<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1996
REGISTRATION NOS.: 33-23669
811-5654
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 9 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 10 /X/
------------------
DEAN WITTER STRATEGIST FUND
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
___ immediately upon filing pursuant to paragraph (b)
_X_ on September 24, 1996 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (A)(1) OF RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE REGISTRANT FILED THE RULE 24F-2 NOTICE FOR
ITS FISCAL YEAR ENDING JULY 31, 1996 WITH THE SECURITIES AND EXCHANGE COMMISSION
ON AUGUST 29, 1996.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
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<PAGE>
DEAN WITTER STRATEGIST FUND
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
- ----------------------------------------------- -----------------------------------------------------------------------
<S> <C>
PART A PROSPECTUS
1. .......................................... Cover Page
2. .......................................... Prospectus Summary; Summary of Fund Expenses
3. .......................................... Financial Highlights; Performance Information
4. .......................................... Prospectus Summary; Financial Highlights; Investment Objective and
Policies; The Fund and Its Management; Cover Page; Investment
Restrictions
5. .......................................... The Fund and Its Management; Back Cover; Investment Objective and
Policies
6. .......................................... Dividends, Distributions and Taxes; Additional Information
7. .......................................... Purchase of Fund Shares; Shareholder Services; Prospectus Summary
8. .......................................... Redemptions and Repurchases; Shareholder Services;
9. .......................................... Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10. .......................................... Cover Page
11. .......................................... Table of Contents
12. .......................................... The Fund and Its Management
13. .......................................... Investment Practices and Policies; Investment Restrictions; Portfolio
Transactions and Brokerage
14. .......................................... The Fund and Its Management; Trustees and Officers
15. .......................................... The Fund and Its Management; Trustees and Officers
16. .......................................... The Fund and Its Management; The Distributor; Custodian and Transfer
Agent; Independent Accountants; Shareholder Services
17. .......................................... Portfolio Transactions and Brokerage
18. .......................................... Description of Shares
19. .......................................... The Distributor; Redemptions and Repurchases; Financial Statements;
Determination of Net Asset Value; Shareholder Services
20. .......................................... Dividends, Distributions and Taxes; Financial Statements
21. .......................................... The Distributor
22. .......................................... Performance Information
23. .......................................... Experts; Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
SEPTEMBER 24, 1996
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 September 24, 1996, which has been filed with
the Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/3
Financial Highlights/4
The Fund and its Management/5
Investment Objective and Policies/5
Risk Considerations/9
Investment Restrictions/13
Purchase of Fund Shares/13
Shareholder Services/16
Redemptions and Repurchases/18
Dividends, Distributions and Taxes/21
Performance Information/22
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) 869-NEWS (toll-free)
<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.
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Shares of beneficial interest with $0.01 par value (see page 22).
Offered
- ------------------------------------------------------------------------------------------------------------------------------------
Offering At net asset value without a front-end sales charge (see page 13). Shares redeemed within six years of purchase
Price are subject to a contingent deferred sales charge under most circumstances (see page 18).
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Minimum The minimum initial investment is $1,000 ($100 if the account is opened through EasyInvest-SM-) and the minimum
Purchase subsequent investment is $100 (see page 13).
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Investment The investment objective of the Fund is to maximize the total return on its investments.
Objective
- ------------------------------------------------------------------------------------------------------------------------------------
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-nine investment companies and other portfolios with assets of approximately $84.6 billion
at August 31, 1996 (see page 5).
- ------------------------------------------------------------------------------------------------------------------------------------
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 0.475% on daily net assets exceeding $1.5 billion
(see page 5).
- ------------------------------------------------------------------------------------------------------------------------------------
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 21).
- ------------------------------------------------------------------------------------------------------------------------------------
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 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 or, if the account was opened through EasyInvest-SM-, if after
Deferred Sales twelve months the shareholder has invested less than $1,000 in the account. Although no commission or sales load
Charge is imposed upon the purchase of shares, a contingent deferred sales charge (scaled down from 5% to 1%) is
imposed on any redemption of shares if after such redemption the aggregate current value of an account with the
Fund is less than the aggregate amount of the investor's purchase payments made during the six years preceding
the redemption, 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).
- ------------------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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, 1996.
<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....................................................................... 0.56%
12b-1 Fees*........................................................................... 0.87%
Other Expenses........................................................................ 0.15%
Total Fund Operating Expenses......................................................... 1.58%
<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:.............................................................. $ 66 $ 80 $ 106 $ 188
You would pay the following expenses on the same investment, assuming
no redemption:....................................................... $ 16 $ 50 $ 86 $ 188
</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
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, notes thereto, and the unqualified report of
independent accountants which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31 OCTOBER 31, 1988*
------------------------------------------------------------------------------ THROUGH
1996 1995 1994 1993 1992 1991 1990 JULY 31, 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning
of period....... $ 15.87 $ 14.43 $ 14.59 $ 14.39 $ 13.09 $ 11.65 $ 11.37 $ 9.45
---------- --------- --------- ---------- --------- --------- ---------- -------
Net investment
income.......... 0.30 0.34 0.30 0.26 0.27 0.27 0.23 0.38
Net realized and
unrealized
gain............ 1.43 1.86 0.22 0.81 1.27 1.50 0.55 1.84
---------- --------- --------- ---------- --------- --------- ---------- -------
Total from
investment
operations...... 1.73 2.20 0.52 1.07 1.54 1.77 0.78 2.22
---------- --------- --------- ---------- --------- --------- ---------- -------
Less dividends
and
distributions
from:
Net investment
income........ (0.32) (0.29) (0.26) (0.31) (0.24) (0.26) (0.29) (0.30)
Net realized
gain.......... (1.26) (0.47) (0.42) (0.56) -- (0.07) (0.21) --
---------- --------- --------- ---------- --------- --------- ---------- -------
Total dividends
and
distributions... (1.58) (0.76) (0.68) (0.87) (0.24) (0.33) (0.50) (0.30)
---------- --------- --------- ---------- --------- --------- ---------- -------
Net asset value,
end of period... $ 16.02 $ 15.87 $ 14.43 $ 14.59 $ 14.39 $ 13.09 $ 11.65 $ 11.37
---------- --------- --------- ---------- --------- --------- ---------- -------
---------- --------- --------- ---------- --------- --------- ---------- -------
TOTAL INVESTMENT
RETURN+......... 11.47% 16.05% 3.53% 7.59% 11.88% 15.67% 7.21% 23.76%(1)
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.58% 1.63% 1.62% 1.62% 1.63% 1.59% 1.53% 0.97%(2)(3)
Net investment
income.......... 1.88% 2.35% 2.03% 1.90% 2.19% 2.37% 2.39% 6.00%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end
of period, in
millions........ $1,259 $878 $806 $783 $441 $238 $196 $48
Portfolio
turnover rate... 174 % 179 % 90 % 98 % 79 % 140 % 101 % 70 %(1)
Average
commission rate
paid............ $0.0597 -- -- -- -- -- -- --
</TABLE>
<TABLE>
<C> <S>
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all 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-nine investment companies, thirty of which
are listed on the New York Stock Exchange, with combined assets of approximately
$81.8 billion as of August 31, 1996. The Investment Manager also manages and
advises portfolios of pension plans, other institutions and individuals which
aggregated approximately $2.8 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 0.475% on the portion of the Fund's net
assets exceeding $1.5 billion. For the fiscal year ended July 31, 1996, the Fund
accrued total compensation to the Investment Manager amounting to 0.56% of the
Fund's average daily net assets and the Fund's total expenses amounted to 1.58%
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
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<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 Growth and
Income Group, which manages twenty-three funds and fund portfolios, with
approximately $21 billion in assets as of August 31, 1996. Mark Bavoso, Senior
Vice President of InterCapital and a member of InterCapital's Growth and Income
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 200% 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.
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.
12
<PAGE>
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. The minimum initial purchase in the case of investments through
EasyInvest-SM-, an automatic purchase plan (see "Shareholder Services"), is
$100, provided that the schedule of automatic investments will result in
investments totalling at least $1,000 within the first twelve months. In the
case of investments pursuant to Systematic Payroll Deduction Plans (including
Individual Retirement Plans), the Fund, in its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required, if the Fund has reason to believe that additional investments will
increase the investment in each account under such Plans to at least $1,000.
Certificates for shares purchased will not be issued unless requested by the
shareholder in writing to the Transfer Agent. The offering price will be the net
13
<PAGE>
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, 1996, the Fund accrued payments under the
Plan amounting to $9,851,971, which amount is equal to 0.87% of the Fund's
average daily net assets for the fiscal year. The payments accrued under the
Plan were 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
14
<PAGE>
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 $37,253,459 at
July 31, 1996, which was equal to 2.96% of the Fund's net assets on such date.
Of this amount, $13,444,602 represents excess distribution expenses of Dean
Witter Managed Assets Trust, the net assets of which were combined with those of
the Fund on December 22, 1995 pursuant to an Agreement and Plan of
Reorganization. Because there is no requirement under the Plan that the
Distributor be reimbursed for all expenses or any requirement that the Plan be
continued from year to year, this excess amount does not constitute a liability
of the Fund. Although there is no legal obligation for the Fund to pay expenses
incurred in excess of payments made to the Distributor under the Plan and the
proceeds of contingent deferred sales charges paid by investors upon redemption
of 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.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what the pricing
service believes is the fair valuation of such portfolio securities.
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 (see "Purchase of Fund Shares" and "Redemptions and Repurchases").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September,
and December) checks in any 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, Dean Witter Intermediate Term U.S.
Treasury Trust and five Dean Witter Funds which are money market funds (the
foregoing eleven non-CDSC funds are hereinafter referred to as the "Exchange
Funds"). Exchanges may be made after the shares of the Fund acquired by purchase
(not by exchange or dividend reinvestment) have been held for thirty days. There
is no waiting
16
<PAGE>
period for exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share of
each fund after the exchange order is received. When exchanging into a money
market fund from the Fund, shares of the Fund are redeemed out of the Fund at
their next calculated net asset value and the proceeds of the redemption are
used to purchase shares of the money market fund at their net asset value
determined the following business day. Subsequent exchanges between any of the
money market funds and any of the CDSC funds can be effected on the same basis.
No contingent deferred sales charge ("CDSC") is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate redemption.
Shares of the Fund acquired in exchange for shares of another CDSC fund having a
different CDSC schedule than that of this Fund will be subject to the CDSC
schedule of this Fund, even if such shares are subsequently re-exchanged for
shares of the CDSC fund originally purchased. During the period of time the
shareholder remains in the Exchange Fund (calculated from the last day of the
month in which the Exchange Fund shares were acquired), the holding period (for
the purpose of determining the rate of the CDSC) is frozen. If those shares are
subsequently reexchanged for shares of a CDSC fund, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a CDSC fund are reacquired. Thus, the CDSC is based
upon the time (calculated as described above) the shareholder was invested in a
CDSC fund (see "Redemptions and Repurchases--Contingent Deferred Sales Charge").
However, in the case of shares exchanged into an Exchange Fund on or after April
23, 1990, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount equal
to the 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.
17
<PAGE>
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares, on
which the shareholder may realize a capital gain or loss. However, the ability
to deduct capital losses on an exchange may be limited in situations where there
is an exchange of shares within ninety days after the shares are purchased. The
Exchange Privilege is only available in states where an exchange may legally be
made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization Form,
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made in writing or
by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean Witter
Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds
will be reduced by the amount of any applicable contingent deferred sales
charges (see below). If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer Agent
at P. O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption, along with any additional documentation
required by the Transfer Agent.
18
<PAGE>
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 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:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in
a qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2);
(B) distributions from an IRA or 403(b) Custodial Account following attainment
of age 59 1/2; or (C) a tax-free return of an excess contribution to an IRA;
and
(3) all redemptions of shares held for the benefit of a participant in a
corporate or self-employed retirement plan qualified under Section 401(k) of the
Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which Dean Witter Trust Company,
an affiliate of the Investment Manager, serves as recordkeeper or Trustee
("Eligible 401(k) Plan"), provided that either: (A) the plan continues to be an
Eligible 401(k) Plan after the redemption; or (B) the
19
<PAGE>
redemption is in connection with the complete termination of the plan involving
the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value next computed (see "Purchase of Fund Shares") after such repurchase
order is received by DWR or other Selected Broker-Dealer, reduced by any
applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund, the Distributor,
DWR or other Selected Broker-Dealers. The offer by DWR and other 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 or, in the
case of an account opened through EasyInvest-SM-, if after twelve months the
shareholder has invested less than $1,000 in the account. However, before the
Fund redeems such shares and sends the proceeds to the shareholder it will
notify the shareholder that the value of the shares is less than the applicable
amount and allow the shareholder sixty days to make an additional investment in
an amount which will increase the value of the account to at least the
applicable amount before the redemption is processed. No CDSC will be imposed on
any involuntary redemption.
20
<PAGE>
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 short-term capital gains to shareholders and otherwise continue
to qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
federal income tax. Shareholders who are required to pay taxes on their income
will normally have to pay federal income taxes, and any state 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 capital gains or losses. 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.
21
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. The "average annual
total return" of the Fund refers to a figure reflecting the average annualized
percentage increase (or decrease) in the value of an initial investment in the
Fund of $1,000 over periods of one, five and ten years, or over the life of the
Fund, if less than any of the foregoing. Average annual total return reflects
all income earned by the Fund, any appreciation or depreciation of the Fund's
assets, all expenses incurred by the Fund and all sales charges which would be
incurred by redeeming shareholders, for the stated periods. It also assumes
reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. 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).
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges. There are
no conversion, pre-emptive or other subscription rights. In the event of a
liquidation, each share of beneficial interest of the Fund is entitled to its
portion of all the Fund's assets after all debts and expenses have been paid.
The shares do not have cumulative voting rights.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by the
Shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for obligations of
the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's
22
<PAGE>
employment activities and that actual and potential conflicts of interest are
avoided. To achieve these goals and comply with regulatory requirements, the
Code of Ethics requires, among other things, that personal securities
transactions by employees of the companies be subject to an advance clearance
process to monitor that no Dean Witter Fund is engaged at the same time in a
purchase or sale of the same security. The Code of Ethics bans the purchase of
securities in an initial public offering, and also prohibits engaging in futures
and options transactions and profiting on short-term trading (that is, a
purchase within sixty days of a sale or a sale within sixty days of a purchase)
of a security. In addition, investment personnel may not purchase or sell a
security for their personal account within thirty days before or after any
transaction in any Dean Witter Fund managed by them. Any violations of the Code
of Ethics are subject to sanctions, including reprimand, demotion or suspension
or termination of employment. The Code of Ethics comports with regulatory
requirements and the recommendations in the 1994 report by the Investment
Company Institute Advisory Group on Personal Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
23
<PAGE>
DEAN WITTER
Dean Witter
Strategist Fund STRATEGIST
Two World Trade Center FUND
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
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 -- SEPTEMBER 24, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DEAN WITTER
SEPTEMBER 24, 1996 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 September 24, 1996, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc. at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
Dean Witter
Strategist Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
The Fund and its Management ............................................... 3
Trustees and Officers ..................................................... 6
Investment Practices and Policies ......................................... 11
Investment Restrictions ................................................... 25
Portfolio Transactions and Brokerage ...................................... 26
The Distributor ........................................................... 28
Shareholder Services ...................................................... 32
Redemptions and Repurchases ............................................... 36
Dividends, Distributions and Taxes ........................................ 38
Performance Information ................................................... 40
Description of Shares ..................................................... 41
Custodian and Transfer Agent .............................................. 42
Independent Accountants ................................................... 42
Reports to Shareholders ................................................... 42
Legal Counsel ............................................................. 42
Experts ................................................................... 42
Registration Statement .................................................... 42
Financial Statements - July 31, 1996 ...................................... 43
Report of Independent Accountants ......................................... 57
Appendix .................................................................. 58
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 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, Dean Witter
Intermediate Term U.S. Treasury Trust, Dean Witter Capital Appreciation Fund,
Dean Witter Information Fund, Dean Witter Japan Fund, Dean Witter Income Builder
Fund, Dean Witter Special Value Fund, Municipal Income Trust, Municipal Income
Trust II, Municipal Income
3
<PAGE>
Trust III, Municipal Income Opportunities Trust, Municipal Income Opportunities
Trust II, Municipal Income Opportunities Trust III, Prime Income Trust and
Municipal Premium Income Trust. The foregoing investment companies, together
with the Fund, are collectively referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser: TCW/DW
Core Equity Trust, TCW/DW North American Government Income Trust, TCW/DW Latin
American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth
Fund, TCW/DW Balanced Fund, TCW/DW Total Return Trust, TCW/DW Mid-Cap Equity
Trust, TCW/DW Global Telecom Trust, TCW/DW Emerging Markets Opportunities Trust,
TCW/DW Term Trust 2000, TCW/DW Term Trust 2002 and TCW/DW Term Trust 2003 (the
"TCW/DW Funds"). InterCapital also serves as: (i) sub-adviser to Templeton
Global Opportunities Trust, an open-end investment company; (ii) administrator
of The BlackRock Strategic Term Trust Inc., a closed-end investment company; and
(iii) sub-administrator of MassMutual Participation Investors and Templeton
Global Governments Income Trust, closed-end investment companies.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. 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
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
4
<PAGE>
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;
0.50% of the next $500 million; and 0.475% of the portion of the daily net
assets exceeding $1.5 billion. For the fiscal years ended July 31, 1994, 1995
and 1996, the Fund accrued to the Investment Manager total compensation of
$4,711,608, $4,679,443 and $6,414,184, 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, 1994, 1995 and 1996.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or adviser to others.
The Agreement was initially approved by the Board of Trustees on October 30,
1992, and by the shareholders of the Fund at a Meeting of Shareholders held on
January 12, 1993. The Agreement is substantially identical to a prior investment
management agreement which was initially approved by the Trustees on 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).
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 17, 1996, the Fund's Board of
5
<PAGE>
Trustees, including all of the Independent Trustees, amended the Agreement to
provide an additional breakpoint in the management fee that reduces the
compensation received by the Investment Manager under the Agreement on assets
exceeding $1.5 billion and approved continuation of the Agreement, as so
amended, until April 30, 1997.
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 82 Dean Witter Funds and the 13 TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Michael Bozic (55) Chairman and Chief Executive Officer of Levitz Furniture Corporation
Trustee (since November, 1995); Director or Trustee of the Dean Witter Funds;
c/o Levitz Furniture Corporation formerly President and Chief Executive Officer of Hills Department
6111 Broken Sound Parkway, N.W. Stores (May, 1991-July, 1995); formerly variously Chairman, Chief
Boca Raton, Florida Executive Officer, President and Chief Operating Officer (1987-1991) of
the Sears Merchandise Group of Sears, Roebuck and Co.; Director of
Eaglemark Financial Services, Inc., the United Negro College Fund and
Weirton Steel Corporation.
Charles A. Fiumefreddo* (63) 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.
Edwin J. Garn (63) 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);
500 Huntsman Way formerly Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice
Salt Lake City, Utah Chairman, Huntsman Chemical Corporation (since January, 1993); Director
of Franklin Quest (time management systems) and John Alden Financial
Corp.; member of the board of various civic and charitable
organizations.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
John R. Haire (71) Chairman of the Audit Committee and Chairman of the Committee of the
Trustee Independent Directors or Trustees and Director or Trustee of the Dean
Two World Trade Center Witter Funds; Chairman of the Audit Committee and Chairman of the
New York, New York Committee of the Independent Trustees and Trustee of the TCW/DW Funds;
formerly President, Council for Aid to Education (1978-1989) and
Chairman and Chief Executive Officer of Anchor Corporation, an
Investment Adviser (1964-1978); Director of Washington National
Corporation (insurance).
Dr. Manuel H. Johnson (47) Senior Partner, Johnson Smick International, Inc., a consulting firm;
Trustee Koch Professor of International Economics and Director of the Center
c/o Johnson Smick International, Inc. for Global Market Studies at George Mason University; Co-Chairman and a
1133 Connecticut Avenue, N.W. founder of the Group of Seven Council (G7C), an international economic
Washington, DC commission; 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 (1986-1990) and
Assistant Secretary of the U.S. Treasury (1982-1986).
Michael E. Nugent (60) General Partner, Triumph Capital, L.P., a private investment
Trustee partnership; Director or Trustee of the Dean Witter Funds; Trustee of
c/o Triumph Capital, L.P. the TCW/DW Funds; formerly Vice President, Bankers Trust Company and BT
237 Park Avenue Capital Corporation; Director of various business organizations.
New York, New York
Philip J. Purcell* (52) 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.
John L. Schroeder (66) Retired; Director or Trustee of the Dean Witter Funds; Trustee of the
Trustee TCW/DW Funds; Director of Citizens Utilities Company; formerly
c/o Gordon Altman Butowsky Executive Vice President and Chief Investment Officer of the Home
Weitzen Shalov & Wein Insurance Company (August, 1991-September, 1995), Chairman and Chief
Counsel to the Independent Trustees Investment Officer of Axe-Houghton Management and the Axe-Houghton
114 West 47th Street Funds (1983-1991) and President of USF&G Financial Services, Inc.
New York, New York (1990-1991).
Sheldon Curtis (64) 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 (35) Senior Vice President of InterCapital (since June, 1993); formerly Vice
Vice President President of InterCapital.
Two World Trade Center
New York, New York
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Thomas F. Caloia (50) First Vice President and Assistant Treasurer of InterCapital and DWSC;
Treasurer Treasurer of the Dean Witter Funds and the TCW/DW Funds.
Two World Trade Center
New York, New York
<FN>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
</TABLE>
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Robert S. Giambrone, Senior Vice President of InterCapital,
DWSC, Distributors and DWTC and Director of DWTC, and Joseph J. McAlinden,
Executive Vice President and Chief Investment Officer of InterCapital and
Director of DWTC, are Vice Presidents of the Fund, and Marilyn K. Cranney and
Barry Fink, First Vice Presidents and Assistant General Counsels of InterCapital
and DWSC, Lou Anne McInnis and Ruth Rossi, Vice Presidents and Assistant General
Counsels of InterCapital and DWSC, and Carsten Otto, a Staff Attorney with
InterCapital are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of eight (8) trustees. These same individuals
also serve as directors or trustees for all of the Dean Witter Funds, and are
referred to in this section as Trustees. As of the date of this Statement of
Additional Information, there are a total of 82 Dean Witter Funds, comprised of
122 portfolios. As of August 31, 1996, the Dean Witter Funds had total net
assets of approximately $76.3 billion and more than five million shareholders.
Six Trustees (75% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own any
stock or other securities issued by InterCapital's parent company, DWDC. These
are the "disinterested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with InterCapital. Four of the six
independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Dean Witter Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee and
the Committee of the Independent Trustees. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1995,
the three Committees held a combined total of fifteen meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Trustees or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Dean Witter Funds have such a plan.
8
<PAGE>
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Trustees to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees will need to form a judgment on various issues,
and arranges to have that information furnished to Committee members. He also
arranges for the services of independent experts and consults with them in
advance of meetings to help refine reports and to focus on critical issues.
Members of the Committees believe that the person who serves as Chairman of both
Committees and guides their efforts is pivotal to the effective functioning of
the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment advisory, management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Manager and other service providers. In effect,
the Chairman of the Committees serves as a combination of chief executive and
support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and, since July
1, 1996, as Chairman of the Committee of the Independent Trustees and the Audit
Committee of the TCW/DW Funds. The current Committee Chairman has had more than
35 years experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Trustees serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Trustees, and a Chairman of their Committees,
of the caliber, experience and business acumen of the individuals who serve as
Independent Trustees of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the
9
<PAGE>
Fund pays the Chairman of the Audit Committee an annual fee of $750 and pays the
Chairman of the Committee of the Independent Trustees an additional annual fee
of $1,200). The Fund also reimburses such Trustees for travel and other
out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended July 31, 1996.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,750
Edwin J. Garn................................................. 1,850
John R. Haire................................................. 3,963(1)
Dr. Manuel H. Johnson......................................... 1,800
Michael E. Nugent............................................. 1,700
John L. Schroeder............................................. 1,800
</TABLE>
- ------------
(1) Of Mr. Haire's compensation from the Fund, $3,150 was paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($750).
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1995 for services
to the 79 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 11 TCW/DW Funds that were in operation at December 31, 1995.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Dean Witter Money Market Funds. Mr. Schroeder was elected as a Trustee
of the TCW/DW Funds on April 20, 1995.
COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
TOTAL
FOR SERVICE AS COMPENSATION
FOR SERVICE CHAIRMAN OF PAID
AS DIRECTOR OR COMMITTEES OF FOR SERVICES
TRUSTEE AND FOR SERVICE AS INDEPENDENT TO
COMMITTEE MEMBER TRUSTEE AND DIRECTORS/ 79 DEAN
OF 79 DEAN COMMITTEE MEMBER TRUSTEES AND WITTER
WITTER OF 11 TCW/DW AUDIT FUNDS AND 11
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS COMMITTEES TCW/DW FUNDS
- --------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Michael Bozic.............. $126,050 -- -- $126,050
Edwin J. Garn.............. 136,450 -- -- 136,450
John R. Haire.............. 98,450 $82,038 $217,350(2) 397,838
Dr. Manuel H. Johnson...... 136,450 82,038 -- 218,488
Michael E. Nugent.......... 124,200 75,038 -- 199,238
John L. Schroeder.......... 136,450 46,964 -- 183,414
</TABLE>
- ------------
(2) For the 79 Dean Witter Funds in operation at December 31, 1995. As noted
above, on July 1, 1996, Mr. Haire became Chairman of the Committee of the
Independent Trustees and the Audit Committee of the TCW/DW Funds in addition
to continuing to serve in such positions for the Dean Witter Funds.
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have adopted a retirement program under which
an Independent Trustee who retires after serving for at least five years (or
such lesser period as may be determined by the Board) as an Independent Director
or Trustee of any Dean Witter Fund that has adopted the retirement program (each
such Fund referred to as an "Adopting Fund" and each such Trustee referred to as
an "Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Trustee
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing
10
<PAGE>
for the remainder of his or her life, an annual retirement benefit (the "Regular
Benefit") equal to 25.0% of his or her Eligible Compensation plus 0.4166666% of
such Eligible Compensation for each full month of service as an Independent
Director or Trustee of any Adopting Fund in excess of five years up to a maximum
of 50.0% after ten years of service. The foregoing percentages may be changed by
the Board.(3) "Eligible Compensation" is one-fifth of the total compensation
earned by such Eligible Trustee for service to the Adopting Fund in the five
year period prior to the date of the Eligible Trustee's retirement. Benefits
under the retirement program are not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended July 31, 1996
and by the 57 Dean Witter Funds (including the Fund) as of December 31, 1995,
and the estimated retirement benefits for the Fund's Independent Trustees from
the Fund as of July 31, 1996 and from the 57 Dean Witter Funds as of December
31, 1995.
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS ESTIMATED ANNUAL
-------------------------------------- RETIREMENT BENEFITS BENEFITS
ESTIMATED ACCRUED AS EXPENSES UPON RETIREMENT(4)
CREDITED YEARS ESTIMATED ---------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND(5) FUNDS FUND(5) FUNDS
- --------------------------------- ------------------- ----------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic.................... 10 50.0% $ 147 $ 26,359 $ 950 $ 51,550
Edwin J. Garn.................... 10 50.0 (599) 41,901 950 51,550
John R. Haire.................... 10 50.0 1,188 261,763 4,687 130,404
Dr. Manuel H. Johnson............ 10 50.0 (415) 16,748 950 51,550
Michael E. Nugent................ 10 50.0 (753) 30,370 950 51,550
John L. Schroeder................ 8 41.7 281 51,812 792 42,958
</TABLE>
- ------------
(3) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
(4) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (3) above.
(5) These numbers reflect the effect of the combination of the net assets of
Dean Witter Managed Assets Trust with those of the Fund on December 22, 1995
pursuant to an Agreement and Plan of Reorganization.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
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.
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(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.
(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;
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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 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, 1996.
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
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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 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 liquid portfolio 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 liquid 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
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or other liquid 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.
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
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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 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 liquid portfolio securities 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
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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.
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 liquid
portfolio securities 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 liquid portfolio securities 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).
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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 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 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 liquid portfolio securities 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
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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
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
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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 liquid
portfolio securities 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, 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.
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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
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 liquid
21
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portfolio securities 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 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
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<PAGE>
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 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 liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or
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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. 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
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<PAGE>
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.
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
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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.
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, 1994, 1995 and
1996, the Fund paid a total of $627,783, $845,540 and $1,417,865, respectively,
in brokerage commissions.
The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors may be considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client
26
<PAGE>
accounts. In the case of certain initial and secondary public offerings, the
Investment Manager may utilize a pro-rata allocation process based on the size
of the Dean Witter Funds involved and the number of shares available from the
public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager from obtaining a high quality of
brokerage and research services. In seeking to determine the reasonableness of
brokerage commissions paid in any transaction, the Investment Manager relies
upon its experience and knowledge regarding commissions generally charged by
various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. Such determinations
are necessarily subjective and imprecise, as in most cases an exact dollar value
for those services is not ascertainable.
In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes such prices and executions are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Investment Manager. Such services
may include, but are not limited to, any one or more of the 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 July 31, 1996, the Fund directed the payment of $1,266,052 in
brokerage commissions in connection with transactions in the aggregate amount of
$1,018,524,409 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
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<PAGE>
July 31, 1994, 1995 and 1996, the Fund paid a total of $22,810, $84,770 and
$105,265, respectively, in brokerage commissions to DWR. The brokerage
commissions paid to DWR represented approximately 7.42% of the total brokerage
commissions paid by the Fund for the fiscal year ended July 31, 1996 and were
paid on account of transactions having an aggregate dollar value equal to
approximately 8.28% of the aggregate dollar value of all portfolio transactions
of the Fund during the period for which commissions were paid.
During the fiscal year ended July 31, 1996, the Fund purchased bonds issued
by PaineWebber Inc. and Donaldson, Lufkin & Jenrette Securities and common stock
issued by Morgan Stanley Group Inc. and Merrill Lynch & Co. At July 31, 1996,
the Fund held a bond issued by PaineWebber Inc. and common stock issued by
Morgan Stanley Group Inc. and Merrill Lynch & Co. with market values of
$5,116,369, $4,387,500 and $3,924,375, 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, 1996.
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund. In addition, the Distributor may enter into selected
dealer agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of DWDC. The Trustees of the
Fund, including a majority of the Trustees who are not, and were not at the time
they voted, interested persons of the Fund, as defined in the Act (the
"Independent Trustees"), approved, at their meeting held on October 30, 1992,
the current Distribution Agreement appointing the Distributor exclusive
distributor of the Fund's shares and providing for the Distributor to bear
distribution expenses not borne by the Fund. The present Distribution Agreement
is substantively identical to the Fund's previous distribution agreements. The
Distribution Agreement took effect on June 30, 1993 upon the spin-off by Sears,
Roebuck and Co. of its remaining shares of DWDC. By its terms, the Distribution
Agreement had an initial term ending April 30, 1994, and provides that it will
remain in effect from year to year thereafter if approved by the Trustees. At
their meeting held on April 17, 1996, the Trustees, including all of the
Independent Trustees, approved the continuation of the Agreement until April 30,
1997.
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
28
<PAGE>
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 $1,294,000, $1,775,000 and $1,662,000 in contingent deferred sales
charges for the fiscal years ended July 31, 1994, 1995 and 1996, respectively,
none of which was retained by the Distributor.
The Distributor has informed the Fund that a portion of the fees payable by
the Fund each year pursuant to the Plan equal to 0.25% of the Fund's average
daily net assets is characterized as a "service fee" under the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (of which the
Distributor is a member). Such portion of the fee is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion of
the Plan fees payable by the Fund is characterized as an "asset-based sales
charge" as such is defined by the aforementioned Rules of Fair Practice.
The Plan was adopted by a 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.
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. At their meeting held on December 19, 1995, the shareholders of
the Fund approved an amendment to the Plan to permit payments to be made under
the Plan with respect to distribution expenses incurred in connection with the
distribution of shares of an investment company whose assets are acquired by the
Fund in a tax-free reorganization.
Under the Plan and as required by Rule 12b-1, the Trustees 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,
1996, of $9,851,971. This amount is equal to 0.87% 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.
29
<PAGE>
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 $9,851,971 accrued under the Plan for the fiscal
year ended July 31, 1996 to the Distributor. The Distributor and DWR estimate
that they have spent, pursuant to the Plan, $77,907,578 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) 3.01% ($2,345,917)--advertising and
promotional expenses; (ii) 0.31% ($240,658) printing of prospectuses for
distribution to other than current shareholders; and (iii) 96.68%
($75,321,003)--other expenses, including the gross sales credit and the carrying
charge, of which 6.62% ($4,983,371) represents carrying charges, 30.10%
($22,671,872) represents commission credits to DWR branch offices for payments
of commissions to account executives, 45.43% ($34,221,158) represents overhead
and other branch office distribution-related expenses, and 17.85% ($13,444,602)
represents excess distribution expenses of Dean Witter Managed Assets Trust, the
net assets of which were combined with those of the Fund on December 22, 1995
pursuant to an Agreement and Plan of Reorganization.
At any given time, the expenses in distributing shares of the Fund may be
more or less than the total of (i) the payments made by the Fund pursuant to the
Plan and (ii) the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares. The Distributor has advised the Fund that
such excess amount, including the carrying charge designed to approximate the
opportunity costs incurred by DWR which arise from it having advanced monies
without having received the amount of any sales charges imposed at the time of
sale of the Fund's shares, totalled $37,253,459 as of July 31, 1996. 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.
30
<PAGE>
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, 1997, 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 17, 1996. 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. So long as the
Plan is in effect, the election and nomination of Independent 12b-1 Trustees
shall be committed to the discretion of the Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term securities with remaining maturities
of sixty days or less at the time of purchase are valued at amortized cost,
unless the Trustees determine such does not reflect the securities' market
value, in which case these securities will be valued at their fair value as
determined by the Trustees. Other short-term debt securities will be valued on a
mark-to-market basis until such time as they reach a remaining maturity of sixty
days, whereupon they will be valued at amortized cost using their value on the
61st day unless the Trustees determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. 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.
31
<PAGE>
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by 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 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
32
<PAGE>
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 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.
33
<PAGE>
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of the Fund may exchange their shares
for shares of other Dean Witter Funds sold with a contingent deferred sales
charge ("CDSC funds"), and for shares of Dean Witter Short-Term U.S. Treasury
Trust, Dean Witter Limited Term Municipal Trust, Dean Witter Short-Term Bond
Fund, Dean Witter Balanced Growth Fund, Dean Witter Balanced Income Fund, Dean
Witter Intermediate Term U.S. Treasury Trust and five Dean Witter Funds which
are money market funds (the foregoing eleven non-CDSC funds are hereinafter
referred to as the "Exchange Funds"). Exchanges may be made after the shares of
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares, on
which the shareholder may realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the captions "Exchange
Privilege" and "Contingent Deferred Sales Charge," a contingent deferred sales
charge ("CDSC") may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of the Fund or any
other CDSC fund are exchanged for shares of an Exchange Fund, the exchange is
executed at no charge to the shareholder, without the imposition of the CDSC at
the time of the exchange. During the period of time the shareholder remains in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired), the holding period or "year since purchase
payment made" is frozen. When shares are redeemed out of the Exchange Fund, they
will be subject to a CDSC which would be based upon the period of time the
shareholder held shares in a CDSC fund. However, in the 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
34
<PAGE>
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.
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 is $5,000 for Dean Witter Special Value Fund. 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.
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<PAGE>
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days' prior written notice for
termination or material revision), provided that six months' prior written
notice of termination will be given to the shareholders who hold shares of
Exchange Funds pursuant to the Exchange Privilege, and provided further that the
Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, (d) during any
other period when the Securities and Exchange Commission by order so permits
(provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective(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 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
36
<PAGE>
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.
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
37
<PAGE>
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 in the Prospectus.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for shares presented for repurchase or redemption will be made by check
within seven days after receipt by the Transfer Agent of the certificate and/or
written request in good order. The term good order means that the share
certificate, if any, and request for redemption are properly signed, accompanied
by any documentation required by the Transfer Agent, and bear signature
guarantees when required by the Fund or the Transfer Agent. Such payment may be
postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check, 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 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
net capital gains to shareholders and otherwise continue to qualify as a
regulated investment company under Subchapter M
38
<PAGE>
of the Internal Revenue Code, it is not expected that the Fund will be required
to pay any federal income tax. Shareholders will normally have to pay federal
income taxes, and any state income taxes, on the dividends and distributions
they receive from the Fund. Such dividends and distributions, to the extent that
they are derived from net investment income or net short-term capital gains, are
taxable to the shareholder as ordinary income regardless of whether the
shareholder receives such payments in additional shares or in cash. Any
dividends declared in the last quarter of any calendar year which are paid in
the following year prior to February 1 will be deemed received by the
shareholder in the prior calendar year.
Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have been held by the Fund for more than
twelve months. Gains or losses on the sale of securities held for twelve months
or less will be short-term capital gains or losses.
Gains or losses on the Fund's transactions, if any, in futures and
non-equity options generally are treated as 60% long-term and 40% short-term
capital gains or losses. When the Fund engages in futures transactions, various
tax regulations applicable to the Fund may have the effect of causing the Fund
to recognize a gain or loss for tax purposes before that gain or loss is
realized, or to defer recognition of a realized loss for tax purposes.
Recognition, for tax purposes, of an unrealized loss may result in a lesser
amount of the Fund's realized net gains being available for distribution.
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 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.
39
<PAGE>
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.
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, 1996, for the five year period ended
July 31, 1996 and for the period from October 31, 1988 (commencement of
operations) through July 31, 1996 were 6.47%, 9.75% and 12.40%, 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
40
<PAGE>
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, 1996, for the five year
period ended July 31, 1996 and for the period October 31, 1988 through July 31,
1996 were 11.47%, 10.02% and 12.40%, 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, 1996,
for the five year period ended July 31, 1996 and for the period October 31, 1988
through July 31, 1996 were 11.47%, 61.22% and 147.41%, 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
$24,741, $123,705 and $247,410, respectively, at July 31, 1996.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. All of the Trustees, except for Messrs. Bozic, Purcell and Schroeder, have
been elected by the shareholders of the Fund at Special Meetings of Shareholders
held on 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 Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances). However, the Trustees have not authorized
any such additional series or classes of shares.
The Declaration of Trust 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.
41
<PAGE>
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, 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, 1996
included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
42
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (49.9%)
AEROSPACE & DEFENSE (1.3%)
100,000 General Motors Corp. (Class H).... $ 5,700,000
166,000 Honeywell, Inc.................... 8,798,000
25,700 Rockwell International Corp....... 1,349,250
-----------------
15,847,250
-----------------
ALUMINUM (0.7%)
150,000 Aluminum Co. of America........... 8,700,000
-----------------
AUTO PARTS (0.1%)
9,000 TRW, Inc.......................... 813,375
-----------------
AUTOMOTIVE (1.0%)
288,000 Chrysler Corp..................... 8,172,000
130,000 Ford Motor Co..................... 4,225,000
-----------------
12,397,000
-----------------
BANKS - MONEY CENTER (0.8%)
80,000 Citicorp.......................... 6,550,000
48,000 Morgan (J.P.) & Co., Inc.......... 4,128,000
-----------------
10,678,000
-----------------
BANKS - REGIONAL (0.4%)
20,000 Wells Fargo & Co.................. 4,657,500
-----------------
BEVERAGES - SOFT DRINKS (0.6%)
227,800 PepsiCo Inc....................... 7,204,175
-----------------
BROADCAST MEDIA (0.8%)
550,000 U.S. West Media Group*............ 9,487,500
-----------------
BROKERAGE (0.7%)
65,000 Merrill Lynch & Co., Inc.......... 3,924,375
90,000 Morgan Stanley Group, Inc......... 4,387,500
-----------------
8,311,875
-----------------
BUSINESS SYSTEMS (0.7%)
170,000 Electronic Data Systems Corp...... 8,988,750
-----------------
CHEMICALS (1.1%)
60,000 Dow Chemical Co................... 4,462,500
10,000 Du Pont (E.I.) de Nemours & Co.,
Inc............................... 807,500
290,000 Monsanto Co....................... 9,062,500
-----------------
14,332,500
-----------------
CHEMICALS - SPECIALTY (1.2%)
207,600 Georgia Gulf Corp................. 6,383,700
16,000 PPG Industries, Inc............... 788,000
200,000 Praxair, Inc...................... 7,675,000
12,000 Rohm & Haas Co.................... 714,000
-----------------
15,560,700
-----------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMUNICATIONS - EQUIPMENT & SOFTWARE (1.1%)
261,400 Cisco Systems, Inc.*.............. $ 13,527,450
-----------------
COMPUTER EQUIPMENT (1.0%)
56,200 Komag Inc.*....................... 1,152,100
76,800 Seagate Technology, Inc.*......... 3,715,200
530,000 Teradyne, Inc.*................... 7,155,000
-----------------
12,022,300
-----------------
COMPUTER SERVICES (1.1%)
257,500 Diebold, Inc...................... 14,098,125
-----------------
COMPUTER SOFTWARE (1.3%)
73,400 Microsoft Corp.*.................. 8,642,850
200,000 Oracle Corp.*..................... 7,800,000
-----------------
16,442,850
-----------------
COMPUTERS (2.0%)
280,000 Dell Computer Corp.*.............. 15,505,000
250,000 Gateway 2000, Inc.*............... 10,000,000
-----------------
25,505,000
-----------------
COMPUTERS - SYSTEMS (1.7%)
195,800 Hewlett-Packard Co................ 8,615,200
44,000 International Business Machines
Corp.............................. 4,746,500
150,000 Sun Microsystems, Inc.*........... 8,175,000
-----------------
21,536,700
-----------------
DRUGS & HEALTHCARE (1.3%)
160,000 Abbott Laboratories............... 7,040,000
194,744 Johnson & Johnson................. 9,299,026
-----------------
16,339,026
-----------------
ELECTRICAL EQUIPMENT (1.1%)
71,000 Emerson Electric Co............... 5,990,625
89,300 General Electric Co............... 7,356,087
-----------------
13,346,712
-----------------
ELECTRICAL HOUSEHOLD APPLIANCES (0.2%)
121,500 Maytag Corp....................... 2,430,000
-----------------
ENTERTAINMENT (1.2%)
200,000 Carnival Corp. (Class A).......... 5,375,000
330,000 Circus Circus Enterprises,
Inc.*............................. 10,147,500
-----------------
15,522,500
-----------------
FINANCIAL SERVICES (1.9%)
150,000 American Express Co............... 6,562,500
80,000 Beneficial Corp................... 4,320,000
240,000 Federal National Mortgage
Assoc............................. 7,620,000
140,000 Travelers Group, Inc.............. 5,915,000
-----------------
24,417,500
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
FOODS (1.5%)
88,000 Campbell Soup Co.................. $ 5,973,000
150,000 General Mills, Inc................ 8,137,500
140,000 Quaker Oats Company (The)......... 4,480,000
-----------------
18,590,500
-----------------
FOREST PRODUCTS, PAPER & PACKAGING (1.5%)
254,000 Champion International Corp....... 10,731,500
210,000 International Paper Co............ 7,953,750
-----------------
18,685,250
-----------------
HARDWARE & TOOLS (0.8%)
250,000 Black & Decker Corp............... 9,187,500
36,000 Stanley Works..................... 1,026,000
-----------------
10,213,500
-----------------
HEALTHCARE - MISCELLANEOUS (1.5%)
554,000 Humana, Inc.*..................... 9,279,500
140,000 PacifiCare Health Systems (Class
B)*............................... 9,450,000
-----------------
18,729,500
-----------------
HOSPITAL MANAGEMENT (0.6%)
143,000 Columbia/HCA Healthcare Corp...... 7,328,750
-----------------
HOUSEHOLD PRODUCTS (0.8%)
126,700 Colgate-Palmolive Co.............. 9,945,950
9,700 Tambrands, Inc.................... 395,275
-----------------
10,341,225
-----------------
INDUSTRIALS (0.0%)
5,500 AlliedSignal, Inc................. 323,125
-----------------
INSURANCE (0.4%)
50,000 American International Group,
Inc............................... 4,706,250
-----------------
LABELS (0.1%)
17,000 Avery Dennison Corp............... 879,750
-----------------
MACHINERY - CONSTRUCTION & MATERIALS (0.3%)
12,000 Johnson Controls, Inc............. 864,000
70,000 Parker-Hannifin Corp.............. 2,441,250
-----------------
3,305,250
-----------------
MEDICAL PRODUCTS & SUPPLIES (0.3%)
99,000 Baxter International, Inc......... 4,120,875
-----------------
METALS - MISCELLANEOUS (0.4%)
80,700 Phelps Dodge Corp................. 4,741,125
-----------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
OFFICE EQUIPMENT & SUPPLIES (0.7%)
200,000 Alco Standard Corp................ $ 8,750,000
-----------------
OIL DRILLING & SERVICES (1.2%)
360,000 Dresser Industries, Inc........... 9,720,000
70,000 Schlumberger, Ltd................. 5,600,000
-----------------
15,320,000
-----------------
OIL INTEGRATED - DOMESTIC (0.6%)
70,000 Atlantic Richfield Co............. 8,120,000
-----------------
OIL INTEGRATED - INTERNATIONAL (2.8%)
150,000 Chevron Corp...................... 8,681,250
130,000 Exxon Corp........................ 10,692,500
70,000 Mobil Corp........................ 7,726,250
90,000 Texaco, Inc....................... 7,650,000
-----------------
34,750,000
-----------------
PHARMACEUTICALS (1.9%)
128,400 American Home Products Corp....... 7,286,700
104,800 Lilly (Eli) & Co.................. 5,868,800
102,200 Merck & Co., Inc.................. 6,566,350
63,000 Pfizer, Inc....................... 4,402,125
-----------------
24,123,975
-----------------
PUBLISHING - NEWSPAPER (0.1%)
13,000 Gannett Co., Inc.................. 853,125
-----------------
RAILROADS (0.7%)
143,100 Conrail, Inc...................... 9,373,050
-----------------
RETAIL - DEPARTMENT STORES (0.6%)
100,000 Dayton-Hudson Corp................ 3,025,000
114,000 May Department Stores Co.......... 5,115,750
-----------------
8,140,750
-----------------
RETAIL - SPECIALTY (3.6%)
500,000 Bed Bath & Beyond, Inc.*.......... 10,937,500
144,000 Home Depot, Inc................... 7,272,000
189,360 Payless ShoeSource, Inc.*......... 6,130,530
700,000 Pier 1 Imports, Inc............... 11,812,500
450,000 Price/Costco, Inc.*............... 9,168,750
-----------------
45,321,280
-----------------
RETAIL - SPECIALTY APPAREL (0.2%)
100,000 Gap, Inc.......................... 2,975,000
-----------------
SAVINGS & LOAN ASSOCIATIONS (1.7%)
400,000 California Federal Bank*.......... 9,050,000
110,000 Golden West Financial Corp........ 6,105,000
395,000 Roosevelt Financial Group, Inc.... 6,320,000
-----------------
21,475,000
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
SHIPPING (0.7%)
365,800 APL Ltd........................... $ 8,550,575
-----------------
SHOES (0.7%)
80,000 Nike, Inc. (Class B).............. 8,230,000
-----------------
STEEL & IRON (0.5%)
637,000 Bethlehem Steel Corp.*............ 6,370,000
-----------------
TELECOMMUNICATIONS (0.9%)
130,000 ITT Corp.*........................ 7,377,500
80,000 Newbridge Networks Corp.*
(Canada).......................... 3,480,000
-----------------
10,857,500
-----------------
TEXTILES - APPAREL MANUFACTURERS (0.1%)
50,900 Liz Claiborne, Inc................ 1,660,613
-----------------
TOBACCO (0.9%)
106,000 Philip Morris Companies, Inc...... 11,090,250
-----------------
UTILITIES - GAS (0.5%)
150,000 Williams Companies, Inc........... 6,881,250
-----------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $533,479,736).... 626,974,256
-----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (16.3%)
BANKS (3.0%)
$ 5,000 Banque Paribas of New York
8.35% due 06/15/07................ 5,168,550
4,950 CoreStates Financial Corp.
9.625% due 02/15/01............... 5,442,129
7,000 First Nationwide Bank
10.00% due 10/01/06............... 7,778,960
5,000 Fleet Financial Group, Inc.
8.125% due 07/01/04............... 5,204,400
5,000 Landeskreditbank NV 7.875% due
04/15/04 (Germany)................ 5,210,850
4,000 Midland Bank PLC
7.625% due 06/15/06
(United Kingdom).................. 4,022,960
5,000 National Bank of Canada 8.125% due
08/15/04 (Canada)................. 5,182,900
-----------------
38,010,749
-----------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------
<C> <S> <C>
BROADCAST MEDIA (0.9%)
$ 10,000 Time Warner, Inc.
9.625% due 05/01/02............... $ 10,943,100
-----------------
BROKERAGE (1.2%)
5,000 Lehman Brothers Holdings,
Inc. 7.625% due 07/15/99.......... 5,082,750
5,000 Lehman Brothers Holdings,
Inc. 8.75% due 03/15/05........... 5,296,350
4,950 Paine Webber Group, Inc.
8.25% due 05/01/02................ 5,116,369
-----------------
15,495,469
-----------------
CABLE TELEVISION EQUIPMENT (0.4%)
5,000 Continental Cablevision, Inc.
8.30% due 05/15/06................ 5,123,200
-----------------
FINANCIAL (2.9%)
3,000 Arkwright CSN Trust -
144A** 9.625% due 08/15/26........ 3,075,000
5,000 Commercial Credit Co.
10.00% due 05/15/09............... 5,978,150
5,000 Price Reit Inc.
7.25% due 11/01/00................ 4,932,150
4,950 RHG Finance Corp.
8.875% due 10/01/05............... 5,097,114
5,000 Rodamco NV 7.30% due 05/15/05
(Netherlands)..................... 4,971,500
7,000 Sun Canada Financial Co. -
144A** 6.625% due 12/15/07........ 6,510,000
5,800 Terra Nova Holdings
10.75% due 07/01/05
(United Kingdom).................. 6,467,000
-----------------
37,030,914
-----------------
FINANCIAL SERVICES (2.2%)
4,835 American Annuity Group
9.50% due 08/15/01................ 5,076,750
9,900 Conseco, Inc.
10.50% due 12/15/04............... 11,288,673
6,000 Household Finance Corp.
7.65% due 05/15/07................ 6,082,320
5,000 Lumbermens Mutual Casualty -
144A**
9.15% due 07/01/26................ 5,150,000
-----------------
27,597,743
-----------------
FOREIGN GOVERNMENT AGENCY (0.8%)
5,000 Quebec Province 7.125% due
02/09/24 (Canada)................. 4,576,450
5,000 Quebec Province 8.625% due
12/01/26 (Canada)................. 5,369,700
-----------------
9,946,150
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------
<C> <S> <C>
HOSPITAL MANAGEMENT (0.4%)
$ 4,900 Columbia/HCA Healthcare
Corp. 7.50% due 11/15/95.......... $ 4,618,250
-----------------
INDUSTRIALS (2.8%)
1,000 Jet Equipment Trust - 144A**
10.91% due 08/15/14............... 1,120,000
3,000 Joy Technologies Inc.
10.25% due 09/01/03............... 3,300,750
4,950 Lockheed Martin Corp.
7.70% due 06/15/08................ 5,045,634
5,000 Mitchell Energy & Development
Corp.
8.00% due 07/15/99................ 5,059,250
5,153 Pennzoil Co.
10.125% due 11/15/09.............. 6,060,752
5,000 Reliance Industries PLC - 144A**
9.375% due 06/24/26 (India)....... 5,150,000
5,000 Reliance Industries Ltd. - 144A**
10.50% due 08/06/46 (India)....... 5,043,750
4,950 WMX Technologies Inc.
7.10% due 08/01/26................ 4,980,938
-----------------
35,761,074
-----------------
RETAIL - DEPARTMENT STORES (0.4%)
5,000 Dayton-Hudson Co.
7.50% due 07/15/06................ 4,968,600
-----------------
TELECOMMUNICATIONS (0.7%)
3,000 TCI Communications, Inc.
8.75% due 08/01/15................ 2,915,580
5,000 Tele-Communications, Inc.
9.80% due 02/01/12................ 5,359,800
-----------------
8,275,380
-----------------
TOBACCO (0.2%)
3,000 RJR Nabisco, Inc.
8.75% due 08/15/05................ 2,945,100
-----------------
UTILITIES - ELECTRIC (0.4%)
4,950 Niagara Mohawk Power
Corp. 9.25% due 10/01/01.......... 4,870,157
-----------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $207,129,655).... 205,585,886
-----------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT & AGENCIES OBLIGATIONS (22.5%)
$ 5,000 Federal Home Loan Mortgage Corp.
6.75% due 02/01/00................ $ 4,993,750
480 Federal Home Loan Mortgage Corp.
8.50% due 07/01/02................ 489,510
206 Federal Home Loan Mortgage Corp.
9.00% due 08/01/02................ 212,264
2,500 Private Export Funding Corp. 7.95%
due 11/01/06...................... 2,606,000
3,000 U.S. Treasury Bond
6.25% due 08/15/23................ 2,700,937
15,850 U.S. Treasury Bond
7.625% due 02/15/25............... 16,954,547
17,850 U.S. Treasury Bond
6.875% due 08/15/25............... 17,523,680
23,000 U.S. Treasury Note
6.00% due 08/31/97................ 22,996,406
32,050 U.S. Treasury Note
6.50% due 04/30/99................ 32,160,172
5,000 U.S. Treasury Note
6.375% due 05/15/99............... 5,000,000
25,000 U.S. Treasury Note
6.875% due 08/31/99............... 25,300,781
8,500 U.S. Treasury Note
7.875% due 11/15/99............... 8,850,625
35,000 U.S. Treasury Note
7.75% due 12/31/99................ 36,367,188
5,000 U.S. Treasury Note
6.875% due 03/31/00............... 5,060,937
15,000 U.S. Treasury Note
6.75% due 04/30/00................ 15,119,531
25,000 U.S. Treasury Note
5.625% due 11/30/00............... 24,148,437
7,000 U.S. Treasury Note
7.50% due 11/15/01................ 7,278,906
18,950 U.S. Treasury Note
5.75% due 08/15/03................ 17,966,969
15,000 U.S. Treasury Note
7.25% due 08/15/04................ 15,464,063
7,000 U.S. Treasury Note
7.50% due 02/15/05................ 7,330,313
5,000 U.S. Treasury Note
6.50% due 05/15/05................ 4,912,500
10,000 U.S. Treasury Note
7.00% due 07/15/06................ 10,143,750
-----------------
TOTAL U.S. GOVERNMENT & AGENCIES
OBLIGATIONS
(IDENTIFIED COST $289,198,174).... 283,581,266
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (a) (16.5%)
U.S. GOVERNMENT AGENCIES
$ 49,300 Federal Home Loan Banks 5.62% due
08/01/96.......................... $ 49,300,000
98,961 Federal Home Loan Mortgage Corp.
5.18% - 5.21% due
08/09/96 - 08/15/96............... 98,804,244
60,000 Tennessee Valley Authority 5.20%
due 08/02/96 - 08/06/96........... 59,974,000
-----------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $208,078,244)..... 208,078,244
-----------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,237,885,809) (B)........ 105.2% 1,324,219,652
LIABILITIES IN EXCESS OF
CASH AND OTHER ASSETS...... (5.2) (64,914,879)
----- -------------
NET ASSETS................. 100.0% $1,259,304,773
----- -------------
----- -------------
<FN>
- ---------------------
* 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) The aggregate cost for federal income tax purposes is $1,239,843,014; the
aggregate gross unrealized appreciation is $107,346,687 and the aggregate
gross unrealized depreciation is $22,970,049, resulting in net unrealized
appreciation of $84,376,638.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,237,885,809).......................... $1,324,219,652
Cash........................................................ 39,461
Receivable for:
Investments sold........................................ 12,725,365
Interest................................................ 9,611,323
Shares of beneficial interest sold...................... 1,413,846
Dividends............................................... 550,164
Principal paydowns...................................... 13,558
Receivable from affiliate................................... 61,659
Prepaid expenses and other assets........................... 13,389
--------------
TOTAL ASSETS........................................... 1,348,648,417
--------------
LIABILITIES:
Payable for:
Investments purchased................................... 86,454,606
Plan of distribution fee................................ 1,036,320
Shares of beneficial interest repurchased............... 812,502
Investment management fee............................... 638,563
Accrued expenses and other payables......................... 401,653
--------------
TOTAL LIABILITIES...................................... 89,343,644
--------------
NET ASSETS:
Paid-in-capital............................................. 1,087,622,356
Net unrealized appreciation................................. 86,333,843
Accumulated undistributed net investment income............. 4,346,240
Accumulated undistributed net realized gain................. 81,002,334
--------------
NET ASSETS............................................. $1,259,304,773
--------------
--------------
NET ASSET VALUE PER SHARE,
78,583,914 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$16.02
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.................................................... $ 26,559,194
Dividends................................................... 12,772,090
------------
TOTAL INCOME........................................... 39,331,284
------------
EXPENSES
Plan of distribution fee.................................... 9,851,971
Investment management fee................................... 6,414,184
Transfer agent fees and expenses............................ 1,123,176
Registration fees........................................... 211,708
Shareholder reports and notices............................. 123,956
Custodian fees.............................................. 79,221
Professional fees........................................... 67,457
Trustees' fees and expenses................................. 19,406
Other....................................................... 15,923
------------
TOTAL EXPENSES......................................... 17,907,002
------------
NET INVESTMENT INCOME.................................. 21,424,282
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 97,968,604
Net change in unrealized appreciation....................... (3,107,509)
------------
NET GAIN............................................... 94,861,095
------------
NET INCREASE................................................ $116,285,377
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<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, 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 21,424,282 $ 18,982,173
Net realized gain........................................... 97,968,604 56,953,694
Net change in unrealized appreciation....................... (3,107,509) 45,494,865
------------- ------------
NET INCREASE........................................... 116,285,377 121,430,732
------------- ------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (21,021,721) (15,997,877)
Net realized gain........................................... (70,591,947) (25,273,043)
------------- ------------
TOTAL.................................................. (91,613,668) (41,270,920)
------------- ------------
Net increase (decrease) from transactions in shares of
beneficial interest....................................... 357,037,738 (8,813,901)
------------- ------------
TOTAL INCREASE......................................... 381,709,447 71,345,911
NET ASSETS:
Beginning of period......................................... 877,595,326 806,249,415
------------- ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$4,346,240 AND $3,987,969, RESPECTIVELY)................ $1,259,304,773 $877,595,326
------------- ------------
------------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1996
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's investment objective is to maximize
the total return of its investments. The Fund seeks to achieve its objective by
actively allocating its assets among major asset categories of equity and
fixed-income securities and money market instruments. The Fund was organized as
a Massachusetts business trust on August 5, 1988 and commenced operations on
October 31, 1988.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York or American Stock Exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued; if there were no sales that
day, the security is valued at the latest bid price; (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation; (3)
when market quotations are not readily available, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees; (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 the 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 are accreted over the life of the respective securities. Dividend
income and other distributions are recorded on the ex-dividend date. Interest
income is accrued daily.
51
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1996, 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 the Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined 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 exceeding $1 billion but not
exceeding $1.5 billion. Effective May 1, 1996, the annual rate was reduced to
0.475% to the portion of daily net assets in excess of $1.5 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.
52
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1996, CONTINUED
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 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 broker-dealers who engage in or
support distribution of the Fund's shares or who service shareholder accounts,
including overhead and telephone expenses; printing and distribution of
prospectuses and reports used in connection with the offering of the Fund's
shares to other than current shareholders and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may be compensated under the Plan for its opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses incurred by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered, may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares;
if for any reason the Plan is terminated, the Trustees will consider at that
time the manner in which to treat such expenses. The Distributor has advised the
Fund that such excess amounts, including carrying charges, totaled $37,253,459
at July 31, 1996. Of this amount, $13,444,602 represents excess distribution
expenses of Dean Witter Managed Assets Trust, the net assets of which were
combined with those of the Fund on December 22, 1995 pursuant to an Agreement
and Plan of Reorganization.
53
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1996, CONTINUED
The Distributor has informed the Fund that for the year ended July 31, 1996, it
received approximately $1,662,000 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, 1996 aggregated
$1,911,012,938 and $1,823,861,647, respectively. Included in the aforementioned
are purchases and sales of U.S. Government securities of $439,350,625 and
$365,547,234, respectively. For the same period, the Fund incurred brokerage
commissions with DWR of approximately $105,000 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, 1996, the Fund had
transfer agent fees and expenses payable of approximately $106,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended July 31, 1996 included in
Trustees' fees and expenses in the Statement of Operations amounted to $1,205.
At July 31, 1996, the Fund had an accrued pension liability of $91,788 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 FOR THE YEAR
ENDED ENDED
JULY 31, 1996 JULY 31, 1995
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 15,621,003 $ 252,119,338 9,276,510 $137,319,676
Reinvestment of dividends and distributions...................... 5,419,616 83,797,500 2,728,962 38,146,103
Shares issued in connection with the acquisition of Dean Witter
Managed Assets Trust (Note 6)................................... 20,952,000 322,593,266 -- --
----------- -------------- ----------- ------------
41,992,619 658,510,104 12,005,472 175,465,779
Repurchased...................................................... (18,698,191) (301,472,366) (12,582,171) (184,279,680)
----------- -------------- ----------- ------------
Net increase (decrease).......................................... 23,294,428 $ 357,037,738 (576,699) $ (8,813,901)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
54
<PAGE>
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1996, CONTINUED
6. ACQUISITION OF DEAN WITTER MANAGED ASSETS TRUST
As of the close of business on December 22, 1995, the Fund acquired all the net
assets of Dean Witter Managed Assets Trust ("Managed Assets") pursuant to a plan
of reorganization approved by the shareholders of Managed Assets on December 19,
1995. The acquisition was accomplished by a tax-free exchange of 20,952,000
shares of the Fund at a net asset value of $15.39 for 30,683,052 shares of
Managed Assets. The net assets of the Fund and Managed Assets immediately before
the acquisition were $935,510,174 and $322,593,266, respectively, including for
Managed Assets, unrealized appreciation of $6,077,572, distributions in excess
of net investment income of $158,230 and distributions in excess of net realized
gain of $16,410. Immediately after the acquisition, the combined net assets of
the Fund amounted to $1,258,103,440.
7. FEDERAL INCOME TAX STATUS
As of July 31, 1996, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences attributable to nondeductible merger expenses. To reflect
reclassifications arising from permanent book/tax differences for the year ended
July 31, 1996, paid-in-capital was charged and accumulated undistributed net
investment income was credited $113,940.
55
<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
FOR THE YEAR ENDED JULY 31 OCTOBER 31, 1988*
------------------------------------------------------------------------------ THROUGH
1996 1995 1994 1993 1992 1991 1990 JULY 31, 1989
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning
of period....... $ 15.87 $ 14.43 $ 14.59 $ 14.39 $ 13.09 $ 11.65 $ 11.37 $ 9.45
---------- --------- --------- ---------- --------- --------- ---------- ------
Net investment
income.......... 0.30 0.34 0.30 0.26 0.27 0.27 0.23 0.38
Net realized and
unrealized
gain............ 1.43 1.86 0.22 0.81 1.27 1.50 0.55 1.84
---------- --------- --------- ---------- --------- --------- ---------- ------
Total from
investment
operations...... 1.73 2.20 0.52 1.07 1.54 1.77 0.78 2.22
---------- --------- --------- ---------- --------- --------- ---------- ------
Less dividends
and
distributions
from:
Net investment
income........ (0.32) (0.29) (0.26) (0.31) (0.24) (0.26) (0.29) (0.30)
Net realized
gain.......... (1.26) (0.47) (0.42) (0.56) -- (0.07) (0.21) --
---------- --------- --------- ---------- --------- --------- ---------- ------
Total dividends
and
distributions... (1.58) (0.76) (0.68) (0.87) (0.24) (0.33) (0.50) (0.30)
---------- --------- --------- ---------- --------- --------- ---------- ------
Net asset value,
end of period... $ 16.02 $ 15.87 $ 14.43 $ 14.59 $ 14.39 $ 13.09 $ 11.65 $11.37
---------- --------- --------- ---------- --------- --------- ---------- ------
---------- --------- --------- ---------- --------- --------- ---------- ------
TOTAL INVESTMENT
RETURN+.......... 11.47 % 16.05 % 3.53 % 7.59 % 11.88 % 15.67 % 7.21 % 23.76 %(1)
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.58 % 1.63 % 1.62 % 1.62 % 1.63 % 1.59 % 1.53 % 0.97 %(2)(3)
Net investment
income.......... 1.88 % 2.35 % 2.03 % 1.90 % 2.19 % 2.37 % 2.39 % 6.00 %(2)(3)
SUPPLEMENTAL DATA:
Net assets, end
of period, in
millions........ $1,259 $878 $806 $783 $441 $238 $196 $48
Portfolio
turnover rate... 174 % 179 % 90 % 98 % 79 % 140 % 101 % 70 %(1)
Average
commission rate
paid............ $0.0597 -- -- -- -- -- -- --
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all 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
56
<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, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the seven 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, 1996 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
SEPTEMBER 13, 1996
- --------------------------------------------------------------------------------
1996 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended July 31, 1996, the Fund paid to its
shareholders $0.96 per share from long-term capital gains. For
such period 35.48% of the income dividend qualified for the
dividends received deduction available to corporations.
57
<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
58
<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.
59
<PAGE>
DEAN WITTER STRATEGIST FUND
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included
in Prospectus (Part A): Page in
Prospectus
----------
Financial highlights for the period October 31, 1988
through July 31, 1989 and for the fiscal years ended
July 31, 1990, 1991, 1992, 1993, 1994, 1995 and
1996 ....................................................... 4
(2) Financial statements included in the Statement of
Additional Information (Part B): Page in
SAI
---
Portfolio of Investments at July 31, 1996 .................. 43
Statement of assets and liabilities at July 31, 1996........ 48
Statement of operations for the year ended July 31, 1996 ... 49
Statement of changes in net assets for the years
ended July 31, 1995 and July 31, 1996 ...................... 50
Notes to Financial Statements............................... 51
Financial highlights for the period October 31,
1988 through July 31, 1989 and for the years ended
1990, 1991, 1992, 1993, 1994, 1995 and 1996 ................ 56
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
5. -- Investment Management Agreement between the
Registrant and Dean Witter InterCapital Inc.
8. -- Amendment to the Custodian Agreement between
the Registrant and The Bank of New York
9. -- Form of Services Agreement between Dean Witter
<PAGE>
InterCapital Inc. and Dean Witter Services
Company Inc.
11. -- Consent of Independent Accountants
15. -- Amended and Restated Plan of Distribution Pursuant
to Rule 12b-1
16. -- Schedule for Computation of Performance
Quotation
27. -- Financial Data Schedule
______________________________
All other exhibits previously filed and incorporated
by reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
Item 26. NUMBER OF HOLDERS OF SECURITIES.
(1) (2)
Number of Record Holders
Title of Class at September 3, 1996
-------------- ------------------------
Shares of Beneficial Interest 90,720
Item 27. INDEMNIFICATION.
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and
under Section 4.8 of the Registrant's By-Laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was
not unlawful. In addition, indemnification is permitted only if it is
determined that the actions in question did not render them liable by reason
of willful misfeasance, bad faith or gross negligence in the performance of
their duties or by reason of reckless disregard of their obligations and
duties to the Registrant. Trustees, officers, employees and agents will be
indemnified for the expense of litigation if it is determined that they are
entitled to indemnification against any liability established in such
litigation. The Registrant may also advance money for these expenses
provided that they give their undertakings to repay the Registrant unless
their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust
2
<PAGE>
and paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment adviser. The following information is given regarding
officers of Dean Witter InterCapital Inc. InterCapital is a wholly-owned
subsidiary of Dean Witter, Discover & Co. The principal address of the Dean
Witter Funds is Two World Trade Center, New York, New York 10048.
3
<PAGE>
The term "Dean Witter Funds" used below refers to the following registered
investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) InterCapital Income Securities Inc.
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) Municipal Income Trust
(6) Municipal Income Trust II
(7) Municipal Income Trust III
(8) Dean Witter Government Income Trust
(9) Municipal Premium Income Trust
(10) Municipal Income Opportunities Trust
(11) Municipal Income Opportunities Trust II
(12) Municipal Income Opportunities Trust III
(13) Prime Income Trust
(14) InterCapital Insured Municipal Bond Trust
(15) InterCapital Quality Municipal Income Trust
(16) InterCapital Quality Municipal Investment Trust
(17) InterCapital Insured Municipal Income Trust
(18) InterCapital California Insured Municipal Income Trust
(19) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
OPEN-END INVESTMENT COMPANIES:
(1) Dean Witter Short-Term Bond Fund
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
(11) Dean Witter U.S. Government Securities Trust
(12) Dean Witter Select Municipal Reinvestment Fund
(13) Dean Witter High Yield Securities Inc.
(14) Dean Witter Intermediate Income Securities
(15) Dean Witter New York Tax-Free Income Fund
(16) Dean Witter California Tax-Free Income Fund
(17) Dean Witter Health Sciences Trust
(18) Dean Witter California Tax-Free Daily Income Trust
(19) Dean Witter Global Asset Allocation Fund
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(22) Dean Witter Utilities Fund
4
<PAGE>
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
(31) Dean Witter Premier Income Trust
(32) Dean Witter Short-Term U.S. Treasury Trust
(33) Dean Witter Diversified Income Trust
(34) Dean Witter U.S. Government Money Market Trust
(35) Dean Witter Global Dividend Growth Securities
(36) Active Assets California Tax-Free Trust
(37) Dean Witter Natural Resource Development Securities Inc.
(38) Active Assets Government Securities Trust
(39) Active Assets Money Trust
(40) Active Assets Tax-Free Trust
(41) Dean Witter Limited Term Municipal Trust
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Balanced Growth Fund
(51) Dean Witter Balanced Income Fund
(52) Dean Witter Hawaii Municipal Trust
(53) Dean Witter Capital Appreciation Fund
(54) Dean Witter Intermediate Term U.S. Treasury Trust
(55) Dean Witter Information Fund
(56) Dean Witter Japan Fund
(57) Dean Witter Income Builder Fund
(58) Dean Witter Special Value Fund
The term "TCW/DW Funds" refers to the following registered investment companies:
OPEN-END INVESTMENT COMPANIES
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
CLOSED-END INVESTMENT COMPANIES
(1) TCW/DW Term Trust 2000
5
<PAGE>
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Witter Reynolds Inc. ("DWR"); Chairman, Chief
Executive Officer and Executive Officer and Director of Dean Witter
Director Distributors Inc. ("Distributors") and Dean
Witter Services Company Inc. ("DWSC"); Chairman
and Director of Dean Witter Trust Company
("DWTC"); Chairman, Director or Trustee, President
and Chief Executive Officer of the Dean Witter
Funds and Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Formerly Executive
Vice President and Director of Dean Witter,
Discover & Co. ("DWDC"); Director and/or officer
of various DWDC subsidiaries.
Philip J. Purcell Chairman, Chief Executive Officer and Director of
Director of DWDC and DWR; Director of DWSC and
Distributors; Director or Trustee of the Dean
Witter Funds; Director and/or officer of various
DWDC subsidiaries.
Richard M. DeMartini Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Capital;
Director of DWR, DWSC, Distributors and DWTC;
Trustee of the TCW/DW Funds; Member (since
January, 1993) and Chairman (since January,
1995) of the Board of Directors of NASDAQ.
James F. Higgins Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Financial;
Director of DWR, DWSC, Distributors and DWTC.
Thomas C. Schneider Executive Vice President and Chief Financial
Executive Vice Officer of DWDC, DWR, DWSC and Distributors;
President, Chief Director of DWR, DWSC and Distributors.
Financial Officer and
Director
Christine A. Edwards Executive Vice President, Secretary and General
Director Counsel of DWDC and DWR; Executive Vice President,
Secretary and Chief Legal Officer of Distributors;
Director of DWR, DWSC and Distributors.
6
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Joseph J. McAlinden
Executive Vice President
and Chief Investment
Officer Vice President of the Dean Witter Funds and
Director of DWTC.
Sheldon Curtis Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
General Counsel and President, Assistant General Counsel and Assistant
Secretary Secretary of Distributors; Senior Vice President
and Secretary of DWTC; Vice President, Secretary
and General Counsel of the Dean Witter Funds and
the TCW/DW Funds.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Richard Felegy
Senior Vice President
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone
Senior Vice President Senior Vice President of DWSC, Distributors
and DWTC and Director of DWTC; Vice President
of the Dean Witter Funds and the TCW/DW Funds.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
7
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Jenny Beth Jones Vice President of Dean Witter Special Value Fund
Senior Vice President
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira N. Ross
Senior Vice President Vice President of various Dean Witter Funds.
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer and Chief Financial Officer of the
Treasurer Dean Witter Funds and the TCW/DW Funds.
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds.
Barry Fink First Vice President and Assistant Secretary of
First Vice President DWSC; Assistant Secretary of the Dean Witter
and Assistant Secretary Funds and the TCW/DW Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors;First Vice
and Controller President and Treasurer of DWTC.
8
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Robert Zimmerman
First Vice President
Joan Allman
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Kirk Balzer
Vice President Vice President of Dean Witter Mid-Cap Growth Fund
Douglas Brown
Vice President
Philip Casparius
Vice President
Thomas Chronert
Vice President
Rosalie Clough
Vice President
Patricia A. Cuddy
Vice President Vice President of various Dean Witter Funds.
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Dwight Doolan
Vice President
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
9
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Peter W. Gurman
Vice President
John Hechtlinger
Vice President
Peter Hermann
Vice President Vice President of various Dean Witter Funds
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
David Johnson
Vice President
Christopher Jones
Vice President
James Kastberg
Vice President
Stanley Kapica
Vice President
Michael Knox
Vice President Vice President of various Dean Witter Funds
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paula LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
Gerard Lian
Vice President Vice President of various Dean Witter Funds.
LouAnne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
10
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Julie Morrone
Vice President
David Myers
Vice President
James Nash
Vice President
Richard Norris
Vice President
Anne Pickrell
Vice President Vice President of Dean Witter Global Short-
Term Income Fund Inc.
Hugh Rose
Vice President
Robert Rossetti
Vice President
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
Rafael Scolari
Vice President Vice President of Prime Income Trust
Peter Seeley Vice President of Dean Witter World
Vice President Wide Income Trust
Jayne M. Stevlingson
Vice President Vice President of various Dean Witter Funds.
Kathleen Stromberg
Vice President Vice President of various Dean Witter Funds.
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
11
<PAGE>
Item 29. PRINCIPAL UNDERWRITERS
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Global Asset Allocation
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Limited Term Municipal Trust
(22) Dean Witter Natural Resource Development Securities Inc.
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Federal Securities Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Premier Income Trust
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Balanced Growth Fund
(49) Dean Witter Balanced Income Fund
12
<PAGE>
(50) Dean Witter Hawaii Municipal Trust
(51) Dean Witter Variable Investment Series
(52) Dean Witter Capital Appreciation Fund
(53) Dean Witter Intermediate Term U.S. Treasury Trust
(54) Dean Witter Information Fund
(55) Dean Witter Japan Fund
(56) Dean Witter Income Builder Fund
(57) Dean Witter Special Value Fund
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(b) The following information is given regarding directors and officers of
Distributors not listed in Item 28 above. The principal address of
Distributors is Two World Trade Center, New York, New York 10048. None of
the following persons has any position or office with the Registrant.
Positions and
Office with
Name Distributors
---- -------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service
contract.
Item 32. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York on the 20th day of September, 1996.
DEAN WITTER STRATEGIST FUND
By /s/Sheldon Curtis
--------------------------------
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 9 has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/Charles A. Fiumefreddo 09/20/96
--------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/Thomas F. Caloia 09/20/96
--------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/Sheldon Curtis 09/20/96
--------------------------
Sheldon Curtis
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
By /s/David M. Butowsky 09/20/96
--------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
DEAN WITTER STRATEGIST FUND
EXHIBIT INDEX
5. -- Investment Management Agreement between the
Registrant and Dean Witter InterCapital Inc.
8. -- Amendment to the Custodian Agreement between
the Registrant and The Bank of New York
9. -- Form of Services Agreement between Dean Witter
InterCapital Inc. and Dean Witter Services
Company Inc.
11. -- Consent of Independent Accountants
15. -- Amended and Restated Plan of Distribution
Pursuant to Rule 12b-1
16. -- Schedule for Computation of Performance
Quotation
27. -- Financial Data Schedule
_________________________________
All other exhibits previously filed and incorporated by reference.
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 30th day of June, 1993, and amended as of May 1,
1996, by and between Dean Witter Strategist Fund, an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter called the "Fund"), and Dean Witter InterCapital Inc., a
Delaware corporation (hereinafter called the "Investment Manager"):
WHEREAS, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, and engages in the business of
acting as investment adviser; and
WHEREAS, The Fund desires to retain the Investment Manager to render
management and investment advisory services in the manner and on the terms
and conditions hereinafter set forth; and
WHEREAS, The Investment Manager desires to be retained to perform
services on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as investment
manager of the Fund and, subject to the supervision of the Trustees, to
supervise the investment activities of the Fund as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager
shall obtain and evaluate such information and advice relating to the
economy, securities and commodities markets and securities and commodities as
it deems necessary or useful to discharge its duties hereunder; shall
continuously manage the assets of the Fund in a manner consistent with the
investment objectives and policies of the Fund; shall determine the
securities and commodities to be purchased, sold or otherwise disposed of by
the Fund and the timing of such purchases, sales and dispositions; and shall
take such further action, including the placing of purchase and sale orders
on behalf of the Fund, as the Investment Manager shall deem necessary or
appropriate. The Investment Manager shall also furnish to or place at the
disposal of the Fund such of the information, evaluations, analyses and
opinions formulated or obtained by the Investment Manager in the discharge of
its duties as the Fund may, from time to time, reasonably request.
2. The Investment Manager 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 the Investment
Manager shall be deemed to include persons employed or otherwise retained by
the Investment Manager to furnish statistical and other factual data, advice
regarding economic factors and trends, information with respect to technical
and scientific developments, and such other information, advice and
assistance as the Investment Manager may desire. The Investment Manager
shall, as agent for the Fund, maintain the 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, the Investment
Manager shall surrender to the Fund such of the books and records so
requested.
3. The Fund will, from time to time, furnish or otherwise make available
to the Investment Manager such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the
Investment Manager may reasonably require in order to discharge its duties
and obligations hereunder.
4. The Investment Manager shall bear the cost of rendering the
investment management and supervisory 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, and provide such office space,
facilities and equipment
<PAGE>
and such clerical help and bookkeeping services as the Fund shall reasonably
require in the conduct of its business. The Investment Manager shall also
bear the cost of telephone service, heat, light, power and other utilities
provided to the Fund.
5. The Fund assumes and shall pay or cause to be paid all other expenses
of the Fund, including without limitation: fees pursuant to any plan of
distribution that the Fund may adopt; the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities or commodities and other
property, and any stock transfer or dividend agent or agents appointed by the
Fund; brokers' commissions chargeable to the Fund in connection with
portfolio transactions to which the Fund is a party; all taxes, including
securities or commodities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the cost and
expense of engraving or printing certificates representing shares of the
Fund; all costs and expenses in connection with the registration and
maintenance of registration of the Fund and its shares with the Securities
and Exchange Commission and various states and other jurisdictions (including
filing fees and legal fees and disbursements of counsel); the cost and
expense of printing, including typesetting, and distributing prospectuses
and statements of additional information of the Fund and supplements thereto
to the Fund's shareholders; all expenses of shareholders' and Trustees'
meetings and of preparing, printing and mailing proxy statements and reports
to shareholders; fees and travel expenses of Trustees or members of any
advisory board or committee who are not employees of the Investment Manager
or any corporate affiliate of the Investment Manager; all expenses incident
to the payment of any dividend, distribution, withdrawal or redemption,
whether in shares or in cash; charges and expenses of any outside service
used for pricing of the Fund's shares; charges and expenses of legal counsel,
including counsel to the Trustees of the Fund who are not interested persons
(as defined in the Act) of the Fund or the Investment Manager, and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable 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 related thereto); and all other
charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the Fund shall pay to the
Investment Manager monthly compensation determined by applying the following
annual rates to the Fund's daily net assets: 0.60% of daily net assets up to
$500 million; 0.55% of the next $500 million; 0.50% of the next $500 million;
and 0.475% of daily net assets over $1.5 billion. Except as hereinafter set
forth, compensation under this Agreement shall be calculated and accrued
daily and the amounts of the daily accruals shall be paid monthly. Such
calculations shall be made by applying 1/365ths of the annual rates to the
Fund's net assets each day determined as of the close of business on that day
or the last previous business day. 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 above.
Subject to the provisions of paragraph 7 hereof, payment of the
Investment Manager's compensation for the preceding month shall be made as
promptly as possible after completion of the computations contemplated by
paragraph 7 hereof.
7. In the event the operating expenses of the Fund, including amounts
payable to the Investment Manager pursuant to paragraph 6 hereof, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund imposed by state securities laws
or regulations thereunder, as such limitations may be raised or lowered from
time to time, the Investment Manager shall reduce its management fee to the
extent of such excess and, if required, pursuant to any such laws or
regulations, will reimburse the Fund for annual operating expenses in excess
of any expense limitation that may be applicable; provided, however, there
shall be excluded from such expenses the amount of any interest, taxes,
brokerage commissions, distribution fees and extraordinary expenses
(including but not limited to legal claims and liabilities and litigation
costs and any indemnification related thereto) paid or payable by the Fund.
Such reduction, if any, shall be computed and accrued daily, shall be settled
on a monthly basis, and shall be based upon the expense limitation applicable
to the Fund as at the end of the last
2
<PAGE>
business day of the month. Should two or more such expense limitations be
applicable as at the end of the last business day of the month, that expense
limitation which results in the largest reduction in the Investment Manager's
fee shall be applicable.
For purposes of this provision, should any applicable expense limitation
be based upon the gross income of the Fund, such gross income shall include,
but not be limited to, interest on debt securities in the Fund's portfolio
accrued to and including the last day of the Fund's fiscal year, and
dividends declared on equity securities in the Fund's portfolio, the record
dates for which fall on or prior to the last day of such fiscal year, but
shall not include gains from the sale of securities.
8. The Investment Manager will use its best efforts in the supervision
and management of the investment activities of the Fund, but in the absence
of willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations hereunder, the Investment Manager 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 the Investment Manager or for any losses sustained
by the Fund or its investors.
9. Nothing contained in this Agreement shall prevent the Investment
Manager or any affiliated person of the Investment Manager from acting as
investment adviser or manager for any other person, firm or corporation and
shall not in any way bind or restrict the Investment Manager or any such
affiliated person from buying, selling or trading any securities or
commodities for their own accounts or for the account of others for whom they
may be acting. Nothing in this Agreement shall limit or restrict the right of
any Trustee, officer or employee of the Investment Manager to engage in any
other business or to devote his or her time and attention in part to the
management or other aspects of any other business whether of a similar or
dissimilar nature.
10. This Agreement shall remain in effect until April 30, 1997 and from
year to year thereafter provided such continuance is approved at least
annually by the vote of holders of a majority, as defined in the Investment
Company Act of 1940, as amended (the "Act"), of the outstanding voting
securities of the Fund or by the Trustees of the Fund; provided that in
either event such continuance is also approved annually by the vote of a
majority of the Trustees of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, which vote
must be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that (a) the Fund may, at any time and without
the payment of any penalty, terminate this Agreement upon thirty days'
written notice to the Investment Manager, either by majority vote of the
Trustees of the Fund or by the vote of a majority of the outstanding voting
securities of the Fund; (b) this Agreement shall immediately terminate in the
event of its assignment (to the extent required by the Act and the rules
thereunder) unless such automatic terminations shall be prevented by an
exemptive order of the Securities and Exchange Commission; and (c) the
Investment Manager may terminate this Agreement without payment of penalty on
thirty days' written notice to the Fund. Any notice under this Agreement
shall be given in writing, addressed and delivered, or mailed post-paid, to
the other party at the principal office of such party.
11. This Agreement may be amended by the parties without the vote or
consent of the shareholders of the Fund to supply any omission, to cure,
correct or supplement any ambiguous, defective or inconsistent provision
hereof, or if they deem it necessary to conform this Agreement to the
requirements of applicable federal laws or regulations, but neither the Fund
nor the Investment Manager shall be liable for failing to do so.
12. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall
control.
13. The Investment Manager and the Fund each agree that the name "Dean
Witter", which comprises a component of the Fund's name, is a property right
of Dean Witter Reynolds Inc. The Fund agrees and consents that (i) it will
only use the name "Dean Witter" as a component of its name and for no other
purpose, (ii) it will not purport to grant to any third party the right to
use the name "Dean Witter" for any purpose, (iii) the Investment Manager or
its parent, Dean Witter Reynolds Inc., or any corporate affiliate of the
Investment Manager's parent, may use or grant to others the right to use the
name "Dean Witter", or any combination or abbreviation thereof, as all or a
portion of a corporate or business name or for any
3
<PAGE>
commercial purpose, including a grant of such right to any other investment
company, (iv) at the request of the Investment Manager or its parent, the
Fund will take such action as may be required to provide its consent to the
use of the name "Dean Witter", or any combination or abbreviation thereof, by
the Investment Manager or its parent or any corporate affiliate of the
Investment Manager's parent, or by any person to whom the Investment Manager
or its parent or any corporate affiliate of the Investment Manager's parent
shall have granted the right to such use, and (v) upon the termination of any
investment advisory agreement into which the Investment Manager and the Fund
may enter, or upon termination of affiliation of the Investment Manager with
its parent, the Fund shall, upon request by the Investment Manager or its
parent, cease to use the name "Dean Witter" as a component of its name, and
shall not use the name, or any combination or abbreviation thereof, as a part
of its name or for any other commercial purpose, and shall cause its
officers, Trustees and shareholders to take any and all actions which the
Investment Manager or its parent may request to effect the foregoing and to
reconvey to the Investment Manager or its parent any and all rights to such
name.
14. The Declaration of Trust establishing Dean Witter Strategist Fund,
dated August 4, 1988, a copy of which, together with all amendments thereto
(the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Dean Witter Strategist
Fund refers to the Trustees under the Declaration collectively as Trustees,
but not as individuals or personally; and no Trustee, shareholder, officer,
employee or agent of Dean Witter Strategist Fund shall be held to any
personal liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise, in connection with the
affairs of said Dean Witter Strategist Fund, but the Trust Estate only shall
be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on May 1, 1996, in New York, New York.
DEAN WITTER STRATEGIST FUND
/s/ Sheldon Curtis
......................................
Attest:
/s/ Carsten Otto
.....................................
DEAN WITTER INTERCAPITAL INC.
/s/ Robert M. Scanlan
......................................
Attest:
/s/ Marilyn K. Cranney
.....................................
4
<PAGE>
AMENDMENT TO CUSTODY AGREEMENT
Amendment made as of this 17th day of April, 1996 by and between Dean
Witter Strategist Fund(the "Fund") and The Bank of New York (the "Custodian")
to the Custody Agreement between the Fund and the Custodian dated September 20,
1991 (the "Custody Agreement"). The Custody Agreement is hereby amended as
follows:
Article XV Section 8 of the Custody Agreement shall be deleted and be
replaced by Sections 8.(a), 8.(b) and 8.(c) as set forth below:
"8. (a) The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of Securities and moneys
owned by the Fund. The Custodian shall indemnify the Fund against and save
the Fund harmless from all liability, claims, losses and demands whatsoever,
including attorneys' fees, howsoever arising or incurred as the result of the
failure of a subcustodian which is a banking insitution located in a foreign
country and identified on Schedule A attached hereto and as amended from time
to time upon mutual agreement of the parties (each, a "Subcustodian") to
exercise reasonable care with respect to the safekeeping of such Securities
and moneys to the same extent that the Custodian would be liable to the Fund
if the Custodian were holding such securities and moneys in New York. In the
event of any loss to the Fund by reason of the failure of the Custodian or a
Subcustodian to utilize reasonable care, the Custodian shall be liable to the
Fund only to the extent of the Fund's direct damages, to be determined based
on the market value of the Securities and moneys which are the subject of the
loss at the date of discovery of such loss and without reference to any
special conditions or circumstances.
8. (b) The Custodian shall not be liable for any loss which results from
(i) the general risk of investing, or (ii) investing or holding Securities and
moneys in a particular country including, but not limited to, losses resulting
from nationalization, expropriation or other governmental actions; regulation of
the banking or securities industry; currency restrictions, devaluations or
fluctuations; or market conditions which prevent the orderly execution of
securities transactions or affect the value of Securities or moneys.
8. (c) Neither party shall be liable to the other for any loss due to
forces beyond its control including, but not limited to, strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DEAN WITTER STRATEGIST FUND
[SEAL] By:/s/ David A. Hughey
---------------------
Attest:
/s/ Robert M. Scanlan
- ------------------------
THE BANK OF NEW YORK
[SEAL] By:/s/ Steve Grunston
---------------------
Attest:
/s/ Vincent Blazewitcz
- ------------------------
<PAGE>
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Argentina The Bank of Boston
Australia ANZ Banking Group Limited
Austria Girocredit Bank AG
Bangladesh* Standard Chartered Bank
Belgium Banque Bruxelles Lambert
Botswana* Stanbic Bank Botswana Ltd.
Brazil The Bank of Boston
Canada Royal Trust/Royal Bank of Canada
Chile The Bank of Boston/Banco de Chile
China Standard Chartered Bank
Colombia Citibank, N.A.
Denmark Den Danske Bank
Euromarket CEDEL
Euroclear
First Chicago Clearing Centre
Finland Union Bank of Finland
France Banque Paribas/Credit Commercial de France
Germany Dresdner Bank A.G.
Ghana* Merchant Bank Ghana Ltd.
Greece Alpha Credit Bank
Hong Kong Hong Kong and Shanghai Banking Corp.
Indonesia Hong Kong and Shanghai Banking Corp.
Ireland Allied Irish Bank
Israel Israel Discount Bank
Italy Banca Commerciale Italiana
Japan Yasuda Trust & Banking Co., Lt.
Korea Bank of Seoul
Luxembourg Kredietbank S.A.
Malaysia Hong Kong Bank Malaysia Berhad
Mexico Banco Nacional de Mexico (Banamex)
Netherlands Mees Pierson
New Zealand ANZ Banking Group Limited
Norway Den Norske Bank
Pakistan Standard Chartered Bank
Peru Citibank, N.A.
Philippines Hong Kong and Shanghai Banking Corp.
Poland Bank Handlowy w Warsawie
Portugal Banco Comercial Portugues
Singapore United Overseas Bank
South Africa Standard Bank of South Africa Limited
Spain Banco Bilbao Vizcaya
Sri Lanka Standard Chartered Bank
<PAGE>
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Sweden Skandinaviska Enskilda Banken
Switzerland Union Bank of Switzerland
Taiwan Hong Kong and Shanghai Banking Corp.
Thailand Siam Commercial Bank
Turkey Citibank, N.A.
United Kingdom The Bank of New York
United States The Bank of New York
Uruguay The Bank of Boston
Venezuela Citibank N.A.
Zimbabwe* Stanbic Bank Zimbabwe Ltd.
*Not yet 17(f)5 compliant
<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.
1
<PAGE>
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
<PAGE>
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
<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
AT APRIL 17, 1995
AS AMENDED AS OF JULY 1, 1996
<TABLE>
<CAPTION>
<S> <C>
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 Appreciation Fund
11. Dean Witter Capital Growth Securities
12. Dean Witter Convertible Securities Trust
13. Dean Witter Developing Growth Securities Trust
14. Dean Witter Diversified Income Trust
15. Dean Witter Dividend Growth Securities Inc.
16. Dean Witter European Growth Fund Inc.
17. Dean Witter Federal Securities Trust
18. Dean Witter Global Asset Allocation Fund
19. Dean Witter Global Dividend Growth Securities
20. Dean Witter Global Short-Term Income Fund Inc.
21. Dean Witter Global Utilities Fund
22. Dean Witter Hawaii Municipal Trust
23. Dean Witter Health Sciences Trust
24. Dean Witter High Income Securities
25. Dean Witter High Yield Securities Inc.
26. Dean Witter Income Builder Fund
27. Dean Witter Information Fund
28. Dean Witter Intermediate Income Securities
29. Dean Witter Intermediate Term U.S. Treasury Trust
30. Dean Witter International Small Cap Fund
31. Dean Witter Japan Fund
32. Dean Witter Limited Term Municipal Trust
33. Dean Witter Liquid Asset Fund Inc.
34. Dean Witter Managed Assets Trust
35. Dean Witter Mid-Cap Growth Fund
36. Dean Witter Multi-State Municipal Series Trust
37. Dean Witter National Municipal Trust
38. Dean Witter Natural Resource Development Securities Inc.
39. Dean Witter New York Municipal Money Market Trust
40. Dean Witter New York Tax-Free Income Fund
41. Dean Witter Pacific Growth Fund Inc.
42. Dean Witter Precious Metals and Minerals Trust
43. Dean Witter Premier Income Trust
44. Dean Witter Retirement Series
45. Dean Witter Select Dimensions Series
46. Dean Witter Select Municipal Reinvestment Fund
47. Dean Witter Short-Term Bond Fund
48. Dean Witter Short-Term U.S. Treasury Trust
49. Dean Witter Strategist Fund
50. Dean Witter Tax-Exempt Securities Trust
51. Dean Witter Tax-Free Daily Income Trust
52. Dean Witter U.S. Government Money Market Trust
53. Dean Witter U.S. Government Securities Trust
54. Dean Witter Utilities Fund
55. Dean Witter Value-Added Market Series
56. Dean Witter Variable Investment Series
57. Dean Witter World Wide Income Trust
58. Dean Witter World Wide Investment Trust
CLOSED-END FUNDS
59. High Income Advantage Trust
60. High Income Advantage Trust II
61. High Income Advantage Trust III
62. InterCapital Income Securities Inc.
63. Dean Witter Government Income Trust
64. InterCapital Insured Municipal Bond Trust
4
<PAGE>
65. InterCapital Insured Municipal Trust
66. InterCapital Insured Municipal Income Trust
67. InterCapital California Insured Municipal Income Trust
68. InterCapital Insured Municipal Securities
69. InterCapital Insured California Municipal Securities
70. InterCapital Quality Municipal Investment Trust
71. InterCapital Quality Municipal Income Trust
72. InterCapital Quality Municipal Securities
73. InterCapital California Quality Municipal Securities
74. InterCapital New York Quality Municipal Securities
</TABLE>
5
<PAGE>
SCHEDULE B
DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES--APRIL 17, 1995
AS AMENDED AS OF JULY 1, 1996
Monthly compensation calculated daily by applying the following annual
rates to a fund's net assets:
<TABLE>
<CAPTION>
FIXED INCOME FUNDS
<S> <C>
Dean Witter Balanced Income 0.060% to the net assets.
Fund
Dean Witter California Tax-Free 0.055% of the portion of daily net assets not
Income Fund 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; 0.0475% of
the portion of the daily net assets exceeding $1
billion but not exceeding $1.25 billion; and 0.045%
of the portion of daily net assets exceeding $1.25
billion.
Dean Witter Convertible 0.060% of the portion of the daily net assets not
Securities Securities Trust 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 0.055% of the portion of the daily net assets not
Trust 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 assets not
Income Fund exceeding $500 million; and 0.050% of the portion
of the daily net assets exceeding $500 million.
Dean Witter Hawaii Municipal 0.035% to the net assets.
Trust
Dean Witter High Income 0.050% of the portion of daily net assets not
Securities exceeding $500 million; and 0.0425% of the portion
of daily net assets exceeding $500 million.
B-1
<PAGE>
Dean Witter High Yield 0.050% of the portion of the daily net assets not
Securities Inc. 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 $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 assets not
Income Securities 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 Intermediate Term 0.035% to the net assets.
U.S. Treasury Trust
Dean Witter Limited Term 0.050% to the net assets.
Municipal Trust
Dean Witter Multi-State 0.035% to the net assets.
Municipal 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 $500 million
Income Fund 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 assets not
Securities Trust 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.
B-2
<PAGE>
Dean Witter U.S. Government 0.050% of the portion of such daily net assets not
Securities Trust 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
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 $250 million;
Trust 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 assets not
Fund exceeding $250 million; 0.050% of the portion of
the daily net assets exceeding $250 million but not
exceeding $2.5 billion; and 0.0475% of the portion
of daily net assets exceeding $2.5 billion.
Dean Witter Balanced Growth 0.60% to the net assets.
Fund
Dean Witter Capital 0.075% to the net assets.
Appreciation Fund
Dean Witter Capital Growth 0.065% to the portion of daily net assets not
Securities 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 assets not
Securities Trust 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 assets not
Securities Inc. exceeding $250 million; 0.050% of the portion of
daily net assets exceeding $250 million but not
exceeding $1 billion; 0.0475% of the
B-3
<PAGE>
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; 0.0325% of the portion of the
daily net assets exceeding $8 billion but not
exceeding $10 billion; and 0.030% of the
portion of daily net assets exceeding $10 billion.
Dean Witter European Growth 0.060% of the portion of daily net assets not
Fund Inc. exceeding $500 million; and 0.057% of the portion
of daily net assets exceeding $500 million.
Dean Witter Global Asset 1.0% to the net assets.
Allocation Fund
Dean Witter Global Dividend 0.075% of the portion of daily net assets not
Growth Securities exceeding $1 billion; 0.0725% of the portion of
daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.070% of daily net assets
exceeding $1.5 billion but not exceeding $2.5 billion;
and 0.0675% of the portion of daily net assets exceeding
$2.5 billion.
Dean Witter Global Utilities 0.065% to the net assets.
Fund
Dean Witter Health Sciences 0.10% of the portion of daily net assets not
Trust exceeding $500 million; and 0.095% of the portion
of daily net assets exceeding $500 million.
Dean Witter Income 0.075% to the net assets.
Builder Fund
Dean Witter Information Fund 0.075% to the net assets.
Dean Witter International 0.075% to the net assets.
Small Cap Fund
Dean Witter Japan Fund 0.010% to the net assets.
Dean Witter Managed Assets 0.060% to the daily net assets not exceeding $500
Trust million and 0.055% to the daily net assets
exceeding $500 million.
Dean Witter Mid-Cap Growth 0.75% to the net assets.
Fund
Dean Witter Natural Resource 0.0625% of the portion of the daily net assets not
Development Securities Inc. 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 assets not
Fund Inc. 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
B-4
<PAGE>
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
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; 0.050% of the portion of the
daily net assets exceeding $1 billion but not
exceeding $1.5 billion; and 0.0475% of the portion
of the daily net assets exceeding $1.5 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.
B-5
<PAGE>
Dean Witter Value-Added Market 0.050% of the portion of daily net assets not
Series exceeding $500 million; 0.45% of the portion of
daily net assets exceeding $500 million but not
exceeding $1 billion; and 0.0425% of the portion of
daily net assets exceeding $1 billion.
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 assets not
Series-Dividend Growth exceeding $500 million; and 0.050% of the portion
of daily net assets exceeding $500 million but not
exceeding $1 billion; and 0.0475% of the portion of
daily net assets exceeding $1 billion.
Dean Witter Variable Investment 0.050% to the net assets of the portion of daily
Series-Equity net assets not exceeding $1 billion; and 0.0475% of
the portion of daily net assets exceeding $1 billion.
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 assets exceeding
Series-Utilities $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 assets not
Investment Trust exceeding $500 million; and 0.05225% of the portion
of daily net assets exceeding $500 million.
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 assets not
Daily Income Trust 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;
B-6
<PAGE>
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 assets not
Fund Inc. 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 assets not
Money Market Trust 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 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 0.50% to the net assets.
Series-Money Market Portfolio
Dean Witter Tax-Free Daily 0.050% of the portion of the daily net assets not
Income Trust 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
B-7
<PAGE>
$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 assets not
Money Market Trust 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
</TABLE>
Monthly compensation calculated weekly by applying the following annual
rates to the weekly net assets.
<TABLE>
<CAPTION>
CLOSED-END FUNDS
<S> <C>
Dean Witter Government Income 0.060% to the average weekly net assets.
Trust
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 $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 0.050% to the average weekly net assets.
Inc.
B-8
<PAGE>
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
</TABLE>
B-9
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 9 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
September 13, 1996, relating to the financial statements and financial
highlights of Dean Witter Strategist Fund, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Independent Accountants"
and "Experts" in such Statement of Additional Information and to the reference
to us under the heading "Financial Highlights" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
September 13, 1996
<PAGE>
AMENDED AND RESTATED PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
DEAN WITTER STRATEGIST FUND
WHEREAS, Dean Witter Strategist Fund (the "Fund") is engaged in business
as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, on April 28, 1993, the Fund most recently amended and restated a
Plan of Distribution pursuant to Rule 12b-1 under the Act which had initially
been adopted on August 26, 1988, and the Trustees then determined that there
was a reasonable likelihood that adoption of the Plan of Distribution, as
then amended and restated, would benefit the Fund and its shareholders; and
WHEREAS, the Trustees believe that continuation of said Plan of
Distribution, as amended and restated herein, is reasonably likely to
continue to benefit the Fund and its shareholders; and
WHEREAS, on July 27, 1989, the Fund and Dean Witter Reynolds Inc. ("DWR")
amended and restated a Distribution Agreement which had initially been
adopted on August 26, 1988, pursuant to which the Fund employed DWR as
distributor of the Fund's shares; and
WHEREAS, on January 4, 1993, the Fund and DWR substituted Dean Witter
Distributors Inc. (the "Distributor") in the place of DWR as distributor of
the Fund's shares; and
WHEREAS, the Fund, DWR and the Distributor intend that DWR will continue
to promote the sale of Fund shares and provide personal services to Fund
shareholders with respect to their holdings of Fund shares; and
WHEREAS, the Fund and the Distributor entered into a separate
Distribution Agreement dated as of June 30, 1993, pursuant to which the Fund
has employed the Distributor in such capacity during the continuous offering
of shares of the Fund.
NOW, THEREFORE, the Fund hereby amends the Plan of Distribution
previously adopted and amended and restated, and the Distributor hereby
agrees to the terms of said Plan of Distribution (the "Plan"), as amended
herein, in accordance with Rule 12b-1 under the Act on the following terms
and conditions:
1. The Fund shall pay to the Distributor, as the distributor of
securities of which the Fund is the issuer, compensation for distribution of
its shares at the rate of (i) the lesser of (a) 1.0% per annum of the average
daily aggregate sales of the shares of the Fund since the effectiveness of
the first amendment of the Plan on November 8, 1989 (not including
reinvestment of dividends and capital gains distributions from the Fund) less
the average daily aggregate net asset value of the shares of the Fund
redeemed since the effectiveness of the first amendment of the Plan upon
which a contingent deferred sales charge has been imposed or upon which such
charge has been waived, or (b) 1.0% per annum of the Fund's average daily net
assets attributable to shares issued since the effectiveness of the first
amendment of the Plan; and (ii) 0.25% of the Fund's average daily net assets
attributable to shares issued prior to the effectiveness of the first
amendment of the Plan. Such compensation shall be calculated and accrued
daily and paid monthly or at such other intervals as the Trustees shall
determine. The Distributor may direct that all or any part of the amounts
receivable by it under this Plan be paid directly to DWR, its affiliates or
other broker-dealers who provide distribution and shareholder services. All
payments made hereunder pursuant to the Plan shall be in accordance with the
terms and limitations of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc.
2. 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,
including personal services to shareholders with respect to their holdings of
Fund shares, and may be spent by the Distributor, DWR, its affiliates and
such broker-dealers on any activities or expenses related to the distribution
of the Fund's shares or services to shareholders, including, but not limited
to: compensation to, and expenses of, account executives or other employees
of the Distributor, DWR, its affiliates or other broker-dealers; overhead and
other branch office distribution-related expenses and telephone expenses of
persons who engage in or support distribution of shares or who provide
personal services to shareholders; printing of prospectuses and reports for
other than existing shareholders; preparation, printing and distribution of
sales literature and advertising materials and opportunity costs in incurring
the foregoing expenses (which may be calculated as a carrying charge on the
excess of the distribution expenses incurred by the Distributor, DWR, its
affiliates or other broker-dealers over distribution revenues received by
them). The overhead and other branch office distribution-related expenses
referred to in this paragraph 2 may include: (a) the expenses of operating
the branch offices of the Distributor or other broker-dealers, including DWR,
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
95NYC7092
1
<PAGE>
sales. Payments may also be made with respect to distribution expenses
incurred in connection with the distribution of shares, including personal
services to shareholders with respect to holdings of such shares, of an
investment company whose assets are acquired by the Fund in a tax-free
reorganization.
3. This Plan, as amended and restated, shall not take effect until it has
been approved, together with any related agreements, by votes of a majority
of the Board of Trustees of the Fund and of the Trustees who are not
"interested persons" of the Fund (as defined in the Act) and have no direct
or indirect financial interest in the operation of this Plan or any
agreements related to it (the "Rule 12b-1 Trustees"), cast in person at a
meeting (or meetings) called for the purpose of voting on this Plan and such
related agreements.
4. This Plan shall continue in effect until April 30, 1996, and from year
to year thereafter, provided such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph
3 hereof.
5. The Distributor shall provide to the Trustees of the Fund and
the Trustees shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were made.
In this regard, the Trustees shall request the Distributor to specify such
items of expenses as the Trustees deem appropriate. The Trustees shall
consider such items as they deem relevant in making the determinations
required by paragraph 4 hereof.
6. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees, or by vote of a majority of the outstanding voting
securities of the Fund. In the event of any such termination or in the event
of nonrenewal, the Fund shall have no obligation to pay expenses which have
been incurred by the Distributor, DWR, its affiliates or other broker-dealers
in excess of payments made by the Fund pursuant to this Plan. However, this
shall not preclude consideration by the Trustees of the manner in which such
excess expenses shall be treated.
7. This Plan may not be amended to increase materially the amount the
Fund may spend for distribution provided in paragraph 1 hereof unless such
amendment is approved by a vote of at least a majority (as defined in the
Act) of the outstanding voting securities of the Fund, and no material
amendment to the Plan shall be made unless approved in the manner provided
for approval in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of Trustees
who are not interested persons (as defined in the Act) of the Fund shall be
committed to the discretion of the Trustees who are not interested persons.
9. The Fund shall preserve copies of this Plan and any related agreements
and all reports made pursuant to paragraph 5 hereof, for a period of not less
than six years from the date of this Plan, any such agreement or any such
report, as the case may be, the first two years in an easily accessible place.
10. The Declaration of Trust establishing Dean Witter Strategist Fund,
dated August 4, 1988, a copy of which, together with all amendments thereto
(the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Dean Witter Strategist
Fund refers to the Trustees under the Declaration collectively as Trustees
but not as individuals or personally; and no Trustee, shareholder, officer,
employee or agent of Dean Witter Strategist Fund shall be held to any
personal liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise, in connection with the
affairs of said Dean Witter Strategist Fund, but the Trust Estate only shall
be liable.
IN WITNESS WHEREOF, the Fund, the Distributor and DWR have executed this
amended and restated Plan of Distribution, as amended, as of the day and year
set forth below in New York, New York.
<TABLE>
<S> <C>
Date: August 26, 1988 DEAN WITTER STRATEGIST FUND
As amended on July 27, 1989,
January 4, 1993, April 28, 1993 and
December 19, 1995
By /s/ Sheldon Curtis
..........................................
Attest:
/s/ Barry Fink
.........................................
DEAN WITTER DISTRIBUTORS INC.
By /s/ Robert M. Scanlan
..........................................
Attest:
/s/ David A. Hughey
.........................................
DEAN WITTER REYNOLDS INC.
/s/ Charles Fiumefreddo
..........................................
Attest:
/s/ Marilyn K. Cranney
.........................................
</TABLE>
2
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
THE STRATEGIST FUND
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
(A)
$1,000 ERV AS OF NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Jul-96 YEARS - n TOTAL RETURN - T
- ------------- ------------ ----------- -----------------
31-Jul-95 $1,064.70 1.00 6.47%
31-Jul-91 $1,592.20 5.00 9.75%
31-Oct-88 $2,474.10 7.75 12.40%
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Jul-96 RETURN - TR YEARS - n TOTAL RETURN - t
- ------------- ---------- ----------- --------- ----------------
31-Jul-95 $1,114.70 11.47% 1.00 11.47%
31-Jul-91 $1,612.20 61.22% 5.00 10.02%
31-Oct-88 $2,474.10 147.41% 7.75 12.40%
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN
<TABLE>
<CAPTION>
$10,000 TOTAL GROWTH OF (D) GROWTH OF (E) GROWTH OF (F)
INVESTED - P RETURN - TR $10,000 INVESTMENT-G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ------------ -------------------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
31-Oct-88 147.41 $24,741 $123,705 $247,410
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 1,237,885,809
<INVESTMENTS-AT-VALUE> 1,324,219,652
<RECEIVABLES> 24,375,915
<ASSETS-OTHER> 52,850
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,348,648,417
<PAYABLE-FOR-SECURITIES> 86,454,606
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,889,038
<TOTAL-LIABILITIES> 89,343,644
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,087,622,356
<SHARES-COMMON-STOCK> 78,583,714
<SHARES-COMMON-PRIOR> 55,289,486
<ACCUMULATED-NII-CURRENT> 4,346,240
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 81,002,334
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86,333,843
<NET-ASSETS> 1,259,304,773
<DIVIDEND-INCOME> 12,772,090
<INTEREST-INCOME> 26,559,194
<OTHER-INCOME> 0
<EXPENSES-NET> 17,907,002
<NET-INVESTMENT-INCOME> 21,424,282
<REALIZED-GAINS-CURRENT> 97,968,604
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</TABLE>
