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PROSPECTUS
OCTOBER 26, 1995
Dean Witter Intermediate Income Securities (the "Fund") is an
open-end, diversified management investment company, whose investment objective
is high current income consistent with safety of principal. The Fund seeks to
achieve its investment objective by investing primarily in intermediate term,
investment grade fixed-income securities. 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 cases to a
contingent deferred sales charge, scaled down from 5% to 1% of the amount
redeemed, if made within six years of purchase, which charge will be paid to the
Fund's Distributor, 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 0.85% of the lesser of the (i) average daily aggregate net sales or (ii)
average daily net assets of the Fund. See "Purchase of Fund Shares--Plan of
Distribution."
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated October 26, 1995, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed below. 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/8
Investment Restrictions/9
Purchase of Fund Shares/9
Shareholder Services/11
Redemptions and Repurchases/14
Dividends, Distributions and Taxes/16
Performance Information/17
Additional Information/17
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Dean Witter
Intermediate Income Securities
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
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PROSPECTUS SUMMARY
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The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an
Fund open-end, diversified management investment company. The Fund invests primarily in intermediate
term, investment grade fixed-income securities.
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Shares Offered Shares of beneficial interest with $0.01 par value (see page 17).
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Offering At net asset value (see page 9). Shares redeemed within six years of purchase are subject to a
Price contingent deferred sales charge under most circumstances (see page 14).
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Minimum Minimum initial investment, $1,000; minimum subsequent investment, $100 (see page 9).
Purchase
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Investment The investment objective of the Fund is high current income consistent with safety of principal.
Objective
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Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-
Manager owned subsidiary, Dean Witter Services Company Inc., serve in various investment management,
advisory, management and administrative capacities to ninety-seven investment companies and other
portfolios with assets of approximately $76.4 billion at September 30, 1995 (see page 5).
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Management The Investment Manager receives a monthly fee at the annual rate of .60% of daily net assets, scaled
Fee down on assets over $500 million (see page 5).
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Dividends Dividends are declared daily, and either paid monthly in additional shares of the Fund or, at the
shareholder's option, paid monthly in cash.
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Distributor Dean Witter Distributors Inc. (the "Distributor") receives from the Fund a distribution fee accrued
and daily and paid monthly at the rate of 0.85% per annum of the lesser of (i) the Fund's average daily
Distribution aggregate net sales or (ii) the Fund's average daily net assets. The fee compensates the Distributor
Fee for 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 page 10).
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Redemption- Redeemable at net asset value, involuntarily redeemed if the total value of the account is less than
Contingent $100. Although no commission or sales charge is imposed upon the purchase of shares, a contingent
Deferred Sales deferred sales charge (scaled down from 5% to 1%) is imposed on any redemption of shares if after
Charge such redemption the aggregate current value of an account with the Fund falls below the aggregate
amount of the investor's purchase payments made during the six years preceding the redemption.
However, there is no charge imposed on redemption of shares purchased through reinvestment of
dividends or distributions (see page 14).
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Risk The net asset value of the Fund's shares will fluctuate with changes in the market value of its
Considerations portfolio securities. Interest rate fluctuations will affect the Fund's net asset value but not the
income received by the Fund from its portfolio securities. The Fund may engage in various investment
strategies including reverse repurchase agreements, when-issued and delayed delivery securities and
forward commitments and when, as and if issued securities. The risks associated with these
investments are included in their description on pages 6 through 8 and in the "Risk Considerations"
section (page 8).
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</TABLE>
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS
AND THE STATEMENT OF ADDITIONAL INFORMATION.
2
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended August 31, 1995.
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SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge Imposed on Purchases.............................................. None
Maximum Sales Charge Imposed on Reinvested Dividends................................... None
Deferred Sales Charge
(as a percentage of the lesser of original purchase price or redemption proceeds).... 5.0%
A contingent deferred sales charge is imposed at the following declining rates:
</TABLE>
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT MADE PERCENTAGE
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<S> <C>
First.................................................... 5.0%
Second................................................... 4.0%
Third.................................................... 3.0%
Fourth................................................... 2.0%
Fifth.................................................... 2.0%
Sixth.................................................... 1.0%
Seventh and thereafter................................... None
</TABLE>
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<S> <C>
Redemption Fees....................................................................... None
Exchange Fee.......................................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Management Fees....................................................................... 0.60%
12b-1 Fees*........................................................................... 0.85%
Other Expenses........................................................................ 0.18%
Total Fund Operating Expenses......................................................... 1.63%
</TABLE>
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* A PORTION OF THE 12B-1 FEE EQUAL TO 0.20% OF THE FUND'S AVERAGE DAILY NET
ASSETS IS CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES.
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<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
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<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period:............... $67 $ 81 $109 $193
You would pay the following expenses on
the same investment, assuming no
redemption:............................ $17 $ 51 $ 89 $193
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and Its Management," "Plan of Distribution" and "Redemptions and
Repurchases."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
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FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, notes thereto, and the unqualified report of
independent accountants which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE
PERIOD
MAY 3,
1989*
FOR THE YEAR ENDED AUGUST 31 THROUGH
---------------------------------------------------------------- AUGUST
1995 1994 1993 1992 1991 1990 31, 1989
<S> <C> <C> <C> <C> <C> <C> <C>
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PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period............... $ 9.51 $ 10.26 $ 10.05 $ 9.59 $ 9.42 $ 9.98 $ 10.00
--------- --------- --------- --------- --------- --------- ---------
Net investment income.............. 0.59 0.58 0.62 0.70 0.79 0.86 0.28
Net realized and unrealized gain
(loss)............................ 0.19 (0.73) 0.20 0.46 0.17 (0.55) (0.02)
--------- --------- --------- --------- --------- --------- ---------
Total from investment operations... 0.78 (0.15) 0.82 1.16 0.96 0.31 0.26
--------- --------- --------- --------- --------- --------- ---------
Less dividends and distributions
from:
Net investment income............ (0.59) (0.56) (0.61) (0.70) (0.79) (0.86) (0.28)
Net realized gain................ (0.01) (0.04) -- -- -- (0.01) --
--------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions..................... (0.60) (0.60) (0.61) (0.70) (0.79) (0.87) (0.28)
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period..... $ 9.69 $ 9.51 $ 10.26 $ 10.05 $ 9.59 $ 9.42 $ 9.98
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN+........... 8.56% (1.50)% 8.43% 12.58% 10.78% 3.22% 2.57%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.63% 1.63% 1.62% 1.69% 1.69% 1.75% 1.42%(2)(3)
Net investment income.............. 6.23% 5.80% 6.12% 7.11% 8.49% 8.78% 8.18%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.......................... $232,752 $245,750 $254,431 $187,285 $115,204 $114,086 $69,946
Portfolio turnover rate............ 114% 122% 132% 93% 150% 135% 30%(1)
</TABLE>
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* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all the expenses that were assumed or waived by the
Investment Manager, the above expense and net investment income ratios would
have been 2.15% and 7.44%, respectively.
4
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THE FUND AND ITS MANAGEMENT
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Dean Witter Intermediate Income Securities (the "Fund") is an open-end,
diversified management investment company. The Fund is a trust of the type
commonly known as a "Massachusetts business trust" and was organized under the
laws of the Commonwealth of Massachusetts on September 1, 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-seven investment companies, thirty of which
are listed on the New York Stock Exchange, with combined assets of approximately
$74.0 billion at September 30, 1995. The Investment Manager also manages
portfolios of pension plans, other institutions and individuals which aggregated
approximately $2.4 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
provide the aforementioned administrative services to the Fund. The Fund's
Trustees review the various services provided by or under the direction of the
Investment Manager to ensure that the Fund's general investment policies and
programs are being properly carried out and that administrative services are
being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.60% to the Fund's daily net assets up to $500 million, scaled
down at various levels to 0.30% on assets over $1 billion. For the fiscal year
ended August 31, 1995, the Fund accrued total compensation to the Investment
Manager amounting to 0.60% of the Fund's average daily net assets and the Fund's
total expenses amounted to 1.63% of the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is high current income consistent with
safety of principal. This investment objective is a fundamental policy and may
not be changed without approval of the Fund's shareholders. The Fund seeks to
achieve its objective by investing at least 65% of its total assets in
intermediate term, investment grade fixed-income securities. The Fund will
maintain an average weighted maturity of approximately seven years or less and
may not invest in securities with remaining maturities greater than twelve
years. Under normal conditions, the Fund's average weighted maturity will not be
less than three years. (Under the current interpretation by the staff of the
Securities and Exchange Commission, an intermediate bond fund must have an
average weighted maturity between three and ten years.)
Under normal circumstances, the Fund will invest primarily in corporate debt
securities and preferred stock of investment grade, which consists of securities
which are rated at the time of purchase Baa or better by Moody's Investors
Service, Inc. ("Moody's") or BBB or better by Standard & Poor's Corporation
("Standard & Poor's"), or which, if unrated, are deemed to be of comparable
quality by
5
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the Fund's Trustees. Fixed-income securities rated Baa by Moody's have
speculative characteristics. (A more detailed description of bond ratings is
contained in the Appendix to the Statement of Additional Information.) The Fund
may also purchase U.S. Government securities (securities guaranteed as to
principal and interest by the United States or its agencies or
instrumentalities) and investment grade securities, denominated in U.S. Dollars,
issued by foreign governments or issuers. U.S. Government securities in which
the Fund may invest include zero coupon securities and mortgage backed
securities, such as securities issued by the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. There can be no assurance that the investment objective of
the Fund will be achieved.
The Investment Manager believes that the Fund's policies of purchasing
intermediate term securities will reduce the volatility of the Fund's net asset
value over the long term. Although the values of fixed-income securities
generally increase during periods of declining interest rates and decrease
during periods of increasing interest rates, the extent of these fluctuations
has historically generally been smaller for intermediate term securities than
for securities with longer maturities. Conversely, the yield available on
intermediate term securities has also historically been lower than those
available from long term securities.
Investment by the Fund in U.S. Dollar denominated fixed-income securities
issued by foreign governments and other foreign issuers may involve certain
risks not associated with U.S. issued securities. Those risks include the
political or economic instability of the issuer or of the country of issue, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. In addition, there may be less publicly
available information about a foreign company than about a domestic company. A
more detailed description of the general risks of foreign issuers is contained
in the Statement of Additional Information. The Fund believes that those risks
are substantially lessened because the foreign securities in which the Fund may
invest are investment grade.
While the Fund will invest primarily in investment grade fixed-income
securities, under ordinary circumstances it may invest up to 35% of its total
assets in money market instruments and repurchase agreements, as discussed
below, as well as, with respect to up to 5% of the Fund's net assets, lower
rated fixed-income securities. No more than 5% of the Fund's net assets may be
invested in lower rated fixed-income securities.
Lower rated fixed-income securities, which are those rated from Ba or BB to
C by Moody's or Standard & Poor's, respectively, are considered to be
speculative investments. Such lower rated securities, while producing higher
yield than investment grade securities, are subject to a credit risk to a
greater extent than investment grade securities. The Fund does not have any
minimum quality rating standard with respect to the portion (up to 5%) of its
net assets which may be invested in lower rated securities. See the Statement of
Additional Information for a description of the special risks and
characteristics of lower rated fixed-income securities.
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some or all of the Fund's securities
holdings. During such periods, the Fund may adopt a temporary "defensive"
posture in which greater than 35% of its total assets are invested in cash or
money market instruments. Money market instruments in which the Fund may invest
are securities issued or guaranteed by the U.S. Government (Treasury bills,
notes and bonds, including zero coupon securities); bank obligations; Eurodollar
certificates of deposit; obligations of savings institutions; fully insured
certificates of deposit; and commercial paper rated within the two highest
grades by Moody's or Standard & Poor's or, if not rated, are issued by a company
having an outstanding debt issue rated at least AA by Standard & Poor's or Aa by
Moody's.
6
<PAGE>
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize those risks.
REVERSE REPURCHASE AGREEMENTS. The Fund may also use reverse repurchase
agreements for purposes of meeting redemptions or as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Fund of the reverse repurchase transaction is less than the cost of obtaining
the cash otherwise. Opportunities to achieve this advantage may not always be
available, and the Fund intends to use the reverse repurchase technique only
when it will be to its advantage to do so. The Fund will establish a segregated
account with its custodian bank in which it will maintain cash, U.S. Government
securities or other high grade debt obligations equal in value to its
obligations in respect of reverse repurchase agreements. Reverse repurchase
agreements are considered borrowings by the Fund. The use of borrowed funds for
other than emergency purposes constitutes leveraging, which is a speculative
technique. Reverse repurchase agreements may not exceed 10% of the Fund's total
assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are negotiated,
the price is fixed at the time of the commitment, but delivery and payment can
take place a month or more after the date of the commitment. There is no overall
limit on the percentage of the Fund's assets which may be committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage of
the Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value.
PRIVATE PLACEMENTS. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the
7
<PAGE>
resale of such securities may have an adverse effect on their marketability, and
may prevent the Fund from disposing of them promptly at reasonable prices. The
Fund may have to bear the expense of registering such securities for resale and
the risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid," such security will
not be included within the category "illiquid securities," which is limited by
the Fund's investment restrictions to 10% of the Fund's total assets.
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 certain notice provisions described in the Statement of
Additional Information), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value, determined daily,
of the loaned securities.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers; 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 Taxable Fixed Income Group,
which manages twenty-six funds and fund portfolios, with approximately $13.5
billion in assets as of September 30, 1995. Rochelle G. Siegel, Senior Vice
President of InterCapital and a member of InterCapital's Corporate Bond Group,
has been the primary portfolio manager since the Fund's inception and has been a
portfolio manager at InterCapital since July, 1985.
Orders for transactions in portfolio securities are placed for the Fund with
a number of brokers and dealers, including Dean Witter Reynolds Inc. ("DWR").
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR, a
broker-dealer affiliate of InterCapital. In addition, the Fund may incur
brokerage commissions on transactions conducted through DWR. It is not
anticipated that the portfolio trading will result in the Fund's portfolio
turnover rate exceeding 200%. 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.
RISK CONSIDERATIONS
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An increase in prevailing levels of interest rates will generally reduce the
value of securities in the Fund's portfolio, while a decline in rates will
generally increase the value of these securities. As a result, the fluctuations
or changes in interest rates will cause the Fund's net asset value to rise and
fall, in an inverse relationship; however, the income received by the Fund from
its portfolio securities will not be affected. Because yields on debt securities
available for purchase by a Fund vary over time, no specific yield on shares of
the Fund can be assured. In addition, if the bonds in the Fund's portfolio
con-
8
<PAGE>
tain call, prepayment or redemption provisions, during a period of declining
interest rates, these securities are likely to be redeemed, and the Fund will
probably be unable to replace them with securities having an equal yield.
For additional risk disclosure, please refer to the "Investment Objective
and Policies" section of the Prospectus and to the "Investment Practices and
Policies" in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
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The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act. For purposes of the following limitations: (i)
all percentage limitations apply immediately after a purchase or initial
investment, and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund may not:
1. Invest more than 5% of the value of its total
assets in the securities of any one issuer (other than obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities).
2. Purchase more than 10% of all outstanding
voting securities or any class of securities of any one issuer.
3. Invest 25% or more of the value of its total
assets in securities of issuers in any one industry. This restriction does not
apply to obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities.
4. Invest more than 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.
5. Invest more than 5% of the value of its total
assets in securities of issuers having a record, together with predecessors, of
less than three years of continuous operation. This restriction shall not apply
to any obligation issued or guaranteed by the United States Government, its
agencies or instrumentalities.
6. Borrow money, except that the Fund may
borrow from banks for temporary or emergency purposes in an amount up to 5%
(taken at the lower of cost or current value) of its total assets (not including
the amount borrowed), and may enter into reverse repurchase agreements in an
amount not exceeding 10% of the Fund's total assets.
PURCHASE OF FUND SHARES
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The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other dealers who have entered into selected dealer agreements with the
Distributor ("Selected Broker-Dealers"). The principal executive office of the
Distributor is located at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Minimum subsequent purchases of $100
or more may be made by sending a check, payable to Dean Witter Intermediate
Income Securities, 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 another Selected Broker-Dealer. In the case of investments pursuant to
Systematic Payroll Deduction Plans (including Individual Retirement Plans), the
Fund, in its discretion,
9
<PAGE>
may accept investments without regard to any minimum amounts which would
otherwise be required if the Fund has reason to believe that additional
investments will increase the investment in all accounts under such Plans to at
least $1,000. Certificates for shares purchased will not be issued unless a
request is made by the shareholder in writing to the Transfer Agent. The
offering price will be the net asset value per share next determined following
receipt of an order (see "Determination of Net Asset Value").
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. Shares of the
Fund purchased through the Distributor are entitled to dividends beginning on
the next business day following settlement date. Since DWR and other Selected
Broker-Dealers forward investors' funds on settlement date, they will benefit
from the temporary use of the funds where payment is made prior thereto. Shares
purchased through the Transfer Agent are entitled to dividends beginning on the
next business day following receipt of an order. As noted above, orders placed
directly with the Transfer Agent must be accompanied by payment. Investors will
be entitled to receive capital gains distributions if their order is received by
the close of business on the day prior to the record date for such
distributions. While no sales charge is imposed at the time shares are
purchased, a contingent deferred sales charge may be imposed at the time of
redemption (see "Redemptions and Repurchases"). In addition, some sales
personnel of the Selected Broker-Dealer will receive various types of non-cash
compensation as special sales incentives, including trips, educational and/or
business seminars and merchandise. The Fund and the Distributor reserve the
right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan"), under which the Fund pays the Distributor a fee, which is
accrued daily and payable monthly, at an annual rate of 0.85% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's shares since the
inception of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the Fund's average daily net
assets. This fee is treated by the Fund as an expense in the year it is accrued.
Amounts paid under the Plan are paid to the Distributor for services provided
and the expenses borne by the Distributor and others in the distribution of the
Fund's shares, including the payment of commissions for sales of the Fund's
shares and incentive compensation to and expenses of DWR's account executives
and others who engage in or support distribution of shares or who service
shareholder accounts, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's shares to other than current shareholders; and preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan to compensate DWR and
other Selected Broker-Dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses incurred by the Distributor.
For the fiscal year ended August 31, 1995, the Fund accrued payments under
the Plan amounting to $1,969,829, which amount is equal to 0.85% of the Fund's
average daily net assets for the fiscal year. These payments accrued under the
Plan were calculated pursuant to clause (b) of the compensation formula under
the Plan. Of the amount accrued under the Plan, 0.20% 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.
10
<PAGE>
At any given time, the expenses in distributing shares of the Fund may be in
excess of the total of (i) the payments made by the Fund pursuant to the Plan,
and (ii) the proceeds of contingent deferred sales charges paid by investors
upon the redemption of shares (see "Redemptions and Repurchases--Contingent
Deferred Sales Charge"). For example, if the Distributor incurred $1 million in
expenses in distributing shares of the Fund and $750,000 had been received by
the Distributor as described in (i) and (ii) above, the excess expense would
amount to $250,000. The Distributor has advised the Fund that such excess
amounts, including the carrying charge described above, totalled $6,743,926 at
August 31, 1995, which was equal to 2.90% of the Fund's net assets on such date.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all expenses or any requirement that the Plan be continued from
year to year, such excess amount does not constitute a liability of the Fund.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan, and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Trustees will consider at that
time the manner in which to treat such expenses. Any cumulative expenses
incurred, but not yet recovered through distribution fees or contingent deferred
sales charges, may or may not be recovered through future distribution fees or
contingent deferred sales charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (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 portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest bid price. When market
quotations are not readily available, including circumstances under which it is
determined by the Investment Manager that sale and bid prices are not reflective
of a security's market value, portfolio securities are valued at their fair
value as determined in good faith under procedures established by and under the
general supervision of the Board of Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service utilizes a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
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
11
<PAGE>
shareholder, any other open-end investment company for which InterCapital serves
as investment manager (collectively, with the Fund, the "Dean Witter Funds")),
unless the shareholder requests that they be paid in cash. Shares so acquired
are not subject to the imposition of a contingent deferred sales charge upon
their redemption (see "Redemptions and Repurchases").
EASYINVEST-TM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Fund's Transfer Agent for investment in
shares of the Fund.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution at the net asset value per
share next determined after receipt by the Transfer Agent, by returning the
check or the proceeds to the Transfer Agent within thirty days after the payment
date. Shares so acquired are not subject to the imposition of a contingent
deferred sales charge upon their redemption (see "Redemptions and Repurchases").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any 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"), for shares of
Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, Dean Witter Balanced Growth Fund, Dean
Witter Balanced Income Fund and Dean Witter Intermediate Term U.S. Treasury
Trust and for shares of five Dean Witter Funds which are money market funds (the
foregoing eleven non-CDSC funds are hereinafter collectively referred to in this
section as the "Exchange Funds"). Exchanges may be made after the shares of the
Fund acquired by purchase (not by exchange or dividend reinvestment) have been
held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment.
An exchange to another CDSC fund or to 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
12
<PAGE>
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 incurred on or after that date which are
attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.)
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds"), but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter Funds for which shares of a front-end sales charge fund
have been exchanged) are not subject to any CDSC upon their redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders and,
at the Investment Manager's discretion, may be limited by the Fund's refusal to
accept additional purchases and/ or exchanges from the investor. Although the
Fund does not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive and contrary to the best interests of
the Fund and its other shareholders, investors should be aware that the Fund and
each of the other Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice of the shareholder not later than ten days following such
shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Dean Witter
Funds for which shares of the Fund have been exchanged, upon such notice as may
be required by applicable regulatory agencies. Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on exchange of shares of the Fund
pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated for
federal income tax purposes the same
13
<PAGE>
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 other Selected Broker-Dealers but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization Form,
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made in writing or
by contacting the Transfer Agent at (800) 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 experience with the Dean
Witter Funds in the past.
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. 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 along with any additional documentation required
by the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE. Shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any charge upon redemption.
Shares redeemed sooner than six years after purchase may, however, be subject to
a charge upon redemption. This charge is called a "contingent deferred
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<PAGE>
sales charge" ("CDSC"), and it will be a percentage of the dollar amount of
shares redeemed and will be assessed on an amount equal to the lesser of the
current market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ----------------------------------- --------------------
<S> <C>
First.............................. 5.0%
Second............................. 4.0%
Third.............................. 3.0%
Fourth............................. 2.0%
Fifth.............................. 2.0%
Sixth.............................. 1.0%
Seventh and thereafter............. None
</TABLE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption; (ii)
the current net asset value of shares purchased more than six years prior to the
redemption; and (iii) the current net asset value of shares purchased through
reinvestment of dividends or distributions and/or shares acquired in exchange
for shares of Dean Witter Funds sold with a front-end sales charge or of other
Dean Witter Funds acquired in exchange for such shares. Moreover, in determining
whether a CDSC is applicable it will be assumed that amounts described in (i),
(ii) and (iii) above (in that order) are redeemed first. In addition, no CDSC
will be imposed on redemptions of shares which were purchased by the employee
benefit plans established by DWR and SPS Transaction Services, Inc. (an
affiliate of DWR) for their employees as qualified under Section 401(k) of the
Internal Revenue Code. The Distributor has informed the Fund that the total
amount of CDSC paid to it for the fiscal year ended August 31, 1995 was
$500,000.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of (i) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship, or (b) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account or Custodial Account under Section 403(b)(7) of the Internal Revenue
Code, provided in either case that the redemption is requested within one year
of the death or initial determination of disability, and (ii) redemptions in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an Individual
Retirement Account or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code following attainment of age 59 1/2; and (c) a tax-free return of an
excess contribution to an IRA. For the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. All waivers will be granted only following receipt by the
Distributor of confirmation of the investor's entitlement.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a 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 or telegraphic 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 and other Selected Broker-Dealers,
reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by either 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
15
<PAGE>
shares through the Fund's Transfer Agent as set forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances, e.g., when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the redemption or
repurchase, reinstate any portion or all of the proceeds of such redemption or
repurchase in shares of the Fund at net asset value next determined after a
reinstatement request, together with the proceeds, is received by the Transfer
Agent and receive a pro-rata credit for any CDSC paid in connection with such
redemption or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, on sixty
days notice and at net asset value, the shares (other than shares held in an
Individual Retirement Account or custodial account under Section 403(b)(7) of
the Internal Revenue Code) of any shareholder whose shares have a value of less
than $100 as a result of redemptions or repurchases or such lesser amount as may
be fixed by the Trustees. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to declare dividends from net
investment income on each day the New York Stock Exchange is open for business
(see "Purchase of Fund Shares"). The amount of the dividend declared may
fluctuate from day to day. Dividends are declared daily and paid monthly in
additional shares of the Fund. The Fund may distribute quarterly net realized
short-term capital gains, if any, in excess of any net realized long-term
capital losses. The Fund intends to distribute dividends from net long-term
capital gains, if any, at least once each year. The Fund may, however, elect to
retain all or a portion of any net long-term capital gains in any year. 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 or all dividends and 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 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 dividend income
regardless of whether the shareholder receives such payments in additional
shares or in cash. Any dividends declared in the last quarter of any calendar
year which are paid to shareholders of record in
16
<PAGE>
such period in the following year prior to February 1 will be deemed received by
the shareholder in the prior year.
Long-term and short-term capital gains may be generated by the sale of
portfolio securities by the Fund. 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. After the end of the
calendar year, shareholders will receive full information on their dividends and
capital gains distributions for tax purposes, including information as to the
portion taxable as ordinary income and the portion taxable as long-term capital
gains.
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 accuracy. The foregoing discussion relates solely to the federal
income tax consequences of an investment in the Fund. Distributions may also be
subject to state and local taxes; therefore, each shareholder is advised to
consult his or her own tax adviser.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. Both the yield and the total return of
the Fund are based on historical earnings and are not intended to indicate
future performance. The yield of the Fund is computed by dividing the Fund's net
investment income over a 30-day period by an average value (using the average
number of shares entitled to receive dividends and the net asset value per share
at the end of the period), all in accordance with applicable regulatory
requirements. Such amount is compounded for six months and then annualized for a
twelve-month period to derive the Fund's yield.
The "average annual total return" of the Fund refers to a figure reflecting
the average annualized percentage increase (or decrease) in the value of an
initial investment in the Fund of $1,000 over periods of one and five years, as
well as over the life of the Fund. Average annual total return reflects all
income earned by the Fund, any appreciation or depreciation of the Fund's
assets, all expenses incurred by the Fund and all sales charges incurred by
shareholders, for the stated periods. It also assumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the Fund.
Such calculations may or may not reflect the deduction of the contingent
deferred sales charge which, if reflected, would reduce the performance quoted.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations,
such as mutual fund performance rankings of Lipper Analytical Services, Inc.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges.
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
Share-
17
<PAGE>
holders for action by shareholder vote as may be required by the Act or the
Declaration of Trust.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification out of the
Fund's property for any shareholder held personally liable for the obligations
of the Fund. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the Fund itself
would be unable to meet its obligations. Given the above limitations on
shareholder personal liability and the nature of the Fund's assets and
operations, the possibility of the Fund being unable to meet its obligations is
remote and, in the opinion of Massachusetts counsel to the Fund, the risk to
Fund shareholders of personal liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
investment company managed or advised by InterCapital ("Dean Witter Fund") is
engaged at the same time in a purchase or sale of the same security. The Code of
Ethics bans the purchase of securities in an initial public offering, and also
prohibits engaging in futures and option transactions and profiting on
short-term trading (that is, a purchase within sixty days of a sale or a sale
within sixty days of a purchase) of a security. In addition, investment
personnel may not purchase or sell a security for their personal account within
thirty days before or after any transaction in any Dean Witter Fund managed by
them. Any violations of the Code of Ethics are subject to sanctions, including
reprimand, demotion or suspension or termination of employment. The Code of
Ethics comports with regulatory requirements and the recommendations in the
recent report by the Investment Company Institute Advisory Group on Personal
Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
18
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS DEAN WITTER RETIREMENT SERIES
Dean Witter Liquid Asset Fund Inc. Liquid Asset Series
Dean Witter U.S. Government Money U.S. Government Money Market Series
Market Trust U.S. Government Securities Series
Dean Witter Tax-Free Daily Income Trust Intermediate Income Securities Series
Dean Witter California Tax-Free Daily American Value Series
Income Trust Capital Growth Series
Dean Witter New York Municipal Money Dividend Growth Series
Market Trust Strategist Series
EQUITY FUNDS Utilities Series
Dean Witter American Value Fund Value-Added Market Series
Dean Witter Natural Resource Global Equity Series
Development Securities Inc. ASSET ALLOCATION FUNDS
Dean Witter Dividend Growth Securities Dean Witter Managed Assets Trust
Inc. Dean Witter Strategist Fund
Dean Witter Developing Growth Dean Witter Global Asset Allocation
Securities Trust Fund
Dean Witter World Wide Investment Trust ACTIVE ASSETS ACCOUNT PROGRAM
Dean Witter Value-Added Market Series Active Assets Money Trust
Dean Witter Utilities Fund Active Assets Tax-Free Trust
Dean Witter Capital Growth Securities Active Assets California Tax-Free Trust
Dean Witter European Growth Fund Inc. Active Assets Government Securities
Dean Witter Precious Metals and Trust
Minerals Trust
Dean Witter Pacific Growth Fund Inc.
Dean Witter Health Sciences Trust
Dean Witter Global Dividend Growth
Securities
Dean Witter Global Utilities Fund
Dean Witter International SmallCap Fund
Dean Witter Mid-Cap Growth Fund
Dean Witter Balanced Growth Fund
Dean Witter Capital Appreciation Fund
Dean Witter Information Fund
FIXED INCOME FUNDS
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities
Trust
Dean Witter Intermediate Term U.S.
Treasury Trust
Dean Witter Federal Securities Trust
Dean Witter Convertible Securities
Trust
Dean Witter California Tax-Free Income
Fund
Dean Witter New York Tax-Free Income
Fund
Dean Witter World Wide Income Trust
Dean Witter Intermediate Income
Securities
Dean Witter Global Short-Term Income
Fund Inc.
Dean Witter Multi-State Municipal
Series Trust
Dean Witter Premier Income Trust
Dean Witter Short-Term U.S. Treasury
Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal
Trust
Dean Witter Short-Term Bond Fund
Dean Witter National Municipal Trust
Dean Witter High Income Securities
Dean Witter Balanced Income Fund
Dean Witter Hawaii Municipal Trust
<PAGE>
Dean Witter
Intermediate Income Securities
Dean Witter
Two World Trade Center
New York, New York 10048
TRUSTEES Intermediate
Jack F. Bennett Income
Michael Bozic Securities
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Rochelle G. Siegel
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 -- OCTOBER 26, 1995
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DEAN WITTER
INTERMEDIATE INCOME
SECURITIES
OCTOBER 26, 1995
- --------------------------------------------------------------------------------
Dean Witter Intermediate Income Securities (the "Fund") is an open-end,
diversified management investment company whose investment objective is high
current income consistent with the safety of principal. The Fund seeks to
achieve its investment objective by investing primarily in intermediate term,
investment grade fixed-income securities. See "Investment Objective and
Policies."
A Prospectus for the Fund dated October 26, 1995, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below,
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
Intermediate Income Securities
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management............. 3
Trustees and Officers................... 6
Investment Practices and Policies....... 13
Investment Restrictions................. 16
Portfolio Transactions and Brokerage.... 17
The Distributor......................... 19
Determination of Net Asset Value........ 22
Shareholder Services.................... 22
Redemptions and Repurchases............. 27
Dividends, Distributions and Taxes...... 29
Performance Information................. 31
Description of Shares................... 32
Custodian and Transfer Agent............ 33
Independent Accountants................. 33
Reports to Shareholders................. 33
Legal Counsel........................... 33
Experts................................. 33
Registration Statement.................. 33
Financial Statements--August 31, 1995... 34
Report of Independent Accountants....... 45
Appendix................................ 46
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts business
trust" and was organized under the laws of the Commonwealth of Massachusetts on
September 1, 1988.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. InterCapital is a wholly-owned subsidiary of Dean Witter,
Discover & Co. ("DWDC"), a Delaware corporation. In an internal reorganization
which took place in January, 1993, InterCapital assumed the investment advisory,
administrative and management activities previously performed by the
InterCapital Division of Dean Witter Reynolds Inc. ("DWR"), a broker-dealer
affiliate of InterCapital. (As hereinafter used in this Statement of Additional
Information, the terms "InterCapital" and "Investment Manager" refer to DWR's
InterCapital Division prior to the internal reorganization and to Dean Witter
InterCapital Inc. thereafter.) The daily management of the Fund and research
relating to the Fund's portfolio are conducted by or under the direction of
officers of the Fund and of the Investment Manager, subject to review of
investments by the Fund's Board of Trustees. In addition, Trustees of the Fund
provide guidance on economic factors and interest rate trends. Information as to
these Trustees and Officers is contained under the caption "Trustees and
Officers."
InterCapital is also the investment manager 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 Capital Appreciation Fund, Dean Witter
Information Fund, Dean Witter American Value Fund, Dean Witter U.S. Government
Money Market Trust, Dean Witter Intermediate Term U.S. Treasury Trust, Dean
Witter Variable Investment Series, Dean Witter World Wide Investment Trust, Dean
Witter Select Municipal Reinvestment Fund, Dean Witter U.S. Government
Securities Trust, Dean Witter California Tax-Free Income Fund, Dean Witter New
York Tax-Free Income Fund, Dean Witter Convertible Securities Trust, Dean Witter
Federal Securities Trust, Dean Witter Value-Added Market Series, Dean Witter
Utilities Fund, Dean Witter Managed Assets Trust, Dean Witter California
Tax-Free Daily Income Trust, Dean Witter World Wide Income Trust, Dean Witter
Intermediate Income Securities, Dean Witter Capital Growth Securities, Dean
Witter European Growth Fund Inc., Dean Witter Precious Metals and Minerals
Trust, Dean Witter New York Municipal Money Market Trust, Dean Witter Global
Short-Term Income Fund, Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter
Multi-State Municipal Series Trust, Dean Witter Premier Income Trust, Dean
Witter Short-Term U.S. Treasury Trust, Dean Witter Diversified Income Trust,
Dean Witter Health Sciences Trust, Dean Witter Retirement Series, Dean Witter
Global Dividend Growth Securities, Dean Witter Limited Term Municipal Trust,
Dean Witter Short-Term Bond Fund, Dean Witter Global Utilities Fund, Dean Witter
National Municipal Trust, Dean Witter High Income Securities, Dean Witter
International SmallCap Fund, Dean Witter Mid-Cap Growth Fund, Dean Witter Select
Dimensions Investment Series, Dean Witter Balanced Growth Fund, Dean Witter
Balanced Income Fund, Dean Witter Hawaii Municipal Trust, Municipal Income
Trust, Municipal Income Trust II, Municipal Income Trust III, Municipal Income
Opportunities Trust, Municipal Income Opportunities Trust II, Municipal Income
Opportunities Trust III, Prime Income
3
<PAGE>
Trust and Municipal Premium Income Trust. The foregoing investment companies,
together with the Fund, are collectively referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser: TCW/DW
Core Equity Trust, TCW/DW North American Government Income Trust, TCW/DW Latin
American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth
Fund, TCW/DW Balanced Fund, TCW/DW North American Intermediate Income Trust,
TCW/DW Global Convertible Trust, TCW/DW Total Return Trust, TCW/DW Emerging
Markets Opportunities Trust, TCW/DW Term Trust 2000, TCW/DW Term Trust 2002 and
TCW/DW Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves as: (i)
sub-adviser to Templeton Global Opportunities Trust, an open-end investment
company; (ii) administrator of The BlackRock Strategic Term Trust Inc., a
closed-end investment company; and (iii) sub-administrator of MassMutual
Participation Investors and Templeton Global Governments Income Trust,
closed-end investment companies.
The Investment Manager also serves as an investment adviser for Dean Witter
World Wide Investment Fund, an investment company organized under the laws of
Luxembourg, shares of which may not be offered in the United States or purchased
by American citizens outside of the United States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
Investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of
prospectuses, statements of additional information, proxy statements and reports
required to be filed with federal and state securities commissions (except
insofar as the participation or assistance of independent accountants and
attorneys is, in the opinion of the Investment Manager, necessary or desirable).
In addition, the Investment Manager pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Manager. The
Investment Manager also bears the cost of telephone service, heat, light, power
and other utilities provided to the Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to the
Fund which were previously performed directly by InterCapital. On April 17,
1995, DWSC was reorganized in the State of Delaware, necessitating the entry
into a new Services Agreement by InterCapital and DWSC on that 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. ("The
Distributor" or "Distributors") 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
4
<PAGE>
affiliate of the Investment Manager; all expenses incident to any dividend,
withdrawal or redemption options; charges and expenses of any outside service
used for pricing of the Fund's shares; fees and expenses of legal counsel,
including counsel to the trustees who are not interested persons of the Fund or
of the Investment Manager (not including compensation or expenses of attorneys
who are employees of the Investment Manager) and independent accountants;
membership dues of industry associations; interest on Fund borrowings; postage;
insurance premiums on property or personnel (including officers and trustees) of
the Fund which inure to its benefit; extraordinary expenses (including, but not
limited to, legal claims and liabilities and litigation costs and any
indemnification relating thereto); and all other costs of the Fund's operation.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
following annual rates to the net assets of the Fund, determined as of the close
of business on every business day: 0.60% of the portion of the daily net assets
not exceeding $500 million; 0.50% of the portion of daily net assets exceeding
$500 million but not exceeding $750 million; 0.40% of the portion of the daily
net assets exceeding $750 million but not exceeding $1 billion; and 0.30% of the
portion of the daily net assets exceeding $1 billion. Total compensation accrued
to the Investment Manager under the Agreement for the fiscal years ended August
31, 1993, 1994 and 1995 was $1,316,112, $1,522,447 and $1,390,467, 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 settled on a monthly basis. The Fund did not exceed such
limitation or the then existing most restrictive limitation during the fiscal
years ended August 31, 1993, 1994 and 1995.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or adviser to others.
The Investment Manager paid the organizational expenses of the Fund, in the
amount of approximately $150,000, incurred prior to the offering of the Fund's
shares. The Fund has reimbursed the Investment Manager for such expenses. These
expenses have been deferred and have been amortized by the Fund on the straight
line method over a period not to exceed five years from the date of commencement
of the Fund's operations.
The Agreement was initially approved by the Trustees on September 30, 1988,
by DWR as the then sole shareholder on October 4, 1988, and by the shareholders
of the Fund at a Special Meeting of Shareholders held on December 21, 1989. At
their meetings held on October 30, 1992 and April 20, 1993, the Trustees of the
Fund, including all the Trustees of the Fund who are not parties to the
Investment Management Agreement or "interested persons" (as defined in the
Investment Company Act of 1940 (the "Act")) of any such party (the "Independent
Trustees"), approved the assumption by InterCapital of DWR's rights and duties
under the Investment Management Agreement, which assumption took place upon the
reorganization described above. The Trustees of the Fund, including all of the
Independent Trustees, also approved a new investment management agreement
between the Fund and InterCapital which took effect on June 30, 1993 upon the
spin-off by Sears, Roebuck & Co. of its remaining shares of DWDC. The terms of
the new Agreement are substantially identical in all material
5
<PAGE>
respects to those of the initial Agreement. The Agreement between the Fund and
InterCapital was approved by the shareholders on January 12, 1993. The Agreement
may be terminated at any time, without penalty, on thirty days notice by the
Trustees of the Fund, by the holders of a majority, as defined in the Investment
Company Act of 1940, as amended (the "Act"), of the outstanding shares of the
Fund, or by the Investment Manager. The Agreement will automatically terminate
in the event of its assignment (as defined in the Act).
Under its terms, the Agreement had an initial term ending April 30, 1994,
and provides that it will continue in effect from year to year thereafter,
provided continuance of the Agreement is approved at least annually by the vote
of the holders of a majority, as defined in the Act, of the outstanding shares
of the Fund, or by the Trustees of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Trustees of
the Fund who are not parties to the Agreement or "interested persons" (as
defined in the Act) of any such party (the "Independent Trustees"), which vote
must be cast in person at a meeting called for the purpose of voting on such
approval. At their meeting held on April 20, 1995, the Fund's Board of Trustees,
including all the Independent Trustees, approved continuation of the Agreement
until April 30, 1996.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use, or at any time
permit others to use, the name "Dean Witter". The Fund has also agreed that in
the event the investment management contract between InterCapital and the Fund
is terminated, or if the affiliation between the Investment Manager 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 80 Dean Witter Funds and the 13 TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Jack F. Bennett (71) ................................. Retired; Director or Trustee of the Dean Witter Funds;
Trustee formerly Senior Vice President and Director of Exxon
c/o Gordon Altman Butowsky Corporation (1975-1989) and Under Secretary of the U.S.
Weitzen Shalov & Wein Treasury for Monetary Affairs (1974-1975); Director of
Counsel to the Independent Trustees Phillips Electronics N.V., Tandem Computers Inc. and
114 West 47th Street Massachusetts Mutual Insurance Co.; director or trustee of
New York, New York various other not-for-profit and business organizations.
Michael Bozic (54) ................................... Private Investor; Director or Trustee of the Dean Witter
Trustee Fund; formerly President and Chief Executive Officer of
c/o Gordon Altman Butowsky Hills Department Stores (May, 1991-July 1995); formerly
Weitzen Shalov & Wein Chairman and Chief Executive Officer (January,
Counsel to the Independent Trustees 1987-August, 1990) and President and Chief Operating
114 West 47th Street Officer (August, 1990-February, 1991) of the Sears
New York, New York Merchandise Group of Sears, Roebuck and Co.; Director of
Eaglemark Financial Services Inc., the United Negro
College Fund, Weirton Steel Corporation and Domain Inc.
(home decor retailer).
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Charles A. Fiumefreddo* (62) ......................... Chairman and Chief Executive Officer and Director of
Chairman of the Board, InterCapital, Distributors and DWSC; Executive Vice
President and Chief Executive President and Director of DWR; Chairman, Director or
Officer and Trustee Trustee, President and Chief Executive Officer of the Dean
Two World Trade Center Witter Funds; Chairman, Chief Executive Officer and
New York, New York Trustee of the TCW/DW Funds; Chairman and Director of Dean
Witter Trust Company ("DWTC"); Director and/or officer of
various DWDC subsidiaries; formerly Executive Vice
President and Director of DWDC (until February 1993).
Edwin J. Garn (63) ................................... Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah) (1974-1992) and Chairman,
c/o Huntsman Chemical Corporation Senate Banking Committee (1980-1986); formerly Mayor of
2000 Eagle Gate Tower Salt Lake City, Utah (1971-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Chemical Corporation (since January,
1993); Director of Franklin Quest (time management
systems) and John Alder Financial Corp.; Member of the
board of various civic and charitable organizations.
John R. Haire (70) ................................... Chairman of the Audit Committee and Chairman of the
Trustee Committee of the Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Trustee of
New York, New York 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 (46) ........................... Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm (since June, 1985); Koch Professor of
c/o Johnson Smick International, Inc. International Economics and Director of the Center for
1133 Connecticut Avenue, N.W. Global Market Studies at George Mason University (since
Washington, DC September, 1990); Director or Trustee of the Dean Witter
Funds; Trustee of the TCW/DW Funds; Co-Chairman and a
founder of the Group of Seven Council (G7C), an
international economic commission (since September, 1990);
Director of NASDAQ (since June, 1995); Director of
Greenwich Capital Markets Inc. (broker-dealer); formerly
Vice Chairman of the Board of Governors of the Federal
Reserve System (February, 1986-August, 1990) and Assistant
Secretary of the U.S. Treasury (1982-1986).
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Paul Kolton (72) ..................................... Director or Trustee of the Dean Witter Funds; Chairman of
Trustee the Audit Committee and Chairman of the Committee of the
c/o Gordon Altman Butowsky Independent Trustees and Trustee of the TCW/DW Funds;
Weitzen Shalov & Wein formerly Chairman of the Financial Accounting Standards
Counsel to the Independent Trustees Advisory Council and Chairman and Chief Executive Officer
114 West 47th Street of the American Stock Exchange; Director of UCC Investors
New York, New York Holding Inc. (Uniroyal Chemical Company Inc.); director or
trustee of various not-for-profit organizations.
Michael E. Nugent (59) ............................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership (since April, 1988); Director or
c/o Triumph Capital, L.P. Trustee of the Dean Witter Funds; Trustee of the TCW/DW
237 Park Avenue Funds; formerly Vice President, Bankers Trust Company and
New York, New York BT Capital Corporation (1984-1988); director of various
business organizations.
Philip J. Purcell* (52) .............................. Chairman of the Board of Directors and Chief Executive
Trustee Officer of DWDC, DWR and Novus Credit Services Inc.;
Two World Trade Center Director of InterCapital, DWSC and Distributors; Director
New York, New York or Trustee of the Dean Witter Funds; Director and/or
officer of various DWDC subsidiaries.
John L. Schroeder (65) ............................... Retired; Director or Trustee of the Dean Witter Funds;
Trustee Trustee of the TCW/DW Funds; Director of Citizens
c/o Gordon Altman Butowsky Utilities Company; formerly Executive Vice President and
Weitzen Shalov & Wein Chief Investment Officer of the Home Insurance Company
Counsel to the Independent Trustees (August, 1991-September, 1995); formerly Chairman and
114 West 47th Street Chief Investment Officer of Axe-Houghton Management and
New York, New York the Axe-Houghton Funds (April, 1983-June, 1991) and
President of USF&G Financial Serivces, Inc. (June,
1990-June, 1991).
Sheldon Curtis (63) .................................. Senior Vice President, Secretary and General Counsel of
Vice President, Secretary InterCapital and DWSC; Senior Vice President, Assistant
and General Counsel Secretary and Assistant General Counsel of Distributors;
Two World Trade Center Senior Vice President and Secretary of DWTC; Assistant
New York, New York Secretary of DWR and Vice President, Secretary and General
Counsel of the Dean Witter Funds and the TCW/DW Funds.
Rochelle G. Siegel (47) .............................. Senior Vice President of the Investment Manager since May,
Vice President 1990; previously Vice President (March, 1988-May, 1990)
Two World Trade Center and Assistant Vice President of InterCapital; Vice
New York, New York President of various Dean Witter Funds.
Thomas F. Caloia (49) ................................ First Vice President (since May, 1991) of InterCapital and
Treasurer Assistant Treasurer (since January, 1993) of InterCapital;
Two World Trade Center First Vice President and Assistant Treasurer of DWSC;
New York, New York Treasurer of the Dean Witter Funds and the TCW/DW Funds;
previously Vice President of InterCapital.
<FN>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
</TABLE>
8
<PAGE>
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, David A. Hughey, Executive Vice President and Chief
Administrative Officer of InterCapital, DWSC, Distributors and DWTC and Director
of DWTC, Edmund C. Puckhaber, Executive Vice President of InterCapital and
Director of DWTC, Robert S. Giambrone, Senior Vice President of InterCapital,
DWSC, Distributors and DWTC, and Joseph J. McAlinden, Kevin Hurley, James F.
Willison, Peter M. Avelar, and Jonathan R. Page, Senior Vice Presidents of
InterCapital, are Vice Presidents of the Fund, and Marilyn K. Cranney and Barry
Fink, First Vice Presidents and Assistant General Counsels of InterCapital and
DWSC, and Lou Anne D. McInnis and Ruth Rossi, Vice Presidents and Assistant
General Counsels of InterCapital and DWSC, are Assistant Secretaries of the
Fund.
BOARD OF TRUSTEES; RESPONSIBILITIES AND COMPENSATION OF INDEPENDENT TRUSTEES
As mentioned above under the caption "The Fund and its Management," the Fund
is one of the Dean Witter Funds, a group of investment companies managed by
InterCapital. As of the date of this Statement of Additional Information, there
are a total of 80 Dean Witter Funds, comprised of 120 portfolios. As of
September 30, 1995, the Dean Witter Funds had total net assets of approximately
$68.5 billion and more than five million shareholders.
The Board of Directors or Trustees, consisting of ten (10) directors or
trustees, is the same for each of the Dean Witter Funds. Some of the Funds are
organized as business trusts, others as corporations, but the functions and
duties of directors and trustees are the same. Accordingly, directors and
trustees of the Dean Witter Funds are referred to in this section as Trustees.
Eight Trustees, that is, 80% of the total number, have no affiliation or
business connection with InterCapital or any of its affiliated persons and do
not own any stock or other securities issued by InterCapital's parent company,
DWDC. These are the "disinterested" or "independent" Trustees. Five of the eight
Independent Trustees are also Independent Trustees of the TCW/DW Funds. As of
the date of this Statement of Additional Information, there are a total of 13
TCW/DW Funds. Two of the Funds' Trustees, that is, the management Trustees, are
affiliated with InterCapital.
As noted in a federal court ruling, "[T]he independent directors . . . are
expected to look after the interests of shareholders by 'furnishing an
independent check upon management,' especially with respect to fees paid to the
investment company's sponsor." In addition to their general "watchdog" duties,
the Independent Trustees are charged with a wide variety of responsibilities
under the Act. In order to perform their duties effectively, the Independent
Trustees are required to review and understand large amounts of material, often
of a highly technical and legal nature.
The Dean Witter Funds seek as Independent Trustees individuals of
distinction and experience in business and finance, government service or
academia; that is, people whose advice and counsel are valuable and in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
of the demands made on their time by the Funds. Indeed, to serve on the Funds'
Boards, certain Trustees who would be qualified and in demand to serve on bank
boards would be prohibited by law from serving at the same time as a director of
a national bank and as a Trustee of a Fund.
The Independent Trustees are required to select and nominate individuals to
fill any Independent Trustee vacancy on the Board of any Fund that has a Rule
12b-1 plan of distribution. Since most of the Dean Witter Funds have such a
plan, and since all of the Funds' Boards have the same members, the Independent
Trustees effectively control the selection of other Independent Trustees of all
the Dean Witter Funds.
GOVERNANCE STRUCTURE OF THE DEAN WITTER FUNDS
While the regulatory system establishes both general guidelines and specific
duties for the Independent Trustees, the governance arrangements from one
investment company group to another vary significantly. In some groups, the
Independent Trustees perform their role by attendance at periodic meetings of
the board of directors with study of materials furnished to them between
meetings. At the
9
<PAGE>
other extreme, an investment company complex may employ a full-time staff to
assist the Independent Trustees in the performance of their duties.
The governance structure of the Dean Witter Funds lies between these two
extremes. The Independent Trustees and the Funds' Investment Manager alike
believe that these arrangements are effective and serve the interests of the
Funds' shareholders. All of the Independent Trustees serve as members of the
Audit Committee and the Committee of the Independent Trustees. Three of them
also serve as members of the Derivatives Committee.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements, continually
reviewing Fund performance, checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex, and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; advising the independent accountants and management personnel that
they have direct access to the Committee at all times; and preparing and
submitting Committee meeting minutes to the full Board.
Finally, the Board of each Fund has established a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
During the calendar year ended December 31, 1994, the three Committees held
a combined total of eleven meetings. The Committee meetings are sometimes held
away from the offices of InterCapital and sometimes in the Boardroom of
InterCapital. These meetings are held without management directors or officers
being present, unless and until they may be invited to the meeting for purposes
of furnishing information or making a report. These separate meetings provide
the Independent Trustees an opportunity to explore in depth with their own
independent legal counsel, independent auditors and other independent
consultants, as needed, the issues they believe should be addressed and resolved
in the interests of the Funds' shareholders.
DUTIES OF CHAIRMAN OF COMMITTEES
The Chairman of the Committees maintains an office at the Funds'
headquarters in New York. He is responsible for keeping abreast of regulatory
and industry developments and the Funds' operations and management. He screens
and/or prepares written materials and identifies critical issues for the
Independent Trustees to consider, develops agendas for Committee meetings,
determines the type and amount of information that the Committees will need to
form a judgment on the issues, and arranges to have the information furnished.
He also arranges for the services of independent experts to be provided to the
Committees and consults with them in advance of meetings to help refine reports
and to focus on critical issues. Members of the Committees believe that the
person who serves as Chairman of all three Committees and guides their efforts
is pivotal to the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment management and other operating
contracts of the Funds and, on behalf of the Committees, conducts negotiations
with the Investment Manager and other service providers. In effect, the Chairman
of the Committees serves as a combination of chief executive and support staff
of the Independent Trustees.
The Chairman of the Committees is not employed by any other organization and
devotes his time primarily to the services he performs as Committee Chairman and
Independent Trustee of the Dean
10
<PAGE>
Witter Funds and as an Independent Trustee of the TCW/DW Funds. The current
Committee Chairman has had more than 35 years experience as a senior executive
in the investment company industry.
VALUE OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN WITTER
FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds is in the best
interests of all the Funds' shareholders. This arrangement avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. It is believed that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the likelihood of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, it is believed that having the same Independent Trustees serve
on all Fund Boards enhances the ability of each Fund to obtain, at modest cost
to each separate Fund, the services of Independent Trustees, and a Chairman of
their Committees, of the caliber, experience and business acumen of the
individuals who serve as Independent Trustees of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 ($1,200 prior
to October 1, 1995) plus a per meeting fee of $50 for meetings of the Board of
Trustees or committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an annual fee of $750 ($1,000
prior to January 1, 1995) and pays the Chairman of the Committee of the
Independent Trustees an additional annual fee of $2,400, in each case inclusive
of the Committee meeting fees). The Fund also reimburses such Trustees for
travel and other out-of-pocket expenses incurred by them in connection with
attending such meetings. Trustees and officers of the Fund who are or have been
employed by the Investment Manager or an affiliated company receive no
compensation or expense reimbursement from the Fund.
The Fund has adopted a retirement program under which an Independent Trustee
who retires after serving for at least five years (or such lesser period as may
be determined by the Board) as an Independent Director or Trustee of any Dean
Witter Fund that has adopted the retirement program (each such Fund referred to
as an "Adopting Fund" and each such Trustee referred to as an "Eligible
Trustee") is entitled to retirement payments upon reaching the eligible
retirement age (normally, after attaining age 72). Annual payments are based
upon length of service. Currently, upon retirement, each Eligible Trustee is
entitled to receive from the Fund, commencing as of his or her retirement date
and continuing for the remainder of his or her life, an annual retirement
benefit (the "Regular Benefit") equal to 28.75% of his or her Eligible
Compensation plus 0.4791666% of such Eligible Compensation for each full month
of service as an Independent Director or Trustee of any Adopting Fund in excess
of five years up to a maximum of 57.50% after ten years of service. The
foregoing percentages may be changed by the Board.(1) "Eligible Compensation" is
one-fifth of the total compensation earned by such Eligible Trustee for service
to the Fund in the five year period prior to the date of the Eligible Trustee's
retirement. Benefits under the retirement program are not secured or funded by
the Fund. As of the date of this Statement of Additional Information, 58 Dean
Witter Funds have adopted the retirement program.
- ------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
11
<PAGE>
The following table illustrates the compensation paid and the retirement
benefits accrued to the Fund's Independent Trustees by the Fund for the fiscal
year ended August 31, 1995 and the estimated retirement benefits for the Fund's
Independent Trustees as of August 31, 1995.
<TABLE>
<CAPTION>
FUND COMPENSATION ESTIMATED RETIREMENT BENEFITS
------------------------------- -------------------------------------------------------------------
ESTIMATED ESTIMATED
RETIREMENT CREDIT YEARS ESTIMATED ANNUAL
AGGREGATE BENEFITS OF SERVICE AT PERCENTAGE OF ESTIMATED BENEFITS
NAME OF INDEPENDENT COMPENSATION ACCRUED AS RETIREMENT ELIGIBLE ELIGIBLE UPON
TRUSTEE FROM THE FUND FUND EXPENSES (MAXIMUM 10) COMPENSATION COMPENSATION(2) RETIREMENT(3)
- -------------------- -------------- -------------- ---------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack F. Bennett..... $ 2,000 $ 1,267 8 46.0% $2,219 1$,021
Michael Bozic....... 1,950 303 10 57.5 1,950 1,121
Edwin J. Garn....... 2,050 614 10 57.5 1,950 1,121
John R. Haire....... 4,900(4) 2,962 10 57.5 5,145 2,958
Dr. Manuel H.
Johnson............ 2,050 251 10 57.5 1,950 1,121
Paul Kolton......... 2,050 1,298 10 57.0 2,435 1,388
Michael E. Nugent... 1,900 438 10 57.5 1,950 1,121
John L. Schroeder... 1,900 596 8 47.9 1,950 934
</TABLE>
- ------------
(2)
Based on current levels of compensation.
(3)
Based on current levels of compensation. Amount of annual benefits also varies
depending on the Trustee's elections described in Footnote (1) above.
(4)
Of Mr. Haire's compensation from the Fund, $3,400 was paid to him as Chairman
of the Committee of the Independent Trustees ($2,400) and as Chairman of the
Audit Committee ($1,000).
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1994 for services
to the 73 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Kolton
and Nugent, the 13 TCW/DW Funds that were in operation at December 31, 1994.
With respect to Messrs. Haire, Johnson, Kolton and Nugent, the TCW/DW Funds are
included solely because of a limited exchange privilege between those Funds and
five Dean Witter Money Market Funds. Mr. Schroeder was elected as a Trustee of
the TCW/DW Funds on April 20, 1995.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS TOTAL CASH
FOR SERVICE CHAIRMAN OF COMPENSATION
AS DIRECTOR OR COMMITTEES OF FOR SERVICES
TRUSTEE AND FOR SERVICE AS INDEPENDENT TO
COMMITTEE MEMBER TRUSTEE AND DIRECTORS/ 73 DEAN
OF 73 DEAN COMMITTEE MEMBER TRUSTEES AND WITTER
WITTER OF 13 TCW/DW AUDIT FUNDS AND 13
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS COMMITTEES TCW/DW FUNDS
- --------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Jack F. Bennett............ $125,761 -- -- $125,761
Michael Bozic.............. 82,637 -- -- 82,637
Edwin J. Garn.............. 125,711 -- -- 125,711
John R. Haire.............. 101,061 $66,950 $225,563(5) 393,574
Dr. Manuel H. Johnson...... 122,461 60,750 -- 183,211
Paul Kolton................ 128,961 51,850 34,200(6) 215,011
Michael E. Nugent.......... 115,761 52,650 -- 168,411
John L. Schroeder.......... 85,938 -- -- 85,938
</TABLE>
- ------------
(5)
For the 73 Dean Witter Funds.
(6)
For the 13 TCW/DW Funds.
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.
12
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
SPECIAL INVESTMENT CONSIDERATIONS
As stated in the Prospectus, the Fund may invest up to 5% of its net assets
in lower rated fixed-income securities, sometimes referred to as high yield
securities. Because of the special nature of high yield securities, the
Investment Manager must take account of certain special considerations in
assessing the risks associated with such investments. Although the growth of the
high yield securities market in the 1980s had paralleled a long economic
expansion, recently many issuers have been affected by adverse economic and
market conditions. It should be recognized that an economic downturn or increase
in interest rates is likely to have a negative effect on the high yield bond
market and on the value of the high yield securities held by the Fund, as well
as on the ability of the securities' issuers to repay principal and interest on
their borrowings.
The prices of high yield securities have been found to be less sensitive to
changes in prevailing interest rates than higher-rated investments, but are
likely to be more sensitive to adverse economic changes or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. If the issuer of a fixed-income security owned by the Fund
defaults, the Fund may incur additional expenses to seek recovery. In addition,
periods of economic uncertainty and change can be expected to result in an
increased volatility of market prices of high yield securities and a concomitant
volatility in the net asset value of a share of the Fund. Moreover, the market
prices of certain of the Fund's portfolio securities which are structured as
zero coupon and payment-in-kind securities are affected to a greater extent by
interest rate changes and thereby tend to be more volatile than securities which
pay interest periodically and in cash (see "Dividends, Distributions and Taxes"
for a discussion of the tax ramifications of investments in such securities).
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The limited liquidity of the market
may also adversely affect the ability of the Fund's Trustees to arrive at a fair
value for certain high yield securities at certain times and could make it
difficult for the Fund to sell certain securities.
Current laws and proposed new laws may have a potentially negative impact on
the market for high yield bonds. For example, legislation requires
federally-insured savings and loan associations to divest their investments in
high yield bonds. This legislation and other proposed legislation may have an
adverse effect upon the value of high yield securities and a concomitant
negative impact upon the net asset value of a share of the Fund.
U.S. GOVERNMENT SECURITIES. As stated in the Prospectus, while the Fund
under normal circumstances will invest primarily in corporate debt securities,
it may also invest in U.S. Government securities. Securities issued by the U.S.
Government, its agencies or instrumentalities in which the Fund may invest
include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration; the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range
13
<PAGE>
from three months to thirty years although the Fund may not invest in
securities with maturities of more than twelve 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. Zero coupon securities may
not exceed 5% of the Fund's total assets.
SECURITIES OF FOREIGN ISSUERS. As stated in the Prospectus, the Fund may
invest in fixed-income securities issued by foreign governments and other
foreign issuers, provided such securities are denominated in U.S. Dollars. 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. With the expiration of the Interest Equalization
Tax in 1974, many of these investments currently enjoy increased liquidity,
although such securities are generally less liquid than the securities of United
States corporations, and are certainly less liquid than securities issued by the
United States Government or its agencies.
Foreign investments involve certain risks, including the political or
economic instability of the issuer or of the country of issue, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. Such securities may also be subject to greater fluctuations
in price than securities of United States corporations or of the United States
Government. In addition, there may be less publicly available information about
a foreign company than about a domestic company. Foreign companies generally are
not subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the United States, and with respect to certain foreign countries, there
is a possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Finally, in the
event of a default of any such foreign debt obligations, it may be more
difficult for the Fund to obtain or to enforce a judgment against the issuers of
such securities.
LENDING OF PORTFOLIO SECURITIES
As discussed in the Prospectus, 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, including accrued interest, determined daily, of the loaned
securities. The advantage of such loans is that the Fund continues to
14
<PAGE>
receive the income on the loaned securities while at the same time earning
interest on the cash amounts deposited as collateral, which will be invested in
short-term obligations. The Fund will not lend its portfolio securities if such
loans are not permitted by the laws or regulations of any state in which its
shares are qualified for sale and will not lend more than 25% of the value of
its total assets. A loan may be terminated by the borrower on one business day's
notice, or by the Fund on two business days' notice. If the borrower fails to
deliver the loaned securities within two days after receipt of notice, the Fund
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over the value of the 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. However, the
Fund does not presently intend to lend any of its portfolio securities in the
foreseeable future.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested or
used for payments of obligations of the Fund. 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. In the event the original seller defaults on its
obligation to repurchase, as a result of its bankruptcy or otherwise, the Fund
will seek to sell the collateral, which action could involve costs or delays. In
such case, the Fund's ability to dispose of the collateral to recover its
investment may be restricted or delayed.
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. The procedures also require that the
collateral underlying the agreement be specified. The Fund 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.
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
15
<PAGE>
purchase securities on a when-issued, delayed delivery or forward commitment
basis with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date, if it is deemed advisable. At the time
the Fund makes the commitment to purchase securities on a when-issued or delayed
delivery basis, the Fund will record the transaction and thereafter reflect the
value, each day, of such security in determining the net asset value of the
Fund. At the time of delivery of the securities, the value may be more or less
than the purchase price. The Fund will also establish a segregated account with
the Fund's custodian bank in which it will continuously maintain cash or U.S.
Government securities or other high grade debt portfolio securities equal in
value to commitments for such when-issued or delayed delivery securities;
subject to this requirement, the Fund may purchase securities on such basis
without limit. An increase in the percentage of the Fund's assets committed to
the purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Fund's net asset value. The Investment Manager
and the Board of Trustees do not believe that the Fund's net asset value or
income will be adversely affected by its purchase of securities on such basis.
WHEN, AS AND IF ISSUED SECURITIES
As discussed in the Prospectus, the Fund may purchase securities on a "when,
as and if issued" basis under which the issuance of the security depends upon
the occurrence of a subsequent event, such as approval of a merger, corporate
reorganization, leveraged buyout or debt restructuring. The commitment for the
purchase of any such security will not be recognized in the portfolio of the
Fund until the Investment Manager determines that issuance of the security is
probable. At such time, the Fund will record the transaction and, in determining
its net asset value, will reflect the value of the security daily. At such time,
the Fund will also establish a segregated account with its custodian bank in
which it will continuously maintain cash or U.S. Government securities or other
high grade debt portfolio securities equal in value to recognized commitments
for such securities. Settlement of the trade will occur within five business
days of the occurrence of the subsequent event. The value of the Fund's
commitments to purchase the securities of any one issuer, together with the
value of all securities of such issuer owned by the Fund, may not exceed 5% of
the value of the Fund's total assets at the time the initial commitment to
purchase such securities is made (see "Investment Restrictions"). Subject to the
foregoing restrictions, the Fund may purchase securities on such basis without
limit. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a "when, as and if issued" basis may increase the
volatility of its net asset value. The Investment Manager and the Trustees do
not believe that the net asset value of the Fund will be adversely affected by
its purchase of securities on such basis. The Fund may also sell securities on a
"when, as and if issued" basis provided that the issuance of the security will
result automatically from the exchange or conversion of a security owned by the
Fund at the time of sale.
OPTIONS TRANSACTIONS
The Fund has no current intention to engage in options transactions. In the
event the Fund wishes to engage in options transactions in the future, the
Fund's Prospectus and Statement of Additional Information will be amended and
sent to shareholders in advance of the change.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate for the fiscal year ended August 31, 1995
was 114%. A 100% turnover rate would occur, for example, if 100% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced within
one year.
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.
16
<PAGE>
The Fund may not:
1. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee/ director of the Fund or of the Investment Manager
owns more than 1/2 of 1% of the outstanding securities of such issuer, and
such officers and trustees/directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuers.
2. Purchase or sell real estate or interests therein, although the Fund
may purchase securities of issuers which engage in real estate operations
and securities secured by real estate or interests therein.
3. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
4. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
5. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(6) in the Prospectus.
6. 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 restriction (6) in the Prospectus.
7. 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.
8. Make short sales of securities.
9. Purchase or sell commodities or commodity futures contracts.
10. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities.
11. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
12. Invest for the purpose of exercising control or management of any
other issuer.
In addition, the Fund, as a non-fundamental policy, will not invest in
warrants, although it may acquire warrants attached to other securities
purchased by the Fund.
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 of the Fund, the
Investment Manager is responsible for the investment decisions and the placing
of orders for portfolio transactions for the Fund. The Fund's portfolio
transactions will occur primarily with issuers, underwriters or major dealers in
fixed-income securities acting as principals. Such transactions are normally on
a net basis which do not involve payment of brokerage commissions. The cost of
securities purchased from an underwriter usually includes a commission paid by
the issuer to the underwriter; transactions with dealers normally reflect the
spread between bid and asked prices. During the fiscal years ended August 31,
1993, 1994 and 1995, the Fund did not pay any brokerage commissions.
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<PAGE>
The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, the main
factors considered are the respective investment objectives, the relative size
of portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the portfolios of the Fund and
other client accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. 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.
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Fund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the management fee paid to the Investment
Manager is not reduced by any amount that may be attributable to the value of
such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR. In order for DWR to effect any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by DWR must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. This standard would allow DWR to receive no more than the remuneration
which would be expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction. Furthermore, the Board of Trustees of the
Fund, including a majority of the Trustees who are not "interested persons" of
the Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to DWR
are consistent with the foregoing standard. For the fiscal years ended August
31, 1993, 1994 and 1995, the Fund did not effect any securities transactions
with or through DWR. During the fiscal year ended August 31, 1995, the Fund
purchased bonds issued by PaineWebber Group, Inc. 6.68% 2/10/04; Lehman Bros.,
Inc., 9.875% 10/15/00 and Lehman Bros. Hldgs., Inc. 8.80% 3/01/15, which 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 year. At August 31, 1995,
the Fund held a bond issued by Salomon, Inc. 7.75% 5/15/00 with a market value
of $5,041,168.
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<PAGE>
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). 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 current 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 20, 1995, the Trustees, including all of the
Independent Trustees, approved the continuation of the Distribution Agreement
until April 30, 1996.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws. The Fund and the Distributor
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the Distribution
Agreement, the Distributor uses its best efforts in rendering services to the
Fund, but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations, the Distributor is not liable to the Fund
or any of its shareholders for any error of judgment or mistake of law or for
any act or omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION.
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan") pursuant to which the Fund pays the Distributor compensation
accrued daily and payable monthly at the annual rate of 0.85% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's shares since the
inception of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived; or (b)
the Fund's average daily net assets. The Distributor also receives the proceeds
of contingent deferred sales charges imposed on certain redemptions of shares,
which are separate and apart from payments made pursuant to the Plan (see
"Redemptions and Repurchases--Contingent Deferred Sales Charge" in the
Prospectus). The Distributor has informed the Fund that it and/or DWR received
approximately $481,000, $567,000 and $500,000 in contingent deferred sales
charges for the fiscal years ended August 31, 1993, 1994 and 1995 respectively,
none of which was retained by the Distributor.
The Distributor has informed the Fund that a portion of the fees payable by
the Fund each year pursuant to the Plan equal to 0.20% 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 fees 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
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<PAGE>
characterized as an "asset-based sales charge" as such is defined by the
aforementioned Rules of Fair Practice.
The Plan was adopted by a vote of the Trustees of the Fund on April 27,
1989, at a Meeting of the Trustees called for the purpose of voting on such
Plan. The vote included the vote of a majority of the Trustees of the Fund who
are not "interested persons" of the Fund (as defined in the Act) and who have no
direct or indirect financial interest in the operation of the Plan (the
"Independent 12b-1 Trustees"). In making their decision to adopt the Plan, the
Trustees requested from DWR and received such information as they deemed
necessary to make an informed determination as to whether or not adoption of the
Plan was in the best interests of the shareholders of the Fund. After due
consideration of the information received, the Trustees, including the
Independent 12b-1 Trustees, determined that adoption of the Plan would benefit
the shareholders of the Fund. DWR, as then sole shareholder of the Fund,
approved the Plan on April 28, 1989, and the Plan was approved by shareholders
of the Fund at a Meeting of Shareholders on December 21, 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.
Under the Plan and as required by Rule 12b-1, the Trustees will receive and
review promptly after the end of each fiscal quarter a written report provided
by the Distributor of the amounts expended by the Distributor under the Plan and
the purpose for which such expenditures were made. The Fund accrued $1,969,829
payable to the Distributor, pursuant to the Plan, for the fiscal year ended
August 31, 1995. This is an accrual at an annual rate of 0.85% of the average
daily net assets of the Fund. This amount is treated by the Fund as an expense
in the year it is accrued.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method shares of the Fund are
sold without a sales load being deducted at the time of purchase, so that the
full amount of an investor's purchase payment will be invested in shares without
any deduction for sales charges. Shares of the Fund may be subject to a
contingent deferred sales charge, payable to the Distributor, if redeemed during
the six years after their purchase. The Distributor compensates account
executives of DWR and other selected broker-dealers by paying them, from its own
funds, commissions for the sale of the Fund's shares, currently a gross sales
credit of up to 4% of the amount sold and an annual residual commission of up to
.20 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 to account executives of DWR and other selected
broker-dealers and Fund associated distribution-related expenses, including
sales compensation and overhead. 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 its opportunity costs, such as the gross
sales credit and an assumed interest charge thereon ("carrying charge"). In the
Distributor's reporting of its distribution expenses to the Fund, such assumed
interest (computed at the "broker's call rate") has been calculated on the gross
sales credit as it is reduced by amounts received by the Distributor under the
Plan and any contingent deferred sales charges received by the Distributor upon
redemption of shares of the Fund. No other interest charge is included as a
distribution expense in the Distributor's calculation of its
20
<PAGE>
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 $1,969,829 accrued under the Plan for the fiscal
year ended August 31, 1995, to the Distributor. The Distributor and DWR estimate
that they have spent, pursuant to the Plan, $18,472,010 on behalf of the Fund
since the inception of the Plan. It is estimated that this amount was spent in
approximately the following ways: (i) 9.33% ($1,723,262 )--advertising and
promotional expenses; (ii) 0.61% ($113,383)--printing of prospectuses for
distribution to other than current shareholders; and (iii) 90.06%
($16,635,365)--other expenses, including the gross sales credit and the carrying
charge, of which 8.32% ($1,383,327) represents carrying charges, 36.28%
($6,035,231) represents commission credits to DWR branch offices for payments of
commissions to account executives and 55.40% ($9,216,807 ) represents overhead
and other branch office distribution-related expenses. The term "overhead and
other branch office distribution-related expenses" represents (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; (d) 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.
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 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 $6,743,926 as of August 31, 1995. Because there is
no requirement under the Plan that the Distributor be reimbursed for all
expenses or any requirement that the Plan be continued from year to year, this
excess amount does not constitute a liability of the Fund. Although there is no
legal obligation for the Fund to pay distribution expenses in excess of payments
made under the Plan and the proceeds of contingent deferred sales charges paid
by investors upon redemption of shares, if for any reason the Plan is
terminated, the Trustees will consider at that time the manner in which to treat
such expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or contingent deferred sales charges, may or may not be
recovered through future distribution fees or contingent deferred sales charges.
No interested person of the Fund, nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial interest in the operation of the Plan except to the extent that the
Distributor, InterCapital, DWR or certain of their employees may be deemed to
have such an interest as a result of benefits derived from the successful
operation of the Plan or as a result of receiving a portion of the amounts
expended thereunder by the Fund.
Under its terms, the Plan continued until April 30, 1990 and will remain in
effect from year to year thereafter, provided such continuance is approved
annually by a vote of the Trustees in the manner described above. At that
meeting, the Trustees, including a majority of the Independent 12b-1 Trustees,
also approved certain technical amendments to the Plan in connection with recent
amendments adopted by the National Association of Securities Dealers, Inc. to
its Rules of Fair Practice. Prior to approving the continuation of the Plan, the
Trustees requested and received from the Distributor and reviewed all the
information which they deemed necessary to arrive at an informed determination.
In making their determination to continue the Plan, the Trustees considered: (1)
the Fund's experience under the Plan and whether such experience indicates that
the Plan is operating as anticipated; (2) the benefits the Fund had obtained,
was obtaining and would be likely to obtain under the Plan; and (3) what
services had been provided and were continuing to be provided under the Plan the
Distributor to the Fund and its shareholders. Based upon their review, the
Trustees of the Fund, including each of the Independent 12b-1 Trustees,
determined that continuation of the Plan would be in the best interest of the
Fund and would have a reasonable likelihood of continuing to benefit the Fund
and its shareholders. In the Trustees' quarterly review of the Plan, they will
consider its continued appropriateness and the level
21
<PAGE>
of compensation provided therein. Most recent continuation of the Plan for one
year, until April 30, 1996, was aproved by the Trustees of the Fund, including
all the Independent 12b-1 Trustees, at a meeting held on April 20, 1995.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
Fund, and all material amendments of the Plan must also be approved by the
Trustees in the manner described above. The Plan may be terminated at any time,
without payment of any penalty, by vote of a majority of the Independent 12b-1
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the Act) on not more than thirty days written notice to any
other party to the Plan. So long as the Plan is in effect, the election and
nomination of Independent Trustees shall be committed to the discretion of the
Independent Trustees.
DETERMINATION OF NET ASSET VALUE
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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. All other securities and other assets are valued at their fair value
as determined in good faith under procedures established by and under the
supervision of the Trustees.
As discussed in the Prospectus, the net asset value per share of the Fund is
determined once daily at 4:00 p.m., New York time (or, on days when the New York
Stock Exchange closes prior to 4:00 p.m., at such earlier time), on each day
that the New York Stock Exchange is open by taking the value of all assets of
the Fund, subtracting its liabilities, dividing by the number of shares
outstanding and adjusting to the nearest cent. The New York Stock Exchange
currently observes the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by Dean Witter
Trust Company (the "Transfer Agent"). This is an open account in which shares
owned by the investor are credited by the Transfer Agent in lieu of issuance of
a share certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares and
may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder-instituted
transaction takes place in the Shareholder Investment Account, the shareholder
will be mailed a confirmation of the transaction from the Fund or from DWR or
another selected broker-dealer.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution at the net
asset value next determined after receipt by the Transfer Agent, without the
imposition of a contingent deferred sales charge upon redemption, by returning
the check or the proceeds to the Transfer Agent within 30 days after the payment
date. If the shareholder returns the proceeds of a dividend or distribution,
such funds must be accompanied by a signed statement indicating that the
proceeds constitute a dividend or distribution to be invested. Such investment
will be made at the net asset value per share next determined after receipt of
the check or proceeds by the Transfer Agent.
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<PAGE>
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 as least five business
days prior to the record date of the dividend or distribution. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payments will be made to the Distributor,
which will be forwarded to the shareholder, upon the receipt of proper
instructions.
TARGETED DIVIDENDS.-SM- In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of a Dean Witter Fund other than Dean Witter
Intermediate Income Securities. 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.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount, not
less than $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable contingent deferred sales charge will be
imposed on shares redeemed under the Withdrawal Plan (see "Redemptions and
Repurchases--Contingent Deferred Sales Charge" in the Prospectus). Therefore,
any shareholder participating in the Withdrawal Plan will have sufficient shares
redeemed from his or her account so that the proceeds (net of any applicable
contingent deferred sales charge) to the shareholder will be the designated
monthly or quarterly amount.
Dividends and capital gains distributions on shares held under the
Systematic Withdrawal Plan will be invested in additional full and fractional
shares at net asset value (without a sales charge). Shares will be credited to
an open account for the investor by the Transfer Agent; no share certificates
will be issued. A shareholder is entitled to a share certificate upon written
request to the Transfer Agent, although in that event the shareholder's
Systematic Withdrawal Plan will be terminated.
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
23
<PAGE>
and normally a check for the proceeds will be mailed by the Transfer Agent, or
amounts credited to a shareholder's DWR or other selected broker-dealer
brokerage account within five business days after the date of redemption. The
Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the contingent deferred sales charge
applicable to the redemption of shares purchased during the preceding six years
(see "Redemptions and Repurchases-- Contingent Deferred Sales Charge").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor.) A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her account executive or by written notification to the Transfer Agent.
In addition, the party and/or the address to which checks are mailed may be
changed by written notification to the Transfer Agent, with signature guarantees
required in the manner described above. The shareholder may also terminate the
Withdrawal Plan at any time by written notice to the Transfer Agent. In the
event of such termination, the account will be continued as a regular
shareholder investment account. The shareholder may also redeem all or part of
the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time. Shareholders wishing to enroll in
the Withdrawal Plan should contact their account executive or the Transfer
Agent.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
a shareholder may make additional investments in Fund shares at any time by
sending a check in any amount, not less than $100, payable to Dean Witter
Intermediate Income Securities, directly to the Fund's Transfer Agent. Such
amounts will be applied to the purchase of Fund shares at the net asset value
per share next computed after receipt of the check or purchase payment by the
Transfer Agent. The shares so purchased will be credited to the investor's
account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of the Fund may exchange their shares
for shares of other Dean Witter Funds sold with a contingent deferred sales
charge ("CDSC funds"), for shares of Dean Witter 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 or 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
for purposes of this section 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.
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<PAGE>
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 applicable to the shares) prior to the
exchange, (ii) originally acquired through reinvestment of dividends or
distributions and (iii) acquired in exchange for shares of front-end sales
charge funds, or for shares of other Dean Witter Funds for which shares of
front-end sales charge funds have been exchanged (all such shares called "Free
Shares"), will be exchanged first. Shares of Dean Witter American Value Fund
acquired prior to April 30, 1984, shares of Dean Witter Dividend Growth
Securities Inc. and Dean Witter Natural Resource Development Securities Inc.
acquired prior to July 2, 1984, and shares of Dean Witter Strategist Fund
acquired prior to November 8, 1989, are also considered Free Shares and will be
the first Free Shares to be exchanged. After an exchange, all dividends earned
on shares in an Exchange Fund will be considered Free Shares. If the exchanged
amount exceeds the value of such Free Shares, an exchange is made, on a
block-by-block basis, of non-Free Shares held for the longest period of time
(except that if shares held for identical periods of time but subject to
different CDSC schedules are held in the same Exchange Privilege account, the
shares of that block that are subject to a lower CDSC rate will be exchanged
prior to the shares of that block that are subject to a higher CDSC rate).
Shares equal to any appreciation in the value of non-Free Shares exchanged will
be treated as Free Shares, and the amount of the purchase payments for the
non-Free Shares of the fund exchanged into will be equal to the lesser of (a)
the purchase payments for, or (b) the current net asset value of, the exchanged
non-Free Shares. If an exchange between funds would result in exchange of only
part of a particular block of non-
25
<PAGE>
Free Shares, then shares equal to any appreciation in the value of the block (up
to the amount of the exchange) will be treated as Free Shares and exchanged
first, and the purchase payment for that block will be allocated on a pro rata
basis between the non-Free Shares of that block to be retained and the non-Free
Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount of purchase payment for the exchanged non-Free
Shares will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the Prospectus under the caption
"Contingent Deferred Sales Charge", any applicable CDSC will be imposed upon the
ultimate redemption of shares of any fund, regardless of the number of exchanges
since those shares were originally purchased.
The Transfer Agent acts as agent for shareholders of the Fund in effecting
redemptions of Fund shares and in applying the proceeds to the purchase of other
fund shares. In the absence of negligence on its part, neither the Transfer
Agent nor the Fund shall be liable for any redemption of Fund shares caused by
unauthorized telephone instructions. Accordingly, in such an event the investor
shall bear the risk of loss. The staff of the Securities and Exchange Commission
is currently considering the propriety of such a policy.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000 for
Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust,
Dean Witter California Tax-Free Daily Income Trust and Dean Witter New York
Municipal Money Market Trust, although those funds may, at their discretion,
accept initial investments of as low as $1,000. The minimum investment is
$10,000 for Dean Witter Short-Term U.S. Treasury Trust, although that fund, in
its discretion, may accept initial purchases as low as $5,000. The minimum
initial investment for all other Dean Witter Funds for which the Exchange
Privilege is available is $1,000.) Upon exchange into an Exchange Fund, the
shares of that fund will be held in a special Exchange Privilege Account
separately from accounts of those shareholders who have acquired their shares
directly from that fund. As a result, certain services normally available to
shareholders of those funds, including the check writing feature, will not be
available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days' prior written notice for
termination or material revision), provided that six months' prior written
notice of termination will be given to 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
26
<PAGE>
value of its net assets, (d) during any other period when the Securities and
Exchange Commission by order so permits (provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist) or (e) if the Fund would be
unable to invest amounts effectively in accordance with its investment
objective, policies and restrictions.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. An exchange will be treated for federal income tax purposes
the same as a repurchase or redemption of shares, on which the shareholder may
realize a capital gain or loss. However, the ability to deduct capital losses on
an exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of the Fund can be redeemed
for cash at any time at the net asset value per share next determined; however,
such redemption proceeds may be reduced by the amount of any applicable
contingent deferred sales charges (see below). If shares are held in
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 a 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 (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, 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
27
<PAGE>
front-end sales charge funds have been exchanged (see "Shareholder
Services--Exchange Privilege"), plus (d) increases in the net asset value of the
investor's shares above the total amount of payments for the purchase of Fund
shares made during the preceding six years. The CDSC will be paid to the
Distributor.
In determining the applicability of a CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than six years prior to the redemption and/or shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of Dean Witter front-end sales charge funds, or for shares
of other Dean Witter funds for which shares of front-end sales charge funds have
been exchanged. A portion of the amount redeemed which exceeds an amount which
represents both such increase in value and the value of shares purchased more
than six years prior to the redemption and/or shares purchased through
reinvestment of dividends or distributions and/or shares acquired in the
above-described exchanges will be subject to a CDSC.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of: (i) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship, or (b) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account or Custodial Account under Section 403(b)(7) of the Internal Revenue
Code, provided in either case that the redemption is requested within one year
of the death or initial determination of disability, and (ii) redemption in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key-employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an Individual
Retirement Account or Custodial Account under Section 403(b)(7) of the Internal
Revenue code following attainment of age 59 1/2; and (c) a tax-free return of an
excess contribution to an IRA. For the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Code, which relates to the inability to engage in gainful employment. All
waivers will be granted only following receipt by the Distributor of
confirmation of the investor's entitlement.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Fund shares until the time of
redemption of such shares. For purposes of determining the number of years from
the time of any payment for the purchase of shares, all payments made during a
month will be aggregated and deemed to have been made on the last day of the
month. The following table sets forth the rates of the CDSC:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------------------------------- ---------------------
<S> <C>
First............................................. 5.0%
Second............................................ 4.0%
Third............................................. 3.0%
Fourth............................................ 2.0%
Fifth............................................. 2.0%
Sixth............................................. 1.0%
Seventh and thereafter............................ None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year period. This will result in any such CDSC being imposed at
the lowest possible rate. Accordingly, shareholders may redeem, without
incurring any CDSC, amounts equal to any net increase in the value of their
shares above the amount of
28
<PAGE>
their purchase payments made within the past six years, and amounts equal to the
current value of shares purchased more than six years prior to the redemption
and shares purchased through reinvestment of dividends or distributions or
acquired in exchange for shares of Dean Witter front-end sales charge funds, or
for shares of other Dean Witter Funds for which shares of front-end sales charge
funds have been exchanged. The CDSC will be imposed, in accordance with the
table shown above, on any redemptions within six years of purchase which are in
excess of these amounts and which redemptions are not (a) requested within one
year of death or initial determination of disability of a shareholder, or (b)
made pursuant to certain taxable distributions from retirement plans or
retirement accounts, as described above.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for shares presented for repurchase or redemption will be made by check
within seven days after receipt by the Transfer Agent of the certificate and/or
written request in good order. The term good order means that the share
certificate, if any, and request for redemption are properly signed, accompanied
by any documentation required by the Transfer Agent, and bear signature
guarantees when required by the Fund or the Transfer Agent. Such payment may be
postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for investment
has been honored (not more than fifteen days from the time of receipt of the
check by the Transfer Agent). Shareholders maintaining accounts with DWR or
another selected broker-dealer are referred to their account executive regarding
restrictions on redemption of shares of the Fund pledged in the margin account.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the contingent deferred sales charge or free of such charge
(and with regard to the length of time shares subject to the charge have been
held), any transfer involving less than all of the shares in an account will be
made on a pro-rata basis (that is, by transferring shares in the same proportion
that the transferred shares bear to the total shares in the account immediately
prior to the transfer). The transferred shares will continue to be subject to
any applicable contingent deferred sales charge as if they had not been so
transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may within 30 days after the date of
redemption or repurchase reinstate any portion of all of the proceeds of such
redemption or repurchase in shares of the Fund at the net asset value next
determined after a reinstatement request, together with such proceeds, is
received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes,
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
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
29
<PAGE>
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.
In computing net investment income, the Fund will not amortize premiums or
accrue discounts on fixed-income securities in the portfolio, except those
original issue discounts for which amortization is required for federal income
tax purposes. Additionally, with respect to market discounts on bonds issued
after July 18, 1984, and all bonds purchased after April 30, 1993, a portion of
any capital gain realized upon disposition may be re-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.
Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have been held by the Fund for more than
twelve months. Gains or losses on the sale of securities held for twelve months
or less will be short-term gains or losses.
Because the Fund intends to distribute all of its net investment income and
capital gains to shareholders and otherwise continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, it is not
expected that the Fund will be required to pay any federal income tax.
Shareholders will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from net
investment income or short-term capital gains, are taxable to the shareholder as
ordinary income regardless of whether the shareholder receives such payments in
additional shares or in cash. Any dividends declared in the last quarter of any
year to shareholders of record of such period which are paid in the following
calendar year prior to February 1 will be deemed received by the shareholder in
the prior calendar year.
Any dividend or capital gains distribution received by a shareholder from
any regulated 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 realized net long-term capital gains, such payment 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.
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. 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 calendar 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
30
<PAGE>
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
"yield" and/or its "total return" in advertisements and sales literature. Yield
is calculated for any 30-day period as follows: the amount of interest and/or
dividend income for each security in the Fund's portfolio is determined in
accordance with regulatory requirements; the total for the entire portfolio
constitutes the Fund's gross income for the period. Expenses accrued during the
period are subtracted to arrive at "net investment income". The resulting amount
is divided by the product of the net asset value per share on the last day of
the period multiplied by the average number of Fund shares outstanding during
the period that were entitled to dividends. This amount is added to 1 and raised
to the sixth power. 1 is then subtracted from the result and the difference is
multiplied by 2 to arrive at the annualized yield. For the 30-day period ended
August 31, 1995, the Fund's yield, calculated pursuant to this formula, was
5.54%.
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 August 31, 1995, the five year period ended
August 31, 1995 and for the period from May 3, 1989 (commencement of operations)
through August 31, 1995 were 3.56%, 7.36% and 6.96%, respectively.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. Such calculations may or may not reflect the
deduction of the contingent deferred sales charge which, if reflected, would
reduce the performance quoted. For example, the average annual total returns of
the Fund may be calculated in the manner described above, but without deduction
for any applicable contingent deferred sales charge. Based on this calculation,
the average annual total return of the Fund for the fiscal year ended August 31,
1995, the five year period ended August 31, 1995 and for the period from May 3,
1989 through August 31, 1995 were 8.56%, 7.66% and 6.96%, respectively.
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without the
reduction for any contingent deferred sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the Fund's total return for the fiscal year ended August 31, 1995
was 8.56% and the total return for the five year period ended August 31, 1995
and for the period from May 3, 1989 through August 31, 1995 were 44.61% and
53.10%, 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 CDSC) and multiplying by 10,000,
31
<PAGE>
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 $15,310, $76,550 and
$153,100, respectively, at August 31, 1995.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indices compiled by independent organizations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the shareholders of the Fund are entitled to
a full vote for each full share held. All of the Trustees except for Messrs.
Bozic, Purcell and Schroeder have been elected by the shareholders of the Fund
at Special Meetings of Shareholders on December 21, 1989 and on January 12,
1993. Messrs. Bozic, Purcell and Schroeder were elected by the other Trustees of
the Fund. The Trustees themselves have the power to alter the number and the
terms of office of the Trustees, and they may at any time lengthen their own
terms or make their terms of unlimited duration and appoint their own
successors, provided that always at least a majority of the Trustees has been
elected by the shareholders of the Fund. Under certain circumstances the
Trustees may be removed by action of the Trustees. The shareholders also have
the right under certain circumstances to remove the Trustees. The voting rights
of shareholders are not cumulative, so that holders of more than 50 percent of
the shares voting can, if they choose, elect all Trustees being selected, while
the holders of the remaining shares would be unable to elect any Trustees.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances). However, the Trustees have not authorized
any such additional series or classes of shares.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for obligations of
the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, in the opinion of Massachusetts
counsel to the Fund, the risk to shareholders of personal liability is remote.
The Declaration of Trust further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his/her or
its own bad faith, willful misfeasance, gross negligence, or reckless disregard
of his/her or its duties. It also provides that all third persons shall look
solely to the Fund's property for satisfaction of claims arising in connection
with the affairs of the Fund. With the exceptions stated, the Declaration of
Trust provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders.
32
<PAGE>
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions 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 prospectuses and reports; mailing and tabulating proxies; processing
share certificate transactions; and maintaining shareholder records and lists.
For these services Dean Witter Trust Company receives a per shareholder account
fee from the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements, together with a report of its independent accountants,
will be sent to shareholders each year.
The Fund's fiscal year ends on August 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 fiscal year ended August
31, 1995, which are 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.
33
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (72.5%)
AUTOMOTIVE (4.1%)
$ 4,300 Chrysler Corp................................. 10.40 % 08/01/99 $ 4,596,184
2,050 General Motors Corp........................... 7.625 02/15/97 2,085,752
2,975 Hertz Corp.................................... 6.70 06/15/02 2,974,583
---------------
9,656,519
---------------
AUTOMOTIVE FINANCE (5.6%)
6,000 Ford Capital BV (Netherlands)................. 9.375 05/15/01 6,728,820
1,000 Ford Holdings Inc............................. 9.25 07/15/97 1,051,590
4,975 General Motors Acceptance Corp................ 8.40 10/15/99 5,281,808
---------------
13,062,218
---------------
BANK HOLDING COMPANIES (8.4%)
4,000 First Chicago Corp............................ 9.875 07/01/99 4,436,840
5,000 Nationsbank Corp.............................. 6.875 02/15/05 4,934,700
5,000 Shawmut Bank Connecticut, N.A................. 8.625 02/15/05 5,526,450
4,975 Star Bank N.A................................. 6.375 03/01/04 4,759,682
---------------
19,657,672
---------------
BANKS - INTERNATIONAL (9.5%)
4,900 ABN AMRO Bank NV (Singapore).................. 7.25 05/31/05 5,010,299
4,000 Banco Central Hispano (Cayman Islands)........ 7.50 06/15/05 4,018,360
4,985 Bank of China................................. 6.75 03/15/99 4,955,888
4,000 Union Bank Finland............................ 5.25 06/15/96 3,971,080
3,970 Westpac Banking Corp. (Australia)............. 7.875 10/15/02 4,204,786
---------------
22,160,413
---------------
BEVERAGES - BREWERS (4.5%)
5,000 Seagram (Joseph E.) & Sons, Inc............... 9.75 06/15/00 5,129,650
5,000 Seagram (Joseph E.) & Sons, Inc............... 8.375 02/15/07 5,458,050
---------------
10,587,700
---------------
CABLE & TELECOMMUNICATIONS (2.3%)
5,225 TCI Communications Inc........................ 8.00 08/01/05 5,351,184
---------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (1.4%)
3,000 Applied Materials Inc......................... 8.00 09/01/04 3,185,940
---------------
FINANCE (5.3%)
7,015 General Electric Capital Corp................. 8.65 05/01/18 7,109,141
5,000 Golden West Financial Corp.................... 10.25 05/15/97 5,309,700
---------------
12,418,841
---------------
FINANCIAL (2.2%)
4,975 Salomon, Inc.................................. 7.75 05/15/00 5,041,168
---------------
FOOD PROCESSING (2.0%)
4,500 Great Atlantic & Pacific Tea Co., Inc......... 9.125 01/15/98 4,689,810
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOODS & BEVERAGES (2.8%)
$ 5,000 Coca-Cola Enterprises, Inc.................... 6.50 % 11/15/97 $ 5,030,150
1,500 Nabisco Inc................................... 6.70 06/15/02 1,485,870
---------------
6,516,020
---------------
HEALTHCARE (2.1%)
4,975 Columbia/HCA Healthcare....................... 6.91 06/15/05 4,949,976
---------------
INDUSTRIALS (1.0%)
1,100 United Technologies Corp...................... 9.625 05/15/99 1,125,080
1,075 Xerox Corp.................................... 9.20 07/15/99 1,101,122
---------------
2,226,202
---------------
LEISURE (2.5%)
5,475 Royal Caribbean Cruises, Ltd.................. 8.25 04/01/05 5,757,346
---------------
METALS & MINING (1.3%)
3,000 Placer Dome Inc. (Canada)..................... 7.125 06/15/07 2,950,230
---------------
NATURAL GAS (0.6%)
1,278 Panhandle Eastern Pipe Line Co................ 9.875 10/15/96 1,282,358
---------------
OIL INTEGRATED - INTERNATIONAL (2.2%)
5,000 Societe Nationale Elf Aquitaine (France)...... 7.75 05/01/99 5,224,850
---------------
OIL RELATED (2.2%)
5,000 Occidental Petroleum Corp..................... 9.625 07/01/99 5,129,750
---------------
RETAIL STORES (4.7%)
2,000 KMart Corp.................................... 8.125 12/01/06 2,074,040
4,975 Sears, Roebuck Acceptance Corp................ 6.50 06/15/00 4,956,393
3,000 TJX Companies Inc............................. 6.625 06/15/00 2,983,500
1,000 Woolworth Corp................................ 7.00 06/01/00 991,680
---------------
11,005,613
---------------
TOBACCO (0.9%)
2,000 RJR Nabisco, Inc.............................. 8.75 08/15/05 2,041,560
---------------
TRANSPORTATION (1.2%)
2,725 Union Pacific Corp............................ 7.375 05/15/01 2,818,958
---------------
UTILITIES - ELECTRIC (5.7%)
2,000 Commonwealth Edison Co........................ 7.50 01/01/01 2,031,060
500 Consolidated Edison Co. of New York, Inc...... 5.90 12/15/96 498,440
5,000 Long Island Lighting Co....................... 7.625 04/15/98 5,082,700
2,600 Southern California Edison Co................. 5.60 12/15/98 2,536,768
3,000 Texas Utilities Electric Co................... 7.125 06/01/97 3,039,690
---------------
13,188,658
---------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $168,668,052)....................................... 168,902,986
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT & AGENCIES OBLIGATIONS (24.5%)
$ 1,000 Federal Farm Credit Bank...................... 6.81 % 05/19/97 $ 1,003,278
2,000 Federal Home Loan Mortgage Corp............... 6.35 06/24/98 1,998,102
264 Federal Home Loan Mortgage Corp............... 8.50 12/01/01 270,916
190 Federal Home Loan Mortgage Corp............... 8.50 01/01/02 195,431
695 Federal Home Loan Mortgage Corp............... 8.50 07/01/02 713,687
292 Federal Home Loan Mortgage Corp............... 9.00 08/01/02 302,318
1,700 Federal Home Loan Mortgage Corp............... 7.05 03/24/04 1,686,578
3,230 Federal National Mortgage Association......... 5.30 03/11/98 3,156,820
73 Federal National Mortgage Association......... 8.50 12/01/01 76,089
2,500 Federal National Mortgage Association......... 6.90 03/10/04 2,485,938
3,000 Federal National Mortgage Association......... 7.55 06/10/04 3,077,344
2,000 Federal National Mortgage Association......... 7.73 08/26/04 2,068,440
4,500 Private Export Funding Corp................... 6.86 04/30/04 4,536,765
11,000 U.S. Treasury Note............................ 7.875 02/15/96 11,104,858
7,600 U.S. Treasury Note............................ 8.875 02/15/96 7,706,875
1,600 U.S. Treasury Note............................ 6.75 02/28/97 1,621,500
7,940 U.S. Treasury Note............................ 5.125 04/30/98 7,783,681
1,000 U.S. Treasury Note............................ 6.75 06/30/99 1,023,438
3,000 U.S. Treasury Note............................ 5.75 08/15/03 2,898,281
2,975 U.S. Treasury Note............................ 7.50 02/15/05 3,216,718
---------------
TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS
(IDENTIFIED COST $57,196,492)........................................ 56,927,057
---------------
SHORT-TERM INVESTMENT (a) (2.3%)
U.S. GOVERNMENT AGENCY
5,300 Federal Home Loan Banks (Amortized Cost
$5,300,000)................................... 5.70 09/01/95 5,300,000
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST $231,164,544) (B).......... 99.3% 231,130,043
OTHER ASSETS IN EXCESS OF LIABILITIES....... 0.7 1,621,541
----- ------------
NET ASSETS.................................. 100.0% $232,751,584
----- ------------
----- ------------
<FN>
- ---------------------
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes is $231,199,791; the
aggregate gross unrealized appreciation is $3,200,038 and the aggregate
gross unrealized depreciation is $3,269,786, resulting in net unrealized
depreciation of $69,748.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1995
<TABLE>
<S> <C>
ASSETS:
</TABLE>
<TABLE>
<S> <C>
Investments in securities, at value
(identified cost $231,164,544)............................ $ 231,130,043
Receivable for:
Interest................................................ 3,842,467
Shares of beneficial interest sold...................... 308,167
Principal paydowns...................................... 26,794
Prepaid expenses and other assets........................... 18,568
-------------
TOTAL ASSETS........................................... 235,326,039
-------------
LIABILITIES:
Payable to bank............................................. 1,910,870
Payable for:
Shares of beneficial interest repurchased............... 187,320
Plan of distribution fee................................ 167,011
Investment management fee............................... 117,890
Dividends to shareholders............................... 67,440
Accrued expenses and other payables......................... 123,924
-------------
TOTAL LIABILITIES...................................... 2,574,455
-------------
NET ASSETS:
Paid-in-capital............................................. 240,605,495
Net unrealized depreciation................................. (34,501)
Accumulated undistributed net investment income............. 39,127
Accumulated net realized loss............................... (7,858,537)
-------------
NET ASSETS............................................. $ 232,751,584
-------------
-------------
NET ASSET VALUE PER SHARE,
24,013,746 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$9.69
---------------------------------
---------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1995
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $18,205,136
-----------
EXPENSES
Plan of distribution fee.................................... 1,969,829
Investment management fee................................... 1,390,467
Transfer agent fees and expenses............................ 177,398
Professional fees........................................... 58,027
Shareholder reports and notices............................. 55,239
Custodian fees.............................................. 44,318
Registration fees........................................... 42,171
Trustees' fees and expenses................................. 27,812
Other....................................................... 8,446
-----------
TOTAL EXPENSES......................................... 3,773,707
-----------
NET INVESTMENT INCOME.................................. 14,431,429
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (2,372,243)
Net change in unrealized depreciation....................... 6,706,091
-----------
NET GAIN............................................... 4,333,848
-----------
NET INCREASE................................................ $18,765,277
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1995 AUGUST 31, 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 14,431,429 $ 14,717,007
Net realized loss........................................... (2,372,243) (5,288,443)
Net change in unrealized appreciation/depreciation.......... 6,706,091 (13,667,486)
--------------- ---------------
NET INCREASE (DECREASE)................................ 18,765,277 (4,238,922)
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................... (14,398,478) (14,239,594)
Net realized gain........................................... (307,913) (1,050,020)
--------------- ---------------
TOTAL.................................................. (14,706,391) (15,289,614)
--------------- ---------------
Net increase (decrease) from transactions in shares of
beneficial interest....................................... (17,057,209) 10,847,274
--------------- ---------------
TOTAL DECREASE......................................... (12,998,323) (8,681,262)
NET ASSETS:
Beginning of period......................................... 245,749,907 254,431,169
--------------- ---------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$39,127 AND $6,176, RESPECTIVELY)....................... $ 232,751,584 $ 245,749,907
--------------- ---------------
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1995
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Intermediate Income Securities (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund was organized as a
Massachusetts business trust on September 1, 1988 and commenced operations on
May 3, 1989.
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 (valuation of
debt securities for which market quotations are not readily available may be
based upon current market prices of securities which are comparable in coupon,
rating and maturity or an appropriate matrix utilizing similar factors); (4)
certain of the Fund's portfolio securities may be valued by an outside pricing
service approved by the Trustees. The pricing service utilizes a matrix system
incorporating security quality, maturity and coupon as the evaluation model
parameters, and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service; and (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined on the identified cost method.
Discounts on securities purchased are accreted over the life of the respective
securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
40
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1995, CONTINUED
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), the Fund pays its Investment Manager a
management fee, calculated daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.60% to the portion of daily net assets not exceeding $500
million; 0.50% to the portion of daily net assets exceeding $500 million but not
exceeding $750 million; 0.40% to the portion of daily net assets exceeding $750
million but not exceeding $1 billion; and 0.30% to the portion of daily net
assets exceeding $1 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 0.85% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or
41
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1995, CONTINUED
capital gain distributions) less the average daily aggregate net asset value of
the Fund's shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or upon which such charge has been
waived; or (b) the Fund's average daily net assets. Amounts paid under the Plan
are paid to the Distributor to compensate it for the services provided and the
expenses borne by it and others in the distribution of the Fund's shares,
including the payment of commissions for sales of the Fund's shares and
incentive compensation to, and expenses of, the account executives of Dean
Witter Reynolds Inc., an affiliate of the Investment Manager and Distributor,
and other employees or selected dealers who engage in or support distribution of
the Fund's shares or who service shareholder accounts, including overhead and
telephone expenses, printing and distribution of prospectuses and reports used
in connection with the offering of the Fund's shares to other than current
shareholders and preparation, printing and distribution of sales literature and
advertising materials. In addition, the Distributor may be compensated under the
Plan for its opportunity costs in advancing such amounts, which compensation
would be in the form of a carrying charge on any unreimbursed expenses incurred
by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered, may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
The Distributor has informed the Fund that for the year ended August 31, 1995,
it received approximately $500,000 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 August 31, 1995, aggregated
$252,171,881 and $278,702,873, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $69,563,197 and
$82,452,664, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the Fund's
transfer agent. At August 31, 1995, the Fund had transfer agent fees and
expenses payable of approximately $16,000.
The Fund established an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Fund who will have served as
independent Trustees for at least five years at the time of retirement. Benefits
under this plan are based on years of service and compensation during the last
five years of service. Aggregate pension costs for the year ended
42
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1995, CONTINUED
August 31, 1995 included in Trustees' fees and expenses in the Statement of
Operations amounted to $7,847. At August 31, 1995, the Fund had an accrued
pension liability of $51,000 which is included in accrued expenses in the
Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
AUGUST 31, 1995 AUGUST 31, 1994
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 4,829,143 $ 45,425,471 7,997,562 $ 79,234,382
Reinvestment of dividends and distributions...................... 845,190 8,195,495 803,966 7,889,222
----------- -------------- ----------- ------------
5,674,333 53,620,966 8,801,528 87,123,604
Repurchased...................................................... (7,500,636) (70,678,175) (7,753,698) (76,276,330)
----------- -------------- ----------- ------------
Net increase (decrease).......................................... (1,826,303) $ (17,057,209) 1,047,830 $ 10,847,274
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
At August 31, 1995, the Fund had a net capital loss carryover of approximately
$6,656,000 which will be available through August 31, 2003 to offset future
capital gains to the extent provided by regulations. Capital losses incurred
after October 31 ("post-October losses") within the taxable year are deemed to
arise on the first business day of the Fund's next taxable year. The Fund
incurred and will elect to defer net capital losses of approximately $1,167,000
during fiscal 1995. As of August 31, 1995, the Fund had temporary book/tax
differences primarily attributable to post-October losses.
43
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD
MAY 3,
1989*
FOR THE YEAR ENDED AUGUST 31 THROUGH
---------------------------------------------------------------- AUGUST
1995 1994 1993 1992 1991 1990 31, 1989
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period............... $ 9.51 $ 10.26 $ 10.05 $ 9.59 $ 9.42 $ 9.98 $ 10.00
--------- --------- --------- --------- --------- --------- ---------
Net investment income.............. 0.59 0.58 0.62 0.70 0.79 0.86 0.28
Net realized and unrealized gain
(loss)............................ 0.19 (0.73) 0.20 0.46 0.17 (0.55) (0.02)
--------- --------- --------- --------- --------- --------- ---------
Total from investment operations... 0.78 (0.15) 0.82 1.16 0.96 0.31 0.26
--------- --------- --------- --------- --------- --------- ---------
Less dividends and distributions
from:
Net investment income........... (0.59) (0.56) (0.61) (0.70) (0.79) (0.86) (0.28)
Net realized gain............... (0.01) (0.04) -- -- -- (0.01) --
--------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions..................... (0.60) (0.60) (0.61) (0.70) (0.79) (0.87) (0.28)
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period..... $ 9.69 $ 9.51 $ 10.26 $ 10.05 $ 9.59 $ 9.42 $ 9.98
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN+........... 8.56% (1.50)% 8.43% 12.58% 10.78% 3.22% 2.57%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.63% 1.63% 1.62% 1.69% 1.69% 1.75% 1.42%(2)(3)
Net investment income.............. 6.23% 5.80% 6.12% 7.11% 8.49% 8.78% 8.18%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $232,752 $245,750 $254,431 $187,285 $115,204 $114,086 $69,946
Portfolio turnover rate............ 114% 122% 132% 93% 150% 135% 30%(1)
<FN>
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all the expenses that were assumed or waived by the
Investment Manager, the above expense and net investment income ratios
would have been 2.15% and 7.44%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER INTERMEDIATE INCOME SECURITIES
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 Intermediate Income
Securities (the "Fund") at August 31, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the six years in
the period then ended and for the period May 3, 1989 (commencement of
operations) through August 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 owned at August 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
OCTOBER 10, 1995
45
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
<TABLE>
<S> <C>
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.
Ba Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate, and therefore not well safeguarded during
both good and bad times in the future. Uncertainty of position characterizes bonds
in this class.
B Bonds which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
</TABLE>
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its 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. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three
designa-
46
<PAGE>
tions, 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 catagories.
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 following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
<TABLE>
<S> <C>
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.
BB Debt rated "BB" has less near-term vulnerability to default than other speculative
grade debt. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate capacity
or willingness to pay interest and repay principal.
B Debt rated "B" has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to pay
interest and repay principal.
CCC Debt rated "CCC" has a current identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet timely
payments of interest and repayments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the capacity to pay
interest and repay principal.
CC The rating "CC" is typically applied to debt subordinated to senior debt which is
assigned an actual or implied "CCC" rating.
</TABLE>
47
<PAGE>
<TABLE>
<S> <C>
C The rating "C" is typically applied to debt subordinated to senior debt which is
assigned an actual or implied "CCC-" debt rating.
CI The rating "CI" is reserved for income bonds on which no interest is being paid.
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.
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. "BB" indicates the least degree of speculation and "C" the highest
degree of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Plus (+) or minus (-): The rating from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing with the major ratings
categories.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2 and 3 to indicate the relative degree of safety.
<TABLE>
<S> <C>
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.
</TABLE>
48
