Assets' Annual Report for
the fiscal year ended March 31, 1995. The foregoing documents may be obtained
without charge upon request from Adrienne Ryan Pinto at Dean Witter Trust
Company, Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311
(telephone 1-800-526-3143) (toll-free).
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Managed Assets and Strategist are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended, and in accordance therewith,
file reports and other information with the Commission. Proxy material, reports
and other information about Managed Assets and Strategist which are of public
record can be inspected and copied at public reference facilities maintained by
the Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and certain of its regional offices, and copies of such
materials can be obtained at prescribed rates from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549.
OTHER BUSINESS
Management of Managed Assets knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not known
at the time of the solicitation may come before the Meeting, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Board of Trustees,
Sheldon Curtis,
SECRETARY
October , 1995
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
24th day of August, 1995, by and between DEAN WITTER MANAGED ASSETS TRUST, a
Massachusetts business trust ("Managed Assets") and DEAN WITTER STRATEGIST FUND,
a Massachusetts business trust ("Strategist").
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a) (1) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization ("Reorganization") will consist of the
transfer to Strategist of substantially all of the assets of Managed Assets in
exchange for the assumption by Strategist of all stated liabilities of Managed
Assets and the issuance by Strategist of shares of beneficial interest, par
value $0.01 per share ("Strategist Shares"), to be distributed, after the
Closing Date hereinafter referred to, to the shareholders of Managed Assets in
liquidation of Managed Assets as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF MANAGED ASSETS
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, Managed Assets agrees to
assign, deliver and otherwise transfer the Managed Assets Assets (as defined in
paragraph 1.2) to Strategist and Strategist agrees in exchange therefor to
assume all of Managed Assets' stated liabilities on the Closing Date as set
forth in paragraph 1.3(a) and to deliver to Managed Assets the number of
Strategist Shares, including fractional Strategist Shares, determined by
dividing the value of the Managed Assets, net of such stated liabilities,
computed as of the Valuation Date (as defined in paragraph 2.1) in the manner
set forth in paragraph 2.1, by the net asset value of a Strategist Share,
computed at the time and date and in the manner set forth in paragraph 2.2. Such
transactions shall take place at the closing provided for in paragraph 3.1
("Closing").
1.2 (a) The "Managed Assets Assets" shall consist of all property,
including without limitation, all cash (other than the "Cash Reserve" (as
defined in paragraph 1.3(b)), cash equivalents, securities and dividend and
interest receivables owned by Managed Assets, and any deferred or prepaid
expenses shown as an asset on Managed Assets' books on the Valuation Date.
(b) On or prior to the Valuation Date, Managed Assets will provide
Strategist with a list of all of Managed Assets' assets to be assigned,
delivered and otherwise transferred to Strategist and of the stated liabilities
to be assumed by Strategist pursuant to this Agreement. Managed Assets reserves
the right to sell any of the securities on such list but will not, without the
prior approval of Strategist, acquire any additional securities other than
securities of the type in which Strategist is permitted to invest and in amounts
agreed to in writing by Strategist. Strategist will, within a reasonable time
prior to the Valuation Date, furnish Managed Assets with a statement of
Strategist's investment objective, policies and restrictions and a list of the
securities, if any, on the list referred to in the first sentence of this
paragraph that do not conform to Strategist's investment objective, policies and
restrictions. In the event that Managed Assets holds any investments that
Strategist is not permitted to hold, Managed Assets will dispose of such
securities on or prior to the Valuation Date. In addition, if it is determined
that the portfolios of Managed Assets and Strategist, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon
Strategist with respect to such investments (including, among others, percentage
limitations necessary to satisfy the diversification requirements of the Code),
Managed Assets if
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requested by Strategist will, on or prior to the Valuation Date, dispose of
and/or reinvest a sufficient amount of such investments as may be necessary to
avoid violating such limitations as of the Closing Date (as defined in paragraph
3.1).
1.3 (a) Managed Assets will endeavor to discharge all of its liabilities
and obligations on or prior to the Valuation Date. Strategist will assume all
stated liabilities, which includes, without limitation, all expenses, costs,
charges and reserves reflected on an unaudited Statement of Assets and
Liabilities of Managed Assets prepared by the Treasurer of Managed Assets as of
the Valuation Date in accordance with generally accepted accounting principles
consistently applied from the prior audited period.
(b) On the Valuation Date, Managed Assets may establish a cash reserve,
which shall not exceed 5% of Managed Assets' net assets as of the close of
business on the Valuation Date ("Cash Reserve") to be retained by Managed Assets
and used for the payment of its liabilities not discharged prior to the
Valuation Date and for the expenses of dissolution.
1.4 In order for Managed Assets to comply with Section 852(a)(1) of the
Code and to avoid having any investment company taxable income or net capital
gain (as defined in Sections 852(b)(2) and 1222(11) of the Code, respectively)
in the short taxable year ending with its dissolution, Managed Assets will on or
before the Valuation Date (a) declare a dividend in an amount large enough so
that it will have declared dividends of all of its investment company taxable
income and net capital gain, if any, for such taxable year (determined without
regard to any deduction for dividends paid) and (b) distribute such dividend.
1.5 On the Closing Date or as soon as practicable thereafter, Managed
Assets will distribute Strategist Shares received by Managed Assets pursuant to
paragraph 1.1 pro rata to its shareholders of record determined as of the close
of business on the Valuation Date ("Managed Assets Shareholders"). Such
distribution will be accomplished by an instruction, signed by Managed Assets'
Secretary, to transfer Strategist Shares then credited to Managed Assets'
account on the books of Strategist to open accounts on the books of Strategist
in the names of the Managed Assets Shareholders and representing the respective
pro rata number of Strategist Shares due such Managed Assets Shareholders. All
issued and outstanding shares of Managed Assets simultaneously will be canceled
on Managed Assets' books; however, share certificates representing interests in
Managed Assets will represent a number of Strategist Shares after the Closing
Date as determined in accordance with paragraph 2.3. Strategist will issue
certificates representing Strategist Shares in connection with such exchange
only upon the written request of a Managed Assets Shareholder.
1.6 Ownership of Strategist Shares will be shown on the books of
Strategist's transfer agent. Strategist Shares will be issued in the manner
described in Strategist's current Prospectus and Statement of Additional
Information.
1.7 Any transfer taxes payable upon issuance of Strategist Shares in a name
other than the registered holder of Strategist Shares on Managed Assets' books
as of the close of business on the Valuation Date shall, as a condition of such
issuance and transfer, be paid by the person to whom Strategist Shares are to be
issued and transferred.
1.8 Any reporting responsibility of Managed Assets is and shall remain the
responsibility of Managed Assets up to and including the date on which Managed
Assets is dissolved and deregistered pursuant to paragraph 1.9.
1.9 Within one year after the Closing Date, Managed Assets shall pay or
make provision for the payment of all its liabilities and taxes, and distribute
to the shareholders of Managed Assets as of the close of business on the
Valuation Date any remaining amount of the Cash Reserve (as reduced by the
estimated cost of distributing it to
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shareholders). Managed Assets shall be dissolved as a Massachusetts business
trust and deregistered as an investment company under the Investment Company Act
of 1940, as amended ("1940 Act"), promptly following the making of all
distributions pursuant to paragraph 1.5.
1.10 Copies of all books and records maintained on behalf of Managed
Assets in connection with its obligations under the 1940 Act, the Code, state
blue sky laws or otherwise in connection with this Agreement will promptly after
the Closing be delivered to officers of Strategist or their designee and
Strategist or its designee shall comply with applicable record retention
requirements to which Managed Assets is subject under the 1940 Act.
2. VALUATION
2.1 The value of the Managed Assets Assets shall be the value of such
assets computed as of 4:00 p.m. on the New York Stock Exchange on the 5th
business day following the receipt of the requisite approval by shareholders of
Managed Assets of this Agreement or at such time on such earlier or later date
after such approval as may be mutually agreed upon in writing (such time and
date being hereinafter called the "Valuation Date"), using the valuation
procedures set forth in Strategist's then current Prospectus and Statement of
Additional Information.
2.2 The net asset value of a Strategist Share shall be the net asset value
per share computed on the Valuation Date, using the valuation procedures set
forth in Strategist's then current Prospectus and Statement of Additional
Information.
2.3 The number of Strategist Shares (including fractional shares, if any)
to be issued hereunder shall be determined by dividing the value of the Managed
Assets Assets, net of the liabilities of Managed Assets assumed by Strategist
pursuant to paragraph 1.1, determined in accordance with paragraph 2.1, by the
net asset value of a Strategist Share determined in accordance with paragraph
2.2.
2.4 All computations of value shall be made by Dean Witter Services Company
("Services") in accordance with its regular practice in pricing Strategist.
Strategist shall cause Services to deliver a copy of its valuation report at the
Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the next business day following the
Valuation Date (the "Closing Date"). The Closing shall be held as of 9:00 a.m.
Eastern time, or at such other time as the parties may agree. The Closing shall
be held in a location mutually agreeable to the parties hereto. All acts taking
place at the Closing shall be deemed to take place simultaneously as of 9:00
a.m. Eastern time on the Closing Date unless otherwise provided.
3.2 Portfolio securities held by Managed Assets and represented by a
certificate or other written instrument shall be presented by it or on its
behalf to The Bank of New York (the "Custodian"), as custodian for Strategist,
for examination no later than five business days preceding the Valuation Date.
Such portfolio securities (together with any cash or other assets) shall be
delivered by Managed Assets to the Custodian for the account of Strategist on or
before the Closing Date in conformity with applicable custody provisions under
the 1940 Act and duly endorsed in proper form for transfer in such condition as
to constitute good delivery thereof in accordance with the custom of brokers.
The portfolio securities shall be accompanied by all necessary federal and state
stock transfer stamps or a check for the appropriate purchase price of such
stamps. Portfolio securities and instruments deposited with a securities
depository (as defined in Rule 17f-4 under the 1940 Act) shall be delivered on
or before
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the Closing Date by book-entry in accordance with customary practices of such
depository and the Custodian. The cash delivered shall be in the form of a
Federal Funds wire, payable to the order of "The Bank of New York, Custodian for
Dean Witter Strategist Fund."
3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall be
disrupted so that, in the judgment of both Strategist and Managed Assets,
accurate appraisal of the value of the net assets of Strategist or the Managed
Assets Assets is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed
without restriction or disruption and reporting shall have been restored.
3.4 If requested, Managed Assets shall deliver to Strategist or its
designee (a) at the Closing, a list, certified by its Secretary, of the names,
addresses and taxpayer identification numbers of the Managed Assets Shareholders
and the number and percentage ownership of outstanding Managed Assets shares
owned by each such Managed Assets Shareholder, all as of the Valuation Date, and
(b) as soon as practicable after the Closing, all original documentation
(including Internal Revenue Service forms, certificates, certifications and
correspondence) relating to the Managed Assets Shareholders' taxpayer
identification numbers and their liability for or exemption from back-up
withholding. Strategist shall issue and deliver to such Secretary a confirmation
evidencing delivery of Strategist Shares to be credited on the Closing Date to
Managed Assets or provide evidence satisfactory to Managed Assets that such
Strategist Shares have been credited to Managed Assets' account on the books of
Strategist. At the Closing, each party shall deliver to the other such bills of
sale, checks, assignments, share certificates, if any, receipts or other
documents as such other party or its counsel may reasonably request.
4. COVENANTS OF STRATEGIST AND MANAGED ASSETS
4.1 Except as otherwise expressly provided herein with respect to Managed
Assets, Strategist and Managed Assets each will operate its business in the
ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and other distributions.
4.2 Strategist will prepare and file with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as amended ("1933 Act"), relating to Strategist Shares
("Registration Statement"). Managed Assets will provide Strategist with the
Proxy Materials as described in paragraph 4.3 below, for inclusion in the
Registration Statement. Managed Assets will further provide Strategist with such
other information and documents relating to Strategist as are reasonably
necessary for the preparation of the Registration Statement.
4.3 Managed Assets will call a meeting of its shareholders to consider and
act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein. Managed Assets will prepare
the notice of meeting, form of proxy and proxy statement (collectively, "Proxy
Materials") to be used in connection with such meeting; provided that Strategist
will furnish Managed Assets with a currently effective prospectus relating to
Strategist Shares for inclusion in the Proxy Materials and with such other
information relating to Strategist as is reasonably necessary for the
preparation of the Proxy Materials.
4.4 Strategist will call a special meeting of its shareholders to consider
and act upon an amendment to its Plan of Distribution under Rule 12b-1 under the
1940 Act to authorize explicitly payments of expenses associated with
distribution of shares of an acquired fund, including Managed Assets (the
"Amendment"), and will take all other action necessary to obtain approval of the
Amendment. Strategist will prepare the notice of meeting, form of
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proxy and the proxy statement to be used in connection with such a meeting,
provided that Managed Assets will furnish Strategist with such information
relating to Managed Assets' excess distribution expenses as is reasonably
necessary for the preparation of such material.
4.5 Managed Assets will assist Strategist in obtaining such information as
Strategist reasonably requests concerning the beneficial ownership of Managed
Assets shares.
4.6 Subject to the provisions of this Agreement, Strategist and Managed
Assets will each take, or cause to be taken, all action, and do or cause to be
done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
4.7 Managed Assets shall furnish or cause to be furnished to Strategist
within 30 days after the Closing Date a statement of Managed Assets' assets and
liabilities as of the Closing Date, which statement shall be certified by
Managed Assets' Treasurer and shall be in accordance with generally accepted
accounting principles consistently applied. As promptly as practicable, but in
any case within 60 days after the Closing Date, Managed Assets shall furnish
Strategist, in such form as is reasonably satisfactory to Strategist, a
statement certified by Managed Assets' Treasurer of Managed Assets' earnings and
profits for federal income tax purposes that will be carried over to Strategist
pursuant to Section 381 of the Code.
4.8 As soon after the Closing Date as is reasonably practicable, Managed
Assets (a) shall prepare and file all federal and other tax returns and reports
of Managed Assets required by law to be filed with respect to all periods ending
on or before the Closing Date but not theretofore filed and (b) shall pay all
federal and other taxes shown as due thereon and/or all federal and other taxes
that were unpaid as of the Closing Date, including without limitation, all taxes
for which the provision for payment was made as of the Closing Date (as
represented in paragraph 5.2(k)).
4.9 Strategist agrees to use all reasonable efforts to obtain the approvals
and authorizations required by the 1933 Act, the 1940 Act and such of the state
Blue Sky and securities laws as it may deem appropriate in order to continue its
operations after the Closing Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 Strategist represents and warrants to Managed Assets as follows:
(a) Strategist is a validly existing Massachusetts business trust with
full power to carry on its business as presently conducted;
(b) Strategist is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company under
the 1940 Act and the registration of its shares under the 1933 Act are in full
force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
Strategist have been offered and sold in compliance in all material respects
with applicable registration requirements of the 1933 Act and state securities
laws. Shares of Strategist are registered in all jurisdictions in which they are
required to be registered under state securities laws and other laws, and said
registrations, including any periodic reports or supplemental filings, are
complete and current, all fees required to be paid have been paid, and
Strategist is not subject to any stop order and is fully qualified to sell its
shares in each state in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
Strategist conform in all material respects to the applicable requirements of
the 1933 Act and the 1940 Act and the regulations thereunder
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and do not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(e) Strategist is not in, and the execution, delivery and performance
of this Agreement will not result in a, material violation of any provision of
Strategist's Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which Strategist is a party
or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its knowledge,
threatened against Strategist or any of its properties or assets which, if
adversely determined, would materially and adversely affect its financial
condition or the conduct of its business; and Strategist knows of no facts that
might form the basis for the institution of such proceedings and is not a party
to or subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects, or is reasonably
likely to materially and adversely effect, its business or its ability to
consummate the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights as of July 31, 1995,
and for the year then ended, of Strategist certified by Price Waterhouse LLP
(copies of which have been furnished to Managed Assets), fairly present, in all
materials respects, Strategist's financial condition as of such date in
accordance with generally accepted accounting principles, and its results of
such operations, changes in its net assets and financial highlights for such
period, and as of such date there were no known liabilities of Strategist
(contingent or otherwise) not disclosed therein that would be required in
accordance with generally accepted accounting principles to be disclosed
therein;
(h) All issued and outstanding Strategist Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof,
except as set forth under the caption "Additional Information" in Strategist's
current Prospectus incorporated by reference in the Registration Statement.
Strategist does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of its shares, nor is there outstanding any
security convertible to any of its shares:
(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of Strategist, and this
Agreement constitutes a valid and binding obligation of Strategist enforceable
in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors rights and to general equity principles. No other consents,
authorizations or approvals are necessary in connection with Strategist's
performance of this Agreement;
(j) Strategist Shares to be issued and delivered to Managed Assets, for
the account of the Managed Assets Shareholders, pursuant to the terms of this
Agreement will at the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued Strategist Shares, and will be
fully paid and non-assessable with no personal liability attaching to the
ownership thereof, except as set forth under the caption "Additional
Information" in Strategist's current Prospectus incorporated by reference in the
Registration Statement:
(k) All material Federal and other tax returns and reports of
Strategist required by law to be filed on or before the Closing Date have been
filed and are correct, and all Federal and other taxes shown as due or required
to be shown as due on said returns and reports have been paid or provision has
been made for the payment thereof, and to the best of Strategist's knowledge, no
such return is currently under audit and no assessment has been asserted with
respect to any such return;
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(l) For each taxable year since its inception, Strategist has met the
requirements of Subchapter M of the Code for qualification and treatment as a
"regulated investment company" and neither the execution or delivery of nor the
performance of its obligations under this Agreement will adversely affect, and
no other events are reasonably likely to occur which will adversely affect the
ability of Strategist to continue to meet the requirements of Subchapter M of
the Code;
(m) Since July 31, 1995, there has been no change by Strategist in
accounting methods, principles, or practices, including those required by
generally accepted accounting principles;
(n) The information furnished or to be furnished by Strategist for use
in registration statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations applicable
thereto; and
(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to Strategist) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially misleading.
5.2 Managed Assets represents and warrants to Strategist as follows:
(a) Managed Assets is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) Managed Assets is a duly registered, open-end, management
investment company, and its registration with the Commission as an investment
company under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
Managed Assets have been offered and sold in compliance in all material respects
with applicable registration requirements of the 1933 Act and state securities
laws. Shares of Managed Assets are registered in all jurisdictions in which they
are required to be registered under state securities laws and other laws, and
said registrations, including any periodic reports or supplemental filings, are
complete and current, all fees required to be paid have been paid, and Managed
Assets is not subject to any stop order and is fully qualified to sell its
shares in each state in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
Managed Assets conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the regulations thereunder and do not
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(e) Managed Assets is not, and the execution, delivery and performance
of this Agreement will not result, in a material violation of any provision of
Managed Assets' Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which Managed Assets is a
party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its knowledge,
threatened against Managed Assets or any of its properties or assets which, if
adversely determined, would materially and adversely affect its financial
condition or the conduct of its
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business; and Managed Assets knows of no facts that might form the basis for the
institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects, or is reasonably likely to materially
and adversely effect, its business or its ability to consummate the transactions
herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of Managed Assets as
of March 31, 1995 and for the year then ended, certified by Price Waterhouse LLP
(copies of which have been or will be furnished to Strategist) fairly present,
in all material respects, Managed Assets' financial condition as of such date,
and its results of operations, changes in its net assets and financial
highlights for such period in accordance with generally accepted accounting
principles, and as of such date there were no known liabilities of Managed
Assets (contingent or otherwise) not disclosed therein that would be required in
accordance with generally accepted accounting principles to be disclosed
therein;
(h) Managed Assets has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it prior
to the Closing Date;
(i) All issued and outstanding shares of Managed Assets are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof,
except as set forth under the caption "Additional Information" in Managed
Assets' current Prospectus incorporated by reference in the Registration
Statement. Managed Assets does not have outstanding any options, warrants or
other rights to subscribe for or purchase any of its shares, nor is there
outstanding any security convertible to any of its shares. All such shares will,
at the time of Closing, be held by the persons and in the amounts set forth in
the list of shareholders submitted to Strategist pursuant to paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of Managed Assets, and subject to the approval of Managed Assets'
shareholders, this Agreement constitutes a valid and binding obligation of
Managed Assets, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors rights and to general equity principles. No
other consents, authorizations or approvals are necessary in connection with
Managed Assets' performance of this Agreement;
(k) All material federal and other tax returns and reports of Managed
Assets required by law to be filed on or before the Closing Date shall have been
filed and are correct and all Federal and other taxes shown as due or required
to be shown as due on said returns and reports have been paid or provision has
been made for the payment thereof, and to the best of Managed Assets' knowledge,
no such return is currently under audit and no assessment has been asserted with
respect to any such return;
(l) For each taxable year since its inception, Managed Assets has met
all the requirements of Subchapter M of the Code for qualification and treatment
as a "regulated investment company" and neither the execution or delivery of nor
the performance of its obligations under this Agreement will adversely affect,
and no other events are reasonably likely to occur which will adversely affect
the ability of Managed Assets to continue to meet the requirements of Subchapter
M of the Code;
(m) At the Closing Date, Managed Assets will have good and valid title
to the Managed Assets Assets, subject to no liens (other than the obligation, if
any, to pay the purchase price of portfolio securities purchased by Managed
Assets which have not settled prior to the Closing Date), security interests or
other encumbrances, and full right, power and authority to assign, deliver and
otherwise transfer such assets hereunder, and upon delivery and payment for such
assets, Strategist will acquire good and marketable title thereto, subject to no
restrictions on the full transfer thereof, including any restrictions as might
arise under the 1933 Act;
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(n) On the effective date of the Registration Statement, at the time of
the meeting of Managed Assets' shareholders and on the Closing Date, the Proxy
Materials (exclusive of the currently effective Strategist Prospectus contained
therein) will (i) comply in all material respects with the provisions of the
1933 Act, the Securities Exchange Act of 1934, as amended ("1934 Act") and the
1940 Act and the regulations thereunder and (ii) not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. Any
other information furnished by Managed Assets for use in the Registration
Statement or in any other manner that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and shall comply
in all material respects with applicable federal securities and other laws and
regulations thereunder;
(o) Managed Assets will, on or prior to the Valuation Date, declare one
or more dividends or other distributions to shareholders that, together with all
previous dividends and other distributions to shareholders, shall have the
effect of distributing to the shareholders all of its investment company taxable
income and net capital gain, if any, through the Valuation Date (computed
without regard to any deduction for dividends paid);
(p) Managed Assets has maintained or has caused to be maintained on its
behalf all books and accounts as required of a registered investment company in
compliance with the requirements of Section 31 of the 1940 Act and the Rules
thereunder; and
(q) Managed Assets is not acquiring Strategist Shares to be issued
hereunder for the purpose of making any distribution thereof other than in
accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF MANAGED ASSETS
The obligations of Managed Assets to consummate the transactions provided
for herein shall be subject, at its election, to the performance by Strategist
of all the obligations to be performed by it hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of Strategist contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date;
6.2 Strategist shall have delivered to Managed Assets a certificate of its
President and Treasurer, in a form reasonably satisfactory to Managed Assets and
dated as of the Closing Date, to the effect that the representations and
warranties of Strategist made in this Agreement are true and correct at and as
of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as Managed Assets
shall reasonably request;
6.3 Managed Assets shall have received a favorable opinion from Gordon
Altman Butowsky Weitzen Shalov & Wein, counsel to Strategist, dated as of the
Closing Date, to the effect that:
(a) Strategist is a validly existing Massachusetts business trust, and
has the power to own all of its properties and assets and to carry on its
business as presently conducted (Massachusetts counsel may be relied upon in
delivering such opinion); (b) Strategist is a duly registered, open-end,
management investment company, and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; (c) this
Agreement has been duly authorized, executed and delivered by Strategist and,
assuming that the Registration Statement complies with the 1933 Act, the 1934
Act and the 1940 Act and regulations thereunder and assuming due authorization,
execution and delivery of this Agreement by Managed Assets, is a valid and
binding obligation of Strategist enforceable against Strategist in accordance
with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors
rights and to general equity principles; (d) Strategist Shares to be issued to
Managed Assets Shareholders as provided by this
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Agreement are duly authorized and upon such delivery will be validly issued and
outstanding and fully paid and non-assessable (except as set forth under the
caption "Additional Information" in Strategist's Prospectus), and no shareholder
of Strategist has any preemptive rights to subscription or purchase in respect
thereof (Massachusetts counsel may be relied upon in delivering such opinion);
(e) the execution and delivery of this Agreement did not, and the consummation
of the transactions contemplated hereby will not, violate Strategist's
Declaration of Trust or By-Laws; and (f) to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or any state is required for the consummation by Strategist
of the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required under
state securities laws; and
6.4 As of the Closing Date, there shall have been no material change in the
investment objective, policies and restrictions nor any increase in the
investment management fees or annual fees payable pursuant to Strategist's 12b-1
plan of distribution from those described in the Prospectus and Statement of
Additional Information of Strategist dated September 28, 1995.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF STRATEGIST
The obligations of Strategist to complete the transactions provided for
herein shall be subject, at its election, to the performance by Managed Assets
of all the obligations to be performed by it hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of Managed Assets contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date;
7.2 Managed Assets shall have delivered to Strategist at the Closing a
certificate of its President and its Treasurer, in form and substance
satisfactory to Strategist and dated as of the Closing Date, to the effect that
the representations and warranties of Managed Assets made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as Strategist shall reasonably request;
7.3 Managed Assets shall have delivered to Strategist a statement of the
Managed Assets Assets and its liabilities, together with a list of Managed
Assets' portfolio securities and other assets showing the respective adjusted
bases and holding periods thereof for income tax purposes, as of the Closing
Date, certified by the Treasurer of Managed Assets;
7.4 Managed Assets shall have delivered to Strategist at the Closing a
letter from Price Waterhouse LLP dated the Closing Date stating that (a) such
firm has performed a limited review of the federal and state income tax returns
of Managed Assets for each of the last three taxable years and, based on such
limited review, nothing came to their attention that caused them to believe that
such returns did not properly reflect, in all material respects, the federal and
state income tax liabilities of Managed Assets for the periods covered thereby,
(b) for the period from July 31, 1995 to and including the Closing Date, such
firm has performed a limited review (based on unaudited financial data) to
ascertain the amount of applicable federal, state and local taxes and has
determined that same either have been paid or reserves have been established for
payment of such taxes, and, based on such limited review, nothing came to their
attention that caused them to believe that the taxes paid or reserves set aside
for payment of such taxes were not adequate in all materials respects for the
satisfaction of all federal, state and
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local tax liabilities for the period from July 31, 1995 to and including the
Closing Date and (c) based on such limited reviews, nothing came to their
attention that caused them to believe that Managed Assets would not qualify as a
regulated investment company for federal income tax purposes for any such year
or period;
7.5 Strategist shall have received at the Closing a favorable opinion from
Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to Managed Assets, dated
as of the Closing Date to the effect that:
(a) Managed Assets is a validly existing Massachusetts business trust
and has the power to own all of its properties and assets and to carry on its
business as presently conducted (Massachusetts counsel may be relied upon in
delivering such opinion); (b) Managed Assets is a duly registered, open-end,
management investment company under the 1940 Act, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect; (c) this Agreement has been duly authorized, executed and delivered by
Managed Assets and, assuming that the Registration Statement complies with the
1933 Act, the 1934 Act and the 1940 Act and the regulations thereunder and
assuming due authorization, execution and delivery of this Agreement by
Strategist, is a valid and binding obligation of Managed Assets enforceable
against Managed Assets in accordance with its terms, subject as to enforcement,
to bankruptcy, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors rights and to general equity principles; (d) the
execution and delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate Managed Assets' Declaration
of Trust or By-Laws; and (e) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental authority of the
United States or any state is required for the consummation by Managed Assets of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required under
state securities laws; and
7.6 On the Closing Date, the Managed Assets Assets shall include no assets
that Strategist, by reason of Declaration of Trust limitations or otherwise, may
not properly acquire.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF STRATEGIST AND
MANAGED ASSETS
The obligations of Managed Assets and Strategist hereunder are each subject
to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
Managed Assets in accordance with the provisions of Managed Assets' Declaration
of Trust, and certified copies of the resolutions evidencing such approval shall
have been delivered to Strategist;
8.2 The Amendment shall have been approved by the affirmative vote of a
"majority of the outstanding voting securities" of Strategist, as such term is
defined in the 1940 Act, and certified copies of the resolutions evidencing such
approval shall have been delivered to Managed Assets.
8.3 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.4 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such federal and state
authorities) deemed necessary by Strategist or Managed Assets to permit
consummation, in all material respects, of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent, order
or permit would not involve risk of a material adverse effect on the assets or
properties of Strategist or Managed Assets;
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8.5 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act;
8.6 Managed Assets shall have declared and paid a dividend or dividends
and/or other distribution or distributions that, together with all previous such
dividends or distributions, shall have the effect of distributing to the Managed
Assets Shareholders all of Managed Assets' investment company taxable income
(computed without regard to any deduction for dividends paid) and all of its net
capital gain (after reduction for any capital loss carry-forward and computed
without regard to any deduction for dividends paid) for all taxable years ending
on or before the Closing Date; and
8.7 The parties shall have received a favorable opinion of the law firm of
Gordon Altman Butowsky Weitzen Shalov & Wein (based on such representations as
such law firm shall reasonably request), addressed to Strategist and Managed
Assets, which opinion may be relied upon by the shareholders of Managed Assets,
substantially to the effect that, for federal income tax purposes:
(a) The transfer of substantially all of Managed Assets' assets in
exchange for Strategist Shares and the assumption by Strategist of certain
stated liabilities of Managed Assets followed by the distribution by Managed
Assets of Strategist Shares to the Managed Assets Shareholders in exchange for
their Managed Assets shares will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code, and Managed Assets and Strategist will
each be a "party to a reorganization" within the meaning of Section 368(b) of
the Code;
(b) No gain or loss will be recognized by Strategist upon the receipt
of the assets of Managed Assets solely in exchange for Strategist Shares and the
assumption by Strategist of the stated liabilities of Managed Assets;
(c) No gain or loss will be recognized by Managed Assets upon the
transfer of the assets of Managed Assets to Strategist in exchange for
Strategist Shares and the assumption by Strategist of the stated liabilities or
upon the distribution of Strategist Shares to the Managed Assets Shareholders in
exchange for their Managed Assets shares;
(d) No gain or loss will be recognized by the Managed Assets
Shareholders upon the exchange of the Managed Assets shares for Strategist
Shares;
(e) The aggregate tax basis for Strategist Shares received by each
Managed Assets Shareholder pursuant to the reorganization will be the same as
the aggregate tax basis of the Managed Assets Shares held by each such Managed
Assets Shareholder immediately prior to the Reorganization;
(f) The holding period of Strategist Shares to be received by each
Managed Assets Shareholder will include the period during which the Managed
Assets Shares surrendered in exchange therefor were held (provided such Managed
Assets Shares were held as capital assets on the date of the Reorganization);
(g) The tax basis of the assets of Managed Assets acquired by
Strategist will be the same as the tax basis of such assets to Managed Assets
immediately prior to the Reorganization; and
(h) The holding period of the assets of Managed Assets in the hands of
Strategist will include the period during which those assets were held by
Managed Assets.
Notwithstanding anything herein to the contrary, neither Strategist nor
Managed Assets may waive the condition set forth in this paragraph 8.7.
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9. FEES AND EXPENSES
9.1 (a) Strategist shall bear its expenses incurred in connection with
entering into and carrying out the provisions of this Agreement, including
legal, accounting and Commission registration fees and Blue Sky expenses.
Managed Assets shall bear its expenses incurred in connection with entering into
and carrying out the provisions of this Agreement, including legal and
accounting fees, printing, filing and proxy solicitation expenses and portfolio
transfer taxes (if any) incurred in connection with the consummation of the
transactions contemplated herein.
(b) In the event the transactions contemplated herein are not
consummated by reason of Managed Assets' being either unwilling or unable to go
forward (other than by reason of the nonfulfillment or failure of any condition
to Managed Assets' obligations specified in this Agreement), Managed Assets'
only obligation hereunder shall be to reimburse Strategist for all reasonable
out-of-pocket fees and expenses incurred by Strategist in connection with those
transactions.
(c) In the event the transactions contemplated herein are not
consummated by reason of Strategist's being either unwilling or unable to go
forward (other than by reason of the nonfulfillment or failure of any condition
to Strategist's obligations specified in the Agreement), Strategist's only
obligation hereunder shall be to reimburse Managed Assets for all reasonable
out-of-pocket fees and expenses incurred by Managed Assets in connection with
those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated herein, except
that the representations, warranties and covenants of Managed Assets hereunder
shall not survive the dissolution and complete liquidation of Managed Assets in
accordance with Section 1.9.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of Managed Assets and Strategist;
(b) by either Strategist or Managed Assets by notice to the other,
without liability to the terminating party on account of such termination
(providing the termination party is not otherwise in material default or breach
of this Agreement) if the Closing shall not have occurred on or before February
29, 1996; or
(c) by either Strategist or Managed Assets, in writing without
liability to the terminating party on account of such termination (provided the
terminating party is not otherwise in material default or breach of this
Agreement), if (i) the other party shall fail to perform in any material respect
its agreements contained herein required to be performed on or prior to the
Closing Date, (ii) the other party materially breaches any of its
representations, warranties or covenants contained herein, (iii) the Managed
Assets shareholders fail to approve this Agreement at any meeting called for
such purpose at which a quorum was present or (iv) any other condition herein
expressed to be precedent to the obligations of the terminating party has not
been met and it reasonably appears that it will not or cannot be met.
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<PAGE>
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of Strategist or Managed Assets or the
trustees or officers of Strategist or Managed Assets, to any other party or its
trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of Strategist or Managed Assets or the
trustees or officers of Strategist or Managed Assets, except that any party in
breach of this Agreement shall, upon demand, reimburse the non-breaching party
for all reasonable out-of-pocket fees and expenses incurred in connection with
the transactions contemplated by this Agreement, including legal, accounting and
filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties; provided, however, that
following the meeting of Managed Assets' shareholders called by Managed Assets
pursuant to paragraph 4.3, no such amendment may have the effect of changing the
provisions for determining the number of Strategist Shares to be issued to the
Managed Assets Shareholders under this Agreement to the detriment of such
Managed Assets Shareholders without their further approval.
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 The obligations and liabilities of Strategist hereunder are solely
those of Strategist. It is expressly agreed that no shareholder, nominee,
trustee, officer, agent, or employee of Strategist shall be personally liable
hereunder. The execution and delivery of this Agreement have been authorized by
the trustees of Strategist and signed by authorized officers of Strategist
acting as such, and neither such authorization by such trustees nor such
execution and delivery by such officers shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally.
13.6 The obligations and liabilities of Managed Assets hereunder are solely
those of Managed Assets. lt is expressly agreed that no shareholder, nominee,
trustee, officer, agent, or employee of Managed Assets shall be personally
liable hereunder. The execution and delivery of this Agreement have been
authorized by the trustees of Managed Assets and signed by authorized officers
of Managed Assets acting as such, and neither such authorization by such
trustees nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by a duly authorized officer.
DEAN WITTER MANAGED ASSETS TRUST
By: ____/s/_Charles A. Fiumefreddo____
Name: Charles A. Fiumefreddo
Title: President
DEAN WITTER STRATEGIST FUND
By: ________/s/_Sheldon Curtis________
Name: Sheldon Curtis
Title: Vice President
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<PAGE>
PROSPECTUS
AUGUST 28, 1995
Dean Witter Strategist Fund (the "Fund") is an open-end,
non-diversified management investment company, the objective of which is to
maximize the total return on its investments. The Fund seeks to achieve its
investment objective by actively allocating its assets among the major asset
categories of equity securities, fixed-income securities and money market
instruments. See "Investment Objective and Policies."
Shares of the Fund are continuously offered at net asset value.
However, redemptions and/or repurchases are subject, in most circumstances, 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, Dean Witter Distributors Inc. 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 (i) 1% of the lesser of the (a) average daily aggregate net sales since
implementation of the amended Plan of Distribution or (b) average daily net
assets of the Fund attributable to shares issued since implementation of the
amended Plan of Distribution plus (ii) 0.25% of average daily net assets of the
Fund attributable to shares issued prior to inception of the amended Plan of
Distribution. 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 28, 1995, 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/9
Investment Restrictions/13
Purchase of Fund Shares/13
Shareholder Services/16
Redemptions and Repurchases/18
Dividends, Distributions and Taxes/20
Performance Information/21
Additional Information/22
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
Strategist Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 526-3143
<PAGE>
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 open- end,
Fund non-diversified management investment company. The Fund invests in equity securities, fixed-income securities
and money market instruments in portions determined by the Investment Manager to best enable the Fund to
maximize the total return on a shareholder's investment.
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Shares Shares of beneficial interest with $0.01 par value (see page 22).
Offered
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Offering At net asset value without sales charge (see page 13). Shares redeemed within six years of purchase are subject
Price to a contingent deferred sales charge under most circumstances (see page 18).
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Minimum Minimum initial investment, $1,000; minimum subsequent investments, $100 (see page 13).
Purchase
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Investment The investment objective of the Fund is to maximize the total return on its investments.
Objective
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Investment Dean Witter InterCapital Inc., the Investment Manager of the Fund, and its wholly-owned subsidiary, Dean Witter
Manager Services Company Inc., serve in various investment management, advisory, management and administrative
capacities to ninety-four investment companies and other portfolios with assets of approximately $75.1 billion
at July 31, 1995 (see page 5).
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Management The Investment Manager receives a monthly fee at the annual rate of 0.60% of daily net assets on assets not
Fee exceeding $500 million, scaled down at various asset levels to 0.50% on daily net assets exceeding $1 billion
(see page 5).
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Dividends Dividends from net investment income are paid quarterly; distributions from net capital gains, if any, are paid
at least once each 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 20).
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Distributor and Dean Witter Distributors Inc. (the "Distributor") is the distributor of the Fund's shares. The Distributor
Distribution Fee receives from the Fund a distribution fee, accrued daily and payable monthly, at the rate of: (i) 1% per annum
of the lesser of (a) the Fund's average daily aggregate net sales since the implementation of an amended plan of
distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Plan"), or (b)
the Fund's average daily net assets attributable to shares issued since the implementation of the Plan plus (ii)
0.25% of the Fund's average daily net assets attributable to shares issued prior to implementation of the Plan.
This fee compensates the Distributor for the services provided in distributing shares of the Fund and for its
sales related expenses. The Distributor also receives the proceeds of any contingent deferred sales charges (see
pages 14 and 18).
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Redemption-- Shares are redeemable by the shareholder at net asset value. An account may be involuntarily redeemed if the
Contingent total value of the account is less than $100. Although no commission or sales load is imposed upon the purchase
Deferred Sales of shares, a contingent deferred sales charge (scaled down from 5% to 1%) is imposed on any redemption of shares
Charge if after such redemption the aggregate current value of an account with the Fund falls below the aggregate
amount of the investor's purchase payments made during the six years preceding the redemption, but after the
implementation of the Plan on November 8, 1989. However, there is no charge imposed on redemption of shares
purchased through reinvestment of dividends or distributions (see pages 18 through 20).
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Special The net asset value of the Fund's shares will fluctuate with changes in the market value of its portfolio
Risk securities. The level of income payable to the investor will vary depending upon the market allocation
Considerations determined by the Fund's Investment Manager and with various market determinants such as interest rates. The
Fund may make various investments and may engage in various investment strategies including option and futures
transactions, when-issued and delayed delivery securities and forward commitments, when, as and if issued
securities, foreign securities and repurchase agreements (pages 5-12). The Fund is a non-diversified investment
company and, as such, is not subject to the diversification requirements of the Investment Company Act of 1940,
as amended (see page 12).
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</TABLE>
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE
IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
2
<PAGE>
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 July 31, 1995.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------------------
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 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>
<TABLE>
<S> <C>
Redemption Fees....................................................................... None
Exchange Fee.......................................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------------------
Management Fees....................................................................... 0.58%
12b-1 Fees*........................................................................... 0.91%
Other Expenses........................................................................ 0.14%
Total Fund Operating Expenses......................................................... 1.63%
<FN>
- ------------
* 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
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
<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:.............................................................. $ 67 $ 82 $ 109 $ 194
You would pay the following expenses on the same investment, assuming
no redemption:....................................................... $ 17 $ 52 $ 89 $ 194
</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
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
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
OCTOBER 31,
FOR THE YEAR ENDED JULY 31 1988*
--------------------------------------------------------------------- THROUGH
1995 1994 1993 1992 1991 1990 JULY 31, 1989
--------- --------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 14.43 $ 14.59 $ 14.39 $ 13.09 $ 11.65 $ 11.37 $ 9.45
--------- --------- --------- --------- --------- --------- -------
Net investment income................... 0.34 0.30 0.26 0.27 0.27 0.23 0.38
Net realized and unrealized gain........ 1.86 0.22 0.81 1.27 1.50 0.55 1.84
--------- --------- --------- --------- --------- --------- -------
Total from investment operations........ 2.20 0.52 1.07 1.54 1.77 0.78 2.22
--------- --------- --------- --------- --------- --------- -------
Less dividends and distributions from:
Net investment income................. (0.29) (0.26) (0.31) (0.24) (0.26) (0.29) (0.30)
Net realized gain..................... (0.47) (0.42) (0.56) -- (0.07) (0.21) --
--------- --------- --------- --------- --------- --------- -------
Total dividends and distributions....... (0.76) (0.68) (0.87) (0.24) (0.33) (0.50) (0.30)
--------- --------- --------- --------- --------- --------- -------
Net asset value, end of period.......... $ 15.87 $ 14.43 $ 14.59 $ 14.39 $ 13.09 $ 11.65 $ 11.37
--------- --------- --------- --------- --------- --------- -------
--------- --------- --------- --------- --------- --------- -------
TOTAL INVESTMENT RETURN+................ 16.05% 3.53% 7.59% 11.88% 15.67% 7.21% 23.76%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 1.63% 1.62% 1.62% 1.63% 1.59% 1.53% 0.97%(2)(3)
Net investment income................... 2.35% 2.03% 1.90% 2.19% 2.37% 2.39% 6.00%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $877,595 $806,249 $782,833 $440,802 $238,432 $195,687 $47,921
Portfolio turnover rate................. 179% 90% 98% 79% 140% 101% 70%(1)
<FN>
- ------------------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all its expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment income
ratios would have been 1.48% and 5.48%, respectively.
</TABLE>
4
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Dean Witter Strategist Fund (the "Fund") is an open-end, non-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 August 5, 1988.
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-four investment companies, thirty of which
are listed on the New York Stock Exchange, with combined assets of approximately
$72.8 billion as of July 31, 1995. The Investment Manager also manages and
advises portfolios of pension plans, other institutions and individuals which
aggregated approximately $2.3 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs, manage the investment of the Fund's
assets and determine the allocations 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 the annual rate
of 0.60% of the portion of the Fund's net assets not exceeding $500 million,
scaled down at various asset levels to 0.50% on the portion of the Fund's net
assets exceeding $1 billion. For the fiscal year ended July 31, 1995, the Fund
accrued total compensation to the Investment Manager amounting to 0.58% of the
Fund's average daily net assets and the Fund's total expenses amounted to 1.63%
of the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to maximize the total return on its
investments. This is a fundamental policy and cannot be changed without the
approval of the Fund's shareholders. In seeking to achieve its objective, the
Fund actively allocates assets among the major asset categories of equity
securities, fixed-income securities and money market instruments. Total return
consists of current income (including dividends, interest and, in the case of
discounted instruments, discount accruals) and capital appreciation (including
realized and unrealized capital gains and losses). There can be no assurance
that the investment objective of the Fund will be achieved.
The achievement of the Fund's investment objective depends upon the ability
of the Investment Manager to correctly assess the effects of economic and market
trends on different sectors of the market. The Investment Manager believes that
superior investment returns at lower risk are achievable by actively allocating
resources to the equity, debt and
5
<PAGE>
money market sectors of the market as opposed to relying solely on just one
market. At times, the equity market may hold a higher potential return than the
debt market and would warrant a higher asset allocation. The reverse would be
true when the bond market potential return is higher. Short duration bonds and
money market instruments can be used to soften market declines when both bonds
and equities are fully priced. Conserving capital during declining markets can
contribute to maximizing total return over a longer period of time. In addition,
the securities of companies within various economic sectors may at times offer
higher returns than other sectors and can thus contribute to superior returns.
Finally, the Investment Manager believes that superior stock selection can also
contribute to superior total return.
To facilitate reallocation of the Fund's assets in accordance with the
Investment Manager's views as to shifts in the marketplace, the Investment
Manager employs transactions in futures contracts and options thereon. For
example, if the Investment Manager believes that a ten percent increase in that
portion of the Fund's assets invested in fixed-income securities and a
concomitant decrease in that portion of the Fund's assets invested in equity
securities is timely, the Fund might purchase interest rate futures, such as
Treasury bond futures, and sell stock index futures, such as the Standard &
Poor's Corporation ("S&P") 500 Stock Index futures, in equivalent amounts. The
utilization of futures transactions, rather than the purchase and sale of equity
and fixed-income securities, increases the speed and efficacy of the Fund's
asset reallocations. See below for a discussion of futures transactions.
Within the equity sector, the Investment Manager actively allocates funds to
those economic sectors expected to benefit from major trends and to individual
stocks which are deemed to have superior investment potential. The Fund may
purchase equity securities (including convertible debt obligations and
convertible preferred stock) sold on the New York, American and other stock
exchanges and in the over-the-counter market. In addition, the Fund may purchase
and sell warrants and purchase and write listed and over-the-counter options on
individual stocks and stock indexes to hedge against adverse price movements in
its equity portfolio and to increase its total return through the receipt of
premium income. The Fund may also purchase and sell stock index futures and
options thereon to hedge against adverse price movements in its equity portfolio
and to facilitate asset reallocations into and out of the equity area.
Within the fixed-income sector of the market, the Investment Manager seeks
to maximize the return on its investments by adjusting maturities and coupon
rates as well as by exploiting yield differentials among different types of
investment grade bonds. Fixed-income securities in which the Fund may invest are
short-term to intermediate (one to five year maturities) and intermediate to
long-term (greater than five year maturities) debt securities and preferred
stocks, including U.S. Government securities (securities issued or guaranteed as
to principal and interest by the United States or its agencies and
instrumentalities) and corporate securities which are rated at the time of
purchase Baa or better by Moody's Investors Service, Inc. ("Moody's") (while
bonds rated Baa by Moody's are considered investment grade, they have
speculative characteristics as well) or BBB or better by S&P, or which, if
unrated, are deemed to be of comparable quality by the Fund's Trustees (a
description of corporate bond ratings is contained in the Appendix to the
Statement of Additional Information). U.S. Government securities which may be
purchased include zero coupon securities. In addition, the Fund may purchase and
write listed and over-the-counter options on fixed-income securities to hedge
against adverse price movements in its fixed-income portfolio and to increase
its total return through the receipt of premium income. The Fund may also
purchase and sell interest rate futures and options thereon to hedge against
adverse price movements in its fixed-income portfolio and to facilitate asset
reallocations into and out of the fixed-income area.
6
<PAGE>
Within the money market sector of the market, the Investment Manager seeks
to maximize returns by exploiting spreads among short-term instruments. The
money market portion of the Fund's portfolio will contain short-term (maturities
of up to thirteen months) fixed-income securities, issued by private and
governmental institutions. Such securities may include: U.S. Government
securities; bank obligations; Eurodollar certificates of deposit issued by
foreign branches of domestic banks; obligations of savings institutions; fully
insured certificates of deposit; and commercial paper rated within the two
highest grades by S&P or the highest grade by Moody's or, if not rated, issued
by a company having an outstanding debt issue rated at least AA by S&P or Aa by
Moody's. For a discussion of the risks of investing in Eurodollar certificates
of deposit, see "Risk Considerations--Foreign Securities" below.
FOREIGN SECURITIES. The Fund may invest up to 20% of its total assets in
securities issued by foreign governments and other foreign issuers and in
foreign currency issues of domestic issuers, but not more than 10% of its total
assets in such securities, whether issued by a foreign or domestic issuer, which
are denominated in foreign currency. With regard to foreign fixed-income
securities, the Investment Manager believes that in many instances such
securities may provide higher yields than similar securities of domestic
issuers. For a discussion of the risks of investing in foreign securities, see
"Risk Considerations" below.
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 invest in securities which are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or which are
otherwise not readily marketable. These securities are generally referred to as
private placements or restricted securities. The Securities and Exchange
Commission has adopted Rule 144A under the Securities Act, which permits the
Fund to sell restricted securities to qualified institutional buyers without
limitation. The Investment Manager, pursuant to procedures adopted by the
Trustees of the Fund, will make a determination as to the liquidity of each
restricted security purchased by the Fund. If a restricted security is
determined to be "liquid", such security will not be included within the
category "illiquid securities", which is limited by the Fund's investment
restrictions to 10% of the Fund's total assets. For a discussion of the risks of
investing in private placements, see "Risk Considerations" below.
INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments primarily
in commercial real estate properties. Investment in real estate investment
trusts may be the most practical available means for the Fund to invest in the
real estate industry (the Fund is prohibited from investing in real estate
directly). As a shareholder in a real estate investment trust, the Fund would
bear its ratable share of the real estate investment trust's expenses, including
its advisory and administration fees. At the same time the Fund would continue
to pay its own investment management fees and other expenses, as a result of
which the Fund and its shareholders in effect will be absorbing duplicate levels
of fees with respect to investments in real estate investment trusts.
OPTIONS. The Fund also may purchase and sell (write) call and put options
on debt and equity securities which are listed on Exchanges or are written in
7
<PAGE>
over-the-counter transactions ("OTC options"). Listed options, which are
currently listed on several different Exchanges, are issued by the Options
Clearing Corporation ("OCC"). Ownership of a listed call option gives the Fund
the right to buy from the OCC the underlying security covered by the option at
the stated exercise price (the price per unit of the underlying security) by
filing an exercise notice prior to the expiration date of the option. The writer
(seller) of the option would then have the obligation to sell to the OCC the
underlying security at that exercise price prior to the expiration date of the
option, regardless of its then current market price. Ownership of a listed put
option would give the Fund the right to sell the underlying security to the OCC
at the stated exercise price.
OTC OPTIONS. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the Fund.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. The Fund will engage in OTC
option transactions only with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities, without limit, in order to aid it in achieving its
investment objective. As a writer of a call option, the Fund has the obligation,
upon notice of exercise of the option, to deliver the security underlying the
option (certain listed call options written by the Fund will be exercisable by
the purchaser only on a specific date). See "Options and Futures Transactions--
Covered Call Writing" in the Statement of Additional Information.
COVERED PUT WRITING. As a writer of covered put options, the Fund incurs an
obligation to buy the security underlying the option from the purchaser of the
put at the option's exercise price at any time during the option period. The
Fund will write put options for two purposes: (1) to receive the premiums paid
by purchasers; and (2) when the Investment Manager wishes to purchase the
security underlying the option at a price lower than its current market price,
in which case it will write the covered put at an exercise price reflecting the
lower purchase price sought. See "Options and Futures Transactions--Covered Put
Writing" in the Statement of Additional Information.
PURCHASING CALL AND PUT OPTIONS. The Fund may invest up to 5% of its total
assets in the purchase of put and call options on securities and stock indexes.
The Fund may purchase call options only in order to close out a covered call
position. The Fund may purchase put options on securities which it holds (or has
the right to acquire) in its portfolio only to protect itself against a decline
in the value of the security. The Fund may also purchase put options to close
out written put positions in a manner similar to call option closing purchase
transactions. There are no other limits on the Fund's ability to purchase call
and put options.
STOCK INDEX OPTIONS. The Fund may purchase and write options on stock
indexes. Options on stock indexes are similar to options on stock except that,
rather than the right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. See "Stock Index Options" and
"Risks of Options on Indexes" in the Statement of Additional Information.
FUTURES CONTRACTS. The Fund may purchase and sell interest rate and stock
index futures contracts ("futures contracts") that are traded on U.S. commodity
exchanges on such underlying securities as U.S. Treasury bonds, notes, and bills
and GNMA Certificates ("interest rate futures") and such indexes as the S&P 500
Index and the New York Stock Exchange Composite Index ("stock index futures")
and the Moody's Investment-Grade Corporate Bond Index ("bond index futures"). As
a futures contract pur-
8
<PAGE>
chaser, the Fund incurs an obligation to take delivery of a specified amount of
the obligation underlying the contract at a specified time in the future for a
specified price. As a seller of a futures contract, the Fund incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price. The Fund will purchase or
sell interest rate futures contracts and bond index futures contracts for the
purpose of hedging its fixed-income portfolio (or anticipated portfolio)
securities against changes in prevailing interest rates. The Fund will purchase
or sell stock index futures contracts for the purpose of hedging its equity
portfolio (or anticipated portfolio) securities against changes in their prices.
As noted above, the Fund may also engage in futures transactions to facilitate
reallocation of the Fund's assets. The Fund also may purchase and write call and
put options on futures contracts and enter into closing transactions with
respect to such options to terminate an existing position. See "Options and
Futures Transactions--Futures Contracts" and "Options on Futures Contracts" in
the Statement of Additional Information.
For a discussion of the risks of options and futures transactions, see "Risk
Considerations" below and "Options and Futures Transactions" in the Statement of
Additional Information.
------------------------
The Fund may purchase securities on a when-issued or delayed delivery basis,
may purchase or sell securities on a forward commitment basis, may purchase
securities on a "when, as and if issued" basis, may lend its portfolio
securities, and may enter into reverse repurchase agreements, as discussed under
"Risk Considerations" below.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted. The level of income
payable to the investor will vary depending upon the market allocation
determined by the Investment Manager and with various determinants such as
interest rates.
FOREIGN SECURITIES. Foreign securities investments may be affected by
changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United States
and abroad) or changed circumstances in dealings between nations. Fluctuations
in the relative rates of exchange between the currencies of different nations
will affect the value of the Fund's investments denominated in foreign currency.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in that currency
and thereby impact upon the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The Fund will incur costs in connection
with conversions between various currencies.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Finally, in the event of a
default of any foreign debt obligations, it may be more difficult for the Fund
to
9
<PAGE>
obtain or enforce a judgment against the issuers of such securities.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of the Fund's trades effected in such markets. As such, the
inability to dispose of portfolio securities due to settlement delays could
result in losses to the Fund due to subsequent declines in value of such
securities and the inability of the Fund to make intended security purchases due
to settlement problems could result in a failure of the Fund to make potentially
advantageous investments. To the extent the Fund purchases Eurodollar
certificates of deposit issued by foreign branches of domestic United States
banks, consideration will be given to their domestic marketability, the lower
reserve requirements normally mandated for overseas banking operations, the
possible impact of interruptions in the flow of international currency
transactions and future international political and economic developments which
might adversely affect the payment of principal or interest.
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, the value of the collateral underlying the
repurchase agreement will be at least equal to the repurchase price, including
any accrued interest earned on the repurchase agreement. In the event of a
default or bankruptcy by a selling financial institution, the Fund will seek to
liquidate such collateral. However, the exercising of the Fund's right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
The Fund may not invest in repurchase agreements that do not mature within seven
days if any such investment, together with any other illiquid assets held by the
Fund, amounts to more than 10% of its total assets.
PRIVATE PLACEMENTS. Limitations on the resale of private placements may
have an adverse effect on their marketability, and may prevent the Fund from
disposing of them promptly at reasonable prices. The Fund may have to bear the
expense of registering such securities for resale and the risk of substantial
delays in effecting such registration. In the case of restricted securities
determined to be "liquid" pursuant to Rule 144A under the Securities Act, the
Fund's illiquidity could increase if qualified institutional buyers become
unavailable.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are negotiated,
the price is fixed at the time of the commitment, but delivery and payment can
take place a month or more after the date of the commitment. There is no overall
limit on the percentage of the Fund's assets which may be committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if
10
<PAGE>
issued" basis under which the issuance of the security depends upon the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization, leveraged buyout or debt restructuring. If the anticipated event
does not occur and the securities are not issued, the Fund will have lost an
investment opportunity. There is no overall limit on the percentage of the
Fund's assets which may be committed to the purchase of securities on a "when,
as and if issued" basis. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of the Fund's net asset value.
OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its position as
writer of an option, or as a buyer or seller of a futures contract, only if a
liquid secondary market exists for options or futures contracts of that series.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. Also, exchanges may
limit the amount by which the price of many futures contracts may move on any
day. If the price moves equal the daily limit on successive days, then it may
prove impossible to liquidate a futures position until the daily limit moves
have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Internal Revenue Code's requirements
for qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Dividends, Distributions and Taxes."
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale. Another risk
which may arise in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities and indexes
subject to futures contracts (and thereby the futures contract prices) may
correlate imperfectly with the behavior of the cash prices of the Fund's
portfolio securities. See the Statement of Additional Information for further
discussion of such risks.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements, which involve sales by the Fund of portfolio assets concurrently
with an agreement by the Fund to repurchase the same assets at a later date at a
fixed price.
Reverse repurchase agreements involve the risk that the market value of the
securities the Fund is obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. Reverse repurchase agreements are
considered borrowings by the Fund and for purposes other than meeting
redemptions may not exceed 5% of the Fund's total assets.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
11
<PAGE>
and other financial institutions, provided that such loans are callable at any
time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account pursuant
to applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans of portfolio securities will only be made to firms deemed by the
Investment Manager to be creditworthy and when the income which can be earned
from such loans justifies the attendant risks.
NON-DIVERSIFIED STATUS. The Fund is a non-diversified investment company
and, as such, is not subject to the diversification requirements of the
Investment Company Act of 1940 (the "Act"). As a non-diversified investment
company, the Fund may invest a greater portion of its assets in the securities
of a single issuer and thus is subject to greater exposure to risks such as a
decline in the credit rating of that issuer. However, the Fund anticipates that
it will qualify as a regulated investment company under the federal income tax
laws and, if so qualified, will be subject to the applicable diversification
requirements of the Internal Revenue Code (the "Code"). As a regulated
investment company under the Code, the Fund may not, as of the end of any of its
fiscal quarters, have invested more than 25% of its total assets in the
securities of any one issuer (including a foreign government), or as to 50% of
its total assets, have invested more than 5% of its total assets in the
securities of a single issuer.
For additional risk disclosure, please refer to the "Investment Objective
and Policies" section of the Prospectus and to the "Investment Practices and
Policies" section of the Statement of Additional Information.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by the Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of InterCapital, the views of
Trustees of the Fund and others regarding economic developments and interest
rate trends, and the Investment Manager's own analysis of factors it deems
relevant. The Fund's portfolio is managed within InterCapital's Large
Capitalization Equity Group, which manages thirty-five funds and fund
portfolios, with approximately $21.7 billion in assets as of July 31, 1995. Mark
Bavoso, Senior Vice President of InterCapital and a member of InterCapital's
Large Capitalization Equity Group, has been the primary portfolio manager of the
Fund since January, 1994, and has been a portfolio manager at InterCapital for
over five years.
Orders for transactions in other portfolio securities and commodities are
placed for the Fund with a number of brokers and dealers, including DWR.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. In
addition, the Fund may incur brokerage commissions on transactions conducted
through DWR.
It is not anticipated that the portfolio trading engaged in by the Fund will
result in its portfolio turnover rate exceeding 150% in any one year. The Fund
will incur underwriting discount costs (on underwritten securities) and
brokerage costs commensurate with its portfolio turnover rate, and thus a higher
level (over 100%) of portfolio transactions will increase the Fund's overall
brokerage expenses. See "Dividends, Distributions and Taxes" for a discussion of
the tax implications of the Fund's transactions. A more extensive discussion of
the Fund's portfolio brokerage policies is set forth in the Statement of
Additional Information.
12
<PAGE>
Except as specifically noted, all investment objectives, policies and
practices discussed above are not fundamental policies of the Fund and, as such,
may be changed without shareholder approval.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. For purposes
of the following limitations: (i) all percentage limitations apply immediately
after a purchase or initial investment, and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund may not:
1. Invest 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.
2. 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.
3. Purchase or sell commodities or
commodities contracts except that the Fund may purchase or write interest rate
and stock and bond index futures contracts and related options thereon.
4. Pledge its assets or assign or otherwise
encumber them except to secure permitted borrowings. (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.)
5. Purchase securities on margin (but the
Fund may obtain short-term loans as are necessary for the clearance of
transactions). 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.
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. Subsequent purchases of $100 or more
may be made by sending a check, payable to Dean Witter Strategist Fund, 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. 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
13
<PAGE>
would otherwise be required, if the Fund has reason to believe that additional
investments will increase the investment in each account under such Plans to at
least $1,000. Certificates for shares purchased will not be issued unless
requested by the shareholder in writing to the Transfer Agent. 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 income dividends
and capital gains distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions. While no sales charge is imposed at the time shares are
purchased, a contingent deferred sales charge may be imposed at the time of
redemption (see "Redemptions and Repurchases"). Sales personnel 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 an amended Plan of Distribution pursuant to Rule 12b-1
of the Act (the "Plan"), under which the Fund will pay the Distributor a fee,
which is accrued daily and payable monthly, at an annual rate of: (i) 1% of the
lesser of (a) the average daily aggregate gross sales of the Fund's shares since
the implementation of the Plan on November 8, 1989 (not including reinvestments
of dividends or capital gains distributions), less the average daily aggregate
net asset value of the Fund's shares redeemed since the Plan's implementation
upon which a contingent deferred sales charge has been imposed or waived; or (b)
the average daily net assets of the Fund attributable to shares issued, net of
related shares redeemed, since implementation of the Plan; plus (ii) 0.25% of
the Fund's average daily net assets attributable to shares issued, net of
related shares redeemed, prior to implementation of the Plan. 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 July 31, 1995, the Fund accrued payments under the
Plan amounting to $7,304,905, which amount is equal to 0.91% of the Fund's
average daily net assets for the fiscal year. The payments accrued under the
Plan were
14
<PAGE>
calculated pursuant to clauses (i)(a) and (ii) 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 $24,218,844 at July 31, 1995, which
was equal to 2.76% of the Fund's net assets on such date. Because there is no
requirement under the Plan that the Distributor be reimbursed for all expenses
or any requirement that the Plan be continued from year to year, this excess
amount does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made to
the Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the Plan
is terminated, the Trustees will consider at that time the manner in which to
treat such expenses. Any cumulative expenses incurred, but not yet recovered
through distribution fees or contingent deferred sales charges, may or may not
be recovered through future distribution fees or contingent deferred sales
charges.
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 or bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Fund's Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service utilizes a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what the pricing
service believes is the fair valuation of such portfolio securities.
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' fair value, in which case these
securities will be valued at their fair value as determined by the Trust
ees.
15
<PAGE>
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other open-end
investment company for which InterCapital serves as investment manager
(collectively, with the Fund, the "Dean Witter Funds")), unless the shareholder
requests that they be paid in cash. Shares so acquired are not subject to the
imposition of a contingent deferred sales charge upon their redemption (see
"Redemptions and Repurchases").
INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution at the net asset value per
share next determined after receipt by the Transfer Agent, by returning the
check or the proceeds to the Transfer Agent within thirty days after the payment
date. Shares so acquired are not subject to the imposition of a contingent
deferred sales charge upon their redemption (see "Redemptions and Repurchases.")
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.
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, eligible Individual Retirement Accounts and
Custodial Accounts under Section 403(b)(7) of the Internal Revenue Code.
Adoption of such plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other Selected Broker-
Dealer account executive or the Transfer Agent.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of shares of the Fund for shares of other Dean Witter
Funds sold with a contingent deferred sales charge ("CDSC funds"), 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 and five Dean Witter Funds which are
money market funds (the foregoing ten 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.
16
<PAGE>
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share of
each fund after the exchange order is received. When exchanging into a money
market fund from the Fund, shares of the Fund are redeemed out of the Fund at
their next calculated net asset value and the proceeds of the redemption are
used to purchase shares of the money market fund at their net asset value
determined the following business day. Subsequent exchanges between any of the
money market funds and any of the CDSC funds can be effected on the same basis.
No contingent deferred sales charge ("CDSC") is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate redemption.
Shares of the Fund acquired in exchange for shares of another CDSC fund having a
different CDSC schedule than that of this Fund will be subject to the CDSC
schedule of this Fund, even if such shares are subsequently re-exchanged for
shares of the CDSC fund originally purchased. During the period of time the
shareholder remains in the Exchange Fund (calculated from the last day of the
month in which the Exchange Fund shares were acquired), the holding period (for
the purpose of determining the rate of the CDSC) is frozen. If those shares are
subsequently reexchanged for shares of a CDSC fund, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a CDSC fund are reacquired. Thus, the CDSC is based
upon the time (calculated as described above) the shareholder was invested in a
CDSC fund (see "Redemptions and Repurchases--Contingent Deferred Sales Charge").
However, in the case of shares exchanged into an Exchange Fund on or after April
23, 1990, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount equal
to the 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 prospectus 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
care-
17
<PAGE>
fully 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 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) 526-3143 (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 purchased after
implementation of the Plan on November 8, 1989 (see "Purchase of Fund
Shares--Plan of Distribution") 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
18
<PAGE>
redemption. Shares purchased after implementation to the Plan which are 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>
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 or prior to implementation of the Plan; and (iii) the current net
asset value of shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of Dean Witter Funds
sold with a front-end sales charge or of other Dean Witter Funds acquired in
exchange for such shares. Moreover, in determining whether a CDSC is applicable
it will be assumed that amounts described in (i), (ii) and (iii) above (in that
order) are redeemed first. In addition, no CDSC will be imposed on redemptions
of shares which were purchased by the employee benefit plans established by DWR
and SPS Transaction Services, Inc. (an affiliate of DWR) for their employees as
qualified under Section 401(k) of the Internal Revenue Code.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of: (i) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship or (b) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account or Custodial Account under Section 403(b)(7) of the Internal Revenue
Code, provided in either case that the redemption is requested within one year
of the death or initial determination of disability, and (ii) redemptions in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an Individual
Retirement Account or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code following attainment of age 59 1/2; or (c) a tax-free return of an
excess contribution to an IRA. For the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. All waivers will be granted only following receipt by the
Distributor of confirmation of the 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
19
<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 the net asset value next determined after a
reinstatement request, together with the proceeds, is received by the Transfer
Agent and receive a pro rata credit for any CDSC paid in connection with such
redemption or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right, on sixty days' notice,
to redeem, at their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or custodial account under
Section 403(b)(7) of the Internal Revenue Code) whose shares have a value of
less than $100, or such lesser amount as may be fixed by the Trustees. 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 on a quarterly basis. The Fund may distribute quarterly net
realized short-term capital gains, if there are any. The Fund intends to
distribute net long-term capital gains, if any, at least once each year. The
Fund may, however, determine either to distribute or to retain all or part of
any 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 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 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
20
<PAGE>
whether the shareholder receives such payments in additional shares or in cash.
Gains or losses on the Fund's transactions in listed non-equity options,
futures and options on futures generally are treated as 60% long-term and 40%
short-term. When the Fund engages in options and futures transactions, various
tax regulations applicable to the Fund may have the effect of causing the Fund
to recognize a gain or loss for tax purposes before that gain or loss is
realized, or to defer recognition of a realized loss for tax purposes.
Recognition, for tax purposes, of an unrealized loss may result in a lesser
amount of the Fund's realized gains being available for annual distribution.
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 the writing of options
on securities held for less than three months, in the writing of options which
expire in less than three months, and in effecting closing transactions with
respect to call or put options which have been written or purchased less than
three months prior to such transactions. The Fund may also 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 and five years, as well as over the life of
the Fund. 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. 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 may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the Fund.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations
(e.g., mutual fund performance rankings of Lipper Analytical Services, Inc.; S&P
500 stock index; Dow Jones and Company, Inc. Industrial Average).
21
<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings.
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, in the opinion of Massachusetts
counsel to the Fund, the risk to 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 option 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 recent 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.
22
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS DEAN WITTER RETIREMENT SERIES
Dean Witter Liquid Asset Fund Inc. Liquid Asset Series
Dean Witter U.S. Government Money U.S. Government Money Market Series
Market Trust U.S. Government Securities Series
Dean Witter Tax-Free Daily Income Trust Intermediate Income Securities Series
Dean Witter California Tax-Free Daily American Value Series
Income Trust Capital Growth Series
Dean Witter New York Municipal Money Dividend Growth Series
Market Trust Strategist Series
EQUITY FUNDS Utilities Series
Dean Witter American Value Fund Value-Added Market Series
Dean Witter Natural Resource Global Equity Series
Development Securities Inc. ASSET ALLOCATION FUNDS
Dean Witter Dividend Growth Securities Dean Witter Managed Assets Trust
Inc. Dean Witter Strategist Fund
Dean Witter Developing Growth Dean Witter Global Asset Allocation
Securities Trust Fund
Dean Witter World Wide Investment Trust ACTIVE ASSETS ACCOUNT PROGRAM
Dean Witter Value-Added Market Series Active Assets Money Trust
Dean Witter Utilities Fund Active Assets Tax-Free Trust
Dean Witter Capital Growth Securities Active Assets California Tax-Free Trust
Dean Witter European Growth Fund Inc. Active Assets Government Securities
Dean Witter Precious Metals and Trust
Minerals Trust
Dean Witter Pacific Growth Fund Inc.
Dean Witter Health Sciences Trust
Dean Witter Global Dividend Growth
Securities
Dean Witter Global Utilities Fund
Dean Witter International SmallCap Fund
Dean Witter Mid-Cap Growth Fund
Dean Witter Balanced Growth Fund
FIXED INCOME FUNDS
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities
Trust
Dean Witter Federal Securities Trust
Dean Witter Convertible Securities
Trust
Dean Witter California Tax-Free Income
Fund
Dean Witter New York Tax-Free Income
Fund
Dean Witter World Wide Income Trust
Dean Witter Intermediate Income
Securities
Dean Witter Global Short-Term Income
Fund Inc.
Dean Witter Multi-State Municipal
Series Trust
Dean Witter Premier Income Trust
Dean Witter Short-Term U.S. Treasury
Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal
Trust
Dean Witter Short-Term Bond Fund
Dean Witter National Municipal Trust
Dean Witter High Income Securities
Dean Witter Balanced Income Fund
Dean Witter Hawaii Municipal Trust
<PAGE>
DEAN WITTER
Dean Witter
Strategist Fund STRATEGIST
Two World Trade Center FUND
New York, New York 10048
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
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
Mark Bavoso
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 28, 1995
<PAGE>
DEAN WITTER STRATEGIST FUND TWO WORLD TRADE CENTER, NEW YORK, NEW YORK
10048
LETTER TO THE SHAREHOLDERS
DEAR SHAREHOLDER:
Asset allocation mutual funds like Dean Witter Strategist Fund allow
shareholders to participate in the wealth-building opportunities of equity
investments, as well as the income-producing characteristics of bonds. We
believe that the flexibility to alter the Fund's investment landscape based on
historical and projected data makes it an attractive vehicle for investors
seeking long-term compounded growth with lower volatility than all-stock funds.
For the 12 months ended July 31, 1995, the Fund provided shareholders with a
total return of 16.05 percent, versus 26.05 percent for the broad-based Standard
& Poor's Composite Stock Price Index (S&P 500) and 10.13 percent for the Lehman
Brothers Government/Corporate Bond Index. On July 31, 1995 the Fund had total
net assets under management in excess of $877 million. The accompanying chart
illustrates the growth of a $10,000 investment in the Fund from inception on
October 31, 1988, through July 31, 1995, versus the performance of a similar
hypothetical investment in the issues that comprise the S&P 500 and the Lehman
Brothers Government/ Corporate Bond Index.
INVESTOR CONFIDENCE IN THE U.S. MARKETS IMPROVES
During the fiscal year ended July 31, 1995, equity and fixed-income prices rose
sharply as a number of positive events combined to raise investor confidence in
the U.S. markets. Most importantly, the Federal Reserve Board signaled a change
in monetary policy, first by slowing its pattern of interest rate increases and
then by actually lowering the federal-funds rate target on July 6. This marked
the end of nearly two years of restrictive monetary policy. The U.S. economy
slowed in response to the central bank's actions as the desired "soft landing"
appears to have been achieved with only a moderate recessionary scare in the
second quarter. Corporate earnings, buoyed by operating margins at 30-year
highs, continued to grow at rates above expectation, clearly indicating that
U.S. industries were gaining global market share.
<PAGE>
DEAN WITTER STRATEGIST FUND
LETTER TO THE SHAREHOLDERS, CONTINUED
Meanwhile, inflation, both on the producer and consumer levels, remained benign,
with only temporary bumps in specific goods along the way. Fiscal policy also
provided a positive backdrop, especially for the bond market, as Congressional
posturing began in earnest on a budget deficit reduction plan.
Overseas, concerns over the U.S. dollar's weakness--especially versus the
yen--diminished as the central banks in Japan and the United States acted to
stabilize their currencies and fend off a trade war. Other international "hot
spots" (Bosnia's troubling conflict, North Korea's leadership transition,
Mexico's currency crisis, Russia's ongoing power vacuum) continued to command
attention. However, negotiations and/or a lack of direct U.S. involvement
insulated the financial markets from these volatile situations.
[GRAPHIC]
The Fund shifted its investment mix
twice during the fiscal year, partially
in response to the fundamental backdrop
described above, but also to take some
profits during an unprecedented equity
market rally. The Fund's overall
fixed-income weighting increased from
30 percent of net assets on July 31,
1994 to 40 percent on July 31, 1995,
while the equity portfolio was
decreased from 60 percent of net assets
to 55 percent in order to take some
profits. Thus, on July 31, 1995, the
Fund's asset allocation stood at 55
percent stocks, 40 percent bonds and 5
percent money-market investments.
STRATEGY SPECIFICS
[GRAPHIC]
The Fund's equity investment strategy
changed as the U.S. economy slowed and
pricing power for a number of basic
materials and consumer products
companies waned. As a result,
industries such as chemicals, steel and
automobiles became less attractive
while financials, technology and
consumer staples appeared to offer
better value.
[GRAPHIC]
As we enter fiscal 1996, the Fund
continues to be overweighted in a
number of diversified industries:
<PAGE>
DEAN WITTER STRATEGIST FUND
LETTER TO THE SHAREHOLDERS, CONTINUED
financials, including regional and multi-center banks; technology, such as
software and component companies; and consumer staples, specifically
pharmaceuticals and health care providers. Long-term themes which we believe
will continue to fuel portfolio performance include strong global demand for
U.S. computing technology, the sustained growth of U.S. exports around the
world, and a cycle of new pharmaceutical products sparked by heavily funded
research and development budgets by drug companies. In light of these
expectations, companies we have added or maintained in the portfolio include
Intel Corp. and Texas Instruments Inc. (semiconductors), Microsoft Corp.
(software), American President Companies, Ltd. (shipping), Boeing Company
(aircraft), Merck & Co., Inc., Pfizer, Inc. and American Home Products Corp.
(pharmaceuticals), among others.
The bond portfolio shifted from a relatively aggressive underweighted exposure
in U.S. government issues and an overweighting in non-U.S. bonds, to a more
neutral mix (as compared to the Lehman Brothers Government/Corporate Bond
Index). As of July 31, 1995, the portfolio held approximately 51 percent of its
fixed income assets in U.S. government bonds and 49 percent in corporate issues.
Non-U.S. issues were reduced to allow for the build-up in the U.S. government
weighting. The portfolio's fixed-income holdings continued to be concentrated in
the 10- to 15-year maturity range, where attractive yields can still be
obtained, but with less volatility than that seen in the 20- to 30-year sector.
All fixed-income investments continue to be rated above investment grade, as
measured by Standard & Poor's Corp. or Moody's Investors Service, Inc.
LOOKING AHEAD
The outlook for the year ahead appears to be favorable, with the economy
continuing to grow moderately (2 to 4 percent), inflation stabilizing slightly
above current levels (2.5 to 3.5 percent), corporate earnings resuming
double-digit growth and favorable fiscal and monetary polices. The Fund
maintains its nearly fully invested allocation to stocks and bonds.
We appreciate your support of the Dean Witter Strategist Fund and look forward
to continuing to serve your financial needs and objectives.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (55.0%)
AEROSPACE & DEFENSE (0.5%)
92,000 Rockwell International Corp........ $ 4,197,500
---------------
AIRCRAFT & AEROSPACE (1.5%)
74,000 Boeing Company..................... 4,958,000
200,000 Honeywell, Inc..................... 8,575,000
---------------
13,533,000
---------------
ALUMINUM (1.6%)
231,200 Reynolds Metals Co................. 14,450,000
---------------
AUTOMOTIVE (1.1%)
148,000 Ford Motor Co...................... 4,273,500
150,000 Superior Industries International,
Inc................................ 5,250,000
---------------
9,523,500
---------------
BANKS - MONEY CENTER (1.5%)
120,000 Chemical Banking Corp.............. 6,195,000
110,000 Citicorp........................... 6,861,250
---------------
13,056,250
---------------
BANKS - REGIONAL (3.0%)
155,000 Bank of Boston Corp................ 6,723,125
50,000 Baybanks, Inc...................... 4,075,000
73,000 Integra Financial Corp............. 3,878,125
200,000 Norwest Corp....................... 5,650,000
31,500 Wells Fargo & Co................... 5,744,812
---------------
26,071,062
---------------
BEVERAGES - SOFT DRINKS (0.8%)
154,000 PepsiCo Inc........................ 7,218,750
---------------
BROKERAGE (1.2%)
100,000 Merrill Lynch & Co., Inc........... 5,550,000
60,000 Morgan Stanley Group, Inc.......... 5,017,500
---------------
10,567,500
---------------
CABLE/CELLULAR (0.5%)
153,000 Airtouch Communications, Inc.*..... 4,819,500
---------------
CHEMICALS (0.7%)
70,000 Monsanto Co........................ 6,518,750
---------------
CHEMICALS - SPECIALTY (0.4%)
100,000 Georgia Gulf Corp.................. 3,362,500
---------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (0.8%)
126,000 Cisco Systems, Inc.*............... 7,008,750
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
COMPUTER SERVICES (1.4%)
140,000 Diebold, Inc....................... $ 6,475,000
140,000 General Motors Corp. (Class E)..... 6,160,000
---------------
12,635,000
---------------
COMPUTER SOFTWARE (1.3%)
67,000 Microsoft Corp.*................... 6,055,125
120,000 Oracle Systems Corp.*.............. 5,010,000
---------------
11,065,125
---------------
COMPUTERS - SYSTEMS (2.9%)
150,000 Apple Computer, Inc................ 6,712,500
60,000 Hewlett-Packard Co................. 4,672,500
61,000 International Business Machines
Corp............................... 6,641,375
260,000 Novell, Inc.*...................... 4,680,000
60,000 Sun Microsystems, Inc.*............ 2,880,000
---------------
25,586,375
---------------
CONSUMER PRODUCTS (0.8%)
256,000 RJR Nabisco Holdings Corp.......... 7,072,000
---------------
DRUGS & HEALTHCARE (1.8%)
190,000 Abbott Laboratories................ 7,600,000
112,000 Johnson & Johnson.................. 8,036,000
---------------
15,636,000
---------------
ELECTRICAL EQUIPMENT (1.0%)
61,000 Emerson Electric Co................ 4,315,750
73,000 General Electric Co................ 4,307,000
---------------
8,622,750
---------------
ELECTRICAL HOUSEHOLD APPLIANCES (0.5%)
270,000 Maytag Corp........................ 4,421,250
---------------
ELECTRONICS - DEFENSE (0.6%)
87,000 Loral Corp......................... 4,872,000
---------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (1.7%)
40,000 Applied Materials, Inc.*........... 4,140,000
65,000 Intel Corp......................... 4,216,875
40,000 Texas Instruments Inc.............. 6,250,000
---------------
14,606,875
---------------
ENTERTAINMENT (0.4%)
130,000 Circus Circus Enterprises, Inc.*... 3,867,500
---------------
FINANCIAL SERVICES (1.3%)
120,000 Beneficial Corp.................... 5,685,000
130,000 Travelers, Inc..................... 6,158,750
---------------
11,843,750
---------------
FOODS (0.8%)
153,000 Campbell Soup Co................... 7,152,750
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1995, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
HEALTH CARE - MISCELLANEOUS (1.6%)
250,000 Coventry Corp.*.................... $ 4,000,000
350,000 Humana, Inc.*...................... 6,781,250
170,000 Mid Atlantic Medical Services,
Inc.*.............................. 3,336,250
---------------
14,117,500
---------------
HOSPITAL MANAGEMENT (1.0%)
173,000 Columbia/HCA Healthcare Corp....... 8,477,000
---------------
HOUSEHOLD PRODUCTS (1.6%)
98,000 Colgate-Palmolive Co............... 6,860,000
150,000 Tambrands, Inc..................... 7,068,750
---------------
13,928,750
---------------
LIFE INSURANCE (0.6%)
140,000 Providian Corp..................... 5,022,500
---------------
MACHINERY - CONSTRUCTION & MATERIALS (1.1%)
111,000 Ingersoll-Rand Co.................. 4,634,250
120,000 Parker-Hannifin Corp............... 4,890,000
---------------
9,524,250
---------------
METALS (0.8%)
112,000 Phelps Dodge Corp.................. 7,196,000
---------------
OFFICE EQUIPMENT & SUPPLIES (0.4%)
38,000 Alco Standard Corp................. 3,092,250
---------------
OIL DRILLING & SERVICES (1.8%)
310,000 Dresser Industries, Inc............ 7,130,000
130,000 Schlumberger Ltd................... 8,710,000
---------------
15,840,000
---------------
OIL INTEGRATED - INTERNATIONAL (3.9%)
175,000 Chevron Corp....................... 8,640,625
120,000 Exxon Corp......................... 8,700,000
86,000 Mobil Corp......................... 8,406,500
125,000 Texaco, Inc........................ 8,312,500
---------------
34,059,625
---------------
PHARMACEUTICALS (2.8%)
95,000 American Home Products Corp........ 7,505,000
165,000 Merck & Co., Inc................... 8,518,125
170,000 Pfizer, Inc........................ 8,585,000
---------------
24,608,125
---------------
RAILROAD EQUIPMENT (0.4%)
116,500 Trinity Industries, Inc............ 3,902,750
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
RESTAURANTS (0.5%)
115,000 McDonald's Corp.................... $ 4,441,875
---------------
RETAIL (0.5%)
171,000 Wal-Mart Stores, Inc............... 4,552,875
---------------
RETAIL - SPECIALTY (2.8%)
300,000 Bed, Bath & Beyond, Inc.*.......... 9,300,000
100,000 Home Depot, Inc.................... 4,387,500
600,000 Pier 1 Imports, Inc................ 5,850,000
305,000 Price/Costco, Inc.*................ 5,451,875
---------------
24,989,375
---------------
RETAIL - SPECIALTY APPAREL (0.5%)
123,000 Gap, Inc........................... 4,289,625
---------------
SAVINGS & LOAN ASSOCIATIONS (1.7%)
270,000 California Federal Bank*........... 3,746,250
115,000 Golden West Financial Corp......... 5,376,250
350,000 Roosevelt Financial Group, Inc..... 5,381,250
---------------
14,503,750
---------------
SHIPPING (0.7%)
225,800 American President Companies,
Ltd................................ 6,350,625
---------------
SHOES (1.1%)
54,000 Nike, Inc. (Class B)............... 4,880,250
125,000 Reebok International Ltd........... 4,484,375
---------------
9,364,625
---------------
STEEL & IRON (0.8%)
420,000 Bethlehem Steel Corp.*............. 6,615,000
---------------
TELEPHONE - LONG DISTANCE (0.9%)
315,000 MCI Communications Corp............ 7,520,625
---------------
TEXTILES - APPAREL MANUFACTURERS (0.3%)
100,000 Liz Claiborne, Inc................. 2,287,500
---------------
TRANSPORTATION (0.5%)
78,000 Conrail, Inc....................... 4,816,500
---------------
U.S. GOVERNMENT AGENCY (0.6%)
60,000 Federal National Mortgage
Association........................ 5,617,500
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $401,825,390)..... 482,827,062
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (19.7%)
AUTOMOTIVE FINANCE (0.6%)
$ 5,000 General Motors Acceptance Corp.
7.25% due 05/15/03................. $ 5,006,250
---------------
BANKS (6.6%)
9,850 Banco Central Hispano (Cayman
Islands)
7.50% due 06/15/05................. 9,667,184
5,220 Bank of Boston Corp.
6.875% due 07/15/03................ 5,127,554
4,900 BCO Commercio Exterior (Columbia) -
144A**
8.625% due 06/02/00................ 4,973,500
5,000 Central Fidelity Banks, Inc.
8.15% due 11/15/02................. 5,267,750
5,000 Household Bank F.S.B.
6.50% due 07/15/03................. 4,790,600
5,900 Midland Bank PLC (United Kingdom)
7.65% due 05/01/25................. 6,218,836
5,000 NationsBank Corp.
7.625% due 04/15/05................ 5,132,900
6,000 Shawmut Bank
8.625% due 02/15/05................ 6,544,920
5,000 Susquehanna Bancshares
9.00% due 02/01/05................. 5,461,350
5,000 Swiss Bank Corp.
7.50% due 07/15/25................. 5,097,250
---------------
58,281,844
---------------
BROKERAGE (0.5%)
5,000 Paine Webber Group, Inc.
7.625% due 02/15/14................ 4,626,050
---------------
FINANCIAL (2.2%)
4,950 BHP Finance Ltd. (Australia)
5.625% due 11/01/00................ 4,712,103
4,900 Commercial Credit Group, Inc.
7.75% due 03/01/05................. 5,120,500
2,500 Meditrust
7.60% due 07/15/01................. 2,499,750
4,900 Salomon, Inc.
6.75% due 08/15/03................. 4,532,941
2,000 United Companies Financial
7.00% due 07/15/98................. 1,999,280
---------------
18,864,574
---------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
<C> <S> <C>
FOREIGN GOVERNMENT AGENCY (1.5%)
$ 9,850 Italy (Republic of)
6.875% due 09/27/23................ $ 8,616,780
4,950 Province of Ontario (Canada)
7.00% due 08/04/05................. 4,956,187
---------------
13,572,967
---------------
INDUSTRIALS (5.5%)
4,900 Aramark Services Co.
8.15% due 05/01/05................. 5,052,635
3,000 Joy Technologies Inc.
10.25% due 09/01/03................ 3,315,000
4,920 News American Holdings, Inc.
8.25% due 08/10/18................. 4,986,518
5,000 Placer Dome, Inc. (Canada)
7.75% due 06/15/15................. 4,823,650
4,900 Repsol International Finance
7.00% due 08/01/05................. 4,900,980
9,950 RJR Nabisco, Inc.
8.75% due 08/15/05................. 9,957,861
4,950 TCI Communications, Inc.
8.75% due 08/01/15................. 4,936,487
4,900 Time Warner Entertainment Co.
8.375% due 07/15/33................ 4,787,888
5,000 Time Warner, Inc.
9.15% due 02/01/23................. 5,138,500
---------------
47,899,519
---------------
RETAIL (0.5%)
5,000 K Mart Corp.
7.95% due 02/01/23................. 4,596,300
---------------
TRANSPORTATION (1.0%)
6,900 United Air Lines, Inc.
11.21% due 05/01/14................ 8,463,678
---------------
UTILITIES - ELECTRIC (1.3%)
5,000 Big Rivers Electric
9.50% due 02/15/17................. 5,536,450
6,000 Pacific Gas Transmission Co.
6.96% due 08/05/03................. 5,940,000
---------------
11,476,450
---------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $171,546,076)..... 172,787,632
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
RIGHTS (0.0%)
SAVINGS & LOAN ASSOCIATIONS
27,000 California Federal Bank (Identified
Cost $0)*.......................... 135,000
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT & AGENCIES OBLIGATIONS (20.6%)
$ 5,000 Federal Home Loan Banks
7.78% due 01/30/97................. $ 5,050,000
695 Federal Home Loan Mortgage Corp.
8.50% due 07/01/02................. 711,041
276 Federal Home Loan Mortgage Corp.
9.00% due 08/01/02................. 284,830
5,000 Federal National Mortgage
Association
5.22% due 07/10/98................. 4,850,000
3,000 Federal National Mortgage
Association
6.40% due 01/13/04................. 2,853,750
10,000 Private Export Funding Corp.
7.95% due 11/01/06................. 10,886,700
10,900 U.S. Treasury Bond
7.50% due 11/15/24................. 11,765,188
1,000 U.S. Treasury Note
7.25% due 11/15/96................. 1,017,656
20,000 U.S. Treasury Note
6.50% due 05/15/97................. 20,206,250
25,000 U.S. Treasury Note
5.25% due 07/31/98................. 24,468,750
8,000 U.S. Treasury Note
5.125% due 11/30/98................ 7,770,000
30,000 U.S. Treasury Note
6.50% due 04/30/99................. 30,365,625
26,000 U.S. Treasury Note
6.875% due 08/31/99................ 26,662,188
6,500 U.S. Treasury Note
7.875% due 11/15/99................ 6,911,328
3,000 U.S. Treasury Note
7.75% due 11/30/99................. 3,175,781
15,050 U.S. Treasury Note
6.75% due 04/30/00................. 15,386,273
3,500 U.S. Treasury Note
7.50% due 11/15/01................. 3,716,016
5,000 U.S. Treasury Note
5.75% due 08/15/03................. 4,791,406
---------------
TOTAL U.S. GOVERNMENT & AGENCIES
OBLIGATIONS
(IDENTIFIED COST $179,887,230)..... 180,872,782
---------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (3.9%)
U.S. GOVERNMENT AGENCIES (a) (3.5%)
$ 9,000 Federal Home Loan Banks 5.65% due
08/02/95........................... $ 8,998,588
21,400 Federal National Mortgage
Association 5.70% due 08/09/95..... 21,372,893
---------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $30,371,481)....... 30,371,481
---------------
REPURCHASE AGREEMENT (0.4%)
3,202 The Bank of New York 5.8125% due
08/01/95 (dated 07/31/95; proceeds
$3,202,650; collateralized by
$3,232,343 U.S. Treasury Note 6.50%
due 09/30/96 valued at $3,328,570)
(Identified Cost $3,202,088)....... 3,202,088
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $33,573,569)...... 33,573,569
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$786,832,265) (B)........... 99.2% 870,196,045
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES....... 0.8 7,399,281
----- ------------
NET ASSETS.................. 100.0% $877,595,326
----- ------------
----- ------------
<FN>
- ---------------------
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Securities were purchased on a discount basis. The rates shown reflect a
money market equivalent yield.
(b) The aggregate cost for federal income tax purposes is $787,894,760; the
aggregate gross unrealized appreciation is $89,658,581 and the aggregate
gross unrealized depreciation is $7,357,296, resulting in net unrealized
appreciation of $82,301,285.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $786,832,265)............................ $870,196,045
Cash........................................................ 75,388
Receivable for:
Investments sold........................................ 13,007,590
Interest................................................ 6,205,761
Shares of beneficial interest sold...................... 2,757,767
Dividends............................................... 422,055
Principal paydowns...................................... 43,507
Prepaid expenses and other assets........................... 17,198
------------
TOTAL ASSETS........................................... 892,725,311
------------
LIABILITIES:
Payable for:
Investments purchased................................... 13,140,192
Shares of beneficial interest repurchased............... 727,207
Plan of distribution fee................................ 630,975
Investment management fee............................... 426,740
Accrued expenses and other payables......................... 204,871
------------
TOTAL LIABILITIES...................................... 15,129,985
------------
NET ASSETS:
Paid-in-capital............................................. 736,601,490
Net unrealized appreciation................................. 83,363,780
Accumulated undistributed net investment income............. 3,987,969
Accumulated undistributed net realized gain................. 53,642,087
------------
NET ASSETS............................................. $877,595,326
------------
------------
NET ASSET VALUE PER SHARE,
55,289,486 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$15.87
------------
------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1995
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.................................................... $ 22,087,220
Dividends (net of $5,650 foreign withholding tax)........... 10,048,666
------------
TOTAL INCOME........................................... 32,135,886
------------
EXPENSES
Plan of distribution fee.................................... 7,304,905
Investment management fee................................... 4,679,443
Transfer agent fees and expenses............................ 859,726
Shareholder reports and notices............................. 88,308
Custodian fees.............................................. 74,297
Professional fees........................................... 47,227
Registration fees........................................... 46,478
Trustees' fees and expenses................................. 28,170
Other....................................................... 25,159
------------
TOTAL EXPENSES......................................... 13,153,713
------------
NET INVESTMENT INCOME.................................. 18,982,173
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 56,953,694
Net change in unrealized appreciation....................... 45,494,865
------------
NET GAIN............................................... 102,448,559
------------
NET INCREASE................................................ $121,430,732
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, JULY 31,
1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 18,982,173 $ 16,501,766
Net realized gain........................................... 56,953,694 26,073,475
Net change in unrealized appreciation....................... 45,494,865 (15,330,968)
------------ ------------
NET INCREASE........................................... 121,430,732 27,244,273
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................... (15,997,877) (14,241,827)
Net realized gain........................................... (25,273,043) (22,860,148)
------------ ------------
TOTAL.................................................. (41,270,920) (37,101,975)
------------ ------------
Net increase (decrease) from transactions in shares of
beneficial interest....................................... (8,813,901) 33,273,643
------------ ------------
TOTAL INCREASE......................................... 71,345,911 23,415,941
NET ASSETS:
Beginning of period......................................... 806,249,415 782,833,474
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$3,987,969 AND $1,003,673, RESPECTIVELY)................ $877,595,326 $806,249,415
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1995
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Strategist Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund was organized as a Massachusetts
business trust on August 5, 1988 and commenced operations on October 31, 1988.
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; (4) certain of
the Fund's portfolio securities may be valued by an outside pricing service
approved by the Trustees. The pricing service utilizes a matrix system
incorporating security quality, maturity and coupon as the evaluation model
parameters, and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service; and (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts on securities purchased are accreted over the life of the respective
securities. Dividend income is recorded on the ex-dividend date. Interest income
is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1995, CONTINUED
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), the Fund pays its Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined at the close of each
business day: 0.60% to the portion of daily net assets not exceeding $500
million; 0.55% to the portion of daily net assets exceeding $500 million but not
exceeding $1 billion; 0.50% to the portion of daily net assets exceeding $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 implementation of the Plan
on November 8, 1989 (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1995, CONTINUED
asset value of the Fund's shares redeemed since the Fund's implementation of the
Plan 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
attributable to shares issued, net of related shares redeemed, since
implementation of the Plan. Amounts paid under the Plan are paid to the
Distributor to compensate it for the services provided and the expenses borne by
it and others in the distribution of the Fund's shares, including the payment of
commissions for sales of the Fund's shares and incentive compensation to, and
expenses of, the account executives of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor, and other employees or
selected 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.
The Distributor has informed the Fund that for the year ended July 31, 1995, it
received approximately $1,775,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares. The Fund's shareholders pay such
charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended July 31, 1995 aggregated
$1,278,393,842 and $1,277,865,740, respectively. Included in the aforementioned
are purchases and sales of U.S. Government securities of $336,249,589 and
$245,143,949, respectively. For the same period, the Fund paid brokerage
commissions of approximately $85,000 to DWR for transactions executed on behalf
of the Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At July 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $72,000.
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1995, CONTINUED
The Fund established an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Fund who will have served as
independent Trustees for at least five years at the time of retirement. Benefits
under this plan are based on years of service and compensation during the last
five years of service. Aggregate pension costs for the year ended July 31, 1995
included in Trustees' fees and expenses in the Statement of Operations amounted
to $7,970. At July 31, 1995, the Fund had an accrued pension liability of
$50,526 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
JULY 31, 1995 JULY 31, 1994
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Sold.................................... 9,276,510 $ 137,319,676 12,833,544 $ 190,736,225
Reinvestment of dividends and
distributions.......................... 2,728,962 38,146,103 2,333,508 34,489,407
------------- -------------- ------------- --------------
12,005,472 175,465,779 15,167,052 225,225,632
Repurchased............................. (12,582,171) (184,279,680) (12,951,477) (191,951,989)
------------- -------------- ------------- --------------
Net increase (decrease)................. (576,699) $ (8,813,901) 2,215,575 $ 33,273,643
------------- -------------- ------------- --------------
------------- -------------- ------------- --------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
At July 31, 1995, the Fund had temporary book/tax differences which were
primarily attributable to capital loss deferrals on wash sales and permanent
book/tax differences attributable to dividend redesignations.
<PAGE>
DEAN WITTER STRATEGIST FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER STRATEGIST FUND
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 Strategist Fund (the
"Fund") at July 31, 1995, 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 six years in the period then ended
and for the period October 31, 1988 (commencement of operations) through July
31, 1989, 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 July
31, 1995 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
AUGUST 17, 1995
- --------------------------------------------------------------------------------
1995 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended July 31, 1995, the Fund paid to its
shareholders $0.47 per share from long-term capital gains. For
such period 26.22% of the income dividend qualified for the
dividends received deduction available to corporations.
<PAGE>
DEAN WITTER STRATEGIST FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD
OCTOBER 31,
1988*
FOR THE YEAR ENDED JULY 31 THROUGH
--------------------------------------------------------------------- JULY 31,
1995 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period..... $ 14.43 $ 14.59 $ 14.39 $ 13.09 $ 11.65 $ 11.37 $ 9.45
--------- --------- --------- --------- --------- --------- ------
Net investment income.... 0.34 0.30 0.26 0.27 0.27 0.23 0.38
Net realized and
unrealized gain......... 1.86 0.22 0.81 1.27 1.50 0.55 1.84
--------- --------- --------- --------- --------- --------- ------
Total from investment
operations.............. 2.20 0.52 1.07 1.54 1.77 0.78 2.22
--------- --------- --------- --------- --------- --------- ------
Less dividends and
distributions from:
Net investment
income................ (0.29) (0.26) (0.31) (0.24) (0.26) (0.29) (0.30)
Net realized gain..... (0.47) (0.42) (0.56) -- (0.07) (0.21) --
--------- --------- --------- --------- --------- --------- ------
Total dividends and
distributions........... (0.76) (0.68) (0.87) (0.24) (0.33) (0.50) (0.30)
--------- --------- --------- --------- --------- --------- ------
Net asset value, end of
period.................. $ 15.87 $ 14.43 $ 14.59 $ 14.39 $ 13.09 $ 11.65 $ 11.37
--------- --------- --------- --------- --------- --------- ------
--------- --------- --------- --------- --------- --------- ------
TOTAL INVESTMENT
RETURN+.................. 16.05% 3.53% 7.59% 11.88% 15.67% 7.21% 23.76%(1)
RATIOS TO AVERAGE NET
ASSETS:
Expenses................. 1.63% 1.62% 1.62% 1.63% 1.59% 1.53% 0.97%(2)(3)
Net investment income.... 2.35% 2.03% 1.90% 2.19% 2.37% 2.39% 6.00%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of
period, in thousands.... $877,595 $806,249 $782,833 $440,802 $238,432 $195,687 $47,921
Portfolio turnover
rate.................... 179% 90% 98% 79% 140% 101% 70%(1)
<FN>
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all its expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment income
ratios would have been 1.48% and 5.48%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo DEAN WITTER
Edwin J. Garn STRATEGIST FUND
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
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
Mark A. Bavoso
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT [PHOTOGRAPH]
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.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
ANNUAL REPORT
JULY 31, 1995
<PAGE>
DEAN WITTER STRATEGIST FUND
GROWTH OF $10,000
DATE TOTAL S&P 500 LEHMAN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
October 31, 1988 $10,000 $10,000 $10,000
- --------------------------------------------------------------------------------
July 31, 1989 $12,376 $12,736 $11,061
- --------------------------------------------------------------------------------
July 31, 1990 $13,267 $13,558 $11,750
- --------------------------------------------------------------------------------
July 31, 1991 $15,346 $15,290 $12,952
- --------------------------------------------------------------------------------
July 31, 1992 $17,169 $17,243 $14,978
- --------------------------------------------------------------------------------
July 31, 1993 $18,472 $18,745 $16,630
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
July 31, 1994 $19,125 $19,712 $16,608
- --------------------------------------------------------------------------------
July 31, 1995 $22,195 (3) $24,847 $18,291
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR FIVE YEARS LIFE OF FUND
-----------------------------------------------------------------
-----------------------------------------------------------------
16.05%(1) 10.84%(1) 12.55%(1)
-----------------------------------------------------------------
11.05%(2) 10.57%(2) 12.55%(2)
-----------------------------------------------------------------
-----------------------------------------------------------------
--------------------------------------------------------
-------------------------------------------------------
_____ Fund _____ S&P 500 (4) _____ Lehman(5)
-------------------------------------------------------
-------------------------------------------------------
Past performance is not predictive of future returns.
____________________________________________
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable contingent deferred sales charge (CDSC) (1
year-5%, 5 years-2%, since inception-0%).
See the Fund's current prospectus for complete details on fees and sales
charges.
(3) Closing value assuming a complete redemption on July 31, 1995.
(4) The Standard and Poors 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The index does not include
any expenses, fees or charges.
(5) The Lehman Brothers Government/Corporate Bond Index tracks the
performance of government and corporate obligations, including U.S.
government agency and U.S. treasury securities and corporate and yankee
bonds, with maturities of one to ten years.
<PAGE>
SUPPLEMENT TO THE PROSPECTUS OF
DEAN WITTER MANAGED ASSETS TRUST
DATED MAY 30, 1995
On August 24, 1995, the Board of Trustees of Dean Witter Managed Assets
Trust (the "Fund") approved an Agreement and Plan of Reorganization by and
between the Fund and Dean Witter Strategist Fund ("Strategist"), pursuant to
which the assets of the Fund would be combined with those of Strategist and
shareholders of the Fund would become shareholders of Strategist receiving
shares of Strategist equal to the value of their holdings in the Fund (the
"Reorganization"). The Reorganization is subject to the approval of shareholders
of the Fund. A proxy statement formally detailing the proposal and the reasons
for the Trustees' action, as well as information concerning Strategist, will be
distributed to shareholders of the Fund.
August 24, 1995
<PAGE>
PROSPECTUS
MAY 30, 1995
Dean Witter Managed Assets Trust (the "Fund") is an open-end, nondiversified
management investment company, whose investment objective is a high level of
total return on its investments. The Fund seeks to achieve its objective
through a fully managed investment policy utilizing equity securities,
fixed-income securities rated Baa or higher by Moody's Investors Service,
Inc. ("Moody's") or BBB or higher by Standard & Poor's Corporation ("S&P") or
unrated securitiesof comparable quality and money market instruments. See
"Investment Objective and Policies."
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 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
May 30, 1995, 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
Managed Assets Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 526-3143
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/ 8
Investment Restrictions/ 11
Purchase of Fund Shares/11
Shareholder Services/14
Redemptions and Repurchases/16
Dividends, Distributions and Taxes/18
Performance Information/19
Additional Information/19
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 Distributors Inc.
Distributor
<PAGE>
PROSPECTUS SUMMARY
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an
open-end nondiversified management investment company. The Fund invests in a managed portfolio of
fixed-income securities, including money market instruments, and equity securities. The purchase and
sale of options on debt and equity securities and stock index options and the purchase and sale of
stock index and interest rate futures and options thereon will be utilized primarily to hedge
against price changes in the portfolio securities held by the Fund and to facilitate the
implementation of asset allocation.
- ------------------ ----------------------------------------------------------------------------------------------------
Shares Offered Shares of beneficial interest with $0.01 par value (see page 19).
- ------------------ ----------------------------------------------------------------------------------------------------
Offering Price At net asset value without sales charge (see page 10). Shares redeemed within six years of purchase
are subject to a contingent deferred sales charge under most circumstances (see page 16).
- ------------------ ----------------------------------------------------------------------------------------------------
Minimum Minimum initial investment, $1,000; minimum subsequent investment, $100 (see page 11).
Purchase
- ------------------ ----------------------------------------------------------------------------------------------------
Investment The investment objective of the Fund is a high level of total return on its investments.
Objective
- ------------------ ----------------------------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its
Manager wholly-owned subsidiary, Dean Witter Services Company Inc., serve in various investment management,
advisory, management and administrative capacities to ninety-three investment companies and other
portfolios with assets of approximately $70.3 billion at April 30, 1995 (see page 5).
- ------------------ ----------------------------------------------------------------------------------------------------
Management Fee The Investment Manager receives a monthly fee at the annual rate of 0.60% of daily net assets up to
$500 million and 0.55% of daily net assets over $500 million (see page 5).
- ------------------ ----------------------------------------------------------------------------------------------------
Dividends Dividends from net investment income are declared and are paid quarterly. Distributions from net
short-term and long-term capital gains are paid at least annually. Dividends and capital gains
distributions are automatically reinvested in additional shares at net asset value unless the
shareholder elects to receive cash.
- ------------------ ----------------------------------------------------------------------------------------------------
Distributor Dean Witter Distributors Inc. (the "Distributor"). The Distributor receives from the Fund a
and distribution fee, accrued daily and payable monthly, at the rate of 1% per annum of the lesser of:
Distribution (i) the Fund's average daily aggregate net sales or (ii) the Fund's average daily net assets. This
Fee fee compensates the Distributor for the services provided in distributing shares of the Fund and for
its sales related expenses. The Distributor also receives the proceeds of any contingent deferred
sales charges (see pages 11 and 16).
- ------------------ ----------------------------------------------------------------------------------------------------
Redemption-- At net asset value; redeemable involuntarily if the total value of the account is less than $100.
Contingent Although no commission or sales load is imposed upon the purchase of shares, a contingent deferred
Deferred sales charge (scaled down from 5% to 1%) is imposed on any redemption of shares if after such
Sales redemption the aggregate current value of an account with the Fund falls below the aggregate amount
Charge 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 page 16).
- ------------------ ----------------------------------------------------------------------------------------------------
Special The net asset value of the Fund's shares will fluctuate with changes in the market value of its
Risk portfolio securities. The level of income payable to the investor will vary depending upon the
Considerations market allocation determined by the Fund's Investment Manager and with various market determinants
such as interest rates. The Fund may engage in various investments and investment strategems
including options and futures transactions (pages 8-10). The Fund is a nondiversified investment
company and, as such, is not subject to the diversification requirements of the Investment Company
Act of 1940. However, the Fund has qualified as a regulated investment company under the federal
income tax laws and, as such, is subject to the diversification requirements of the Internal Revenue
Code.
- ------------------ ----------------------------------------------------------------------------------------------------
</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
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. Except as otherwise indicated, the expenses and fees
set forth in the table are for the fiscal year ended March 31, 1995.
<TABLE>
<S> <C>
Shareholder Transaction Expenses
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%
</TABLE>
A contingent deferred sales charge is imposed at the following declining
rates:
<TABLE>
<CAPTION>
PERCENTAGE OF
YEAR SINCE PURCHASE 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>
<TABLE>
<S> <C>
Redemption Fees ...................................................................... None
Exchange Fee ......................................................................... None
</TABLE>
<TABLE>
<S> <C>
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
Management Fees ...................................................................... 0.60%
12b-1 Fees *: ........................................................................ 1.00%
Other Expenses ....................................................................... 0.17%
Total Fund Operating Expenses ........................................................ 1.77%
- ---------------
* 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.
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------- -------- --------- --------- ----------
<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: ................ $68 $86 $116 $209
You would pay the following expenses on the same
investment, assuming no redemption ........................ $18 $56 $ 96 $209
</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" and "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
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
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, and 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 from the
Fund.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
----------------------------------------------------------------------
FOR THE PERIOD
JUNE 30, 1988*
THROUGH
1995 1994 1993 1992 1991 1990 MARCH 31, 1989
- ---------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE: .
Net asset value, beginning of
period ........................... $10.73 $11.06 $11.36 $10.50 $ 9.99 $10.03 $10.00
---------- ---------- ---------- ---------- ---------- ---------- --------------
Net investment income ............. 0.32 0.20 0.28 0.33 0.44 0.69 0.43
Net realized and unrealized gain . 0.18 0.31 0.84 0.90 0.52 0.10 --
---------- ---------- ---------- ---------- ---------- ---------- --------------
Total from investment operations . 0.50 0.51 1.12 1.23 0.96 0.79 0.43
---------- ---------- ---------- ---------- ---------- ---------- --------------
Less dividends and distributions
from:
Net investment income ............ (0.33) (0.21) (0.28) (0.34) (0.44) (0.71) (0.40)
Net realized gain ................ (0.51) (0.63) (1.14) (0.03) (0.01) (0.12) --
Paid-in-capital .................. (0.03) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- --------------
Total dividends and distributions (0.87) (0.84) (1.42) (0.37) (0.45) (0.83) (0.40)
---------- ---------- ---------- ---------- ---------- ---------- --------------
Net asset value, end of period ... $10.36 $10.73 $11.06 $11.36 $10.50 $ 9.99 $10.03
========== ========== ========== ========== ========== ========== ==============
TOTAL INVESTMENT RETURN + ......... 4.83% 4.64% 10.52% 11.85% 10.07% 8.01% 4.40%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................... 1.77% 1.79% 1.80% 1.70% 1.78% 1.77% 1.77%(2)
Net investment income ............. 3.34% 1.86% 2.48% 2.97% 4.34% 6.76% 6.73%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands ........................ $421,984 $264,816 $236,990 $219,744 $215,408 $279,494 $262,570
Portfolio turnover rate ........... 264% 54% 68% 75% 125% 320% 178%(1)
</TABLE>
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
4
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter Managed Assets Trust (the "Fund") is an open-end,
nondiversified 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 October 8, 1987.
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 a total of ninety-three investment companies,
thirty of which are listed on the New York Stock Exchange, with combined
total assets including this Fund of approximately $68.1 billion as of April
30, 1995. The Investment Manager also manages portfolios of pension plans,
other institutions and individuals which aggregated approximately $2.2
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 by applying the
following annual rates to the net assets of the Fund determined as of the
close of each business day: 0.60% of the portion of the daily net assets not
exceeding $500 million and 0.55% of the portion of daily net assets exceeding
$500 million. For the fiscal year ended March 31, 1995, the Fund accrued
total compensation to the Investment Manager amounting to 0.60% of the Fund's
average daily net assets and the Fund's total expenses amounted to 1.77% of
the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the Fund is a high level of total return on
its investments. The Fund seeks to achieve its objective through a managed
investment policy utilizing equity, fixed-income and money market securities.
This is a fundamental policy and cannot be changed without the approval of
the Fund's shareholders. Total investment return consists of current income
(including dividends, interest, premiums and, in the case of discounted
instruments, discount accretions) and capital appreciation (including
realized and unrealized gains and losses). There can be no assurance that the
investment objective of the Fund will be achieved.
From time to time, the Investment Manager will vary the composition of the
Fund's assets based upon an evaluation of economic and market trends and the
anticipated relative total return available from a particular type of
security. Therefore, at any given time, the Fund's assets may be primarily
invested in either equity, fixed-income or money market securities or in any
combination thereof, including an equally weighted portfolio.
5
<PAGE>
The achievement of the Fund's investment objective depends upon the
ability of the Investment Manager to correctly assess the effects of economic
and market trends on different sectors of the market. The Investment Manager
will employ an asset allocation model to assist it in making its allocation
determinations. For example, it is anticipated that, generally: (1) the
equity allocation of the Fund's assets will rise as prevailing interest rates
decline, the rate of inflation declines, the total investment return of
equities rises and the total investment return of fixed-income and money
market securities declines; (2) the fixed-income allocation of the Fund's
assets will rise as prevailing interest rates decline, the rate of inflation
declines, the total investment return of equities declines and the total
investment return of fixed-income securities rises; and (3) the money market
allocation of the Fund's assets will rise as prevailing interest rates rise,
the rate of inflation rises, the total investment return of equities and
fixed-income securities falls and the total investment return of money market
instruments rises.
To facilitate reallocation of the Fund's assets in accordance with the
Investment Manager's views as to shifts in the marketplace, the Investment
Manager may employ transactions in futures contracts and options thereon. For
example, if the Investment Manager believes that a ten percent increase in
that portion of the Fund's assets invested in fixed- income securities and a
concomitant decrease in that portion of the Fund's assets invested in equity
securities is timely, the Fund might purchase interest rate futures, such as
Treasury bond futures, and sell stock index futures, such as S&P 500 Stock
Index futures, in equivalent amounts. The utilization of futures
transactions, rather than the purchase and sale of equity and fixed-income
securities, increases the speed and efficacy of the Fund's asset
reallocations.
The Fund may purchase equity securities (including convertible debt
obligations and convertible preferred stock) sold on the New York, American
and other stock exchanges and in the over-the- counter market. In addition,
the Fund may purchase and sell warrants and purchase and write listed and
over-the-counter options on individual stocks and stock indexes to hedge
against adverse price movements in its equity portfolio and to increase its
total return through the receipt of premium income. The Fund invests
primarily in equity securities issued by companies with a record of paying
dividends and the potential of increasing such dividends. The Fund may also
purchase and sell stock index futures and options thereon to hedge against
adverse price movements in its equity portfolio and to facilitate asset
reallocations into and out of the equity area.
Fixed-income securities in which the Fund may invest are short-term to
intermediate (one to five year maturities) and intermediate to long-term
(greater than five year maturities) debt securities and preferred stocks,
including U.S. Government securities (securities issued or guaranteed as to
principal and interest by the United States or its agencies and
instrumentalities) and corporate securities which are rated at the time of
purchase Baa or better by Moody's or BBB or better by S&P, or which, if
unrated, are deemed to be of comparable quality by the Fund's Trustees (a
description of corporate bond ratings is contained in the Appendix to the
Statement of Additional Information). U.S. Government securities which may be
purchased include zero coupon securities. In addition, the Fund may purchase
and write listed and over-the-counter options on fixed-income securities to
hedge against adverse price movements in its fixed-income portfolio and to
increase its total return through the receipt of premium income. The Fund may
also purchase and sell interest rate futures and options thereon to hedge
against adverse price movements in its fixed-income portfolio and to
facilitate asset reallocations into and out of the fixed-income area.
The money market portion of the Fund's portfolio will contain short-term
(maturities of up to one year) fixed-income securities, issued by private and
governmental institutions. Such securities may include: U.S. Government
securities; bank obligations; Eurodollar certificates of deposit issued by
foreign branches of domestic banks; obligations of savings institutions;
fully insured certificates of deposit; and commercial paper rated within the
two
6
<PAGE>
highest grades by S&P or the highest grade by Moody's or, if not rated,
issued by a company having an outstanding debt issue rated at least AA by S&P
or Aa by Moody's.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Fund, and which
typically involve the acquisition by the Fund of debt securities from a
selling financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase the underlying security
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. While repurchase agreements involve
certain risks not associated with direct investments in debt securities, the
Fund follows procedures designed to minimize those risks.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of the commitment.
The securities so purchased are subject to market fluctuation and no interest
accrues to the purchaser during this period. An increase in the percentage of
the Fund's assets committed to the purchase of securities on a when-issued or
delayed delivery basis may increase the volatility of the Fund's net asset
value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value.
Private Placements. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended, or which are
otherwise not readily marketable. (Securities eligible for resale pursuant to
Rule 144A of the Securities Act, and determined to be liquid pursuant to the
procedures discussed in the following paragraph, are not subject to the
foregoing restriction.) 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 of 1933, 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.
Options and Futures Transactions. The Fund is permitted to enter into call
and put options on U.S. Treasury notes, bonds and bills and equity securities
listed on Exchanges and written in over-the- counter transactions ("OTC
options"). Listed options are issued by the Options Clearing Corporation. OTC
options are purchased from or sold (written) to dealers or financial
institutions which have entered into direct agreements with the Fund. The
Fund is permitted to write covered call options on portfolio securities,
without limit, in order to aid it in achieving its investment objective.
7
<PAGE>
The Fund may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Fund may purchase call options
only in order to close out a covered call position. The Fund may purchase put
options on securities which it holds (or has the right to acquire) in its
portfolio only to protect itself against a decline in the value of the
security. The Fund may also purchase put options to close out written put
positions. There are no other limits on the Fund's ability to purchase call
and put options. The Fund also may purchase and write options on stock
indexes. See "Risks of Options on Indexes," in the Statement of Additional
Information.
The Fund may also purchase and sell interest rate and stock index futures
contracts ("futures contracts") that are traded on U.S. commodity exchanges
on such underlying securities as U.S. Treasury bonds, notes, and bills and
GNMA Certificates ("interest rate" futures) and such indexes as the S&P 500
Index and the New York Stock Exchange Composite Index ("stock index" futures)
and the Moody's Investment-Grade Corporation Bond Index ("bond index"
futures). The Fund will purchase or sell interest rate futures contracts and
bond index futures contracts for the purpose of hedging its fixed-income
portfolio (or anticipated portfolio) against changes in prevailing interest
rates and to alter the Fund's asset allocation in fixed- income securities.
The Fund will purchase or sell stock index futures contracts for the purpose
of hedging its equity portfolio (or anticipated portfolio) against changes in
their prices.
The Fund also may purchase and write call and put options on futures
contracts which are traded on an Exchange and enter into closing transactions
with respect to such options to terminate an existing position.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with the changes
in the market value of its portfolio securities.
Asset Allocation. The achievement of the Fund's investment objective, as
noted above, depends upon the Investment Manager correctly assessing the
effects of economic and market trends on the equity, fixed-income and money
market sectors of the market. There can, of course, be no assurance that the
premises on which the Investment Manager's investment strategy is based, or
the asset allocation model used, will prove to be correct or that the Fund
will in fact achieve its objective.
Investments in Fixed-Income Securities. The Fund may invest a portion of
its assets in fixed- income securities. All fixed-income securities are
subject to two types of risks: the credit risk and the interest rate risk.
The credit risk relates to the ability of the issuer to meet interest or
principal payments or both as they come due. Generally, higher yielding
fixed-income securities are subject to a credit risk to a greater extent than
lower yielding fixed-income securities. The interest rate risk refers to the
fluctuations in the net asset value of any portfolio of fixed-income
securities resulting from the inverse relationship between price and yield of
fixed-income securities; that is, when the general level of interest rate
rises, the prices of outstanding fixed-income securities generally decline,
and when interest rates fall, prices generally rise.
Investments in Securities Rated Baa by Moody's or BBB by S&P. The Fund may
invest a portion of its assets in fixed-income securities rated at the time
of purchase Baa or better by Moody's Investors Service, Inc. ("Moody's") or
BBB or better by Standard & Poor's Corporation ("S&P"). Investments in
fixed-income securities rated either Baa by Moody's or BBB by S&P (the lowest
credit ratings designated "investment grade") may have speculative
characteristics and, therefore, changes in economic conditions or other
circumstances are more likely to weaken their capacity to make principal and
interest payments than would be the case with investments in securities with
higher credit ratings. If a bond held by the Fund is downgraded by a rating
agency to a rating below Baa or BBB, the Fund will retain such security in
its portfolio until the Investment Manager determines that it is practicable
to sell the security without undue market or tax consequences to the
8
<PAGE>
Fund. In the event that such downgraded securities constitute 5% or more of
the Fund's assets, the Investment Manager will seek to sell immediately
sufficient securities to reduce the total to below 5%.
Convertible Securities. The Fund may invest a portion of its assets in
convertible securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for
a prescribed amount of common stock of the same or a different issuer within
a particular period of time at a specified price or formula. Convertible
securities rank senior to common stocks in a corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The
value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion privilege), and its "conversion
value" (the security's worth if it were to be exchanged for the underlying
security, at market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security
(the credit standing of the issuer and other factors may also have an effect
on the convertible security's value). If the conversion value exceeds the
investment value, the price of the convertible security will rise above its
investment value and, in addition, will sell at some premium over its
conversion value. (This premium represents the price investors are willing to
pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the conversion privilege.) At such
times the price of the convertible security will tend to fluctuate directly
with the price of the underlying equity security.
American Depository Receipts. The Fund may invest in ADRs. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically
issued by a United States bank or trust company evidencing ownership of the
underlying securities.
Eurodollar Certificate of Deposit. To the extent the Fund purchases
Eurodollar certificates of deposit issued by foreign branches of domestic
banks, consideration will be given to their domestic marketability, the lower
reserve requirements normally mandated for overseas banking operations, the
possible impact of interruptions in the flow of international currency
transactions, and future international political and economic developments
which might adversely affect the payment of principal or interest.
Repurchase Agreements. 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. In addition, the value of
the collateral underlying the repurchase agreement will be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, the Fund will seek to liquidate such collateral. However, the
exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price,
the Fund could suffer a loss. It is the current policy of the Fund not to
invest in repurchase agreements that do not mature within seven days if any
such investment, together with any other illiquid assets held by the Fund,
amounts to more than 15% of its net assets.
Options and Futures. The Fund may close out its position as writer of an
option, or as a buyer or seller of a futures contract only if a liquid
secondary market exists for options or futures contracts of that series.
There is no assurance that such a market will exist, particularly in the case
of OTC options, as such options will generally only be closed out by entering
into a closing purchase transaction with the purchasing dealer. Also, ex-
9
<PAGE>
changes may limit the amount by which the price of many futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. The extent to which the Fund may enter into
transactions involving options and futures contracts may be limited by the
Internal Revenue Code's requirements for qualification as a regulated
investment company and the Fund's intention to qualify as such. See
"Dividends, Distributions and Taxes."
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk is that the Investment Manager could be incorrect
in its expectations as to the direction or extent of various interest rate or
price movements or the time span within which the movements take place. For
example, if the Fund sold futures contracts for the sale of securities in
anticipation of an increase in interest rates, and then interest rates went
down instead, causing bond prices to rise, the Fund would lose money on the
sale. Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash
prices of the Fund's portfolio securities. See the Statement of Additional
Information for further discussion of such risks.
Investment in Real Estate Investment Trusts. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in a real estate investment trust,
the Fund would bear its ratable share of the real estate investment trust's
expenses, including its advisory and administration fees. At the same time
the Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will
be absorbing duplicate levels of fees with respect to investments in real
estate investment trusts.
FOR ADDITIONAL RISK DISCLOSURE, PLEASE REFER TO THE "INVESTMENT OBJECTIVE
AND POLICIES" SECTION OF THE PROSPECTUS AND TO THE "INVESTMENT PRACTICES AND
POLICIES" SECTION OF THE STATEMENT OF ADDITIONAL INFORMATION.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager relies on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean
Witter Reynolds Inc. ("DWR"); the views of the Trustees of the Fund and
others regarding economic developments and interest rate trends; and the
Investment Manager's own analysis of factors it deems relevant. The Fund's
portfolio is managed within InterCapital's large Capitalization Equities
Group, which manages 35 equity funds and fund portfolios with approximately
$18.7 billion in assets as of March 31, 1995. Kenton Hinchliffe, Senior Vice
President of InterCapital and a member of InterCapital's Large Capitalization
Equity Group, has been the primary portfolio manager of the Fund and has been
a portfolio manager at InterCapital for over six years.
Orders for transactions in other portfolio securities and commodities are
placed for the Fund with a number of brokers and dealers, including DWR.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR.
In addition, the Fund may incur brokerage commissions on transactions
conducted through DWR.
The portfolio trading engaged in by the Fund may result in its portfolio
turnover rate exceeding
10
<PAGE>
300%, although it is not anticipated that this rate will exceed 400%. The
Fund will incur brokerage costs commensurate with its portfolio turnover
rate, and thus a higher level (over 100%) of portfolio transactions will
increase the Fund's overall brokerage expenses. For the fiscal year ended
March 31, 1995, the portfolio turnover rate was 264.42%. See "Dividends,
Distributions and Taxes" for a discussion of the tax implications of the
Fund's trading policy. A more extensive discussion of the Fund's portfolio
brokerage policies is set forth in the Statement of Additional Information.
Except as specifically noted, the investment objective, policies and
practices discussed above are not fundamental policies of the Fund and, as
such, may be changed without shareholder approval.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the Act. For purposes of the following
limitations: (i) all percentage limitations apply immediately after a
purchase or initial investment, and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund may not:
1. Invest 25% or more of the value of its total assets in the 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.
2. 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.
3. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or write interest rate and stock and bond index futures
contracts and related options thereon.
4. Pledge its assets or assign or otherwise encumber them except to secure
permitted borrowings. (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.)
5. Purchase securities on margin (but the Fund may obtain short-term loans
as are necessary for the clearance of transactions). 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.
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 which have entered into selected dealer agreements with
the Distributor ("Selected Broker-Dealers"). The principal executive office
of the Distributor is located at Two World Trade Center, New York, New York
10048.
The minimum initial purchase is $1,000. Minimum subsequent purchases of
$100 or more may be made by sending a check, payable to Dean
11
<PAGE>
Witter Managed Assets Trust, directly to Dean Witter Trust Company (the
"Transfer Agent") at P.O. Box 1040, Jersey City, NJ 07303 or by contacting an
account executive of DWR or other Selected Broker- Dealer. 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 five
business day settlement basis; that is, payment is due on the fifth business
day (settlement date) after the order is placed with the Distributor. Since
DWR or 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 distributions.
While no sales charge is imposed at the time shares are purchased, a
contingent deferred sales charge may be imposed at the time of redemption
(see "Redemptions and Repurchases"). Sales personnel of a Selected
Broker-Dealer are compensated for selling shares of Fund at the time of their
sale by the Distributor or any of its affiliates and/or by the Selected
Broker-Dealer. In addition, some sales personnel of the Selected Broker-
Dealer will receive non-cash compensation in the form of trips to educational
seminars and merchandise as special sales incentives. The Fund and the
Distributor reserve the right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan"), under which the Fund 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 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's account executives and others who engage in or support
distribution of shares or who service shareholder accounts, including
overhead and telephone expenses; printing and distribution of prospectuses
and reports used in connection with the offering of the Fund's shares to
other than current shareholders; and preparation, printing and distribution
of sales literature and advertising materials. In addition, the Distributor
may utilize fees paid pursuant to the Plan to compensate DWR and other
Selected Broker-Dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses incurred.
For the fiscal year ended March 31, 1995, the Fund accrued payments under
the Plan amounting to $3,477,931, which amount is equal to 1.00% of
12
<PAGE>
the Fund's average daily net sales for the fiscal year. The payments accrued
under the Plan were calculated pursuant to clause (b) 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 Repur-
chases--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
$13,140,719 at March 31, 1995, which equalled 3.11% of the Fund's net assets
at such date.
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, such excess amount does not constitute a liability of the
Fund. Although there is no legal obligation for the Fund to pay expenses
incurred in excess of payments made to the Distributor under the Plan and the
proceeds of 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.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time, on each day that the New York Stock Exchange is open by
taking the value of all assets of the Fund, subtracting all its liabilities,
dividing by the number of shares outstanding and adjusting to the nearest
cent. The net asset value per share will not be determined on Good Friday and
on such other federal and non-federal holidays as are observed by the New
York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or
quoted by NASDAQ is valued at its last sale price on that exchange or
quotation service; if there were no sales that day, the security is valued at
the closing 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 by the Trustees); and (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest bid price. When market quotations are not readily available, including
circumstances under which it is determined by the Investment Manager that
sale and bid prices are not reflective of a security's market value,
portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of
the Board of Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service utilizes
a matrix system incorporating security, quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining
what it believes is the fair valuation of the portfolio securities valued by
such pricing service.
Short-term debt securities with remaining maturities of 60 days or less at
the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' fair value, in which case
these securities will be valued at their fair value as determined by the
Trustees. A more detailed discussion of valuation procedures is in the Fund's
Statement of Additional Information.
13
<PAGE>
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other open-end
investment company for which InterCapital serves as investment manager
[collectively, with the Fund, the "Dean Witter Funds"]), unless the
shareholder requests that they be paid in cash. Shares so acquired are not
subject to the imposition of a contingent deferred sales charge upon their
redemption (see "Redemptions and Repurchases").
EasyInvest(Service Mark). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Fund's Transfer Agent for
investment in shares of the Fund.
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any amount, not less than $25, or in any
whole percentage of the account balance, on an annualized basis. Any
applicable contingent deferred sales charge will be imposed on shares
redeemed under the Withdrawal Plan (See "Redemptions and Repurchases--
Contingent Deferred Sales Charge"). Therefore, any shareholder participating
in the Withdrawal Plan will have sufficient shares redeemed from his or her
account so that the proceeds (net of any applicable contingent deferred sales
charge) to the shareholder will be the designated monthly or quarterly
amount.
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
Income Fund, Dean Witter Balanced Growth Fund and five Dean Witter Funds
which are money market funds (the foregoing ten 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
14
<PAGE>
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 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 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, if any, 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 one and read 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 has realized a capital gain or loss. However, the
ability to deduct capital losses on 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
15
<PAGE>
are part of the account information, shareholders may initiate an exchange of
shares of the Fund for shares of any of the Dean Witter Funds (for which the
Exchange Privilege is available) pursuant to this Exchange Privilege by
contacting their account executive (no Exchange Privilege Authorization Form
is required). Other shareholders (and those shareholders who are clients of
DWR or other Selected Broker-Dealers 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) 526-3143 (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
experience of this Fund and the other 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
may be reduced by the amount of any applicable contingent deferred sales
charges (see below). If shares are held in a Shareholder Investment Account
without a share certificate, a written request for redemption to the Fund's
Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption along
with any additional 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"), and it 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
SALES CHARGE AS A
YEAR SINCE PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE 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>
16
<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, the CDSC, if otherwise applicable, will be waived in the case
of: (i) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship, or (b) held in
a qualified corporate or self-employed retirement plan, Individual Retirement
Account or Custodial Account under Section 403(b)(7) of the Internal Revenue
Code, provided in either case that the redemption is requested within one
year of the death or initial determination of disability, and (ii)
redemptions in connection with the following retirement plan distributions:
(a) lump-sum or other distributions from a qualified corporate or
self-employed retirement plan following retirement (or in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2 ); (b)
distributions from an Individual Retirement Account or Custodial Account
under Section 403(b)(7) of the Internal Revenue Code following attainment of
age 59 1/2 ; and (c) a tax-free return of an excess contribution to an IRA.
For the purpose of determining disability, the Distributor utilizes the
definition of disability contained in Section 72(m)(7) of the Internal
Revenue Code, which relates to the inability to engage in gainful employment.
All waivers will be granted only following receipt by the Distributor of
confirmation of the 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
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. If the shares to be redeemed have
recently been purchased by check, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 30 days after the date of the redemption or repurchase,
reinstate any portion or
17
<PAGE>
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 60 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. However, before the Fund redeems such
shares and sends the proceeds to the shareholder, it will notify the
shareholder that the value of the shares is less than $100 and allow the
shareholder to make an additional investment in an amount which will increase
the value of the account to $100 or more before the redemption is processed.
No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Dividends and Distributions. The Fund intends to pay quarterly income
dividends and to distribute net short-term and net long-term capital gains,
if any, at least once each year. The Fund also intends to distribute net
long-term capital gains, if any, at least once each year. The Fund may,
however, determine either to distribute or to retain all or part of any
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 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 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.
Gains or losses on the Fund's transactions in listed non-equity options,
futures and options on futures generally are treated as 60% long-term and 40%
short-term. When the Fund engages in options and futures transactions,
various tax regulations applicable to the Fund may have the effect of causing
the Fund to recognize a gain or loss for tax purposes before that gain or
loss is realized, or to defer recognition of a realized loss for tax
purposes. Recognition, for tax purposes, of an unrealized loss may result in
a lesser amount of the Fund's realized 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 corporate dividends received deduction.
At 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 capital gains, and the
18
<PAGE>
amount of dividends eligible for the Federal dividends received deduction
available to corporations. To avoid being subject to a 31% federal backup
withholding tax on taxable dividends, capital gains distributions and the
proceeds of redemptions and repurchases, shareholders' taxpayer
identification numbers must be furnished and certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
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 a period of one and five years as well
as over the life of the Fund. 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, and 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. The Fund may also advertise
the growth of hypothetical investments of $10,000, $50,000 and $100,000 in
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc. and the S&P 500 Stock Index).
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.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees.
Under Massachusetts law, shareholders of a business trust may, under
certain 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 documents 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 in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
19
<PAGE>
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 prohibits
engaging in futures and option 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
recent 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 number or address set forth on the front cover
of this Prospectus.
20
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
<TABLE>
<S> <C>
MONEY MARKET FUNDS Dean Witter Short-Term Bond Fund
Dean Witter Liquid Asset Fund Inc. Dean Witter High Income Securities
Dean Witter U.S. Government Money Dean Witter National Municipal Trust
Market Trust Dean Witter Balanced Income Fund
Dean Witter Tax-Free Daily Income Trust Dean Witter Hawaii Municipal Trust
Dean Witter California Tax-Free Daily
Income Trust
Dean Witter New York Municipal Money ASSET ALLOCATION FUNDS
Market Trust Dean Witter Managed Assets Trust
Dean Witter Strategist Fund
EQUITY FUNDS ACTIVE ASSETS ACCOUNT PROGRAM
Dean Witter American Value Fund Active Assets Money Trust
Dean Witter Natural Resource Development Active Assets Tax-Free Trust
Securities Inc. Active Assets California Tax-Free Trust
Dean Witter Dividend Growth Securities Inc. Active Assets Government Securities Trust
Dean Witter Developing Growth Securities Trust
Dean Witter World Wide Investment Trust DEAN WITTER RETIREMENT SERIES
Dean Witter Value-Added Market Series Liquid Asset Series
Dean Witter Utilities Fund U.S. Government Money Market Series
Dean Witter Capital Growth Securities U.S. Government Securities Series
Dean Witter European Growth Fund Inc. Intermediate Income Securities Series
Dean Witter Precious Metals and Minerals Trust American Value Series
Dean Witter Pacific Growth Fund Inc. Capital Growth Series
Dean Witter Health Sciences Trust Dividend Growth Series
Dean Witter Global Dividend Growth Securities Stategist Series
Dean Witter Global Utilities Fund Utilities Series
Dean Witter International Small Cap Fund Value-Added Market Series
Dean Witter Balanced Growth Fund Global Equity Series
Dean Witter Mid-Cap Growth Fund
FIXED-INCOME FUNDS
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities Trust
Dean Witter Federal Securities Trust
Dean Witter Convertible Securities Trust
Dean Witter California Tax-Free Income Fund
Dean Witter New York Tax-Free Income Fund
Dean Witter World Wide Income Trust
Dean Witter Intermediate Income Securities
Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Multi-State Municipal Series Trust
Dean Witter Premier Income Trust
Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal Trust
</TABLE>
<PAGE>
Dean Witter DEAN WITTER
Managed Assets Trust MANAGED ASSETS
Two World Trade Center TRUST
New York, New York 10048
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
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--MAY 30, 1995
<PAGE>
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
DEAN WITTER MANAGED ASSETS TRUST
LETTER TO SHAREHOLDERS
DEAR SHAREHOLDER:
We are pleased to present the annual report for Dean Witter Managed Assets
Trust for the fiscal year ended March 31, 1995.
The stock and bond markets during the past twelve months can best be
described as chaotic. Stocks started the fiscal year on a very weak note,
traded in a tight range in the middle of the year, and then finished strongly
reaching record highs. Bonds suffered sharp declines throughout much of the
period as an overheated economy and the threat of renewed inflation prompted
the Federal Reserve Board to raise short-term interest rates. However, as the
fiscal year came to a close, the bond markets rallied, wiping out much of its
previous eight month's losses. For the full twelve-month period, the stock
market, measured by the Standard & Poor's 500 Composite Stock Price Index
(S&P 500 Index), posted a total return of 15.60 percent, while the bond
market, measured by 30-year U.S. Treasury securities, posted a total return
of 1.92 percent.
Against this backdrop, Dean Witter Managed Assets Trust, which was
defensively postured throughout the fiscal year, provided a total return of
4.83 percent. The Fund paid dividends from net investment income totaling
$0.33 per share during the period. In addition, the Trust paid short-term
capital gain distributions totaling $0.12 per share and long-term capital
gain distributions totaling $0.39 per share during the fiscal year. As
always, future dividends will vary depending on the mix of assets held in the
portfolio. The accompanying chart illustrates the growth of a $10,000
investment in the Fund from inception (June 30, 1988) through March 31, 1995,
compared to a hypothetical investment in the issues that comprise the S&P 500
Index. Unlike the Fund which may invest in stocks, bonds and money market
instruments, the S&P 500 Index is comprised solely of common stocks.
UNCERTAINTY IN THE FINANCIAL MARKETS
The fiscal year began with the U.S. showing signs of rapid economic growth,
with the Federal Reserve Board starting to raise interest rates, and
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
LETTER TO SHAREHOLDERS, CONTINUED
with the yield from stocks and bonds at very low levels (2.82 percent for the
S&P 500 Index and 7.10 percent for 30-year U.S. Treasury securities). The
Fund entered the fiscal year with 40 percent of assets invested in equities,
10 percent in bonds and 50 percent in money-market instruments. This cautious
allocation was designed to provide some participation in the financial
markets while at the same time protecting assets during a period of rising
interest rates.
GROWTH OF $10,000
($ IN THOUSANDS)
[GRAPH]
The economy continued to strengthen in the spring and summer and the Federal
Reserve continued to tighten monetary policy. As Federal Reserve Board
tightenings have historically been a harbinger of difficulties for the
financial markets, the Fund raised its defensive money-market position with
each tightening. Allocations went to 20 percent equities, 5 percent bonds and
75 percent money-markets in May, and then in August, for the first time in
the history of the Fund, to 100 percent money-markets. This extreme defensive
position was designed solely to preserve shareholders' capital in what was
viewed, based on the Managed Assets' Asset Allocation Model, as an
increasingly high-risk financial environment.
Turmoil continued in the markets for the balance of 1994. Yields on 30-year
Treasury securities reached 8.16 percent in November, as the U.S. government
bond market recorded its worst year in 68 years. Orange County, California was
forced into bankruptcy as a result of losing more than $1 billion from trading
in derivatives. The Mexican stock market declined more than 25 percent in two
months after the peso was devalued in December. The U.S. dollar plunged against
foreign currencies, reaching post-war lows versus the Japanese yen and the
German mark. As a result of its defensive portfolio composition, the Fund
outperformed both the equity and fixed-income markets for calendar year 1994.
During this twelve month period, Managed Assets Trust provided a total return of
2.66 percent versus 1.31 percent for the S&P 500 Index and -12.03 percent for
30-year U.S. Treasuries.
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
LETTER TO SHAREHOLDERS, CONTINUED
A SLOWING ECONOMY
During the first quarter of 1995, the effects of the Federal Reserve's
earlier monetary tightenings began to show in the U.S. economy as both
housing starts and new auto sales fell from their prior-year levels. The
prospects of slower economic growth and a possible end to additional
tightenings by the central bank led to strong rallies for both stocks and
bonds. In spite of the rallies, the Fund maintained its defensive position,
as market valuations approached record high levels. At fiscal year-end on
March 31, 1995, 100 percent of the Fund's assets were invested in
money-market instruments. Approximately, 65 percent were in government
agencies or commercial paper with 60 days or less to maturity and 35 percent
in U.S. Treasury bills with maturities of one year or less. This defensive
position, which continues to be based on the Managed Assets' Allocation
Model, reflects the possibility of further tightening actions by the Federal
Reserve Board and the ongoing concern that the dividend yield of the market
(2.63 percent for the S&P 500 Index) has reached an unsustainable level.
Going forward, we are looking for opportunities to get reinvested in the
financial markets. We anticipate that investments will occur either after a
period of market weakness or when it is likely that the Federal Reserve Board
has completed their moves toward monetary tightening and higher interest
rates. As always, the Fund will continue to base investment decisions on the
Managed Assets' Allocation Model.
We appreciate your support of Dean Witter Managed Assets Trust and look
forward to continuing to serve your investment objectives in the future.
Very truly yours,
/s/ C. Fiumefreddo
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1995
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL DESCRIPTION YIELD
AMOUNT IN AND ON DATE OF
THOUSANDS MATURITY DATE PURCHASE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (a) (102.1%)
COMMERCIAL PAPER (46.9%)
BANK HOLDING COMPANIES (7.6%)
$20,000 BankAmerica Corp. 04/19/95............ 5.99% $ 19,940,400
12,000 Northern Trust Corp. 04/28/95......... 6.01 11,946,270
--------------
31,886,670
--------------
BROKERAGE (2.8%)
12,000 Morgan Stanley Group, Inc. 05/11/95... 6.04 11,920,000
--------------
FINANCE - AUTOMOBILES (3.3%)
14,000 Ford Motor Credit Co. 05/05/95........ 6.10 13,920,138
--------------
FINANCE - CORPORATE (4.7%)
20,000 Ciesco, L.P. 05/05/95................. 6.01 19,887,233
--------------
FINANCE - DIVERSIFIED (16.8%)
11,000 American Express Credit Corp. 04/03/95... 6.08 10,996,321
10,000 Commercial Credit Co. 04/13/95........... 5.99 9,980,133
10,200 General Electric Capital Corp. 04/24/95.. 6.00 10,161,161
20,000 Heller Financial, Inc. 05/19/95.......... 6.08 19,839,467
20,000 Norwest Financial, Inc. 04/05/95......... 6.07 19,986,622
--------------
70,963,704
--------------
FINANCE - EQUIPMENT (4.7%)
20,000 Deere (John) Capital Corp. 05/01/95...... 6.05 19,900,000
--------------
FINANCE - OFFICE EQUIPMENT (7.0%)
20,500 IBM Credit Corp. 04/11/95................ 6.08 20,465,719
9,000 Xerox Credit Corp. 04/26/95.............. 6.01 8,962,688
--------------
29,428,407
--------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $197,906,152)........................ 197,906,152
--------------
U.S. GOVERNMENT & AGENCIES OBLIGATIONS (55.2%)
Federal Home Loan Banks 04/03/95 to
55,400 04/24/95............................. 5.94 to 6.25 55,316,939
Federal Home Loan Mortgage Corp.
19,900 04/17/95............................. 5.95 19,847,641
Federal National Mortgage Association
7,000 04/21/95............................. 5.96 6,977,056
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1995, CONTINUED
ANNUALIZED
PRINCIPAL DESCRIPTION YIELD
AMOUNT IN AND ON DATE OF
THOUSANDS MATURITY DATE PURCHASE VALUE
- -------------------------------------------------------------------------------------------
$155,000 U.S. Treasury Bill
06/29/95 to 12/14/95................... 5.40 to 6.79% $150,829,460
--------------
TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS
(AMORTIZED COST $232,978,199).......................... 232,971,096
--------------
TOTAL INVESTMENTS
(AMORTIZED COST $430,884,351) (b)....... 102.1% 430,877,248
LIABILITIES IN EXCESS OF OTHER ASSETS... (2.1) (8,893,556)
--------------- --------------
NET ASSETS.............................. 100.0% $421,983,692
--------------- --------------
--------------- --------------
<FN>
- ---------------------
(a) Securities were purchased on a discount basis. The interest rates
shown have been adjusted to reflect a money market equivalent yield.
(b) Cost is the same for federal income tax purposes.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
<TABLE>
<S> <C>
ASSETS :
Investments in securities, at value
(amortized cost $430,884,351) ....................................... $430,877,248
Receivable for shares of beneficial interest sold .................... 1,524,793
Prepaid expenses and other assets .................................... 37,975
--------------
TOTAL ASSETS ....................................................... 432,440,016
--------------
LIABILITIES :
Payable for:
Shares of beneficial interest repurchased .......................... 6,092,841
Plan of distribution fee ........................................... 361,277
Investment management fee .......................................... 216,770
Dividends to shareholders .......................................... 112,018
Payable to bank ...................................................... 3,481,210
Accrued expenses and other payables .................................. 192,208
--------------
TOTAL LIABILITIES .................................................. 10,456,324
--------------
NET ASSETS :
Paid-in-capital ...................................................... 422,393,625
Net unrealized depreciation .......................................... (7,103)
Distribution in excess of net investment income ...................... (163,887)
Accumulated net realized loss ........................................ (238,943)
--------------
NET ASSETS ......................................................... $421,983,692
--------------
--------------
NET ASSET VALUE PER SHARE,
40,738,444 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED OF $.01
PAR VALUE) .......................................................... $10.36
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1995
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest .......................................... $16,864,614
Dividends (net of $10,090 foreign withholding tax) 907,801
-------------
TOTAL INCOME .................................... 17,772,415
-------------
EXPENSES
Plan of distribution fee .......................... 3,477,931
Investment management fee ......................... 2,086,759
Transfer agent fees and expenses .................. 296,873
Registration fees ................................. 102,486
Custodian fees .................................... 62,382
Professional fees ................................. 49,122
Shareholder reports and notices ................... 49,094
Trustees' fees and expenses ....................... 33,035
Other ............................................. 11,602
-------------
TOTAL EXPENSES .................................. 6,169,284
-------------
NET INVESTMENT INCOME ........................... 11,603,131
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ................................. 10,416,911
Net change in unrealized depreciation ............. (6,113,384)
-------------
NET GAIN ........................................ 4,303,527
-------------
NET INCREASE ...................................... $15,906,658
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1995 MARCH 31, 1994
- ------------------------------------------------------ -------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 11,603,131 $ 4,618,486
Net realized gain ..................................... 10,416,911 13,924,046
Net change in unrealized appreciation ................. (6,113,384) (7,776,179)
-------------- --------------
NET INCREASE ........................................ 15,906,658 10,766,353
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................. (11,871,096) (4,624,567)
Net realized gain ..................................... (16,248,194) (13,835,091)
Paid-in-capital ....................................... (1,017,267) -0-
-------------- --------------
TOTAL ............................................... (29,136,557) (18,459,658)
-------------- --------------
Net increase from transactions in shares of beneficial
interest ............................................. 170,397,392 35,519,696
-------------- --------------
TOTAL INCREASE ...................................... 157,167,493 27,826,391
NET ASSETS:
Beginning of period ................................... 264,816,199 236,989,808
-------------- --------------
END OF PERIOD
(INCLUDING DISTRIBUTION IN EXCESS OF AND
UNDISTRIBUTED NET INVESTMENT INCOME OF $163,887 AND
$104,078, RESPECTIVELY) ............................ $421,983,692 $264,816,199
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1995
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Managed Assets Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a non-diversified,
open-end management investment company. The Fund was organized as a
Massachusetts business trust on October 8, 1987 and commenced operations on
June 30, 1988.
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 (in cases
where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by the Trustees); (2)
all other portfolio securities for which over-the-counter market quotations
are readily available are valued at the latest available bid price prior to
the time of valuation; (3) when market quotations are not readily available,
including circumstances under which it is determined by 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 Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (4) certain of the Fund's portfolio securities
may be valued by an outside pricing service approved by the Trustees. The
pricing service utilizes a matrix system incorporating security quality,
maturity and coupon as the evaluation model parameters, and/or research and
evaluations by its staff, including review of broker-dealer market price
quotations, if available, in determining what it believes is the fair
valuation of the securities valued by such pricing service; and (5)
short-term debt securities having a maturity date of more than sixty days at
time of purchase are valued on a mark-to-market basis until sixty days prior
to maturity and thereafter at amortized cost based on their value on the 61st
day. Short-term debt securities having a maturity date of sixty days or less
at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income is recorded on the ex-dividend date. Interest income
is accrued daily and includes the amortization of certain short-term
securities.
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1995, CONTINUED
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require 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 its Investment Manager a
management fee, accrued daily and payable monthly, by applying the annual
rate of 0.60% to the daily net assets of the Fund not exceeding $500 million
and 0.55% to the daily net assets of the Fund exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act
pursuant to which the Fund pays the Distributor compensation, accrued daily
and payable monthly, at an annual rate of 1.0% of the lesser of: (a) the
average daily aggregate gross sales of the
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1995, CONTINUED
Fund's shares since the Fund's inception (not including reinvestment of
dividend or capital gain distributions) less the average daily aggregate net
asset value of the Fund's shares redeemed since the Fund's inception upon
which a contingent deferred sales charge has been imposed or upon which such
charge has been waived; or (b) the Fund's average daily net assets. Amounts
paid under the Plan are paid to the Distributor to compensate it for the
services provided and the expenses borne by it and others in the distribution
of the Fund's shares, including the payment of commissions for sales of the
Fund's shares and incentive compensation to, and expenses of, the account
executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and other employees or selected 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.
The Distributor has informed the Fund that for the year ended March 31, 1995,
it received approximately $670,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares. The Fund's shareholders pay such
charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended March 31, 1995
aggregated $115,997,616 and $252,763,992, respectively. Included in
the aforementioned are purchases and sales of U.S. Government securities of
$86,914,199 and $102,341,032, respectively.
For the year ended March 31, 1995, the Fund incurred brokerage commissions of
$21,223 with DWR for portfolio transactions executed on behalf of the Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At March 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $31,000.
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1995, CONTINUED
The Fund established an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Fund who will have served as
independent Trustees for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five years of service. Aggregate pension costs for the year
ended March 31, 1995 included in Trustees' fees and expenses in the Statement
of Operations amounted to $11,360. At March 31, 1995, the Fund had an accrued
pension liability of $51,726 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
MARCH 31, 1995 MARCH 31, 1994
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Sold ........................................ 41,069,474 $ 433,827,320 8,078,807 $ 89,201,126
Reinvestment of dividends and distributions.. 2,433,359 25,358,358 1,504,075 16,299,642
--------------- --------------- ------------- --------------
43,502,833 459,185,678 9,582,882 105,500,768
Repurchased ................................. (27,440,804) (288,788,286) (6,337,340) (69,981,072)
--------------- --------------- ------------- --------------
Net increase ................................ 16,062,029 $ 170,397,392 3,245,542 $ 35,519,696
--------------- --------------- ------------- --------------
--------------- --------------- ------------- --------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $239,000 during fiscal 1995. As of March 31, 1995, the Fund had
temporary book/tax differences primarily attributable to post-October losses.
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED MARCH 31 JUNE 30, 1988*
---------------------------------------------------------------------- THROUGH
1995 1994 1993 1992 1991 1990 MARCH 31, 1989
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $10.73 $11.06 $11.36 $10.50 $ 9.99 $10.03 $10.00
------ ------ ------ ------- ------ ------ ------
Net investment income ................... 0.32 0.20 0.28 0.33 0.44 0.69 0.43
Net realized and unrealized gain ....... 0.18 0.31 0.84 0.90 0.52 0.10 --
------ ------ ------ ------- ------ ------ ------
Total from investment operations ....... 0.50 0.51 1.12 1.23 0.96 0.79 0.43
------ ------ ------ ------- ------ ------ ------
Less dividends and distributions from:
Net investment income .................. (0.33) (0.21) (0.28) (0.34) (0.44) (0.71) (0.40)
Net realized gain ...................... (0.51) (0.63) (1.14) (0.03) (0.01) (0.12) --
Paid-in-capital ........................ (0.03) -- -- -- -- -- --
------ ------ ------ ------- ------ ------ ------
Total dividends and distributions ...... (0.87) (0.84) (1.42) (0.37) (0.45) (0.83) (0.40)
------ ------ ------ ------- ------ ------ ------
Net asset value, end of period .......... $10.36 $10.73 $11.06 $11.36 $10.50 $ 9.99 $10.03
------ ------ ------ ------- ------ ------ ------
------ ------ ------ ------- ------ ------ ------
TOTAL INVESTMENT RETURN+................. 4.83% 4.64% 10.52% 11.85% 10.07% 8.01% 4.40%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 1.77% 1.79% 1.80% 1.70% 1.78% 1.77% 1.77%(2)
Net investment income ................... 3.34% 1.86% 2.48% 2.97% 4.34% 6.76% 6.73%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $421,984 $264,816 $236,990 $219,744 $215,408 $279,494 $262,570
Portfolio turnover rate ................. 264% 54% 68% 75% 125% 320% 178%(1)
<FN>
- -----------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER MANAGED ASSETS TRUST
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Dean Witter
Managed Assets Trust (the "Fund") at March 31, 1995, 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 six years in the period then ended and for the period June 30, 1988
(commencement of operations) through March 31, 1989, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at March
31, 1995 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
MAY 10, 1995
1995 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended March 31, 1995, the Fund paid to shareholders
$0.392 per share from long-term capital gains. For such period, 10.3%
of the ordinary dividend qualified for the dividends received deduction
available to corporations.
<PAGE>
T R U S T E E S
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton DEAN WITTER
Michael E. Nugent MANAGED ASSETS
Philip J. Purcell TRUST
John L. Schroeder
O F F I C E R S
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
T R A N S F E R A G E N T
Dean Witter Trust Company
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
I N D E P E N D E N T A C C O U N T A N T S
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
I N V E S T M E N T M A N A G E R
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of
the Fund. For more detailed information about the Fund, its officers and
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Fund.
This report is not authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an effective prospectus.
ANNUAL REPORT
MARCH 31, 1995
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
GROWTH OF $10,000
<TABLE>
<CAPTION>
DATE TOTAL S&P 500
- -------------------------------------------------------------------------------
<S> <C> <C>
June 30, 1988 $10,000 $10,000
March 31, 1989 $10,440 $11,072
March 31, 1990 $11,276 $13,201
March 31, 1991 $12,411 $15,103
March 31, 1992 $13,881 $16,767
March 31, 1993 $15,341 $19,317
March 31, 1994 $16,053 $19,601
March 31, 1995 $16,827 (3) $22,658
- -------------------------------------------------------------------------------
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS LIFE OF FUND
---------------------------------------------
<S> <C> <C>
4.83 (1) 8.34 (1) 8.02 (1)
0.00 (2) 8.04 (2) 8.02 (2)
---------------------------------------------
_________Fund S&P 500 (4)
Past performance is not predictive of future returns.
________________________________________
<FN>
(1) Figure shown assumes reinvestment of all distributions and does
not reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the
deduction of the maximum applicable contingent deferred sales
charge (CDSC) (1 year-5%, 5 years-2%, since inception-0%). See
the Fund's current prospectus for complete details on fees and
sales charges.
(3) Closing value assuming a complete redemption on March 31, 1995.
(4) The Standard and Poors 500 Composite Stock Price Index
(S&P 500) is a broad-based index, the performance of which is
based on the average performance of 500 widely held common
stocks. The index does not include any expenses, fees or
charges.
</TABLE>
<PAGE>
DEAN WITTER STRATEGIST FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of beneficial
interest of Dean Witter Strategist Fund ("Strategist") to be issued by
Strategist, pursuant to an Agreement and Plan of Reorganization, dated as of
August 24, 1995, between Strategist and Dean Witter Managed Assets Trust
("Managed Assets") in connection with the acquisition by Strategist of
substantially all of the assets, subject to stated liabilities, of Managed
Assets. This Statement of Additional Information does not constitute a
prospectus. This Statement of Additional Information does not include all
information that a shareholder should consider before voting on the proposals
contained in the Proxy Statement and Prospectus and, therefore, should be read
in conjunction with the related Proxy Statement and Prospectus, dated
, 1995 prior to voting. A copy of the Proxy Statement and Prospectus
may be obtained without charge by mailing a written request to Strategist at Two
World Trade Center, New York, New York 10048 or by calling (212) 392-2550 or
(800) 526-3143. Please retain this document for future reference.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS , 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION..................................................................................................... 3
ADDITIONAL INFORMATION ABOUT STRATEGIST.......................................................................... 3
FINANCIAL STATEMENTS............................................................................................. 4
</TABLE>
2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated ,
1995 (the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus
has been sent to Managed Assets shareholders in connection with the solicitation
of proxies by the Board of Trustees of Managed Assets to be voted at the Special
Meeting of Shareholders of Managed Assets to be held on December 19, 1995. This
Statement of Additional Information incorporates by reference the Statement of
Additional Information of Strategist dated August 28, 1995.
ADDITIONAL INFORMATION ABOUT STRATEGIST
INVESTMENT OBJECTIVES AND POLICIES
For additional information about Strategist's investment objective and
policies, see "Investment Practices and Policies" and "Investment Restrictions"
in Strategist's Statement of Additional Information.
MANAGEMENT
For additional information about the Board of Trustees, officers and
management personnel of Strategist, see "The Fund and Its Management" and
"Trustees and Officers" in Strategist's Statement of Additional Information.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about Strategist's investment manager, see "The
Fund and Its Management" in Strategist's Statement of Additional Information.
For additional information about Strategist's independent auditors, see
"Independent Accountants" in Strategist's Statement of Additional Information.
For additional information about other services provided to Strategist see "The
Distributor," "Custodian and Transfer Agent" and "Shareholder Services" in
Strategist's Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For additional information about brokerage allocation practices, see
"Portfolio Transactions and Brokerage" in Strategist's Statement of Additional
Information.
DESCRIPTON OF FUND SHARES
For additional information about the voting rights and other characteristics
of the shares of beneficial interest of Strategist, see "Description of Shares"
in Strategist's Statement of Additional Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of Strategist's
shares and the determination of net asset value, see "The Distributor,"
"Redemptions and Repurchases," "Financial Statements" and Shareholder Services"
in Strategist's Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
For additional information about Strategist's policies regarding dividends
and distributions and tax matters affecting Strategist and its shareholders, see
"Dividends, Distributions and Taxes" in Strategist's Statement of Additional
Information.
DISTRIBUTION OF SHARES
For additional information about Strategist's distributor and the
distribution agreement between Strategist and its distributor, see "The
Distributor" in Strategist's Statement of Additional Information.
3
<PAGE>
PERFORMANCE DATA
For additional information about Strategist's performance data, see
"Performance Information" in Strategist's Statement of Additional Information.
FINANCIAL STATEMENTS
Strategist's financial statements are set forth under "Financial Statements
- -- July 31, 1995" in Strategist's Statement of Additional Information dated
August 28, 1995.
4
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER COMBINED
STRATEGIST FUND MANAGED ASSETS TRUST (NOTE 1)
---------------- ---------------------- ------------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value (identified cost
$786,832,265, $398,878,165, and $1,124,698,417,
respectively)........................................... $ 870,196,045 $ 399,564,301 $ 1,269,760,346
Cash..................................................... 75,388 -- 75,388
Receivable for:
Investments sold....................................... 13,007,590 2,215,225 15,222,815
Interest............................................... 6,205,761 732,847 6,938,608
Shares of beneficial interest sold..................... 2,757,767 1,218,052 3,975,819
Dividends.............................................. 422,055 20,040 442,095
Principal paydowns..................................... 43,507 -- 43,507
Prepaid expenses and other assets........................ 17,198 87,196 104,394
---------------- ---------------------- ------------------
TOTAL ASSETS......................................... 892,725,311 403,837,661 1,296,562,972
---------------- ---------------------- ------------------
LIABILITIES:
Payable for:
Investments purchased.................................. 13,140,192 1,350,976 14,491,168
Shares of beneficial interest repurchased.............. 727,207 991,766 1,718,973
Plan of distribution fee............................... 630,975 349,184 980,159
Investment management fee.............................. 426,740 209,510 636,250
Accrued expenses and other payables...................... 204,871 123,889 328,760
---------------- ---------------------- ------------------
TOTAL LIABILITIES.................................... 15,129,985 3,025,325 18,155,310
---------------- ---------------------- ------------------
NET ASSETS:
Paid-in-capital.......................................... 736,601,490 398,198,226 1,134,799,716
Net unrealized appreciation.............................. 83,363,780 686,136 84,049,916
Accumulated undistributed net investment income.......... 3,987,969 1,325,598 5,313,567
Accumulated net realized gain............................ 53,642,087 602,376 54,244,463
---------------- ---------------------- ------------------
NET ASSETS........................................... $ 877,595,326 $ 400,812,336 $ 1,278,407,662
---------------- ---------------------- ------------------
---------------- ---------------------- ------------------
NET ASSET VALUE PER SHARE................................ $ 15.87 $ 10.43 $ 15.87
---------------- ---------------------- ------------------
---------------- ---------------------- ------------------
SHARES OUTSTANDING (Notes 1 and 2)....................... 55,289,486 38,418,901 80,545,462
---------------- ---------------------- ------------------
---------------- ---------------------- ------------------
</TABLE>
See Notes to Pro Forma Financial Statements
5
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1995
<TABLE>
<CAPTION>
DEAN WITTER PRO FORMA
DEAN WITTER MANAGED ASSETS ADJUSTMENTS
STRATEGIST FUND TRUST (NOTE 3) COMBINED
---------------- ---------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INCOME
Interest.............................. $ 22,087,220 $ 277,834 $ -- $ 22,365,054
Dividends (net of $5,650, $0 and
$5,650, respectively, foreign
withholding tax)..................... 10,048,666 21,852,258 -- 31,900,924
---------------- ---------------------- ---------------- ----------------
TOTAL INCOME........................ 32,135,886 22,130,092 -- 54,265,978
---------------- ---------------------- ---------------- ----------------
EXPENSES
Plan of distribution fee.............. 7,304,905 3,944,179 63,944(2) 11,313,028
Investment management fee............. 4,679,443 2,366,508 (295,188)(3) 6,750,763
Transfer agent fees and expenses...... 859,726 316,073 -- 1,175,799
Registration fees..................... 46,478 73,660 (46,478)(1) 73,660
Custodian fees........................ 74,297 68,182 (52,479)(1) 90,000
Professional fees..................... 47,227 53,265 (53,265)(4) 47,227
Shareholder reports and notices....... 88,308 47,831 (29,578)(4) 106,561
Trustees' fees and expenses........... 28,170 33,379 (33,379)(1) 28,170
Other................................. 25,159 8,781 (8,781)(1) 25,159
---------------- ---------------------- ---------------- ----------------
TOTAL EXPENSES...................... 13,153,713 6,911,858 (455,204) 19,610,367
---------------- ---------------------- ---------------- ----------------
NET INVESTMENT INCOME............... 18,982,173 15,218,234 455,204 34,655,611
---------------- ---------------------- ---------------- ----------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain....................... 56,953,694 5,158,790 -- 62,112,484
Net change in unrealized appreciation... 45,494,865 (3,089,204) -- 42,405,661
---------------- ---------------------- ---------------- ----------------
NET GAIN............................ 102,448,559 2,069,586 -- 104,518,145
---------------- ---------------------- ---------------- ----------------
NET INCREASE...................... $ 121,430,732 $ 17,287,820 $ 455,204 $ 139,173,756
---------------- ---------------------- ---------------- ----------------
---------------- ---------------------- ---------------- ----------------
</TABLE>
- ------------------------
(1) Reflects elimination of duplicate services or fees.
(2) Reflects adjustment to 12b-1 fees based on the surviving Fund's fee
schedule.
(3) Reflects adjustment to investment management fees based on the surviving
Fund's fee schedule.
(4) Adjustment for estimated expense based on surviving Fund's fees.
See Notes to Pro Forma Financial Statements
6
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION -- The Pro Forma Statement of Assets and Liabilities,
including the Portfolio of Investments and the related Statement of Operations
("Pro Forma Statements"), reflect the accounts of Dean Witter Strategist Fund
("Strategist") and Dean Witter Managed Assets Trust ("Managed") at July 31, 1995
and for the year then ended.
The Pro Forma Statements give effect to the proposed transfer of all assets
and liabilities of Managed in exchange for shares in Strategist.
The Pro Forma Statements should be read in conjunction with the historical
financial statements of each Fund included in its Prospectus or Statement of
Additional Information.
2. SHARES OF BENEFICIAL INTEREST -- The pro forma net asset value per share
assumes the issuance of additional shares of Strategist which would have been
issued on July 31, 1995 in connection with the proposed reorganization. The
amount of additional shares assumed to be issued (25,255,976) was calculated
based on the July 31, 1995 net assets of Managed ($400,812,336) and the net
asset value per share of Strategist of $15.87.
3. PRO FORMA OPERATIONS -- The Pro Forma Statement of Operations assumes
similar rates of gross investment income for the investments of each Fund.
Accordingly, the combined gross investment income is equal to the sum of each
Fund's gross investment income. Certain expenses have been adjusted to reflect
the expected expenses of the combined entity. Pro forma operating expenses
include the actual expenses of the Funds and the combined Fund based on the fee
schedule in effect for Strategist at the combined level of average net assets
for the year ended July 31, 1995. It is intended that the combined Fund will
bear all of its expenses. Pro forma operating expenses do not include the impact
of estimated reorganization costs of approximately $118,000. In accordance with
California Blue Sky expense limitations, if such expenses (exclusive of taxes,
interest, brokerage fees, distribution fees and extraordinary expenses) 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 average daily net assets
in excess of $100,000,000, Dean Witter InterCapital Inc., the Investment
Manager, will reimburse the Fund for the amount of such excess. No adjustments
have been made to the combined Fund expenses for possible Blue Sky limitations
because none are expected to be applicable.
7
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER
STRATEGIST FUND MANAGED ASSETS TRUST PRO FORMA
-------------------------- ------------------------- ---------------------------
NO. OF NO. OF NO. OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS (39.4%)
AEROSPACE & DEFENSE (0.3%)
Rockwell International
Corp.................... 92,000 $ 4,197,500 $ -- 92,000 $ 4,197,500
------------- ------------ --------------
AIRCRAFT & AEROSPACE (1.1%)
Boeing Company........... 74,000 4,958,000 -- 74,000 4,958,000
Honeywell, Inc........... 200,000 8,575,000 16,000 686,000 216,000 9,261,000
------------- ------------ --------------
13,533,000 686,000 14,219,000
------------- ------------ --------------
ALUMINUM (1.1%)
Reynolds Metals Co....... 231,200 14,450,000 -- 231,200 14,450,000
------------- ------------ --------------
APPAREL (0.1%)
VF Corp.................. -- 13,000 718,250 13,000 718,250
------------- ------------ --------------
AUTOMOTIVE (0.7%)
Ford Motor Co............ 148,000 4,273,500 -- 148,000 4,273,500
Superior Industries
International, Inc...... 150,000 5,250,000 -- 150,000 5,250,000
------------- ------------ --------------
9,523,500 -- 9,523,500
------------- ------------ --------------
AUTO PARTS (0.1%)
TRW, Inc................. -- 9,000 671,625 9,000 671,625
------------- ------------ --------------
BANKS - MONEY CENTER (1.0%)
Chemical Banking Corp.... 120,000 6,195,000 -- 120,000 6,195,000
Citicorp................. 110,000 6,861,250 -- 110,000 6,861,250
------------- ------------ --------------
13,056,250 -- 13,056,250
------------- ------------ --------------
BANKS - REGIONAL (2.0%)
Bank of Boston Corp...... 155,000 6,723,125 -- 155,000 6,723,125
Baybanks, Inc............ 50,000 4,075,000 -- 50,000 4,075,000
Integra Financial
Corp.................... 73,000 3,878,125 -- 73,000 3,878,125
Norwest Corp............. 200,000 5,650,000 -- 200,000 5,650,000
Wells Fargo & Co......... 31,500 5,744,812 -- 31,500 5,744,812
------------- ------------ --------------
26,071,062 -- 26,071,062
------------- ------------ --------------
BEVERAGES - ALCOHOLIC (0.1%)
Anheuser-Busch Companies,
Inc..................... -- 13,000 723,125 13,000 723,125
------------- ------------ --------------
BEVERAGES - SOFT DRINKS (0.6%)
PepsiCo Inc.............. 154,000 7,218,750 -- 154,000 7,218,750
------------- ------------ --------------
BROKERAGE (0.7%)
Merrill Lynch & Co.,
Inc..................... 100,000 5,550,000 -- 100,000 5,550,000
Morgan Stanley Group,
Inc..................... 60,000 5,017,500 -- 60,000 5,017,500
------------- ------------ --------------
10,567,500 -- 10,567,500
------------- ------------ --------------
BUILDING MATERIALS (0.1%)
Masco Corp............... -- 27,000 702,000 27,000 702,000
------------- ------------ --------------
CABLE/CELLULAR (0.4%)
Airtouch Communications,
Inc.*................... 153,000 4,819,500 -- 153,000 4,819,500
------------- ------------ --------------
</TABLE>
8
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER
STRATEGIST FUND MANAGED ASSETS TRUST PRO FORMA
-------------------------- ------------------------- ---------------------------
NO. OF NO. OF NO. OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
CHEMICALS (0.7%)
Du Pont (E.I.) de Nemours
& Co., Inc.............. $ -- 10,000 $ 670,000 10,000 $ 670,000
Monsanto Co.............. 70,000 6,518,750 8,000 745,000 78,000 7,263,750
PPG Industries, Inc...... -- 16,000 732,000 16,000 732,000
Rohm & Haas Co........... -- 12,000 699,000 12,000 699,000
------------- ------------ --------------
6,518,750 2,846,000 9,364,750
------------- ------------ --------------
CHEMICALS - SPECIALTY (0.3%)
Georgia Gulf Corp........ 100,000 3,362,500 -- 100,000 3,362,500
------------- ------------ --------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (0.5%)
Cisco Systems, Inc.*..... 126,000 7,008,750 -- 126,000 7,008,750
------------- ------------ --------------
COMPUTER SERVICES (1.0%)
Diebold, Inc............. 140,000 6,475,000 -- 140,000 6,475,000
General Motors Corp.
(Class E)............... 140,000 6,160,000 -- 140,000 6,160,000
------------- ------------ --------------
12,635,000 -- 12,635,000
------------- ------------ --------------
COMPUTER SOFTWARE (0.9%)
Microsoft Corp.*......... 67,000 6,055,125 -- 67,000 6,055,125
Oracle Systems Corp.*.... 120,000 5,010,000 -- 120,000 5,010,000
------------- ------------ --------------
11,065,125 -- 11,065,125
------------- ------------ --------------
COMPUTERS - SYSTEMS (1.9%)
Apple Computer, Inc...... 150,000 6,712,500 -- 150,000 6,712,500
Hewlett-Packard Co....... 60,000 4,672,500 -- 60,000 4,672,500
International Business
Machines Corp........... 61,000 6,641,375 -- 61,000 6,641,375
Novell, Inc.*............ 260,000 4,680,000 -- 260,000 4,680,000
Sun Microsystems,
Inc.*................... 60,000 2,880,000 -- 60,000 2,880,000
------------- ------------ --------------
25,586,375 -- 25,586,375
------------- ------------ --------------
CONSUMER PRODUCTS (0.6%)
RJR Nabisco Holdings
Corp.................... 256,000 7,072,000 -- 256,000 7,072,000
------------- ------------ --------------
DRUGS (0.1%)
Rite Aid Corp............ -- 25,000 709,375 25,000 709,375
Warner-Lambert Co........ -- 8,000 672,000 8,000 672,000
------------- ------------ --------------
-- 1,381,375 1,381,375
------------- ------------ --------------
DRUGS & HEALTHCARE (1.2%)
Abbott Laboratories...... 190,000 7,600,000 -- 190,000 7,600,000
Johnson & Johnson........ 112,000 8,036,000 -- 112,000 8,036,000
------------- ------------ --------------
15,636,000 -- 15,636,000
------------- ------------ --------------
ELECTRICAL EQUIPMENT (0.8%)
Emerson Electric Co...... 61,000 4,315,750 10,000 707,500 71,000 5,023,250
General Electric Co...... 73,000 4,307,000 12,000 708,000 85,000 5,015,000
------------- ------------ --------------
8,622,750 1,415,500 10,038,250
------------- ------------ --------------
ELECTRICAL HOUSEHOLD APPLIANCES (0.3%)
Maytag Corp.............. 270,000 4,421,250 -- 270,000 4,421,250
------------- ------------ --------------
ELECTRONICS - DEFENSE (0.4%)
Loral Corp............... 87,000 4,872,000 -- 87,000 4,872,000
------------- ------------ --------------
</TABLE>
9
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER
STRATEGIST FUND MANAGED ASSETS TRUST PRO FORMA
-------------------------- ------------------------- ---------------------------
NO. OF NO. OF NO. OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (1.1%)
Applied Materials,
Inc.*................... 40,000 $ 4,140,000 $ -- 40,000 $ 4,140,000
Intel Corp............... 65,000 4,216,875 -- 65,000 4,216,875
Texas Instruments Inc.... 40,000 6,250,000 -- 40,000 6,250,000
------------- ------------ --------------
14,606,875 -- 14,606,875
------------- ------------ --------------
ENTERTAINMENT (0.3%)
Circus Circus
Enterprises, Inc.*...... 130,000 3,867,500 -- 130,000 3,867,500
------------- ------------ --------------
FINANCIAL SERVICES (0.9%)
Beneficial Corp.......... 120,000 5,685,000 -- 120,000 5,685,000
Travelers, Inc........... 130,000 6,158,750 -- 130,000 6,158,750
------------- ------------ --------------
11,843,750 -- 11,843,750
------------- ------------ --------------
FOODS (0.7%)
Campbell Soup Co......... 153,000 7,152,750 15,000 701,250 168,000 7,854,000
ConAgra, Inc............. -- 19,000 717,250 19,000 717,250
------------- ------------ --------------
7,152,750 1,418,500 8,571,250
------------- ------------ --------------
FOREST PRODUCTS (0.1%)
Louisiana-Pacific
Corp.................... -- 27,000 664,875 27,000 664,875
------------- ------------ --------------
HARDWARE & TOOLS (0.1%)
Stanley Works............ -- 18,000 713,250 18,000 713,250
------------- ------------ --------------
HEALTH CARE DRUGS (0.1%)
Schering-Plough Corp..... -- 15,000 697,500 15,000 697,500
------------- ------------ --------------
HEALTH CARE MISCELLANOUS (1.1%)
Coventry Corp.*.......... 250,000 4,000,000 -- 250,000 4,000,000
Humana, Inc.*............ 350,000 6,781,250 -- 350,000 6,781,250
Mid Atlantic Medical
Services, Inc.*......... 170,000 3,336,250 -- 170,000 3,336,250
------------- ------------ --------------
14,117,500 -- 14,117,500
------------- ------------ --------------
HEALTH EQUIPMENT & SERVICES (0.1%)
Baxter International,
Inc..................... -- 19,000 707,750 19,000 707,750
------------- ------------ --------------
HOSPITAL MANAGEMENT (0.7%)
Columbia/HCA Healthcare
Corp.................... 173,000 8,477,000 -- 173,000 8,477,000
------------- ------------ --------------
HOUSEHOLD PRODUCTS (1.1%)
Colgate-Palmolive Co..... 98,000 6,860,000 -- 98,000 6,860,000
Tambrands, Inc........... 150,000 7,068,750 -- 150,000 7,068,750
------------- ------------ --------------
13,928,750 -- 13,928,750
------------- ------------ --------------
LABELS (0.1%)
Avery Dennison Corp...... -- 17,000 682,125 17,000 682,125
------------- ------------ --------------
LIFE INSURANCE (0.4%)
Providian Corp........... 140,000 5,022,500 -- 140,000 5,022,500
------------- ------------ --------------
MACHINERY - CONSTRUCTION & MATERIALS (0.7%)
Ingersoll-Rand Co........ 111,000 4,634,250 -- 111,000 4,634,250
Parker-Hannifin Corp..... 120,000 4,890,000 -- 120,000 4,890,000
------------- ------------ --------------
9,524,250 -- 9,524,250
------------- ------------ --------------
</TABLE>
10
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER
STRATEGIST FUND MANAGED ASSETS TRUST PRO FORMA
-------------------------- ------------------------- ---------------------------
NO. OF NO. OF NO. OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
MACHINERY - DIVERSIFIED (0.1%)
Johnson Controls, Inc.... $ -- 12,000 $ 723,000 12,000 $ 723,000
------------- ------------ --------------
METALS (0.6%)
Phelps Dodge Corp........ 112,000 7,196,000 -- 112,000 7,196,000
------------- ------------ --------------
MOBILE HOME & RECREATION (0.1%)
Fleetwood Enterprises,
Inc..................... -- 35,000 721,875 35,000 721,875
------------- ------------ --------------
OFFICE EQUIPMENT & SUPPLIES (0.3%)
Alco Standard Corp....... 38,000 3,092,250 -- 38,000 3,092,250
Pitney Bowes, Inc........ -- 17,000 682,125 17,000 682,125
------------- ------------ --------------
3,092,250 682,125 3,774,375
------------- ------------ --------------
OIL DRILLING & SERVICES (1.2%)
Dresser Industries,
Inc..................... 310,000 7,130,000 -- 310,000 7,130,000
Schlumberger Ltd......... 130,000 8,710,000 -- 130,000 8,710,000
------------- ------------ --------------
15,840,000 -- 15,840,000
------------- ------------ --------------
OIL INTEGRATED - INTERNATIONAL (2.7%)
Chevron Corp............. 175,000 8,640,625 -- 175,000 8,640,625
Exxon Corp............... 120,000 8,700,000 -- 120,000 8,700,000
Mobil Corp............... 86,000 8,406,500 -- 86,000 8,406,500
Texaco, Inc.............. 125,000 8,312,500 -- 125,000 8,312,500
------------- ------------ --------------
34,059,625 -- 34,059,625
------------- ------------ --------------
PHARMACEUTICALS (2.0%)
American Home Products
Corp.................... 95,000 7,505,000 -- 95,000 7,505,000
Merck & Co., Inc......... 165,000 8,518,125 14,000 722,750 179,000 9,240,875
Pfizer, Inc.............. 170,000 8,585,000 -- 170,000 8,585,000
------------- ------------ --------------
24,608,125 722,750 25,330,875
------------- ------------ --------------
PUBLISHING - NEWSPAPER (0.1%)
Gannett Co., Inc......... -- 13,000 711,750 13,000 711,750
------------- ------------ --------------
RAILROAD EQUIPMENT (0.3%)
Trinity Industries,
Inc..................... 116,500 3,902,750 -- 116,500 3,902,750
------------- ------------ --------------
RESTAURANTS (0.3%)
McDonald's Corp.......... 115,000 4,441,875 -- 115,000 4,441,875
------------- ------------ --------------
RETAIL (0.4%)
Wal-Mart Stores, Inc..... 171,000 4,552,875 -- 171,000 4,552,875
Dayton Hudson Corp....... -- 4,000 302,500 4,000 302,500
May Department Stores
Co...................... -- 16,000 694,000 16,000 694,000
------------- ------------ --------------
4,552,875 996,500 5,549,375
------------- ------------ --------------
RETAIL - SPECIALTY (2.0%)
Bed, Bath & Beyond,
Inc.*................... 300,000 9,300,000 -- 300,000 9,300,000
Home Depot, Inc.......... 100,000 4,387,500 -- 100,000 4,387,500
Pier 1 Imports, Inc...... 600,000 5,850,000 -- 600,000 5,850,000
Price/Costco, Inc.*...... 305,000 5,451,875 -- 305,000 5,451,875
------------- ------------ --------------
24,989,375 -- 24,989,375
------------- ------------ --------------
RETAIL SPECIALTY APPAREL (0.3%)
Gap, Inc................. 123,000 4,289,625 -- 123,000 4,289,625
------------- ------------ --------------
</TABLE>
11
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER
STRATEGIST FUND MANAGED ASSETS TRUST PRO FORMA
-------------------------- ------------------------- ---------------------------
NO. OF NO. OF NO. OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
SAVINGS & LOAN ASSOCIATIONS (1.1%)
California Federal
Bank*................... 270,000 $ 3,746,250 $ -- 270,000 $ 3,746,250
Golden West Financial
Corp.................... 115,000 5,376,250 -- 115,000 5,376,250
Roosevelt Financial
Group, Inc.............. 350,000 5,381,250 -- 350,000 5,381,250
------------- ------------ --------------
14,503,750 -- 14,503,750
------------- ------------ --------------
SHIPPING (0.5%)
American President
Companies, Ltd.......... 225,800 6,350,625 -- 225,800 6,350,625
------------- ------------ --------------
SHOES (0.7%)
Nike, Inc. (Class B)..... 54,000 4,880,250 -- 54,000 4,880,250
Reebok International
Ltd..................... 125,000 4,484,375 -- 125,000 4,484,375
------------- ------------ --------------
9,364,625 -- 9,364,625
------------- ------------ --------------
STEEL & IRON (0.5%)
Bethlehem Steel Corp.*... 420,000 6,615,000 -- 420,000 6,615,000
------------- ------------ --------------
TELEPHONE - LONG DISTANCE (0.6%)
MCI Communications
Corp.................... 315,000 7,520,625 -- 315,000 7,520,625
------------- ------------ --------------
TEXTILES - APPAREL MANUFACTURING (0.2%)
Liz Claiborne, Inc....... 100,000 2,287,500 31,000 709,125 131,000 2,996,625
------------- ------------ --------------
TRANSPORTATION (0.4%)
Conrail, Inc............. 78,000 4,816,500 -- 78,000 4,816,500
------------- ------------ --------------
U.S. GOVERNMENT AGENCY (0.4%)
Federal National Mortgage
Association............. 60,000 5,617,500 -- 60,000 5,617,500
------------- ------------ --------------
WHOLESALE DISTRIBUTOR (0.1%)
Super Valu Stores,
Inc..................... -- 24,000 738,000 24,000 738,000
------------- ------------ --------------
TOTAL COMMON STOCKS
(Identified Cost $401,825,390, $19,196,777,
and $421,022,167, respectively)................482,827,062
20,033,000 502,860,062
------------- ------------ --------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
(IN (IN (IN
THOUSANDS) THOUSANDS) THOUSANDS)
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CORPORATE BONDS (14.6%)
AUTOMOTIVE FINANCE (0.4%)
General Motors Acceptance
Corp. 7.25% due
05/15/03................ $ 5,000 5,006,250 $ -- $ 5,000 5,006,250
------------ ------------ --------------
</TABLE>
12
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER
STRATEGIST FUND MANAGED ASSETS TRUST PRO FORMA
------------------------- ------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
(IN (IN (IN
THOUSANDS) VALUE THOUSANDS) VALUE THOUSANDS) VALUE
----------- ------------ ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BANKS (5.0%)
Banco Central Hispano
7.50% due 06/15/05
(Cayman Islands)........ $ 9,850 $ 9,667,184 $ $ -- $ 9,850 $ 9,667,184
Bank of Boston Corp.
6.875% due 07/15/03..... 5,220 5,127,554 2,000 1,964,580 7,220 7,092,134
BCO Commercio Exterior
8.625% due 06/02/00
(Columbia) -- 144A**.... 4,900 4,973,500 -- 4,900 4,973,500
Central Fidelity Banks,
Inc. 8.15% due
11/15/02................ 5,000 5,267,750 -- 5,000 5,267,750
Household Bank F.S.B.
6.50% due 07/15/03...... 5,000 4,790,600 -- 5,000 4,790,600
Midland Bank PLC 7.65%
due 05/01/25 (United
Kingdom)................ 5,900 6,218,836 -- 5,900 6,218,836
NationsBank Corp. 7.625%
due 04/15/05............ 5,000 5,132,900 2,000 2,053,160 7,000 7,186,060
PNC Bank N.A. 7.875% due
04/15/05................ -- 2,000 2,090,300 2,000 2,090,300
Shawmut Bank 8.625% due
02/15/05................ 6,000 6,544,920 2,000 2,181,640 8,000 8,726,560
Susquehanna Bancshares
9.00% due 02/01/05...... 5,000 5,461,350 -- 5,000 5,461,350
Swiss Bank Corp. 7.50%
due 07/15/25............ 5,000 5,097,250 -- 5,000 5,097,250
------------ ------------ --------------
58,281,844 8,289,680 66,571,524
------------ ------------ --------------
BROKERAGE (0.4%)
Paine Webber Group, Inc.
7.625% due 02/15/14..... 5,000 4,626,050 -- 5,000 4,626,050
------------ ------------ --------------
FINANCIAL (1.5%)
BHP Finance Ltd. 5.625%
due 11/01/00
(Australia)............. 4,950 4,712,103 -- 4,950 4,712,103
Commercial Credit Group,
Inc. 7.75% due
03/01/05................ 4,900 5,120,500 -- 4,900 5,120,500
Meditrust 7.60% due
07/15/01................ 2,500 2,499,750 -- 2,500 2,499,750
Salomon, Inc. 6.75% due
08/15/03................ 4,900 4,532,941 -- 4,900 4,532,941
United Companies
Financial 7.00% due
07/15/98................ 2,000 1,999,280 -- 2,000 1,999,280
------------ ------------ --------------
18,864,574 -- 18,864,574
------------ ------------ --------------
FOREIGN GOVERNMENT AGENCY (1.2%)
Italy (Republic of)
6.875% due 09/27/23..... 9,850 8,616,780 2,000 1,749,600 11,850 10,366,380
Province of Ontario 7.00%
due 08/04/05 (Canada)... 4,950 4,956,187 -- 4,950 4,956,187
------------ ------------ --------------
13,572,967 1,749,600 15,322,567
------------ ------------ --------------
</TABLE>
13
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER
STRATEGIST FUND MANAGED ASSETS TRUST PRO FORMA
------------------------- ------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
(IN (IN (IN
THOUSANDS) VALUE THOUSANDS) VALUE THOUSANDS) VALUE
----------- ------------ ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIALS (4.1%)
Aramark Services Co.
8.15% due 05/01/05...... $ 4,900 $ 5,052,635 $ $ -- $ 4,900 $ 5,052,635
Joy Technologies Inc.
10.25% due 09/01/03..... 3,000 3,315,000 -- 3,000 3,315,000
News American Holdings,
Inc. 8.25% due
08/10/18................ 4,920 4,986,518 -- 4,920 4,986,518
Placer Dome, Inc. 7.75%
due 06/15/15 (Canada)... 5,000 4,823,650 -- 5,000 4,823,650
Repsol International
Finance 7.00% due
08/01/05................ 4,900 4,900,980 -- 4,900 4,900,980
RJR Nabisco, Inc. 8.75%
due 08/15/05............ 9,950 9,957,861 2,000 1,978,620 11,950 11,936,481
TCI Communications, Inc.
8.75% due 08/01/15...... 4,950 4,936,487 -- 4,950 4,936,487
Time Warner Entertainment
Co. 8.375% due
07/15/33................ 4,900 4,787,888 2,000 1,954,240 6,900 6,742,128
Time Warner, Inc. 9.15%
due 02/01/23............ 5,000 5,138,500 -- 5,000 5,138,500
------------ ------------ --------------
47,899,519 3,932,860 51,832,379
------------ ------------ --------------
RETAIL (0.4%)
K Mart Corp. 7.95% due
02/01/23................ 5,000 4,596,300 -- 5,000 4,596,300
------------ ------------ --------------
TRANSPORTATION (0.7%)
United Air Lines, Inc.
11.21% due 05/01/14..... 6,900 8,463,678 -- 6,900 8,463,678
------------ ------------ --------------
UTILITIES - ELECTRIC (0.9%)
Big Rivers Electric 9.50%
due 02/15/17............ 5,000 5,536,450 -- 5,000 5,536,450
Pacific Gas Transmission
Co. 6.96% due
08/05/03................ 6,000 5,940,000 -- 6,000 5,940,000
------------ ------------ --------------
11,476,450 -- 11,476,450
------------ ------------ --------------
TOTAL CORPORATE BONDS
(Identified Cost $171,546,076, $14,105,235,
and $185,651,311, respectively)............ 172,787,632 13,972,140 186,759,772
------------ ------------ --------------
</TABLE>
<TABLE>
<CAPTION>
NO. OF NO. OF NO. OF
SHARES SHARES SHARES
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
RIGHTS (0.0%)
SAVINGS & LOAN ASSOCIATION
California Federal Bank
(Identified Cost $0, $0,
and $0,
respectively)*.......... 27,000 135,000 -- 27,000 135,000
------------ ------------ --------------
</TABLE>
14
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER
STRATEGIST FUND MANAGED ASSETS TRUST PRO FORMA
------------------------- ------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
(IN (IN (IN
THOUSANDS) VALUE THOUSANDS) VALUE THOUSANDS) VALUE
----------- ------------ ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCIES OBLIGATIONS (16.3%)
Federal Home Loan Banks
7.78% due 01/30/97...... $ 5,000 $ 5,050,000 $ $ -- $ 5,000 $ 5,050,000
Federal Home Loan
Mortgage Corp. 8.50% due
07/01/02................ 695 711,041 -- 695 711,041
Federal Home Loan
Mortgage Corp. 9.00% due
08/01/02................ 276 284,830 -- 276 284,830
Federal National Mortgage
Association 5.22% due
07/10/98................ 5,000 4,850,000 -- 5,000 4,850,000
Federal National Mortgage
Association 6.40% due
01/13/04................ 3,000 2,853,750 -- 3,000 2,853,750
Private Export Funding
Corp. 7.95% due
11/01/06................ 10,000 10,886,700 -- 10,000 10,886,700
U.S. Treasury Bond 7.50%
due 11/15/24............ 10,900 11,765,188 3,000 3,238,125 13,900 15,003,313
U.S. Treasury Note 7.25%
due 11/15/96............ 1,000 1,017,656 -- 1,000 1,017,656
U.S. Treasury Note 6.50%
due 05/15/97............ 20,000 20,206,250 -- 20,000 20,206,250
U.S. Treasury Note 5.25%
due 07/31/98............ 25,000 24,468,750 -- 25,000 24,468,750
U.S. Treasury Note 5.125%
due 11/30/98............ 8,000 7,770,000 -- 8,000 7,770,000
U.S. Treasury Note 6.375%
due 01/15/99............ -- 5,000 5,035,937 5,000 5,035,937
U.S. Treasury Note 6.50%
due 04/30/99............ 30,000 30,365,625 -- 30,000 30,365,625
U.S. Treasury Note 6.875%
due 08/31/99............ 26,000 26,662,188 -- 26,000 26,662,188
U.S. Treasury Note 7.875%
due 11/15/99............ 6,500 6,911,328 -- 6,500 6,911,328
U.S. Treasury Note 7.75%
due 11/30/99............ 3,000 3,175,781 -- 3,000 3,175,781
U.S. Treasury Note 6.75%
due 04/30/00............ 15,050 15,386,273 -- 15,050 15,386,273
U.S. Treasury Note 7.50%
due 11/15/01............ 3,500 3,716,016 10,000 10,617,188 13,500 14,333,204
U.S. Treasury Note 5.75%
due 08/15/03............ 5,000 4,791,406 -- 5,000 4,791,406
U.S. Treasury Note 7.50%
due 02/15/05............ 8,000 8,582,500 8,000 8,582,500
------------ ------------ --------------
TOTAL U.S. GOVERNMENT & AGENCIES
OBLIGATIONS
(Identified Cost $179,887,230, $27,710,000,
and $207,597,230, respectively)............ 180,872,782 27,473,750 208,346,532
------------ ------------ --------------
</TABLE>
15
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER
STRATEGIST FUND MANAGED ASSETS TRUST PRO FORMA
------------------------- ------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
(IN (IN (IN
THOUSANDS) VALUE THOUSANDS) VALUE THOUSANDS) VALUE
----------- ------------ ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (29.0%)
COMMERCIAL PAPER (A) (10.9%)
AUTOMOTIVE FINANCE (1.4%)
Ford Motor Credit Co..... $ -- $ 18,500 $ 18,391,050 $ 18,500 $ 18,391,050
------------ ------------ --------------
BANKS - COMMERCIAL (1.6%)
Commerzbank US Finance... -- 20,000 20,000,000 20,000 20,000,000
------------ ------------ --------------
FINANCE - COMMERCIAL (1.6%)
Heller Financial, Inc.... -- 20,000 19,974,667 20,000 19,974,667
------------ ------------ --------------
FINANCE - CONSUMER (1.6%)
American Express Credit
Corp.................... -- 13,000 12,979,417 13,000 12,979,417
Norwest Financial Inc.... -- 8,000 7,978,467 8,000 7,978,467
------------ ------------ --------------
-- 20,957,884 20,957,884
------------ ------------ --------------
FINANCE - CORPORATE (0.6%)
Ciesco, L. P............. -- 7,600 7,558,105 7,600 7,558,105
------------ ------------ --------------
FINANCE - DIVERSIFIED (0.9%)
General Electric Capital
Corp.................... -- 11,000 10,965,167 11,000 10,965,167
------------ ------------ --------------
FINANCE - EQUIPMENT (1.6%)
Deere John Cap Corp...... -- 19,000 18,957,883 19,000 18,957,883
------------ ------------ --------------
OFFICE EQUIPMENT (1.6%)
IBM Credit Corp.......... -- 20,000 19,901,144 20,000 19,901,144
------------ ------------ --------------
TOTAL COMMERCIAL PAPER
(Amortized Cost $136,705,900).............. -- 136,705,900 136,705,900
------------ ------------ --------------
</TABLE>
16
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER
STRATEGIST FUND MANAGED ASSETS TRUST PRO FORMA
------------------------- ------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
(IN (IN (IN
THOUSANDS) VALUE THOUSANDS) VALUE THOUSANDS) VALUE
----------- ------------ ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCIES (A) (17.8%)
Federal Home Loan Banks
5.65% due 08/02/95...... $ 9,000 $ 8,998,588 $ $ -- $ 9,000 $ 8,998,588
Federal Home Loan
Mortgage Corp. 5.67% due
08/28/95................ -- 10,000 9,957,475 10,000 9,957,475
Federal National Mortgage
Association 5.80% due
08/02/95................ -- 4,250 4,249,315 4,250 4,249,315
Federal National Mortgage
Association 5.83% due
08/03/95................ -- 17,000 16,994,494 17,000 16,994,494
Federal National Mortgage
Association 5.81% due
08/07/95................ -- 10,000 9,990,317 10,000 9,990,317
Federal National Mortgage
Association 5.70% due
08/09/95................ 21,400 21,372,893 -- 21,400 21,372,893
Federal National Mortgage
Association 5.68% due
08/18/95................ -- 25,900 25,830,530 25,900 25,830,530
U.S. Treasury Bill 5.26%
due 08/24/95............ -- 30,000 29,895,177 30,000 29,895,177
U.S. Treasury Bill 5.48%
due 08/24/95............ -- 20,000 19,930,118 20,000 19,930,118
U.S. Treasury Bill 5.86%
due 12/14/95............ -- 30,000 29,394,750 30,000 29,394,750
U.S. Treasury Bill 6.03%
due 12/14/95............ -- 30,000 29,394,750 30,000 29,394,750
U.S. Treasury Bill 6.41%
due 12/14/95............ -- 25,000 24,495,625 25,000 24,495,625
------------ ------------ --------------
TOTAL U.S. GOVERNMENT AGENCIES
(Amortized Cost $30,371,481, $200,132,551,
and $230,504,032, respectively)............ 30,371,481 200,132,551 230,504,032
------------ ------------ --------------
</TABLE>
17
<PAGE>
DEAN WITTER STRATEGIST FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER DEAN WITTER
STRATEGIST FUND MANAGED ASSETS TRUST PRO FORMA
------------------------- ------------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
(IN (IN (IN
THOUSANDS) VALUE THOUSANDS) VALUE THOUSANDS) VALUE
----------- ------------ ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS (0.3%)
The Bank of New York 5.8125%
due 08/01/95 (dated
07/31/95; proceeds
$3,202,650; collateralized
by $3,232,343 U.S. Treasury
Note 6.50% due 9/30/96
valued at $3,328,570)
(Identified Cost
$3,202,088)................. $ 3,202 $ 3,202,088 $ $ -- $ 3,202 $ 3,202,088
------------ ------------ --------------
The Bank of New York 5.8125%
due 8/01/95 (dated 07/31/95;
proceeds $1,271,161;
collateralized by $1,296,215
Federal Home Loan Banks due
10/25/96 valued at
$1,296,215) (Identified Cost
$1,246,960)................. -- 1,247 1,246,960 1,247 1,246,960
------------ ------------ --------------
3,202,088 1,246,960 4,449,048
------------ ------------ --------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $33,573,569, $338,085,411,
and $371,658,980, respectively)............ 33,573,569 338,085,411 371,658,980
------------ ------------ --------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL INVESTMENTS (Identified
Cost $786,832,265,
$398,878,165, and
$1,124,698,417,
respectively)................. 99.3 % 870,196,045 399,564,301 1,269,760,346
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES......... 0.7 7,399,281 1,248,035 8,647,316
----------- ------------ ------------ --------------
NET ASSETS.................... 100.0 % $877,595,326 $400,812,336 $1,278,407,662
----------- ------------ ------------ --------------
----------- ------------ ------------ --------------
</TABLE>
- ------------------------------
* Non-income producing security
** Resale is restricted to qualified institutional investors
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b)
<TABLE>
<CAPTION>
DEAN WITTER STRATEGIST FUND
- --------------------------------------------------------------
<S> <C> <C> <C>
COST FOR GROSS GROSS
FEDERAL INCOME UNREALIZED UNREALIZED NET UNREALIZED
PURPOSES APPRECIATION DEPRECIATION DEPRECIATION
- -------------- -------------- -------------- --------------
$ 787,894,760 $ 89,658,581 $ 7,357,296 $ 82,301,285
- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
DEAN WITTER MANAGED ASSETS
TRUST
- --------------------------------------------------------------
<S> <C> <C> <C>
COST FOR GROSS GROSS
FEDERAL INCOME UNREALIZED UNREALIZED NET UNREALIZED
PURPOSES APPRECIATION DEPRECIATION DEPRECIATION
- -------------- -------------- -------------- --------------
$ 398,878,165 $ 1,326,114 $ 639,978 $ 686,136
- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- --------------
</TABLE>
See Notes to Pro Forma Financial Statements
18
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DEAN WITTER
AUGUST 28, 1995 STRATEGIST FUND
- --------------------------------------------------------------------------------
Dean Witter Strategist Fund (the "Fund") is an open-end, non-diversified
management investment company, the investment objective of which is to maximize
the total return on its investments. The Fund seeks to achieve its objective by
actively allocating its assets among the major asset categories of equity
securities, fixed-income securities and money market instruments. See
"Investment Practices and Policies."
A Prospectus for the Fund dated August 28, 1995, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone number listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc. at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
Dean Witter
Strategist Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
The Fund and its Management ............................................... 3
Trustees and Officers ..................................................... 6
Investment Practices and Policies ......................................... 12
Investment Restrictions ................................................... 26
Portfolio Transactions and Brokerage ...................................... 27
The Distributor ........................................................... 28
Shareholder Services ...................................................... 32
Redemptions and Repurchases ............................................... 36
Dividends, Distributions and Taxes ........................................ 39
Performance Information ................................................... 41
Description of Shares ..................................................... 41
Custodian and Transfer Agent .............................................. 42
Independent Accountants ................................................... 43
Reports to Shareholders ................................................... 43
Legal Counsel ............................................................. 43
Experts ................................................................... 43
Registration Statement .................................................... 43
Financial Statements - July 31, 1995 ...................................... 48
Report of Independent Accountants ......................................... 55
Appendix .................................................................. 56
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
August 5, 1988.
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., 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 Board of Trustees. In addition, Trustees of the Fund
provide guidance on economic factors and interest rate trends. Information as to
these Trustees and officers is contained under the caption "Trustees and
Officers".
InterCapital is also the investment manager or investment adviser of the
following management investment companies: Active Assets Money Trust, Active
Assets Tax-Free Trust, Active Assets California Tax-Free Trust, Active Assets
Government Securities Trust, 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
Value-Added Market Series, Dean Witter Utilities Fund, Dean Witter Managed
Assets Trust, Dean Witter California Tax-Free Daily Income Trust, 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 New York Municipal Money Market
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, Municipal Income Trust, Municipal Income Trust II, Municipal
Income Trust III, Municipal Income Opportunities Trust, Municipal Income
Opportunities
3
<PAGE>
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 North American Intermediate Income Trust,
TCW/DW Global Convertible 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.
The Investment Manager also serves as an investment adviser for Dean Witter
World Wide Investment Fund, an investment company organized under the laws of
Luxembourg, shares of which companies may not be offered in the United States or
purchased by American citizens outside of the United States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective. 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 and bookkeeping and 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
4
<PAGE>
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 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 daily net assets: 0.60% of the portion of
the daily net assets not exceeding $500 million; 0.55% of the next $500 million;
and 0.50% of the portion of the daily net assets exceeding $1 billion. For the
fiscal years ended July 31, 1993, 1994 and 1995, the Fund accrued to the
Investment Manager total compensation of $3,541,615, $4,711,608 and $4,679,443,
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 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 July 31, 1993, 1994 and 1995.
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 August 23,
1988, by DWR as the then sole shareholder on August 26, 1988 and by the Fund's
shareholders at a Meeting of Shareholders held on November 8, 1989, as such
prior agreement had been amended by the Trustees, including all of the Trustees
who are not parties to the Agreement or "interested persons," as defined in the
Investment Company Act of 1940, as amended (the "Act"), of any such party (the
"Independent Trustees"), at their meeting held on July 27, 1989 to lower the
management fees charged on the Fund's daily net assets in excess of $500 million
and at their meeting held on April 28, 1993 to lower the management fees charged
on the Fund's daily net assets in excess of $1 billion. At the April 28, 1993
meeting, the Trustees, including all of the Independent Trustees, also approved
an amendment to the Agreement to lower the management fees charged on the Fund's
daily net assets in excess of $1 billion. 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 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).
5
<PAGE>
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 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 20, 1995, the Fund's Board of
Trustees, including all of the Independent Trustees, approved continuation of
the Agreement until April 30, 1996.
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 77 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>
Jack F. Bennett (71) Retired; Director or Trustee of the Dean Witter Funds; formerly Senior
Trustee Vice President and Director of Exxon Corporation (1975-January, 1989)
c/o Gordon Altman Butowsky Weitzen Shalov and Under Secretary of the U.S. Treasury for Monetary Affairs
& Wein (1974-1975); Director of Philips Electronics N.V., Tandem Computers
Counsel to the Independent Trustees Inc. and Massachusetts Mutual Insurance Co.; director or trustee of
114 West 47th Street various other not-for-profit and business organizations.
New York, New York
Michael Bozic (54) Private investor; Director or Trustee of the Dean Witter Funds;
Trustee formerly President and Chief Executive Officer of Hills Department
c/o Gordon Altman Butowsky Weitzen Shalov Stores (May, 1991-July, 1995); formerly Chairman and Chief Executive
& Wein Officer (January, 1987-August, 1990) and President and Chief Operating
Counsel to the Independent Trustees Officer (August, 1990-February, 1991) of the Sears Merchandise Group of
114 West 47th Street Sears, Roebuck and Co.; Director of Eaglemark Financial Services, Inc.,
New York, New York the United Negro College Fund, Weirton Steel Corporation and Domain
Inc. (home decor retailer).
Charles A. Fiumefreddo* (62) Chairman and Chief Executive Officer and Director of InterCapital, DWSC
Chairman of the Board, and Distributors; Executive Vice President and Director of DWR;
President and Chief Executive Chairman, Director or Trustee, President and Chief Executive Officer of
Officer and Trustee the Dean Witter Funds; Chairman, Chief Executive Officer and Trustee of
Two World Trade Center the TCW/DW Funds; formerly Executive Vice President and Director of
New York, New York DWDC (until February, 1993); Chairman and Director of Dean Witter Trust
Company ("DWTC"); Director and/or officer of various DWDC subsidiaries.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Edwin J. Garn (62) Director or Trustee of the Dean Witter Funds; formerly United States
Trustee Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee
c/o Huntsman Chemical Corporation (1980-1986); formerly Mayor of Salt Lake City, Utah (1972-1974);
2000 Eagle Gate Tower formerly Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice
Salt Lake City, Utah Chairman, Huntsman Chemical Corporation (since January, 1993); Member
of the board of various civic and charitable organizations.
John R. Haire (70) Chairman of the Audit Committee and Chairman of the Committee of the
Trustee Independent Directors or Trustees and Director or Trustee of the Dean
Two World Trade Center Witter Funds; Trustee of the TCW/DW Funds; formerly President, Council
New York, New York 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).
Dr. Manuel H. Johnson (46) Senior Partner, Johnson Smick International, Inc., a consulting firm
Trustee (since June, 1985); Koch Professor of International Economics and
c/o Johnson Smick International, Inc. Director of the Center for Global Market Studies at George Mason
1133 Connecticut Avenue, N.W. University (since September, 1990); Co- Chairman and a founder of the
Washington, DC Group of Seven Council (G7C), an international 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).
Paul Kolton (72) Director or Trustee of the Dean Witter Funds; Chairman of the Audit
Trustee Committee and Chairman of the Committee of the Independent Trustees and
c/o Gordon Altman Butowsky Weitzen Shalov Trustee of the TCW/DW Funds; formerly Chairman of the Financial
& Wein Accounting Standards Advisory Council and Chairman and Chief Executive
Counsel to the Independent Trustees Officer of the American Stock Exchange; Director of UCC Investors
114 West 47th Street Holding Inc. (Uniroyal Chemical Company Inc.); director or trustee of
New York, New York various not-for-profit organizations.
Michael E. Nugent (59) General Partner, Triumph Capital, L.P., a private investment
Trustee partnership (since 1988); Director or Trustee of the Dean Witter Funds;
c/o Triumph Capital, L.P. Trustee of the TCW/DW Funds; formerly Vice President, Bankers Trust
237 Park Avenue Company and BT Capital Corporation; Director of various business
New York, New York organizations.
Philip J. Purcell* (51) Chairman of the Board of Directors and Chief Executive Officer of DWDC,
Trustee DWR and Novus Credit Services Inc.; Director of InterCapital, DWSC and
Two World Trade Center Distributors; Director or Trustee of the Dean Witter Funds; Director
New York, New York and/or officer of various DWDC subsidiaries.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
John L. Schroeder (64) Executive Vice President and Chief Investment Officer of the Home
Trustee Insurance Company (since August, 1991); Director or Trustee of the Dean
c/o The Home Insurance Company Witter Funds; Trustee of the TCW/DW Funds; Director of Citizens
59 Maiden Lane Utilities Company; formerly Chairman and Chief Investment Officer of
New York, New York Axe-Houghton Management and the Axe-Houghton Funds (April, 1983-June,
1991) and President of USF&G Financial Services, Inc. (June, 1990-June,
1991).
Sheldon Curtis (63) Senior Vice President, Secretary and General Counsel of InterCapital
Vice President, Secretary and DWSC; Senior Vice President and Secretary of DWTC; Senior Vice
and General Counsel President, Assistant Secretary and Assistant General Counsel of
Two World Trade Center Distributors; Assistant Secretary of DWR and Vice President, Secretary
New York, New York and General Counsel of the Dean Witter Funds and the TCW/DW Funds.
Mark Bavoso (34) Senior Vice President of InterCapital (since June, 1993); formerly Vice
Vice President President of InterCapital.
Two World Trade Center
New York, New York
Thomas F. Caloia (49) First Vice President (since May, 1991) and Assistant Treasurer (since
Treasurer January, 1993) of InterCapital; First Vice President and Assistant
Two World Trade Center Treasurer of DWSC; Treasurer of the Dean Witter Funds and the TCW/DW
New York, New York Funds; previously Vice President of InterCapital.
<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, David A. Hughey, Executive Vice President and Chief
Administrative Officer of InterCapital, DWSC, Distributors and DWTC and Director
of DWTC, Edmund C. Puckhaber, Executive Vice President of InterCapital, Robert
S. Giambrone, Senior Vice President of InterCapital, DWSC, Distributors and
DWTC, and Joseph J. McAlinden, Senior Vice President of InterCapital, are Vice
Presidents of the Fund, and Marilyn K. Cranney and Barry Fink, First Vice
Presidents and Assistant General Counsels of InterCapital and DWSC, and Lou Anne
McInnis and Ruth Rossi, Vice Presidents and Assistant General Counsels of
InterCapital and DWSC, are Assistant Secretaries of the Fund.
BOARD OF TRUSTEES; RESPONSIBILITIES AND COMPENSATION OF INDEPENDENT TRUSTEES
As mentioned above under the caption "The Fund and its Management," the Fund
is one of the Dean Witter Funds, a group of investment companies managed by
InterCapital. As of the date of this Statement of Additional Information, there
are a total of 77 Dean Witter Funds, comprised of 117 portfolios. As of July 31,
1995, the Dean Witter Funds had total net assets of approximately $67.25 billion
and more than five million shareholders.
The Board of Directors or Trustees, consisting of ten (10) directors or
trustees, is the same for each of the Dean Witter Funds. Some of the Funds are
organized as business trusts, others as corporations, but the functions and
duties of directors and trustees are the same. Accordingly, directors and
trustees of the Dean Witter Funds are referred to in this section as Trustees.
Eight Trustees, that is, 80% 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. Five of
8
<PAGE>
the eight Independent Trustees are also Independent Trustees of the TCW/DW
Funds. As of the date of this Statement of Additional Information, there are a
total of 13 TCW/DW Funds. Two of the Funds' Trustees, that is, the management
Trustees, are affiliated with InterCapital.
As noted in a federal court ruling, "[T]he independent directors . . . are
expected to look after the interests of shareholders by 'furnishing an
independent check upon management,' especially with respect to fees paid to the
investment company's sponsor." In addition to their general "watchdog" duties,
the Independent Trustees are charged with a wide variety of responsibilities
under the Act. In order to perform their duties effectively, the Independent
Trustees are required to review and understand large amounts of material, often
of a highly technical and legal nature.
The Dean Witter Funds seek as Independent Trustees individuals of
distinction and experience in business and finance, government service or
academia; that is, people whose advice and counsel are valuable and 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
of the demands made on their time by the Funds. Indeed, to serve on the Funds'
Boards, certain Trustees who would be qualified and in demand to serve on bank
boards would be prohibited by law from serving at the same time as a director of
a national bank and as a Trustee of a Fund.
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. Since most of the Dean Witter Funds have such a
plan, and since all of the Funds' Boards have the same members, the Independent
Trustees effectively control the selection of other Independent Trustees of all
the Dean Witter Funds.
GOVERNANCE STRUCTURE OF THE DEAN WITTER FUNDS
While the regulatory system establishes both general guidelines and specific
duties for the Independent Trustees, the governance arrangements from one
investment company group to another vary significantly. In some groups the
Independent Trustees perform their role by attendance at periodic meetings of
the board of directors with study of materials furnished to them between
meetings. At the other extreme, an investment company complex may employ a
full-time staff to assist the Independent Trustees in the performance of their
duties.
The governance structure of the Dean Witter Funds lies between these two
extremes. The Independent Trustees and the Funds' Investment Manager alike
believe that these arrangements are effective and serve the interests of the
Funds' shareholders. 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.
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 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; advising the independent accountants and management personnel that
they have direct access to the Committee at all times; and preparing and
submitting Committee meeting minutes to the full Board.
9
<PAGE>
Finally, the Board of each Fund has established 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.
During the calendar year ended December 31, 1994, the three Committees held
a combined total of eleven meetings. The Committee meetings are sometimes held
away from the offices of InterCapital and sometimes in the Board room of
InterCapital. These meetings are held without management directors or officers
being present, unless and until they may be invited to the meeting for purposes
of furnishing information or making a report. These separate meetings provide
the Independent Trustees an opportunity to explore in depth with their own
independent legal counsel, independent auditors and other independent
consultants, as needed, the issues they believe should be addressed and resolved
in the interests of the Funds' shareholders.
DUTIES OF CHAIRMAN OF COMMITTEES
The Chairman of the Committees 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 the issues, and arranges to have the information furnished.
He also arranges for the services of independent experts to be provided to the
Committees 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 all three 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 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 Committees 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 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.
VALUE 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 is in the best
interests of all the Funds' shareholders. This arrangement 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. It is believed 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 likelihood 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, it is believed that 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 $1,200 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $1,000 and pays the Chairman of the Committee
of the Independent Trustees an additional annual fee of $2,400, in each case
inclusive of the
10
<PAGE>
Committee meeting fees). 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 Fund has adopted a retirement program under which an Independent Trustee
who retires after serving for at least five years (or such lesser period as may
be determined by the Board) as an Independent Director or Trustee of any Dean
Witter Fund that has adopted the retirement program (each such Fund referred to
as an "Adopting Fund" and each such Trustee referred to as an "Eligible
Trustee") is entitled to retirement payments upon reaching the eligible
retirement age (normally, after attaining age 72). Annual payments are based
upon length of service. Currently, upon retirement, each Eligible Trustee is
entitled to receive from the 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 28.75% of his or her Eligible
Compensation plus 0.4791666% 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 57.50% after ten years of service. The
foregoing percentages may be changed by the Board.(1) "Eligible Compensation" is
one-fifth of the total compensation earned by such Eligible Trustee for service
to the 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 Fund. As of the date of this Statement of Additional Information, 58 Dean
Witter Funds have adopted the retirement program.
The following table illustrates the compensation paid and the retirement
benefits accrued to the Fund's Independent Trustees by the Fund for the fiscal
year ended July 31, 1995 and the estimated retirement benefits for the Fund's
Independent Trustees as of July 31, 1995.
<TABLE>
<CAPTION>
FUND COMPENSATION ESTIMATED RETIREMENT BENEFITS
------------------------------- -------------------------------------------------------------------
ESTIMATED ESTIMATED
RETIREMENT CREDIT YEARS ESTIMATED ANNUAL
AGGREGATE BENEFITS OF SERVICE AT PERCENTAGE OF ESTIMATED BENEFITS
NAME OF INDEPENDENT COMPENSATION ACCRUED AS RETIREMENT ELIGIBLE ELIGIBLE UPON
TRUSTEE FROM THE FUND FUND EXPENSES (MAXIMUM 10) COMPENSATION COMPENSATION(2) RETIREMENT(3)
- -------------------- -------------- -------------- ---------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack F. Bennett..... $ 1,900 $ 1,188 8 46.0% $2,229 1$,025
Michael Bozic....... 1,850 265 10 57.5 1,950 1,121
Edwin J. Garn....... 2,000 594 10 57.5 1,950 1,121
John R. Haire....... 4,900(4) 2,786 10 57.5 5,162 2,968
Dr. Manuel H.
Johnson............ 1,950 243 10 57.5 1,950 1,121
Paul Kolton......... 2,000 1,226 10 57.0 2,435 1,388
Michael E. Nugent... 1,900 423 10 57.5 1,950 1,121
John L. Schroeder... 1,850 521 8 47.9 1,950 934
<FN>
- ---------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement.
The amount estimated to be payable under this method, through the remainder
of the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
(2) Based on current levels of compensation.
(3) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(4) Of Mr. Haire's compensation from the Fund, $3,400 is paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($1,000).
</TABLE>
11
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1994 for services
to the 73 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Kolton
and Nugent, the 13 TCW/DW Funds that were in operation at December 31, 1994.
With respect to Messrs. Haire, Johnson, Kolton and Nugent, 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.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS TOTAL CASH
FOR SERVICE CHAIRMAN OF COMPENSATION
AS DIRECTOR OR COMMITTEES OF FOR SERVICES
TRUSTEE AND FOR SERVICE AS INDEPENDENT TO
COMMITTEE MEMBER TRUSTEE AND DIRECTORS/ 73 DEAN
OF 73 DEAN COMMITTEE MEMBER TRUSTEES AND WITTER
WITTER OF 13 TCW/DW AUDIT FUNDS AND 13
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS COMMITTEES TCW/DW FUNDS
- --------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Jack F. Bennett............ $125,761 -- -- $125,761
Michael Bozic.............. 82,637 -- -- 82,637
Edwin J. Garn.............. 125,711 -- -- 125,711
John R. Haire.............. 101,061 $66,950 $225,563(5) 393,574
Dr. Manuel H. Johnson...... 122,461 60,750 -- 183,211
Paul Kolton................ 128,961 51,850 34,200(6) 215,011
Michael E. Nugent.......... 115,761 52,650 -- 168,411
John L. Schroeder.......... 85,938 -- -- 85,938
<FN>
- ------------
(5) For the 73 Dean Witter Funds.
(6) For the 13 TCW/DW Funds.
</TABLE>
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES. As stated in the Prospectus, the Fund may
invest in short-term to intermediate (one to five year maturities) and
intermediate to long term (greater than five year maturities) fixed-income
securities which are issued or guaranteed, as to principal and interest, by the
United States or its agencies and instrumentalities.
Such U.S. Government securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from three months
to thirty years.
(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but whose issuing
agency or instrumentality has the right to borrow,
12
<PAGE>
to meet its obligations, from an existing line of credit with the U.S.
Treasury. Among the agencies and instrumentalities issuing such obligations
are the Tennessee Valley Authority, the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC")
and the U.S. Postal Service.
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal Farm
Credit System and the Federal Home Loan Banks.
ZERO COUPON SECURITIES. A portion of the U.S. Government securities
purchased by the Fund may be zero coupon securities. Such securities are
purchased at a discount from their face amount, giving the purchaser the right
to receive their full value at maturity. The interest earned on such securities
is, implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner of
a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received if prevailing interest rates rise. For this
reason, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest currently.
MONEY MARKET INSTRUMENTS. As stated in the Prospectus, the money market
instruments which the Fund may purchase include U.S. Government securities, bank
obligations, Eurodollar certificates of deposit, obligations of savings
institutions, fully insured certificates of deposit and commercial paper. Such
securities are limited to:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as
the Federal Home Loan Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government
and having total assets of $1 billion or more, and instruments secured by
such obligations, not including obligations of foreign branches of domestic
banks except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1
billion or more;
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion
or more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks
and savings institutions, having total assets of less than $1 billion, if
the principal amount of the obligation is insured by the Federal Deposit
Insurance Corporation, limited to $100,000 principal amount per certificate
and to 10% or less of the Fund's total assets in all such obligations and in
all illiquid assets, in the aggregate;
COMMERCIAL PAPER. Commercial paper rated within the two highest grades
by Standard & Poor's Corporation ("S&P") or the highest grade by Moody's
Investors Service, Inc. ("Moody's") or, if not rated, issued by a company
having an outstanding debt issue rated at least AA by S&P or Aa by Moody's.
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
13
<PAGE>
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 days' notice,
or by the Fund on two business days' notice. If the borrower fails to deliver
the loaned securities within two 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 Board of Trustees
of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities. The Fund did not
lend any of its portfolio securities during the fiscal year ended July 31, 1995.
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 full value of the collateral, as specified in
the agreement, does not decrease below the repurchase price plus accrued
interest. If such decrease occurs, additional collateral will be 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 and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. Repurchase agreements will be transacted only with large,
well-capitalized and well-established financial institutions whose financial
condition will be continuously monitored by the Investment Manager subject to
procedures established by the Trustees. 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 the sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss. The Fund has not to date and does not presently intend
to enter into repurchase agreements so that more than 5% of the Fund's net
assets are subject to such agreements.
REVERSE REPURCHASE AGREEMENTS. The Fund may also use reverse repurchase
agreements as part of its investment strategy. Reverse repurchase agreements
involve sales by the Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed
14
<PAGE>
price. Generally, the effect of such a transaction is that the Fund can recover
all or most of the cash invested in the portfolio securities involved during the
term of the reverse repurchase agreement, while it will be able to keep the
interest income associated with those portfolio securities. Such transactions
are only advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of otherwise obtaining the cash. Opportunities
to achieve this advantage may not always be available. The Fund will establish a
segregated account with its custodian bank in which it will maintain cash, U.S.
Government securities or other high grade debt securities equal in value to its
obligations in respect of reverse repurchase agreements. Reverse repurchase
agreements are considered borrowings by the Fund and for purposes other than
meeting redemptions may not exceed 5% of the Fund's total assets.
WARRANTS. The Fund may acquire warrants attached to other securities and,
in addition may invest up to 5% of the value of its total assets in warrants,
including up to 2% of such assets in warrants not listed on either the New York
or American Stock Exchange. Warrants are, in effect, an option to purchase
equity securities at a specific price, generally valid for a specific period of
time, and have no voting rights, pay no dividends and have no rights with
respect to the corporation issuing them.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As discussed in the
Prospectus, from time to time, in the ordinary course of business, the Fund may
purchase securities on a when-issued or delayed delivery basis, i.e., delivery
and payment can take place a month or more after the date of the transactions.
The securities so purchased are subject to market fluctuation and no interest
accrues to the purchaser during this period. While the Fund will only purchase
securities on a when-issued, delayed delivery or forward commitment basis with
the intention of acquiring the securities, the Fund may sell the securities
before the settlement date, if it is deemed advisable. At the time the Fund
makes the commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund will record the transaction and thereafter reflect the value,
each day, of such security in determining the net asset value of the Fund. At
the time of delivery of the securities, the value may be more or less than the
purchase price. The Fund will also establish a segregated account with the
Fund's custodian bank in which it will continuously maintain cash or U.S.
Government Securities or other high grade debt portfolio securities equal in
value to commitments for such when-issued or delayed delivery securities;
subject to this requirement, the Fund may purchase securities on such basis
without limit. An increase in the percentage of the Fund's assets committed to
the purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Fund's net asset value. The Investment Manager
and the Board of Trustees do not believe that the Fund's net asset value or
income will be adversely affected by its purchase of securities on such basis.
WHEN, AS AND IF ISSUED SECURITIES. As discussed in the Prospectus, the Fund
may purchase securities on a "when, as and if issued" basis under which the
issuance of the security depends upon the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization, leveraged buyout or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until the Investment Manager determines
that issuance of the security is probable. At such time, the Fund will record
the transaction and, in determining its net asset value, will reflect the value
of the security daily. At such time, the Fund will also establish a segregated
account with its custodian bank in which it will continuously maintain cash or
U.S. Government securities or other high grade debt portfolio securities equal
in value to recognized commitments for such securities. Settlement of the trade
will occur within five business days of the occurrence of the subsequent event.
The value of the Fund's commitments to purchase the securities of any one
issuer, together with the value of all securities of such issuer owned by the
Fund, may not exceed 5% of the value of the Fund's total assets at the time the
initial commitment to purchase such securities is made (see "Investment
Restrictions"). Subject to the foregoing restrictions, the Fund may purchase
securities on such basis without limit. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value. The Investment
Manager and the Trustees do not believe that the net asset value of the Fund
will be adversely affected by its purchase of securities on such basis.
15
<PAGE>
OPTIONS AND FUTURES TRANSACTIONS
The Fund may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and stock
indexes and purchase options of the same series to effect closing transactions,
and may hedge against potential changes in the market value of investments (or
anticipated investments) and facilitate the reallocation of the Fund's assets
into and out of equities and fixed-income securities by purchasing put and call
options on portfolio (or eligible portfolio) securities and engaging in
transactions involving futures contracts and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and equity
securities are listed on Exchanges (currently the Chicago Board Options
Exchange, American Stock Exchange, New York Stock Exchange, Pacific Stock
Exchange and Philadelphia Stock Exchange) and are written in over-the-counter
transactions ("OTC Options"). Listed options are issued by the Options Clearing
Corporation ("OCC"). Ownership of a listed call option gives the Fund the right
to buy from the OCC the underlying security covered by the option at the stated
exercise price (the price per unit of the underlying security) by filing an
exercise notice prior to the expiration date of the option. The writer (seller)
of the option would then have the obligation to sell to the OCC the underlying
security at that exercise price prior to the expiration date of the option,
regardless of its then current market price. Ownership of a listed put option
would give the Fund the right to sell the underlying security to the OCC at the
stated exercise price. Upon notice of exercise of the put option, the writer of
the put would have the obligation to purchase the underlying security from the
OCC at the exercise price.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian, so that they will
be treated as being covered.
OPTIONS ON GNMA CERTIFICATES. Currently, options on GNMA Certificates are
only traded over-the-counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, the Fund, as
a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy its
delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Fund will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA Certificates
in the cash market in order to maintain its cover. A GNMA Certificate held by
the Fund to cover an option position in any but the nearest expiration month may
cease to represent cover for the option in the event of a decline in the GNMA
coupon rate at which new pools are originated under the FHA/VA loan ceiling in
effect at any given time, as such decline may increase the prepayments made on
other mortgage pools. If this should occur, the Fund will no longer be covered,
and the Fund will either enter into a closing purchase transaction or replace
such Certificate with a Certificate which represents cover. When the Fund closes
out its position or replaces such Certificate, it may realize a loss and incur
transaction costs.
OTC OPTIONS. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or
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financial institutions which have entered into direct agreements with the Fund.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. If the transacting dealer fails
to make or take delivery of the securities underlying an option it has written,
in accordance with the terms of that option, the Fund would lose the premium
paid for the option as well as any anticipated benefit of the transaction. The
Fund will engage in OTC option transactions only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities and on stock index options, without limit, in order to
aid in achieving its investment objective. Generally, a call option is "covered"
if the Fund owns, or has the right to acquire, without additional cash
consideration (or for additional cash consideration held for the Fund by its
Custodian in a segregated account) the underlying security subject to the option
except that in the case of call options on U.S. Treasury Bills, the Fund might
own U.S. Treasury Bills of a different series from those underlying the call
option, but with a principal amount and value corresponding to the exercise
price and a maturity date no later than that of the securities deliverable under
the call option. A call option is also covered if the Fund holds a call on the
same security as the underlying security of the written option, where the
exercise price of the call used for coverage is equal to or less than the
exercise price of the call written or greater than the exercise price of the
call written if the mark-to-market difference is maintained by the Fund in cash,
U.S. Government securities or other high grade debt obligations which the Fund
holds in a segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to achieve a greater total return than would be
realized from holding the underlying securities alone. Moreover, the premium
received will offset a portion of the potential loss incurred by the Fund if the
securities underlying the option are ultimately sold by the Fund at a loss. The
value of the premium received will fluctuate with varying economic market
conditions.
As regards listed options and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
against payment of the exercise price on any calls it has written (exercise of
certain listed and OTC options may be limited to specific expiration dates).
This obligation is terminated upon the expiration of the option period or at
such earlier time when the writer effects a closing purchase transaction. A
closing purchase transaction is accomplished by purchasing an option of the same
series as the option previously written.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option to prevent an underlying security from being called,
to permit the sale of an underlying security or to enable the Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. Also, effecting a closing purchase transaction
will permit the cash or proceeds from the concurrent sale of any securities
subject to the option to be used for other investments by the Fund. The Fund may
realize a net gain or loss from a closing purchase transaction depending upon
whether the amount of the premium received on the call option is more or less
than the cost of effecting the closing purchase transaction. Any loss incurred
in a closing purchase transaction may be wholly or partially offset by
unrealized appreciation in the market value of the underlying security.
Conversely, a gain resulting from a closing purchase transaction could be offset
in whole or in part or exceeded by a decline in the market value of the
underlying security.
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security during
the option period. If a call option is exercised, the Fund realizes a gain or
loss from the sale of the underlying security equal to the difference between
the purchase price of the underlying security and the proceeds of the sale of
the security plus the premium received for on the option less the commission
paid.
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Options written by a Fund normally have expiration dates of from up to nine
months (equity securities) to eighteen months (fixed-income securities) from the
date written. The exercise price of a call option may be below, equal to or
above the current market value of the underlying security at the time the option
is written. See "Risks of Options and Futures Transactions," below.
The Fund may also purchase put options to close out written put positions in
a manner similar to call options closing purchase transactions. In addition, the
Fund may sell a put option which it has previously purchased prior to the sale
of the securities underlying such option. Such a sale would result in a net gain
or loss depending on whether the amount received on the sale is more or less
than the premium and other transaction costs paid on the put option which is
sold. Any such gain or loss could be offset in whole or in part by a change in
the market value of the underlying security. If a put option purchased by the
Fund expired without being sold or exercised, the premium would be lost.
COVERED PUT WRITING. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period, at
the purchaser's election (certain listed and OTC put options written by the Fund
will be exercisable by the purchaser only on a specific date). A put is
"covered" if the Fund maintains, in a segregated account maintained on its
behalf at the Fund's Custodian, cash, U.S. Government securities or other high
grade debt obligations in an amount equal to at least the exercise price of the
option, at all times during the option period. Similarly, a written put position
could be covered by the Fund by its purchase of a put option on the same
security as the underlying security of the written option, where the exercise
price of the purchased option is equal to or more than the exercise price of the
put written or less than the exercise price of the put written if the
mark-to-market difference is maintained by the Fund in cash, U.S. Government
securities or other high grade debt obligations which the Fund holds in a
segregated account maintained at its Custodian. In the case of listed options,
during the option period, the Fund may be required, at any time, to make payment
of the exercise price against delivery of the underlying security. The operation
of and limitations on covered put options in other respects are substantially
identical to those of call options.
The Fund will write put options for two purposes: (1) to receive the income
derived from the premiums paid by purchasers; and (2) when the Investment
Manager wishes to purchase the security underlying the option at a price lower
than its current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought. The potential gain on
a covered put option is limited to the premium received on the option (less the
commissions paid on the transaction) while the potential loss equals the
difference between the exercise price of the option and the current market price
of the underlying securities when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options in order to close out a covered call position (see
"Covered Call Writing" above) and, as to 2% of its total assets, purchase call
options on securities it intends to purchase. If, in the latter case, the price
of the security underlying the option fails to rise above the exercise price by
an amount exceeding the price of the option premium, the Fund will sustain a
loss equal to some or all of the premium price. A call purchased to close out a
position is likely to be on the same securities and have the same terms as the
written option. The option would generally be acquired from the dealer or
financial institution which purchased the call written by the Fund.
The Fund may purchase put options on securities which it holds (or has the
right to acquire) in its portfolio only to protect itself against a decline in
the value of the security. If the value of the underlying security were to fall
below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Fund would incur no additional loss. The Fund
may also purchase put options to close out written put positions in a manner
similar to call options closing purchase transactions. In addition, the Fund may
sell a put option which it has previously purchased prior to the sale of the
securities underlying such option. Such a sale would result in a net gain or
loss depending on whether the amount received on the sale is more or less than
the premium and other transaction costs paid on
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the put option when it was purchased. Any such gain or loss could be offset in
whole or in part by a change in the market value of the underlying security. If
a put option purchased by the Fund expired without being sold or exercised, the
premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the
ability of the Investment Manager to forecast correctly interest rates and
market movements. If the market value of the portfolio securities upon which
call options have been written increases, the Fund may receive a lower total
return from the portion of its portfolio upon which calls have been written than
it would have had such calls not been written. In writing puts, the Fund assumes
the risk of loss should the market value of the underlying securities decline
below the exercise price of the option (any loss being decreased by the receipt
of the premium on the option written). During the option period, the covered
call writer has, in return for the premium on the option, given up the
opportunity for capital appreciation above the exercise price should the market
price of the underlying security increase, but has retained the risk of loss
should the price of the underlying security decline. The secured put writer also
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option less the premium received on the
sale of the option. In both cases, the writer has no control over the time when
it may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call option
writer may not be able to sell an underlying security at a time when it might
otherwise be advantageous to do so. A covered put option writer who is unable to
effect a closing purchase transaction or to purchase an offsetting over-the-
counter option would continue to bear the risk of decline in the market price of
the underlying security until the option expires or is exercised. In addition, a
covered put writer would be unable to utilize the amount held in cash or U.S.
Government or other high grade short-term debt obligations as cover for the put
option for other investment purposes until the exercise or expiration of the
option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. However, the Fund may
be able to purchase an offsetting option which does not close out its position
as a writer but constitutes an asset of equal value to the obligation under the
option written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
OCC as a result of trades on that exchange would generally continue to be
exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
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event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Investment Manager.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). An exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
The extent to which the Fund may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification as
a regulated investment company and the Fund's intention to qualify as such (see
"Dividends, Distributions and Taxes" in the Prospectus).
STOCK INDEX OPTIONS. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The multiplier for an index option
performs a function similar to the unit of trading for a stock option. It
determines the total dollar value per contract of each point in the difference
between the exercise price of an option and the current level of the underlying
index. A multiplier of 100 means that a one-point difference will yield $100.
Options on different indexes may have different multipliers. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Unlike stock options, all settlements are in cash and a gain or
loss depends on price movements in the stock market generally (or in a
particular segment of the market) rather than the price movements in individual
stocks. Currently, options are traded on, among other indexes, the Standard &
Poor's 100 Index and the Standard & Poor's 500 Index on the Chicago Board
Options Exchange, the Major Market Index and the Computer Technology Index, Oil
Index and Institutional Index on the American Stock Exchange and the NYSE Index
and NYSE Beta Index on the New York Stock Exchange, The Financial News Composite
Index on the Pacific Stock Exchange and the Value Line Index, National O-T-C
Index and Utilities Index on the Philadelphia Stock Exchange, each of which and
any similar index on which options are traded in the future which include stocks
that are not limited to any particular industry or segment of the market is
referred to as a "broadly based stock market index." The Fund will invest only
in broadly based indexes. Options on broad-based stock indexes provide the Fund
with a means of protecting the Fund against the risk of market-wide price
movements. If the Investment Manager anticipates a market decline, the Fund
could purchase a stock index put option. If the expected market decline
materialized, the resulting decrease in the value of the Fund's portfolio would
be offset to the extent of the increase in the value of the put option. If the
Investment Manager anticipates a market rise, the Fund may purchase a stock
index call option to enable the Fund to participate in such rise until
completion of anticipated common stock purchases by the Fund. Purchases and
sales of stock index options also enable the Investment Manager to more speedily
achieve changes in the Fund's equity positions.
The Fund will be able to write put options on stock indexes only if such
positions are covered by cash, U.S. Government securities or other high grade
debt obligations equal to the aggregate exercise price of the puts, or by a put
option on the same stock index with a strike price no lower than the strike
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price of the put option sold by the Fund, which cover is held for the Fund in a
segregated account maintained for it by the Fund's Custodian. All call options
on stock indexes written by the Fund will be covered either by a portfolio of
stocks substantially replicating the movement of the index underlying the call
option or by holding a separate call option on the same stock index with a
strike price no higher than the strike price of the call option sold by the
Fund.
RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, the Fund, as a call writer, would not be able to provide in
advance for their potential settlement obligations by acquiring and holding the
underlying securities. A call writer can offset some of the risk of its writing
position by holding a diversified portfolio of stocks similar to those on which
the underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary from the value of the index. Even if an index call writer could
assemble a stock portfolio that exactly reproduced the composition of the
underlying index, the writer still would not be fully covered from a risk
standpoint because of the "timing risk" inherent in writing index options. When
an index option is exercised, the amount of cash that the holder is entitled to
receive is determined by the difference between the exercise price and the
closing index level on the date when the option is exercised. As with other
kinds of options, the writer will not learn that it has been assigned until the
next business day, at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer of a covered call on a specific
underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
stocks that exactly match the composition of the underlying index, it will not
be able to satisfy its assignment obligations by delivering those stocks against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; and by the time it
learns that it has been assigned, the index may have declined with a
corresponding decrease in the value of its stock portfolio. This "timing risk"
is an inherent limitation on the ability of index call writers to cover their
risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
FUTURES CONTRACTS. As stated in the Prospectus, the Fund may purchase and
sell interest rate and stock index futures contracts ("futures contracts") that
are traded on U.S. commodity exchanges on such underlying securities as U.S.
Treasury bonds, notes, bills and GNMA Certificates ("interest rate futures") and
such indexes as the S&P 500 Index, the Moody's Investment-Grade Corporate Bond
Index and the New York Stock Exchange Composite Index ("index futures").
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) against changes in prevailing interest rates and to
alter the Fund's asset allocation in fixed-income securities. If the Investment
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Manager anticipates that interest rates may rise and, concomitantly, the price
of fixed-income securities fall, or wishes to decrease the Fund's asset
allocation in fixed-income securities, the Fund may sell an interest rate
futures contract or a bond index futures contract. If declining interest rates
are anticipated or if the Investment Manager wishes to increase the Fund's asset
allocation of fixed-income securities, the Fund may purchase an interest rate
futures contract to protect against a potential increase in the price of U.S.
Government securities the Fund intends to purchase. Subsequently, appropriate
fixed-income securities may be purchased by the Fund in an orderly fashion; as
securities are purchased, corresponding futures positions would be terminated by
offsetting sales of contracts.
The Fund will purchase or sell stock index futures contracts for the purpose
of hedging its equity portfolio (or anticipated portfolio) against changes in
their prices. If the Investment Manager anticipates that the prices of stock
held by the Fund may fall or wishes to decrease the Fund's asset allocation in
equity securities, the Fund may sell a stock index futures contract. Conversely,
if the Investment Manager wishes to increase the Fund's assets which are
invested in stocks or as a hedge against anticipated price rises in those stocks
which the Fund intends to purchase, the Fund may purchase stock index futures
contracts. This allows the Fund to purchase equities, in accordance with the
Investment Manager's asset allocations, in an orderly and efficacious manner. In
addition, interest rate and stock index futures contracts will be bought or sold
in order to close out a short or long position in a corresponding futures
contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Stock index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open or
close of the last trading day of the contract and the futures contract price. A
futures contract sale is closed out by effecting a futures contract purchase for
the same aggregate amount of the specific type of equity security and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of equity security and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that the Fund will be able to enter into a closing
transaction.
INTEREST RATE FUTURES. When the Fund enters into an interest rate futures
contract, it is initially required to deposit with the Fund's Custodian, in a
segregated account in the name of the broker performing the transaction, "an
initial margin" of cash or U.S. Government securities or other high grade
short-term obligations equal to approximately 2% of the contract amount. Initial
margin requirements are established by the Exchanges on which futures contracts
trade and may, from time to time, change. In addition, brokers may establish
margin deposit requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a broker's client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked-to-market daily and the
Fund may be required to make subsequent deposits of cash or U.S. Government
securities called "variation margin", with the Fund's futures contract clearing
broker, which are reflective of price fluctuations in the futures contract.
Currently, interest rate futures contracts can be purchased on debt securities
such as U.S. Treasury Bills and Bonds, U.S. Treasury Notes with maturities
between 6 1/2 and 10 years, GNMA Certificates and Bank Certificates of Deposit.
INDEX FUTURES. As discussed in the Prospectus, the Fund may invest in index
futures contracts. An index futures contract sale creates an obligation by the
Fund, as seller, to deliver cash at a specified future time. An index futures
contract purchase would create an obligation by the Fund, as purchaser, to
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take delivery of cash at a specified future time. Futures contracts on indexes
do not require the physical delivery of securities, but provide for a final cash
settlement on the expiration date which reflects accumulated profits and losses
credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in the
form of variation margin payments. The Fund may be required to make additional
margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
Currently, index futures contracts can be purchased or sold with respect to,
among others, the Standard & Poor's 500 Stock Price Index and the Standard &
Poor's 100 Stock Price Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Index on the New York Futures Exchange, the Major
Market Index on the American Stock Exchange, the Value Line Stock Index on the
Kansas City Board of Trade and the Moody's Investment-Grade Corporate Bond Index
on the Chicago Board of Trade.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an Exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid), to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract at the time of exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the Investment
Manager wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Investment Manager seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, augment the total return of the
Fund and thereby provide a further hedge against losses resulting from price
declines in portions of the Fund's portfolio.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to initial margin plus the amount paid for
premiums for unexpired options on futures contracts exceeds 5% of the value of
the Fund's total assets, after taking into account unrealized gains and
unrealized losses on such contracts it has entered into, provided, however, that
in the case of an option that is in-the-money (the exercise price of the call
(put) option is less (more) than the market price of the underlying security) at
the time of purchase, the in-the-money amount may be excluded in calculating the
5%. However, there is no
23
<PAGE>
overall limitation on the percentage of the Fund's assets which may be subject
to a hedge position. In addition, in accordance with the regulations of the
Commodity Futures Trading Commission ("CFTC") under which the Fund is exempted
from registration as a commodity pool operator, the Fund may only enter into
futures contracts and options on futures contracts transactions for purposes of
hedging a part or all of its portfolio. If the CFTC changes its regulations so
that the Fund would be permitted to write options on futures contracts for
purposes other than hedging the Fund's investments without CFTC registration,
the Fund may engage in such transactions for those purposes. Except as described
above, there are no other limitations on the use of futures and options thereon
by the Fund.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The
successful use of futures and related options depends on the ability of the
Investment Manager to accurately predict market and interest rate movements. As
stated in the prospectus, the Fund may sell a futures contract to protect
against the decline in the value of securities held by the Fund. However, it is
possible that the futures market may advance and the value of securities held in
the portfolio of the Fund may decline. If this occurred, the Fund would lose
money on the futures contract and also experience a decline in value of its
portfolio securities. However, while this could occur for a very brief period or
to a very small degree, over time the value of a diversified portfolio will tend
to move in the same direction as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Investment Manager may determine not to invest in the
securities as planned and will realize a loss on the futures contract that is
not offset by a reduction in the price of the securities.
If the Fund maintains a short position in a futures contract or has sold a
call option on a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government securities
or other high grade debt obligations equal in value (when added to any initial
or variation margin on deposit) to the market value of the securities underlying
the futures contract or the exercise price of the option. Such a position may
also be covered by owning the securities underlying the futures contract (in the
case of a stock index futures contract a portfolio of securities substantially
replicating the relevant index), or by holding a call option permitting the Fund
to purchase the same contract at a price no higher than the price at which the
short position was established.
In addition, if the Fund holds a long position in a futures contract or has
sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other high grade debt obligations equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained for the Fund
by its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Fund.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the
24
<PAGE>
broker. Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by the Investment Manager.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities is that the prices of securities
and indexes subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Fund's portfolio securities. Another such risk is that prices of interest rate
futures contracts may not move in tandem with the changes in prevailing interest
rates against which the Fund seeks a hedge. A correlation may also be distorted
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.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of the
securities which are the subject of the hedge. If participants in the futures
market elect to close out their contracts through offsetting transactions rather
than meet margin deposit requirements, distortions in the normal relationship
between the debt securities and futures markets could result. Price distortions
could also result if investors in futures contracts opt to make or take delivery
of underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the futures market. In addition, due to
the fact that, from the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of interest rate trends by the Investment Manager may still not result
in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which the Fund may invest. In the event a
liquid market does not exist, it may not be possible to close out a futures
position, and in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures contracts
are traded may compel or prevent the Fund from closing out a contract which may
result in reduced gain or increased loss to the Fund. The absence of a liquid
market in futures contracts might cause the Fund to make or take delivery of the
underlying securities at a time when it may be disadvantageous to do so.
The extent to which the Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such (see "Dividends, Distributions and Taxes" in the
Prospectus).
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities.
The Investment Manager has substantial experience in the use of the
investment techniques described above under the heading "Options and Futures
Transactions," which techniques require skills different from those needed to
select the portfolio securities underlying various options and futures
contracts.
25
<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. Invest more than 10% of its total assets in "illiquid securities"
(securities for which market quotations are not readily available) and
repurchase agreements which have a maturity of longer than seven days. The
staff of the Securities and Exchange Commission ("SEC") has taken the
position that purchased OTC options and the assets used as "cover" for
written OTC options are illiquid securities and the Fund will treat these
assets as such.
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 insofar as to the Fund may be deemed to have
borrowed by entrance into a reverse repurchase agreement), except that the
Fund may, but not to leverage the Fund's assets, 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.
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<PAGE>
12. 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.
13. 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 Board of Trustees, the Investment
Manager is responsible for decisions to buy and sell securities for the Fund,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts without
a stated commission, although the price of the security usually includes a
profit to the dealer. The Fund expects that securities will be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
Options and futures transactions will usually be 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 July 31, 1993, 1994 and
1995, the Fund paid a total of $957,175, $627,783 and $845,540, 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, the main
factors considered are the respective investment objectives, the relative size
of portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the portfolios of the Fund and
other client accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio 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 following:
information as to the availability of securities for purchase or sale;
statistical or factual
27
<PAGE>
information or opinions pertaining to investment; wire services; and appraisals
or evaluations of portfolio securities. During the fiscal year ended July 31,
1995, the Fund directed the payment of $725,760 in brokerage commissions in
connection with transactions in the aggregate amount of $462,024,477 to brokers
because of research services provided.
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 such 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 years ended July
31, 1993, 1994 and 1995, the Fund paid a total of $194,939, $22,810 and $84,770,
respectively, in brokerage commissions to DWR. The brokerage commissions paid to
DWR represented approximately 10.03% of the total brokerage commissions paid by
the Fund for the fiscal year ended July 31, 1995 and were paid on account of
transactions having an aggregate dollar value equal to approximately 12.34% of
the aggregate dollar value of all portfolio transactions of the Fund during the
period for which commissions were paid.
At July 31, 1995, the Fund held bonds issued by Merrill Lynch & Co., Inc.
and Morgan Stanley Group, Inc. with market values of $5,550,000, and $5,017,500,
respectively. These issuers were among the ten brokers or the ten dealers which
executed transactions for or with the Fund in the largest dollar amounts during
the fiscal year ended July 31, 1995.
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.
28
<PAGE>
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 20, 1995, the Trustees,
including all of the Independent Trustees, approved the continuation of the
Agreement until April 30, 1996.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws. The Fund and the Distributor
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the Distribution
Agreement, the Distributor uses its best efforts in rendering services to the
Fund, but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations, the Distributor is not liable to the Fund
or any of its shareholders for any error of judgement or mistake of law or for
any act or omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
To compensate the Distributor for the services 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 (i) 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the implementation of the Plan
on November 8, 1989 (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
shares redeemed since the Plan's implementation upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived, or (b)
the average daily net assets of the Fund attributable to shares issued, net of
related shares redeemed, since the implementation of the Plan; plus (ii) 0.25%
of the Fund's average daily net assets attributable to shares issued, net of
related shares redeemed, prior to implementation of the Plan. 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 $836,000, $1,294,000 and $1,775,000 in
contingent deferred sales charges for the fiscal years ended July 31, 1993, 1994
and 1995, 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 majority vote of the Trustees, including all of
the Trustees who are not "interested persons" of the Fund (as defined in the
Act) and who had or have no direct or indirect financial interest in the
operation of the Plan (the "Independent 12b-1 Trustees"), cast in person at a
meeting called for the purpose of voting on the Plan, on July 27, 1989, and by
the shareholders holding a majority, as defined in the Act, of the outstanding
shares of the Fund, at the Fund's Special Meeting of Shareholders held on
November 8, 1989. The Plan amended and restated the Fund's initial Plan of
Distribution which had been in effect from August 26, 1988 through November 7,
1989.
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<PAGE>
At their meeting held on October 30, 1992, the Trustees of the Fund,
including all of the Independent 12b-1 Trustees, approved certain amendments to
the Plan which took effect in January, 1993 and were designed to reflect the
fact that upon the reorganization described above the share distribution
activities theretofore performed for the Fund by DWR were assumed by the
Distributor and DWR's sales activities are now being performed pursuant to the
terms of a selected dealer agreement between the Distributor and DWR. The
amendments provide that payments under the Plan will be made to the Distributor
rather than to DWR as before the amendment, and that the Distributor in turn is
authorized to make payments to DWR, its affiliates or other selected
broker-dealers (or direct that the Fund pay such entities directly). The
Distributor is also authorized to retain part of such fee as compensation for
its own distribution-related expenses. At their meeting held on April 28, 1993,
the Trustees, including a majority of the Independent 12b-1 Trustees, 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.
Under the Plan and as required by Rule 12b-1, the Trustees 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 July 31,
1995, of $7,304,905. This amount is equal to 0.91% of the Fund's average daily
net assets for the fiscal year and was calculated pursuant to clauses (i)(a) and
(ii) 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 may be subject to a
contingent deferred sales charge, payable to the Distributor, if redeemed during
the six years after their purchase. DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of the Fund's shares,
currently a gross sales credit of up to 5% of the amount sold and an annual
residual commission of up to 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 $7,304,905 accrued under the Plan for the fiscal
year ended July 31, 1995 to the Distributor. The Distributor and DWR estimate
that they have spent, pursuant to the Plan, $53,419,682 on behalf of the Fund
since the inception of the Fund. It is estimated that this amount was spent in
approximately the following ways: (i) 3.72% ($1,986,097)--advertising and
promotional expenses; (ii) 0.41% ($218,259) printing of prospectuses for
distribution to other than current shareholders; and (iii) 95.87%
($51,215,326)--other expenses, including the gross sales credit and the carrying
30
<PAGE>
charge, of which 6.55% ($3,356,967) represents carrying charges, 37.26%
($19,081,128) represents commission credits to DWR branch offices for payments
of commissions to account executives and 56.19% ($28,777,231) represents
overhead and other branch office distribution-related expenses.
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 $24,218,844 as of July 31, 1995. 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 or 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 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, 1990 and will
continue from year to year thereafter, provided such continuance is approved
annually by a vote of the Trustees in the manner described above. Most recent
continuance of the Plan for one year, until April 30, 1996, was approved by the
Trustees of the Fund, including a majority of the Independent 12b-1 Trustees, at
a meeting of the Trustees held on April 20, 1995. Prior to approving the
continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all 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 Trustees who are
not interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan, or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) on not more
than thirty days' written notice to any other party to the Plan. The Plan will
automatically terminate in the event of its assignment (as defined in the Act).
So long as the Plan is in effect, the election and nomination of Independent
12b-1 Trustees shall be committed to the discretion of the Independent 12b-1
Trustees.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term securities with remaining maturities
of sixty days or less at the time of purchase are valued at amortized cost,
unless the Trustees determine such does not reflect
31
<PAGE>
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. Listed options on debt
securities are valued at the latest sale price on the exchange on which they are
listed unless no sales of such options have taken place that day, in which case
they will be valued at the mean between their latest bid and asked prices.
Unlisted options on debt securities and all options on equity securities are
valued at the mean between their latest bid and asked prices. Futures are valued
at the latest sale price on the commodities exchange on which they trade unless
the 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 Dean Witter
Trust Company (the "Transfer Agent"). This is an open account in which shares
owned by the investor are credited by the Transfer Agent in lieu of issuance of
a 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 DWR or the other
selected broker-dealer, and 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
Strategist Fund. 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
32
<PAGE>
executive or the Transfer Agent. Shareholders of the Fund must be shareholders
of the Dean Witter Fund targeted to receive investments from dividends at the
time they enter the Targeted Dividends program. Investors should review the
prospectus of the targeted Dean Witter Fund before entering the program.
EASYINVEST.-SM- Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing account at the net asset value calculated the same business day the
transfer of funds is effected. For further information or to subscribe to
EasyInvest, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or capital gains distribution may invest such dividend or distribution
at net asset value, without the imposition of a contingent deferred sales charge
upon redemption, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset value
per share next determined after receipt of the check or the proceeds by the
Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount, not
less than $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable contingent deferred sales charge will be
imposed on shares redeemed under the Withdrawal Plan (see "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
33
<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 INVESTMENT THROUGH TRANSFER AGENT. As discussed in the Prospectus, a
shareholder may make additional investments in Fund shares at any time by
sending a check in any amount, not less than $100, payable to Dean Witter
Strategist Fund, 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 regrading 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 and
five Dean Witter Funds which are money market funds (the foregoing ten 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
34
<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 CDSC being imposed on such exchange. The
holding period previously frozen when shares were first exchanged for shares of
the Exchange Fund resumes on the last day of the month in which shares of a 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 the Fund acquired prior to November
8, 1989, shares of Dean Witter American Value Fund acquired prior to April 30,
1984, and shares of Dean Witter Dividend Growth Securities Inc. and Dean Witter
Natural Resource Development Securities Inc. acquired prior to July 2, 1984, are
also considered Free Shares and will be the first Free Shares to be exchanged.
After an exchange, all dividends earned on shares in an Exchange Fund will be
considered Free Shares. If the exchanged amount exceeds the value of such Free
Shares, an exchange is made, on a block-by-block basis, of non-Free Shares held
for the longest period of time (except that if shares held for identical periods
of time but subject to different CDSC schedules are held in the same Exchange
Privilege account, the shares of that block that are subject to a lower CDSC
rate will be exchanged prior to the shares of that block that are subject to a
higher CDSC rate). Shares equal to any appreciation in the value of non-Free
Shares exchanged will be treated as Free Shares, and the amount of the purchase
payments for the non-Free Shares of the fund exchanged into will be equal to the
lesser of (a) the purchase payments for, or (b) the current net asset value of,
the exchanged non-Free Shares. If an exchange between funds would result in
exchange of only part of a particular block of non-Free Shares, then shares
equal to any appreciation in the value of the block (up to the amount of the
exchange) will be treated as Free Shares and exchanged first, and the purchase
payment for that block will be allocated on a pro rata basis between the
non-Free Shares of that block to be retained and the non-Free Shares to be
exchanged. The prorated amount of such purchase payment attributable to the
retained non-Free Shares will remain as the purchase payment for such shares,
and the amount of purchase payment for the exchanged non-Free Shares will be
equal to the lesser of (a) the prorated amount of the purchase payment for, or
(b) the current net asset value of, those exchanged non-Free Shares. Based upon
the procedures described in the Prospectus under the caption "Contingent
Deferred Sales Charge", any applicable CDSC will be imposed upon the ultimate
redemption of shares of any fund, regardless of the number of exchanges since
those shares were originally purchased.
The Transfer Agent acts as agent for shareholders of the Fund in effecting
redemptions of Fund shares and in applying the proceeds to the purchase of other
fund shares. In the absence of negligence on its part, neither the Transfer
Agent nor the Fund shall be liable for any redemption of Fund shares
35
<PAGE>
caused by unauthorized telephone instructions. Accordingly, in such an event the
investor shall bear the risk of loss. The staff of the Securities and Exchange
Commission is currently considering the propriety of such a policy.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000 for
Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust,
Dean Witter New York Municipal Money Market Trust and Dean Witter California
Tax-Free Daily Income Trust, although those funds may, at their discretion,
accept initial investments of as low as $1,000. The minimum initial investment
is $10,000 for Dean Witter Short-Term U.S. Treasury Trust although that fund
may, in its discretion, accept initial investments 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 the shareholders who hold shares of
Exchange Funds pursuant to the Exchange Privilege, and provided further that the
Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, (d) during any
other period when the Securities and Exchange Commission by order so permits
(provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective(s), 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
36
<PAGE>
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 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, but after the
implementation of the Plan on November 8, 1989 (see "The Distributor--Plan of
Distribution"). 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 or prior
to the implementation of the Plan, 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 year. 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 CDSC to each redemption, the amount
which represent 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 after the implementation of the Plan 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
or before the implementation of the Plan 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 or at any time before the implementation
of the Plan 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.
37
<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 after the
implementation of the Plan, 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 after the implementation of the Plan,
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 after the implementation of the Plan 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 time shares subject to the charge have been
held), any transfer
38
<PAGE>
involving less than all the shares in an account will be made on a pro-rata
basis (that is, by transferring shares in the same proportion that the
transferred shares bear to the total shares in the account immediately prior to
the transfer). The transferred shares will continue to be subject to any
applicable 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
the redemption or repurchase, reinstate any portion or all of the proceeds of
such redemption or repurchase in shares of the Fund at the net asset value next
determined after a reinstatement request, together with the proceeds, is
received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and will notify shareholders that, following an election by the
Fund, the shareholders will be required to include such undistributed gains in
determining their taxable income and may claim their share of the tax paid by
the Fund as a credit against their individual federal income tax.
Because the Fund intends to distribute all of its net investment income and
capital gains to shareholders and otherwise continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, it is not
expected that the Fund will be required to pay any federal income tax.
Shareholders will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from net
investment income or short-term capital gains, are taxable to the shareholder as
ordinary income regardless of whether the shareholder receives such payments in
additional shares or in cash. Any dividends declared in the last quarter of any
calendar year which are paid in the following year prior to February 1 will be
deemed received by the shareholder in the prior calendar year.
Gains or losses on 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 gains or losses.
Gains or losses on the Fund's transactions, if any, in futures and
non-equity options generally are treated as 60% long-term and 40% short-term.
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.
One of the requirements for the Fund to remain qualified as a regulated
investment company is that less than 30% of its 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 the writing of options on
securities held for less than three months, in the writing of options which
expire in less than three months, and in effecting closing transactions with
respect to call or put options which have been written or purchased less than
three months prior to such transactions. The Fund may also be restricted in its
ability to engage in transactions involving futures contracts.
39
<PAGE>
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.
Under current federal law, the Fund will receive net investment income in
the form of interest by virtue of holding Treasury bills, notes and bonds, and
will recognize income attributable to it from holding zero coupon Treasury
securities. Current federal tax law requires that a holder (such as the Fund) of
a zero coupon security accrue a portion of the discount at which the security
was purchased as income each year even though the Fund receives no interest
payment in cash on the security during the year. As an investment company, the
Fund must pay out substantially all of its net investment income each year.
Accordingly, the Fund, to the extent it invests in zero coupon Treasury
securities, may be required to pay out as an income distribution each year an
amount which is greater than the total amount of cash receipts of interest the
Fund actually received. Such distributions will be made from the available cash
of the Fund or by liquidation of portfolio securities if necessary. If a
distribution or cash necessitates the liquidation of portfolio securities, the
Investment Manager will select which securities to sell. The Fund may realize a
gain or loss from such sales. In the event the Fund realizes net capital gains
from such transactions, its shareholders may receive a larger capital gain
distribution, if any, than they would in the absence of such transactions.
In computing net investment income, the Fund will not amortize premiums or
accrue discounts on fixed-income securities in the portfolio, except those
original issue discounts for which amortization is required for federal income
tax purposes. Additionally, with respect to market discounts on bonds, a portion
of any capital gain realized upon disposition may be characterized as taxable
ordinary income in accordance with the provisions of the Internal Revenue Code.
Realized gains and losses on security transactions are determined on the
identified cost method.
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 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 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 identification numbers must be furnished
and certified as to their accuracy.
40
<PAGE>
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 July 31, 1995, for the five year period ended
July 31, 1995 and for the period from October 31, 1988 (commencement of
operations) through July 31, 1995 were 11.05%, 10.57% and 12.55%, 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 return 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 returns of the Fund for the fiscal year ended July 31,
1995, for the five year period ended July 31, 1995 and for the period October
31, 1988 through July 31, 1995 were 16.05%, 10.84% and 12.55%, respectively.
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without the
reduction for any 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 returns for the fiscal year ending July 31, 1995,
for the five year period ended July 31, 1995 and for the period October 31, 1988
through July 31, 1995 were 16.05%, 67.29% and 121.95%, respectively.
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 contingent deferred sales charge) 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
$22,195, $110,975 and $221,950, respectively, at July 31, 1995.
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
- --------------------------------------------------------------------------------
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
41
<PAGE>
Special Meetings of Shareholders held on November 8, 1989 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 Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust.
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.
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, in the opinion of Massachusetts
counsel to the Fund, the risk to shareholders of personal liability is remote.
The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, nor is any Trustee,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, except as such liability may arise from his/her or its own
bad faith, willful misfeasance, gross negligence, or reckless disregard of his
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 liabilities in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York, 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by Federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager, and of Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend
42
<PAGE>
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 propectuses 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.
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, a report showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by the independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on July 31. The financial statements of the Fund
must be audited at least once a year by independent accountants whose selection
is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
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 July 31, 1995
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.
43
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (55.0%)
AEROSPACE & DEFENSE (0.5%)
92,000 Rockwell International Corp........ $ 4,197,500
---------------
AIRCRAFT & AEROSPACE (1.5%)
74,000 Boeing Company..................... 4,958,000
200,000 Honeywell, Inc..................... 8,575,000
---------------
13,533,000
---------------
ALUMINUM (1.6%)
231,200 Reynolds Metals Co................. 14,450,000
---------------
AUTOMOTIVE (1.1%)
148,000 Ford Motor Co...................... 4,273,500
150,000 Superior Industries International,
Inc................................ 5,250,000
---------------
9,523,500
---------------
BANKS - MONEY CENTER (1.5%)
120,000 Chemical Banking Corp.............. 6,195,000
110,000 Citicorp........................... 6,861,250
---------------
13,056,250
---------------
BANKS - REGIONAL (3.0%)
155,000 Bank of Boston Corp................ 6,723,125
50,000 Baybanks, Inc...................... 4,075,000
73,000 Integra Financial Corp............. 3,878,125
200,000 Norwest Corp....................... 5,650,000
31,500 Wells Fargo & Co................... 5,744,812
---------------
26,071,062
---------------
BEVERAGES - SOFT DRINKS (0.8%)
154,000 PepsiCo Inc........................ 7,218,750
---------------
BROKERAGE (1.2%)
100,000 Merrill Lynch & Co., Inc........... 5,550,000
60,000 Morgan Stanley Group, Inc.......... 5,017,500
---------------
10,567,500
---------------
CABLE/CELLULAR (0.5%)
153,000 Airtouch Communications, Inc.*..... 4,819,500
---------------
CHEMICALS (0.7%)
70,000 Monsanto Co........................ 6,518,750
---------------
CHEMICALS - SPECIALTY (0.4%)
100,000 Georgia Gulf Corp.................. 3,362,500
---------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (0.8%)
126,000 Cisco Systems, Inc.*............... 7,008,750
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
COMPUTER SERVICES (1.4%)
140,000 Diebold, Inc....................... $ 6,475,000
140,000 General Motors Corp. (Class E)..... 6,160,000
---------------
12,635,000
---------------
COMPUTER SOFTWARE (1.3%)
67,000 Microsoft Corp.*................... 6,055,125
120,000 Oracle Systems Corp.*.............. 5,010,000
---------------
11,065,125
---------------
COMPUTERS - SYSTEMS (2.9%)
150,000 Apple Computer, Inc................ 6,712,500
60,000 Hewlett-Packard Co................. 4,672,500
61,000 International Business Machines
Corp............................... 6,641,375
260,000 Novell, Inc.*...................... 4,680,000
60,000 Sun Microsystems, Inc.*............ 2,880,000
---------------
25,586,375
---------------
CONSUMER PRODUCTS (0.8%)
256,000 RJR Nabisco Holdings Corp.......... 7,072,000
---------------
DRUGS & HEALTHCARE (1.8%)
190,000 Abbott Laboratories................ 7,600,000
112,000 Johnson & Johnson.................. 8,036,000
---------------
15,636,000
---------------
ELECTRICAL EQUIPMENT (1.0%)
61,000 Emerson Electric Co................ 4,315,750
73,000 General Electric Co................ 4,307,000
---------------
8,622,750
---------------
ELECTRICAL HOUSEHOLD APPLIANCES (0.5%)
270,000 Maytag Corp........................ 4,421,250
---------------
ELECTRONICS - DEFENSE (0.6%)
87,000 Loral Corp......................... 4,872,000
---------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (1.7%)
40,000 Applied Materials, Inc.*........... 4,140,000
65,000 Intel Corp......................... 4,216,875
40,000 Texas Instruments Inc.............. 6,250,000
---------------
14,606,875
---------------
ENTERTAINMENT (0.4%)
130,000 Circus Circus Enterprises, Inc.*... 3,867,500
---------------
FINANCIAL SERVICES (1.3%)
120,000 Beneficial Corp.................... 5,685,000
130,000 Travelers, Inc..................... 6,158,750
---------------
11,843,750
---------------
FOODS (0.8%)
153,000 Campbell Soup Co................... 7,152,750
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1995, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
HEALTH CARE - MISCELLANEOUS (1.6%)
250,000 Coventry Corp.*.................... $ 4,000,000
350,000 Humana, Inc.*...................... 6,781,250
170,000 Mid Atlantic Medical Services,
Inc.*.............................. 3,336,250
---------------
14,117,500
---------------
HOSPITAL MANAGEMENT (1.0%)
173,000 Columbia/HCA Healthcare Corp....... 8,477,000
---------------
HOUSEHOLD PRODUCTS (1.6%)
98,000 Colgate-Palmolive Co............... 6,860,000
150,000 Tambrands, Inc..................... 7,068,750
---------------
13,928,750
---------------
LIFE INSURANCE (0.6%)
140,000 Providian Corp..................... 5,022,500
---------------
MACHINERY - CONSTRUCTION & MATERIALS (1.1%)
111,000 Ingersoll-Rand Co.................. 4,634,250
120,000 Parker-Hannifin Corp............... 4,890,000
---------------
9,524,250
---------------
METALS (0.8%)
112,000 Phelps Dodge Corp.................. 7,196,000
---------------
OFFICE EQUIPMENT & SUPPLIES (0.4%)
38,000 Alco Standard Corp................. 3,092,250
---------------
OIL DRILLING & SERVICES (1.8%)
310,000 Dresser Industries, Inc............ 7,130,000
130,000 Schlumberger Ltd................... 8,710,000
---------------
15,840,000
---------------
OIL INTEGRATED - INTERNATIONAL (3.9%)
175,000 Chevron Corp....................... 8,640,625
120,000 Exxon Corp......................... 8,700,000
86,000 Mobil Corp......................... 8,406,500
125,000 Texaco, Inc........................ 8,312,500
---------------
34,059,625
---------------
PHARMACEUTICALS (2.8%)
95,000 American Home Products Corp........ 7,505,000
165,000 Merck & Co., Inc................... 8,518,125
170,000 Pfizer, Inc........................ 8,585,000
---------------
24,608,125
---------------
RAILROAD EQUIPMENT (0.4%)
116,500 Trinity Industries, Inc............ 3,902,750
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
RESTAURANTS (0.5%)
115,000 McDonald's Corp.................... $ 4,441,875
---------------
RETAIL (0.5%)
171,000 Wal-Mart Stores, Inc............... 4,552,875
---------------
RETAIL - SPECIALTY (2.8%)
300,000 Bed, Bath & Beyond, Inc.*.......... 9,300,000
100,000 Home Depot, Inc.................... 4,387,500
600,000 Pier 1 Imports, Inc................ 5,850,000
305,000 Price/Costco, Inc.*................ 5,451,875
---------------
24,989,375
---------------
RETAIL - SPECIALTY APPAREL (0.5%)
123,000 Gap, Inc........................... 4,289,625
---------------
SAVINGS & LOAN ASSOCIATIONS (1.7%)
270,000 California Federal Bank*........... 3,746,250
115,000 Golden West Financial Corp......... 5,376,250
350,000 Roosevelt Financial Group, Inc..... 5,381,250
---------------
14,503,750
---------------
SHIPPING (0.7%)
225,800 American President Companies,
Ltd................................ 6,350,625
---------------
SHOES (1.1%)
54,000 Nike, Inc. (Class B)............... 4,880,250
125,000 Reebok International Ltd........... 4,484,375
---------------
9,364,625
---------------
STEEL & IRON (0.8%)
420,000 Bethlehem Steel Corp.*............. 6,615,000
---------------
TELEPHONE - LONG DISTANCE (0.9%)
315,000 MCI Communications Corp............ 7,520,625
---------------
TEXTILES - APPAREL MANUFACTURERS (0.3%)
100,000 Liz Claiborne, Inc................. 2,287,500
---------------
TRANSPORTATION (0.5%)
78,000 Conrail, Inc....................... 4,816,500
---------------
U.S. GOVERNMENT AGENCY (0.6%)
60,000 Federal National Mortgage
Association........................ 5,617,500
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $401,825,390)..... 482,827,062
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (19.7%)
AUTOMOTIVE FINANCE (0.6%)
$ 5,000 General Motors Acceptance Corp.
7.25% due 05/15/03................. $ 5,006,250
---------------
BANKS (6.6%)
9,850 Banco Central Hispano (Cayman
Islands)
7.50% due 06/15/05................. 9,667,184
5,220 Bank of Boston Corp.
6.875% due 07/15/03................ 5,127,554
4,900 BCO Commercio Exterior (Columbia) -
144A**
8.625% due 06/02/00................ 4,973,500
5,000 Central Fidelity Banks, Inc.
8.15% due 11/15/02................. 5,267,750
5,000 Household Bank F.S.B.
6.50% due 07/15/03................. 4,790,600
5,900 Midland Bank PLC (United Kingdom)
7.65% due 05/01/25................. 6,218,836
5,000 NationsBank Corp.
7.625% due 04/15/05................ 5,132,900
6,000 Shawmut Bank
8.625% due 02/15/05................ 6,544,920
5,000 Susquehanna Bancshares
9.00% due 02/01/05................. 5,461,350
5,000 Swiss Bank Corp.
7.50% due 07/15/25................. 5,097,250
---------------
58,281,844
---------------
BROKERAGE (0.5%)
5,000 Paine Webber Group, Inc.
7.625% due 02/15/14................ 4,626,050
---------------
FINANCIAL (2.2%)
4,950 BHP Finance Ltd. (Australia)
5.625% due 11/01/00................ 4,712,103
4,900 Commercial Credit Group, Inc.
7.75% due 03/01/05................. 5,120,500
2,500 Meditrust
7.60% due 07/15/01................. 2,499,750
4,900 Salomon, Inc.
6.75% due 08/15/03................. 4,532,941
2,000 United Companies Financial
7.00% due 07/15/98................. 1,999,280
---------------
18,864,574
---------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
<C> <S> <C>
FOREIGN GOVERNMENT AGENCY (1.5%)
$ 9,850 Italy (Republic of)
6.875% due 09/27/23................ $ 8,616,780
4,950 Province of Ontario (Canada)
7.00% due 08/04/05................. 4,956,187
---------------
13,572,967
---------------
INDUSTRIALS (5.5%)
4,900 Aramark Services Co.
8.15% due 05/01/05................. 5,052,635
3,000 Joy Technologies Inc.
10.25% due 09/01/03................ 3,315,000
4,920 News American Holdings, Inc.
8.25% due 08/10/18................. 4,986,518
5,000 Placer Dome, Inc. (Canada)
7.75% due 06/15/15................. 4,823,650
4,900 Repsol International Finance
7.00% due 08/01/05................. 4,900,980
9,950 RJR Nabisco, Inc.
8.75% due 08/15/05................. 9,957,861
4,950 TCI Communications, Inc.
8.75% due 08/01/15................. 4,936,487
4,900 Time Warner Entertainment Co.
8.375% due 07/15/33................ 4,787,888
5,000 Time Warner, Inc.
9.15% due 02/01/23................. 5,138,500
---------------
47,899,519
---------------
RETAIL (0.5%)
5,000 K Mart Corp.
7.95% due 02/01/23................. 4,596,300
---------------
TRANSPORTATION (1.0%)
6,900 United Air Lines, Inc.
11.21% due 05/01/14................ 8,463,678
---------------
UTILITIES - ELECTRIC (1.3%)
5,000 Big Rivers Electric
9.50% due 02/15/17................. 5,536,450
6,000 Pacific Gas Transmission Co.
6.96% due 08/05/03................. 5,940,000
---------------
11,476,450
---------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $171,546,076)..... 172,787,632
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
RIGHTS (0.0%)
SAVINGS & LOAN ASSOCIATIONS
27,000 California Federal Bank (Identified
Cost $0)*.......................... 135,000
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT & AGENCIES OBLIGATIONS (20.6%)
$ 5,000 Federal Home Loan Banks
7.78% due 01/30/97................. $ 5,050,000
695 Federal Home Loan Mortgage Corp.
8.50% due 07/01/02................. 711,041
276 Federal Home Loan Mortgage Corp.
9.00% due 08/01/02................. 284,830
5,000 Federal National Mortgage
Association
5.22% due 07/10/98................. 4,850,000
3,000 Federal National Mortgage
Association
6.40% due 01/13/04................. 2,853,750
10,000 Private Export Funding Corp.
7.95% due 11/01/06................. 10,886,700
10,900 U.S. Treasury Bond
7.50% due 11/15/24................. 11,765,188
1,000 U.S. Treasury Note
7.25% due 11/15/96................. 1,017,656
20,000 U.S. Treasury Note
6.50% due 05/15/97................. 20,206,250
25,000 U.S. Treasury Note
5.25% due 07/31/98................. 24,468,750
8,000 U.S. Treasury Note
5.125% due 11/30/98................ 7,770,000
30,000 U.S. Treasury Note
6.50% due 04/30/99................. 30,365,625
26,000 U.S. Treasury Note
6.875% due 08/31/99................ 26,662,188
6,500 U.S. Treasury Note
7.875% due 11/15/99................ 6,911,328
3,000 U.S. Treasury Note
7.75% due 11/30/99................. 3,175,781
15,050 U.S. Treasury Note
6.75% due 04/30/00................. 15,386,273
3,500 U.S. Treasury Note
7.50% due 11/15/01................. 3,716,016
5,000 U.S. Treasury Note
5.75% due 08/15/03................. 4,791,406
---------------
TOTAL U.S. GOVERNMENT & AGENCIES
OBLIGATIONS
(IDENTIFIED COST $179,887,230)..... 180,872,782
---------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (3.9%)
U.S. GOVERNMENT AGENCIES (a) (3.5%)
$ 9,000 Federal Home Loan Banks 5.65% due
08/02/95........................... $ 8,998,588
21,400 Federal National Mortgage
Association 5.70% due 08/09/95..... 21,372,893
---------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $30,371,481)....... 30,371,481
---------------
REPURCHASE AGREEMENT (0.4%)
3,202 The Bank of New York 5.8125% due
08/01/95 (dated 07/31/95; proceeds
$3,202,650; collateralized by
$3,232,343 U.S. Treasury Note 6.50%
due 09/30/96 valued at $3,328,570)
(Identified Cost $3,202,088)....... 3,202,088
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $33,573,569)...... 33,573,569
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$786,832,265) (B)........... 99.2% 870,196,045
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES....... 0.8 7,399,281
----- ------------
NET ASSETS.................. 100.0% $877,595,326
----- ------------
----- ------------
<FN>
- ---------------------
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Securities were purchased on a discount basis. The rates shown reflect a
money market equivalent yield.
(b) The aggregate cost for federal income tax purposes is $787,894,760; the
aggregate gross unrealized appreciation is $89,658,581 and the aggregate
gross unrealized depreciation is $7,357,296, resulting in net unrealized
appreciation of $82,301,285.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $786,832,265)............................ $870,196,045
Cash........................................................ 75,388
Receivable for:
Investments sold........................................ 13,007,590
Interest................................................ 6,205,761
Shares of beneficial interest sold...................... 2,757,767
Dividends............................................... 422,055
Principal paydowns...................................... 43,507
Prepaid expenses and other assets........................... 17,198
------------
TOTAL ASSETS........................................... 892,725,311
------------
LIABILITIES:
Payable for:
Investments purchased................................... 13,140,192
Shares of beneficial interest repurchased............... 727,207
Plan of distribution fee................................ 630,975
Investment management fee............................... 426,740
Accrued expenses and other payables......................... 204,871
------------
TOTAL LIABILITIES...................................... 15,129,985
------------
NET ASSETS:
Paid-in-capital............................................. 736,601,490
Net unrealized appreciation................................. 83,363,780
Accumulated undistributed net investment income............. 3,987,969
Accumulated undistributed net realized gain................. 53,642,087
------------
NET ASSETS............................................. $877,595,326
------------
------------
NET ASSET VALUE PER SHARE,
55,289,486 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$15.87
------------
------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1995
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.................................................... $ 22,087,220
Dividends (net of $5,650 foreign withholding tax)........... 10,048,666
------------
TOTAL INCOME........................................... 32,135,886
------------
EXPENSES
Plan of distribution fee.................................... 7,304,905
Investment management fee................................... 4,679,443
Transfer agent fees and expenses............................ 859,726
Shareholder reports and notices............................. 88,308
Custodian fees.............................................. 74,297
Professional fees........................................... 47,227
Registration fees........................................... 46,478
Trustees' fees and expenses................................. 28,170
Other....................................................... 25,159
------------
TOTAL EXPENSES......................................... 13,153,713
------------
NET INVESTMENT INCOME.................................. 18,982,173
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 56,953,694
Net change in unrealized appreciation....................... 45,494,865
------------
NET GAIN............................................... 102,448,559
------------
NET INCREASE................................................ $121,430,732
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, JULY 31,
1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 18,982,173 $ 16,501,766
Net realized gain........................................... 56,953,694 26,073,475
Net change in unrealized appreciation....................... 45,494,865 (15,330,968)
------------ ------------
NET INCREASE........................................... 121,430,732 27,244,273
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................... (15,997,877) (14,241,827)
Net realized gain........................................... (25,273,043) (22,860,148)
------------ ------------
TOTAL.................................................. (41,270,920) (37,101,975)
------------ ------------
Net increase (decrease) from transactions in shares of
beneficial interest....................................... (8,813,901) 33,273,643
------------ ------------
TOTAL INCREASE......................................... 71,345,911 23,415,941
NET ASSETS:
Beginning of period......................................... 806,249,415 782,833,474
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$3,987,969 AND $1,003,673, RESPECTIVELY)................ $877,595,326 $806,249,415
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1995
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Strategist Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund was organized as a Massachusetts
business trust on August 5, 1988 and commenced operations on October 31, 1988.
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; (4) certain of
the Fund's portfolio securities may be valued by an outside pricing service
approved by the Trustees. The pricing service utilizes a matrix system
incorporating security quality, maturity and coupon as the evaluation model
parameters, and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service; and (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts on securities purchased are accreted over the life of the respective
securities. Dividend income is recorded on the ex-dividend date. Interest income
is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
50
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1995, CONTINUED
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), the Fund pays its Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined at the close of each
business day: 0.60% to the portion of daily net assets not exceeding $500
million; 0.55% to the portion of daily net assets exceeding $500 million but not
exceeding $1 billion; 0.50% to the portion of daily net assets exceeding $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 implementation of the Plan
on November 8, 1989 (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net
51
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1995, CONTINUED
asset value of the Fund's shares redeemed since the Fund's implementation of the
Plan 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
attributable to shares issued, net of related shares redeemed, since
implementation of the Plan. Amounts paid under the Plan are paid to the
Distributor to compensate it for the services provided and the expenses borne by
it and others in the distribution of the Fund's shares, including the payment of
commissions for sales of the Fund's shares and incentive compensation to, and
expenses of, the account executives of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor, and other employees or
selected 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.
The Distributor has informed the Fund that for the year ended July 31, 1995, it
received approximately $1,775,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares. The Fund's shareholders pay such
charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended July 31, 1995 aggregated
$1,278,393,842 and $1,277,865,740, respectively. Included in the aforementioned
are purchases and sales of U.S. Government securities of $336,249,589 and
$245,143,949, respectively. For the same period, the Fund paid brokerage
commissions of approximately $85,000 to DWR for transactions executed on behalf
of the Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At July 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $72,000.
52
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1995, CONTINUED
The Fund established an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Fund who will have served as
independent Trustees for at least five years at the time of retirement. Benefits
under this plan are based on years of service and compensation during the last
five years of service. Aggregate pension costs for the year ended July 31, 1995
included in Trustees' fees and expenses in the Statement of Operations amounted
to $7,970. At July 31, 1995, the Fund had an accrued pension liability of
$50,526 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
JULY 31, 1995 JULY 31, 1994
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Sold.............................................. 9,276,510 $ 137,319,676 12,833,544 $ 190,736,225
Reinvestment of dividends and distributions....... 2,728,962 38,146,103 2,333,508 34,489,407
------------ ------------- ------------ -------------
12,005,472 175,465,779 15,167,052 225,225,632
Repurchased....................................... (12,582,171) (184,279,680) (12,951,477) (191,951,989)
------------ ------------- ------------ -------------
Net increase (decrease)........................... (576,699) $ (8,813,901) 2,215,575 $ 33,273,643
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
At July 31, 1995, the Fund had temporary book/tax differences which were
primarily attributable to capital loss deferrals on wash sales and permanent
book/tax differences attributable to dividend redesignations.
53
<PAGE>
DEAN WITTER STRATEGIST FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 31,
FOR THE YEAR ENDED JULY 31 1988*
--------------------------------------------------------------------- THROUGH
1995 1994 1993 1992 1991 1990 JULY 31, 1989
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period....................... $ 14.43 $ 14.59 $ 14.39 $ 13.09 $ 11.65 $ 11.37 $ 9.45
--------- --------- --------- --------- --------- --------- ------
Net investment income......... 0.34 0.30 0.26 0.27 0.27 0.23 0.38
Net realized and unrealized
gain......................... 1.86 0.22 0.81 1.27 1.50 0.55 1.84
--------- --------- --------- --------- --------- --------- ------
Total from investment
operations................... 2.20 0.52 1.07 1.54 1.77 0.78 2.22
--------- --------- --------- --------- --------- --------- ------
Less dividends and
distributions from:
Net investment income...... (0.29) (0.26) (0.31) (0.24) (0.26) (0.29) (0.30)
Net realized gain.......... (0.47) (0.42) (0.56) -- (0.07) (0.21) --
--------- --------- --------- --------- --------- --------- ------
Total dividends and
distributions................ (0.76) (0.68) (0.87) (0.24) (0.33) (0.50) (0.30)
--------- --------- --------- --------- --------- --------- ------
Net asset value, end of
period....................... $ 15.87 $ 14.43 $ 14.59 $ 14.39 $ 13.09 $ 11.65 $ 11.37
--------- --------- --------- --------- --------- --------- ------
--------- --------- --------- --------- --------- --------- ------
TOTAL INVESTMENT RETURN+...... 16.05% 3.53% 7.59% 11.88% 15.67% 7.21% 23.76%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 1.63% 1.62% 1.62% 1.63% 1.59% 1.53% 0.97%(2)(3)
Net investment income......... 2.35% 2.03% 1.90% 2.19% 2.37% 2.39% 6.00%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.................... $877,595 $806,249 $782,833 $440,802 $238,432 $195,687 $47,921
Portfolio turnover rate....... 179% 90% 98% 79% 140% 101% 70%(1)
<FN>
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all its expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment income
ratios would have been 1.48% and 5.48%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER STRATEGIST FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER STRATEGIST FUND
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 Strategist Fund (the
"Fund") at July 31, 1995, 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 six years in the period then ended
and for the period October 31, 1988 (commencement of operations) through July
31, 1989, 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 July
31, 1995 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
AUGUST 17, 1995
- --------------------------------------------------------------------------------
1995 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended July 31, 1995, the Fund paid to its
shareholders $0.47 per share from long-term capital gains. For
such period 26.22% of the income dividend qualified for the
dividends received deduction available to corporations.
55
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its corporate and
municipal bond rating system. The modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and a modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the
56
<PAGE>
following considerations: (1) likelihood of default-capacity and willingness of
the obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature of and provisions of the
obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for debt in higher-rated
categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not
rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2 and 3 to indicate the relative degree of safety.
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying
this designation are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
57
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 30, 1995
DEAN WITTER
MANAGED
ASSETS
TRUST
- -----------------------------------------------------------------------------
Dean Witter Managed Assets Trust (the "Fund") is an open-end,
nondiversified management investment company, whose investment objective is a
high level of total return on its investments. The Fund seeks to achieve its
objective through a fully managed investment policy utilizing equity
securities, fixed-income securities rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or BBB or higher by Standard and Poor's Corporation
("S&P") or unrated securities of comparable quality and money market
instruments. See "Investment Objective and Policies."
A Prospectus for the Fund dated May 30, 1995, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone number listed below
or from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean
Witter Reynolds Inc. at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in
addition to and more detailed than that set forth in the Prospectus. It is
intended to provide additional information regarding the activities and
operations of the Fund, and should be read in conjunction with the
Prospectus.
Dean Witter
Managed Assets Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund and its Management ......... 3
Trustees and Officers ............... 6
Investment Practices and Policies .. 12
Investment Restrictions ............. 25
Portfolio Transactions and Brokerage 26
The Distributor ..................... 28
Shareholder Services ................ 32
Redemptions and Repurchases ......... 36
Dividends, Distributions and Taxes . 39
Performance Information ............. 41
Description of Shares ............... 41
Custodian and Transfer Agent ....... 42
Independent Accountants ............. 43
Reports to Shareholders ............. 43
Legal Counsel ....................... 43
Experts ............................. 43
Registration Statement .............. 43
Financial Statements--March 31, 1995 44
Report of Independent Accountants .. 54
Appendix ............................ 55
</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 October 8, 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 of investments by the Fund's Board of Trustees. In addition,
Trustees of the Fund provide guidance on economic factors and interest rate
trends. Information as to these Trustees and officers is contained under the
caption "Trustees and Officers".
InterCapital is also the investment manager of the following investment
companies: Dean Witter Liquid Asset Fund Inc., InterCapital Income Securities
Inc., InterCapital Insured Municipal Bond 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 Value-Added Market Series, High Income Advantage Trust,
High Income Advantage Trust II, High Income Advantage Trust III, Dean Witter
Government Income Trust, Dean Witter Utilities Fund, Dean Witter California
Tax-Free Daily Income Trust, Dean Witter Strategist Fund, Dean Witter World
Wide Income Trust, Dean Witter Intermediate Income Securities, Dean Witter
New York Municipal Money Market Trust, Dean Witter Capital Growth Securities,
Dean Witter European Growth Fund Inc., Dean Witter Precious Metals and
Minerals Trust, Dean Witter Global Short-Term Income Fund Inc., Dean Witter
Pacific Growth Fund Inc., Dean Witter Multi-State Municipal Series Trust,
Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Premier Income Trust,
InterCapital Quality Municipal Investment Trust, InterCapital Quality
Municipal Income Trust, InterCapital Insured Municipal Trust, InterCapital
Insured Municipal Income Trust, InterCapital California Insured Municipal
Income 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 Balanced
Income Fund, Dean Witter Balanced Growth Fund, Dean Witter Global Asset
Allocation Fund, Dean Witter International SmallCap Fund, Dean Witter Mid-Cap
Growth Fund, Dean Witter Hawaii Municipal Trust, InterCapital Insured
Municipal Securities, InterCapital Insured California Municipal Securities,
Active Assets Money Trust, Active Assets Tax-Free Trust, Active Assets
California Tax-Free Trust, Active Assets Government Securities Trust,
Municipal Income Trust, Municipal Income Trust II, Municipal Income Trust
III, Municipal Income Opportunities Trust, Municipal Income Opportunities
Trust II, Municipal Income Opportunities Trust III, Prime Income Trust and
Municipal Premium Income Trust. The foregoing investment companies, together
with the Fund, are collectively referred to as the Dean Witter Funds. In
addition, Dean Witter Services Company Inc., 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 Emerging
3
<PAGE>
Markets Opportunities Trust, TCW/DW North American Intermediate Income Trust,
TCW/DW Total Return Trust, TCW/DW Global Convertible 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.
The Investment Manager also serves as an investment adviser for Dean
Witter World Wide Investment Fund, an investment company organized under the
laws of Luxembourg, shares of which are not available for purchase in the
United States or by American citizens outside the United States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage
the investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
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 and bookkeeping and 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 Management Agreement.
Expenses not expressly assumed by the Investment Manager under the
Agreement or by Dean Witter Distributors Inc., the Distributor of the Fund's
shares ("Distributors" or "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 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.
4
<PAGE>
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.60% to the Fund's daily net assets not exceeding $500
million and 0.55% to the Fund's daily net assets exceeding $500 million.
Total compensation accrued to the Investment Manager for the fiscal years
ended March 31, 1993, 1994 and 1995 amounted to $1,366,776, $1,490,674 and
$2,086,759, 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 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 March 31, 1993, 1994 and 1995.
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 Special 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 January 14, 1988, by DWR as the then sole
shareholder on March 23, 1988, and by the Fund's shareholders at a Special
Meeting of Shareholders held on July 19, 1989. 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 ended April 30, 1994,
and provides that it will continue 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) of any such party (the "Independent Trustees"), which
vote must be cast in person at a meeting called for the purpose of voting on
such approval. At their meeting held on April 20, 1995, the Fund's Board of
Trustees, including all of the Independent Trustees, approved the
continuation of the Agreement until April 30, 1996.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR. The Fund has agreed that DWR or its parent company may use, or at any
time permit others to use, the name "Dean Witter". The Fund has also agreed
that in the event the Investment Management Agreement between InterCapital
and the Fund is terminated, or if the affiliation between InterCapital and
its parent company is terminated, the Fund will eliminate the name "Dean
Witter" from its name if DWR or its parent company shall so request.
5
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 76 Dean Witter Funds and the 13 TCW/DW Funds are
shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------- ------------------------------------------------------
<S> <C>
Jack F. Bennett (71) Retired; Director or Trustee of the Dean Witter Funds;
Trustee formerly Senior Vice President and Director of Exxon
c/o Gordon Altman Butowsky Weitzen Shalov & Wein Corporation (1975-January, 1989) and Under Secretary
Counsel to the Independent Trustees 114 West 47th of the U.S. Treasury for Monetary Affairs (1974-1975);
Street New York, New York director of Philips Electronics, N.V., Tandem
Computers Inc. and Massachusetts Mutual Life Insurance
Co.; director or trustee of various not-for-profit and
business organizations.
Michael Bozic (54) President and Chief Executive Officer of Hills
Trustee Department Stores (since May, 1991); formerly Chairman
c/o Hills Stores Inc. and Chief Executive Officer (January, 1987-August,
15 Dan Road 1990) and President and Chief Operating Officer
Canton, Massachusetts (August, 1990-February, 1991) of the Sears Merchandise
Group of Sears, Roebuck and Co.; Director or Trustee
of the Dean Witter Funds; Director of Eaglemark
Financial Services, Inc., the United Negro College
Fund and Domain Inc. (home decor retailer).
Charles A. Fiumefreddo* (62) Chairman and Chief Executive Officer and Director of
Chairman of the Board InterCapital and Dean Witter Distributors Inc. and
President and Chief Executive Officer DWSC; Executive Vice President and Director of DWR;
and Trustee Chairman, Director or Trustee, President and Chief
Two World Trade Center Executive Officer of the Dean Witter Funds; Chairman,
New York, New York Chief Executive Officer and Trustee of the TCW/DW
Funds; Chairman and Director of Dean Witter Trust
Company ("DWTC"); Director and/or officer of various
DWDC subsidiaries and affiliates; formerly Executive
Vice President and Director of DWDC (until February,
1993).
Edwin J. Garn (62) Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah) (1974-1992) and
c/o Huntsman Chemical Corporation 2000 Eagle Gate Chairman, Senate Banking Committee (1980-1986);
Tower formerly Mayor of Salt Lake City, Utah (1971-1974);
Salt Lake City, Utah formerly Astronaut, Space Shuttle Discovery (April
12-19, 1985); Vice Chairman, Huntsman Chemical
Corporation (since January, 1993); Member of the board
of various civic and charitable organizations.
6
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------- ------------------------------------------------------
John R. Haire (70) Chairman of the Audit Committee and Chairman of the
Trustee Committee of the Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Trustee
New York, New York 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).
Dr. Manuel H. Johnson (46) Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm (since June, 1985); Koch Professor of
c/o Johnson Smick International, Inc. 1133 International Economics and Director of the Center for
Connecticut Avenue, N.W. Washington, D.C. Global Market Studies at George Mason University
(since September, 1990); Co-Chairman and a founder of
the Group of Seven Council (G7C), an international
economic commission (since September, 1990); Director
or Trustee of the Dean Witter Funds; Trustee of the
TCW/DW Funds; Director of Greenwich Capital Markets
Inc. (broker-dealer); formerly Vice Chairman of the
Board of Governors of the Federal Reserve System
(February, 1986-August, 1990) and Assistant Secretary
of the U.S. Treasury (1982-1986).
Paul Kolton (71) Director or Trustee of the Dean Witter Funds; Chairman
Trustee of the Audit Committee and Chairman of the Committee
c/o Gordon Altman Butowsky Weitzen Shalov & Wein of the Independent Trustees of the TCW/DW Funds and
Counsel to the Independent Trustees 114 West 47th Trustee of the TCW/DW Funds; formerly Chairman of the
Street New York, New York Financial Accounting Standards Advisory Council and
Chairman and Chief Executive Officer of the American
Stock Exchange; Director of UCC Investors Holding Inc.
(Uniroyal Chemical Company Inc.); director or trustee
of various not-for-profit organizations.
Michael E. Nugent (59) General Partner, Triumph Capital, LP., a private
Trustee investment partnership; Director or Trustee of the
c/o Triumph Capital, L.P. 237 Park Avenue Dean Witter Funds; Trustee of the TCW/DW Funds;
New York, New York formerly Vice President, Bankers Trust Company and BT
Capital Corporation (September, 1984-March, 1988);
director of various business organizations.
Philip J. Purcell* (51) Chairman of the Board of Directors and Chief Executive
Trustee Officer of DWDC, DWR and Novus Credit Services Inc.;
Two World Trade Center Director of InterCapital, DWSC and Distributors;
New York, New York Director or Trustee of the Dean Witter Funds; Director
and/or officer of various DWDC Subsidiaries.
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------- ------------------------------------------------------
John L. Schroeder (64) Executive Vice President and Chief Investment Officer
Trustee of the Home Insurance Company (since August, 1991);
c/o The Home Insurance Company 59 Maiden Lane New Director or Trustee of the Dean Witter Funds; Director
York, New York of Citizens Utilities Company; formerly Chairman and
Chief Investment Officer of Axe-Houghton Management
and the Axe-Houghton Funds (April, 1993-June, 1991)
and President of USF&G Financial Services, Inc. (June
1990-June, 1991).
Sheldon Curtis (63) Senior Vice President, Secretary and General Counsel
Vice President, Secretary and General Counsel of InterCapital and DWSC; Senior Vice President,
Two World Trade Center Assistant Secretary and Assistant General Counsel of
New York, New York Dean Witter Distributors Inc., Senior Vice President
and Secretary of DWTC; Assistant Secretary of DWR and
Vice President, Secretary and General Counsel of the
Dean Witter Funds and the TCW/DW Funds.
Kenton J. Hinchliffe (50) Senior Vice President of InterCapital; Vice President
Vice President of various Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (49) First Vice President (since May, 1991) and Assistant
Treasurer Treasurer (since January, 1993) of InterCapital; First
Two World Trade Center Vice President and Assistant Treasurer of DWSC;
New York, New York Treasurer of the Dean Witter Funds and the TCW/DW
Funds; previously Vice President of InterCapital.
</TABLE>
- ---------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, David A. Hughey, Executive Vice President and Chief
Administrative Officer of InterCapital, DWSC, Distributors and DWTC and
Director of DWTC, Edmund C. Puckhaber, Executive Vice President of
InterCapital and Director of DWTC, and Thomas H. Connelly, Jonathan R. Page,
Ira N. Ross, Paul D. Vance and Rochelle G. Siegel, Senior Vice Presidents of
InterCapital, are Vice Presidents of the Fund, and Marilyn K. Cranney and
Barry Fink, First Vice Presidents and Assistant General Counsels of
InterCapital and DWSC, and Lawrence S. Lafer, Lou Anne D. McInnis and Ruth
Rossi, Vice Presidents and Assistant General Counsels of InterCapital and
DWSC, are Assistant Secretaries of the Fund.
BOARD OF TRUSTEES; RESPONSIBILITIES AND COMPENSATION OF INDEPENDENT TRUSTEES
As mentioned above under the caption "The Fund and its Management," the
Fund is one of the Dean Witter Funds, a group of investment companies managed
by InterCapital. As of the date of this Statement of Additional Information,
there are a total of 76 Dean Witter Funds, comprised of 116 portfolios. As of
April 30, 1995, the Dean Witter Funds had total net assets of approximately
$62.9 billion and more than five million shareholders.
The Board of Directors or Trustees, consisting of ten (10) directors or
trustees, is the same for each of the Dean Witter Funds. Some of the Funds
are organized as business trusts, others as corporations, but the functions
and duties of directors and trustees are the same. Accordingly, directors and
trustees of the Dean Witter Funds are referred to in this section as
Trustees.
8
<PAGE>
Eight Trustees, that is, 80% 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. Five
of the eight Independent Trustees are also Independent Trustees of the TCW/DW
Funds. As of the date of this Statement of Additional Information, there are
a total of 13 TCW/DW Funds. Two of the Funds' Trustees, that is, the
management Trustees, are affiliated with InterCapital.
As noted in a federal court ruling, "[T]he independent directors . . . are
expected to look after the interests of shareholders by 'furnishing an
independent check upon management,' especially with respect to fees paid to
the investment company's sponsor." In addition to their general "watchdog"
duties, the Independent Trustees are charged with a wide variety of
responsibilities under the Act. In order to perform their duties effectively,
the Independent Trustees are required to review and understand large amounts
of material, often of a highly technical and legal nature.
The Dean Witter Funds seek as Independent Trustees individuals of
distinction and experience in business and finance, government service or
academia; that is, people whose advice and counsel are valuable and 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 of the demands made on their time by the Funds. Indeed, to serve on
the Funds' Boards, certain Trustees who would be qualified and in demand to
serve on bank boards would be prohibited by law from serving at the same time
as a director of a national bank and as a Trustee of a Fund.
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. Since most of the Dean Witter Funds have
such a plan, and since all of the Funds' Boards have the same members, the
Independent Trustees effectively control the selection of other Independent
Trustees of all the Dean Witter Funds.
GOVERNANCE STRUCTURE OF THE DEAN WITTER FUNDS
While the regulatory system establishes both general guidelines and
specific duties for the Independent Trustees, the governance arrangements
from one investment company group to another vary significantly. In some
groups the Independent Trustees perform their role by attendance at periodic
meetings of the board of directors with study of materials furnished to them
between meetings. At the other extreme, an investment company complex may
employ a full-time staff to assist the Independent Trustees in the
performance of their duties.
The governance structure of the Dean Witter Funds lies between these two
extremes. The Independent Trustees and the Funds' Investment Manager alike
believe that these arrangements are effective and serve the interests of the
Funds' shareholders. 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.
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 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
9
<PAGE>
audit and non-audit fees; reviewing the adequacy of the Fund's system of
internal controls; advising the independent accountants and management
personnel that they have direct access to the Committee at all times; and
preparing and submitting Committee meeting minutes to the full Board.
Finally, the Board of each Fund has established 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.
During the calendar year ended December 31, 1994, the three Committees
held a combined total of eleven meetings. The Committee meetings are
sometimes held away from the offices of InterCapital and sometimes in the
Board room of InterCapital. These meetings are held without management
directors or officers being present, unless and until they may be invited to
the meeting for purposes of furnishing information or making a report. These
separate meetings provide the Independent Trustees an opportunity to explore
in depth with their own independent legal counsel, independent auditors and
other independent consultants, as needed, the issues they believe should be
addressed and resolved in the interests of the Funds' shareholders.
DUTIES OF CHAIRMAN OF COMMITTEES
The Chairman of the Committees 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 the issues, and arranges to have the
information furnished. He also arranges for the services of independent
experts to be provided to the Committees 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 all three
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 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 Committees 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 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.
VALUE 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 is in the best
interests of all the Funds' shareholders. This arrangement 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. It is believed 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 likelihood 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, it is believed that 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.
10
<PAGE>
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,200 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $1,000 and pays the Chairman of the
Committee of the Independent Trustees an additional annual fee of $2,400, in
each case inclusive of the Committee meeting fees). 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 Fund has adopted a retirement program under which an Independent
Trustee who retires after serving for at least five years (or such lesser
period as may be determined by the Board) as an Independent Director or
Trustee of any Dean Witter Fund that has adopted the retirement program (each
such Fund referred to as an "Adopting Fund" and each such Trustee referred to
as an "Eligible Trustee") is entitled to retirement payments upon reaching
the eligible retirement age (normally, after attaining age 72). Annual
payments are based upon length of service. Currently, upon retirement, each
Eligible Trustee is entitled to receive from the 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 28.75% of his
or her Eligible Compensation plus 0.4791666% 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 57.50% after ten
years of service. The foregoing percentages may be changed by the Board.(1)
"Eligible Compensation" is one-fifth of the total compensation earned by such
Eligible Trustee for service to the 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 Fund. As of the date of this
Statement of Additional Information, 58 Dean Witter Funds have adopted the
retirement program.
(1) An Eligible Trustee may elect alternate payments of his or her
retirement benefits based upon the combined life expectancy of such
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. The amount estimated to be payable under this
method, through the remainder of the later of the lives of such
Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit. In addition, the Eligible Trustee may elect that the
surviving spouse's periodic payment of benefits will be equal to either
50% or 100% of the previous periodic amount, an election that,
respectively, increases or decreases the previous periodic amount so
that the resulting payments will be the actuarial equivalent of the
Regular Benefit.
The following table illustrates the compensation paid and the retirement
benefits accrued to the Fund's Independent Trustees by the Fund for the
fiscal year ended March 31, 1995 and the estimated retirement benefits for
the Fund's Independent Trustees as of March 31, 1995.
<TABLE>
<CAPTION>
FUND COMPENSATION ESTIMATED RETIREMENT BENEFITS
-------------------------------- ---------------------------------------------------------------
ESTIMATED
RETIREMENT CREDITED YEARS ESTIMATED ESTIMATED
AGGREGATE BENEFITS OF SERVICE AT PERCENTAGE OF ESTIMATED ANNUAL
NAME OF INDEPENDENT COMPENSATION ACCRUED AS FUND RETIREMENT ELIGIBLE ELIGIBLE BENEFITS UPON
TRUSTEE FROM THE FUND EXPENSES (MAXIMUM 10) COMPENSATION COMPENSATION(2) RETIREMENT(3)
- -------------------------- --------------- --------------- -------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack F. Bennett ........... $2,000 $ 876 8 46.0% $2,229 $1,025
Michael Bozic ............. 1,850 114 10 57.5 1,950 1,121
Edwin J. Garn ............. 1,950 513 10 57.5 1,950 1,121
John R. Haire ............. 4,950(4) 2,101 10 57.5 5,162 2,968
Dr. Manuel H. Johnson .... 1,950 213 10 57.5 1,950 1,121
Paul Kolton ............... 2,000 942 10 57.0 2,435 1,388
Michael E. Nugent ......... 1,800 364 10 57.5 1,950 1,121
John L. Schroeder ......... 1,900 223 8 47.9 1,950 934
- ---------------
(2) Based on current levels of compensation.
(3) Based on current levels of compensation. Amount of annual benefits
also varies depending on the Trustee's elections described in Footnote
(1) above.
(4) Of Mr. Haire's compensation from the Fund, $3,400 is paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($1,000).
</TABLE>
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<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1994 for
services to the 73 Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Kolton and Nugent, the 13 TCW/DW Funds that were in operation at
December 31, 1994. With respect to Messrs. Haire, Johnson, Kolton and Nugent,
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.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
FOR SERVICE AS CHAIRMAN OF TOTAL CASH
DIRECTOR OR FOR SERVICE AS COMMITTEES OF COMPENSATION
TRUSTEE AND TRUSTEE AND INDEPENDENT FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER DIRECTORS/ 73 DEAN WITTER
NAME OF INDEPENDENT OF 73 DEAN WITTER OF 13 TCW/DW TRUSTEES AND FUNDS AND 13
TRUSTEE FUNDS FUNDS AUDIT COMMITTEES TCW/DW FUNDS
- -------------------------- ----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Jack F. Bennett ........... $125,761 -- -- $125,761
Michael Bozic ............. 82,637 -- -- 82,637
Edwin J. Garn ............. 125,711 -- -- 125,711
John R. Haire ............. 101,061 $66,950 $225,563(5) 393,574
Dr. Manuel H. Johnson .... 122,461 60,750 -- 183,211
Paul Kolton ............... 128,961 51,850 34,200(6) 215,011
Michael E. Nugent ......... 115,761 52,650 -- 168,411
John L. Schroeder ......... 85,938 -- -- 85,938
- ---------------
(5) For the 73 Dean Witter Funds.
(6) For the 13 TCW/DW Funds.
</TABLE>
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
As stated in the Prospectus, the Fund may invest in short-term to
intermediate (one to five year maturities) and intermediate to long term
(greater than five year maturities) fixed-income securities which are issued
or guaranteed, as to principal and interest, by the United States government
or its agencies and instrumentalities.
Such U.S. Government securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years), all of which are direct
obligations of the U.S. Government and, as such, are backed by the "full
faith and credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export- Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from three months
to thirty years.
(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its
obligations, from an existing line of credit with the U.S. Treasury. Among
the agencies and instrumentalities issuing such obligations are the
Tennessee Valley Authority, the Federal National Mortgage Association
("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and the
U.S. Postal Service.
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<PAGE>
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal
Farm Credit System and the Federal Home Loan Banks.
Zero Coupon Securities. A portion of U.S. Government securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received if prevailing interest rates rise. For this
reason, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest currently.
As stated in the Prospectus, the money market instruments which the Fund
may purchase include U.S. Government securities, bank obligations, Eurodollar
certificates of deposit, obligations of savings institutions, fully insured
certificates of deposit and commercial paper. Such securities are limited to:
U.S. Government Securities. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as
the Federal Home Loan Bank), including Treasury bills, notes and bonds;
Bank Obligations. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government
and having total assets of $1 billion or more, and instruments secured by
such obligations, not including obligations of foreign branches of domestic
banks except to the extent below;
Eurodollar Certificates of Deposit. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1
billion or more;
Obligations of Savings Institutions. Certificates of deposit of banks and
savings institutions, having total assets of $1 billion, or more;
Fully Insured Certificates of Deposit. Certificates of deposit of banks
and savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is insured by the Federal Deposit
Insurance Corporation, limited to $100,000 principal amount per certificate
and to 10% or less of the Fund's total assets in all such obligations and in
all illiquid assets, in the aggregate;
Commercial Paper. Commercial paper rated within the two highest grades by
S&P or the highest grade by Moody's or, if not rated, issued by a company
having an outstanding debt issue rated at least AA by S&P or Aa by Moody's.
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
two business days' notice. If the borrower fails to deliver the loaned
securities within two 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
13
<PAGE>
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 Trustees of the
Fund.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned
securities, to be delivered within one day after notice, to permit the
exercise of such rights if the matters involved would have a material effect
on the Fund's investment in such loaned securities. The Fund will pay
reasonable finder's, administrative and custodial fees in connection with a
loan of its securities. The Fund did not lend any of its portfolio securities
during the fiscal year ended March 31, 1995.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested
or used for payments of obligations of the Fund. These agreements, which may
be viewed as a type of secured lending by the Fund, typically involve the
acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer.
The agreement provides that the Fund will sell back to the institution, and
that the institution will repurchase, the underlying security ("collateral")
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. The collateral will be maintained in a
segregated account and will be marked to market daily to determine that the
value of the collateral, as specified in the agreement, does not decrease
below the purchase price plus accrued interest. If such decrease occurs,
additional collateral will be requested and, when received, added to the
account to maintain full collateralization. The Fund will accrue interest
from the institution until the time when the repurchase is to occur. Although
such date is deemed by the Fund to be the maturity date of a repurchase
agreement, the maturities of securities subject to repurchase agreements are
not subject to any limits.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed
to minimize such risks. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions whose financial condition will be continually monitored by the
Investment Manager subject to procedures established by the Board of Trustees
of the Fund. In addition, as described above, the value of the collateral
underlying the repurchase agreement will 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. During the fiscal year ended March 31,
1995, the Fund's investments in repurchase agreements did not exceed 5% of
its total assets.
Reverse Repurchase Agreements. The Fund may also use reverse repurchase
agreements as part of its investment strategy. Reverse repurchase agreements
involve sales by the Fund of portfolio assets concurrently with an agreement
by the Fund to repurchase the same assets at a later date at a fixed price.
Generally, the effect of such a transaction is that the Fund can recover all
or most of the cash invested in the portfolio securities involved during the
term of the reverse repurchase agreement, while it will be able to keep the
interest income associated with those portfolio securities. Such transactions
are only advantageous if the interest cost to the Fund of the reverse
repurchase transaction is less than the cost of obtaining the cash otherwise.
Opportunities to achieve this advantage may not always be
14
<PAGE>
available, and the Fund intends to use the reverse repurchase technique only
when it will be to its advantage to do so. The Fund will establish a
segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other high grade debt securities equal in value
to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements are considered borrowings by the Fund and for purposes
other than meeting redemptions may not exceed 5% of the Fund's total assets.
The Fund has no present intention of entering into any reverse repurchase
agreements during the upcoming year.
Warrants. The Fund may acquire warrants attached to other securities and,
in addition, may invest up to 5% of the value of its total assets in
warrants, including up to 2% of such assets in warrants not listed on either
the New York or American Stock Exchange. Warrants are, in effect, an option
to purchase equity securities at a specific price, generally valid for a
specific period of time, and have no voting rights, pay no dividends and have
no rights with respect to the corporations issuing them.
When-Issued and Delayed Delivery Securities. As discussed in the
Prospectus, from time to time, in the ordinary course of business, the Fund
may purchase securities on a when-issued or delayed delivery basis-i.e.,
delivery and payment can take place a month or more after the date of the
transaction although the price is fixed at the time of the commitment. The
securities so purchased are subject to market fluctuation and no interest
accrues to the purchaser during this period. While the Fund will only
purchase securities on a when-issued, delayed delivery of forward commitment
basis with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date, if it is deemed advisable. At the time
the Fund makes the commitment to purchase securities on a when-issued or
delayed delivery basis, the Fund will record the transaction and thereafter
reflect the value, each day, of such security in determining the net asset
value of the Fund. At the time of delivery of the securities, the value may
be more or less than the purchase price. The Fund will also establish a
segregated account with the Fund's custodian bank in which it will
continuously maintain cash or U.S. Government Securities or other high grade
debt portfolio securities equal in value to commitments for such when-issued
or delayed delivery securities; subject to this requirement, the Fund may
purchase securities on such basis without limit. An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
when-issued or delayed delivery basis may increase the volatility of the
Fund's net asset value. The Investment Manager and the Board of Trustees do
not believe that the Fund's net asset value or income will be adversely
affected by its purchase of securities on such basis.
When, As and If Issued Securities. As discussed in the Prospectus, the
Fund may purchase securities on a "when, as and if issued" basis under which
the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger, corporate reorganization, leveraged
buyout or debt restructuring. The commitment for the purchase of any such
security will not be recognized in the portfolio of the Fund until the
Investment Manager determines that issuance of the security is probable. At
such time, the Fund will record the transaction and, in determining its net
asset value, will reflect the value of the security daily. At such time, the
Fund will also establish a segregated account with its custodian bank in
which it will continuously maintain cash or U.S. Government securities or
other high grade debt portfolio securities equal in value to recognized
commitments for such securities. Settlement of the trade will occur within
five business days of the occurrence of the subsequent event. The value of
the Fund's commitments to purchase the securities of any one issuer, together
with the value of all securities of such issuer owned by the Fund, may not
exceed 5% of the value of the Fund's total assets at the time the initial
commitment to purchase such securities is made (see "Investment
Restrictions"). Subject to the foregoing restrictions, the Fund may purchase
securities on such basis without limit. An increase in the percentage of the
Funds's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value. The
Investment Manager and the Trustees do not believe that the net asset value
of the Fund will be adversely affected by its purchase of securities on such
basis. The Fund may also sell securities on a "when, as and if issued" basis
provided that the issuance of the securities will result automatically from
the exchange or conversion of securities owned by the Fund at the time of the
sale.
Securities of Foreign Issuers. The Fund may invest up to 20% of its total
assets in securities issued by foreign governments and other foreign issuers
and in foreign currency issues of domestic issuers but
15
<PAGE>
not more than 10% of its total assets in such securities, whether issued by a
foreign or domestic issuer, which are denominated in foreign currency. With
regard to foreign fixed-income securities, the Fund believes that in many
instances securities may provide higher yields than similar securities of
domestic issuers. Many of these investments currently have increased
liquidity, although such securities are generally less liquid than the
securities of United States corporations, and are certainly less liquid than
securities issued by the United States Government or its agencies.
Foreign investments involve certain risks, including the political or
economic instability of the issuer or of the country of issue, the difficulty
of predicting international trade patterns and the possibility of imposition
of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of United States corporations or of the
United States Government. In addition, there may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. There is generally less government regulation of stock exchanges,
brokers and listed companies abroad than in the United States, and with
respect to certain foreign countries, there is a possibility of expropriation
or confiscatory taxation, or diplomatic developments which could affect
investment in those countries. Finally, in the event of a default of any such
foreign debt obligations, it may be more difficult for the Fund to obtain or
to enforce a judgment against the issuers of such securities. In addition to
the above-mentioned risks, securities denominated in foreign currency,
whether issued by a foreign or a domestic issuer, may be affected favorably
or unfavorably by changes in currency rates and in exchange control
regulations, and costs may be incurred in connection with conversions between
various currencies. It may not be possible to hedge against the risks of
currency fluctuation. The securities of foreign issuers held by the Fund did
not exceed 5% of the Fund's net assets at any time during the fiscal year
ended March 31, 1995.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and stock
indexes and purchase options of the same series to effect closing
transactions, and may hedge against potential changes in the market value of
investments (or anticipated investments) and facilitate the reallocation of
the Fund's assets into and out of equities and fixed-income securities by
purchasing put and call options on portfolio (or eligible portfolio)
securities and engaging in transactions involving futures contracts and
options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and equity
securities are listed on Exchanges and are written in over-the-counter
transactions ("OTC options"). Listed options are issued by the Options
Clearing Corporation ("OCC"). Ownership of a listed call option gives the
Fund the right to buy from the OCC the underlying security covered by the
option at the stated exercise price (the price per unit of the underlying
security) by filing an exercise notice prior to the expiration date of the
option. The writer (seller) of the option would then have the obligation to
sell to the OCC the underlying security at that exercise price prior to the
expiration date of the option, regardless of its then current market price.
Ownership of a listed put option would give the Fund the right to sell the
underlying security to the OCC at the stated exercise price. Upon notice of
exercise of the put option, the writer of the put would have the obligation
to purchase the underlying security from the OCC at the exercise price. The
Fund did not enter into any options or futures transactions during the fiscal
year ended March 31, 1995.
Options on Treasury Bonds and Notes. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not
continue indefinitely to introduce options with new expirations to replace
expiring options on particular issues. Instead, the expirations introduced at
the commencement of options trading on a particular issue will be allowed to
run their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each issue of
bonds or notes will thus be phased out as new options are listed on more
recent issues, and options representing a full range of expirations will not
ordinarily be available for every issue on which options are traded.
Options on Treasury Bills. Because a deliverable Treasury bill changes
from week to week, writers of Treasury bill calls cannot provide in advance
for their potential exercise settlement obligations by
16
<PAGE>
acquiring and holding the underlying security. However, if the Fund holds a
long position in Treasury bills with a principal amount of the securities
deliverable upon exercise of the option, the position may be hedged from a
risk standpoint by the writing of a call option. For so long as the call
option is outstanding, the Fund will hold the Treasury bills in a segregated
account with its Custodian, so that they will be treated as being covered.
Options on GNMA Certificates. Currently, options on GNMA Certificates are
only traded over-the- counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, the Fund,
as a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy
its delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Fund will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA
Certificates in the cash market in order to maintain its cover. A GNMA
Certificate held by the Fund to cover an option position in any but the
nearest expiration month may cease to represent cover for the option in the
event of a decline in the GNMA coupon rate at which new pools are originated
under the FHA/VA loan ceiling in effect at any given time, as such decline
may increase the prepayments made on other mortgage pools. If this should
occur, the Fund will no longer be covered, and the Fund will either enter
into a closing purchase transaction or replace such Certificate with a
Certificate which represents cover. When the Fund closes out its position or
replaces such Certificate, it may realize an unanticipated loss and incur
transaction costs.
OTC Options. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which
have entered into direct agreements with the Fund. With OTC options, such
variables as expiration date, exercise price and premium will be agreed upon
between the Fund and the transacting dealer, without the intermediation of a
third party such as the OCC. If the transacting dealer fails to make or take
delivery of the securities underlying an option it has written, in accordance
with the terms of that option, the Fund would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Fund will
engage in OTC option transactions only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities, without limit, in order to aid in achieving its
investment objective. Generally, a call option is "covered" if the Fund owns,
or has the right to acquire, without additional cash consideration (or for
additional cash consideration held for the Fund by its Custodian in a
segregated account) the underlying security subject to the option except that
in the case of call options on U.S. Treasury Bills, the Fund might own U.S.
Treasury Bills of a different series from those underlying the call option,
but with a principal amount and value corresponding to the exercise price and
a maturity date no later than that of the securities deliverable under the
call option. A call option is also covered if the Fund holds a call on the
same security as the underlying security of the written option, where the
exercise price of the call used for coverage is equal to or less than the
exercise price of the call written or greater than the exercise price of the
call written if the mark to market difference is maintained by the Fund in
cash, U.S. Government securities or other high grade debt obligations which
the Fund holds in a segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these
premiums may better enable the Fund to achieve a greater total return than
would be realized from holding the underlying securities alone. Moreover, the
premium received will offset a portion of the potential loss incurred by the
Fund if the securities underlying the option are ultimately sold by the Fund
at a loss. The premium received will fluctuate with varying economic market
conditions. If the market value of the portfolio securities upon which call
options have been written increases, the Fund may receive less total return
from the portion of its portfolio upon which calls have been written than it
would have had such calls not been written.
As regards listed options and certain OTC options, during the option
period, the Fund may be required, at any time, to deliver the underlying
security against payment of the exercise price on any calls
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it has written (exercise of certain listed and OTC options may be limited to
specific expiration dates). This obligation is terminated upon the expiration
of the option period or at such earlier time when the writer effects a
closing purchase transaction. A closing purchase transaction is accomplished
by purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit
on an outstanding call option to prevent an underlying security from being
called, to permit the sale of an underlying security or to enable the Fund to
write another call option on the underlying security with either a different
exercise price or expiration date or both. Also, effecting a closing purchase
transaction will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments by the
Fund. The Fund may realize a net gain or loss from a closing purchase
transaction depending upon whether the amount of the premium received on the
call option is more or less than the cost of effecting the closing purchase
transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of
the underlying security. Conversely, a gain resulting from a closing purchase
transaction could be offset in whole or in part or exeeded by, a decline in
the market value of the underlying security.
If a call option expires unexercised, the Fund realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security equal to the
difference between the purchase price of the underlying security and the
proceeds of the sale of the security plus the premium received for on the
option less the commission paid.
Options written by a Fund normally have expiration dates of from up to
nine months (equity securities) to eighteen months (fixed-income securities)
from the date written. The exercise price of a call option may be below,
equal to or above the current market value of the underlying security at the
time the option is written. See "Risks of Options and Futures Transactions,"
below.
Covered Put Writing. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period,
at the purchaser's election (certain listed and OTC put options written by
the Fund will be exercisable by the purchaser only on a specific date). A put
is "covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other high grade obligations in an amount equal to at least the
exercise price of the option, at all times during the option period.
Similarly, a short put position could be covered by the Fund by its purchase
of a put option on the same security as the underlying security of the
written option, where the exercise price of the purchased option is equal to
or more than the exercise price of the put written or less than the exercise
price of the put written if the mark to market difference is maintained by
the Fund in cash, U.S. Government securities or other high grade debt
obligations which the Fund holds in a segregated account maintained at its
Custodian. In writing puts, the Fund assumes the risk of loss should the
market value of the underlying security decline below the exercise price of
the option (any loss being decreased by the receipt of the premium on the
option written). In the case of listed options, during the option period, the
Fund may be required, at any time, to make payment of the exercise price
against delivery of the underlying security. The operation of and limitations
on covered put options in other respects are substantially identical to those
of call options.
The Fund will write put options for two purposes: (1) to receive the
income derived from the premiums paid by purchasers; and (2) when the
Investment Manager wishes to purchase the security underlying the option at a
price lower than its current market price, in which case it will write the
covered put at an exercise price reflecting the lower purchase price sought.
The potential gain on a covered put option is limited to the premium received
on the option (less the commissions paid on the transaction) while the
potential loss equals the differences between the exercise price of the
option and the current market price of the underlying securities when the put
is exercised, offset by the premium received (less the commissions paid on
the transaction).
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Purchasing Call and Put Options. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 10% of its total assets. The Fund
may purchase call options only in order to close out a covered call position
(see "Covered Call Writing" above). The purchase of the call option to effect
a closing transaction on a call written over-the-counter may be a listed or
an OTC option. In either case, the call purchased is likely to be on the same
securities and have the same terms as the written option. If purchased
over-the-counter, the option would generally be acquired from the dealer or
financial institution which purchased the call written by the Fund.
The Fund may purchase put options on securities which it holds (or has the
right to acquire) in its portfolio only to protect itself against a decline
in the value of the security. If the value of the underlying security were to
fall below the exercise price of the put purchased in an amount greater than
the premium paid for the option, the Fund would incur no additional loss. The
Fund may also purchase put options to close out written put positions in a
manner similar to call options closing purchase transactions. In addition,
the Fund may sell a put option which it has previously purchased prior to the
sale of the securities underlying such option. Such a sale would result in a
net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid on the put option
which is sold. And such gain or loss could be offset in whole or in part by a
change in the market value of the underlying security. If a put option
purchased by the Fund expired without being sold or exercised, the premium
would be lost.
Risks of Options Transactions. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security increase, but has retained the risk of loss should
the price of the underlying security decline. The secured put writer also
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option less the premium received on
the sale of the option. In both cases, the writer has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver or receive the underlying securities at the
exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to
purchase an offsetting over-the-counter option, it cannot sell the underlying
security until the option expires or the option is exercised. Accordingly, a
covered call option writer may not be able to sell an underlying security at
a time when it might otherwise be advantageous to do so. A secured put option
writer who is unable to effect a closing purchase transaction or to purchase
an offsetting over-the-counter option would continue to bear the risk of
decline in the market price of the underlying security until the option
expires or is exercised. In addition, a secured put writer would be unable to
utilize the amount held in cash or U.S. Government or other high grade
short-term obligations securities as security for the put option for other
investment purposes until the exercise or expiration of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on Option
Exchanges. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options will generally only be closed out
by entering into a closing purchase transaction with the purchasing dealer.
However, the Fund may be able to purchase an offsetting option which does not
close out its position as a writer but constitutes an asset of equal value to
the obligation under the option written. If the Fund is not able to either
enter into a closing purchase transaction or purchase an offsetting position,
it will be required to maintain the securities subject to the call, or the
collateral underlying the put, even though it might not be advantageous to do
so, until a closing transaction can be entered into (or the option is
exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposing by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes
or series of options or underlying securities; (iv) interruption of the
normal operations on an Exchange; (v) inadequacy of the facilities of an
Exchange or the Options Clearing Corporation ("OCC") to handle
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current trading volume; or (vi) a decision by one or more Exchanges to
discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that
class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the OCC as a result of
trades on that Exchange would generally continue to be exercisable in
accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur
a loss of all or part of its margin deposits with the broker. Similarly, in
the event of the bankruptcy of the writer of an OTC option purchased by the
Fund, the Fund could experience a loss of all or part of the value of the
option. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Investment Manager.
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written
on one or more accounts or through one or more brokers). An Exchange may
order the liquidation of positions found to be in violation of these limits
and it may impose other sanctions or restrictions. These position limits may
restrict the number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
Stock Index Options. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at
a specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level
of the stock index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple (the "multiplier"). The multiplier for an index
option performs a function similar to the unit of trading for a stock option.
It determines the total dollar value per contract of each point in the
difference between the exercise price of an option and the current level of
the underlying index. A multiplier of 100 means that a one-point difference
will yield $100. Options on different indexes may have different multipliers.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. Unlike stock options, all settlements are in
cash and a gain or loss depends on price movements in the stock market
generally (or in a particular segment of the market) rather than the price
movements in individual stocks. Currently, options are traded on the S&P 100
Index and the S&P 500 Index on the Chicago Board Options Exchange, the Major
Market Index and the Computer Technology Index, Oil Index and Institutional
Index on the American Stock Exchange and the NYSE Index and NYSE Beta Index
on the New York Stock Exchange, The Financial News Composite Index on the
Pacific Stock Exchange and the Value Line Index, National O-T-C Index and
Utilities Index on the Philadelphia Stock Exchange, each of which and any
similar index on which options are traded in the future which include stocks
that are not limited to any particular industry or segment of the market is
referred to as a "broadly based stock market index." The Fund will invest
only in broadly based indexes. Options on broad-based stock indexes provide
the Fund with a means of protecting the Fund against the risk of market wide
price movements. If the Investment Manager anticipates a market decline, the
Fund could purchase a stock index put option. If the expected market decline
materialized, the resulting decrease in the value of the Fund's portfolio
would be offset to the extent of the increase in the value of the put option.
If the Investment Manager anticipates a market rise, the Fund may purchase a
stock index call option to enable the Fund to participate in such rise until
completion of anticipated common stock purchases by the Fund. Purchases and
sales of stock index options also enable the Investment Manager to more
speedily achieve changes in the Fund's equity positions.
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The Fund will write put options on stock indexes only if such positions
are covered by cash, U.S. Government securities or other high grade debt
obligations equal to the aggregate exercise price of the puts, or by a put
option on the same stock index with a strike price no lower than the strike
price of the put option sold by the Fund, which cover is held for the Fund in
a segregated account maintained for it by the Fund's Custodian. All call
options on stock indexes written by the Fund will be covered either by a
portfolio of stocks substantially replicating the movement of the index
underlying the call option or by holding a separate call option on the same
stock index with a strike price no higher than the strike price of the call
option sold by the Fund.
Risks of Options on Indexes. Because exercises of stock index options are
settled in cash, call writers such as the Fund cannot provide in advance for
their potential settlement obligations by acquiring and holding the
underlying securities. A call writer can offset some of the risk of its
writing position by holding a diversified portfolio of stocks similar to
those on which the underlying index is based. However, most investors cannot,
as a practical matter, acquire and hold a portfolio containing exactly the
same stocks as the underlying index, and, as a result, bear a risk that the
value of the securities held will vary from the value of the index. Even if
an index call writer could assemble a stock portfolio that exactly reproduced
the composition of the underlying index, the writer still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in
writing index options. When an index option is exercised, the amount of cash
that the holder is entitled to receive is determined by the difference
between the exercise price and the closing index level on the date when the
option is exercised. As with other kinds of options, the writer will not
learn that it has been assigned until the next business day, at the earliest.
The time lag between exercise and notice of assignment poses no risk for the
writer of a covered call on a specific underlying security, such as a common
stock, because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as the
writer already owns the underlying security, it can satisfy its settlement
obligations by simply delivering it, and the risk that its value may have
declined since the exercise date is borne by the exercising holder. In
contrast, even if the writer of an index call holds stocks that exactly match
the composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those stocks against payment of the
exercise price. Instead, it will be required to pay cash in an amount based
on the closing index value on the exercise date; and by the time it learns
that it has been assigned, the index may have declined, with a corresponding
decrease in the value of its stock portfolio. This "timing risk" is an
inherent limitation on the ability of index call writers to cover their risk
exposure by holding stock positions.
A holder of an index option who exercises it before the closing index
value for that day is available runs the risk that the level of the
underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the exercising holder will be
required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the
assigned writer.
If dissemination of the current level of an underlying index is
interrupted, or if trading is interrupted in stocks accounting for a
substantial portion of the value of an index, the trading of options on that
index will ordinarily be halted. If the trading of options on an underlying
index is halted, an exchange may impose restrictions prohibiting the exercise
of such options.
Futures Contracts. The Fund may purchase and sell interest rate and stock
index futures contracts ("futures contracts") that are traded on U.S.
commodity exchanges on such underlying securities as U.S. Treasury bonds,
notes, bills and GNMA Certificates ("interest rate" futures) and such indexes
as the S&P 500 Index, the Moody's Investment-Grade Corporate Bond Index and
the New York Stock Exchange Composite Index ("index" futures).
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of
the underlying obligation at a specified time in return for an agreed upon
price.
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The Fund will purchase or sell interest rate futures contracts and bonds
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) securities against changes in prevailing interest
rates. If the Investment Manager anticipates that interest rates may rise
and, concomitantly, the price of fixed-income securities fall, the Fund may
sell an interest rate futures contract or a bond index futures contract. If
declining interest rates are anticipated, the Fund may purchase an interest
rate futures contract to protect against a potential increase in the price of
U.S. Government securities the Fund intends to purchase. Subsequently,
appropriate fixed-income securities may be purchased by the Fund in an
orderly fashion; as securities are purchased, corresponding futures positions
would be terminated by offsetting sales of contracts.
The Fund will purchase or sell stock index futures contracts for the
purpose of hedging its equity portfolio (or anticipated portfolio) securities
against changes in their prices. If the Investment Manager anticipates that
the prices of stock held by the Fund may fall, the Fund may sell a stock
index futures contract. Conversely, if the Investment Manager wishes to hedge
against anticipated price rises in those stocks which the Fund intends to
purchase, the Fund may purchase stock index futures contracts. In addition,
interest rate and stock index futures contracts will be bought or sold in
order to close out a short or long position in a corresponding futures
contract.
Athough most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Stock index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open
or close of the last trading day of the contract and the futures contract
price. A futures contract sale is closed out by effecting a futures contract
purchase for the same aggregate amount of the specific type of equity
security and the same delivery date. If the sale price exceeds the offsetting
purchase price, the seller would be paid the difference and would realize a
gain. If the offsetting purchase price exceeds the sale price, the seller
would pay the difference and would realize a loss. Similarly, a futures
contract purchase is closed out by effecting a futures contract sale for the
same aggregate amount of the specific type of equity security and the same
delivery date. If the offsetting sale price exceeds the purchase price, the
purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no
assurance that the Fund will be able to enter into a closing transaction.
Interest Rate Futures Contracts. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or
other high grade short-term debt obligations. Initial margin requirements are
established by the Exchanges on which futures contracts trade and may, from
time to time, change. In addition, brokers may establish margin deposit
requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a broker's client but is, rather, a good faith deposit on the
futures contract which will be returned to the Fund upon the proper
termination of the futures contract. The margin deposits made are marked to
market daily and the Fund may be required to make subsequent deposits of cash
or U.S. Government securities called "variation margin", with the Fund's
futures contract clearing broker, which are reflective of price fluctuations
in the futures contract. Currently, interest rates futures contracts can be
purchased on debt securities such as U.S. Treasury Bills and Bonds, U.S.
Treasury Notes with Maturities between 6 1/2 and 10 years, GNMA Certificates
and Bank Certificates of Deposit.
Index Futures Contracts. The Fund may invest in index futures contracts.
An index futures contract sale creates an obligation by the Fund, as seller,
to deliver cash at a specified future time. An index futures contract
purchase would create an obligation by the Fund, as purchaser, to take
delivery of cash at a specified future time. Futures contracts on indexes do
not require the physical delivery of securities, but provide for a final cash
settlement on the expiration date which reflects accumulated profits and
losses credited or debited to each party's account.
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The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in
the form of variation margin payments. The Fund may be required to make
additional margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required
to be paid by or released to the Fund and the Fund realizes a loss or a gain.
Currently, index futures contracts can be purchased or sold with respect
to, among others, the Standard & Poor's 500 Stock Price Index and the
Standard & Poor's 100 Stock Price Index on the Chicago Mercantile Exchange,
the New York Stock Exchange Composite Index on the New York Futures Exchange,
the Major Market Index on the American Stock Exchange, the Value Line Stock
Index on the Kansas City Board of Trade and the Moody's Investment-Grade
Corporate Bond Index on the Chicago Board of Trade.
Options on Futures Contracts. The Fund may purchase and write call and put
options on futures contracts and enter into closing transactions with respect
to such options to terminate an existing position. An option on a futures
contract gives the purchaser the right (in return for the premium paid), and
the writer the obligation, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents
the amount by which the market price of the futures contract at the time of
exercise exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of
a futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, the
Investment Manager wished to protect against an increase in interest rates
and the resulting negative impact on the value of a portion of its
fixed-income portfolio, it might write a call option on an interest rate
futures contract, the underlying security of which correlates with the
portion of the portfolio the Investment Manager seeks to hedge. Any premiums
received in the writing of options on futures contracts may, of course,
augment the total return of the Fund and thereby provide a further hedge
against losses resulting from price declines in portions of the Fund's
portfolio.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in initial margin deposits.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid
for premiums for unexpired options on futures contracts exceeds 5% of the
value of the Fund's total assets, after taking into account unrealized gains
and unrealized losses on such contracts it has entered into, provided,
however, that in the case of an option that is in-the-money (the exercise
price of the call (put) option is less (more) than the market price of the
underlying security) at the time of purchase, the in-the-money amount may be
excluded in calculating the 5%. However, there is no overall limitation on
the percentage of the Fund's assets which may be subject to a hedge position.
In addition, in accordance with the regulations of the Commodity Futures
Trading Commission ("CFTC") under which the Fund is exempted from
registration as a commodity pool operator, the Fund may only enter into
futures contracts and options on futures contracts transactions for purposes
of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that the Fund would be permitted to write
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options on futures contracts for purposes other than hedging the Fund's
investments without CFTC registration the Fund may engage in such
transactions for those purposes. Except as described above, there are no
other limitations on the use of futures and options thereon by the Fund.
Risks of Transactions in Futures Contracts and Related Options. The Fund
may sell a futures contract to protect against the decline in the value of
securities held by the Fund. However, it is possible that the futures market
may advance and the value of securities held in the portfolio of the Fund may
decline. If this occurred, the Fund would lose money on the futures contract
and also experience a decline in value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree,
over time the value of a diversified portfolio will tend to move in the same
direction as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Fund may determine not to invest in the securities as
planned and will realize a loss on the futures contract that is not offset by
a reduction in the price of the securities.
If the Fund maintains a short position in a futures contract or has sold a
call option in a futures contract, it will cover this position by holding, in
a segregated account maintained at its Custodian, cash, U.S. Government
securities or other high grade debt obligations equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities underlying the futures contract or the exercise price of the
option. Such a position may also be covered by owning the securities
underlying the futures contract (in the case of a stock index futures
contract a portfolio of securities substantially replicating the relevant
index), or by holding a call option permitting the Fund to purchase the same
contract at a price no higher than the price at which the short position was
established.
In addition, if the Fund holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S.
Government securities or other high grade debt obligations equal to the
purchase price of the contract or the exercise price of the put option (less
the amount of initial or variation margin on deposit) in a segregated account
maintained for the Fund by its Custodian. Alternatively, the Fund could cover
its long position by purchasing a put option on the same futures contract
with an exercise price as high or higher than the price of the contract held
by the Fund.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments
underlying interest rate futures contracts it holds at a time when it is
disadvantageous to do so. The inability to close out options and futures
positions could also have an adverse impact on the Fund's ability to
effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through
the broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly, in the event of the bankruptcy of the writer of an OTC
option purchased by the Fund, the Fund could experience a loss of all or part
of the value of the option. Transactions are entered into by the Fund only
with brokers or financial institutions deemed creditworthy by the Investment
Manager.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk which may arise in employing futures contracts to
protect against the price volatility of portfolio securities is that the
prices of securities and indexes subject to futures contracts (and thereby
the futures contract prices) may correlate imperfectly with the behavior of
the cash prices of the Fund's portfolio securities. Another such risk is that
prices of interest rate futures contracts may not move in tandem with the
changes in prevailing interest rates against which the Fund seeks a hedge.
24
<PAGE>
A correlation may also 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.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of
the securities which are the subject of the hedge. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the debt securities and futures markets could
result. Price distortions could also result if investors in futures contracts
opt to make or take delivery of underlying securities rather than engage in
closing transactions due to the resultant reduction in the liquidity of the
futures market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions.
Due to the possibility of price distortions in the futures market and because
of the imperfect correlation between movements in the prices of securities
and movements in the prices of futures contracts, a correct forecast of
interest rate trends by the Investment Manager may still not result in a
successful hedging transaction.
There is no assurance that a liquid secondary market will exist for
futures contracts and related options in which the Fund may invest. In the
event a liquid market does not exist, it may not be possible to close out a
futures position, and in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin. In
addition, limitations imposed by an exchange or board of trade on which
futures contracts are traded may compel or prevent the Fund from closing out
a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to
make or take delivery of the underlying securities at a time when it may be
disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss
to the Fund notwithstanding that the purchase or sale of a futures contract
would not result in a loss, as in the instance where there is no movement in
the prices of the futures contract or underlying securities.
The Investment Manager has substantial experience in the use of the
investment techniques described above under the heading "Options and Futures
Transactions," which techniques require skills different from those needed to
select the portfolio securities underlying various options and futures
contracts.
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.
25
<PAGE>
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. Invest more than 10% of its total assets in "illiquid securities"
(securities for which market quotations are not readily available) and
repurchase agreements which have a maturity of longer than seven days. The
staff of the Securities and Exchange Commission has taken the position
that purchased OTC options and the assets used as "cover" for written OTC
options are illiquid securities and the Fund will treat these assets as
such.
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 insofar as to the Fund may be deemed to have
borrowed by entrance into a reverse repurchase agreement), 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. 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.
13. 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 Board of Trustees, the
Investment Manager is responsible for decisions to buy and sell securities
for the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. The Fund
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation, generally referred
to as the underwriter's
26
<PAGE>
concession or discount. Options and futures transactions will usually be
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. The aggregate
amount of brokerage commissions paid by the Fund during the fiscal years
ended March 31, 1993, 1994 and 1995 were $433,347, $195,987 and $162,473,
respectively.
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, the main factors considered are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the portfolios of the Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange,
the Fund's policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio 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 following: information as to the availability of
securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or
evaluations of portfolio securities. During the fiscal year ended March 31,
1995, the Fund directed the payment of $108,237 in brokerage commissions in
connection with transactions in the aggregate amount of $72,105,005 to
brokers because of research services provided.
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 if 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
27
<PAGE>
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 years ended March
31,1993, 1994 and 1995, the Fund paid a total of $109,700, $33,360 and
$21,223, respectively, in brokerage commissions to DWR. The brokerage
commissions paid to DWR represented approximately 13.06% of the total
brokerage commissions paid by the Fund for the fiscal year ended March 31,
1995 and were paid on account of transactions having an aggregate dollar
value equal to approximately 16.63% of the aggregate dollar value of all
portfolio transactions of the Fund during the period for which commissions
were paid.
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 a prior distribution
agreement which was initially approved by the Trustees on January 14, 1988.
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 ended April 30, 1994, and provides
that it will continue from year to year thereafter if approved by the Board.
At their meeting held on April 20, 1995, the Trustees, including all of the
Independent Trustees, approved the continuation of the Agreement until April
30, 1996.
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 pays certain expenses in connection with
the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears
the costs of initial typesetting, printing and distribution of prospectuses
and supplements thereto to shareholders. The Fund bears the costs of
registering the Fund and its shares under federal and state securities laws.
The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. Under the Distribution Agreeement, the Distributor uses its best
efforts in rendering services to the Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations, the Distributor is not liable to the Fund or any of its
shareholders for any error of judgment or mistake of law or for any act or
omission or for any losses sustained by the Fund or its shareholders.
Shares of the Fund are sold through the Distributor on a normal five
business day settlement basis; that is, payment is due on the fifth business
day (settlement date) after the order is placed with the Distributor. Since
the Distributor forwards investors' funds on settlement date, it 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
28
<PAGE>
date for such distributions. While no sales charge is imposed at the time
shares are purchased, a contingent deferred sales charge may be imposed at
the time of redemption (see "Redemptions and Repurchases"). The Fund and the
Distributor reserve the right to reject any purchase orders.
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 $383,000, $338,000 and $670,462 in
contingent deferred sales charges for the fiscal years ended March 31, 1993,
1994 and 1995, 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 (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 January 14,
1988, 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 March 23, 1988, whereupon the
Plan went into effect. Under its terms, the Plan continued until 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. At their meeting held on July 19, 1989, the shareholders of
the Fund ratified the Trustees' approval of the Plan.
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 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 of the Fund, including all of the
Independent 12b-1 Trustees, approved certain technical amendments to the Plan
in connection with amendments adopted by the National Association of
Securities Dealers, Inc. to its Rules of Fair Practice. Continuation of the
Plan was most recently approved by the Trustees at their meeting held on
April 20,
29
<PAGE>
1995. At that meeting, the Trustees, including all of the Independent 12b-1
Trustees, after evaluating all the information they deemed necessary to make
an informed determination of whether the Plan should be continued, approved
the continuation of the Plan until April 30, 1996.
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 March 31, 1995 of $3,477,931. This amount is equal to payments
required to be paid monthly by the Fund which were computed at the annual
rate of 0.98% of the average daily net assets of the Fund for the fiscal year
and reflects an adjustment necessitated by an underaccrual. 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 may be subject to
a contingent deferred sales charge, payable to the Distributor, if redeemed
during the six years after their purchase. DWR compensates its account
executives by paying them, from its own funds, commissions for the sale of
the Fund's shares, currently a gross sales credit of up to 5% of the amount
sold and an annual residual commission of up to 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, 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 shares 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 its distribution costs for this
purpose. The broker's call rate is the interest rate charged to securities
brokers on loans secured by exchange-listed securities.
The Fund paid 100% of the $3,477,931 accrued under the Plan for the fiscal
year ended March 31, 1995 to the Distributor. The Distributor and DWR
estimate that they have spent, pursuant to the Plan, $34,771,375 on behalf of
the Fund since the inception of the Fund. It is estimated that this amount
was spent in approximately the following ways: (i) 5.70% ($1,983,271) --
advertising and promotional expenses; (ii) 0.72% ($250,927) -- printing of
prospectuses for distribution to other than current shareholders; and (iii)
93.58% ($32,537,177) -- other expenses, including the gross sales credit and
the carrying charge, of which 9.94% ($3,235,545) represents carrying charges,
35.72% ($11,621,027) represents commission credits to DWR branch offices for
payments of commissions to account executives and 54.34% ($17,680,605)
represents overhead and other branch office distribution-related expenses.
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 $13,140,719 as of
March 31, 1995. Because there is no requirement under the Plan that the
Distributor be reimbursed for all
30
<PAGE>
distribution expenses or any requirement that the Plan be continued from year
to year, this excess amount does not constitute a liability of the Fund.
Although there is no legal obligation for the Fund to pay distribution
expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such
expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or contingent deferred sale 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 remained in effect until April 30, 1988 and will
continue from year to year thereafter, provided such continuance is approved
annually by a vote of the Trustees in the manner described above. Most recent
continuance of the Plan for one year, until April 30, 1996, was approved by
the Board of Trustees of the Fund, including a majority of the Independent
12b-1 Trustees, at a Board meeting held on April 20, 1995. At that meeting,
the Trustees, including a majority of the Independent 12b-1 Trustees, also
approved certain technical amendments to the Plan in connection with recent
amendments adopted by the National Association of Securities Dealers, Inc. to
its Rules of Fair Practice. Prior to approving the continuation of the Plan,
the Board requested and received from the Distributor and reviewed all the
information which it deemed necessary to arrive at an informed determination.
In making their determination to continue the Plan, the Trustees considered:
(1) the Fund's experience under the Plan and whether such experience
indicates that the Plan is operating as anticipated; (2) the benefits the
Fund had obtained, was obtaining and would be likely to obtain under the
Plan; and (3) what services had been provided and were continuing to be
provided under the Plan 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.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term securities with remaining
maturities of 60 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 60 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. Listed options on
debt securities are valued at the latest sale price on the exchange on which
they are listed unless no sales of such options have taken place that day, in
which case they will be valued at the mean between their latest bid and asked
prices. Unlisted options on debt securities and all options on equity
securities are valued at the mean between their latest bid and asked prices.
Futures are valued at the latest sale price on the commodities exchange on
which they trade unless the Trustees determine
31
<PAGE>
that 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, 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 opended for the investor on the books of the Fund and maintained by Dean
Witter Trust Company, the Fund's Transfer Agent (the "Transfer Agent"). This
is an open account in which shares owned by the investor are cred- ited 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 charge, 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 Managed Assets Trust. 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. Shareholders of
Dean Witter Managed Assets Trust must be shareholders of the Dean Witter Fund
targeted to receive investments from dividends at the time they enter the
Targeted Dividends program. Investors should review the prospectus of the
targeted Dean Witter Fund before entering the program.
Easyinvest.sm Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for
investment in shares of the Fund. Shares purchased through EasyInvest will be
added to the shareholder's existing account at the net asset value calculated
the same business day the transfer of funds is effected. For further
information or to subscribe to EasyInvest, shareholders should contact their
DWR or other selected broker-dealer account executive or the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. Any
shareholder who receives a cash payment representing a dividend or
distribution may invest such dividend or distribution at the net asset value
per share, without the imposition of a contingent deferred sales charge upon
redemption, by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. If the
32
<PAGE>
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
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
Managed Assets Trust, 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.
33
<PAGE>
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 Short-Term Bond Fund, Dean
Witter Limited Term Municipal Trust, Dean Witter Balanced Income Fund, Dean
Witter Balanced Growth Fund, and five Dean Witter Funds which are money
market funds (the foregoing ten 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 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.
34
<PAGE>
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.
The Transfer Agent acts as agent for shareholders of the Fund in effecting
redemptions of Fund shares and in applying the proceeds to the purchase of
other fund shares. In the absence of negligence on its part, neither the
Transfer Agent nor the Fund shall be liable for any redemption of Fund shares
caused by unauthorized telephone or telegraph instructions. Accordingly, in
such an event the investor shall bear the risk of loss. The staff of the
Securities and Exchange Commission is currently considering the propriety of
such a policy.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any
other of the funds and the general administration of the Exchange Privilege,
the Transfer Agent acts as agent for the Distributor and for the
shareholder's selected broker-dealer, if any, in the performance of such
functions. With respect to exchanges, redemptions or repurchases, the
Transfer Agent shall be liable for its own negligence and not for the default
or negligence of its correspondents or for losses in transit. The Fund shall
not be liable for any default or negligence of the Transfer Agent, the
Distributor or any selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
35
<PAGE>
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000
for Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income
Trust, Dean Witter New York Municipal Money Market Trust and Dean Witter
California Tax-Free Daily Income Trust, although those funds may, at their
discretion, accept initial investments of as low as $1,000. The minimum
initial investment is $10,000 for Dean Witter Short-Term U.S. Treasury Trust,
although that fund may, in its discretion, accept initial purchases of 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 the shareholders who hold
shares of Exchange Funds pursuant to this Exchange Privilege, and provided
further that the Exchange Privilege may be terminated or materially revised
without notice at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on that Exchange
is restricted, (c) when an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange
Commission by order so permits (provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to
whether the conditions prescribed in (b) or (c) exist) or (e) if the Fund
would be unable to invest amounts effectively in accordance with its
investment objective, policies and restrictions.
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.
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
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
36
<PAGE>
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 a
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 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. Any 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.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of: (i) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship, or (b) held in
a qualified corporate or self-employed retirement plan, Individual Retirement
Account or Custodial Account under Section 403(b)(7) of the Internal Revenue
Code, provided in either case that the redemption is requested within one
year of the death or initial determination of disability, and (ii)
redemptions in connection with the following retirement plan distributions:
(a) lump-sum or other distributions from a qualified corporate or
self-employed retirement plan following retirement (or in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2 ); (b)
distributions from an Individual Retirement Account or Custodial Account
under Section 403(b)(7) of the Internal Revenue Code following attainment of
age 59 1/2 ; and (c) a tax-free return of an excess contribution to an IRA.
For the purpose of determining disability, the Distributor utilizes the
definition of disability contained in Section 72(m)(7) of the Code, which
relates to the inability to engage in gainful employment. All waivers will be
granted only following receipt by the Distributor of confirmation of the
investor's entitlement.
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
37
<PAGE>
determining the number of years from the time of any payment for the purchase
of shares, all payments made during a month will be aggregated and deemed to
have been made on the last day of the month. The following table sets forth
the rates of the CDSC:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
YEAR SINCE PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE 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 stated 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 time shares subject to the charge have been
held), any transfer involving less than all of the shares in an account will
be made on a pro-rata basis (that is, by transferring shares in the same
proportion that the transferred shares bear to the total shares in the
account immediately prior to the transfer). The transferred shares will
continue to be subject to any applicable contingent deferred sales charge as
if they had not been so transferred.
38
<PAGE>
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 30 days after the date of
redemption or repurchase reinstate any portion of 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 such proceeds, is
received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase, resulted in a loss and
reinstatement is made in shares of the Fund, some or all of the loss,
depending on the amount reinstated, will not be allowed as a deduction for
federal income tax purposes, but will be applied to adjust the cost basis of
the shares acquired upon reinstatement.
Involuntary Redemption. As discussed in the Prospectus, the Fund reserves
the right, on 60 days' notice, to redeem, at their net asset value, the
shares of any shareholder 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. However, before the Fund redeems such shares and sends the proceeds
to the shareholder, it will notify the shareholder that the value of the
shares is less than $100 and allow him or her 60 days to make an additional
investment in an amount which will increase the value of his or her account
to $100 or more before the redemption is processed. No CDSC will be imposed
on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
The Fund will determine either to distribute or to retain all or part of
any net long-term capital gains in any year for reinvestment. If any such
gains are retained, the Fund will pay federal income tax thereon, and
shareholders will be able to claim their share of the tax paid by the Fund as
a credit against their individual federal income tax.
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 the net investment income or short-term capital gains, are taxable to
the shareholder as ordinary income regardless of whether the shareholder
receives such payments in additional shares or in cash. Any dividends
declared in the last quarter of any year which are paid in the following year
prior to February 1 will be deemed received by the shareholder in the prior
year. 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. In this regard, a 46-day holding period generally must be met.
Gains or losses on the Fund's transactions, if any, in listed options on
non-equity securities, futures and options on futures generally are treated
as 60% long-term and 40% short-term. When the Fund engages in options and
futures transactions, various tax regulations applicable to the Fund may have
the effect of causing the Fund to recognize a gain or loss for tax purposes
before that gain or loss is realized, or to defer recognition of a realized
loss for tax purposes. Recognition, for tax purposes, of an unrealized loss
may result in a lesser amount of the Fund's realized net short-term gains
being available for distribution.
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 gains or losses.
The Fund has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code. If so
qualified, the Fund will not be subject to federal income tax on its net
investment income and net short-term capital gains, if any, realized during
any fiscal year to the extent that it distributes such income and capital
gains to its shareholders.
39
<PAGE>
One of the requirements for the Fund to remain qualified as a regulated
investment company is that less than 30% of its 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 the writing of
options on securities held for less than three months, in the writing of
options which expire in less than three months, and in effecting closing
transactions with respect to call or put options which have been written or
purchased less than three months prior to such transactions. The Fund may
also 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 dividends received deduction.
Under current federal tax law, the Fund will receive net investment income
in the form of interest by virtue of holding Treasury bills, notes and bonds,
and will recognize income attributable to it from holding zero coupon
Treasury securities. Current federal tax law requires that a holder (such as
the Fund) of a zero coupon security accrue a portion of the discount at which
the security was purchased as income each year even though the Fund receives
no interest payment in cash on the security during the year. As an investment
company, the Fund must pay out substantially all of its net investment income
each year. Accordingly, the Fund, to the extent it invests in zero coupon
Treasury securities, may be required to pay out as an income distribution
each year an amount which is greater than the total amount of cash receipts
of interest the Fund actually received. Such distributions will be made from
the available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution or cash necessitates the liquidation of
portfolio securities, the Investment Manager will select which securities to
sell. The Fund may realize a gain or loss from such sales. In the event the
Fund realizes net capital gains from such transactions, its shareholders may
receive a larger capital gain distribution, if any, than they would in the
absence of such transactions.
In computing net investment income, the Fund will not amortize premiums or
accrue discounts on fixed-income securities in the portfolio, except those
original issue discounts for which amortization is required for federal
income tax purposes. Additionally, with respect to market discounts on bonds
issued after July 18, 1984, and all bonds purchased after April 30, 1993, a
portion of any capital gain realized upon disposition may be characterized as
taxable ordinary income in accordance with the provisions of the Tax Reform
Act of 1984. Realized gains and losses on security transactions are
determined on the identified cost method.
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 below a shareholder's cost as a
result of the payment of dividends or the distribution or 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 distribution record date.
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.
At 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
40
<PAGE>
portion taxable as long-term capital gains and the portion eligible for the
dividends received deduction. To avoid being subject to a 31% federal backup
withholding tax on taxable dividends, capital gains distributions and the
proceeds of redemptions and repurchases, shareholders' taxpayer
identification numbers must be furnished and certified as to their accuracy.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. 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 intitial 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 return of
the Fund for the year ended March 31, 1995, for the five years ended March
31, 1995, and for the period June 30, 1988 (commencement of operations)
through March 31, 1995 were -0.00%, 8.04% and 8.02%, 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
return 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 year
ended March 31, 1995, for the five years ended March 31, 1995, and for the
period from June 30, 1988 through March 31, 1995 were 4.83%, 8.34% and 8.02%,
respectively.
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without
the reduction for any 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 year ended March 31, 1995, for
the five years ended March 31, 1995, and for the period from June 30, 1988
through March 31, 1995 were 4.83%, 49.23% and 68.27%, respectively.
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 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 $16,827, $84,135 and $168,270, respectively, at
March 31, 1995.
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, were elected by the shareholders of the
Fund at Special Meetings of Shareholders held on July 19, 1989 and January
12,
41
<PAGE>
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 Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust.
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.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for obligations
of the Fund. The Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund and requires that
notice of such disclaimer be given in each instrument entered into or
executed by the Fund. The Declaration of Trust provides for indemnification
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 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 is remote.
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 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.
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 on Fund
shares and Agent for shareholders under various investment plans described
herein. Dean Witter Trust Company is an affiliate of Dean Witter InterCapital
Inc., the Fund's Investment Manager, and of Dean Witter Distributors Inc.,
the Fund's Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean
Witter Trust Company's responsibilities include maintaining shareholder
accounts; disbursing cash dividends and reinvesting dividends; processing
account registration changes; handling purchase and redemption transactions;
mailing prospectuses and reports; mailing
42
<PAGE>
and tabulating proxies; processing share certificate transactions; and
maintaining 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 March 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- -----------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The financial statements of the Fund included in the Statement of
Additional Information and incorporated by reference in the Prospectus have
been so included and incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
The 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.
43
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
PORTFOLIO OF INVESTMENTS March 31, 1995
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF
THOUSANDS DESCRIPTION AND MATURITY DATE PURCHASE VALUE
- ----------- ----------------------------- --------------- --------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (a) (102.1%)
COMMERCIAL PAPER (46.9%)
Bank Holding Companies (7.6%)
$20,000 BankAmerica Corp. 04/19/95 ............. 5.99% $ 19,940,400
12,000 Northern Trust Corp. 04/28/95 .......... 6.01 11,946,270
--------------
31,886,670
--------------
Brokerage (2.8%)
12,000 Morgan Stanley Group, Inc. 05/11/95 ... 6.04 11,920,000
--------------
Finance - Automobiles (3.3%)
14,000 Ford Motor Credit Co. 05/05/95 ......... 6.10 13,920,138
--------------
Finance - Corporate (4.7%)
20,000 Ciesco, L.P. 05/05/95 .................. 6.01 19,887,233
--------------
Finance - Diversified (16.8%)
11,000 American Express Credit Corp. 04/03/95 6.08 10,996,321
10,000 Commercial Credit Co. 04/13/95 ......... 5.99 9,980,133
10,200 General Electric Capital Corp. 04/24/95 6.00 10,161,161
20,000 Heller Financial, Inc. 05/19/95 ....... 6.08 19,839,467
20,000 Norwest Financial, Inc. 04/05/95 ...... 6.07 19,986,622
--------------
70,963,704
--------------
Finance - Equipment (4.7%)
20,000 Deere (John) Capital Corp. 05/01/95 ... 6.05 19,900,000
--------------
Finance - Office Equipment (7.0%)
20,500 IBM Credit Corp. 04/11/95 .............. 6.08 20,465,719
9,000 Xerox Credit Corp. 04/26/95 ............ 6.01 8,962,688
--------------
29,428,407
--------------
TOTAL COMMERCIAL PAPER
(Amortized Cost $197,906,152) ........................... 197,906,152
--------------
U.S. GOVERNMENT & AGENCIES
OBLIGATIONS (55.2%)
Federal Home Loan Banks 04/03/95 to
55,400 04/24/95 ............................... 5.94 to 6.25 55,316,939
Federal Home Loan Mortgage Corp.
19,900 04/17/95 ............................... 5.95 19,847,641
Federal National Mortgage Association
7,000 04/21/95 ............................... 5.96 6,977,056
</TABLE>
See Notes to Financial Statements
44
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1995, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF
THOUSANDS DESCRIPTION AND MATURITY DATE PURCHASE VALUE
- ----------- ----------------------------- --------------- --------------
<S> <C> <C> <C>
$155,000 U.S. Treasury Bill 06/29/95 to 12/14/95 5.40 to 6.79% $150,829,460
--------------
TOTAL U.S. GOVERNMENT & AGENCIES
OBLIGATIONS (Amortized Cost $232,978,199) ............... 232,971,096
--------------
TOTAL INVESTMENTS (Amortized Cost
$430,884,351) (b) ...................... 102.1% 430,877,248
LIABILITIES IN EXCESS OF OTHER ASSETS . (2.1) (8,893,556)
--------------- --------------
NET ASSETS ............................. 100.0% $421,983,692
=============== ==============
- -------------
(a) Securities were purchased on a discount basis. The interest rates
shown have been adjusted to reflect a money market equivalent yield.
(b) Cost is the same for federal income tax purposes.
</TABLE>
See Notes to Financial Statements
45
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value (amortized cost $430,884,351) ... $430,877,248
Receivable for shares of beneficial interest sold .................... 1,524,793
Prepaid expenses and other assets .................................... 37,975
--------------
TOTAL ASSETS ....................................................... 432,440,016
--------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased .......................... 6,092,841
Plan of distribution fee ........................................... 361,277
Investment management fee .......................................... 216,770
Dividends to shareholders .......................................... 112,018
Payable to bank ...................................................... 3,481,210
Accrued expenses and other payables .................................. 192,208
--------------
TOTAL LIABILITIES .................................................. 10,456,324
--------------
NET ASSETS:
Paid-in-capital ...................................................... 422,393,625
Net unrealized depreciation .......................................... (7,103)
Distribution in excess of net investment income ...................... (163,887)
Accumulated net realized loss ........................................ (238,943)
--------------
NET ASSETS ......................................................... $421,983,692
==============
NET ASSET VALUE PER SHARE, 40,738,444 shares outstanding (unlimited
shares authorized of $.01 par value) ................................ $10.36
==============
</TABLE>
See Notes to Financial Statements
46
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest .......................................... $16,864,614
Dividends (net of $10,090 foreign withholding tax) 907,801
-------------
TOTAL INCOME .................................... 17,772,415
-------------
EXPENSES
Plan of distribution fee .......................... 3,477,931
Investment management fee ......................... 2,086,759
Transfer agent fees and expenses .................. 296,873
Registration fees ................................. 102,486
Custodian fees .................................... 62,382
Professional fees ................................. 49,122
Shareholder reports and notices ................... 49,094
Trustees' fees and expenses ....................... 33,035
Other ............................................. 11,602
-------------
TOTAL EXPENSES .................................. 6,169,284
-------------
NET INVESTMENT INCOME ........................... 11,603,131
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ................................. 10,416,911
Net change in unrealized depreciation ............. (6,113,384)
-------------
NET GAIN ........................................ 4,303,527
-------------
NET INCREASE ...................................... $15,906,658
=============
</TABLE>
See Notes to Financial Statements
47
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED MARCH ENDED MARCH
31, 1995 31, 1994
- ------------------------------------------------------ -------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 11,603,131 $ 4,618,486
Net realized gain ..................................... 10,416,911 13,924,046
Net change in unrealized appreciation ................. (6,113,384) (7,776,179)
-------------- --------------
NET INCREASE ........................................ 15,906,658 10,766,353
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................. (11,871,096) (4,624,567)
Net realized gain ..................................... (16,248,194) (13,835,091)
Paid-in-capital ....................................... (1,017,267) -0-
-------------- --------------
TOTAL ............................................... (29,136,557) (18,459,658)
-------------- --------------
Net increase from transactions in shares of beneficial
interest ............................................. 170,397,392 35,519,696
-------------- --------------
TOTAL INCREASE ...................................... 157,167,493 27,826,391
NET ASSETS:
Beginning of period ................................... 264,816,199 236,989,808
-------------- --------------
END OF PERIOD
(Including distribution in excess of and
undistributed net investment income of $163,887 and
$104,078, respectively) ............................. $421,983,692 $264,816,199
============== ==============
</TABLE>
See Notes to Financial Statements
48
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1995
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Managed Assets Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a non-diversified,
open-end management investment company. The Fund was organized as a
Massachusetts business trust on October 8, 1987 and commenced operations on
June 30, 1988.
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 (in cases
where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by the Trustees); (2)
all other portfolio securities for which over-the-counter market quotations
are readily available are valued at the latest available bid price prior to
the time of valuation; (3) when market quotations are not readily available,
including circumstances under which it is determined by 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 Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (4) certain of the Fund's portfolio securities
may be valued by an outside pricing service approved by the Trustees. The
pricing service utilizes a matrix system incorporating security quality,
maturity and coupon as the evaluation model parameters, and/or research and
evaluations by its staff, including review of broker-dealer market price
quotations, if available, in determining what it believes is the fair
valuation of the securities valued by such pricing service; and (5)
short-term debt securities having a maturity date of more than sixty days at
time of purchase are valued on a mark-to-market basis until sixty days prior
to maturity and thereafter at amortized cost based on their value on the 61st
day. Short-term debt securities having a maturity date of sixty days or less
at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS--Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income is recorded on the ex-dividend date. Interest income is
accrued daily and includes the amortization of certain short-term securities.
49
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1995, continued
C. FEDERAL INCOME TAX STATUS--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains
are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require 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 its Investment Manager a
management fee, accrued daily and payable monthly, by applying the annual
rate of 0.60% to the daily net assets of the Fund not exceeding $500 million
and 0.55% to the daily net assets of the Fund exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act
pursuant to which the Fund pays the Distributor compensation, accrued daily
and payable monthly, at an annual rate of 1.0% of the lesser of: (a) the
average daily aggregate gross sales of the
50
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1995, continued
Fund's shares since the Fund's inception (not including reinvestment of
dividend or capital gain distributions) less the average daily aggregate net
asset value of the Fund's shares redeemed since the Fund's inception upon
which a contingent deferred sales charge has been imposed or upon which such
charge has been waived; or (b) the Fund's average daily net assets. Amounts
paid under the Plan are paid to the Distributor to compensate it for the
services provided and the expenses borne by it and others in the distribution
of the Fund's shares, including the payment of commissions for sales of the
Fund's shares and incentive compensation to, and expenses of, the account
executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and other employees or selected 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.
The Distributor has informed the Fund that for the year ended March 31, 1995,
it received approximately $670,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares. The Fund's shareholders pay such
charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended March 31, 1995
aggregated $115,997,616 and $252,763,992, respectively. Included in
the aforementioned are purchases and sales of U.S. Government securities of
$86,914,199 and
$102,341,032, respectively.
For the year ended March 31, 1995, the Fund incurred brokerage commissions of
$21,223 with DWR for portfolio transactions executed on behalf of the Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At March 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $31,000.
51
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1995, continued
The Fund established an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Fund who will have served as
independent Trustees for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five years of service. Aggregate pension costs for the year
ended March 31, 1995 included in Trustees' fees and expenses in the Statement
of Operations amounted to $11,360. At March 31, 1995, the Fund had an accrued
pension liability of $51,726 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
MARCH 31, 1995 MARCH 31, 1994
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Sold ........................................ 41,069,474 $ 433,827,320 8,078,807 $ 89,201,126
Reinvestment of dividends and distributions 2,433,359 25,358,358 1,504,075 16,299,642
-------------- --------------- ------------- --------------
43,502,833 459,185,678 9,582,882 105,500,768
Repurchased ................................. (27,440,804) (288,788,286) (6,337,340) (69,981,072)
-------------- --------------- ------------- --------------
Net increase ................................ 16,062,029 $ 170,397,392 3,245,542 $ 35,519,696
============== =============== ============= ==============
</TABLE>
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $239,000 during fiscal 1995. As of March 31, 1995, the Fund had
temporary book/tax differences primarily attributable to post-October losses.
52
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
----------------------------------------------------------------------
FOR THE PERIOD
JUNE 30, 1988*
THROUGH
1995 1994 1993 1992 1991 1990 MARCH 31, 1989
---------- ---------- ---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $10.73 $ 11.06 $ 11.36 $ 10.50 $ 9.99 $ 10.03 $10.00
---------- ---------- ---------- ---------- ---------- ---------- --------------
Net investment income ................... 0.32 0.20 0.28 0.33 0.44 0.69 0.43
Net realized and unrealized gain ....... 0.18 0.31 0.84 0.90 0.52 0.10 --
---------- ---------- ---------- ---------- ---------- ---------- --------------
Total from investment operations ....... 0.50 0.51 1.12 1.23 0.96 0.79 0.43
---------- ---------- ---------- ---------- ---------- ---------- --------------
Less dividends and distributions from:
Net investment income .................. (0.33) (0.21) (0.28) (0.34) (0.44) (0.71) (0.40)
Net realized gain ...................... (0.51) (0.63) (1.14) (0.03) (0.01) (0.12) --
Paid-in-capital ........................ (0.03) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- --------------
Total dividends and distributions ...... (0.87) (0.84) (1.42) (0.37) (0.45) (0.83) (0.40)
---------- ---------- ---------- ---------- ---------- ---------- --------------
Net asset value, end of period .......... $10.36 $ 10.73 $ 11.06 $ 11.36 $ 10.50 $ 9.99 $10.03
========== ========== ========== ========== ========== ========== ==============
TOTAL INVESTMENT RETURN ................. 4.83% 4.64% 10.52% 11.85% 10.07% 8.01% 4.40%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 1.77% 1.79% 1.80% 1.70% 1.78% 1.77% 1.77%(2)
Net investment income ................... 3.34% 1.86% 2.48% 2.97% 4.34% 6.76% 6.73%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $421,984 $264,816 $236,990 $219,744 $215,408 $279,494 $262,570
Portfolio turnover rate ................. 264% 54% 68% 75% 125% 320% 178%(1)
<FN>
- -------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
</TABLE>
See Notes to Financial Statements
53
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER MANAGED ASSETS TRUST
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Dean Witter
Managed Assets Trust (the "Fund") at March 31, 1995, 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 six years in the period then ended and for the period June 30, 1988
(commencement of operations) through March 31, 1989, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at March
31, 1995 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 10, 1995
- ------------------------------------------------------------------------------
1995 FEDERAL TAX NOTICE (unaudited)
During the year ended March 31, 1995, the Fund paid to shareholders $0.392
per share from long-term capital gains. For such period, 10.3% of the
ordinary dividend qualified for the dividends received deduction available to
corporations.
- -------------------------------------------------------------------------------
54
<PAGE>
APPENDIX
- --------
RATINGS
- -------
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
<TABLE>
<CAPTION>
<S> <C>
Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most unlikely to impair the
Aaa fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa
group they comprise what are generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements present which make the
Aa long-term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to be considered as
upper medium grade obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to impairment sometime in the
A future.
Bonds which are rated Baa are considered as medium grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment characteristics and in fact have
Baa speculative characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
</TABLE>
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its corporate and
municipal bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and a modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess
of nine months. Moody's imploys the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3
have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees.
55
<PAGE>
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and
(3) protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings
may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
<TABLE>
<CAPTION>
<S> <C>
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and
AAA repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the
AA highest-rated issues only in small degree.
Debt rated A has a strong capacity to pay interest and repay principal although they are somewhat
more susceptible to the adverse effects of changes in circumstances and economic conditions than
A debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for
BBB debt in this category than for debt in higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
Indicates that no rating has been requested, that there is insufficient information on which to base
a rating or that Standard & Poor's does not rate a particular type of obligation as a matter of
policy.
NR
</TABLE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to
purchase or sell a security. The ratings are based upon current information
furnished by the issuer or obtained by S&P from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into
group categories, ranging from "A" for the highest quality obligations to "D"
for the lowest. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the
designation 1, 2 and 3 to indicate the relative degree of safety.
<TABLE>
<CAPTION>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
indicates capacity for timely payment on issues with this designation is strong. However, the relative
A-2 degree of safety is not as overwhelming as for issues designated "A-1".
indicates a satisfactory capacity for timely payment. Obligations carrying this designation are, however,
somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying
A-3 the higher designations.
</TABLE>
56
<PAGE>
DEAN WITTER STRATEGIST FUND
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated by reference to Item 27 of, and
Exhibits 1 and 2 to, Post-Effective Amendment No. 8 to Registrant's Registration
Statement on Form N-1A, which was filed electronically pursuant to Regulation
S-T on August 25, 1995 ("Post-Effective Amendment No. 8") as an amendment to
Registrant's Registration Statement on Form N-1A (File Nos. 33-23699; 811-5654),
filed on August 10, 1988 (the "Registration Statement").
ITEM 16. EXHIBITS
(1) Declaration of Trust dated August 4, 1988 (incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 8)
(2) Bylaws of Registrant dated August 4, 1988, as amended on July 27, 1989
and January 25, 1995 (incorporated by reference to Exhibit 2 to
Post-Effective Amendment No. 8)
(3) Not Applicable
(4) Copy of Agreement and Plan of Reorganization (filed herewith as Exhibit
A to the Proxy Statement and Prospectus)
(5) Not Applicable
(6) Investment Management Agreement (incorporated by reference to Exhibit 7
to Post-Effective Amendment No. 6 to the Registration Statement, which
was filed electronically pursuant to Regulation S-T on September 17,
1993 ("Post-Effective Amendment No. 6"))
(7) (a) Distribution Agreement between Registrant and Dean Witter
Distributors Inc. (incorporated by reference to Exhibit 6(a) to
Post-Effective Amendment No. 6)
(b) Form of Selected Dealer's Agreement (incorporated by reference to
Exhibit 6(b) to Post-Effective Amendment No. 6)
(c) Form of Selected Dealer's Agreement (incorporated by reference to
Exhibit 6 to Post-Effective Amendment No. 8)
(8) Not Applicable
(9) (a) Custody Agreement dated September 20, 1991 (incorporated by
reference to Exhibit 8 to Post-Effective Amendment No. 8)
(b) Transfer Agency and Services Agreement between Registrant and Dean
Witter Trust Company (incorporated by reference to Exhibit 8 to
Post-Effective Amendment No. 7 to the Registration Statement, which
was filed electronically pursuant to Regulation S-T on September 20,
1994 ("Post-Effective Amendment No. 7")
C-1
<PAGE>
(10) Amended and Restated Plan of Distribution pursuant to Rule 12b-1, dated
August 26, 1998, as amended on July 27, 1989, January 4, 1993 and April
28, 1993 (incorporated by reference to Exhibit 15 to Post-Effective
Amendment No. 6)
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
regarding tax matters
(13) Form of Services Agreement between Dean Witter InterCapital Inc. and
Dean Witter Services Company Inc.
(14) Consent of Independent Accountants
(15) Not Applicable
(16) Powers of Attorney
(17) (a) Registrant's Rule 24f-2 Notice pursuant to Rule 24f-2 under the
Investment Company Act of 1940, for its fiscal year ended July 31,
1995, as filed on August 17, 1995
(b) Form of Proxy
ITEM 17.
1. The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of the prospectus which is a part of
this registration statement on Form N-14 by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c) of the Securities Act of
1933, the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to this
registration statement on Form N-14 and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial BONA FIDE offering of them.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York and State of
New York, on the 24th day of August, 1995.
DEAN WITTER STRATEGIST FUND
By: ________/s/_SHELDON CURTIS________
VICE PRESIDENT AND SECRETARY
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------------------------- ---------------------------------- ------------------
<S> <C> <C> <C>
1. Principal Executive Officer
President, Chief Executive
/s/ CHARLES A. FIUMEFREDDO Officer, Trustee and August 24, 1995
Chairman
2. Principal Financial Officer
Treasurer and Principal
/s/ THOMAS F. CALOIA Accounting Officer August 24, 1995
3. Majority of Trustees
/s/ JACK F. BENNETT Trustee August 24, 1995
/s/ MICHAEL BOZIC Trustee August 24, 1995
/s/ CHARLES A. FIUMEFREDDO Trustee August 24, 1995
/s/ EDWIN J. GARN Trustee August 24, 1995
/s/ JOHN R. HAIRE Trustee August 24, 1995
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------------------------- ---------------------------------- ------------------
<S> <C> <C> <C>
/s/ MANUEL H. JOHNSON Trustee August 24, 1995
/s/ PAUL KOLTON Trustee August 24, 1995
Michael E. Nugent Trustee , 1995
/s/ PHILIP J. PURCELL Trustee August 24, 1995
/s/ JOHN L. SCHROEDER Trustee August 24, 1995
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE NUMBER
- ---------- ---------------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein regarding tax matters
(13) Form of Services Agreement between Dean Witter InterCapital Inc. and Dean Witter Services Company
Inc.
(14) Consent of Independent Accountants
(16) Powers of Attorney
(17) (a) Strategist's Rule 24f-2 Notice pursuant to Rule 24f- 2 under the Investment Company Act of 1940,
for its fiscal year ended July 31, 1995, as filed on August 17, 1995
(b) Form of Proxy
</TABLE>
<PAGE>
August 28, 1995
Dean Witter Strategist Fund
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This opinion is being furnished to Dean Witter Strategist Fund, a
Massachusetts business trust (the "Trust"), in connection with the Registration
Statement on Form N-14 (the "Registration Statement") under the Securities Act
of 1933, as amended (the "1933 Act"), to be filed by the Trust in connection
with the acquisition by the Trust of substantially all the assets of Dean Witter
Managed Assets Trust ("Managed Assets") in exchange for shares of beneficial
interest, par value $.01, of the Trust ("Shares") and the assumption by the
Trust of certain stated liabilities of Managed Assets pursuant to an Agreement
and Plan of Reorganization dated as of August 24, 1995, between the Trust and
Managed Assets (the "Reorganization Agreement"). As counsel for the Trust, we
have examined such statutes, regulations, corporate records and other documents
and reviewed such questions of law that we deemed necessary or appropriate for
the purposes of this opinion.
As to matters of Massachusetts law contained in this opinion, we have
relied upon the opinion of Lane Altman & Owens, dated August 28, 1995.
Based upon the foregoing, we are of the opinion that the Shares to be
issued as described in the Registration Statement have been duly authorized and,
assuming receipt of the consideration to be paid therefor, upon delivery as
provided in the Reorganization Agreement, will be legally issued, fully paid and
non-assessable (except for the potential liability of shareholders described in
the Trust's Prospectus dated August 28, 1995, under the caption "Additional
Information," and in the Statement of Additional Information of the same date
under the caption "Description of Shares of the Fund").
<PAGE>
Dean Witter Strategist Fund
August 28, 1995
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. We do
not thereby admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Gordon Altman Butowsky Weitzen
Shalov & Wein
<PAGE>
LANE ALTMAN & OWENS 101 Federal Street Telephone
COUNSELLORS AT LAW Boston, Massachusetts 617 345-9800
02110
Telefax
617 345-0400
Reference
95790
August 28, 1995
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, NY 10036
Dear Sir:
We understand that the trustees (the "Trustees") of Dean
Witter Strategist Fund, a Massachusetts business trust (the
"Fund"), intend, on or about August 28, 1995, to cause to be
filed on behalf of the Fund a Registration Statement on Form N-14
(the "Registration Statement") in connection with the acquisition
(the "Acquisition") by the Fund of substantially all the assets
of Dean Witter Managed Assets Trust (the "Managed Assets Trust"),
in exchange for shares of beneficial interest of the Fund (the
"Shares"), and the assumption by the Fund of certain stated
liabilities of the Managed Assets Trust pursuant to an Agreement
and Plan of Reorganization dated as of August 24, 1995 between
the Fund and the Managed Assets Trust (the "Agreement"). We
further understand that the Shares will be issued pursuant to the
Agreement.
You have requested that we act as special counsel to the
Trust with respect to the laws of the Commonwealth of
Massachusetts on certain specified matters, and in such capacity
we are furnishing you with this opinion. You have not asked for,
and we do not offer, an opinion on any other matter or
transaction related to the Fund, the Managed Assets Trust, the
Acquisition, the Agreement or any matter related thereto, except
as specifically set forth below.
The Fund is a business trust created under a Declaration of
Trust finally executed and delivered in Boston, Massachusetts on
August 4, 1988 (the "Trust Agreement"). The Board of Trustees of
the Trust (as defined in the Trust Agreement) (the "Trustees")
have the powers set forth in the Trust Agreement, subject to the
terms, provisions and conditions provided therein.
<PAGE>
Gordon Altman Butowsky
Weitzen Shalov & Wein
August 28, 1995
Page 2
In connection with our opinions delivered herein, we have
examined the following items some of which have been provided to
us by, or on behalf of, you: (i) a copy of the Agreement in the
form to be executed by the Fund and the Managed Assets Trust;
(ii) a copy of the Trust Agreement; (iii) a copy of the Amended
and Restated By-laws of the Fund effective as of January 25,
1995; (iv) a Certificate of Legal Existence for the Fund
provided by the Secretary of State of the Commonwealth of
Massachusetts dated August 23, 1995; (v) a certificate of the
Secretary of the Fund attesting to, among other matters, the due
adoption on August 24, 1995 by the Trustees of resolutions
approving certain actions and regarding certain factual matters
regarding the Acquisition; and (vi) copies of the Registration
Statement on Form N-14 to be filed by the Fund and the Fund's
Prospectus and Statement of Additional Information each dated
August 28, 1995.
In rendering this opinion we have assumed, without
independent verification, (i) the due authority of all
individuals signing in representative capacities and the
genuineness of signatures, (ii) the authenticity, completeness
and continued effectiveness of all documents or copies furnished
to us, (iii) that the resolutions provided have been duly adopted
by the Trustees, (iv) that no amendments, agreements, resolutions
or actions have been approved, executed or adopted which would
limit, supersede or modify the items described above, and (v)
that the by-laws filed as an exhibit to the Registration
Statement have been duly adopted by the Trustees. We have also
examined such questions of law as we have concluded necessary or
appropriate for purposes of the opinions expressed below. Where
documents are referred to in resolutions approved by the
Trustees, or in the Registration Statement, we assume such
documents are the same as in the most recent form provided to us,
whether as an exhibit to the Registration Statement, or
otherwise. When any opinion set forth below relates to the
existence or standing of the Trust, such opinion is based
entirely upon and is limited by the items referred to above, and
we understand that the foregoing assumptions, limitations and
qualifications are acceptable to you. We understand that the
foregoing assumptions, limitations and qualifications are
acceptable to you.
Based upon the foregoing, and with respect to Massachusetts
law only (except that no opinion is herein expressed with respect
to compliance with the Massachusetts Uniform Securities Act), to
the extent that Massachusetts law may be applicable, and without
reference to the laws of any of the other several states or of
the United States of America, including State and Federal
securities laws, we are of the opinion that:
<PAGE>
Gordon Altman Butowsky
Weitzen Shalov & Wein
August 28, 1995
Page 3
1. The Fund is a business trust with transferable shares,
organized in compliance with the requirements of The Commonwealth
of Massachusetts, and the Trust Agreement is legal and valid.
2. The Shares to be issued as described in the Registration
Statement, including any Exhibits thereto, have been duly
authorized and, assuming receipt of the consideration to be paid
therefor, upon delivery as provided in the Agreement, will be
validly issued, fully paid and nonassessable (except for the
potential liability of shareholders described in the Fund's
Prospectus dated August 28, 1995, under the caption "Additional
Information" and in the Statement of Additional Information of
the same date under the caption--"Description of Shares of the
Fund").
We understand that you will rely on this opinion solely in
connection with your opinion to be filed with the Securities and
Exchange Commission as an Exhibit to the Registration Statement.
We hereby consent to such use of this opinion and we also consent
to the filing of said opinion with the Securities and Exchange
Commission. In so consenting, we do not thereby admit to be
within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Lane Altman & Owens
LANE ALTMAN & OWENS
KMK/DEANW/.AA6
<PAGE>
[Letterhead]
August 28, 1995
Dean Witter Strategist Fund
Two World Trade Center
New York, New York 10048
Dean Witter Managed Assets Trust
Two World Trade Center
New York, New York 10048
Gentlemen:
You have requested our opinion as to the Federal income tax
consequences of the transaction (the "Reorganization") described below pursuant
to which (i) Dean Witter Strategist Fund, a Massachusetts business trust
("Strategist"), will acquire all of the assets of Dean Witter Managed Assets
Trust ("Managed Assets"), a Massachusetts business trust, in exchange for shares
of beneficial interest, par value $.01 per share, of Strategist (the "Strategist
Shares"), and the assumption by Strategist of certain liabilities of Managed
Assets (the "Liabilities"), (ii) Managed Assets will be liquidated, and (iii)
the Strategist Shares will be distributed to the holders ("Managed Assets
Shareholders") of shares in Managed Assets ("Managed Assets Shares") pursuant to
such liquidation.
We have examined and are familiar with such documents, records and
other instruments as we have deemed appropriate for purposes of this opinion
letter, including the Registration Statement being filed with the Securities and
Exchange Commission under the Securities Act of 1933 on Form N-14, relating to
the Strategist Shares (the "Registration Statement") which includes, as a part
thereof, the proxy statement of Managed Assets (the "Managed Assets Proxy")
which will be used to solicit proxies of Managed Assets Shareholders in
connection with the Special Meeting of Managed Assets Shareholders and the
proposed Agreement and Plan of Reorganization by and between Managed Assets and
Strategist (the "Plan"). In rendering this opinion, we have assumed that such
documents as yet unexecuted, will, when executed, conform to the proposed forms
of such documents that we have examined. We have further assumed that the
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August 28, 1995
Page 2
Reorganization will be carried out pursuant to the terms of the Plan, that
factual statements and information contained in the Registration Statement, the
Managed Assets Proxy and other documents, records, and instruments supplied to
us are correct and that there will be no material change with respect to such
facts or information prior to the time of the Reorganization. In rendering our
opinion we have also relied on the representations and facts discussed below
which have been provided to us by Strategist and Managed Assets, and we have
assumed that such representations and facts will remain correct at the time of
the Reorganization.
FACTS
Strategist is an open-end diversified management investment company
engaged in the continuous offering of its shares to the public. Since its
inception, Strategist has conducted its affairs so as to qualify, and has
elected to be taxed, as a regulated investment company under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Managed Assets is an open-end diversified management investment
company engaged in the continuous offering of its shares to the public. Since
its inception, Managed Assets has conducted its affairs so as to qualify, and
has elected to be taxed, as a regulated investment company under Section 851 of
the Code.
The Board of Trustees of Strategist and of Managed Assets have each
determined, for valid business reasons, that it is advisable to combine the
assets of Managed Assets and Strategist into one fund.
In view of the above, the Board of Trustees of Managed Assets adopted
the Plan, subject to, among other things, approval by Managed Assets
Shareholders.
Pursuant to the Plan, Managed Assets will transfer all of its assets
to Strategist in exchange for the Strategist Shares (including fractional
Strategist Shares) and the assumption by Strategist of the Liabilities.
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August 28, 1995
Page 3
Immediately thereafter, Managed Assets will distribute the Strategist Shares to
Managed Assets Shareholders in exchange for and in cancellation of their Managed
Assets Shares and in complete liquidation of Managed Assets.
Each of the following representations, among other representations,
has been made to us in connection with the Reorganization by Managed Assets and
by Strategist.
(1) To the best of the knowledge of the management of Dean Witter
InterCapital, Inc., Managed Assets, Strategist, and their affiliates
(collectively, "Dean Witter"), there is no plan or intention on the part of
Managed Assets Shareholders, to redeem, sell, exchange or otherwise dispose of a
number of Strategist Shares that would reduce Managed Assets Shareholders'
ownership of Strategist Shares to a number of Strategist Shares having a value,
as of the date of the Reorganization, of less than 50 percent of the value of
all of the formerly outstanding Managed Assets Shares as of such date;
(2) Strategist has no plan or intention to reacquire any of the
Strategist Shares to be issued pursuant to the Reorganization except to the
extent necessary to comply with its legal obligation to redeem its own shares;
(3) The Liabilities to be assumed by or transferred to Strategist
were incurred by Managed Assets in the ordinary course of business and are
associated with the assets being transferred to Strategist;
(4) The amount of the Liabilities will not exceed the aggregate
adjusted basis of Managed Assets for its assets transferred to Strategist;
(5) Strategist has no plan or intention to sell or otherwise dispose
of more than fifty percent of the assets of Managed Assets acquired in the
Reorganization, except for dispositions made in the ordinary course of business;
(6) There is no indebtedness between Managed Assets and Strategist
that was issued, acquired or will be settled at a discount;
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August 28, 1995
Page 4
(7) Managed Assets has been a regulated investment company within the
meaning of Section 851 of the Code since the date of its organization through
the end of its last complete taxable year and will qualify as a regulated
investment company for its taxable year ending on the date of the
Reorganization;
(8) Strategist has been a regulated investment company within the
meaning of Section 851 of the Code since the date of its organization through
the date hereof and will qualify as a regulated investment company for its
taxable year ending July 31, 1996; and
(9) Managed Assets will have no accumulated earnings and profits as
of the close of its taxable year ending on the date of the Reorganization.
OPINION
Based on the Code, Treasury Regulations issued thereunder, Internal
Revenue Service Rulings and the relevant case law, as of the date hereof, and on
the facts, representations and assumptions set forth above, and the documents,
records and other instruments we have reviewed, it is our opinion that the
Federal income tax consequences of the Reorganization to Strategist, Managed
Assets, and the Managed Assets Shareholders will be as follows:
(1) The transfer of substantially all of Managed Assets's assets in
exchange for Strategist Shares and the assumption by Strategist of the
Liabilities, followed by the distribution by Managed Assets of the Strategist
Shares to the Managed Assets Shareholders in exchange for their Managed Assets
Shares, will constitute a "reorganization" within the meaning of Section
368(a)(1) of the Code, and Managed Assets and Strategist will each be a "party
to a reorganization" within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by Strategist upon the receipt
of the assets of Managed Assets
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August 28, 1995
Page 5
solely in exchange for Strategist Shares and the assumption of the Liabilities
by Strategist;
(3) No gain or loss will be recognized by Managed Assets upon the
transfer of the assets of Managed Assets to Strategist, in exchange for the
Strategist Shares and the assumption of the Liabilities by Strategist, or upon
the distribution of the Strategist Shares to Managed Assets Shareholders in
exchange for their Managed Assets Shares;
(4) No gain or loss will be recognized by Managed Assets Shareholders
upon the exchange of their Managed Assets Shares for the Strategist Shares;
(5) The aggregate tax basis for the Strategist Shares received by
each Managed Assets Shareholder pursuant to the Reorganization will be the same
as the aggregate tax basis of the Managed Assets Shares held by each such
Managed Assets Shareholder immediately prior to the Reorganization;
(6) The holding period of the Strategist Shares to be received by
each Managed Assets Shareholder will include the period during which the Managed
Assets Shares surrendered in exchange therefor were held (provided such Managed
Assets Shares were held as capital assets on the date of the Reorganization);
(7) The tax basis of the assets of Managed Assets acquired by
Strategist will be the same as the tax basis of such assets to Managed Assets
immediately prior to the Reorganization; and
(8) The holding period of the assets of Managed Assets in the hands
of Strategist will include the period during which those assets were held by
Managed Assets.
We are not expressing an opinion as to any aspect of the
Reorganization other than those opinions expressly stated above.
As noted above, this opinion is based upon our analysis of the Code,
Treasury Regulations issued thereunder, Internal Revenue Service Rulings and
case law which we deem relevant as of the date hereof. No assurances can
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August 28, 1995
Page 6
be given that there will not be a change in the existing law or that the
Internal Revenue Service will not alter its present views, either prospectively
or retroactively, or adopt new views with regard to any of the matters upon
which we are rendering this opinion, nor can any assurances be given that the
Internal Revenue Service will not audit or question the treatment accorded to
the Reorganization on the Federal income tax returns of Strategist, Managed
Assets, or the Managed Assets Shareholders.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our firm
in the Registration Statement and the Managed Assets Proxy constituting a part
thereof.
Very truly yours,
/s/ Gordon Altman Butowsky
Weitzen Shalov & Wein
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995 by and between Dean
Witter InterCapital Inc., a Delaware corporation (herein referred to as
"InterCapital"), and Dean Witter Services Company Inc., a Delaware
corporation (herein referred to as "DWS").
WHEREAS, InterCapital has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement")
with certain investment companies as set forth on Schedule A (each such
investment company being herein referred to as a "Fund" and, collectively, as
the "Funds") pursuant to which InterCapital is to perform, or supervise the
performance of, among other services, administrative services for the Funds
(and, in the case of Funds with multiple portfolios, the Series or Portfolios
of the Funds (such Series and Portfolio being herein individually referred to
as "a Series" and, collectively, as "the Series"));
WHEREAS, InterCapital desires to retain DWS to perform the administrative
services as described below; and
WHEREAS, DWS desires to be retained by InterCapital to perform such
administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DWS agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, DWS
shall (i) administer the Fund's business affairs and supervise the overall
day-to-day operations of the Fund (other than rendering investment advice);
(ii) provide the Fund with full administrative services, including the
maintenance of certain books and records, such as journals, ledger accounts
and other records required under the Investment Company Act of 1940, as
amended (the "Act"), the notification to the Fund and InterCapital of
available funds for investment, the reconciliation of account information and
balances among the Fund's custodian, transfer agent and dividend disbursing
agent and InterCapital, and the calculation of the net asset value of the
Fund's shares; (iii) provide the Fund with the services of persons competent
to perform such supervisory, administrative and clerical functions as are
necessary to provide effective operation of the Fund; (iv) oversee the
performance of administrative and professional services rendered to the Fund
by others, including its custodian, transfer agent and dividend disbursing
agent, as well as accounting, auditing and other services; (v) provide the
Fund with adequate general office space and facilities; (vi) assist in the
preparation and the printing of the periodic updating of the Fund's
registration statement and prospectus (and, in the case of an open-end Fund,
the statement of additional information), tax returns, proxy statements, and
reports to its shareholders and the Securities and Exchange Commission; and
(vii) monitor the compliance of the Fund's investment policies and
restrictions.
In the event that InterCapital enters into an Investment Management
Agreement with another investment company, and wishes to retain DWS to
perform administrative services hereunder, it shall notify DWS in writing. If
DWS is willing to render such services, it shall notify InterCapital in
writing, whereupon such other Fund shall become a Fund as defined herein.
2. DWS shall, at its own expense, maintain such staff and employ or retain
such personnel and consult with such other persons as it shall from time to
time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of DWS shall be deemed to include officers
of DWS and persons employed or otherwise retained by DWS (including officers
and employees of InterCapital, with the consent of InterCapital) to furnish
services, statistical and other factual data, information with respect to
technical and scientific developments, and such other information, advice and
assistance as DWS may desire. DWS shall maintain each Fund's records and
books of account (other than those maintained by the Fund's transfer agent,
registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, DWS
shall surrender to InterCapital or to the Fund such of the books and records
so requested.
3. InterCapital will, from time to time, furnish or otherwise make
available to DWS such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as DWS may
reasonably require in order to discharge its duties and obligations to the
Fund under this Agreement or to comply with any applicable law and regulation
or request of the Board of Directors/Trustees of the Fund.
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4. For the services to be rendered, the facilities furnished, and the
expenses assumed by DWS, InterCapital shall pay to DWS monthly compensation
calculated daily (in the case of an open-end Fund) or weekly (in the case of
a closed-end Fund) by applying the annual rate or rates set forth on Schedule
B to the net assets of each Fund. Except as hereinafter set forth, (i) in the
case of an open-end Fund, compensation under this Agreement shall be
calculated by applying 1/365th of the annual rate or rates to the Fund's or
the Series' daily net assets determined as of the close of business on that
day or the last previous business day and (ii) in the case of a closed-end
Fund, compensation under this Agreement shall be calculated by applying the
annual rate or rates to the Fund's average weekly net assets determined as of
the close of the last business day of each week. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before
the last day of a month, compensation for that part of the month this
Agreement is in effect shall be prorated in a manner consistent with the
calculation of the fees as set forth on Schedule B. Subject to the provisions
of paragraph 5 hereof, payment of DWS' compensation for the preceding month
shall be made as promptly as possible after completion of the computations
contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to InterCapital pursuant to the Investment Management Agreement, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund and/or any Series thereof
imposed by state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, or, in the case of
InterCapital Income Securities Inc. or Dean Witter Variable Investment Series
or any Series thereof, the expense limitation specified in the Fund's
Investment Management Agreement, the fee payable hereunder shall be reduced
on a pro rata basis in the same proportion as the fee payable by the Fund
under the Investment Management Agreement is reduced.
6. DWS shall bear the cost of rendering the administrative services to be
performed by it under this Agreement, and shall, at its own expense, pay the
compensation of the officers and employees, if any, of the Fund employed by
DWS, and such clerical help and bookkeeping services as DWS shall reasonably
require in performing its duties hereunder.
7. DWS will use its best efforts in the performance of administrative
activitives on behalf of each Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, DWS shall not be liable to the Fund or any of its
investors for any error of judgment or mistake of law or for any act or
omission by DWS or for any losses sustained by the Fund or its investors. It
is understood that, subject to the terms and conditions of the Investment
Management Agreement between each Fund and InterCapital, InterCapital shall
retain ultimate responsibility for all services to be performed hereunder by
DWS. DWS shall indemnify InterCapital and hold it harmless from any liability
that InterCapital may incur arising out of any act or failure to act by DWS
in carrying out its responsibilities hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, DWS, and in any person
controlling, controlled by or under common control with DWS, and that DWS and
any person controlling, controlled by or under common control with DWS may
have an interest in the Fund. It is also understood that DWS and any
affiliated persons thereof or any persons controlling, controlled by or under
common control with DWS have and may have advisory, management,
administration service or other contracts with other organizations and
persons, and may have other interests and businesses, and further may
purchase, sell or trade any securities or commodities for their own accounts
or for the account of others for whom they may be acting.
9. This Agreement shall continue until April 30, 1995, and thereafter
shall continue automatically for successive periods of one year unless
terminated by either party by written notice delivered to the other party
within 30 days of the expiration of the then-existing period. Notwithstanding
the foregoing, this Agreement may be terminated at any time, by either party
on 30 days' written notice delivered to the other party. In the event that
the Investment Management Agreement between any Fund and InterCapital is
terminated, this Agreement will automatically terminate with respect to such
Fund.
10. This Agreement may be amended or modified by the parties in any manner
by written agreement executed by each of the parties hereto.
2
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11. This Agreement may be assigned by either party with the written
consent of the other party.
12. This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
DEAN WITTER INTERCAPITAL INC.
By:
-------------------------------
Attest:
- -------------------------------
DEAN WITTER SERVICES COMPANY INC.
By:
-------------------------------
Attest:
- -------------------------------
3
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SCHEDULE A
DEAN WITTER FUNDS
AT APRIL 17, 1995
OPEN-END FUNDS
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Dean Witter American Value Fund
6. Dean Witter Balanced Growth Fund
7. Dean Witter Balanced Income Fund
8. Dean Witter California Tax-Free Daily Income Trust
9. Dean Witter California Tax-Free Income Fund
10. Dean Witter Capital Growth Securities
11. Dean Witter Convertible Securities Trust
12. Dean Witter Developing Growth Securities Trust
13. Dean Witter Diversified Income Trust
14. Dean Witter Dividend Growth Securities Inc.
15. Dean Witter European Growth Fund Inc.
16. Dean Witter Federal Securities Trust
17. Dean Witter Global Asset Allocation Fund
18. Dean Witter Global Dividend Growth Securities
19. Dean Witter Global Short-Term Income Fund Inc.
20. Dean Witter Global Utilities Fund
21. Dean Witter Health Sciences Trust
22. Dean Witter High Income Securities
23. Dean Witter High Yield Securities Inc.
24. Dean Witter Intermediate Income Securities
25. Dean Witter International Small Cap Fund
26. Dean Witter Limited Term Municipal Trust
27. Dean Witter Liquid Asset Fund Inc.
28. Dean Witter Managed Assets Trust
29. Dean Witter Mid-Cap Growth Fund
30. Dean Witter Multi-State Municipal Series Trust
31. Dean Witter National Municipal Trust
32. Dean Witter Natural Resource Development Securities Inc.
33. Dean Witter New York Municipal Money Market Trust
34. Dean Witter New York Tax-Free Income Fund
35. Dean Witter Pacific Growth Fund Inc.
36. Dean Witter Precious Metals and Minerals Trust
37. Dean Witter Premier Income Trust
38. Dean Witter Retirement Series
39. Dean Witter Select Dimensions Series
40. Dean Witter Select Municipal Reinvestment Fund
41. Dean Witter Short-Term Bond Fund
42. Dean Witter Short-Term U.S. Treasury Trust
43. Dean Witter Strategist Fund
44. Dean Witter Tax-Exempt Securities Trust
45. Dean Witter Tax-Free Daily Income Trust
46. Dean Witter U.S. Government Money Market Trust
47. Dean Witter U.S. Government Securities Trust
48. Dean Witter Utilities Fund
49. Dean Witter Value-Added Market Series
50. Dean Witter Variable Investment Series
51. Dean Witter World Wide Income Trust
52. Dean Witter World Wide Investment Trust
CLOSED-END FUNDS
53. High Income Advantage Trust
54. High Income Advantage Trust II
55. High Income Advantage Trust III
56. InterCapital Income Securities Inc.
57. Dean Witter Government Income Trust
58. InterCapital Insured Municipal Bond Trust
59. InterCapital Insured Municipal Trust
60. InterCapital Insured Municipal Income Trust
61. InterCapital California Insured Municipal Income Trust
62. InterCapital Insured Municipal Securities
63. InterCapital Insured California Municipal Securities
64. InterCapital Quality Municipal Investment Trust
65. InterCapital Quality Municipal Income Trust
66. InterCapital Quality Municipal Securities
67. InterCapital California Quality Municipal Securities
68. InterCapital New York Quality Municipal Securities
4
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SCHEDULE B
DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES--APRIL 17, 1995
Monthly compensation calculated daily by applying the following annual rates
to a fund's net assets:
FIXED INCOME FUNDS
Dean Witter Balanced Income Fund 0.60% to the net assets.
Dean Witter California Tax-Free 0.055% of the portion of daily net
Income Fund assets not exceeding $500 million;
0.0525% of the portion exceeding $500
million but not exceeding $750 million;
0.050% of the portion exceeding $750
million but not exceeding $1 billion;
and 0.0475% of the portion of the daily
net assets exceeding $1 billion.
Dean Witter Convertible Securities 0.060% of the portion of the daily net
Securities Trust assets not exceeding $750 million; .055%
of the portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.050% of the portion of the
daily net assets of the exceeding $1
billion but not exceeding $1.5 billion;
0.0475% of the portion of the daily net
assets exceeding $1.5 billion but not
exceeding $2 billion; 0.045% of the
portion of the daily net assets
exceeding $2 billion but not exceeding
$3 billion; and 0.0425% of the portion
of the daily net assets exceeding $3
billion.
Dean Witter Diversified 0.040% of the net assets.
Income Trust
Dean Witter Federal Securities Trust 0.055% of the portion of the daily net
assets not exceeding $1 billion; 0.0525%
of the portion of the daily net assets
exceeding $1 billion but not exceeding
$1.5 billion; 0.050% of the portion of
the daily net assets exceeding $1.5
billion but not exceeding $2 billion;
0.0475% of the portion of the daily net
assets exceeding $2 billion but not
exceeding $2.5 billion; 0.045% of the
portion of daily net assets exceeding
$2.5 billion but not exceeding $5
billion; 0.0425% of the portion of the
daily net assets exceeding $5 billion
but not exceeding $7.5 billion; 0.040%
of the portion of the daily net assets
exceeding $7.5 billion but not exceeding
$10 billion; 0.0375% of the portion of
the daily net assets exceeding $10
billion but not exceeding $12.5 billion;
and 0.035% of the portion of the daily
net assets exceeding $12.5 billion.
Dean Witter Global Short-Term 0.055% of the portion of the daily net
Income Fund assets not exceeding $500 million; and
0.050% of the portion of the daily net
assets exceeding $500 million.
Dean Witter High Income 0.050% to the net assets.
Securities
Dean Witter High Yield 0.050% of the portion of the daily net
Securities Inc. assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of
B-1
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the daily net assets exceeding $1
billion but not exceeding $2 billion;
0.0325% of the portion of the daily net
assets exceeding $2 billion but not
exceeding $3 billion; and 0.030% of the
portion of daily net assets exceeding $3
billion.
Dean Witter Intermediate 0.060% of the portion of the daily net
Income Securities assets not exceeding $500 million;
0.050% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.040% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; and 0.030% of the portion of
the daily net assets exceeding $1
billion.
Dean Witter Limited Term 0.050% to the net assets.
Municipal Trust
Dean Witter Multi-State Municipal 0.035% to the net assets.
Series Trust (10)
Dean Witter National 0.035% to the net assets.
Municipal Trust
Dean Witter New York Tax-Free 0.055% to the net assets not exceeding
Income Fund $500 million and 0.0525% of the net
assets exceeding $500 million.
Dean Witter Premier 0.050% to the net assets.
Income Trust
Dean Witter Retirement Series 0.065% to the net assets.
Intermediate Income
Dean Witter Retirement Series 0.065% to the net assets.
U.S. Government Securities Trust
Dean Witter Select Dimensions 0.65% to the net assets.
Series-North American Government
Securities Portfolio
Dean Witter Short-Term 0.070% to the net assets.
Bond Fund
Dean Witter Short-Term U.S. 0.035% to the net assets.
Treasury Trust
Dean Witter Tax-Exempt 0.050% of the portion of the daily net
Securities Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; and 0.035% of the portion of
the daily net assets exceeding $1
billion but not exceeding $1.25 billion;
.0325% of the portion of the daily net
assets exceeding $1.25 billion.
Dean Witter U.S. Government 0.050% of the portion of such daily net
Securities Trust assets not exceeding $1 billion; 0.0475%
of the portion of such daily net assets
exceeding $1 billion but not exceeding
$1.5 billion; 0.045% of the portion of
such daily net assets exceeding $1.5
billion but not exceeding $2 billion;
0.0425% of the portion of such daily net
assets exceeding $2 billion but not
exceeding $2.5 billion; 0.040% of that
portion of such daily net assets
exceeding $2.5 billion but not exceeding
$5 billion; 0.0375% of that portion
B-2
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of such daily net assets exceeding $5
billion but not exceeding $7.5 billion;
0.035% of that portion of such daily net
assets exceeding $7.5 billion but not
exceeding $10 billion; 0.0325% of that
portion of such daily net assets
exceeding $10 billion but not exceeding
$12.5 billion; and 0.030% of that
portion of such daily net assets
exceeding $12.5 billion.
Dean Witter Variable Investment 0.050% to the net assets.
Series-High Yield
Dean Witter Variable Investment 0.050% to the net assets.
Series-Quality Income
Dean Witter World Wide Income 0.075% of the daily net assets up to
Trust $250 million; 0.060% of the portion of
the daily net assets exceeding $250
million but not exceeding $500 million;
0.050% of the portion of the daily net
assets of the exceeding $500 million but
not exceeding $750 milliion; 0.040% of
the portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; and 0.030% of the daily net
assets exceeding $1 billion.
Dean Witter Select Municipal 0.050% to the net assets.
Reinvestment Fund
EQUITY FUNDS
Dean Witter American Value 0.0625% of the portion of the daily net
Fund assets not exceeding $250 million and
0.050% of the portion of the daily net
assets exceeding $250 million.
Dean Witter Balanced Growth Fund 0.60% to the net assets.
Dean Witter Capital Growth 0.065% to the portion of daily net
Securities assets not exceeding $500 million;
0.055% of the portion exceeding $500
million but not exceeding $1 billion;
0.050% of the portion exceeding $1
billion but not exceeding $1.5 billion;
and 0.0475% of the net assets exceeding
$1.5 billion.
Dean Witter Developing Growth 0.050% of the portion of daily net
Securities Trust assets not exceeding $500 million; and
0.0475% of the portion of daily net
assets exceeding $500 million.
Dean Witter Dividend Growth 0.0625% of the portion of the daily net
Securities Inc. assets not exceeding $250 million;
0.050% of the portion exceeding $250
million but not exceeding $1 billion;
0.0475% of the portion of daily net
assets exceeding $1 billion but not
exceeding $2 billion; 0.045% of the
portion of daily net assets exceeding $2
billion but not exceeding $3 billion;
0.0425% of the portion of daily net
assets exceeding $3 billion but not
exceeding $4 billion; 0.040% of the
portion of daily net assets exceeding $4
billion but not exceeding $5 billion;
0.0375% of the portion of the daily net
assets exceeding $5 billion but not
exceeding $6 billion; 0.035% of the
portion of the daily net assets
exceeding $6 billion but not exceeding
$8 billion; and 0.0325% of the portion
of the daily net assets exceeding $8
billion.
B-3
<PAGE>
Dean Witter European Growth 0.060% of the portion of daily net
Fund Inc. assets not exceeding $500 million; and
0.057% of the portion of daily net
assets exceeding $500 million.
Dean Witter Global Asset Allocation 1.0% to the net assets.
Fund
Dean Witter Global Dividend 0.075% to the net assets.
Growth Securities
Dean Witter Global Utilities Fund 0.065% to the net assets.
Dean Witter Health Sciences Trust 0.10% to the net assets.
Dean Witter International 0.075% to the net assets.
Small Cap Fund
Dean Witter Managed Assets Trust 0.060% to the daily net assets not
exceeding $500 million and 0.055% to the
daily net assets exceeding $500 million.
Dean Witter Mid-Cap Growth Fund 0.75% to the net assets.
Dean Witter Natural Resource 0.0625% of the portion of the daily net
Development Securities Inc. assets not exceeding $250 million and
0.050% of the portion of the daily net
assets exceeding $250 million.
Dean Witter Pacific Growth 0.060% of the portion of daily net
Fund Inc. assets not exceeding $1 billion; and
0.057% of the portion of daily net
assets exceeding $1 billion.
Dean Witter Precious Metals 0.080% to the net assets.
and Minerals Trust
Dean Witter Retirement Series 0.085% to the net assets.
American Value
Dean Witter Retirement Series 0.085% to the net assets.
Capital Growth
Dean Witter Retirement Series 0.075% to the net assets.
Dividend Growth
Dean Witter Retirement Series 0.10% to the net assets.
Global Equity
Dean Witter Retirement Series 0.065% to the net assets.
Intermediate Income Securities
Dean Witter Retirement Series 0.050% to the net assets.
Liquid Asset
Dean Witter Retirement Series 0.085% to the net assets.
Strategist
Dean Witter Retirement Series 0.050% to the net assets.
U.S. Government Money Market
Dean Witter Retirement Series 0.065% to the net assets.
U.S. Government Securities
Dean Witter Retirement Series 0.075% to the net assets.
Utilities
B-4
<PAGE>
Dean Witter Retirement Series 0.050% to the net assets.
Value Added
Dean Witter Select Dimensions Series-
American Value Portfolio 0.625% to the net assets.
Balanced Portfolio 0.75% to the net assets.
Core Equity Portfolio 0.85% to the net assets.
Developing Growth Portfolio 0.50% to the net assets.
Diversified Income Portfolio 0.40% to the net assets.
Dividend Growth Portfolio 0.625% to the net assets.
Emerging Markets Portfolio 1.25% to the net assets.
Global Equity Portfolio 1.0% to the net assets.
Utilities Portfolio 0.65% to the net assets.
Value-Added Market Portfolio 0.50% to the net assets.
Dean Witter Strategist Fund 0.060% of the portion of daily net
assets not exceeding $500 million;
0.055% of the portion of the daily net
assets exceeding $500 million but not
exceeding $1 billion; and 0.050% of the
portion of the daily net assets
exceeding $1 billion.
Dean Witter Utilities Fund 0.065% of the portion of daily net
assets not exceeding $500 million;
0.055% of the portion exceeding $500
million but not exceeding $1 billion;
0.0525% of the portion exceeding $1
billion but not exceeding $1.5 billion;
0.050% of the portion exceeding $1.5
billion but not exceeding $2.5 billion;
0.0475% of the portion exceeding $2.5
billion but not exceeding $3.5 billion;
0.045% of the portion of the daily net
assets exceeding $3.5 but not exceeding
$5 billion; and 0.0425% of the portion
of daily net assets exceeding $5
billion.
Dean Witter Value-Added Market 0.050% of the portion of daily net
Series assets not exceeding $500 million; and
0.45% of the portion of daily net assets
exceeding $500 million.
Dean Witter Variable Investment 0.065% to the net assets.
Series-Capital Growth
Dean Witter Variable Investment 0.0625% of the portion of daily net
Series-Dividend Growth assets not exceeding $500 million; and
0.050% of the portion of daily net
assets exceeding $500 million.
Dean Witter Variable Investment 0.050% to the net assets.
Series-Equity
Dean Witter Variable Investment 0.060% to the net assets.
Series-European Growth
Dean Witter Variable Investment 0.050% to the net assets.
Series-Managed
Dean Witter Variable Investment 0.065% of the portion of daily net
Series-Utilities assets exceeding $500 million and 0.055%
of the portion of daily net assets
exceeding $500 million.
Dean Witter World Wide 0.055% of the portion of daily net
Investment Trust assets not exceeding $500 million; and
0.05225% of the portion of daily net
assets exceeding $500 million.
B-5
<PAGE>
MONEY MARKET FUNDS
Active Assets Account (4) 0.050% of the portion of the daily net
assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of
the daily net assets exceeding $3
billion.
Dean Witter California Tax-Free 0.050% of the portion of the daily net
Daily Income Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of
the daily net assets exceeding $3
billion.
Dean Witter Liquid Asset 0.050% of the portion of the daily net
Fund Inc. assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.35 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.35 billion but not
exceeding $1.75 billion; 0.030% of the
portion of the daily net assets
exceeding $1.75 billion but not
exceeding $2.15 billion; 0.0275% of the
portion of the daily net assets
exceeding $2.15 billion but not
exceeding $2.5 billion; 0.025% of the
portion of the daily net assets
exceeding $2.5 billion but not exceeding
$15 billion; 0.0249% of the portion of
the daily net assets exceeding $15
billion but not exceeding $17.5 billion;
and 0.0248% of the portion of the daily
net assets exceeding $17.5 billion.
Dean Witter New York Municipal 0.050% of the portion of the daily net
Money Market Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 bil-
B-6
<PAGE>
lion but not exceeding $2.5 billion;
0.0275% of the portion of the daily net
assets exceeding $2.5 billion but not
exceeding $3 billion; and 0.025% of the
portion of the daily net assets
exceeding $3 billion.
Dean Witter Retirement Series 0.050% of the net assets.
Liquid Assets
Dean Witter Retirement Series 0.050% of the net assets.
U.S. Government Money Market
Dean Witter Select Dimensions Series- 0.50% to the net assets.
Money Market Portfolio
Dean Witter Tax-Free Daily 0.050% of the portion of the daily net
Income Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of
the daily net assets exceeding $3
billion.
Dean Witter U.S. Government 0.050% of the portion of the daily net
Money Market Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of
the daily net assets exceeding $3
billion.
Dean Witter Variable Investment 0.050% to the net assets.
Series-Money Market
Monthly compensation calculated weekly by applying the following annual
rates to the weekly net assets.
CLOSED-END FUNDS
Dean Witter Government Income 0.060% to the average weekly net
Trust assets.
High Income Advantage Trust 0.075% of the portion of the average
weekly net assets not exceeding $250
million; 0.060% of the portion of
average weekly net assets exceeding $250
million and not exceeding $500 million;
0.050% of the portion of average weekly
net assets exceeding $500 million and
not exceeding $750 million; 0.040% of
the portion of average weekly net assets
exceeding
B-7
<PAGE>
$750 million and not exceeding $1
billion; and 0.030% of the portion of
average weekly net assets exceeding $1
billion.
High Income Advantage Trust II 0.075% of the portion of the average
weekly net assets not exceeding $250
million; 0.060% of the portion of
average weekly net assets exceeding $250
million and not exceeding $500 million;
0.050% of the portion of average weekly
net assets exceeding $500 million and
not exceeding $750 million; 0.040% of
the portion of average weekly net assets
exceeding $750 million and not exceeding
$1 billion; and 0.030% of the portion of
average weekly net assets exceeding $1
billion.
High Income Advantage Trust III 0.075% of the portion of the average
weekly net assets not exceeding $250
million; 0.060% of the portion of
average weekly net assets exceeding $250
million and not exceeding $500 million;
0.050% of the portion of average weekly
net assets exceeding $500 million and
not exceeding $750 million; 0.040% of
the portion of the average weekly net
assets exceeding $750 million and not
exceeding $1 billion; and 0.030% of the
portion of average weekly net assets
exceeding $1 billion.
InterCapital Income Securities Inc. 0.050% to the average weekly net assets.
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Bond Trust
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Trust
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Income Trust
InterCapital California Insured 0.035% to the average weekly net assets.
Municipal Income Trust
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Investment Trust
InterCapital New York Quality 0.035% to the average weekly net assets.
Municipal Securities
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Income Trust
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Securities
InterCapital California Quality 0.035% to the average weekly net assets.
Municipal Securities
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Securities
InterCapital Insured California 0.035% to the average weekly net assets.
Municipal Securities
B-8
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement and
Prospectus and the Statement of Additional Information constituting parts of
this registration statement on Form N-14 (the "Registration Statement") of our
report dated August 17, 1995 relating to the July 31, 1995 financial statements
and financial highlights of Dean Witter Strategist Fund (the "Fund") and to the
reference to us under the heading "Financial Statements and Experts" in such
Proxy Statement and Prospectus. We also consent to the references to us under
the headings "Independent Accountants" and "Experts" in the Fund's Statement of
Additional Information dated August 28, 1995 and to the reference to us under
the heading "Financial Highlights" in the Fund's Prospectus dated August 28,
1995, which Statement of Additional Information and Prospectus have been
incorporated by reference into the Registration Statement. We also consent to
the incorporation by reference in the Proxy Statement and Prospectus of our
report dated May 10, 1995 relating to the March 31, 1995 financial statements
and financial highlights of Dean Witter Managed Assets Trust and to the
reference to us under the heading "Financial Highlights" in that fund's
Prospectus dated May 30, 1995, which is incorporated by reference into the
Registration Statement.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
August 28, 1995
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David M. Butowsky, Stuart M. Strauss and Ronald
M. Feiman and each and any one of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-14 of Dean Witter Strategist Fund, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Jack F. Bennett Trustee August 24, 1995
/s/ Michael Bozic Trustee August 24, 1995
/s/ Edwin J. Garn Trustee August 24, 1995
/s/ John R. Haire Trustee August 24, 1995
/s/ Manuel H. Johnson Trustee August 24, 1995
/s/ Paul Kolton Trustee August 24, 1995
----------------- Trustee ---------------
Michael E. Nugent
/s/ John L. Schroeder Trustee August 24, 1995
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Sheldon Curtis, Barry Fink and Marilyn K. Cranney
and each and any one of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to the Registration Statement on Form N-14
of Dean Witter Strategist Fund, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or t
heir or his substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Charles A. Fiumefreddo Trustee August 24, 1995
/s/ Thomas F. Caloia Trustee August 24, 1995
/s/ Philip J. Purcell Trustee August 24, 1995
<PAGE>
DEAN WITTER STRATEGIST FUND
Two World Trade Center
New York, New York 10048
August 18, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Rule 24f-2 Notice for Dean Witter Strategist Fund
(File No. 811-5654)
Dear Sir or Madam:
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, we are
electronically transmitting via Edgar for filing the following items in
connection with our previous registration of an indefinite number of shares of
this Fund:
1. A copy of the Rule 24f-2 Notice containing information required
pursuant to the Rule, and
2. An opinion of counsel required pursuant to paragraph b(1)(v) of the
Rule.
Very truly yours,
/s/ Sheldon Curtis
Sheldon Curtis
Vice President and
Secretary
Enc.
<PAGE>
DEAN WITTER STRATEGIST FUND
Two World Trade Center
New York, NY 10048
August 18, 1995
Dean Witter Strategist Fund
Two World Trade Center
New York, NY 10048
Dear Sirs:
In connection with the public offering of shares of beneficial interest,
$.01 par value, of Dean Witter Strategist Fund (the "Trust"), I have examined
such corporate records and documents and have made such further investigation
and examination as I have deemed necessary for the purpose of this opinion.
It is my opinion, as Legal Counsel for the Trust, that the Trust is an
unincorporated business trust duly organized and validly existing under the laws
of the State of Massachusetts and that the shares of beneficial interest covered
by the Rule 24f-2 Notice, August 18, 1995 (File No. 33-23669 and 811-5654), were
issued and paid for in accordance with the terms of the offering, as set forth
in the prospectus filed as part of the Registration Statement, as amended, of
the Trust and were legally issued, fully paid and non-assessable by the Trust.
I hereby consent to the filing of this opinion as an exhibit to the Notice
pursuant to Rule 24f-2. In giving this consent, I do not thereby admit that I
am within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Sheldon Curtis
Sheldon Curtis
General Counsel
<PAGE>
RULE 24f-2 NOTICE
For
Dean Witter Strategist Fund
(File No. 811-5654)
Fiscal Year for Which Notice is filed 07/31/95
Unsold balance at beginning of fiscal year
of shares of beneficial interest previously
registered under Securities Act of 1933
Number of shares registered during fiscal
year
Number of shares sold during fiscal year 9,276,510
pursuant to indefinite registration
*Calculation of filing fee:
(1) Sale price of shares sold during $137,319,676
fiscal year pursuant to indefinite
registration
(2) Purchase price of shares redeemed $184,279,680
during fiscal year
(3) Purchase price of shares previously 0
applied pursuant to Section 24e-2(a)
(4) Item (2) less item (3) $184,279,680
(5) Item (1) less item (4) ($46,960,004)
(6) Amount of filing fee $0
By /s/Sheldon Curtis
---------------------------------
Sheldon Curtis
Vice President and General Counsel
Dated: August 18, 1995
<PAGE>
DEAN WITTER MANAGED ASSETS TRUST
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 19, 1995
The undersigned shareholder of Dean Witter Managed Assets Trust
("Managed Assets") does hereby appoint SHELDON CURTIS, EDMUND C. PUCKHABER and
ROBERT M. SCANLAN, and each of them, as attorneys-in-fact and proxies of the
undersigned, each with the full power of substitution, to attend the Special
Meeting of Shareholders of Managed Assets to be held on December 19, 1995, at
the Conference Center, 44th Floor, Two World Trade Center, New York, New York at
10:00 A.M., New York time, and at all adjournments thereof and to vote the
shares held in the name of the undersigned on the record date for said meeting
for the Proposal specified on the reverse side hereof. Said attorneys-in-fact
shall vote in accordance with their best judgment as to any other matter.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES. THE BOARD OF TRUSTEES
RECOMMENDS A VOTE FOR THE PROPOSAL LISTED ON THE REVERSE SIDE HEREOF. THE SHARES
REPRESENTED HEREBY WILL BE VOTED AS INDICATED ON THE REVERSE SIDE OR FOR IF NO
CHOICE IS INDICATED.
Please mark your proxy, date and sign it on the reverse side and return it
promptly in the accompanying envelope, which requires no postage if mailed in
the United States.
<PAGE>
PLEASE MARK BOXES / / OR /X/ IN BLUE OR BLACK INK.
The Proposal:
Approval of the Reorganization, including the Agreement and Plan of
Reorganization, which contemplates the combination of substantially all the
assets of Managed Assets with those of Dean Witter Strategist Fund
("Strategist") in exchange for shares of Strategist and shareholders of
Managed Assets becoming shareholders of Strategist and receiving shares in
Strategist equal to the value of their holdings in Managed Assets.
FOR / / AGAINST / / ABSTAIN / /
Dated: , 1995
---------------------------
(Month) (Day)
----------------------------------
Signature(s)
----------------------------------
Signature(s)
Please read both sides of this ballot.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S)
APPEAR HEREON. When signing as custodian,
attorney, executor, administrator, trustee,
etc., please give your full title as such.
All joint owners should sign this proxy. If
the account is registered in the name of a
corporation, partnership or other entity, a
duly authorized individual must sign on its
behalf and give his or her title.
