<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 26, 1996
FILE NOS.: 33-35541
811-6121
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 7 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 8 /X/
------------------
DEAN WITTER PACIFIC GROWTH FUND INC.
(A MARYLAND CORPORATION)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK
APPROPRIATE BOX)
___ immediately upon filing pursuant to paragraph (b)
_X_ on December 26, 1996 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (A)(1) OF RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. PURSUANT TO SECTION (B)(2) OF RULE 24F-2, THE
REGISTRANT FILED A RULE 24F-2 NOTICE FOR ITS FISCAL YEAR ENDED OCTOBER 31, 1996,
WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 4, 1996.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
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<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
- -------------------------------------- --------------------------------------
<S> <C>
PART A PROSPECTUS
1. ................................. Cover Page
2. ................................. Prospectus Summary
3. ................................. Financial Highlights
4. ................................. Investment Objective and Policies;
Risk Considerations; The Fund and its
Management, Cover Page; Investment
Restrictions; Prospectus Summary;
Financial Highlights
5. ................................. The Fund and Its Management; Back
Cover; Investment Objective and
Policies
6. ................................. Dividends, Distributions and Taxes;
Additional Information
7. ................................. Purchase of Fund Shares; Shareholder
Services; Prospectus Summary
8. ................................. Redemptions and Repurchases;
Shareholder Services
9. ................................. Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10. ................................. Cover Page
11. ................................. Table of Contents
12. ................................. The Fund and Its Management
13. ................................. Investment Practices and Policies;
Investment Restrictions; Portfolio
Transactions and Brokerage
14. ................................. The Fund and Its Management; Directors
and Officers
15. ................................. The Fund and Its Management; Directors
and Officers
16. ................................. The Fund and Its Management; The
Distributor; Shareholder Services;
Custodian and Transfer Agent;
Independent Accountants
17. ................................. Portfolio Transactions and Brokerage
18. ................................. Description of Shares of the Fund
19. ................................. The Distributor; Redemptions and
Repurchases; Financial Statements;
Shareholder Services
20. ................................. Dividends, Distributions and Taxes;
Financial Statements
21. ................................. Not applicable
22. ................................. Performance Information
23. ................................. Experts; Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
DECEMBER 26, 1996
Dean Witter Pacific Growth Fund Inc. (the "Fund") is an open-end,
diversified management investment company whose investment objective is to
maximize the capital appreciation of its investments. The Fund seeks to achieve
this objective by investing primarily in securities issued by issuers located in
Asia, Australia and New Zealand.
Shares of the Fund are continuously offered at net asset value
without the imposition of a sales charge. However, redemptions and/or
repurchases of shares 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 1.0% 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 December 26, 1996, which has been filed with
the Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/3
Financial Highlights/4
The Fund and its Management/5
Investment Objective and Policies/5
Risk Considerations/7
Investment Restrictions/14
Purchase of Fund Shares/14
Shareholder Services/17
Redemptions and Repurchases/20
Dividends, Distributions and Taxes/22
Performance Information/23
Additional Information/23
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 Pacific
Growth Fund Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
PROSPECTUS SUMMARY
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<TABLE>
<S> <C>
The The Fund is an open-end, diversified management investment company investing primarily in securities issued by
Fund issuers located in Asia, Australia and New Zealand.
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Shares of common stock with $0.01 par value (see page 23).
Offered
- ------------------------------------------------------------------------------------------------------------------------------------
Offering At net asset value without sales charge (see page 14). Shares redeemed within six years of purchase are subject
Price to a contingent deferred sales charge under most circumstances (see page 20).
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum Minimum initial investment, $1,000 ($100 if the account is opened through EasyInvest-SM-); minimum subsequent
Purchase investments, $100 (see page 14).
- ------------------------------------------------------------------------------------------------------------------------------------
Investment The investment objective of the Fund is to maximize the capital appreciation of its investments (see page 5).
Objective
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-owned
Manager and Sub- subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory, management and
Adviser administrative capacities to 100 investment companies and other portfolios with assets of approximately $91
billion at November 30, 1996. Morgan Grenfell Investment Services Limited has been retained by the Investment
Manager as Sub-Adviser to provide investment advice and manage the Fund's portfolio. Morgan Grenfell Investment
Services Limited currently serves as investment adviser for U.S. corporate and public employee plans,
endowments, investment companies and foundations with assets of approximately $14.7 billion at September 30,
1996 (see page 5).
- ------------------------------------------------------------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee from the Fund at the annual rate of 1.0% of daily net assets not
Fee exceeding $1 billion; and 0.95% of the daily net assets exceeding $1 billion. The Sub-Adviser receives a monthly
fee from the Investment Manager equal to 40% of the Investment Manager's monthly fee (see page 5). Although the
management fee is higher than that paid by most other investment companies, the fee reflects the specialized
nature of the Fund's investment policies.
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and Dividends from net investment income and distributions from net capital gains are paid at least once each year.
Distributions Dividends and capital gains distributions are automatically reinvested in additional shares at net asset value
unless the shareholder elects to receive cash (see page 22).
- ------------------------------------------------------------------------------------------------------------------------------------
Distributor Dean Witter Distributors Inc. (the "Distributor"). The Distributor receives from the Fund a distribution fee
accrued daily and payable monthly at the rate of 1.0% per annum of the lesser of (i) the Fund's average daily
aggregate net sales or (ii) the Fund's average daily net assets. This fee compensates the Distributor 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 pages 14 and 20).
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption-- At net asset value; redeemable involuntarily if total value of the account is less than $100 or, if the account
Contingent was opened through EasyInvest, if after twelve months the shareholder has invested less than $1,000 in the
Deferred Sales account. Although no commission or sales load is imposed upon the purchase of shares, a contingent deferred
Charge sales charge (scaled down from 5% to 1%) is imposed on any redemption of shares if, after such redemption, the
aggregate current value of an account with the Fund is less than the aggregate amount of the investor's purchase
payments made during the six years preceding the redemption. However, there is no charge imposed on redemption
of shares purchased through reinvestment of dividends or distributions (see page 20).
- ------------------------------------------------------------------------------------------------------------------------------------
Risk The net asset value of the Fund's shares will fluctuate with changes in the market value of its portfolio
Considerations securities. It should be recognized that the foreign securities and markets in which the Fund will invest pose
different and greater risks than those customarily associated with domestic securities and their markets.
Furthermore, investors should consider other risks associated with a portfolio of international securities,
including fluctuations in foreign currency exchange rates (i.e., if a substantial portion of the Fund's assets
is denominated in foreign currencies which decrease in value with respect to the U.S. dollar, the value of the
investor's shares and the distributions made on those shares will, likewise, decrease in value), foreign
securities exchange controls and foreign tax rates, as well as transactions in forward currency contracts,
options and futures contracts (see pages 7-13). The investor should also note that the Fund may invest over 25%
of its total assets in securities of Japanese and Hong Kong issuers (see page 5).
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
2
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended October 31, 1996.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ----------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases............................. None
Maximum Sales Charge Imposed on Reinvested Dividends.................. None
Deferred Sales Charge
(as a percentage of the lesser of original purchase price or
redemption proceeds)............................................... 5.0%
A contingent deferred sales charge is imposed at the following
declining rates:
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT MADE PERCENTAGE
- ---------------------------------------------------------------------- ---------
<S> <C>
First................................................................. 5.0%
Second................................................................ 4.0%
Third................................................................. 3.0%
Fourth................................................................ 2.0%
Fifth................................................................. 2.0%
Sixth................................................................. 1.0%
Seventh and thereafter................................................ None
Redemption Fees....................................................... None
Exchange Fee.......................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------
Management Fees....................................................... 0.98%
12b-1 Fees*........................................................... 1.00%
Other Expenses........................................................ 0.41%
Total Fund Operating Expenses......................................... 2.39%
<FN>
- ------------
* A PORTION OF THE 12B-1 FEE EQUAL TO 0.25% OF THE FUND'S AVERAGE DAILY NET
ASSETS IS CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES (SEE "PURCHASE OF
FUND SHARES").
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period:.............................................................. $74 $104 $147 $272
You would pay the following expenses on the same investment, assuming
no redemption:....................................................... $24 $ 74 $127 $272
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Plan of Distribution" and "Redemptions and
Repurchases."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following per share data and ratios for a share of capital stock
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 of the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 30,
FOR THE YEAR ENDED OCTOBER 31 1990*
--------------------------------------------- THROUGH
1996 1995 1994 1993 1992** OCTOBER 31, 1991
-------- -------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $18.77 $21.60 $19.80 $12.69 $11.72 $10.00
-------- -------- ------- ------- ------- -------
Net investment income (loss).................... 0.05 0.08 (0.10) (0.04) (0.01) 0.06
Net realized and unrealized gain (loss)......... 0.50 (1.94) 2.22 7.15 1.14 1.69
-------- -------- ------- ------- ------- -------
Total from investment operations................ 0.55 (1.86) 2.12 7.11 1.13 1.75
-------- -------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income......................... (0.43) -- -- -- (0.01) (0.03)
Net realized gain............................. -- (0.97) (0.32) -- (0.15) --
-------- -------- ------- ------- ------- -------
Total dividends and distributions............... (0.43) (0.97) (0.32) -- (0.16) (0.03)
-------- -------- ------- ------- ------- -------
Net asset value, end of period.................. $18.89 $18.77 $21.60 $19.80 $12.69 $11.72
-------- -------- ------- ------- ------- -------
-------- -------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN+.......................... 3.00% (8.65)% 10.69 % 56.13 % 9.86 % 17.54%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................ 2.39% 2.45 % 2.41 % 2.38 % 2.77 % 2.43%(2)(3)
Net investment income (loss).................... 0.18% 0.35 % (0.70)% (0.46)% (0.30)% 0.61%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in millions.......... $1,624 $1,442 $1,571 $694 $177 $86
Portfolio turnover rate......................... 49% 50% 35% 30% 73% 70%(1)
Average commission rate paid.................... $0.0095 -- -- -- -- --
<FN>
- ---------------
* COMMENCEMENT OF OPERATIONS.
** NET INVESTMENT LOSS WAS COMPUTED BASED UPON THE MONTHLY AVERAGE SHARES
OUTSTANDING.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGES. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE ASSUMED OR WAIVED BY THE
INVESTMENT MANAGER, THE ABOVE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
RATIOS WOULD HAVE BEEN 2.83% AND 0.22%, RESPECTIVELY.
</TABLE>
4
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Dean Witter Pacific Growth Fund Inc. (the "Fund") is an open-end,
diversified management investment company incorporated in the state of Maryland
on June 13, 1990.
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 100 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$87.9 billion as of November 30, 1996. The Investment Manager also manages and
advises portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.1 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and supervise the investment of the Fund's
assets. InterCapital has retained Dean Witter Services Company Inc. to perform
the aforementioned administrative services for the Fund.
Under a Sub-Advisory Agreement between Morgan Grenfell Investment Services
Limited (the "Sub-Adviser") and the Investment Manager, the Sub-Adviser
provides the Fund with investment advice and portfolio management relating to
the Fund's investments in securities issued by issuers located in Asia,
Australia and New Zealand and in countries located elsewhere around the world,
subject to the overall supervision of the Investment Manager. The Fund's
Directors review the various services provided by the Investment Manager and
the Sub-Adviser 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.
The Sub-Adviser, whose address is 20 Finsbury Circus, London, England,
manages, as of September 30, 1996, assets of approximately $14.7 billion for
U.S. corporate and public employee benefit plans, endowments, investment
companies and foundations. The Sub-Adviser is an indirect subsidiary of Deutsche
Bank AG, the largest commercial bank in Germany.
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 1.0% of the portion of the daily net assets not exceeding $1
billion; and 0.95% of the portion of daily net assets exceeding $1 billion. As
compensation for its services provided pursuant to the Sub-Advisory Agreement,
the Investment Manager pays the Sub-Adviser monthly compensation equal to 40% of
its monthly compensation.
For the fiscal year ended October 31, 1996, the Fund accrued total
compensation to the Investment Manager amounting to 0.98% of the Fund's average
daily net assets (of which 40% was accrued to the Sub-Adviser by the Investment
Manager) and the Fund's total expenses amounted to 2.39% of the Fund's average
daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to maximize the capital appreciation
of its investments. There is no assurance that the objective will be achieved.
This objective is fundamental and may
5
<PAGE>
not be changed without shareholder approval. The following policies may be
changed by the Board of Directors without shareholder approval.
The Fund seeks to achieve its investment objective by investing at least 65%
of its total assets in securities issued by issuers located in Asia, Australia
and New Zealand. Such issuers will include companies which are organized under
the laws of an Asian country, Australia or New Zealand and have a principal
office in an Asian country, Australia or New Zealand, or which derive 50% or
more of their total revenues from business in an Asian country, Australia or New
Zealand.
The principal countries in which such issuers will be located are Japan,
Australia, Malaysia, Singapore, Hong Kong, Thailand, the Philippines, Indonesia,
Taiwan and South Korea. The Fund may invest more than 25% of its total assets in
Japan, reflecting the dominance of the Japanese stock market in the Pacific
basin. The concentration of the Fund's assets in Japanese issuers will subject
the Fund to the risks of adverse social, political or economic events which
occur in Japan. Specifically, investments in the Japanese stock market may
entail a higher degree of risk than investments in other markets as, by
fundamental measures of corporate valuation, such as its high price-earnings
ratios and low dividend yields, the Japanese market as a whole may appear
expensive relative to other world stock markets (I.E., the prices of Japanese
stocks may be relatively high). In addition, the prices of securities traded on
the Japanese markets may be more volatile than many other markets.
The Fund also may invest over 25% of its total assets in securities issued
by issuers located in Hong Kong. In common with the other stock markets of the
Pacific Basin, the Hong Kong stock market is more volatile, as measured by
standard deviation, than the major equity markets of North America and Europe.
At midnight on June 30, 1997, Hong Kong will become part of the People's
Republic of China, and will form a Special Administrative Region within that
country. The Government of China has indicated that it will not seek to alter
the free market-oriented economic system of Hong Kong for at least fifty years
following 1997.
The securities invested in will primarily consist of equity securities
issued by companies based in Asian countries, Australia and New Zealand which
the Investment Manager and/or Sub-Adviser believe are most likely to help the
Fund meet its investment objective, but may also include fixed-income securities
issued or guaranteed by (or the direct obligations of) the governments of such
countries (including zero coupon treasury securities), when it is deemed by the
Investment Manager or Sub-Adviser that such investments are consistent with the
Fund's investment objective. For example, there may be times when the Investment
Manager or Sub-Adviser determines that the prices of government securities are
more likely to appreciate than those of equity securities. Such an occasion
might arise when inflation concerns have led to general increases in interest
rates. Such fixed-income securities which will be purchased by the Fund are
likely to be obligations of the treasuries of Australia or Japan. In addition,
the Fund may invest in fixed-income securities which are, either alone or in
combination with a warrant, option or other right, convertible into the common
stock of an issuer, when the Investment Manager or the Sub-Adviser determines
that such securities are more likely to appreciate in value than the common
stock of such issuers or when the Investment Manager or Sub-Adviser wishes to
hedge the risk inherent in the direct purchase of the equity of a given issuer,
by receiving a steady stream of interest payments. The Fund will select
convertible securities of issuers whose common stock has, in the opinion of the
Investment Manager or Sub-Adviser, a potential to appreciate in price. The Fund
may also purchase equity and fixed-income securities which are issued in private
placements and warrants or other securities conveying the right to purchase
common stock.
The decisions of the Investment Manager and Sub-Adviser to invest in
securities for the Fund will be based on a general strategy of selecting those
6
<PAGE>
issuers which they believe have shown a high rate of growth in earnings.
Moreover, securities will primarily be selected which possess, on both an
absolute basis and as compared with other securities in their region and around
the world, attractive price/earnings, price/cash flow and price/revenue ratios.
The Fund may also purchase securities issued by various agencies and
instrumentalities of the U.S. Government. These will include obligations backed
by the full faith and credit of the United States (such as those issued by the
Government National Mortgage Association); obligations 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 (such as those issued by the
Federal National Mortgage Association); and obligations backed by the credit of
the issuing agency or instrumentality (such as those issued by the Federal Farm
Credit System).
The Fund may be investing up to 10% of its total assets in securities issued
by other investment companies. Such investments are necessary in order to
participate in certain foreign markets where foreigners are prohibited from
investing directly in the securities of individual issuers. The Fund will incur
any indirect expenses incurred through investment in an investment company, such
as the payment of a management fee (which may result in the payment of an
additional advisory fee). Furthermore, it should be noted that foreign
investment companies are not subject to the U.S. securities laws and may be
subject to fewer or less stringent regulations than U.S. investment companies.
The remainder of the Fund's portfolio equalling, at times, up to 35% of the
Fund's total assets, may be invested in equity and/or fixed-income and
convertible securities issued by issuers located anywhere in the world,
including the United States, subject to the Fund's investment objective. In
addition, this portion of the Fund's portfolio will consist of various other
financial instruments such as forward foreign exchange contracts, futures
contracts and options (see below).
It is anticipated that the securities held by the Fund in its portfolio will
be denominated, principally, in the liquid Asian currencies and the Australian
dollar. Such currencies include the Japanese yen, Malaysian ringgit, Singapore
dollar, Hong Kong dollar, Thai baht, Philippine peso, Indonesia rupiah, Taiwan
dollar and South Korean won. Securities of issuers within a given country may be
denominated in the currency of a different country.
The Fund may also invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs) or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying securities. Generally, ADRs, in
registered form, are designed for use in United States securities markets.
There may be periods during which 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 net
assets are invested in cash or money market instruments. Under such
circumstances, the money market instruments in which the Fund may invest are
securities issued or guaranteed by the U.S. Government; American bank
obligations, such as certificates of deposit; Eurodollar certificates of
deposit; obligations of American savings institutions; and commercial paper of
American issuers rated within the two highest grades by Moody's or S&P or, if
not rated, issued by a company having an outstanding debt issue rated at least
AA by S&P or Aa by Moody's.
RISK CONSIDERATIONS
FOREIGN SECURITIES. Investors should carefully consider the risks of
investing in securities of foreign issuers and securities denominated in
non-U.S. currencies. Fluctuations in the relative rates of exchange between the
currencies of different nations will affect the value of the Fund's
invest-
7
<PAGE>
ments. Changes in foreign currency exchange rates relative to the U.S. dollar
will affect the U.S. dollar value of the Fund's assets denominated in that
currency and thereby impact upon the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of
the Fund will be conducted on a spot basis or through forward contracts or
futures contracts (see below). The Fund may incur certain costs in connection
with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Political and economic developments in Asia may have profound
effects upon the value of a large segment of the Fund's portfolio. Foreign
companies are not subject to the regulatory requirements of U.S. companies and,
as such, there may be less publicly available information about such companies.
Moreover, foreign companies are not subject to uniform accounting, auditing and
financial reporting standards and requirements comparable to those applicable to
U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Fund trades effected in such markets. Inability to dispose of
portfolio securities due to settlement delays could result in losses to the Fund
due to subsequent declines in value of such securities and the inability of the
Fund to make intended security purchases due to settlement problems could result
in a failure of the Fund to make potentially advantageous investments.
The foreign securities in which the Fund will be investing may be issued by
issuers located in developing countries. Compared to the United States and other
developed countries, developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
which trade a small number of securities. Prices of these securities tend to be
especially volatile and, in the past, securities in these countries have offered
greater potential for gain (as well as loss) than securities of companies
located in developed countries.
------------
To hedge against adverse price movements in the securities held in its
portfolio and the currencies in which they are denominated (as well as in the
securities it might wish to purchase and their denominated currencies) the Fund
may engage in transactions in forward foreign currency contracts, options on
securities and currencies, and futures contracts and options on futures
contracts on securities, currencies and indexes. The Fund may also purchase
options on securities to facilitate its participation in the potential
appreciation of the value of the underlying securities. A discussion of these
transactions follows and is supplemented by further disclosure in the Statement
of Additional Information.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") involves
an obligation to purchase or sell a currency at a future date, which may be any
fixed number of days from the date of the
8
<PAGE>
contract agreed upon by the parties, at a price set at the time of the contract.
The Fund may enter into forward contracts as a hedge against fluctuations in
future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase and the foreign
currency in which the security is denominated during the period between the date
on which the security is purchased or sold and the date on which payment is made
or received.
At other times, when, for example, the Investment Manager or Sub-Adviser
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar or some other foreign currency, the
Fund may enter into a forward contract to sell, for a fixed amount of dollars or
other currency, the amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities (or securities which the Fund has
purchased for its portfolio) denominated in such foreign currency. Under
identical circumstances, the Fund may enter into a forward contract to sell, for
a fixed amount of U.S. dollars or other currency, an amount of foreign currency
other than the currency in which the securities to be hedged are denominated
approximating the value of some or all of the portfolio securities to be hedged.
This method of hedging, called "cross-hedging," will be selected when it is
determined by the Investment Manager or Sub-Adviser that the foreign currency in
which the portfolio securities are denominated has insufficient liquidity or is
trading at a discount as compared with some other foreign currency with which it
tends to move in tandem.
In addition, when the Fund anticipates purchasing securities at some time in
the future, and wishes to lock in the current exchange rate of the currency in
which those securities are denominated against the U.S. dollar or some other
foreign currency, it may enter into a forward contract to purchase an amount of
currency equal to some or all of the value of the anticipated purchase, for a
fixed amount of U.S. dollars or other currency. The Fund may, however, close out
the forward contract without purchasing the security which was the subject of
the "anticipatory" hedge.
Lastly, the Fund is permitted to enter into forward contracts with respect
to currencies in which certain of its portfolio securities are denominated and
on which options have been written (see "Options and Futures Transactions").
In all of the above circumstances, if the currency in which the Fund's
portfolio securities (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager and/or Sub-Adviser.
The Fund generally will not enter into a forward contract with a term of
greater than one year, although it may enter into forward contracts for periods
of up to five years. To the extent that the Fund enters into forward foreign
currency contracts to hedge against a decline in the value of portfolio
9
<PAGE>
holdings denominated in a particular foreign currency resulting from currency
fluctuations, there is a risk that the Fund may nevertheless realize a gain or
loss as a result of currency fluctuations after such portfolio holdings are sold
if the Fund is unable to enter into an "offsetting" forward foreign currency
contract with the same party or another party. The Fund may be limited in its
ability to enter into hedging transactions involving forward contracts by the
Internal Revenue Code of 1986 (the "Code") requirements relating to
qualifications as a regulated investment company (see "Dividends, Distributions
and Taxes").
OPTIONS AND FUTURES TRANSACTIONS
Call and put options on U.S. Treasury notes, bonds and bills, on various
foreign currencies and on equity securities are listed on several U.S. and
foreign securities exchanges and are written in over-the-counter transactions
("OTC Options"). Listed options are issued or guaranteed by the exchange on
which they trade or by a clearing corporation such as the Options Clearing
Corporation ("OCC"). Ownership of a listed call option gives the Fund the right
to buy from the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency covered by the option at the stated exercise
price (the price per unit of the underlying security or currency) by filing an
exercise notice prior to the expiration date of the option. Ownership of a
listed put option would give the Fund the right to sell the underlying security
or currency to the OCC (in the U.S.) or other clearing corporation or exchange
at the stated exercise price.
OTC options are purchased from or sold (written) to dealers or financial
institutions which have entered into direct agreements with the Fund. With OTC
options, such variables as expiration date, exercise price and premium will be
agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the OCC.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities which are denominated in either U.S. dollars or foreign
currencies and on the U.S. dollar and foreign currencies, without limit, in
order to hedge against the decline in the value of a security or currency and to
close out long call option positions. As a writer of a call option, the Fund has
the obligation, upon notice of exercise of the option, to deliver the security
or amount of currency underlying the option (certain listed and OTC call options
written by the Fund will be exercisable by the purchaser only on a specific
date).
Given the Fund's objective of seeking capital appreciation, it should be
recognized that the writing of covered call options on portfolio securities will
reduce the potential for the Fund to realize capital appreciation on such
securities unless and until such time as the option expires unexercised or the
Fund enters into an "offsetting" transaction. For this reason, it is expected
that, under normal market conditions, the Fund will not write covered call
options on all or substantially all of its portfolio securities. The Fund,
however, may write covered call options on currencies in amounts representing
substantially all of the value of its foreign holdings if determined by the
Investment Manager to be appropriate to protect the Fund against the risks of
adverse fluctuations in the values of foreign currencies.
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options to close out a covered call position (see "Covered Call
Writing" above) or to protect against an increase in the price of a security it
anticipates purchasing or, in the case of call options on a foreign currency, to
hedge against an adverse exchange rate change of the currency in which the
security it anticipates purchasing is denominated vis-a-vis the currency in
which the exercise price is denominated. The Fund may purchase put options on
securities which it holds in its portfolio to protect itself against a decline
in the value of the security or may purchase put options on currencies in which
such securities are
10
<PAGE>
denominated or a different related foreign currency to protect itself against a
decline in the value of the currency in which the securities are denominated.
There are no other limits on the Fund's ability to purchase call and put
options.
FUTURES CONTRACTS. The Fund may purchase and sell futures contracts that
are currently traded, or may in the future be traded, on U.S. and foreign
commodity exchanges on common stocks, such underlying fixed-income securities as
U.S. Treasury bonds, notes, and bills and/or any foreign government fixed-income
security ("interest rate" futures), on various currencies ("currency" futures)
and on such indexes of U.S. or foreign equity and fixed-income securities as may
exist or come into being, such as the Nikkei 225 Stock Index ("index" futures).
As a futures contract purchaser, the Fund incurs an obligation to take delivery
of a specified amount of the obligation underlying the contract at a specified
time in the future for a specified price. As a seller of a futures contract, the
Fund incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts for the
purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
The Fund will purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. The Fund
will purchase and write options on futures contracts for identical purposes to
those set forth above for the purchase of a futures contract (purchase of a call
option) and the sale of a futures contract (purchase of a put option or sale of
a call option), or to close out a long or short position in futures contracts.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer.
Exchanges may limit the amount by which the price of many futures contracts
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Fund's management could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the U.S.
dollar cash prices of the Fund's portfolio securities and their denominated
currencies. Another such risk is that prices of interest rate futures contracts
may not move in tandem with the changes in
pre-
11
<PAGE>
vailing interest rates against which the Fund seeks a hedge. A correlation may
also be distorted by the fact that the futures market is dominated by short-term
traders seeking to profit from the difference between a contract or security
price objective and their cost of borrowed funds. Such distortions are generally
minor and would diminish as the contract approached maturity.
The Fund, by entering into transactions in foreign futures and options
markets, will also incur risks similar to those discussed above under the
section entitled "Foreign Securities."
OTHER INVESTMENT POLICIES
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, including the risks of default or
bankruptcy of the selling financial institution, the Fund follows procedures to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
and maintaining adequate collateralization.
ZERO COUPON SECURITIES. A portion of the fixed-income 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 on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
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
com-
12
<PAGE>
mitted 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.
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.
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.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager and the
Sub-Adviser 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 and the Sub-Adviser will rely on information
from various sources, including research, analysis and appraisals of brokers and
dealers, the views of Directors of the Fund and others regarding economic
developments and interest rate trends, and the Investment Manager's and
Sub-Adviser's own analysis of factors they deem relevant. The Fund's primary
portfolio manager is Graham D. Bamping, a Director of the Sub-Adviser. Mr.
Bamping is responsible for the Sub-Adviser's management of Pacific Basin equity
portfolios and has been managing equity portfolios based in the Pacific Basin,
for the Sub-Adviser, for over five years.
Personnel of the Investment Manager and Sub-Adviser have substantial
experience in the use of the investment techniques described above under the
heading "Options and Futures Transactions," which techniques require skills
different from those needed to select the portfolio securities underlying
various options and futures contracts.
Orders for transactions in portfolio securities and commodities may be
placed for the Fund with a number of brokers and dealers, including DWR and two
affiliated broker-dealers of the Sub-Adviser (Deutsche Morgan Grenfell &
Partners Securities Pte. Limited and Deutsche Morgan Grenfell Securities Hong
Kong Limited). Pursuant to an order of the Securities and Exchange Commission,
the Fund may effect principal transactions in certain money market instruments
with Dean Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate of the
Investment Manager. In addition, the Fund may incur brokerage commissions on
transactions conducted through DWR and the above-mentioned affiliated broker-
dealers of the Sub-Adviser.
Although the Fund does not intend to engage in short-term trading, it may
sell portfolio securities without regard to the length of time that they have
been held when such sale will, in the opinion of the Investment Manager or
Sub-Adviser, contribute to the Fund's investment objective. It is not
anticipated that the Fund's portfolio turnover rate will exceed 100% in any one
year.
The expenses of the Fund relating to its portfolio management are likely to
be greater than those incurred by other investment companies investing primarily
in securities issued by domestic issuers as custodial costs, brokerage
commissions and other transaction charges related to investing in foreign
markets are generally higher than in the United States.
13
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act. For purposes of the following limitations: (i)
all percentage limitations apply immediately after a purchase or initial
investment, and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund may not:
1. As to 75% of its total assets, 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. As to 75% of its total assets, 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.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
5. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets or in
accordance with the provisions of Section 12(d) of the Act and any rules
promulgated thereunder (e.g., the Fund may not invest in more than 3% of the
outstanding voting securities of any investment company).
6. Invest more than 10% of its total assets in illiquid securities and
repurchase agreements which have a maturity of longer than seven days.
Generally, OTC options and the assets used as "cover" for written OTC
options are "illiquid securities" (securities for which no active and
substantial secondary market exists). However, the Fund is permitted to treat
the securities it uses as cover for written OTC options as liquid provided it
follows a procedure whereby it will sell OTC options only to qualified dealers
who agree that the Fund may repurchase such options at a maximum price to be
calculated pursuant to a predetermined formula set forth in the option
agreement. The formula may vary from agreement to agreement, but is generally
based on a multiple of the premium received by the Fund for writing the option
plus the amount, if any, of the option's intrinsic value. An OTC option is
considered an illiquid asset only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other dealers which have entered into agreements with the Distributor ("Selected
Broker-Dealers"). The principal executive office of the Distributor is located
at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Subsequent purchases of $100 or more
may be made by sending a check, payable to Dean Witter Pacific Growth Fund Inc.,
directly to Dean Witter Trust Company (the "Transfer Agent") at P.O. Box 1040,
Jersey City, NJ 07303 or by contacting a DWR or other Selected Broker-Dealer
account executive. The
min-
14
<PAGE>
imum initial purchase, in the case of investments through EasyInvest, an
automatic purchase plan (see "Shareholder Services"), is $100, provided that the
schedule of automatic investments will result in investments totalling at least
$1,000 within the first twelve months. In the case of investments pursuant to
Systematic Payroll Deduction Plans (including Individual Retirement Plans), the
Fund, in its discretion, may accept investments without regard to any minimum
amounts which would otherwise be required, if the Fund has reason to believe
that additional investments will increase the investment in all accounts under
such Plans to at least $1,000. Certificates for shares purchased will not be
issued unless a request is made by the shareholder in writing to the Transfer
Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gain distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions. The offering price will be the net asset value per share next
determined following receipt of an order (see "Determination of Net Asset
Value"). While no sales charge is imposed at the time shares are purchased, a
contingent deferred sales charge may be imposed at the time of redemption (see
"Redemptions and Repurchases"). Sales personnel are compensated for selling
shares of the Fund at the time of their sale by the Distributor or any of its
affiliates and/or the Selected Broker-Dealer. In addition, some sales personnel
of the Selected Broker-Dealer will receive various types of non-cash
compensation as special sales incentives, including trips, educational and/or
business seminars and merchandise. The Fund and the Distributor reserve the
right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan"), under which the Fund pays the Distributor a fee, which is
accrued daily and payable monthly, at an annual rate of 1.0% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's shares since the
inception of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the Fund's average daily net
assets. This fee is treated by the Fund as an expense in the year it is accrued.
A portion of the fee payable pursuant to the Plan, equal to 0.25% of the Fund's
average daily net assets, is characterized as a service fee within the meaning
of NASD guidelines. The service fee is a payment made for personal service
and/or the maintenance of shareholder accounts.
Amounts paid under the Plan are paid to the Distributor to compensate it for
the services provided and the expenses borne by the Distributor and others in
the distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to and expenses of DWR
account executives and others who engage in or support distribution of shares or
who service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan to compensate DWR and other Selected Broker-Dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed distribution expenses.
15
<PAGE>
For the fiscal year ended October 31, 1996, the Fund accrued payments under
the Plan amounting to $16,571,035, which amount is equal to 1.00% of the Fund's
average daily net assets for the fiscal year. The payments accrued under the
Plan were calculated pursuant to clause (b) of the compensation formula under
the Plan.
At any given time, the Distributor may incur expenses in distributing shares
of the Fund which 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 in (i) and (ii) above, the excess expense
would amount to $250,000. The Distributor has advised the Fund that the excess
distribution expenses, including the carrying charge described above, totalled
$48,277,700 at October 31, 1996, which was equal to 2.97% of the Fund's net
assets on such date.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses or any requirement that the Plan be
continued from year to year, such excess amount, if any, does not constitute a
liability of the Fund. Although there is no legal obligation for the Fund to pay
expenses incurred in excess of payments made to the Distributor under the Plan
and the proceeds of contingent deferred sales charges paid by investors upon
redemption of shares, if for any reason the Plan is terminated, the Directors
will consider at that time the manner in which to treat such expenses. Any
cumulative expenses incurred, but not yet recovered through distribution fees or
contingent deferred sales charges, may or may not be recovered through future
distribution fees or contingent deferred sales charges.
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 other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued; if there were no sales that
day, the security is valued at the latest bid price (in cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated as the primary market pursuant to procedures adopted by the
Directors); and (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. When market quotations are not readily
available, including circumstances under which it is determined by the
Investment Manager or Sub-Adviser that sale or bid prices are not reflective of
a security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Fund's Directors. For valuation purposes, quotations
of foreign portfolio securities, other assets and liabilities and forward
contracts stated in foreign currency are translated into U.S. dollar equivalents
at the prevailing market rates prior to the close of the New York Stock
Exchange. Dividends receivable are accrued as of the ex-dividend date or as of
the time that the relevant ex-dividend date and amounts become known.
Short-term debt securities with remaining maturities of sixty days or less
to maturity at the time of purchase are valued at amortized cost, unless the
Directors determine such does not reflect the
secu-
16
<PAGE>
rities' market value, in which case these securities will be valued at their
fair value as determined by the Directors.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Directors. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other open-end
investment company for which InterCapital serves as investment manager
(collectively, with the Fund, the "Dean Witter Funds")), unless the shareholder
requests that they be paid in cash. Shares so acquired are not subject to the
imposition of a contingent deferred sales charge upon their redemption (see
"Redemptions and Repurchases").
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. (see "Purchase of Fund Shares" and "Redemptions and Repurchases --
Involuntary Redemption").
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").
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
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.
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
17
<PAGE>
("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, 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 collectively
referred to as the "Exchange Funds"). Exchanges may be made after the shares of
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment.
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share of
each fund after the exchange order is received. When exchanging into a money
market fund from the Fund, shares of the Fund are redeemed out of the Fund at
their next calculated net asset value and the proceeds of the redemption are
used to purchase shares of the money market fund at their net asset value
determined the following business day. Subsequent exchanges between any of the
money market funds and any of the CDSC funds can be effected on the same basis.
No contingent deferred sales charge ("CDSC") is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate redemption.
Shares of the Fund acquired in exchange for shares of another CDSC fund having a
different CDSC schedule than that of this Fund will be subject to the CDSC
schedule of this Fund, even if such shares are subsequently re-exchanged for
shares of the CDSC fund originally purchased. During the period of time the
shareholder remains invested in an 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 re-exchanged 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 of the Fund exchanged into an
Exchange Fund, 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 to
18
<PAGE>
the shareholder not later than ten days following such shareholder's most recent
exchange.
The Exchange Privilege may be terminated or revised at any time by the Fund
and/or any of such Dean Witter Funds for which shares of the Fund 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. In the case of any shareholder
holding a share certificate or certificates, no exchanges may be made until all
applicable share certificates have been received by the Transfer Agent and
deposited in the shareholder's account. An exchange will be treated for federal
income tax purposes the same as a repurchase or redemption of shares, on which
the shareholder may realize a capital gain or loss. However, the ability to
deduct capital losses on an exchange may be limited in situations where there is
an exchange of shares within ninety days after the shares are purchased. The
Exchange Privilege is only available in states where an exchange may legally be
made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization Form,
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made in writing or
by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean Witter
Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
19
<PAGE>
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 sent to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, N.J. 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 will, however, be subject
to a charge upon redemption. This charge is called a "contingent deferred sales
charge" ("CDSC"), which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ----------------------------------- ------------------------
<S> <C>
First.............................. 5.0%
Second............................. 4.0%
Third.............................. 3.0%
Fourth............................. 2.0%
Fifth.............................. 2.0%
Sixth.............................. 1.0%
Seventh and thereafter............. None
</TABLE>
A CDSC will not be imposed on: (i) any amount
which represents an increase in value of shares purchased within the six years
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years prior to the redemption; and (iii) the current net asset
value of shares purchased through reinvestment of dividends or distributions
and/or shares acquired in exchange for shares of Dean Witter Funds sold with a
front-end sales charge or of other Dean Witter Funds acquired in exchange for
such shares. Moreover, in determining whether a CDSC is applicable it will be
assumed that amounts described in (i), (ii) and (iii) above (in that order) are
redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate or
self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2); (B)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (C) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
corporate or self-employed retirement plan qualified under Section 401(k) of the
Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc.,
20
<PAGE>
as self-directed investment alternatives and for which Dean Witter Trust Company
or Dean Witter Trust FSB, each of which is an affiliate of the Investment
Manager, serves as Trustee ("Eligible 401(k) Plan"), provided that either: (A)
the plan continues to be an Eligible 401(k) Plan after the redemption; or (B)
the redemption is in connection with the complete termination of the plan
involving the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value next computed (see "Purchase of Fund Shares") after such repurchase
order is received by DWR or other Selected Broker-Dealer, reduced by any
applicable CDSC.
The CDSC, if any, will be the only fee imposed upon repurchase by the Fund,
the Distributor, DWR or other Selected Broker-Dealer. The offers by DWR and
other Selected Broker-Dealers to repurchase shares may be suspended without
notice by them at any time. In that event, shareholders may redeem their shares
through the Fund's Transfer Agent as set forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances; e.g., when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check (including a certified or bank cashier's 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 of any shareholder (other than
shares held in an Individual Retirement Account or custodial account under
Section 403(b)(7) of the Code) whose shares due to redemptions by the
shareholder have a value of less than $100 or such lesser amount as may be fixed
by the Directors or, in the case of an account opened through EasyInvest, if
after twelve months the shareholder has invested less than $1,000 in the
account. However, before the Fund redeems such shares and sends the proceeds to
the shareholder, it will notify the shareholder that the value of the shares is
less than the applicable amount and allow the shareholder sixty days to make an
additional
invest-
21
<PAGE>
ment in an amount which will increase the value of the account to at least the
applicable amount before the redemption is processed. No CDSC will be imposed on
any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to pay dividends and to
distribute substantially all of the Fund's net investment income and net
realized short-term and long-term capital gains, if any, at least once each
year. The Fund may, however, determine either to distribute or to retain all or
part of any long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
Fund shares and automatically credited to the shareholder's account without
issuance of a share certificate unless the shareholder requests in writing that
all dividends and/or distributions be paid in cash. (See "Shareholder Services--
Automatic Investment of Dividends and Distributions".)
TAXES. Because the Fund intends to continue to distribute all of its net
investment income and net short-term capital gains to shareholders and otherwise
qualify as a regulated investment company under Subchapter M of the Code, it is
not expected that the Fund will be required to pay any federal income tax on
such income and capital gains.
Gains or losses on the Fund's transactions in certain listed options on
securities and on futures and options on futures traded on U.S. exchanges
generally are treated as 60% long-term gain or loss and 40% short-term gain or
loss. When the Fund engages in options and futures transactions, various tax
regulations applicable to the Fund may have the effect of causing the Fund to
recognize a gain or loss for tax purposes before that gain or loss is realized,
or to defer recognition of a realized loss for tax purposes. Recognition, for
tax purposes, of an unrealized loss may result in a lesser amount of the Fund's
realized net gains being available for distribution.
As a regulated investment company, the Fund is subject to the requirement
that less than 30% of its gross income be derived from the sale of certain
investments held for less than three months. This requirement may limit the
Fund's ability to engage in options and futures transactions.
Shareholders will normally have to pay federal income taxes, and any
applicable state and/or local 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 and net short-term capital gains,
are taxable to the shareholder as ordinary dividend income regardless of whether
the shareholder receives such distributions in additional shares or in cash. Any
dividends declared in the last quarter of any calendar year which are paid in
the following year prior to February 1, will be deemed, for tax purposes, to
have been received by the shareholder in the prior year.
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. It is not anticipated that any portion of the
Fund's distributions will be eligible for the dividends received deduction to
corporate shareholders.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return of
a portion of each shareholder's investment. All, or a portion, of such payments
will not be taxable to shareholders.
After the end of the 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
22
<PAGE>
numbers must be furnished and certified as to their accuracy.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and has made the appropriate election with the Internal Revenue Service, the
Fund will report annually to its shareholders the amount per share of such
taxes, to enable shareholders to claim United States foreign tax credits or
deductions with respect to such taxes. In the absence of such an election, the
Fund would deduct foreign tax in computing the amount of its distributable
income.
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 "total return" in advertisements
and sales literature. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. The "average annual
total return" of the Fund refers to a figure reflecting the average annualized
percentage increase (or decrease) in the value of an initial investment in the
Fund of $1,000 over a period of one year and five years, as well as over the
life of the Fund. Average annual total return reflects all income earned by the
Fund, any appreciation or depreciation of the Fund's assets, all expenses
incurred by the Fund and all sales charges which would be incurred by redeeming
shareholders, for the stated periods. It also assumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, and year-by-year or
other types of total return figures. 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 the Fund are of common stock of $0.01 par
value and are equal as to earnings, assets and voting privileges. There are no
conversion, pre-emptive or other subscription rights. In the event of
liquidation, each share of common stock of the Fund is entitled to its portion
of all of the Fund's assets after all debts and expenses have been paid. The
shares do not have cumulative voting rights.
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
Directors may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Fund's By-Laws.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is
23
<PAGE>
engaged at the same time in a purchase or sale of the same security. The Code of
Ethics bans the purchase of securities in an initial public offering, and also
prohibits engaging in futures and options transactions and profiting on
short-term trading (that is, a purchase within sixty days of a sale or a sale
within sixty days of a purchase) of a security. In addition, investment
personnel may not purchase or sell a security for their personal account within
thirty days before or after any transaction in any Dean Witter Fund managed by
them. Any violations of the Code of Ethics are subject to sanctions, including
reprimand, demotion or suspension or termination of employment. The Code of
Ethics comports with regulatory requirements and the recommendations in the 1994
report by the Investment Company Institute Advisory Group on Personal Investing.
The Fund's Sub-Adviser also has a Code of Ethics which complies with
regulatory requirements and, insofar as it relates to persons associated with
the Fund, the 1994 report by the Investment Company Institute Advisory Group on
Personal Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
24
<PAGE>
Dean Witter
Pacific Growth Fund Inc.
Dean Witter
Two World Trade Center
New York, New York 10048
DIRECTORS Pacific
Michael Bozic Growth
Charles A. Fiumefreddo Fund
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank N.A.
One Chase Plaza
New York, NY 10005
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.
SUB-ADVISER
Morgan Grenfell Investment Services
Limited
PROSPECTUS -- DECEMBER 26, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 26, 1996 DEAN WITTER
PACIFIC GROWTH
FUND
- --------------------------------------------------------------------------------
Dean Witter Pacific Growth Fund Inc. (the "Fund") is an open-end,
diversified management investment company, whose investment objective is to
maximize the capital appreciation of its investments. The Fund seeks to achieve
its investment objective by investing primarily in securities issued by issuers
located in Asia, Australia and New Zealand.
A Prospectus for the Fund dated December 26, 1996, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc. at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
Dean Witter
Pacific Growth Fund Inc.
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
Directors and Officers................................................................. 7
Investment Practices and Policies...................................................... 12
Investment Restrictions................................................................ 27
Portfolio Transactions and Brokerage................................................... 28
The Distributor........................................................................ 30
Determination of Net Asset Value....................................................... 33
Shareholder Services................................................................... 34
Redemptions and Repurchases............................................................ 38
Dividends, Distributions and Taxes..................................................... 41
Performance Information................................................................ 42
Description of Common Stock............................................................ 43
Custodian and Transfer Agent........................................................... 43
Independent Accountants................................................................ 44
Reports to Shareholders................................................................ 44
Legal Counsel.......................................................................... 44
Experts................................................................................ 44
Registration Statement................................................................. 44
Financial Statements--October 31, 1996................................................. 45
Report of Independent Accountants...................................................... 67
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund was incorporated under the laws of the state of Maryland on June
13, 1990.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
a Delaware corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. InterCapital is a wholly-owned
subsidiary of Dean Witter, Discover & Co. ("DWDC"), a Delaware corporation. In
an internal reorganization which took place in January, 1993, InterCapital
assumed the investment advisory, administrative and management activities
previously performed by the InterCapital Division of Dean Witter Reynolds Inc.
("DWR"), a broker-dealer affiliate of InterCapital. (As hereinafter used in this
Statement of Additional Information, the terms "InterCapital" and "Investment
Manager" refer to DWR's InterCapital Division prior to the internal
reorganization and Dean Witter InterCapital Inc. thereafter.) The daily
management of the Fund is conducted by or under the direction of officers of the
Fund and of the Investment Manager and Sub-Advisor, subject to review by the
Fund's Board of Directors. Information as to these Directors and Officers is
contained under the caption "Directors and Officers".
InterCapital is also the investment manager or investment adviser of the
following investment companies: Dean Witter Liquid Asset Fund Inc., InterCapital
Income Securities Inc., Dean Witter High Yield Securities Inc., Dean Witter
Tax-Free Daily Income Trust, Dean Witter Developing Growth Securities Trust,
Dean Witter American Value Fund, Dean Witter Dividend Growth Securities Inc.,
Dean Witter Natural Resource Development Securities Inc., Dean Witter U.S.
Government Money Market Trust, Dean Witter California Tax-Free Income Fund, 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 New York Tax-Free Income Fund, Dean Witter
Convertible Securities Trust, Dean Witter Federal Securities Trust, Dean Witter
Value-Added Market Series, High Income Advantage Trust, High Income Advantage
Trust II, High Income Advantage Trust III, Dean Witter Government Income Trust,
Dean Witter California Tax-Free Daily Income Trust, Dean Witter Utilities Fund,
Dean Witter Strategist Fund, Dean Witter World Wide Income Trust, Dean Witter
Intermediate Income Securities, Dean Witter Capital Growth Securities, Dean
Witter European Growth Fund Inc., Dean Witter Pacific Growth Fund Inc., Dean
Witter Precious Metals and Minerals Trust, Dean Witter Global Short-Term Income
Fund Inc., Dean Witter Multi-State Municipal Series Trust, Dean Witter New York
Municipal Money Market Trust, InterCapital Quality Municipal Investment Trust,
Dean Witter Premier Income Trust, Dean Witter Short-Term U.S. Treasury Trust,
InterCapital Insured Municipal Bond Trust, InterCapital Insured Municipal Trust,
InterCapital Quality Municipal Income Trust, Dean Witter Diversified Income
Trust, Dean Witter Health Sciences Trust, Dean Witter Retirement Series,
InterCapital Quality Municipal Securities, InterCapital California Quality
Municipal Securities, InterCapital New York Quality Municipal Securities, Dean
Witter Global Dividend Growth Securities, Dean Witter Global Utilities Fund,
Dean Witter High Income Securities, Dean Witter Limited Term Municipal Trust,
Dean Witter Short-Term Bond Fund, Dean Witter International SmallCap Fund, Dean
Witter Mid-Cap Growth Fund, Dean Witter Select Dimensions Series, Dean Witter
Balanced Growth Fund, Dean Witter Balanced Income Fund, Dean Witter Hawaii
Municipal Trust, Dean Witter Capital Appreciation Fund, Dean Witter Intermediate
Term U.S. Treasury Trust, Dean Witter Information Fund, Dean Witter Japan Fund,
Dean Witter Income Builder Fund, Dean Witter Special Value Fund, InterCapital
Insured Municipal Securities, InterCapital Insured California Municipal
Securities, InterCapital Insured Municipal Income Trust, InterCapital California
Insured Municipal Income Trust, Active Assets Money Trust, Active Assets
California Tax-Free Trust, Active Assets Tax-Free Trust, Active Assets
Government Securities Trust, Municipal Income Trust, Municipal Income Trust II,
Municipal Income Trust III, Municipal Income Opportunities Trust, Municipal
Income Opportunities Trust II, Municipal Income Opportunities Trust III,
Municipal Premium Income Trust and Prime Income Trust. The foregoing investment
companies, together with the Fund, are collectively referred to as the Dean
Witter Funds.
3
<PAGE>
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser: TCW/DW
Core Equity Trust, TCW/DW North American Government Income Trust, TCW/DW Latin
American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth
Fund, TCW/DW Balanced Fund, TCW/DW Total Return Trust, TCW/DW Global Telecom
Trust, TCW/DW Strategic Income Trust, TCW/DW Emerging Markets Opportunities
Trust, TCW/ DW Mid-Cap Equity Trust, TCW/DW Term Trust 2000, TCW/DW Term Trust
2002, TCW/DW Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves as:
(i) sub-adviser to Templeton Global Opportunities Trust, an open-end investment
company; (ii) administrator of The BlackRock Strategic Term Trust Inc., a
closed-end investment company; and (iii) sub-administrator of MassMutual
Participation Investors and Templeton Global Governments Income Trust,
closed-end investment companies.
Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
supervise the investment of the Fund's assets. The Investment Manager, through
consultation with Morgan Grenfell Investment Services Limited (the
"Sub-Adviser") and through its own portfolio management staff, obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously oversee the management of the assets of the Fund in a manner
consistent with its investment objective.
Under the terms of the Management Agreement, the Investment Manager also
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 certain legal services as the Fund may reasonably require in the conduct of
its business, including the preparation of prospectuses, statements of
additional information, proxy statements and reports required to be filed with
federal and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys is, in the opinion of the
Investment Manager, necessary or desirable). In addition, the Investment Manager
pays the salaries of all personnel, including officers of the Fund, who are
employees of the Investment Manager. The Investment Manager also bears the cost
of telephone service, heat, light, power and other utilities provided to the
Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to the
Fund that 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 on such date. The foregoing internal
reorganizations did not result in any change in the nature or scope of the
administrative services being provided to the Fund or any of the fees being paid
by the Fund for the overall services being performed under the terms of the
existing Management Agreement.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, by the Sub-Adviser pursuant to the Sub-Advisory Agreement
(see below), or by the Distributor of the Fund's shares, Dean Witter
Distributors Inc. ("Distributors" or the "Distributor"), (see "The Distributor")
will be paid by the Fund. The expenses borne by the Fund include, but are not
limited to: expenses of the Plan of Distribution pursuant to Rule 12b-1 (see
"The Distributor"), charges and expenses of any registrar, custodian, stock
transfer and dividend disbursing agent; brokerage commissions; taxes; engraving
and printing of share certificates; registration costs of the Fund and its
shares under federal and state securities laws; the cost and expense of
printing, including typesetting, and distributing Prospectuses and Statements of
Additional Information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or members of any advisory board or
committee who are not employees of the Investment Manager or Sub-Adviser or any
corporate affiliate of the Investment Manager or Sub-Adviser; 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 the Fund's legal counsel, including counsel to the directors who are not
interested persons of the Fund or of the Investment Manager or Sub-Adviser (not
4
<PAGE>
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 directors) of the Fund which inure
to its benefit; extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification relating
thereto); and all other costs of the Fund's operation.
The Management 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 Management Agreement in no
way restricts the Investment Manager from acting as investment manager or
adviser to others.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
following annual rates to the Fund's daily net assets: 1.00% of the portion of
the daily net assets not exceeding $1 billion; and 0.95% of the portion of daily
net assets exceeding $1 billion. For the fiscal years ended October 31, 1994,
1995 and 1996, the Fund accrued to the Investment Manager total compensation
under the Management Agreement in the amounts of $12,209,230, $14,008,538 and
$16,242,482, respectively.
Pursuant to a Sub-Advisory Agreement between the Investment Manager and
Sub-Adviser, the Sub-Adviser has been retained, subject to the overall
supervision of the Investment Manager and the Directors of the Fund, to
continuously furnish investment advice concerning individual security
selections, asset allocations and overall economic trends with respect to
Pacific basin issuers and to manage the portion of the Fund's portfolio invested
in securities issued by issuers located in Asia, Australia and New Zealand,
subject to the supervision of the Investment Manager. On occasion, the
Sub-Advisor will also provide the Investment Manager with investment advice
concerning potential investment opportunities for the Fund which are available
outside of Asia, Australia and New Zealand.
Morgan Grenfell Investment Services Limited ("MGIS") was organized as a
British corporation in 1972 and manages, as of September 30, 1996, assets of
approximately $14.7 billion for U.S. corporate and public employee benefit
plans, investment companies, endowments and foundations. MGIS' principal office
is located at 20 Finsbury Circus, London, England. MGIS is a subsidiary of
London based Morgan Grenfell Asset Management Limited which is itself a
subsidiary of London-based Morgan Grenfell Group plc (which is owned by Deutsche
Bank AG, an international commercial and investment banking group) and is
registered as an investment adviser under the Investment Advisers Act of 1940.
In 1838 Morgan Grenfell was founded to provide merchant banking services,
primarily trade financing between Great Britain and the United States. In 1958,
its investment management arm began operations. In recent years Morgan Grenfell
Group plc has achieved a prominent position in the securities industry by
providing investment and commercial banking services, financial services, and
discretionary management and advisory services covering all of the world's
leading securities markets. Morgan Grenfell Asset Management Limited, through
its various investment management subsidiaries, which have extensive experience
in global investment management, is managing, as of September 30, 1996,
approximately $111.6 billion worldwide.
Both the Investment Manager and the Sub-Adviser have authorized any of their
directors, officers and employees who have been elected as Directors or officers
of the Fund to serve in the capacities in which they have been elected. Services
furnished by the Investment Manager and the Sub-Adviser may be furnished by
directors, officers and employees of the Investment Manager and the Sub-Adviser.
In connection with the services rendered by the Sub-Adviser, the Sub-Adviser
bears the following expenses: (a) the salaries and expenses of its personnel;
and (b) all expenses incurred by it in connection with performing the services
provided by it as Sub-Adviser, as described above.
As full compensation for the services and facilities furnished to the Fund
and the Investment Manager and expenses of the Fund and the Investment Manager
assumed by the Sub-Adviser, the Investment Manager pays the Sub-Adviser monthly
compensation equal to 40% of the Investment
5
<PAGE>
Manager's monthly compensation payable under the Management Agreement. For the
fiscal years ended October 31, 1994, 1995 and 1996, the Investment Manager
informed the Fund that it accrued to the Sub-Adviser total compensation under
the Sub-Advisory Agreement of $4,883,692, $5,603,415 and $6,496,993,
respectively.
The Management Agreement and the Sub-Advisory Agreement (the "Agreements")
were initially approved by the Board of Directors on October 30, 1992 and by the
shareholders of the Fund at a Special Meeting of Shareholders held on January
12, 1993. The Agreements are substantially identical to the prior investment
management agreement and sub-advisory agreement which were initially approved by
the Fund's Directors on July 19, 1990 and by DWR, as the then sole shareholder,
on September 27, 1990. The Agreements took effect on June 30, 1993, upon the
spin-off of Sears, Roebuck and Co. of its remaining shares of DWDC. Both
Agreements may be terminated at any time, without penalty, on thirty days'
notice by the Directors of the Fund, by the holders of a majority, as defined in
the Investment Company Act of 1940, as amended (the "Act"), of the outstanding
shares of the Fund, by the Investment Manager, or the Sub-Adviser (Sub-Advisory
Agreement only). The Agreements will automatically terminate in the event of
their assignment (as defined in the Act).
Under their terms, both Agreements had an initial term ending April 30,
1994, and provide that each will continue from year to year thereafter, provided
continuance of each 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 Directors of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Directors of
the Fund who are not parties to the Agreements or "interested persons" (as
defined in the Act) of any such party (the "Independent Directors"), which votes
must be cast in person at a meeting called for the purpose of voting on such
approval. At their April 8, 1994 meeting, the Directors, including all of the
Independent Directors, approved an amendment to each Agreement to lower the
management fees and sub-advisory fees charged on the Fund's daily net assets in
excess of $1 billion from 1.0% to 0.95%. At their meeting held on April 17,
1996, the Fund's Board of Directors, including a majority of the Independent
Directors, approved continuation of each Agreement until April 30, 1997.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use, or at any time
permit others to use, the name "Dean Witter." The Fund has also agreed that in
the event the investment management contract between InterCapital and the Fund
is terminated, or if the affiliation between InterCapital and its parent company
is terminated, the Fund will eliminate the name "Dean Witter" from its name if
DWR or its parent company shall so request.
6
<PAGE>
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
The Directors and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 82 Dean Witter Funds and the 14 TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael Bozic (55) Chairman and Chief Executive Officer of Levitz Furniture
Director Corporation (since November, 1995); Director or Trustee of
c/o Levitz Furniture Corporation the Dean Witter Funds; formerly President and Chief
6111 Broken Sound Parkway, N.W. Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial Services,
Inc., the United Negro College Fund and Weirton Steel Cor-
poration.
Charles A. Fiumefreddo* (63) Chairman, Chief Executive Officer and Director of
Chairman of the Board, President, InterCapital, Distributors and DWSC; Director and
Chief Executive Officer and Director Executive Vice President of DWR; Chairman, Director or
Two World Trade Center Trustee, President and Chief Executive Officer of the Dean
New York, New York Witter Funds; Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Chairman and Director of Dean
Witter Trust Company ("DWTC"); Director and/or officer of
various DWDC subsidiaries; formerly Executive Vice
President and Director of DWDC (until February, 1993).
Edwin J. Garn (64) Director or Trustee of the Dean Witter Funds; formerly
Director United States Senator (R-Utah) (1974-1992) and Chairman,
c/o Huntsman Chemical Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way 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 sys-
tems) and John Alden Financial Corp.; member of the board
of various civic and charitable organizations.
John R. Haire (71) Chairman of the Audit Committee and Chairman of the
Director Committee of Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Chairman of
New York, New York the Audit Committee and Chairman of the Committee of the
Independent Trustees and Trustee of the TCW/DW Funds;
formerly President, Council for Aid to Education
(1978-1989) and Chairman and Chief Executive Officer of
Anchor Corporation, an Investment Adviser (1964-1978);
Director of Washington National Corporation (insurance).
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (47) Senior Partner, Johnson Smick International, Inc., a
Director consulting firm (since June, 1985); Koch Professor of
c/o Johnson Smick International, Inc. International Economics and Director of the Center for
1133 Connecticut Ave., N.W. Global Market Studies at George Mason University;
Washington, D.C. Co-Chairman and a founder of the Group of Seven Council
(G7C), an international economic commission; Director or
Trustee of the Dean Witter Funds; Trustee of the TCW/DW
Funds; Director of NASDAQ (since June, 1995); Director of
Greenwich Capital Markets, Inc. (broker-dealer); formerly
Vice Chairman of the Board of Governors of the Federal
Reserve System (1986-1990) and Assistant Secretary of the
U.S. Treasury (1982-1986).
Michael E. Nugent (60) General Partner, Triumph Capital, L.P., a private
Director investment partnership; Director or Trustee of the Dean
c/o Triumph Capital, L.P. Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital
New York, New York Corporation (1984-1988); director of various business
organizations.
Philip J. Purcell* (53) Chairman of the Board of Directors and Chief Executive
Director 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 (66) Retired; Director or Trustee of the Dean Witter Funds;
Director 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 Directors (August, 1991-September, 1995) and Chairman and Chief
114 West 47th Street Investment Officer of Axe-Houghton Management and the
New York, New York Axe-Houghton Funds (1983-1991).
Sheldon Curtis (64) Senior Vice President, Secretary and General Counsel of
Vice President, Secretary and General Counsel InterCapital and DWSC; Senior Vice President and Secretary
Two World Trade Center of DWTC; Senior Vice President, Assistant Secretary and
New York, New York Assistant General Counsel of Distributors; Assistant
Secretary of DWR; Vice President, Secretary and General
Counsel of the Dean Witter Funds and the TCW/DW Funds.
Thomas F. Caloia (50) First Vice President and Assistant Treasurer of
Treasurer InterCapital and DWSC; Treasurer of the Dean Witter Funds
Two World Trade Center and TCW/DW Funds.
New York, New York
<FN>
- ------------------------
*Denotes Directors who are "interested persons" of the Fund, as defined in the
Act.
</TABLE>
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Robert S. Giambrone,
8
<PAGE>
Executive Vice President of InterCapital, DWSC, Distributors and DWTC and
Director of DWTC, and Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of InterCapital and Director of DWTC, are Vice Presidents of
the Fund. Barry Fink and Marilyn K. Cranney, 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,
and Carsten Otto and Frank Bruttomesso, Staff Attorneys with InterCapital, are
Assistant Secretaries of the Fund.
THE BOARD OF DIRECTORS, THE INDEPENDENT DIRECTORS, AND THE COMMITTEES
The Board of Directors consists of eight (8) directors. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Directors. As of the date of this
Statement of Additional Information, there are a total of 82 Dean Witter Funds,
comprised of 122 portfolios. As of November 30, 1996, the Dean Witter Funds had
total net assets of approximately $82.2 billion and more than five million
shareholders.
Six Directors (75% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own any
stock or other securities issued by InterCapital's parent company, DWDC. These
are the "disinterested" or "independent" Directors. The other two Directors (the
"management Directors") are affiliated with InterCapital. Four of the six
independent Directors are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Directors. The Dean Witter Funds seek as Independent Directors
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Directors who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the Independent Directors serve as members of the Audit Committee and
the Committee of the Independent Directors. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1995,
the three Committees held a combined total of fifteen meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Directors or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
The Committee of the Independent Directors is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Directors are required to select and nominate individuals to
fill any Independent Director vacancy on the Board of any Fund that has a Rule
12b-1 plan of distribution. Most of the Dean Witter Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
9
<PAGE>
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT DIRECTORS AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Directors and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Directors to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees will need to form a judgment on various issues,
and arranges to have that information furnished to Committee members. He also
arranges for the services of independent experts and consults with them in
advance of meetings to help refine reports and to focus on critical issues.
Members of the Committees believe that the person who serves as Chairman of both
Committees and guides their efforts is pivotal to the effective functioning of
the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Directors and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service providers.
In effect, the Chairman of the Committees serves as a combination of chief
executive and support staff of the Independent Directors.
The Chairman of the Committee of the Independent Directors and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Director of the Dean Witter Funds and as an Independent Director and, since July
1, 1996, as Chairman of the Committee of the Independent Trustees and the Audit
Committee of the TCW/DW Funds. The current Committee Chairman has had more than
35 years experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS FOR ALL DEAN
WITTER FUNDS
The Independent Directors and the Funds' management believe that having the
same Independent Directors for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Directors for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Directors of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Directors arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Directors serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Directors, and a Chairman of their Committees,
of the caliber, experience and business acumen of the individuals who serve as
Independent Directors of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT DIRECTORS
The Fund pays each Independent Director an annual fee of $1,000 plus a per
meeting fee of $50 for meetings of the Board of Directors or committees of the
Board of Directors attended by the Director (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee of
the Independent Directors an additional annual fee of $1,200). The Fund also
reimburses such Directors for travel and other out-of-pocket expenses incurred
by them in connection with attending such meetings. Directors and officers of
the Fund who are or have been employed by the Investment Manager or an
affiliated company receive no compensation or expense reimbursement from the
Fund.
10
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Directors by the Fund for the fiscal year ended October 31, 1996.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT DIRECTOR FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,750
Edwin J. Garn................................................. 1,850
John R. Haire................................................. 3,900
Dr. Manuel H. Johnson......................................... 1,800
Michael E. Nugent............................................. 1,750
John L. Schroeder............................................. 1,800
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Directors for the calendar year ended December 31, 1995 for services
to the 79 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 11 TCW/DW Funds that were in operation at December 31, 1995.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Dean Witter Money Market Funds. Mr. Schroeder was elected as a Trustee
of the TCW/DW Funds on April 20, 1995.
COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
TOTAL
FOR SERVICE AS COMPENSATION
FOR SERVICE CHAIRMAN OF PAID
AS DIRECTOR OR COMMITTEES OF FOR SERVICES
TRUSTEE AND FOR SERVICE AS INDEPENDENT TO
COMMITTEE MEMBER TRUSTEE AND DIRECTORS/ 79 DEAN
OF 79 DEAN COMMITTEE MEMBER TRUSTEES AND WITTER
NAME OF INDEPENDENT WITTER OF 11 TCW/DW AUDIT FUNDS AND 11
DIRECTOR FUNDS FUNDS COMMITTEES TCW/DW FUNDS
- --------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Michael Bozic.............. $126,050 -- -- $126,050
Edwin J. Garn.............. 136,450 -- -- 136,450
John R. Haire.............. 98,450 $82,038 $217,350(1) 397,838
Dr. Manuel H. Johnson...... 136,450 82,038 -- 218,488
Michael E. Nugent.......... 124,200 75,038 -- 199,238
John L. Schroeder.......... 136,450 46,964 -- 183,414
</TABLE>
- ------------------------------
(1) For the 79 Dean Witter Funds in operation at December 31, 1995. As noted
above, on July 1, 1996, Mr. Haire became Chairman of the Committee of the
Independent Trustees and the Audit Committee of the TCW/DW Funds in addition
to continuing to serve in such positions for the Dean Witter Funds.
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have adopted a retirement program under which
an Independent Director 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 Director referred to
as an "Eligible Director") 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 Director
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing for the remainder of his or her life, an annual
retirement benefit (the "Regular Benefit") equal to 25.0% of his or her Eligible
Compensation plus 0.4166666% of such Eligible Compensation for each full month
of service as an Independent Director or Trustee of any Adopting Fund in excess
of five years up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the Board.(2) "Eligible Compensation" is one-fifth
of the total compensation earned by such Eligible Director for service to the
Adopting Fund in the five year period prior to the date of the Eligible
Director's retirement. Benefits under the retirement program are not secured or
funded by the Adopting Funds.
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<PAGE>
The following table illustrates the retirement benefits accrued to the
Fund's Independent Directors by the Fund for the fiscal year ended October 31,
1996 and by the 57 Dean Witter Funds (including the Fund) as of December 31,
1995, and the estimated retirement benefits for the Fund's Independent Directors
from the Fund as of October 31, 1996 and from the 57 Dean Witter Funds as of
December 31, 1995.
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS ESTIMATED ANNUAL
-------------------------------------- RETIREMENT BENEFITS BENEFITS
ESTIMATED ACCRUED AS EXPENSES UPON RETIREMENT(3)
CREDITED YEARS ESTIMATED ---------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT DIRECTOR (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- --------------------------------- ------------------- ----------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic.................... 10 50.0% $ 393 $ 26,359 $ 950 $ 51,550
Edwin J. Garn.................... 10 50.0 663 41,901 950 51,550
John R. Haire.................... 10 50.0 4,249 261,763 2,343 130,404
Dr. Manuel H. Johnson............ 10 50.0 264 16,748 950 51,550
Michael E. Nugent................ 10 50.0 498 30,370 950 51,550
John L. Schroeder................ 8 41.7 763 51,812 792 42,958
</TABLE>
- ------------------------------
(2) An Eligible Director may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Director
and his or her spouse on the date of such Eligible Director's retirement.
The amount estimated to be payable under this method, through the remainder
of the later of the lives of such Eligible Director and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Director 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.
(3) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Director's elections described in Footnote (2)
above.
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 Directors as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
As stated in the Prospectus, the Fund may invest more than 25% of its total
assets in securities of issuers located in each of Japan and Hong Kong. While it
is not anticipated that the Fund will invest more than 25% of its total assets
in the securities of issuers located in each of Singapore, Thailand, Malaysia
and South Korea, the Fund's Registration Statement will be amended to contain
disclosure discussing the risks pertaining to a concentration of the Fund's
assets in any such country at such time as the 25% level is exceeded.
PRIVATE PLACEMENTS. The Fund may invest up to 10% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A of the Securities Act, and determined to be liquid
pursuant to the procedures discussed in the following paragraph, are not subject
to the foregoing restriction.) These securities are generally referred to as
private placements or restricted securities. Limitations on the resale of such
securities may have an adverse effect on their marketability, and may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to bear the expense of registering such securities for resale and the risk of
substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The
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<PAGE>
Investment Manager, pursuant to procedures adopted by the Directors of the Fund,
will make a determination as to the liquidity of each restricted security
purchased by the Fund. If a restricted security is determined to be "liquid,"
such security will not be included within the category of "illiquid securities,"
which is limited by the Fund's investment restrictions to 10% of the Fund's
total assets.
CONVERTIBLE SECURITIES. The Fund may invest in fixed-income securities
which are convertible into common stock. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, entail less
risk than the corporation's common stock. The value of a convertible security is
a function of its "investment value" (its value as if it did not have a
conversion privilege), and its "conversion value" (the security's worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security. Convertible securities may be purchased by the Fund
at varying price levels above their investment values and/or their conversion
values in keeping with the Fund's objective.
WARRANTS. The Fund may acquire warrants, including warrants which are
attached to fixed-income securities purchased for its portfolio, and hold such
warrants until the Investment Manager and/or the Sub-Adviser determines it is
prudent to sell. Warrants are, in effect, an option to purchase equity
securities at a specific price, generally valid for a specific period of time,
and have no voting rights, pay no dividends and have no rights with respect to
the corporations issuing them.
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 from three months
to 30 years.
Neither the value nor the yield of the U.S. Government securities which may
be invested in by the Fund are guaranteed by the U.S. Government. Such values
and yield will fluctuate with changes in prevailing interest rates and other
factors. Generally, as prevailing interest rates rise, the value of any U.S.
Government securities held by the Fund will fall. Such securities with longer
maturities generally tend to produce higher yields and are subject to greater
market fluctuation as a result of changes in interest rates than debt securities
with shorter maturities.
ZERO COUPON TREASURY SECURITIES. A portion of the U.S. Government
securities purchased by the Fund may be "zero coupon" Treasury securities. These
are U.S. Treasury bills, notes and bonds which have been stripped of their
unmatured interest coupons and receipts or which are certificates representing
interests in such stripped debt obligations and coupons. Such securities are
purchased at a discount
13
<PAGE>
from their face amount, giving the purchaser the right to receive their full
value at maturity. A zero coupon security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value (sometimes referred
to as a "deep discount" price). The Fund intends to invest in such zero coupon
treasury securities as STRIPS, Treasury Receipts, Physical Coupons, and
Proprietary Receipts. However, the Fund does not intend, during its current
fiscal year, to invest in such securities in amounts totalling more than 5% of
its total assets.
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 market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as the Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the security during the year. As a
result, the Fund may be forced to liquidate portfolio securities at a time which
may be disadvantageous to the Fund, in order to have sufficient cash to make
requisite distributions.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. However a number of banks and brokerage firms have separated
("stripped") the principal portions from the coupon portions of the U.S.
Treasury bonds and notes and sold them separately in the form of receipts or
certificates representing undivided interests in these instruments (which
instruments are generally held by a bank in a custodial or trust account).
As stated in the Prospectus, the money market instruments which the Fund may
purchase include U.S. Government securities, bank obligations, Eurodollar
certificates of deposit, obligations of savings institutions, fully insured
certificates of deposit and commercial paper. Such securities are limited to:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government and
having total assets of $1,000,000,000 or more, and instruments secured by such
obligations, not including obligations of foreign branches of domestic banks
except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of
$1,000,000,000 or more;
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1,000,000,000
or more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1,000,000,000, if the
principal amount of the obligation is insured by the Federal Deposit Insurance
Corporation, limited to $100,000 principal amount per certificate and to 10% or
less of the Fund's total assets in all such obligations and in all illiquid
assets, in the aggregate;
COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's (S&P) or the highest grade by Moody's or, if not rated, issued
by a company having an outstanding debt issue rated at least AA by S&P or Aa by
Moody's.
14
<PAGE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As discussed in the Prospectus, the Fund may enter into forward foreign
currency exchange contracts ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial and investment banks) and their customers.
Such forward contracts will only be entered into with United States banks and
their foreign branches or foreign banks whose assets total $1 billion or more. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
When management of the Fund believes that the currency of a particular
foreign country may suffer a substantial movement against the U.S. dollar, it
may enter into a forward contract to purchase or sell, for a fixed amount of
dollars or other currency, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The Fund will also not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the management of the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will be served. The Fund's custodian bank will place
cash, U.S. Government securities or other appropriate liquid portfolio
securities in a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of forward contracts
entered into under the circumstances set forth above. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with respect to such
contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the
forward contract for delivery by the Fund of a foreign currency, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency (however, the ability of the Fund to terminate a
contract is contingent upon the willingness of the currency trader with whom the
contract has been entered into to permit an offsetting transaction). It is
impossible to forecast the market value of portfolio securities at the
expiration of the contract. Accordingly, it may be necessary for the Fund to
purchase additional foreign currency on the spot market (and bear the expense of
such purchase) if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency. Conversely, it may
be necessary to sell on the spot market some of the foreign currency received
upon the sale of the portfolio securities if its market value exceeds the amount
of foreign currency the Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has
15
<PAGE>
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Fund will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Fund has written a call option on a fixed-income security
or the currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a greater
extent than the value of the premium received for the option. The Fund will
maintain with its Custodian at all times, cash, U.S. Government securities, or
other appropriate liquid portfolio securities in a segregated account equal in
value to all forward contract obligations and option contract obligations
entered into in hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, the Fund may write covered call options
against securities held in its portfolio and purchase options of the same series
to effect closing transactions, and may hedge against potential changes in the
market value of its investments (or anticipated investments) by purchasing put
and call options on portfolio (or eligible portfolio) securities (and the
currencies in which they are denominated) and engaging in transactions involving
futures contracts and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and on various
foreign currencies are listed on several U.S. and foreign securities exchanges
and are written in over-the-counter transactions ("OTC Options"). Listed options
are issued or guaranteed by the exchange on which they trade or by a clearing
corporation such as the Options Clearing Corporation ("OCC"). Ownership of a
listed call option gives the Fund the right to buy from the OCC (in the U.S.) or
other clearing corporation or exchange, the underlying security or currency
covered by the option at the stated exercise price (the price per unit of the
underlying security or currency) by filing an exercise notice prior to the
expiration date of the option. The writer (seller) of the option would then have
the obligation to sell, to the OCC (in the U.S.) or other clearing corporation
or exchange, the underlying security or currency at that exercise price prior to
the expiration date of the option, regardless of its then current market price.
Ownership of a listed put option would give the Fund the right to sell the
underlying security or currency to the OCC (in the U.S.) or other clearing
corporation or exchange at the stated exercise price. Upon notice of exercise of
the put option, the writer of the option would have the obligation to purchase
the underlying security or currency from the OCC (in the U.S.) or other clearing
corporation or exchange at the exercise price.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the
16
<PAGE>
portfolio securities (less the amount of the premiums paid for the options).
Conversely, the Fund may purchase call options on foreign currencies in which
securities it anticipates purchasing are denominated to secure a set U.S. dollar
price for such securities and protect against a decline in the value of the U.S.
dollar against such foreign currency. The Fund may also purchase call and put
options to close out written option positions.
The Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which
it is denominated and the U.S. dollar, then a loss to the Fund occasioned by
such value decline would be ameliorated by receipt of the premium on the option
sold. At the same time, however, the Fund gives up the benefit of any rise in
value of the relevant portfolio securities above the exercise price of the
option and, in fact, only receives a benefit from the writing of the option to
the extent that the value of the portfolio securities falls below the price of
the premium received. The Fund may also write options to close out long call
option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. While in the opinion of the management
of the Fund, the market for such options has developed sufficiently to ensure
that the risks in connection with such options are not greater than the risks in
connection with the underlying currency, there can be no assurance that a liquid
secondary market will exist for a particular option at any specific time. In
addition, options on foreign currencies are affected by all of those factors
which influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
OTC OPTIONS. Exchange-listed options are issued by the OCC (in the U.S.) or
other clearing corporation or exchange which assures that all transactions in
such options are properly executed. OTC options are purchased from or sold
(written) to dealers or financial institutions which have entered into direct
agreements with the Fund. With OTC options, such variables as expiration date,
exercise price and premium will be agreed upon between the Fund and the
transacting dealer, without the intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities or
amount of foreign currency underlying an option it has written, in accordance
with the terms of the option, the Fund would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Fund will
engage in OTC option transactions only with member banks of the Federal Reserve
System or primary dealers in U.S. Government securities or with affiliates of
such banks or dealers which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
17
<PAGE>
COVERED CALL WRITING. As stated in the Prospectus, the Fund is permitted to
write covered call options on portfolio securities and on the U.S. Dollar and
foreign currencies, without limit, in order to aid in achieving its investment
objectives. Generally, a call option is "covered" if the Fund owns, or has the
right to acquire, without additional cash consideration (or for additional cash
consideration held for the Fund by its Custodian in a segregated account) the
underlying security (currency) subject to the option except that in the case of
call options on U.S. Treasury Bills, the Fund might own U.S. Treasury Bills of a
different series from those underlying the call option, but with a principal
amount and value corresponding to the exercise price and a maturity date no
later than that of the security (currency) deliverable under the call option. A
call option is also covered if the Fund holds a call on the same security as the
underlying security (currency) of the written option, where the exercise price
of the call used for coverage is equal to or less than the exercise price of the
call written or greater than the exercise price of the call written if the
mark-to-market difference is maintained by the Fund in cash, U.S. Government
securities or other liquid portfolio securities which the Fund holds in a
segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to earn a higher level of current income than it
would earn from holding the underlying securities (currencies) alone. Moreover,
the premium received will offset a portion of the potential loss incurred by the
Fund if the securities (currencies) underlying the option are ultimately sold
(exchanged) by the Fund at a loss. Furthermore, a premium received on a call
written or a foreign currency will ameliorate any potential loss of value on the
portfolio security due to a decline in the value of the currency. The premium
received will fluctuate with varying economic market conditions. If the market
value of the portfolio securities (or the currencies in which they are
denominated) upon which call options have been written increases, the Fund may
receive a lower total return from the portion of its portfolio upon which calls
have been written than it would have had such calls not been written.
As regards listed options and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Fund to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the amount of the premium received
on the call option is more or less than the cost of effecting the closing
purchase transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of the
underlying security (currency). Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part or exceeded by a
decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security
(currency) during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security (currency)
equal to the difference between the purchase price of the underlying security
(currency) and the proceeds of the sale of the security (currency) plus the
premium received on the option less the commission paid.
18
<PAGE>
Options written by the Fund will normally have expiration dates of up to
eighteen months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written.
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase a call option in order to close out a
covered call position (see "Covered Call Writing" above), to protect against an
increase in price of a security it anticipates purchasing or, in the case of a
call option on foreign currency, to hedge against an adverse exchange rate move
of the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The purchase
of the call option to effect a closing transaction on a call written
over-the-counter may be a listed or an OTC option. In either case, the call
purchased is likely to be on the same securities (currencies) and have the same
terms as the written option. If purchased over-the-counter, the option would
generally be acquired from the dealer or financial institution which purchased
the call written by the Fund.
The Fund may purchase put options on securities and currencies (or related
currencies) which it holds in its portfolio only to protect itself against a
decline in the value of the security. If the value of the underlying security
(currency) were to fall below the exercise price of the put purchased in an
amount greater than the premium paid for the option, the Fund would incur no
additional loss. In addition, the Fund may sell a put option which it has
previously purchased prior to the sale of the securities (currencies) underlying
such option. Such a sale would result in a net gain or loss depending on whether
the amount received on the sale is more or less than the premium and other
transaction costs paid on the put option which is sold. And such gain or loss
could be offset in whole or in part by a change in the market value of the
underlying security (currency). If a put option purchased by the Fund expired
without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the
ability of the Investment Manager to forecast correctly interest rates and
market movements. If the market value of the portfolio securities upon which
call options have been written increases, the Fund may receive a lower total
return from the portion of its portfolio upon which calls have been written than
it would have had such calls not been written. In writing puts, the Fund assumes
the risk of loss should the market value of the underlying securities decline
below the exercise price of the option (any loss being decreased by the receipt
of the premium on the option written). During the option period, the covered
call writer has, in return for the premium on the option, given up the
opportunity for capital appreciation above the exercise price should the market
price of the underlying security (or the value of its denominated currency)
increase, but has retained the risk of loss should the price of the underlying
security (or the value of its denominated currency) decline. The writer has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or receive the underlying
securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call option
writer may not be able to sell an underlying security at a time when it might
otherwise be advantageous to do so.
As discussed in the Prospectus, the Fund's ability to close out its position
as a writer of an option is dependent upon the existence of a liquid secondary
market on Option Exchanges. There is no assurance that such a market will exist,
particularly in the case of OTC options, as such options will generally only be
closed out by entering into a closing purchase transaction with the purchasing
dealer. However, the Fund may be able to purchase an offsetting option which
does not close out its position as a writer but constitutes an asset of equal
value to the obligation under the option written. If the Fund is not able to
either enter into a closing purchase transaction or purchase an offsetting
position, it will be required to
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maintain the securities subject to the call, or the collateral underlying the
put, even though it might not be advantageous to do so, until a closing
transaction can be entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
OCC as a result of trades on that exchange would generally continue to be
exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Fund's management.
Each of the exchanges has established limitations governing the maximum
number of options on the same underlying security or futures contract (whether
or not covered) which may be written by a single investor, whether acting alone
or in concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts or
through one or more brokers). An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
The extent to which the Fund may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification as
a regulated investment company and the Fund's intention to qualify as such (see
"Dividends, Distributions and Taxes" in the Prospectus).
FUTURES CONTRACTS. As stated in the Prospectus, the Fund may purchase and
sell interest rate, currency, and index futures contracts ("futures contracts"),
that are traded on U.S. and foreign commodity exchanges, on such underlying
securities as U.S. Treasury bonds, notes and bills and/or any foreign government
fixed-income security ("interest rate" futures), on various currencies
("currency futures") and on such indexes of U.S. and foreign securities as may
exist or come into being ("index" futures).
The Fund will purchase or sell interest rate futures contracts for the
purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
If it is anticipated that interest rates may rise and, concomitantly, the price
of certain of its portfolio securities fall, the Fund may sell an interest rate
futures contract. If declining interest rates are anticipated, the Fund may
purchase an interest rate futures contract to protect against a potential
increase in the price of securities the Fund intends to purchase. Subsequently,
appropriate securities may be purchased by the Fund in an orderly fashion; as
securities are purchased, corresponding futures positions would be terminated by
offsetting sales of contracts.
The Fund will purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices. If it is anticipated that the
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prices of securities held by the Fund may fall, the Fund may sell an index
futures contract. Conversely, if the Fund wishes to hedge against anticipated
price rises in those securities which the Fund intends to purchase, the Fund may
purchase an index futures contract.
The Fund will purchase or sell currency futures on currencies in which its
portfolio securities (or anticipated portfolio securities) are denominated for
the purposes of hedging against anticipated changes in currency exchange rates.
The Fund will enter into currency futures contracts for the same reasons as set
forth above for entering into forward foreign currency contracts; namely, to
"lock-in" the value of a security purchased or sold in a given currency
vis-a-vis a different currency or to hedge against an adverse currency exchange
rate movement of a portfolio security's (or anticipated portfolio security's)
denominated currency vis-a-vis a different currency.
In addition to the above, interest rate, index and currency futures will be
bought or sold in order to close out a short or long position maintained by the
Fund in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. A futures contract
sale is closed out by effecting a futures contract purchase for the same
aggregate amount of the specific type of security (currency) and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of security (currency) and the same delivery date. If the offsetting sale
price exceeds the purchase price, the purchaser would realize a gain, whereas if
the purchase price exceeds the offsetting sale price, the purchaser would
realize a loss. There is no assurance that the Fund will be able to enter into a
closing transaction.
INTEREST RATE FUTURES CONTRACTS. When the Fund enters into an interest rate
futures contract, it is initially required to deposit with the Fund's Custodian,
in a segregated account in the name of the broker performing the transaction, an
"initial margin" of cash or U.S. Government securities or other liquid portfolio
securities equal to approximately 2% of the contract amount. Initial margin
requirements are established by the exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits of cash or U.S. Government
securities called "variation margin," with the Fund's futures contract clearing
broker, which are reflective of price fluctuations in the futures contract.
Currently, interest rate futures contracts can be purchased on debt securities
such as U.S. Treasury Bills and Bonds, U.S. Treasury Notes with Maturities
between 6 1/2 and 10 years, GNMA Certificates and Bank Certificates of Deposit.
CURRENCY FUTURES. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise date, for a
set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and under
the same circumstances as forward foreign currency exchange contracts. The
Investment Manager will assess such factors as cost spreads, liquidity and
transaction costs in determining whether to utilize futures contracts or forward
contracts its in foreign currency transactions and hedging strategy. Currently,
currency futures exist for, among other foreign currencies, the Japanese yen,
German mark, Canadian dollar, British pound, Swiss franc and European currency
unit.
Purchasers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency
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futures contracts and their use as a hedging device similar to those associated
with options on foreign currencies described above. Further, settlement of a
foreign currency futures contract must occur within the country issuing the
underlying currency. Thus, the Fund must accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign restrictions
or regulations regarding the maintenance of foreign banking arrangements by U.S.
residents and may be required to pay any fees, taxes or charges associated with
such delivery which are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the Fund will
not purchase or write options on foreign currency futures contracts unless and
until, in the Investment Manager's opinion, the market for such options has
developed sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying foreign
currency futures contracts.
INDEX FUTURES CONTRACTS. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future time.
An index futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in the
form of variation margin payments. The Fund may be required to make additional
margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or gain.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract at the time of exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the Fund's
management wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its fixed-income
portfolio, the Fund might write a call option on an interest rate futures
contract, the underlying security of
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which correlates with the portion of the portfolio the Fund seeks to hedge. Any
premiums received in the writing of options on futures contracts may, of course,
provide a further hedge against losses resulting from price declines in portions
of the Fund portfolio.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the Fund's assets
which may be subject to a hedge position. In addition, in accordance with the
regulations of the Commodity Futures Trading Commission ("CFTC") under which the
Fund is exempted from registration as a commodity pool operator, the Fund may
only enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that the Fund would be permitted to write options on futures
contracts for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of futures
and options thereon by the Fund.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The
successful use of futures and related options depends on the ability of the
Investment Manager to accurately predict market and interest rate movements. As
stated in the Prospectus, the Fund may sell a futures contract to protect
against the decline in the value of securities (or the currency in which they
are denominated) held by the Fund. However, it is possible that the futures
market may advance and the value of securities (or the currency in which they
are denominated) held in the portfolio of the Fund may decline. If this
occurred, the Fund would lose money on the futures contract and also experience
a decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities (currencies) decreases, then the
Fund may determine not to invest in the securities as planned and will realize a
loss on the futures contract that is not offset by a reduction in the price of
the securities.
If the Fund has sold a call option on a futures contract, it will cover this
position by holding, in a segregated account maintained at its Custodian, cash,
U.S. Government securities or other liquid portfolio securities equal in value
(when added to any initial or variation margin on deposit) to the market value
of the securities (currencies) underlying the futures contract or the exercise
price of the option. Such a position may also be covered by owning the
securities (currencies) underlying the futures contract, or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.
In addition, if the Fund holds a long position in a futures contract it will
hold cash, U.S. Government securities or other liquid portfolio securities equal
to the purchase price of the contract (less the amount of initial or variation
margin on deposit) in a segregated account maintained for the Fund by its
Custodian. Alternatively, the Fund could cover its long position by purchasing a
put option on the same futures contract with an exercise price as high or higher
than the price of the contract held by the Fund.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
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<PAGE>
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit the Fund's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in clearance
and delivery requirements on foreign exchanges may occasion delays in the
settlement of the Fund's transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by the Investment Manager.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indexes subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Fund's portfolio securities (and the
currencies in which they are denominated). Another such risk is that prices of
interest rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which the Fund seeks a hedge. A correlation
may also be distorted by the fact that the futures market is dominated by
short-term traders seeking to profit from the difference between a contract or
security price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by the Fund and the
movements in the prices of the securities (currencies) which are the subject of
the hedge. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin deposit
requirements, distortions in the normal relationship between the debt securities
or currency markets and futures markets could result. Price distortions could
also result if investors in futures contracts opt to make or take delivery of
underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the futures market. In addition, due to
the fact that, from the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of interest rate trends may still not result in a successful hedging
transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be possible
to close out a futures position, and in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In addition, limitations imposed by an exchange or board of trade on
which futures contracts are traded may compel or prevent the Fund from closing
out a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to make
or take delivery of the underlying securities (currencies) at a time when it may
be disadvantageous to do so.
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The extent to which the Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such (see "Dividends, Distributions and Taxes" in the
Prospectus).
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities (currencies).
OTHER INVESTMENT POLICIES
REPURCHASE AGREEMENTS. When cash may be available for only a few days, it
may be invested by the Fund in repurchase agreements until such time as it may
otherwise be invested or used for payments of obligations of the Fund. A
repurchase agreement may be viewed as a type of secured lending by the Fund
which typically involves the acquisition by the Fund of government securities
from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Fund will sell
back to the institution, and that the institution will repurchase, the
underlying security ("collateral") at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The
collateral will be maintained in a segregated account and will be
marked-to-market daily to determine that the full value of the collateral, as
specified in the agreement, is always at least equal to the purchase price plus
accrued interest. If required, additional collateral will be requested from the
counterparty and when received, added to the account to maintain full
collateralization. In the event the original seller defaults on its obligations
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 management of the Fund subject
to procedures established by the Directors. 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.
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 appropriate liquid portfolio securities equal in value to
its obligations in respect of reverse repurchase agreements. Reverse repurchase
agreements are considered borrowings by the Fund and, in accordance with legal
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requirements, the Fund will maintain an asset coverage (including the proceeds)
of at least 300% with respect to all reverse repurchase agreements. Reverse
repurchase agreements may not exceed 10% of the Fund's total assets. The Fund
will make no purchases of portfolio securities while it is still subject to a
reverse repurchase agreement. The Fund has not to date entered into any reverse
repurchase agreements and presently has no intention of entering into reverse
repurchase agreements during the coming year.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. 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 and may purchase or sell securities on a forward commitment basis. When
such transactions are negotiated, the price is fixed at the time of the
commitment, but delivery and payment can take place a month or more after the
date of the commitment. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during this period. While
the Fund will only purchase securities on a when-issued, delayed delivery or
forward commitment basis with the intention of acquiring the securities, the
Fund may sell the securities before the settlement date, if it is deemed
advisable. At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in determining the net
asset value of the Fund. At the time of delivery of the securities, the value
may be more or less than the purchase price. The Fund will also establish a
segregated account with the Fund's custodian bank in which it will continuously
maintain cash or U.S. Government securities or other liquid portfolio securities
equal in value to commitments for such when-issued or delayed delivery
securities; subject to this requirement, the Fund may purchase securities on
such basis without limit. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued or delayed delivery
basis may increase the volatility of the Fund's net asset value. The Fund's
management and the Directors 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 liquid portfolio securities equal in value
to recognized commitments for such securities. Settlement of the trade will
occur within five business days of the occurrence of the subsequent event. The
value of the Fund's commitments to purchase the securities of any one issuer,
together with the value of all securities of such issuer owned by the Fund, may
not exceed 5% of the value of the Fund's total assets at the time the initial
commitment to purchase such securities is made (see "Investment Restrictions").
Subject to the foregoing restrictions, the Fund may purchase securities on such
basis without limit. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value. The Fund's management and the
Directors 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 the sale.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to notice provisions described below), and are at all times
secured by cash or appropriate high-grade debt obligations, which are maintained
in a segregated account pursuant to applicable regulations and that are at least
equal to the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Fund continues to receive the
26
<PAGE>
income on the loaned securities while at the same time earning interest on the
cash amounts deposited as collateral, which will be invested in short-term
obligations. The Fund will not lend its portfolio securities if such loans are
not permitted by the laws or regulations of any state in which its shares are
qualified for sale and will not lend more than 25% of the value of its total
assets. A loan may be terminated by the borrower on one business day's notice,
or by the Fund on two business days' notice. If the borrower fails to deliver
the loaned securities within two days after receipt of notice, the Fund could
use the collateral to replace the securities while holding the borrower liable
for any excess of replacement cost over collateral. As with any extensions of
credit, there 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 Fund's management pursuant to procedures
adopted and reviewed, on an ongoing basis, by the Board of Directors of the
Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities. The Fund has
not, to date, lent any of its portfolio securities and it does not presently
intend to lend any of its portfolio securities in the foreseeable future.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.
The Fund may not:
1. Purchase or sell real estate or interests therein (including real
estate limited partnerships), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.
2. 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.
3. Borrow money (except insofar as to the Fund may be deemed to have
borrowed by entrance into a reverse repurchase agreement up to an amount not
exceeding 10% of the Fund's total assets), except that the Fund may borrow
from a bank for temporary or emergency purposes in amounts not exceeding 5%
(taken at the lower of cost or current value) of its total assets (not
including the amount borrowed).
4. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase or reverse repurchase agreement; (b) purchasing
any securities on a when-issued or delayed delivery basis; (c) purchasing or
selling futures contracts, forward foreign exchange contracts or options;
(d) borrowing money in accordance with restrictions described above; or (e)
lending portfolio securities.
27
<PAGE>
5. 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 objectives and policies; (b) by investment in
repurchase or reverse repurchase agreements; or (c) by lending its portfolio
securities.
6. Make short sales of securities.
7. 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.
8. Invest for the purpose of exercising control or management of any
other issuer.
9. Purchase or sell commodities or commodities contracts except that
the Fund may purchase or write interest rate, currency and stock and bond
index futures contracts and related options thereon.
10. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowings. (For the purpose of this restriction,
collateral arrangements with respect to the writing of options and
collateral arrangements with respect to initial or variation margin for
futures are not deemed to be pledges of assets.)
11. Purchase securities on margin (but the Fund may obtain short-term
loans as are necessary for the clearance of transactions). The deposit or
payment by the fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the purchase
of a security on margin.
In addition, as a nonfundamental policy, the Fund will not invest more than
5% of its net assets in warrants, including not more than 2% of such assets in
warrants not listed on either a recognized domestic or foreign exchange.
However, the acquisition of warrants attached to other securities is not subject
to this restriction.
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 Fund's Directors, the Investment
Manager and the Sub-Adviser are responsible for decisions to buy and sell
securities of the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with non-affiliated dealers
acting as principal for their own accounts without a stated commission, although
the price of the security usually includes a profit to the dealer. The Fund also
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation, generally referred to
as the underwriter's concession or discount. In the underwritten offerings,
securities are purchased at a fixed price which includes an amount of
compensation equal to the underwriter's concession. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Fund paid $10,812,577, $7,683,917 and
$8,295,697 in brokerage commissions during the fiscal years ended October 31,
1994, 1995 and 1996, respectively.
The Investment Manager and the Sub-Adviser currently serve as investment
advisers to a number of clients, including, in the case of the Investment
Manager, other investment companies, and may in the future act as investment
manager or adviser to others. It is the practice of the Investment Manager and
the Sub-Adviser 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
28
<PAGE>
Fund and other client accounts, various factors may be considered, including the
respective investment objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment, the size
of investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client accounts.
In the case of certain initial and secondary public offerings, the Investment
Manager may utilize a pro-rata allocation process based on the size of the Dean
Witter Funds involved and the number of shares available from the public
offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager and the Sub-Adviser from obtaining
a high quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Investment
Manager and the Sub-Adviser rely upon their experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on securities exchanges. Fixed commissions on such
transactions are generally higher than negotiated commissions on domestic
transactions. There is also generally less government supervision and regulation
of foreign securities exchanges and brokers than in the United States.
In seeking to implement the Fund's policies, the Investment Manager and the
Sub-Adviser effect transactions with those brokers and dealers who the
Investment Manager and the Sub-Adviser believe provide the most favorable prices
and are capable of providing efficient executions. If the Investment Manager
and/or the Sub-Adviser believe such prices and executions are obtainable from
more than one broker or dealer, they 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 and/or the Sub-Adviser. 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 and the
Sub-Advisor from brokers and dealers may be of benefit to the Investment Manager
and the Sub-Adviser in the management of accounts of some of their 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 the Sub-Adviser and thereby reduce their expenses, it is of indeterminable
value and the fees paid to the Investment Manager and the Sub-Adviser are 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 and/or affiliated broker-dealers of the
Sub-Adviser--Deutsche Morgan Grenfell & Partners Securities Pte. Limited,
Deutsche Morgan Grenfell Securities Hong Kong Limited, Deutsche Bank A.G.,
Deutsche Bank Capital
29
<PAGE>
Markets Ltd. and C.J. Lawrence, Morgan Grenfell Inc. In order for these
broker-dealers to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by them 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 them to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate
arm's-length transaction. Furthermore, the Directors of the Fund, including a
majority of the Directors who are not "interested" persons of the Fund, as
defined in the Act, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to these broker-
dealers are consistent with the foregoing standard. The Fund paid brokerage
commissions to affiliates of the Sub-Adviser in the amounts of $1,715,713 and
$750,676 for the fiscal years ended October 31, 1994 and October 31, 1995,
respectively. During the fiscal year ended October 31, 1996, the Fund paid
affiliated broker-dealers of the Sub-Adviser for transactions as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF
EXECUTED TRADES
BROKERAGE PERCENTAGE OF ON WHICH
COMMISSIONS PAID AGGREGATE BROKERAGE
TO AFFILIATED BROKERAGE COMMISSIONS
BROKER OF SUB-ADVISER COMMISSIONS FOR WERE PAID FOR
FOR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
NAME OF BROKER 10/31/96 10/31/96 10/31/96
- --------------------------------------------------- ---------------------- --------------------- -------------------
<S> <C> <C> <C>
Deutsche Morgan Grenfell Securities Hong Kong
Ltd............................................... $ 249,213 3.00% 2.30%
Deutsche Morgan Grenfell & Partners
Securities Pte. Ltd............................... 86,251 1.04 0.81
</TABLE>
PORTFOLIO TRADING
It is anticipated that the Fund's portfolio turnover rate will not exceed
100% in any one year. 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.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund. In addition, the Distributor may enter into selected
dealer agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of DWDC. The Directors who
are not, and were not at the time they voted, interested persons of the Fund, as
defined in the Act (the "Independent Directors"), approved, at their meeting
held on October 30, 1992, the current Distribution Agreement appointing the
Distributor as exclusive distributor of the Fund's shares and providing for the
Distributor to bear distribution expenses not borne by the Fund. The present
Distribution Agreement is substantively identical to the Fund's previous
distribution agreement. The current 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 Directors. At their meeting held on April 17,
1996, the Directors, including all of the Independent Directors, approved the
continuation of the Agreement until April 30, 1997.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or
30
<PAGE>
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. To compensate the Distributor for the services it
provides and for the expenses by the Distributor or any selected dealer under
the Distribution Agreement, the Fund has adopted a Plan of Distribution pursuant
to Rule 12b-1 under the Act (the "Plan") pursuant to which the Fund pays the
Distributor compensation accrued daily and payable monthly at the annual rate of
1.0% of the lesser of: (a) the average daily aggregate gross sales of the Fund's
shares since the inception of the Fund (not including reinvestments of dividends
or capital gains distributions), less the average daily aggregate net asset
value of the Fund's shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or upon which such charge has
been waived; or (b) the Fund's average daily net assets. The Distributor also
receives the proceeds of contingent deferred sales charges imposed on certain
redemptions of shares, which are separate and apart from payments made pursuant
to the Plan (see "Redemption and Repurchases--Contingent Deferred Sales Charge"
in the Prospectus). The Distributor has informed the Fund that it received
approximately $2,068,000, $4,234,570 and $3,770,779 in contingent deferred sales
charges for the fiscal years ended October 31, 1994, 1995 and 1996,
respectively.
Under its terms, the Plan had an initial term ending April 30, 1991, and
provided that it will remain in effect from year to year thereafter, provided
such continuance is approved annually by a vote of the Directors, including a
majority of the Directors 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 Directors"). The Plan was most
recently submitted to and approved for continuance by the Directors of the Fund,
including a majority of the Independent 12b-1 Directors, at their meeting held
on April 17, 1996, after evaluating all the information they deemed necessary to
make an informed determination of whether the Plan should be continued. In
making their determination to continue the Plan, the Directors considered: (1)
the Fund's experience under the Plan and whether such experience indicates that
the Plan is operating as anticipated; (2) the benefits the Fund had obtained,
was obtaining and would be likely to obtain under the Plan; and (3) what
services had been provided and were continuing to be provided under the Plan by
DWR to the Fund and its shareholders. Based upon their review, the Directors of
the Fund, including each of the Independent 12b-1 Directors, determined that
continuation of the Plan would be in the best interest of the Fund and would
have a reasonable likelihood of continuing to benefit the Fund and its
shareholders. In the Directors' quarterly review of the Plan, they will consider
its continued appropriateness and the level of compensation provided therein.
At their meeting held on October 30, 1992, the Directors of the Fund,
including all of the independent 12b-1 Directors, had approved certain
amendments to the Plan which took effect in January, 1993 and were designed to
reflect the facts that upon the reorganization described above the share
distribution activities theretofore performed for the Fund by DWR were assumed
by the Distributor and that 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 they had been 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 Directors, including a majority of the Independent 12b-1
Directors, had also approved certain technical
amend-
31
<PAGE>
ments to the Plan in connection with amendments adopted by the National
Association of Securities Dealers, Inc. to its Rules of Fair Practice. At their
meeting held on October 26, 1995, the Directors of the Fund, including all of
the Independent 12b-1 Directors, approved an amendment to the Plan to permit
payments to be made under the Plan with respect to certain distribution expenses
incurred in connection with the distribution of shares, including personal
services to shareholders with respect to holdings of such shares, of an
investment company whose assets are acquired by the Fund in a tax-free
reorganization.
The Distributor has informed the Fund that a portion of the fees payable by
the Fund each year pursuant to the Plan equal to 0.25% of the Fund's average
daily net assets is characterized as a "service fee" under the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (of which the
Distributor is a member). Such portion of the fee is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion of
the Plan fees payable by the Fund is characterized as an "asset-based sales
charge" as defined in the aforementioned Rules of Fair Practice.
Pursuant to the Plan and as required by Rule 12b-1, the Directors receive
and review promptly after the end of each calendar quarter a written report
provided by the Distributor of the amounts expended by the Distributor under the
Plan and the purpose for which such expenditures were made. The Fund accrued
amounts payable to the Distributor under the Plan, during the fiscal year ended
October 31, 1996 of $16,571,035. This amount is equal to payments required to be
paid monthly by the Fund which were computed at the annual rate of 1.0% of 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. This 12b-1 fee is treated by the Fund
as an expense in the year it is accrued.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method shares of the Fund are
sold without a sales load being deducted at the time of purchase, so that the
full amount of an investor's purchase payment will be invested in shares without
any deduction for sales charges. Shares of the Fund may be subject to a
contingent deferred sales charge, payable to the Distributor, if redeemed during
the six years after their purchase. DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of the Fund's shares,
currently a gross sales credit of up to 5% of the amount sold and an annual
residual commission of up to 0.25 of 1% of the current value of the amount sold.
The gross sales credit is a charge which reflects commissions paid by DWR to its
account executives and DWR's Fund associated distribution-related expenses,
including sales compensation, and overhead and other branch office distribution-
related expenses including: (a) the expenses of operating DWR's branch offices
in connection with the sale of Fund shares, including lease costs, the salaries
and employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies; (b) the costs of
client sales seminars; (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares; and (d) other expenses relating to branch
promotion of Fund share sales. The distribution fee that the Distributor
receives from the Fund under the Plan, in effect, offsets distribution expenses
incurred on behalf of the Fund and opportunity costs, such as the gross sales
credit and an assumed interest charge thereon ("carrying charge"). In the
Distributor's reporting of 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 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 has paid 100% of the $16,571,035 accrued under the Plan for the
fiscal year ended October 31, 1996 to the Distributor. The Distributor and DWR
estimate that they have spent, pursuant to the Plan, $105,756,446 on behalf of
the Fund since the inception of the Fund. It is estimated that this amount was
spent in approximately the following ways: (i) 2.95% ($3,116,827)--advertising
and
promo-
32
<PAGE>
tional expenses; (ii) 0.34% ($361,142)--printing of prospectuses for
distribution to other than current shareholders; and (iii) 96.71%
($102,278,477)--other expenses, including the gross sales credit and the
carrying charge, of which 6.49% ($6,640,646) represents carrying charges, 37.51%
($38,360,334) represents commission credits to DWR branch offices for payments
of commissions to account executives and 56.0% ($57,277,497) represents overhead
and other branch office distribution-related expenses.
At any given time, the expenses of 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. DWR has advised the Fund that such excess
amount, including the carrying charge designed to approximate the opportunity
costs incurred by DWR which arise from it having advanced monies without having
received the amount of any sales charges imposed at the time of sale of the
Fund's shares totalled $48,277,700 as of October 31, 1996. Because there is no
requirement under the Plan that the Distributor be reimbursed for all its
expenses or any requirement that the Plan be continued from year to year, this
excess amount does not constitute a liability of the Fund. Although there is no
legal obligation for the Fund to pay expenses in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales charges
paid by investors upon redemption of shares, if for any reason the Plan is
terminated, the Directors will consider at that time the manner in which to
treat such expenses. Any cumulative expenses incurred, but not yet recovered
through distribution fees or contingent deferred sales charges, may or may not
be recovered through future distribution fees or contingent deferred sales
charges.
No interested person of the Fund, nor any Director of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial interest in the operation of the Plan except to the extent that the
Distributor, InterCapital, DWSC, DWR, or certain of its 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.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
Fund, and all material amendments of the Plan must also be approved by the
Directors in the manner described above. The Plan may be terminated at any time,
without payment of any penalty, by vote of a majority of the Independent 12b-1
Directors 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 Directors shall be committed to the discretion of the
Independent Directors.
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 and on each other day in which there is a sufficient degree of trading in
the Fund's investments to affect the net asset value, except that the net asset
value may not be computed on a day on which no orders to purchase, or tenders to
sell or redeem, Fund shares have been received, by taking the value of all
assets of the Fund, subtracting its liabilities, dividing by the number of
shares outstanding and adjusting to the nearest cent. The New York Stock
Exchange currently observes the following holidays: New Year's Day; President's
Day; Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day;
and Christmas Day.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Directors
determine such does not reflect the securities' fair value, in which case these
securities will be valued at their fair value as determined by the Directors.
Other short-term debt securities will be valued on a mark-to-market basis 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
Directors determine such does not reflect the securities' fair value, in which
case these securities will be valued at their fair value as determined by the
Directors. Options are valued at the
33
<PAGE>
mean between their latest bid and asked prices. Futures are valued at the last
sale price as of the close of the commodities exchange on which they trade
unless the Directors determine that such price does not reflect their market
value, in which case they will be valued at their fair value as determined by
the Directors. All other securities and other assets are valued at their fair
value as determined in good faith under procedures established by and under the
supervision of the Directors.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to 4:00 p.m., New York time. The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are also
generally determined prior to 4:00 p.m., New York time. Occasionally, events
which affect the values of such securities and such exchange rates may occur
between the times at which they are determined and 4:00 p.m., New York time, and
will therefore not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities will be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Directors.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by the Fund's
Transfer Agent, Dean Witter Trust Company (the "Transfer Agent"). This is an
open account in which shares owned by the investor are credited by the Transfer
Agent in lieu of issuance of a share certificate. If a share certificate is
desired, it must be requested in writing for each transaction. Certificates are
issued only for full shares and may be redeposited in the account at any time.
There is no charge to the investor for issuance of a certificate. Whenever a
shareholder instituted transaction takes place in the Shareholder Investment
Account, the shareholder will be mailed a confirmation of the transaction from
the Fund or from DWR or other selected broker-dealer.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the Fund, unless the
shareholder requests that they be paid in cash. Each purchase of shares of the
Fund is made upon the condition that the Transfer Agent is thereby automatically
appointed as agent of the investor to receive all dividends and capital gains
distributions on shares owned by the investor. Such dividends and distributions
will be paid, at the net asset value per share in shares of the Fund (or in cash
if the shareholder so requests) as of the close of business on the record date.
At any time an investor may request the Transfer Agent, in writing, to have
subsequent dividends and/or capital gains distributions paid to him or her in
cash rather than shares. To assure sufficient time to process the change, such
request should be received by the Transfer Agent at least five business days
prior to the record date of the dividend or distribution. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payments will be made to DWR or another
selected broker-dealer, and will be forwarded to the shareholder, upon the
receipt of proper instructions.
TARGETED DIVIDENDSSM. In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of an open-end Dean Witter Fund other than Dean
Witter Pacific Growth Fund Inc. Such investment will be made as described above
for automatic investment in shares of the Fund, at the net asset value per share
of the selected Dean Witter Fund as of the close of business on the payment date
of the dividend or distribution and will begin to earn dividends, if any, in the
selected Dean Witter Fund the next business day. To participate in the Targeted
Dividends program, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent. Shareholders of 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.
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<PAGE>
EASYINVESTSM. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing account at the net asset value calculated the same business day the
transfer of funds is effected. For further information or to subscribe to
EasyInvest, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution at 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.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a 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) check 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.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent 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
35
<PAGE>
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.
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
Pacific Growth Fund Inc., directly to the Fund's Transfer Agent. Such amounts
will be applied to the purchase of Fund shares at the net asset value per share
next computed after receipt of the check or purchase payment by the Transfer
Agent. The shares so purchased will be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of the Fund may exchange their shares
for shares of other Dean Witter Funds sold with a contingent deferred sales
charge ("CDSC funds"), for shares of Dean Witter Short-Term U.S. Treasury Trust,
Dean Witter Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean
Witter Balanced Growth Fund, Dean Witter Balanced Income Fund, Dean Witter
Intermediate Term U.S. Treasury Trust and for shares of five Dean Witter Funds
which are money market funds (the foregoing eleven non-CDSC funds are referred
to hereinafter as "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 gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the captions "Exchange
Privilege" and "Contingent Deferred Sales Charge," a contingent deferred sales
charge ("CDSC") may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of the Fund or any
other CDSC fund are exchanged for shares of an Exchange Fund, the exchange is
executed at no charge to the shareholder, without the imposition of the CDSC at
the time of the exchange. During the period of time the shareholder remains in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired), the investment 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 for shares of an Exchange Fund, 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
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 money market fund, with no CDSC being imposed on such
exchange. The investment 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. Thus, 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
36
<PAGE>
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 (of the Fund or another Dean Witter Fund) 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 Strategist Fund acquired prior to November 8, 1989, shares
of Dean Witter American Value Fund acquired prior to April 30, 1984, and shares
of Dean Witter Dividend Growth Securities Inc. and Dean Witter Natural Resource
Development Securities Inc. acquired prior to July 2, 1984, 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 a block in the same Exchange Privilege account, the shares
of that block that are subject to a lower CDSC rate will be exchanged prior to
the shares of that block that are subject to a higher CDSC rate). Shares equal
to any appreciation in the value of non-Free Shares exchanged will be treated as
Free Shares, and the amount of the purchase payments for the non-Free Shares of
the fund exchanged into will be equal to the lesser of (a) the purchase payments
for, or (b) the current net asset value of, the exchanged non-Free Shares. If an
exchange between funds would result in exchange of only part of a particular
block of non-Free Shares, then shares equal to any appreciation in the value of
the block (up to the amount of the exchange) will be treated as Free Shares and
exchanged first, and the purchase payment for that block will be allocated on a
pro-rata basis between the non-Free Shares of that block to be retained and the
non-Free Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount of purchase payment for the exchanged non-Free
Shares will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the Prospectus under the caption
"Contingent Deferred Sales Charge," any applicable CDSC will be imposed upon the
ultimate redemption of shares of any fund, regardless of the number of exchanges
since those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
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<PAGE>
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000 for
Dean Witter Liquid Asset Fund Inc., Dean Witter New York Municipal Money Market
Trust, Dean Witter Tax-Free Daily Income Trust and Dean Witter California
Tax-Free Daily Income Trust although those funds may, at their discretion,
accept initial investments of as low as $1,000. The minimum initial investment
is $10,000 for Dean Witter Short-Term U.S. Treasury Trust, although that fund,
in its discretion, may accept initial purchases of as low as $5,000. The minimum
investment is $5,000 for Dean Witter Special Value Fund. The minimum initial
investment for all other Dean Witter Funds for which the Exchange Privilege is
available is $1,000.) Upon exchange into an Exchange Fund, the shares of that
fund will be held in a special Exchange Privilege Account separately from
accounts of those shareholders who have acquired their shares directly from that
fund. As a result, certain services normally available to shareholders of money
market funds, including the check writing feature, will not be available for
funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days for termination or material
revision), provided that six months' prior written notice of termination will be
given to the shareholders who hold shares of Exchange Funds pursuant to the
Exchange Privilege, and provided further that the Exchange Privilege may be
terminated or materially revised without notice at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, (d) during any other period when the Securities and
Exchange Commission by order so permits (provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist) or (e) if the Fund would be
unable to invest amounts effectively in accordance with its investment
objective(s), policies and restrictions.
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 a
shareholder's account without a share certificate, a written request for
redemption to the Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303
is required. If certificates are held by the shareholder, the shares may be
redeemed by surrendering the certificates with a written request for redemption.
The share certificate, or an accompanying stock power, and the request for
redemption, must be signed by the shareholder or shareholders exactly as the
shares are registered. Each request for redemption, whether or not accompanied
by a share certificate, must be sent to the Fund's Transfer Agent, which will
redeem the shares at their net asset value next computed (see "Purchase of Fund
Shares") after it receives the request, and certificate, if any, in good order.
Any redemption request received after such computation will be redeemed at the
next determined net asset value. The term
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<PAGE>
"good order" means that the share certificate, if any, and request for
redemption are properly signed, accompanied by any documentation required by the
Transfer Agent, and bear signature guarantees when required by the Fund or the
Transfer Agent. If redemption is requested by a corporation, partnership, trust
or fiduciary, the Transfer Agent may require that written evidence of authority
acceptable to the Transfer Agent be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular institution is
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a supplement
to the prospectus or a new prospectus.
CONTINGENT DEFERRED SALES CHARGE. As stated in the Prospectus, a contingent
deferred sales charge ("CDSC") will be imposed on any redemption by an investor
if after such redemption the current value of the investor's shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Fund shares during the preceding six years. However, no CDSC will be
imposed to the extent that the net asset value of the shares redeemed does not
exceed: (a) the current net asset value of shares purchased more than six years
prior to the redemption, plus (b) the current net asset value of shares
purchased through reinvestment of dividends or distributions of the Fund or
another Dean Witter Fund (see "Shareholder Services--Targeted Dividends"), plus
(c) the current net asset value of shares acquired in exchange for (i) shares of
Dean Witter front-end sales charge funds, or (ii) shares of other Dean Witter
Funds for which shares of front-end sales charge funds have been exchanged (see
"Shareholder Services--Exchange Privilege"), plus (d) increases in the net asset
value of the investor's shares above the total amount of payments for the
purchase of Fund shares made during the preceding six years. The CDSC will be
paid to the Distributor.
In determining the applicability of a CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than six years prior to the redemption and/or shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of Dean Witter front-end sales charge funds, or for shares
of other Dean Witter funds for which shares of front-end sales charge funds have
been exchanged. A portion of the amount redeemed which exceeds an amount which
represents both such increase in value and the value of shares purchased more
than six years prior to the redemption and/or shares purchased through
reinvestment of dividends or distributions and/or shares acquired in the
above-described exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Fund shares until the time of
redemption of such shares. For purposes of
39
<PAGE>
determining the number of years from the time of any payments for the purchase
of shares, all payments made during a month will be aggregated and deemed to
have been made on the last day of the month. The following table sets forth the
rates of the CDSC:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE REDEEMED
- -------------------------------------------------------------------- --------------------
<S> <C>
First............................................................... 5.0%
Second.............................................................. 4.0%
Third............................................................... 3.0%
Fourth.............................................................. 2.0%
Fifth............................................................... 2.0%
Sixth............................................................... 1.0%
Seventh and thereafter.............................................. None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year period. This will result in any such CDSC being imposed at
the lowest possible rate. Accordingly, shareholders may redeem, without
incurring any CDSC, amounts equal to any net increase in the value of their
shares above the amount of their purchase payments made within the past six
years and amounts equal to the current value of shares purchased more than six
years prior to the redemption and shares purchased through reinvestment of
dividends or distributions or acquired in exchange for shares of Dean Witter
front-end sales charge funds, or for shares of other Dean Witter funds for which
shares of front-end sales charge funds have been exchanged. The CDSC will be
imposed, in accordance with the table shown above, on any redemptions within six
years of purchase which are in excess of these amounts and which redemptions are
not (a) requested within one year of death or initial determination of
disability of a shareholder, or (b) made pursuant to certain taxable
distributions from retirement plans or retirement accounts, as described in the
Prospectus.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for shares presented for repurchase or redemption will be made by check
within seven days after receipt by the Transfer Agent of the certificate and/or
written request in good order. The term good order means that the share
certificate, if any, and request for redemption are properly signed, accompanied
by any documentation required by the Transfer Agent, and bear signature
guarantees when required by the Fund or the Transfer Agent. Such payment may be
postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check (including a certified check or bank cashier's
check) payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another selected
broker-dealer are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the contingent deferred sales charge or free of such charge
(and with regard to the length of time shares subject to the charge have been
held), any transfer involving less than all of the shares in an account will be
made on a pro-rata basis (that is, by transferring
40
<PAGE>
shares in the same proportion that the transferred shares bear to the total
shares in the account immediately prior to the transfer). The transferred shares
will continue to be subject to any applicable contingent deferred sales charge
as if they had not been so transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may within thirty days after the date of
redemption or repurchase reinstate any portion or all of the proceeds of such
redemption or repurchase in shares of the Fund at the net asset value next
determined after a reinstatement request, together with 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, if the Fund makes an election, the shareholders would include
such undistributed gains in their income and shareholders will be able to claim
their share of the tax paid by the Fund as a credit against their individual
federal income tax.
Gains or losses on sales of securities by the Fund will generally 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 generally short-term capital gains or losses.
The Fund intends to remain qualified as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). As such, the
Fund will not be subject to federal income tax on its net investment income and
capital gains, if any, realized during any fiscal year in which it distributes
such income and capital gains to its shareholders.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable. Therefore, an investor should consider the
tax implications of purchasing Fund shares immediately prior to a distribution
record date.
Dividends, interest and capital gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim United States foreign tax credits or
deductions with respect to such taxes, subject to certain provisions and
limitations contained in the Code. If more than 50% of the Fund's total assets
at the close of its fiscal year consist of securities of foreign corporations,
the Fund would be eligible and would determine whether or not to file an
election with the Internal Revenue Service pursuant to which shareholders of the
Fund will be required to include their respective pro rata portions of such
withholding taxes in their United States income tax returns as gross income,
treat such respective pro rata portions as taxes paid by them, and deduct such
respective pro rata portions in computing their taxable income or,
alternatively, use them as foreign tax credits against their United States
income taxes. If the Fund does elect to file the election with the Internal
Revenue Service, the Fund will report annually to its shareholders the amount
per share of such withholding.
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<PAGE>
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies are currently considered to be qualifying
income for purposes of determining whether the Fund qualifies as a regulated
investment company. It is currently unclear, however, who will be treated as the
issuer of certain foreign currency instruments or how foreign currency options,
futures, or forward foreign currency contracts will be valued for purposes of
the regulated investment company diversification requirements applicable to the
Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (I.E.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts", and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund would
not be able to make any ordinary dividend distributions.
The Fund may be subject to taxes in foreign countries in which it invests.
In addition, if the Fund were deemed to be a resident of the United Kingdom for
United Kingdom tax purposes or if the Fund were treated as being engaged in a
trading activity through an agent in the United Kingdom, there is a risk that
the United Kingdom would attempt to tax all or a portion of the Fund's gains or
income. In light of the structure of the Fund and the terms and conditions of
the Investment Management and Sub-Advisory Agreements, it is believed by the
Investment Manager that any such risk is minimal.
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of certain
technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the Fund
level which could not be eliminated by distributions to shareholders. The U.S.
Treasury issued proposed regulation section 1.1291-8 which establishes a
mark-to-market regime which allows investment companies investing in PFIC's to
avoid most, if not all of the difficulties posed by the PFIC rules. In any
event, it is not anticipated that any taxes on the Fund with respect to
investments in PFIC's would be significant.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. The Fund's "average
annual total return" represents an annualization of the Fund's total return over
a particular period and is computed by finding the annual percentage rate which
will result in the ending redeemable value of a hypothetical $1,000 investment
made at the beginning of a one, five or ten year period, or for the period from
the date of commencement of the Fund's operations, if shorter than any of the
foregoing. The ending redeemable value is reduced by any contingent deferred
sales charge at the end of the one, five or ten year or other period. For the
purpose of this calculation, it is assumed that all dividends and distributions
are reinvested. The formula for computing the average annual total return
involves a percentage obtained by dividing the ending redeemable value by the
amount of the initial investment, taking a root of the quotient (where the root
is equivalent to the number of years in the period) and subtracting 1 from the
result. The average annual total return of the Fund for the one year and five
year period ended October 31, 1996 and for the period from November 30, 1990
(commencement of operations) through October 31, 1996 was -2.00%, 12.05% and
13.26%, respectively.
42
<PAGE>
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. Such calculations may or may not reflect the
deduction of the contingent deferred sales charge which, if reflected, would
reduce the performance quoted. For example, the average annual total return of
the Fund may be calculated in the manner described above, but without deduction
for any applicable contingent deferred sales charge. Based on this calculation,
the average annual total return for the Fund for the one year and five year
period ended October 31, 1996 and the period from November 30, 1990
(commencement of operations) through October 31, 1996 was 3.00%, 12.30% and
13.35%, 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 one year and five year period ended
October 31, 1996 and the period from November 30, 1990 (commencement of
operations) through October 31, 1996 was 3.00%, 78.64% and 109.99%,
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, $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 $20,999, $104,995 and $209,990,
respectively, at October 31, 1996.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF COMMON STOCK
- --------------------------------------------------------------------------------
The Fund is authorized to issue 200,000,000 shares of common stock of $0.01
par value. Shares of the Fund, when issued, are fully paid, non-assessable,
fully transferable and redeemable at the option of the holder. All shares are
equal as to earnings, assets and voting privileges. There are no conversion,
preemptive or other subscription rights. In the event of liquidation, each share
of common stock of the Fund is entitled to its portion of all of the Fund's
assets after all debts and expenses have been paid. Except for agreements
entered into by the Fund in its ordinary course of business within the
limitations of the Fund's fundamental investment policies (which may be modified
only by shareholder vote), the Fund will not issue any securities other than
common stock.
The shares of the Fund do not have cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so, and in such
event, the holders of the remaining less than 50% of the shares voting for the
election of directors will not be able to elect any person or persons to the
Board of Directors.
The Fund's By-Laws provide that one or more of the Fund's Directors may be
removed, either with or without cause, at any time by the affirmative vote of
the Fund's shareholders holding a majority of the outstanding shares entitled to
vote for the election of Directors. A special meeting of the shareholders of the
Fund will be called by the Fund's Secretary upon the written request of
shareholders entitled to vote at least 10% of the Fund's outstanding shares. The
Fund will also comply with the provisions of Section 16(c) of the Act.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Chase Manhattan Bank N.A., One Chase Plaza, New York, New York 10005 is
the Custodian of the Fund's assets in the United States and around the world. As
Custodian, The Chase Manhattan Bank
43
<PAGE>
has contracted with various foreign banks and depositaries to hold portfolio
securities of non-U.S. issuers on behalf of the Fund. Any of the Fund's cash
balances with the Custodian in excess of $100,000 are unprotected by federal
deposit insurance. Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager and Dean Witter Distributor Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services
Dean Witter Trust Company receives a per shareholder account fee.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on October 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 Directors.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund for the year ended October 31, 1996
included in this Statement of Additional Information and incorporated by
reference in the Prospectus, have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
44
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS, WARRANTS, RIGHTS
AND BONDS (98.4%)
AUSTRALIA (1.7%)
COMMERCIAL SERVICES
350,178 Mayne Nickless Ltd......... $ 2,322,650
-----------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
1,200,000 Foster's Brewing Group
Ltd........................ 2,184,540
3,514,670 Goodman Fielder Wattie
Ltd........................ 4,117,154
-----------------
6,301,694
-----------------
METALS & MINING
215,000 CRA Ltd.................... 3,366,012
2,000,000 North Ltd.................. 5,682,970
-----------------
9,048,982
-----------------
OIL RELATED
1,500,000 Santos, Ltd................ $ 5,983,740
-----------------
TRANSPORTATION
197,250 Brambles Industries,
Ltd........................ 3,262,979
-----------------
TOTAL AUSTRALIA............ 26,920,045
-----------------
CHINA (0.8%)
CHEMICALS
73,400 Jilin Chemical Industrial
Co., Ltd. (ADR)............ 963,375
4,000,000 Shanghai Petrochemical Co.
Ltd........................ 1,073,489
5,650,000 Yizheng Chemical Fibre Co.
Ltd........................ 1,308,039
-----------------
3,344,903
-----------------
TRANSPORTATION
2,040,000 Jinhui Shipping and
Transportation Ltd......... 1,817,301
-----------------
UTILITIES
275,000 Huaneng Power
International, Inc. (Class
N) (ADR)*.................. 4,193,750
322,000 Shandong Huaneng Power Co.,
Ltd. (ADR)................. 2,938,250
-----------------
7,132,000
-----------------
TOTAL CHINA................ 12,294,204
-----------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
HONG KONG (33.4%)
BANKING
2,177,000 Bank of East Asia, Ltd..... $ 8,503,246
1,833,838 Dao Heng Bank Group Ltd.... 8,064,163
1,550,000 Guoco Group Ltd............ 8,199,255
2,752,000 Hang Seng Bank Ltd......... 32,656,820
378,800 HSBC Holdings PLC.......... 7,716,315
6,000,000 International Bank of
Asia....................... 3,666,675
450,000 Wing Hang Bank Ltd......... 1,810,057
-----------------
70,616,531
-----------------
BUILDING & CONSTRUCTION
3,725,000 Kumagai Gumi, Ltd.......... 3,444,702
-----------------
CONGLOMERATES
884,000 Citic Pacific, Ltd......... 4,298,921
2,070,000 First Pacific Co. Ltd...... 2,851,277
126,260 Henderson China Holding
Ltd........................ 285,774
8,930,000 Hutchison Whampoa, Ltd..... 62,368,401
699,800 Jardine Matheson Holdings
Ltd........................ 3,953,870
413 New World Infrastructure
Ltd.*...................... 1,028
3,257,000 Swire Pacific Ltd. (Class
A)......................... 28,750,129
-----------------
102,509,400
-----------------
ELECTRONIC & ELECTRICAL EQUIPMENT
3,000,000 ASM Pacific Technology
Ltd........................ 2,250,446
-----------------
ENGINEERING & CONSTRUCTION
8,411,000 Road King Infrastructure
Ltd.*...................... 6,146,324
-----------------
FINANCIAL SERVICES
$ 8,300K Henderson Capital
International 5.00% due
03/28/97 (Conv.)........... 7,138,000
12,668,000 Manhattan Card Co. Ltd..... 6,266,988
-----------------
13,404,988
-----------------
FOOD PROCESSING
8,000,000 Tingyi (Cayman Islands)
Holding Co.*............... 1,769,316
-----------------
HOTELS/MOTELS
26,122,000 CDL Hotels International,
Ltd........................ 13,514,059
5,000,000 Regal Hotels
International.............. 1,374,195
2,000,000 Shangri-La Asia Ltd........ 2,858,325
-----------------
17,746,579
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
INVESTMENT COMPANIES
4,280,000 Guangdong Investments...... $ 3,072,247
100,000 Investment Co. of China***
*.......................... 684,000
-----------------
3,756,247
-----------------
LIFE INSURANCE
4,503,000 National Mutual Asia
Ltd........................ 3,785,600
-----------------
PUBLISHING
6,000,000 South China Morning Post
(Holdings) Ltd............. 5,121,705
-----------------
REAL ESTATE
7,000,000 Amoy Properties, Ltd....... 8,646,111
6,793,000 Cheung Kong (Holdings)
Ltd........................ 54,471,921
3,148,000 Great Eagle Holding Co..... 10,117,670
1,590,000 Henderson Land Development
Co. Ltd.................... 14,138,040
880,880 HKR International Ltd...... 1,116,509
800 HKR International Ltd.
(Warrants due 06/23/00)*... 398
HKD 10,500K HKR International Ltd.
6.00% due 06/26/00......... 1,225,620
6,025,800 Hon Kwok Land Investment
Ltd........................ 1,967,866
4,162,000 Hong Kong Land Holdings
Ltd........................ 9,281,260
1,600,000 Hysan Development Co.
Ltd........................ 5,132,052
80,000 Hysan Development Co. Ltd.
(Warrants due 04/30/98)*... 38,542
2,210,000 Lai Sun Development Co.
Ltd........................ 2,858,325
3,680,000 New World Development...... 21,418,040
740,000 Realty Development Corp.
(Class A).................. 2,832,976
4,395,500 Sun Hung Kai Properties
Ltd........................ 50,027,678
6,358,000 Wharf (Holdings) Ltd....... 26,231,951
-----------------
209,504,959
-----------------
RETAIL - SPECIALTY APPAREL
1,200,000 Dickson Concepts
International Ltd. (New)... 4,004,242
8,999,000 Giordano International
Ltd........................ 9,078,378
-----------------
13,082,620
-----------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
23,444,000 Hong Kong
Telecommunications Ltd..... $ 41,388,888
-----------------
TRANSPORTATION
2,500,000 Cathay Pacific Airways..... 3,912,414
7,970,000 Cosco Pacific Ltd.......... 7,627,978
9,511,000 The Guangshen Railway Co.,
Ltd.*...................... 3,536,580
-----------------
15,076,972
-----------------
UTILITIES
1,330,000 China Light & Power Co.
Ltd........................ 6,175,406
8,849,000 Hong Kong & China Gas Co.
Ltd........................ 15,565,121
700,000 Hong Kong & China Gas Co.
(Warrants due 09/30/97)*... 258,025
3,350,000 Hong Kong Electric Holdings
Ltd........................ 10,723,570
-----------------
32,722,122
-----------------
TOTAL HONG KONG............ 542,327,399
-----------------
INDONESIA (7.0%)
AUTO
12,000,000 PT Gadjah Tunggal.......... 5,153,975
-----------------
BANKING
6,241,000 PT Bank Bira............... 6,098,130
2,000,000 PT Bank Dagang Nasional
Indonesia.................. 1,417,343
6,120,440 PT Bank International
Indonesia.................. 4,928,843
2,332,500 PT Pan Indonesia Bank...... 2,329,194
-----------------
14,773,510
-----------------
BUILDING MATERIALS
13,362,548 PT Mulia Industrindo....... 12,626,210
1,843,000 PT Semen Gresik............ 5,303,483
-----------------
17,929,693
-----------------
CONSTRUCTION EQUIPMENT
3,012,000 PT United Tractors......... 5,595,026
-----------------
FINANCIAL SERVICES
5 Peregrine Indonesia
(Units)++** *.............. 2,648,750
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
1,569,000 PT Hanjaya Mandala
Sampoerna.................. $ 14,589,550
3,144,450 PT Indofood Sukses
Makmur..................... 6,617,620
-----------------
21,207,170
-----------------
FOREST PRODUCTS, PAPER & PACKAGING
12,734,874 PT Indah Kiat Pulp Paper
Corp....................... 9,982,023
1,241,214 PT Pabrikkertas Tjiwi
Kimia...................... 1,279,437
-----------------
11,261,460
-----------------
INDUSTRIALS
2,142,500 PT Bukaka Teknik Utama..... 1,817,394
-----------------
METALS
7,723,000 PT Tambang Timah........... 11,609,543
-----------------
PHOTOGRAPHY
1,030,000 PT Modern Photo & Film
Co......................... 2,842,310
-----------------
PLANTATION
1,829,000 PT London Sumatra
Indonesia*................. 4,752,588
-----------------
RETAIL - DEPARTMENT STORES
2,910,000 PT Ramayana Lestari
Sentosa*................... 4,936,864
-----------------
TELECOMMUNICATIONS
2,150,000 PT Indosat................. 6,510,115
2,000,000 PT Telekomunikasi
Indonesia.................. 2,985,011
-----------------
9,495,126
-----------------
TOTAL INDONESIA............ 114,023,409
-----------------
JAPAN (11.7%)
APPLIANCES & HOUSEHOLD DURABLES
65,000 Juken Sangyo............... 553,543
-----------------
AUTO PARTS
75,000 Bridgestone Metalpha
Corp....................... 782,757
-----------------
AUTOMOTIVE
13,500 Autobacs Seven Co.......... 1,063,235
114,000 Honda Motor Co............. 2,719,523
580,000 Isuzu Motors Ltd........... 2,863,884
121,000 Toyota Motor Corp.......... 2,854,675
-----------------
9,501,317
-----------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
BANKING
208,000 Asahi Bank, Ltd............ $ 2,134,362
216,000 Bank of Tokyo - Mitsubishi
Ltd........................ 4,395,018
131,000 Dai-Ichi Kangyo Bank....... 2,125,504
208,000 Long Term Credit Bank of
Japan...................... 1,377,302
189,000 Mitsui Trust & Banking..... 1,823,364
150,000 Sanwa Bank, Ltd............ 2,552,184
145,000 Sumitomo Bank.............. 2,543,413
167,000 Sumitomo Trust & Banking... 1,845,466
-----------------
18,796,613
-----------------
BUILDING & CONSTRUCTION
55,000 Kaneshita Construction..... 578,846
90,000 Maeda Road Construction.... 1,294,510
-----------------
1,873,356
-----------------
BUILDING MATERIALS
44,000 Oriental Construction
Co......................... 644,448
200,000 Sanwa Shutter.............. 1,650,588
120,000 Shin Nikkei Co., Ltd....... 768,286
110,000 Toyo Shutter............... 820,032
-----------------
3,883,354
-----------------
BUSINESS SERVICES
29,000 Nippon Kanzai.............. 793,545
31,200 Nissin Co. Ltd............. 851,009
41,000 Secom...................... 2,437,993
60,000 Tanseisha.................. 684,091
-----------------
4,766,638
-----------------
CHEMICALS
23,600 Maezawa Kasei Industries... 817,576
520,000 Mitsubishi Chemical
Corp....................... 2,120,681
349,000 Nippon Zeon Co. Ltd........ 1,698,781
150,000 Sakai Chemical Industry
Co......................... 806,437
92,000 Shin-Etsu Chemical Co...... 1,573,408
-----------------
7,016,883
-----------------
COMMERCIAL SERVICES
22,000 Nichii Gakkan Co........... 1,061,217
-----------------
COMPUTER SOFTWARE & SERVICES
30,000 CSK Corp................... 881,424
55,000 Ines....................... 940,624
12,000 Mars Engineering Corp...... 493,598
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
52,000 Meitec..................... $ 1,067,181
30,000 Nintendo Co., Ltd.......... 1,915,453
70,000 Ricoh Elemex............... 982,284
330 TKC Corp................... 8,104
-----------------
6,288,668
-----------------
COMPUTERS
20,000 Enix Corp.................. 485,880
230,000 Fujitsu, Ltd............... 2,017,190
-----------------
2,503,070
-----------------
COMPUTERS - SYSTEMS
33,000 Daiwabo Information Systems
Co......................... 596,211
-----------------
CONSTRUCTION & HOUSING
100,000 Daiwa House Industry....... 1,385,722
50,000 Mitsui Home Co., Ltd....... 666,550
-----------------
2,052,272
-----------------
ELECTRONIC & ELECTRICAL EQUIPMENT
70,000 Aiwa Co.................... 1,252,412
Y 100,000K Canon, Inc. 1.20% due
12/20/05 (Conv.)........... 1,383,968
Y 95,000K Canon, Inc. 1.30% due
12/19/08 (Conv.)........... 1,235,617
264,000 Hitachi, Ltd............... 2,338,537
33,000 Kyocera Corp............... 2,173,566
40,000 Mitsui High-Tec............ 806,876
49,000 Murata Manufacturing Co.,
Ltd........................ 1,572,882
50,000 Nitto Electric Works....... 863,884
83,000 Omron Corp................. 1,477,723
140,000 Sharp Corp................. 2,124,189
50,400 Sony Corp.................. 3,019,049
27,000 TDK Corp................... 1,581,828
-----------------
19,830,531
-----------------
ELECTRONICS
23,000 Kojima Co. Ltd............. 689,879
38,000 Maspro Denkoh Corp......... 866,515
130,000 Nissin Electric............ 793,545
29,000 Rohm Co., Ltd.............. 1,716,804
35,000 Ryoyo Electro Corp......... 620,067
-----------------
4,686,810
-----------------
ENGINEERING & CONSTRUCTION
27,000 Japan Industrial Land
Development................ 776,706
267,000 Kajima Corp................ 2,292,519
27,000 Nitto Kohki Co. Ltd........ 888,002
-----------------
3,957,227
-----------------
ENTERTAINMENT
14,300 H.I.S. Company Ltd......... 757,516
-----------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES
170,000 Daiwa Securities Co.,
Ltd........................ $ 1,833,889
Y 21,000K Minebea Co. Ltd. 0.80% due
03/31/03 (Conv.)........... 208,121
24,000 Nichiei Co., Ltd.
(Kyoto).................... 1,595,510
120,000 Nomura Securities Co.
Ltd........................ 1,978,600
11,000 Sanyo Shinpan Finance Co.,
Ltd........................ 667,602
36,000 Shinki Co. Ltd............. 947,202
-----------------
7,230,924
-----------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
38,800 Amway Japan, Ltd........... 1,544,922
101,000 Nippon Meat Packers,
Inc........................ 1,319,856
35,000 Stamina Foods.............. 273,812
-----------------
3,138,590
-----------------
FOREST PRODUCTS, PAPER & PACKAGING
100,000 Daishowa Paper
Manufacturing Co. Ltd.*.... 589,370
-----------------
HEALTH & PERSONAL CARE
50,000 Kawasumi Laboratories,
Inc........................ 596,387
-----------------
HOUSEHOLD FURNISHINGS & APPLIANCES
50,000 Beltecno Corp.............. 534,994
-----------------
INDUSTRIALS
120,000 Nippon Thompson Co......... 854,587
180,000 Tokai Carbon Co., Ltd...... 841,431
-----------------
1,696,018
-----------------
INSURANCE
180,000 Tokio Marine & Fire
Insurance Co............... 1,973,338
228,000 Yasuda Fire & Marine
Insurance.................. 1,445,746
-----------------
3,419,084
-----------------
MACHINERY
85,000 Aichi Corp................. 697,027
200,000 Amada Co., Ltd............. 1,718,997
150,000 Daifuku Co. Ltd............ 1,841,782
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
35,000 Fuji Machine Manufacturing
Co......................... $ 825,732
80,000 Fujitec Co. Ltd............ 827,925
22,000 Keyence Corp............... 2,546,922
309,000 Minebea Co., Ltd........... 2,598,939
325,000 Mitsubishi Heavy
Industries, Ltd............ 2,494,080
120,000 OSG Corp................... 790,388
50,000 Sansei Yusoki Co., Ltd..... 613,927
85,000 Sintokogio................. 700,754
65,000 Takuma Co., Ltd............ 741,098
130,000 Tsudakoma.................. 720,575
-----------------
17,118,146
-----------------
MANUFACTURED HOUSING
65,000 Kawasho Gecoss Corp........ 758,200
-----------------
MANUFACTURING
55,000 Arcland Sakamoto........... 757,323
90,000 Itoki Crebio Corp.......... 718,295
49,000 Nichiha Corp............... 902,473
104,000 Nippon Electric Glass Co.,
Ltd........................ 1,587,090
52,700 Sony Music Entertainment
Inc........................ 2,029,056
88,000 Tokyo Steel
Manufacturing.............. 1,358,358
-----------------
7,352,595
-----------------
MEDICAL SUPPLIES
13,200 Paramount Bed Co........... 909,946
150,000 Shimadzu Corp.............. 881,424
-----------------
1,791,370
-----------------
MERCHANDISING
24,000 Misumi Corp................ 547,272
-----------------
METALS & MINING
330,000 Nippon Light Metal Co...... 1,586,038
667,000 Nippon Steel Co............ 1,942,150
-----------------
3,528,188
-----------------
METALS - NON-FERROUS
279,000 Fujikura Ltd............... 2,121,496
-----------------
METALS - STEEL
60,000 Takada Kiko................ 521,487
-----------------
MULTI-INDUSTRY
244,000 Mitsui & Co................ 1,968,777
46,200 Trusco Nakayama Corp....... 923,838
58,000 Yamae Hisano............... 574,811
-----------------
3,467,426
-----------------
NATURAL GAS
365,000 Tokyo Gas Co., Ltd......... 1,136,423
-----------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
OIL RELATED
187,000 General Sekiyu............. $ 1,448,176
-----------------
PHARMACEUTICALS
177,000 Daiichi Pharmaceutical..... 2,545,869
90,000 Eisai Co. Ltd.............. 1,610,244
100,000 Terumo..................... 1,280,477
-----------------
5,436,590
-----------------
REAL ESTATE
120,000 Cesar Co................... 896,685
60,000 Chubu Sekiwa Real Estate,
Ltd........................ 789,335
55,000 Kansai Sekiwa Real
Estate..................... 776,618
223,000 Mitsui Fudosan Co.......... 2,757,674
85,000 Sekiwa Real Estate......... 704,482
-----------------
5,924,794
-----------------
RETAIL
38,500 Ministop Co., Ltd.......... 975,838
55,000 Shimachu Co., Ltd.......... 1,509,823
24,000 Sundrug Co., Ltd........... 894,580
154,000 Tokyo Style................ 2,336,608
26,000 Xebio Co. Ltd.............. 843,712
-----------------
6,560,561
-----------------
RETAIL - DEPARTMENT STORES
172,000 Hankyu Department Stores... 2,051,570
-----------------
RETAIL - GENERAL MERCHANDISE
27,000 Circle K Japan Co. Ltd..... 1,110,595
-----------------
RETAIL - SPECIALTY
35,000 Aderans Co. Ltd............ 847,220
-----------------
STEEL
811,000 Sumitomo Metal
Industries................. 2,226,302
-----------------
TELECOMMUNICATIONS
372 DDI Corp................... 2,789,511
194,000 Nippon Comsys Corp......... 2,484,126
67,000 Nippon Denwa Shisetsu...... 728,644
-----------------
6,002,281
-----------------
TEXTILES
50,000 Chuo Warehouse Co.......... 521,838
22,000 Maruco Co., Ltd............ 906,858
570,000 Mitsubishi Rayon Co.,
Ltd........................ 2,234,608
-----------------
3,663,304
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION
180,000 Fukuyama Transporting
Co......................... $ 1,521,838
325,000 Ishikawajima-Harima Heavy
Industry................... 1,496,448
217,000 Kamigumi Co. Ltd........... 1,674,794
35,000 Kanto Seino
Transportation............. 1,012,980
14,000 Sakai Moving Service Co.,
Ltd.*...................... 552,535
205,000 Tokyu Corp................. 1,375,417
-----------------
7,634,012
-----------------
UTILITIES - ELECTRIC
69,300 Hokkaido Electric Power.... 1,385,757
-----------------
WHOLESALE & INTERNATIONAL TRADE
30,000 Satori Electric Co. Ltd.... 910,367
-----------------
WHOLESALE DISTRIBUTOR
50,000 Wakita & Co................ 635,853
-----------------
TOTAL JAPAN................ 190,293,335
-----------------
MALAYSIA (17.0%)
AGRICULTURE
3,000,000 Highlands & Lowlands
Berhad..................... 5,224,619
2,000,000 Lingui Developments
Berhad..................... 3,942,213
-----------------
9,166,832
-----------------
AUTOMOTIVE
1,550,000 Diversified Resources
Berhad..................... 5,337,423
1,120,000 Oriental Holdings Berhad... 7,624,777
750,000 Perusahaan Otomobil
Nasional Berhad............ 4,749,654
1,571,000 Tan Chong Motor Holdings
Berhad..................... 2,673,778
-----------------
20,385,632
-----------------
BANKING
1,000,000 DCB Holdings Berhad........ 3,423,709
1,250,000 Kwong Yik Bank............. 3,438,551
1,150,000 Malayan Banking Berhad..... 11,379,379
3,233,333 Public Bank Berhad......... 5,993,607
-----------------
24,235,246
-----------------
BUILDING & CONSTRUCTION
450,000 Gamuda Berhad.............. 3,686,919
733,000 Hume Industries (Malaysia)
Berhad..................... 4,612,982
2,000,000 Kedah Cement Berhad........ 3,704,730
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
2,400,666 Metacorp Berhad............ $ 7,316,496
1,300,000 Sungei Way Holdings
Berhad..................... 7,409,460
250,000 Sungei Way Holdings Berhad
(Warrants due 06/29/99)*... 766,871
1,100,000 United Engineers Malaysia
Berhad..................... 8,707,698
MYR 4,000K United Engineers Malaysia
Berhad 2.00% due 03/01/04
(Conv.).................... 5,380,000
-----------------
41,585,156
-----------------
CONGLOMERATES
292,000 Gadek (Malaysia) Berhad.... 2,427,073
534,000 Intria Berhad.............. 1,426,677
2,000,000 Renong Berhad.............. 3,150,604
1,241,000 Sime Darby Berhad.......... 4,396,180
-----------------
11,400,534
-----------------
CONSTRUCTION PLANT & EQUIPMENT
1,430,000 YTL Corp. Berhad........... 7,697,605
-----------------
ENTERTAINMENT
3,708,800 Magnum Corporation
Berhad..................... 6,400,304
2,049,000 Resorts World Berhad....... 11,759,549
-----------------
18,159,853
-----------------
FINANCIAL SERVICES
2,997,000 Affin Holdings Berhad...... 7,710,469
866,666 Arab Malaysian Finance
Berhad..................... 4,665,212
891,000 Hong Leong Credit Berhad... 4,937,265
3,486,450 Public Finance Berhad...... 5,381,815
1,000,000 Rashid Hussain Berhad...... 6,253,711
-----------------
28,948,472
-----------------
FOREST PRODUCTS, PAPER & PACKAGING
700,000 Kian Joo Can Factory
Berhad..................... 3,823,471
-----------------
INSURANCE
846,000 Malaysian Assurance
Alliance Berhad............ 4,152,147
-----------------
MANUFACTURING
500,000 Malaysian Pacific
Industries Berhad.......... 1,939,442
256,625 O.Y.L. Industries Berhad... 2,844,053
-----------------
4,783,495
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
MULTI-INDUSTRY
2,000,000 Multi-Purpose Holdings
Berhad..................... $ 3,419,751
1,200,000 Nylex (Malaysia) Berhad.... 2,636,058
-----------------
6,055,809
-----------------
OIL & GAS PRODUCTS
750,000 Petronas Dagangan Berhad... 2,211,557
-----------------
PLANTATION
2,100,000 Industrial Oxygen
Incorporated Berhad........ 3,308,134
1,500,000 Kuala Lumpur Kepong
Berhad..................... 3,770,038
-----------------
7,078,172
-----------------
REAL ESTATE
1,789,500 Land & General Berhad...... 3,895,607
2,420,000 Malaysian Resources Corp.
Berhad..................... 9,291,114
3,327,000 Metroplex Berhad........... 3,832,009
2,507,000 Pelangi Berhad............. 2,381,476
3,000,000 Selangor Properties
Berhad..................... 3,099,149
1,781,000 Sime UEP Properties
Berhad..................... 4,899,248
-----------------
27,398,603
-----------------
TELECOMMUNICATIONS
1,200,000 Technology Resources
Industries Berhad*......... 2,873,540
2,900,000 Telekom Malaysia Berhad.... 25,596,675
-----------------
28,470,215
-----------------
TRANSPORTATION
800,000 Konsortium Perkapalan
Berhad*.................... 5,287,948
1,932,000 Malaysian Airline System
Berhad..................... 4,855,808
-----------------
10,143,756
-----------------
UTILITIES
500,000 Malakoff Berhad............ 2,256,086
300,000 Prime Utilities Berhad..... 2,968,534
155,000 Prime Utilities Berhad
(Warrants due 03/11/01)*... 429,448
MYR 310,000 Prime Utilities Berhad
1.00% due 03/01/01 (Loan
Stock)..................... 87,117
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
3,483,000 Tenaga Nasional Berhad..... $ 13,923,728
-----------------
19,664,913
-----------------
TOTAL MALAYSIA............. 275,361,468
-----------------
PHILIPPINES (3.1%)
BANKING
230,530 Philippine National Bank... 2,657,596
480,000 Security Bank Corp.*....... 439,024
-----------------
3,096,620
-----------------
BUILDING & CONSTRUCTION
883,000 Bacnotan Consolidated
Industries................. 3,701,601
-----------------
CONGLOMERATES
13,000,000 Aboitiz Equity Ventures
Inc.*...................... 1,560,594
6,029,766 Ayala Corp. (B Shares)..... 5,744,823
3,534,000 First Philippine Holdings
Corp. (B Shares)........... 7,138,034
-----------------
14,443,451
-----------------
ENGINEERING & CONSTRUCTION
7,167,000 DMCI Holdings Inc.*........ 5,189,520
-----------------
FOREST PRODUCTS, PAPER & PACKAGING
1,284,000 Paper Industries Corp.*.... 229,985
-----------------
REAL ESTATE
15,000,000 Belle Corp.*............... 4,001,524
3,990,000 Fil-Estate Land, Inc....... 3,725,419
104,000 Filinvest Land, Inc.*...... 35,274
$ 1,850K Filinvest Land, Inc. 3.75%
due 01/02/02 (Conv.)....... 1,803,750
-----------------
9,565,967
-----------------
TELECOMMUNICATIONS
18,000 Philippine Long Distance
Telephone Co............... 1,080,412
96,950 Philippine Long Distance
Telephone Co. (ADR)........ 5,804,881
-----------------
6,885,293
-----------------
UTILITIES
963,818 Manila Electric Co. (B
Shares).................... 7,089,058
-----------------
TOTAL PHILIPPINES.......... 50,201,495
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
SINGAPORE (10.3%)
APPLIANCES & HOUSEHOLD DURABLES
1,500,000 Courts (Singapore) Ltd..... $ 1,992,187
-----------------
BANKING
1,435,250 Development Bank of
Singapore, Ltd............. 17,227,077
1,410,000 Overseas Chinese Banking
Corp., Ltd................. 16,122,869
650,000 Overseas Union Bank,
Ltd........................ 4,431,818
1,600,000 United Overseas Bank,
Ltd........................ 15,568,182
-----------------
53,349,946
-----------------
CONGLOMERATES
1,215,000 Keppel Corp., Ltd.......... 9,060,724
-----------------
ELECTRONIC & ELECTRICAL EQUIPMENT
600,000 Elec & Eltek International
Co. Ltd.................... 1,812,000
3,250,000 Venture Manufacturing
Ltd........................ 5,909,091
-----------------
7,721,091
-----------------
FINANCE
850,000 Hong Leong Finance Ltd..... 2,595,881
250,000 Hong Leong Finance Ltd.
(Warrants due 09/15/98)*... 141,158
-----------------
2,737,039
-----------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
345,000 Fraser & Neave Ltd......... 3,430,398
-----------------
HOTELS
600,000 Overseas Union Enterprise
Ltd........................ 2,940,341
1,322,000 Republic Hotels & Resorts
Ltd........................ 1,586,776
364,400 Republic Hotels & Resorts
Ltd. (Warrants due
07/12/00)*................. 175,989
-----------------
4,703,106
-----------------
MACHINERY
700,000 Van Der Horst Ltd.......... 2,585,227
-----------------
METALS - MISCELLANEOUS
3,484,500 Amtek Engineering Ltd...... 6,063,228
-----------------
PUBLISHING
390,000 Singapore Press Holdings... 6,481,534
-----------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
REAL ESTATE
111,000 Bukit Sembawang Estates
Ltd........................ $ 2,593,679
1,574,400 City Developments, Ltd..... 12,411,818
870,000 DBS Land Ltd............... 2,743,466
750,000 Parkway Holdings Ltd....... 2,796,520
680,000 Singapore Land Ltd......... 3,767,045
2,500,000 United Overseas Land,
Ltd........................ 3,568,892
250,000 United Overseas Land, Ltd.
(Warrants due 05/28/01)*... 147,372
1,152,000 Wing Tai Holdings Ltd...... 2,830,909
-----------------
30,859,701
-----------------
SHIPBUILDING
316,000 Far East Levingston
Shipbuilding Ltd........... 1,458,807
971,000 Sembawang Corp. Ltd........ 4,172,266
-----------------
5,631,073
-----------------
STEEL & IRON
2,000,000 Natsteel Ltd............... 3,451,705
-----------------
TELECOMMUNICATIONS
3,400,000 Singapore
Telecommunications, Ltd.... 7,920,455
-----------------
TRANSPORTATION
3,000,000 Comfort Group Ltd.......... 2,663,352
2,055,000 Singapore Airlines Ltd..... 18,098,011
-----------------
20,761,363
-----------------
TOTAL SINGAPORE............ 166,748,777
-----------------
SOUTH KOREA (6.3%)
AIR TRANSPORT
9,770 Korean Air................. 198,423
-----------------
AUTOMOTIVE
74,250 Hyundai Motor Co., Ltd..... 2,315,807
42,000 Hyundai Motor Co., Ltd.
(GDR)...................... 455,700
-----------------
2,771,507
-----------------
BANKING
512,230 Cho Hung Bank.............. 5,454,877
66,561 Hana Bank.................. 1,019,821
11,525 Hana Bank (Rights)*........ 166,441
206,522 Kangwon Bank............... 1,581,497
1,290 Korea Housing Bank......... 24,892
216,833 Shinhan Bank............... 4,269,821
-----------------
12,517,349
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
BREWERY
50,841 Chosun Brewery Co.......... $ 1,357,405
-----------------
BUILDING MATERIALS
162,710 Tong Yang Cement Co........ 3,613,584
-----------------
CHEMICALS
150,000 Hanwha Chemical Corp....... 1,512,743
-----------------
COMMUNICATIONS - EQUIPMENT/MANUFACTURERS
37,000 LG Information &
Communication Ltd.......... 3,771,845
220 Sungmi Telecom
Electronics................ 48,144
-----------------
3,819,989
-----------------
ELECTRONIC & ELECTRICAL EQUIPMENT
54,000 Samsung Display Devices
Co......................... 3,407,767
116,263 Samsung Electronics Co..... 8,197,670
15,728 Samsung Electronics Co.
(New)*..................... 1,078,437
4,174 Samsung Electronics Co.
(GDR) - non-voting*........ 88,155
220 Samsung Electronics Co.
(GDS) - voting*............ 9,981
-----------------
12,782,010
-----------------
ENGINEERING & CONSTRUCTION
116,706 Dong-Ah Construction
Industrial Co.............. 3,328,387
79,432 Dong-Ah Construction
Industrial Co. (EDR)*...... 1,191,480
10,284 Dong-Ah Construction
Industrial Co. (Rights)*... 268,333
274,340 Hyundai Engineering &
Construction Co............ 8,283,470
15,972 Hyundai Engineering &
Construction Co.*.......... 482,261
150,000 Sam Whan Corp.............. 3,458,738
-----------------
17,012,669
-----------------
FOOD PROCESSING
60,000 Cheil Foods & Chemicals.... 3,240,291
-----------------
FOREST PRODUCTS, PAPER & PACKAGING
40,000 Han Kuk Paper Manufacturing
Co......................... 956,311
-----------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
INSURANCE
100,000 Oriental Fire & Marine
Insurance.................. $ 2,924,757
1,570 Samsung Fire & Marine
Insurance.................. 833,809
-----------------
3,758,566
-----------------
INVESTMENT COMPANIES
55,000 Atlantis Korean Smaller
Co's*...................... 2,516,250
65,000 Clemente Korea Emerging
Growth Fund*............... 455,000
-----------------
2,971,250
-----------------
OIL RELATED
160,829 Yukong, Ltd. (GDS)......... 3,766,990
-----------------
PHARMACEUTICALS
187,040 Dong-A Pharmaceutical Co.,
Ltd........................ 4,403,612
-----------------
STEEL & IRON
6,449 Dongkuk Steel Mill Co...... 129,137
1,440 Pohang Iron & Steel Co.,
Ltd........................ 92,010
427,700 Pohang Iron & Steel Co.,
Ltd. (ADR)................. 8,874,775
-----------------
9,095,922
-----------------
TELECOMMUNICATIONS
480 Korea Mobile
Telecommunications Corp.... 471,320
-----------------
TRANSPORTATION
3,462 Han Jin Transportation
Co......................... 75,626
-----------------
UTILITIES
152,150 Korea Electric Power
Corp....................... 4,486,948
3,380 Samchully Co............... 276,881
158,838 Seoul City Gas Go Ltd...... 11,662,256
-----------------
16,426,085
-----------------
WHOLESALE DISTRIBUTOR
200,000 Daewoo Corp................ 1,699,029
-----------------
TOTAL SOUTH KOREA.......... 102,450,681
-----------------
TAIWAN (1.4%)
BUILDING MATERIALS
132,550 Asia Cement Corp. (GDR).... 2,617,862
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
INVESTMENT COMPANIES
844 Taipei Fund (Units)++*..... $ 6,952,872
430,000 Taiwan American Fund
(Pref.)*................... 5,536,250
-----------------
12,489,122
-----------------
TRANSPORTATION
$ 6,000K U-Ming Marine Transport
1.50% due 02/07/01
(Conv.).................... 5,250,000
$ 4,000K Yang Ming Marine
Transportation - 144A**
2.00% due 10/06/01
(Conv.).................... 4,440,000
-----------------
9,690,000
-----------------
TOTAL TAIWAN............... 24,796,984
-----------------
THAILAND (5.7%)
BANKING
278,680 Thai Military Bank, Ltd.... 644,511
-----------------
BUILDING MATERIALS
259,300 Siam Cement Co., Ltd....... 8,863,220
396,000 Siam City Cement Co.,
Ltd........................ 2,483,634
1,580,000 Tipco Asphalt Co., Ltd..... 8,546,901
1,416,300 TPI Polene Co., Ltd........ 3,025,689
-----------------
22,919,444
-----------------
COAL
348,400 Ban Pu Coal Co., Ltd....... 6,446,035
851,400 Lanna Lignite Public Co.... 7,008,506
-----------------
13,454,541
-----------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
1,016,000 Charoen Pokphand Feedmill
Co. Ltd.................... 3,942,770
-----------------
INVESTMENT COMPANIES
11,840,300 Ruang Khao 2 Fund
(Units)++.................. 4,502,015
-----------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<C> <S> <C>
OIL RELATED
1,100,000 PTT Exploration &
Production PCL............. $ 15,781,428
-----------------
TELECOMMUNICATIONS
723,500 Advanced Information
Service PCL (ADR).......... 9,812,669
866,500 Total Access Communication
PCL........................ 5,978,850
522,000 United Communication
Industry................... 4,337,893
-----------------
20,129,412
-----------------
TEXTILES
363,200 Saha-Union PCL............. 423,551
-----------------
TRANSPORTATION
4,836,800 Bangkok Expressway Public
Co.*....................... 5,261,307
163,200 Bangkok Expressway Public
Co. (Local Market)*........ 177,523
104,000 Regional Container Line
Co., Ltd................... 1,092,548
719,300 Thai Airways International
Ltd........................ 1,268,806
-----------------
7,800,184
-----------------
UTILITIES - ELECTRIC
800,000 Cogeneration Public Co.*... 2,963,428
-----------------
TOTAL THAILAND............. 92,561,284
-----------------
TOTAL COMMON AND PREFERRED
STOCKS, WARRANTS, RIGHTS
AND BONDS (IDENTIFIED COST
$1,519,797,033)............ 1,597,979,081
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (0.0%)
COMMERCIAL PAPER
AUTOMOTIVE - FINANCE
$ 350 Ford Motor Credit Co. 5.25%
due 12/06/96 (Amortized
Cost $348,214)............. $ 348,214
-----------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,520,145,247) (B)........ 98.4% 1,598,327,295
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES...... 1.6 26,140,585
----- -------------
NET ASSETS................. 100.0% $1,624,467,880
----- -------------
----- -------------
<FN>
- ---------------------
ADR American Depository Receipt.
EDR European Depository Receipt.
GDR Global Depository Receipt.
GDS Global Depository Share.
K In thousands.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
*** Partially paid shares. Resale is restricted to qualified institutional
investors.
++ Consists of more than one class of securities traded together as a unit;
generally stocks with attached warrants.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
$1,543,094,913. The aggregate gross unrealized appreciation was
$202,204,434 and the aggregate gross unrealized depreciation was
$146,972,052, resulting in net unrealized appreciation of $55,232,382.
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 1996
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN DELIVERY APPRECIATION
TO DELIVER EXCHANGE FOR DATE (DEPRECIATION)
----------------------------------------------------------------
<S> <C> <C> <C>
AUD 651,375 $ 514,521 11/01/96 $ (1,042)
$ 711,208 MYR 1,782,359 11/01/96 (5,743)
$ 480,394 MYR 1,206,749 11/04/96 (2,757)
THB 94,710,648 $ 3,712,687 11/04/96 146
Y 51,598,498 $ 452,936 11/05/96 397
-------
Net Unrealized Depreciation.................. $ (8,999)
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
SUMMARY OF INVESTMENTS OCTOBER 31, 1996
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C>
Agriculture............................ $ 9,166,832 0.6%
Air Transport.......................... 198,423 0.0
Appliances & Household Durables........ 2,545,730 0.2
Auto................................... 5,153,975 0.3
Auto Parts............................. 782,757 0.0
Automotive............................. 32,658,456 2.0
Automotive - Finance................... 348,214 0.0
Banking................................ 198,030,326 12.3
Brewery................................ 1,357,405 0.1
Building & Construction................ 50,604,815 3.2
Building Materials..................... 50,963,938 3.2
Business Services...................... 4,766,637 0.3
Chemicals.............................. 11,874,529 0.7
Coal................................... 13,454,541 0.8
Commercial Services.................... 3,383,867 0.2
Communications - Equipment/
Manufacturers........................ 3,819,989 0.2
Computer Software & Services........... 6,288,668 0.4
Computers.............................. 2,503,070 0.2
Computers - Systems.................... 596,211 0.0
Conglomerates.......................... 137,414,109 8.5
Construction & Housing................. 2,052,272 0.1
Construction Equipment................. 5,595,026 0.3
Construction Plant & Equipment......... 7,697,605 0.5
Electronic & Electrical Equipment...... 42,584,078 2.6
Electronics............................ 4,686,810 0.3
Engineering & Construction............. 32,305,742 2.0
Entertainment.......................... 18,917,369 1.2
Finance................................ 2,737,039 0.2
Financial Services..................... 52,233,134 3.2
Food Processing........................ 5,009,607 0.3
Food, Beverage, Tobacco & Household
Products............................. 38,020,623 2.3
Forest Products, Paper & Packaging..... 16,860,597 1.0
Health & Personal Care................. 596,387 0.0
Hotels................................. 4,703,106 0.3
Hotels/Motels.......................... 17,746,579 1.1
Household Furnishings & Appliances..... 534,994 0.0
Industrials............................ 3,513,412 0.2
Insurance.............................. 11,329,797 0.7
Investment Companies................... 23,718,634 1.5
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C>
Life Insurance......................... $ 3,785,600 0.2%
Machinery.............................. 19,703,373 1.2
Manufactured Housing................... 758,200 0.0
Manufacturing.......................... 12,136,090 0.7
Medical Supplies....................... 1,791,370 0.1
Merchandising.......................... 547,272 0.0
Metals................................. 11,609,543 0.7
Metals & Mining........................ 12,577,170 0.8
Metals - Miscellaneous................. 6,063,228 0.4
Metals - Non-Ferrous................... 2,121,496 0.1
Metals - Steel......................... 521,487 0.0
Multi-Industry......................... 9,523,235 0.6
Natural Gas............................ 1,136,423 0.1
Oil & Gas Products..................... 2,211,557 0.1
Oil Related............................ 26,980,334 1.7
Pharmaceuticals........................ 9,840,202 0.6
Photography............................ 2,842,310 0.2
Plantation............................. 11,830,760 0.7
Publishing............................. 11,603,239 0.7
Real Estate............................ 283,254,023 17.4
Retail................................. 6,560,561 0.4
Retail - Department Stores............. 6,988,434 0.4
Retail - General Merchandise........... 1,110,595 0.1
Retail - Specialty..................... 847,220 0.1
Retail - Specialty Apparel............. 13,082,620 0.8
Shipbuilding........................... 5,631,073 0.3
Steel.................................. 2,226,302 0.1
Steel & Iron........................... 12,547,626 0.8
Telecommunications..................... 120,762,990 7.4
Textiles............................... 4,086,855 0.3
Transportation......................... 76,262,192 4.7
Utilities.............................. 83,034,178 5.1
Utilities - Electric................... 4,349,185 0.3
Wholesale & International Trade........ 910,367 0.1
Wholesale Distributor.................. 2,334,882 0.2
--------------------- ---
$ 1,598,327,295 98.4%
--------------------- ---
--------------------- ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C>
Bonds.................................. $ 28,065,076 1.7%
Common Stocks.......................... 1,562,253,511 96.1
Preferred Stocks....................... 5,536,250 0.4
Rights & Warrants...................... 2,124,244 0.2
Short-Term Investments................. 348,214 0.0
--------------------- ---
$ 1,598,327,295 98.4%
--------------------- ---
--------------------- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,520,145,247).......................... $1,598,327,295
Cash (including $4,863,435 in foreign currency)............. 12,087,745
Receivable for:
Investments sold........................................ 15,815,056
Capital stock sold...................................... 3,961,474
Dividends............................................... 2,496,672
Interest................................................ 292,645
Prepaid expenses and other assets........................... 72,224
--------------
TOTAL ASSETS........................................... 1,633,053,111
--------------
LIABILITIES:
Payable for:
Investments purchased................................... 2,722,795
Capital stock repurchased............................... 2,188,602
Plan of distribution fee................................ 1,406,541
Investment management fee............................... 1,378,563
Accrued expenses and other payables......................... 888,730
--------------
TOTAL LIABILITIES...................................... 8,585,231
--------------
NET ASSETS:
Paid-in-capital............................................. 1,571,133,362
Net unrealized appreciation................................. 78,152,434
Accumulated undistributed net investment income............. 1,241,493
Accumulated net realized loss............................... (26,059,409)
--------------
NET ASSETS............................................. $1,624,467,880
--------------
--------------
NET ASSET VALUE PER SHARE,
86,011,075 SHARES OUTSTANDING (200,000,000 SHARES
AUTHORIZED OF $.01 PAR VALUE).............................
$18.89
--------------
--------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $3,066,529 foreign withholding tax)....... $40,517,977
Interest (net of $14,010 foreign withholding tax)........... 1,922,169
-----------
TOTAL INCOME........................................... 42,440,146
-----------
EXPENSES
Plan of distribution fee.................................... 16,571,035
Investment management fee................................... 16,242,482
Custodian fees.............................................. 3,435,104
Transfer agent fees and expenses............................ 2,635,718
Shareholder reports and notices............................. 223,783
Registration fees........................................... 202,454
Professional fees........................................... 94,744
Directors' fees and expenses................................ 38,961
Organizational expenses..................................... 2,336
Other....................................................... 79,111
-----------
TOTAL EXPENSES......................................... 39,525,728
-----------
NET INVESTMENT INCOME.................................. 2,914,418
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................. (849,851)
Foreign exchange transactions........................... 3,607,935
-----------
NET GAIN............................................... 2,758,084
-----------
Net change in unrealized appreciation/ depreciation on:
Investments............................................. 28,316,136
Translation of forward foreign currency contracts, other
assets and liabilities denominated in foreign
currencies............................................ (11,571)
-----------
NET APPRECIATION....................................... 28,304,565
-----------
NET GAIN............................................... 31,062,649
-----------
NET INCREASE................................................ $33,977,067
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 2,914,418 $ 4,954,471
Net realized gain........................................... 2,758,084 20,313,294
Net change in unrealized appreciation....................... 28,304,565 (162,216,385)
---------------- ----------------
NET INCREASE (DECREASE)................................ 33,977,067 (136,948,620)
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (33,521,569) (225,409)
Net realized gain........................................... -- (70,810,154)
---------------- ----------------
TOTAL.................................................. (33,521,569) (71,035,563)
---------------- ----------------
Net increase from capital stock transactions................ 182,463,571 78,945,257
---------------- ----------------
NET INCREASE (DECREASE)................................ 182,919,069 (129,038,926)
NET ASSETS:
Beginning of period......................................... 1,441,548,811 1,570,587,737
---------------- ----------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$1,241,493 AND $14,407,774, RESPECTIVELY)............... $ 1,624,467,880 $ 1,441,548,811
---------------- ----------------
---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Pacific Growth Fund Inc. (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's investment objective is to
maximize capital appreciation of its investments. The Fund was incorporated in
Maryland on June 13, 1990 and commenced operations on November 30, 1990.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and disclosures. Actual results could differ from those
estimates. The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by the Directors); (2)
listed options are valued at the latest sale price on the exchange on which they
are listed unless no sales of such options have taken place that day, in which
case they will be valued at the mean between their latest bid and asked price;
(3) 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; (4) when market quotations are not readily available,
including circumstances under which it is determined by the Investment Manager
or Sub-Advisor 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 Directors (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); and (5) short-term debt securities having a maturity
date of more than sixty days at the time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the
59
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996, CONTINUED
ex-dividend date except for certain dividends from foreign securities which are
recorded as soon as the Fund is informed after the ex-dividend date. Discounts
are accreted over the life of the respective securities. Interest income is
accrued daily.
C. OPTION ACCOUNTING PRINCIPLES -- When the Fund writes a call option, an amount
equal to the premium received is included in the Fund's Statement of Assets and
Liabilities as a liability which is subsequently marked-to-market to reflect the
current market value of the option written. If a written option either expires
or the Fund enters into a closing purchase transaction, the Fund realizes a gain
or loss without regard to any unrealized gain or loss on the underlying security
or currency and the liability related to such option is extinguished. If a
written call option is exercised, the Fund realizes a gain or loss from the sale
of the underlying security or currency and the proceeds from such sale are
increased by the premium originally received.
When the Fund purchases a call or put option, the premium paid is recorded as an
investment which is subsequently marked-to-market to reflect the current market
value. If a purchased option expires, the Fund will realize a loss to the extent
of the premium paid. If the Fund enters into a closing sale transaction, a gain
or loss is realized for the difference between the proceeds from the sale and
the cost of the option. If a put option is exercised, the cost of the security
or currency sold upon exercise will be increased by the premium originally paid.
If a call option is exercised, the cost of the security purchased upon exercise
will be increased by the premium originally paid.
D. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward contracts are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are included in the Statement of Operations as realized and
unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal
income tax regulations, certain foreign exchange gains/losses included in
realized and unrealized gain/loss are included in or are a reduction of ordinary
income for federal income tax purposes. The Fund does not isolate that portion
of the results of operations arising as a result of changes in the foreign
exchange rates from the changes in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized gain/loss on
60
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996, CONTINUED
foreign exchange transactions. The Fund records realized gains or losses on
delivery of the currency or at the time the forward contract is extinguished
(compensated) by entering into a closing transaction prior to delivery.
F. 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.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
H. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Fund in the amount of
approximately $142,000 which have been reimbursed for the full amount thereof.
Such expenses were fully amortized as of November 29, 1995.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 1.0% to the portion of daily net assets not exceeding $1
billion and 0.95% to the portion of daily net assets in excess of $1 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of
61
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996, CONTINUED
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.
Under a Sub-Advisory Agreement between Morgan Grenfell Investment Services
Limited ("Morgan Grenfell" or the "Sub-Advisor") and the Investment Manager, the
Sub-Advisor provides the Fund with investment advice and portfolio management
relating to the Fund's investments in securities, subject to the overall
supervision of the Investment Manager. As compensation for its services provided
pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Advisor monthly compensation equal to 40% of its monthly compensation.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived; or (b) the Fund's average daily net
assets. Amounts paid under the Plan are paid to the Distributor to compensate it
for the services provided and the expenses borne by it and others in the
distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to, and expenses of, the
account executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and other employees or selected
broker-dealers who engage in or support distribution of the Fund's shares or who
service shareholder accounts, including overhead and telephone expenses,
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may be compensated under the Plan for
its opportunity costs in advancing such amounts, which compensation would be in
the form of a carrying charge on any unreimbursed expenses incurred by the
Distributor.
62
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996, CONTINUED
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered, may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Directors will consider at that
time the manner in which to treat such expenses. The Distributor has advised the
Fund that such excess amounts, including carrying charges, totaled $48,277,700
at October 31, 1996.
The Distributor has informed the Fund that for the year ended October 31, 1996,
it received approximately $3,771,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 1996 aggregated
$932,691,930 and $794,751,338, respectively.
For the year ended October 31, 1996, the Fund incurred $335,464 in brokerage
commissions with affiliates of Morgan Grenfell for portfolio transactions
executed on behalf of the Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At October 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $266,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors 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 October 31, 1996 included
in Directors' fees and expenses in the Statement of Operations amounted to
$17,713. At October 31, 1996, the Fund had an accrued pension liability of
$49,330 which is included in accrued expenses in the Statement of Assets and
Liabilities.
63
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996, CONTINUED
5. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Sold..................................................... 38,199,038 $ 744,616,070 26,287,993 $ 491,348,677
Reinvestment of dividends and distributions.............. 1,685,192 31,243,453 3,643,200 67,435,626
----------- -------------- ----------- --------------
39,884,230 775,859,523 29,931,193 558,784,303
Repurchased.............................................. (30,677,011) (593,395,952) (25,829,636) (479,839,046)
----------- -------------- ----------- --------------
Net increase............................................. 9,207,219 $ 182,463,571 4,101,557 $ 78,945,257
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
At October 31, 1996, the Fund had a net capital loss carryover of approximately
$19,068,000 of which $3,193,000 will be available through October 31, 2003, and
$15,875,000 will be available through October 31, 2004 to offset future capital
gains to the extent provided by regulations.
As of October 31, 1996, the Fund had temporary book/tax differences primarily
attributable to the mark-to-market of passive foreign investment companies
("PFICs") and capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to foreign currency gains and tax adjustments
on PFICs sold by the Fund. To reflect reclassifications arising from permanent
book/ tax differences for the year ended October 31, 1996, accumulated net
realized loss was charged and accumulated undistributed net investment income
was credited $17,440,870.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities.
At October 31, 1996, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
64
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996, CONTINUED
At October 31, 1996, the Fund's cash balance consisted principally of interest
bearing deposits with Chase Manhattan Bank N.A., the Fund's custodian.
8. COMMITMENTS
As of October 31, 1996, the Fund had purchased shares which are subject to
installment payments. At October 31, 1996, the Fund had outstanding commitments
as follows:
<TABLE>
<CAPTION>
TOTAL
OUTSTANDING
ISSUER COMMITMENT INSTALLMENT PAYMENT TERMS
- ------------------------- ----------- ------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Co. of China $ 158,000 Balance payable in one installment upon notification by the issuer.
</TABLE>
65
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 31 NOVEMBER 30, 1990*
----------------------------------------------------------- THROUGH
1996 1995 1994 1993 1992** OCTOBER 31, 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period....................... $ 18.77 $ 21.60 $ 19.80 $ 12.69 $ 11.72 $ 10.00
----------- -------- -------- -------- -------- ------
Net investment income
(loss)....................... 0.05 0.08 (0.10) (0.04) (0.01) 0.06
Net realized and unrealized
gain (loss).................. 0.50 (1.94) 2.22 7.15 1.14 1.69
----------- -------- -------- -------- -------- ------
Total from investment
operations................... 0.55 (1.86) 2.12 7.11 1.13 1.75
----------- -------- -------- -------- -------- ------
Less dividends and
distributions from:
Net investment income...... (0.43) -- -- -- (0.01) (0.03)
Net realized gain.......... -- (0.97) (0.32) -- (0.15) --
----------- -------- -------- -------- -------- ------
Total dividends and
distributions................ (0.43) (0.97) (0.32) -- (0.16) (0.03)
----------- -------- -------- -------- -------- ------
Net asset value, end of
period....................... $ 18.89 $ 18.77 $ 21.60 $ 19.80 $ 12.69 $ 11.72
----------- -------- -------- -------- -------- ------
----------- -------- -------- -------- -------- ------
TOTAL INVESTMENT RETURN+...... 3.00% (8.65)% 10.69% 56.13% 9.86% 17.54%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 2.39% 2.45% 2.41% 2.38% 2.77% 2.43%(2)(3)
Net investment income
(loss)....................... 0.18% 0.35% (0.70)% (0.46)% (0.30)% 0.61%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions..................... $1,624 $1,442 $1,571 $694 $177 $86
Portfolio turnover rate....... 49% 50% 35% 30% 73% 70%(1)
Average commission rate
paid......................... $0.0095 -- -- -- -- --
<FN>
- ---------------------
* Commencement of operations.
** Net investment loss was computed based upon the monthly average shares
outstanding.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment income
ratios would have been 2.83% and 0.22%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DEAN WITTER PACIFIC GROWTH FUND INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter Pacific Growth Fund
Inc. (the "Fund") at October 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended and for the period November 30, 1990 (commencement of
operations) through October 31, 1991, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
DECEMBER 17, 1996
- --------------------------------------------------------------------------------
1996 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended October 31, 1996, the Fund has elected,
pursuant to Section 853 of the Internal Revenue Code, to
pass-through foreign taxes of $0.03 per share to its shareholders.
The Fund generated net foreign source income of $0.09 per share
with respect to this election.
67
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included
in Prospectus (Part A): Page
in
Prospectus
----------
Financial highlights for the period November 30, 1990
through October 31, 1991 and for the fiscal years ended
October 31, 1992, 1993, 1994, 1995 and 1996............ 4
(2) Financial statements included in the Statement of
Additional Information (Part B):
Page
in
SAI
---
Portfolio of Investments at October 31, 1996........... 45
Statement of assets and liabilities at
October 31, 1996....................................... 57
Statement of operations for the year ended
October 31, 1996....................................... 57
Statement of changes in net assets for the
years ended October 31, 1995 and 1996.................. 58
Notes to Financial Statements.......................... 59
Financial highlights for the period November 30, 1990
through October 31, 1991 and for the fiscal years
ended October 31, 1992, 1993, 1994, 1995 and 1996...... 66
(3) Financial statements included in Part C:
None
(b) EXHIBITS
2. -- Amended and Restated By-Laws
11. -- Consent of Independent Accountants
16. -- Schedule for Computation of Performance Quotations
27. -- Financial Data Schedule
- ---------------
All other exhibits previously filed and incorporated by reference.
<PAGE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
Item 26. NUMBER OF HOLDERS OF SECURITIES.
(1) (2)
Number of Record Holders
Title of Class at November 30, 1996
-------------- ------------------------
Shares of Common Stock 211,879
Item 27. INDEMNIFICATION
Reference is made to Section 3.15 of the Registrant's By-Laws and Section
2-418 of the Maryland General Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such director, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act, and
will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Directors, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Director, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
<PAGE>
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment adviser. The following information is given regarding
officers of Dean Witter InterCapital Inc. InterCapital is a wholly-owned
subsidiary of Dean Witter, Discover & Co. The principal address of the Dean
Witter Funds is Two World Trade Center, New York, New York 10048.
The term "Dean Witter Funds" used below refers to the following registered
investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) InterCapital Income Securities Inc.
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) Municipal Income Trust
(6) Municipal Income Trust II
(7) Municipal Income Trust III
(8) Dean Witter Government Income Trust
(9) Municipal Premium Income Trust
(10) Municipal Income Opportunities Trust
(11) Municipal Income Opportunities Trust II
(12) Municipal Income Opportunities Trust III
(13) Prime Income Trust
(14) InterCapital Insured Municipal Bond Trust
(15) InterCapital Quality Municipal Income Trust
(16) InterCapital Quality Municipal Investment Trust
(17) InterCapital Insured Municipal Income Trust
(18) InterCapital California Insured Municipal Income Trust
(19) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
OPEN-END INVESTMENT COMPANIES:
(1) Dean Witter Short-Term Bond Fund
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
3
<PAGE>
(11) Dean Witter U.S. Government Securities Trust
(12) Dean Witter Select Municipal Reinvestment Fund
(13) Dean Witter High Yield Securities Inc.
(14) Dean Witter Intermediate Income Securities
(15) Dean Witter New York Tax-Free Income Fund
(16) Dean Witter California Tax-Free Income Fund
(17) Dean Witter Health Sciences Trust
(18) Dean Witter California Tax-Free Daily Income Trust
(19) Dean Witter Global Asset Allocation Fund
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(22) Dean Witter Utilities Fund
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
(31) Dean Witter Premier Income Trust
(32) Dean Witter Short-Term U.S. Treasury Trust
(33) Dean Witter Diversified Income Trust
(34) Dean Witter U.S. Government Money Market Trust
(35) Dean Witter Global Dividend Growth Securities
(36) Active Assets California Tax-Free Trust
(37) Dean Witter Natural Resource Development Securities Inc.
(38) Active Assets Government Securities Trust
(39) Active Assets Money Trust
(40) Active Assets Tax-Free Trust
(41) Dean Witter Limited Term Municipal Trust
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Balanced Growth Fund
(51) Dean Witter Balanced Income Fund
(52) Dean Witter Hawaii Municipal Trust
(53) Dean Witter Capital Appreciation Fund
(54) Dean Witter Intermediate Term U.S. Treasury Trust
(55) Dean Witter Information Fund
(56) Dean Witter Japan Fund
(57) Dean Witter Income Builder Fund
(58) Dean Witter Special Value Fund
The term "TCW/DW Funds" refers to the following registered investment companies:
OPEN-END INVESTMENT COMPANIES
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
4
<PAGE>
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
CLOSED-END INVESTMENT COMPANIES
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Witter Reynolds Inc. ("DWR"); Chairman, Chief
Executive Officer and Executive Officer and Director of Dean Witter
Director Distributors Inc. ("Distributors") and Dean
Witter Services Company Inc. ("DWSC"); Chairman
and Director of Dean Witter Trust Company
("DWTC"); Chairman, Director or Trustee, President
and Chief Executive Officer of the Dean Witter
Funds and Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Formerly Executive
Vice President and Director of Dean Witter,
Discover & Co. ("DWDC"); Director and/or officer
of various DWDC subsidiaries.
Philip J. Purcell Chairman, Chief Executive Officer and Director of
Director of DWDC and DWR; Director of DWSC and
Distributors; Director or Trustee of the Dean
Witter Funds; Director and/or officer of various
DWDC subsidiaries.
Richard M. DeMartini Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Capital;
Director of DWR, DWSC, Distributors and DWTC;
Trustee of the TCW/DW Funds; Member (since
January, 1993) and Chairman (since January,
1995) of the Board of Directors of NASDAQ.
James F. Higgins Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Financial;
Director of DWR, DWSC, Distributors and DWTC.
Thomas C. Schneider Executive Vice President and Chief Financial
Executive Vice Officer of DWDC, DWR, DWSC and Distributors;
President, Chief Director of DWR, DWSC and Distributors.
Financial Officer and
Director
5
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Christine A. Edwards Executive Vice President, Secretary and General
Director Counsel of DWDC and DWR; Executive Vice President,
Secretary and Chief Legal Officer of Distributors;
Director of DWR, DWSC and Distributors.
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Joseph J. McAlinden
Executive Vice President
and Chief Investment Vice President of the Dean Witter Funds and
Officer Director of DWTC.
Sheldon Curtis Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
General Counsel and President, Assistant General Counsel and Assistant
Secretary Secretary of Distributors; Senior Vice President
and Secretary of DWTC; Vice President, Secretary
and General Counsel of the Dean Witter Funds and
the TCW/DW Funds.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Richard Felegy
Senior Vice President
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone
Senior Vice President Senior Vice President of DWSC, Distributors
and DWTC and Director of DWTC; Vice President
of the Dean Witter Funds and the TCW/DW Funds.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
6
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
Jenny B. Jones
Senior Vice President Vice President of Dean Witter Special Value Fund.
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira N. Ross
Senior Vice President Vice President of various Dean Witter Funds.
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer and Chief Financial Officer of the
Treasurer Dean Witter Funds and the TCW/DW Funds.
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds.
Barry Fink First Vice President and Assistant Secretary of
First Vice President DWSC; Assistant Secretary of the Dean Witter
and Assistant Secretary Funds and the TCW/DW Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors;First Vice
and Controller President and Treasurer of DWTC.
7
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Robert Zimmerman
First Vice President
Joan Allman
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds
Kirk Balzer
Vice President Vice President of various Dean Witter Funds
Douglas Brown
Vice President
Philip Casparius
Vice President
Thomas Chronert
Vice President
Rosalie Clough
Vice President
Patricia A. Cuddy
Vice President Vice President of various Dean Witter Funds.
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Peter W. Gurman
Vice President
8
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
John Hechtlinger
Vice President
Peter Hermann
Vice President Vice President of various Dean Witter Funds
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
David Johnson
Vice President
Christopher Jones
Vice President
James Kastberg
Vice President
Stanley Kapica
Vice President
Michael Knox
Vice President Vice President of various Dean Witter Funds
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paula LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
Gerard Lian
Vice President Vice President of various Dean Witter Funds.
LouAnne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
9
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
David Myers
Vice President
James Nash
Vice President
Richard Norris
Vice President
Anne Pickrell
Vice President Vice President of Dean Witter Global Short-
Term Income Fund Inc.
Hugh Rose
Vice President
Robert Rossetti
Vice President
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
Rafael Scolari
Vice President Vice President of Prime Income Trust
Peter Seeley Vice President of Dean Witter World
Vice President Wide Income Trust
Jayne M. Stevlingson
Vice President Vice President of various Dean Witter Funds.
Kathleen Stromberg
Vice President Vice President of various Dean Witter Funds.
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Katherine Wickham
Vice President
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
10
<PAGE>
Item 29. PRINCIPAL UNDERWRITERS
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Global Asset Allocation
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Limited Term Municipal Trust
(22) Dean Witter Natural Resource Development Securities Inc.
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Federal Securities Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Premier Income Trust
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Balanced Growth Fund
(49) Dean Witter Balanced Income Fund
11
<PAGE>
(50) Dean Witter Hawaii Municipal Trust
(51) Dean Witter Variable Investment Series
(52) Dean Witter Capital Appreciation Fund
(53) Dean Witter Intermediate Term U.S. Treasury Trust
(54) Dean Witter Information Fund
(55) Dean Witter Japan Fund
(56) Dean Witter Income Builder Fund
(57) Dean Witter Special Value Fund
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
(b) The following information is given regarding directors and officers of
Distributors not listed in Item 28 above. The principal address of
Distributors is Two World Trade Center, New York, New York 10048. None of
the following persons has any position or office with the Registrant.
Positions and
Office with
Name Distributors
---- -------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service
contract.
Item 32. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
stockholders, upon request and without charge.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York on the 26th day of December, 1996.
DEAN WITTER PACIFIC GROWTH FUND INC.
By /s/ Sheldon Curtis
----------------------------------
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 7 has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Director and Chairman
By /s/ Charles A. Fiumefreddo 12/26/96
----------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 12/26/96
----------------------------
Thomas F. Caloia
(3) Majority of the Directors
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Sheldon Curtis 12/26/96
----------------------------
Sheldon Curtis
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
By /s/ David M. Butowsky 12/26/96
----------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2. -- By-Laws of the Registrant, Amended and Restated
as of October 25, 1996
11. -- Consent of Independent Accountants
16. -- Schedules for Computation of Performance Quotations
27. -- Financial Data Schedule
<PAGE>
BY-LAWS
OF
DEAN WITTER PACIFIC GROWTH FUND INC.
AMENDED AND RESTATED AS OF OCTOBER 25, 1996
ARTICLE I
OFFICES
SECTION 1.1. PRINCIPAL OFFICE. The principal office of the Corporation in
the State of Maryland shall be in the City of Baltimore.
SECTION 1.2. OTHER OFFICES. In addition to its principal office in the
State of Maryland, the Corporation may have an office or offices in the City
of New York, State of New York, and at such other places as the Board of
Directors may from time to time designate or the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 2.1. PLACE OF MEETINGS. Meetings of stockholders shall be held at
such place, within or without the State of Maryland, as may be designated
from time to time by the Board of Directors.
SECTION 2.2. ANNUAL MEETINGS. Annual or other meetings of the
stockholders, unless required by the Investment Company Act of 1940, as
amended, or the Maryland General Corporation Law shall not be required to be
held but may, in the discretion of the Directors, be held notwithstanding the
absence of a requirement under the Investment Company Act of 1940, as
amended, or the Maryland General Corporation Law to hold such a meeting.
SECTION 2.3. SPECIAL MEETINGS. Special meetings of stockholders of the
Corporation shall be held whenever called by the Board of Directors or the
President of the Corporation. Special meetings of stockholders shall also be
called by the Secretary upon the written request of the holders of shares
entitled to vote not less than ten percent (10%) of all the votes entitled to
be cast at such meeting. Such request shall state the purpose or purposes of
such meeting and the matters proposed to be acted on thereat. The Secretary
shall inform such stockholders of the reasonable estimated cost of preparing
and mailing such notice of the meeting, and upon payment to the Corporation
of such costs, the Secretary shall give notice stating the purpose or
purposes of the meeting to all entitled to a vote at such meeting. Unless
requested by stockholders entitled to cast a majority of all the votes
entitled to be cast at the meeting, a special meeting need not be called to
consider any matter which is substantially the same as a matter voted upon at
any special meeting of stockholders held during the preceding twelve months.
SECTION 2.4. NOTICE OF MEETINGS. Written or printed notice of every
stockholders' meeting stating the place, date and time, and in the case of a
special meeting the purpose or purposes thereof, shall be given by the
Secretary not less than ten (10) nor more than ninety (90) days before such
meeting to each stockholder entitled to vote at such meeting, either by mail
or by presenting it to him personally, or by leaving it at his residence or
usual place of business. If mailed, such notice shall be deemed to be given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation.
SECTION 2.5. QUORUM AND ADJOURNMENT of Meetings. Except as otherwise
provided by law, by the Charter of the Corporation, or by these By-Laws, at
all meetings of stockholders the holders of a majority of the shares issued
and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum for
the transaction of business. In the absence of a quorum, the stockholders
present or represented by proxy and entitled to vote thereat shall have power
<PAGE>
to adjourn the meeting from time to time (but in no event to a date more than
120 days after the original record date) without notice other than
announcement at the meeting, until a quorum shall be present. At any
adjourned meeting at which a quorum shall be present, any business may be
transacted if the meeting had been held as originally called.
SECTION 2.6. VOTING RIGHTS, PROXIES. At each meeting of the stockholders
at which a quorum is present, each holder of stock entitled to vote thereat
shall be entitled to one vote (with fractional votes for fractional shares)
in person or by proxy, executed in writing by the stockholder or his duly
authorized attorney-in-fact, for each share of stock of the Corporation
entitled to vote so registered in his name on the books of the Corporation on
the date fixed as the record date for the determination of stockholders
entitled to vote at such meeting. In all elections of directors, each share
of stock may be voted once for each individual to be elected and for whose
election such share is entitled to be voted. No proxy shall be valid after
eleven months from its date, unless otherwise provided in the proxy. At all
meetings of stockholders, unless the voting is conducted by inspectors, all
questions relating to the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided by the chairman of
the meeting.
SECTION 2.7. VOTE REQUIRED. Except as otherwise provided by law, by the
Charter of the Corporation, or by these By-Laws, at each meeting of
stockholders at which a quorum is present, all matters shall be decided by a
majority of the votes cast by the stockholders present in person or
represented by proxy and entitled to vote with respect to any such matter.
SECTION 2.8. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Directors may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of stockholders may, and on the
request of any stockholder or his proxy shall, appoint Inspectors of Election
of the meeting. In case any person appointed as Inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Directors in advance of the convening of the meeting or at the meeting by the
person acting as chairman. The Inspectors of Election shall determine the
number of shares of stock outstanding, the shares of stock represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, shall receive votes, ballots or consents, shall hear and determine
all challenges and questions in any way arising in connection with the right
to vote, shall count and tabulate all votes or consents, determine the
results, and do such other acts as may be proper to conduct the election or
vote with fairness to all stockholders. On request of the chairman of the
meeting or of any stockholder or his proxy, the Inspectors of Election shall
make a report in writing of any challenge or question or matter determined by
them and shall execute a certificate of any facts found by them.
SECTION 2.9. ACTION BY STOCKHOLDERS WITHOUT MEETING. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of stockholders may be taken without a meeting if a
consent in writing setting forth the action shall be signed by all the
stockholders entitled to vote upon the action and such consent shall be filed
with the records of the Corporation.
SECTION 2.10. PRESENCE AT MEETINGS. Presence at meetings of stockholders
requires physical attendance by the stockholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other
electronic means.
ARTICLE III
DIRECTORS
SECTION 3.1. NUMBER AND TERM. The Board of Directors shall consist of not
less than three (3) and not more than fifteen (15) directors, the number of
directors to be fixed from time to time within the above-specified limits by
the affirmative vote of a majority of the whole Board of Directors. At the
first annual meeting of stockholders and at each meeting thereafter called
for the purpose of electing directors, the stockholders shall elect directors
to hold office until their successors are elected and qualify. Directors need
not be stockholders of the Corporation.
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SECTION 3.2. POWERS. The business of the Corporation shall be managed by
the Board of Directors which may exercise all powers of the Corporation and
do all lawful acts and things which are not by law or by the Charter of the
Corporation, or by these By-Laws, directed or required to be exercised or
done exclusively by the stockholders.
SECTION 3.3. ORGANIZATIONAL MEETINGS. The first meeting of each newly
elected Board of Directors for the purposes of organization and the election
of officers and otherwise shall be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of
the Board of Directors, or as shall be specified in a written waiver signed
by all directors.
SECTION 3.4. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such time and place as shall be determined from time to time
by the Board of Directors without further notice.
SECTION 3.5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called at any time by the President and shall be called by such
President or the Secretary upon the written request of any two (2) directors.
SECTION 3.6. NOTICE OF SPECIAL MEETINGS. Written notice of special
meetings of the Board of Directors, stating the place, date and time thereof,
shall be given not less than two (2) days before such meeting to each
director, personally, by telegram, by mail, or by leaving such notice at his
place of residence or usual place of business. If mailed, such notice shall
be deemed to be given when deposited in the United States mail, postage
prepaid, directed to the director at his address as it appears on the records
of the Corporation.
SECTION 3.7. TELEPHONE MEETINGS. Any member or members of the Board of
Directors or of any committee designated by the Board, may participate in a
meeting of the Board, or any such committee, as the case may be, by means of
a conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time.
Participation in a meeting by these means constitutes presence in person at
the meeting. This Section 3.7 shall not be applicable to meetings held for
the purpose of voting in respect of approval of contracts or agreements
whereby a person undertakes to serve or act as investment adviser of, or
principal underwriter for, the Corporation, or in respect of other matters as
to which the Investment Company Act of 1940 requires a vote cast in person.
SECTION 3.8. QUORUM, VOTING AND ADJOURNMENT OF MEETINGS. At all meetings
of the Board of Directors, a majority of the whole Board shall be requisite
to and shall constitute a quorum for the transaction of business. If a quorum
is present, the affirmative vote of a majority of the directors present shall
be the act of the Board of Directors, unless the concurrence of a greater
proportion is expressly required for such action by law, the Charter of the
Corporation or these By-Laws. If at any meeting of the Board there be less
than a quorum present, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting
until a quorum shall have been obtained.
SECTION 3.9. REMOVAL. Any one or more of the directors may be removed,
either with or without cause, at any time, by the affirmative vote of the
stockholders holding a majority of the outstanding shares entitled to vote
for the election of directors. (For purposes of determining the circumstances
and procedures under which such removal of directors may take place, the
provisions of Section 16(c) of the Investment Company Act of 1940 shall be
applicable to the same extent as if the Corporation were subject to the
provisions of that Section.) The successor or successors of any director or
directors so removed may be elected by the stockholders entitled to vote
thereon at the same meeting to fill any resulting vacancies for the unexpired
term of removed directors. Except as provided by law, pending, or in the
absence of, such an election, the successor or successors of any director or
directors so removed may be chosen by the Board of Directors.
SECTION 3.10. VACANCIES. Except as otherwise provided by law, any vacancy
occurring in the Board of Directors and newly created directorships resulting
from an increase in the authorized number of directors may be filled by the
vote of a majority of the directors then in office or, if only one director
shall then be in office, by such director. A director elected by the Board of
Directors to fill a vacancy shall be elected to hold office until the next
annual meeting of stockholders or until his successor is elected and
qualifies.
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SECTION 3.11. ACTION BY DIRECTORS WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of the Board of Directors may be taken without a meeting if a
consent in writing setting forth the action shall be signed by all of the
directors entitled to vote upon the action and such written consent is filed
with the minutes of proceedings of the Board of Directors.
SECTION 3.12. EXPENSES AND FEES. Each director may be allowed expenses, if
any, for attendance at each regular or special meeting of the Board of
Directors and shall receive for services rendered as a director of the
Corporation such compensation as may be fixed by the Board of Directors.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 3.13. EXECUTION OF INSTRUMENTS AND DOCUMENTS AND SIGNING OF CHECKS
AND OTHER OBLIGATIONS AND TRANSFERS. All instruments, documents and other
papers shall be executed in the name and on behalf of the Corporation and all
checks, notes, drafts and other obligations for the payment of money by the
Corporation shall be signed, and all transfer of securities standing in the
name of the Corporation shall be executed, by the President, any Vice
President or the Treasurer or by any one or more officers or agents of the
Corporation as shall be designated for that purpose by vote of the Board of
Directors; notwithstanding the above, nothing in this Section 3.13 shall be
deemed to preclude the electronic authorization, by designated persons, of
the Corporation's Custodian (as described herein in Section 10.1) to transfer
assets of the Corporation, as provided for herein in Section 10.1.
SECTION 3.14. CONTRACTS. Except as otherwise provided by law or by the
Charter of the Corporation, no contract or transaction between the
Corporation and any partnership or corporation, and no act of the
Corporation, shall in any way be affected or invalidated by the fact that any
officer or director of the Corporation is pecuniarily or otherwise interested
therein or is a member, officer or director of such interest shall be known
to the Board of Directors of the Corporation. Specifically, but without
limitation of the foregoing, the Corporation may enter into one or more
contracts appointing Dean Witter InterCapital Inc. investment manager of the
Corporation, and may otherwise do business with Dean Witter InterCapital
Inc., notwithstanding the fact that one or more of the directors of the
Corporation and some or all of its officers are, have been or may become
directors, officers, members, employees, or stockholders of Dean Witter
InterCapital Inc.; and in the absence of fraud, the Corporation and Dean
Witter InterCapital Inc. may deal freely with each other, and neither such
contract appointing Dean Witter InterCapital Inc. investment manager to the
Corporation nor any other contract or transaction between the Corporation and
Dean Witter InterCapital Inc. shall be invalidated or in any wise affected
thereby, nor shall any director or officer of the Corporation by reason
thereof be liable to the Corporation or to any stockholder or creditor of the
Corporation or to any other person for any loss incurred under or by reason
of any such contract or transaction. For purposes of this paragraph, any
reference to "Dean Witter InterCapital Inc." shall be deemed to include said
company and any parent, subsidiary or affiliate of said company and any
successor (by merger, consolidation or otherwise) to said company or any such
parent, subsidiary or affiliate.
SECTION 3.15. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. (a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent
of the Corporation. The indemnification shall be against judgments,
penalties, fines, settlements and reasonable expenses, including attorneys'
fees, actually incurred in connection with the proceeding, unless it is
established that: (i) the act or omission of the director was material to the
matter giving rise to the proceeding; and (A) was committed in bad faith, or
(B) was the result of active and deliberate dishonesty; or (ii) the director
actually received an improper personal benefit in money, property, or
services, or (iii) in the case of any criminal proceeding, the director had
reasonable cause to believe that the act or omission was unlawful. Officers,
employees, and agents of the Corporation are entitled to indemnification and
the advancement of expenses to the same extent as directors. The termination
of any action, suit, or proceeding by judgment, order or settlement, shall
not,
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of itself, create a presumption that the person did not meet the requisite
standard of conduct set forth above. The termination of any proceeding by
conviction, a plea of nolo contendere or its equivalent, or an entry of an
order of probation prior to judgment, creates a rebuttable presumption that
the person did not meet the requisite standard of conduct.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or on behalf of the Corporation to obtain a judgment or decree in
its favor by reason of the fact that he is or was a director, officer,
employee, or agent of the Corporation. The indemnification shall be against
judgments, penalties, fines, settlements and reasonable expenses, including
attorney's fees, actually incurred in connection with the proceeding, if he
met the standard of conduct set forth in paragraph (a) above, except that no
indemnification shall be made in respect of any proceeding as to which the
person has been adjudged to be liable to the Corporation, except to the
extent that a court of appropriate jurisdiction determines upon application
of that person that, despite the failure to meet the requisite standard of
conduct or an actual adjudication of liability, but in view of all relevant
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for those expenses which the court shall deem proper, provided such
director or officer is not adjudged to be liable by reason of his willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
(c) To the extent that a director, officer, employee, or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsection (a) or (b) or in defense
of any claim, issue or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him
in connection therewith.
(d)(1) Unless a court orders otherwise, any indemnification under
subsection (a) or (b) of this section may be made by the Corporation only as
authorized in the specific case after a determination that indemnification of
the director, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in subsection
(a) or (b).
(2) The determination shall be made:
(i) By the Board of Directors, by a majority vote of a quorum which
consists of directors who were not parties to the action ("non-party
directors"), suit or proceeding; or if a quorum of non-party directors
is not obtainable, by a majority vote of a committee of at least two
non-party directors; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion; or
(iii) By the stockholders.
(3) Notwithstanding the provisions of paragraphs (1) and (2) of this
subsection (d), no person shall be entitled to indemnification for any
liability, whether or not there is an adjudication of liability, arising by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of duties as described in Sections 17(h) and (i) of the Investment
Company Act of 1940, as amended ("disabling conduct"). A person shall be
deemed not liable by reason of disabling conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct; or
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by
reason of disabling conduct, is made by either--
(A) a majority of a quorum of directors who are neither "interested
persons" of the Corporation, as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended, nor parties to the
action, suit or proceeding, or
(B) an independent legal counsel in a written opinion.
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(e) Expenses, including attorneys' fees, incurred by a director, officer,
employee or agent of the Corporation in defending a civil or criminal action,
suit or proceeding may be paid by the Corporation in advance of the final
disposition thereof if:
(1) authorized in the specific case by the Board of Directors; and
(2) the Corporation receives an undertaking by or on behalf of the
director, officer, employee or agent of the Corporation to repay the
advance if it is not ultimately determined that such person is entitled to
be indemnified by the Corporation; and
(3) either
(i) such person provides a security for his undertaking, or
(ii) the Corporation is insured against losses by reason of any
lawful advances, or
(iii) a determination, based on a review of readily available facts,
that there is reason to believe that such person ultimately will be
found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of directors who are
neither "interested persons" of the Corporation, as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as
amended, nor parties to the action, suit or proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding the office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and inure to the
benefit of the heirs, executors and administrators of such person.
(g) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the
Corporation, against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such. However, in no
event will the Corporation pay for that portion of the premium, if any, for
insurance to indemnify any officer or director against liability for any act
for which the Corporation itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
director or officer of the Corporation against any liability to the
Corporation or to its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
(i) Any indemnification of, or advance of expenses to, a director in
accordance with this Section, if arising out of a proceeding by or in the
right of the Corporation, shall be reported in writing to the shareholders
with the notice of the next stockholders' meeting or prior to the meeting.
ARTICLE IV
COMMITTEES
SECTION 4.1. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors, by
resolution adopted by a majority of the whole Board, may designate an
Executive Committee and/or other committees, each committee to consist of two
(2) or more of the directors of the Corporation and may delegate to such
committees, in the intervals between meetings of the Board of Directors, any
or all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation, except the power to: declare
dividends or distributions of stock; issue stock; recommend to stockholders
any action requiring stockholder approval; amend the By-Laws of the
Corporation; or approve any merger or share exchange which does not require
shareholder approval. In the absence of any member of any such committee, the
members thereof present at any meeting, whether or not they constitute a
quorum, may appoint a member of the Board of Directors to act in place of
such absent member. Each such committee shall keep a record of its
proceedings.
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The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Board of
Directors at the meeting thereof next succeeding to the taking of such
action.
SECTION 4.2. ADVISORY COMMITTEE. The Board of Directors may appoint an
advisory committee which shall be composed of persons who do not serve the
Corporation in any other capacity and which shall have advisory functions
with respect to the investments, business or activities of the Corporation as
may be delegated to it, but which shall have no power to determine that any
security or other investment shall be purchased, sold or otherwise disposed
of by the Corporation, or to take action by or in the name of the
Corporation. The number of persons constituting any such advisory committee
shall be determined from time to time by the Board of Directors. The members
of any such advisory committee may receive compensation for their services
and may be allowed such fees and expenses for the attendance at meetings as
the Board of Directors may from time to time determine to be appropriate.
SECTION 4.3. COMMITTEE ACTION WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of any Committee of the Board appointed pursuant to Section 4.1
of these By-Laws may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all members of the Committee
entitled to vote upon the action and such written consent is filed with the
records of the proceedings of the Committee.
ARTICLE V
OFFICERS
SECTION 5.1. EXECUTIVE OFFICERS. The executive officers of the Corporation
shall be a Chairman of the Board, a President, one or more Vice Presidents, a
Secretary and a Treasurer. The Board of Directors may also elect one or more
Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers and
may elect, or may delegate to the President the power to appoint, such other
officers and agents as the Board of Directors shall at any time or from time
to time deem advisable. The Chairman of the Board shall be selected from
among the directors but none of the other executive officers need be a member
of the Board of Directors. Two or more offices, except those of President and
any Vice President, may be held by the same person, but no officer shall
execute, acknowledge or verify any instrument in more than one capacity. The
executive officers of the Corporation shall be elected by the Board of
Directors.
SECTION 5.2. TERM, REMOVAL AND VACANCIES. Each officer of the Corporation
shall hold office until his successor is elected and has qualified. Any
officer or agent of the Corporation may be removed by the Board of Directors
whenever, in its judgment, the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to the
contractual rights, if any, of the person so removed.
SECTION 5.3. COMPENSATION OF OFFICERS. The compensation of officers and
agents of the Corporation shall be fixed by the Board of Directors, or by the
President to the extent provided by the Board of Directors with respect to
officers appointed by the President.
SECTION 5.4. POWER AND DUTIES. All officers and agents of the Corporation,
as between themselves and the Corporation, shall have such authority and
perform such duties in the management of the Corporation as may be provided
in or pursuant to these By-Laws, or, to the extent not so provided, as may be
prescribed by the Board of Directors; provided, that no rights of any third
party shall be affected or impaired by any such By-Law or resolution of the
Board unless he has knowledge thereof.
SECTION 5.5. THE CHAIRMAN. The Chairman, if any, or in his absence the
President, shall preside at all meetings of the stockholders and of the Board
of Directors; and he shall perform such other duties as the Board of
Directors may from time to time prescribe.
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SECTION 5.6. THE PRESIDENT. The President shall be the chief executive
officer of the Corporation; he shall have general and active management of
the business of the Corporation, shall see that all orders and resolutions of
the Board of Directors are carried into effect, and, in connection therewith,
shall be authorized to delegate to one or more Vice Presidents such of his
powers and duties at such times and in such manner as he may deem advisable.
In the absence of the Chairman, the President shall preside at all
meetings of the stockholders and the Board of Directors; and he shall perform
such other duties as the Board of Directors may, from time to time,
prescribe.
SECTION 5.7. THE VICE PRESIDENTS. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by
the Board of Directors. The Vice President, or, if there be more than one,
the Vice Presidents in the order of their seniority as may be determined from
time to time by the Board of Directors shall, in the absence or disability of
the President, exercise the powers and perform the duties of those officers;
and he or they shall perform such other duties as the Board of Directors may
from time to time prescibe.
SECTION 5.8. THE ASSISTANT VICE PRESIDENTS. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Board of Directors or the President.
SECTION 5.9. THE SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the stockholders and of the Board of Directors
in a book to be kept for that purpose, and shall perform like duties for the
standing committees when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board
of Directors, and shall perform such other duties and have such powers as the
Board of Directors, may from time to time prescribe. He shall keep in safe
custody the seal of the Corporation and affix or cause the same to be affixed
to any instrument requiring it, and, when so affixed, it shall be attested by
his signature.
SECTION 5.10. THE ASSISTANT SECRETARIES. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors or the President, shall in the absence or disability
of the Secretary, perform the duties and exercise the powers of the Secretary
and shall perform such duties and have such other powers as the Board of
Directors or the President may from time to time prescribe.
SECTION 5.11. THE TREASURER. The Treasurer shall be the chief financial
officer of the Corporation. He shall keep or cause to be kept full and
accurate accounts or receipts and disbursements in books belonging to the
Corporation, and he shall render to the Board of Directors whenever any of
them require it, an account of his transactions as Treasurer and of the
financial condition of the Corporation; and he shall perform such other
duties as the Board of Directors may from time to time prescribe.
SECTION 5.12. THE ASSISTANT TREASURERS. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors or the President, shall, in the absence
or disability of the Treasurer, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such powers as the
Board of Directors, or the President, may from time to time prescribe.
SECTION 5.13. DELEGATION OF DUTIES. Whenever an officer is absent or
disabled, or whenever for any reason the Board of Directors may deem it
desirable, the Board may delegate the powers and duties of an officer to any
other officer or officers or to any Director or Directors.
ARTICLE VI
CAPITAL STOCK
SECTION 6.1. ISSUANCE OF STOCK. The Corporation shall not issue its shares
of capital stock except as approved by the Board of Directors.
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SECTION 6.2. CERTIFICATES OF STOCK. Certificates for shares of each class
of the capital stock of the Corporation shall be in such form and of such
design as the Board of Directors shall approve, subject to the right of the
Board of Directors to change such form and design at any time or from time to
time, and shall be entered in the books of the Corporation as they are
issued. Each such certificate shall bear a distinguishing number; shall
exhibit the holder's name and certify the number of full shares owned by such
holder; shall be signed by or in the name of the Corporation by the
President, or a Vice President or an Assistant Vice President, and
countersigned by the Secretary or an Assistant Secretary or the Treasurer of
the Corporation; shall be sealed with the corporate seal; and shall contain
such recitals as may be required by law. Where any stock certificate is
signed by a Transfer Agent or by a Registrar, the signature of such corporate
officers and the corporate seal may be facsimile, printed or engraved. The
Corporation may, at its option, defer the issuance of a certificate or
certificates to evidence shares of capital stock owned of record by any
stockholder until such time as demand therefor shall be made upon the
Corporation or its Transfer Agent, but upon the making of such demand each
stockholder shall be entitled to such certificate or certificates.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation, whether
because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate
or certificates shall, nevertheless, be adopted by the Corporation and be
issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures shall
appear therein had not ceased to be such officer or officers of the
Corporation.
No certificate shall be issued for any share of stock until such share is
fully paid.
SECTION 6.3. TRANSFER OF STOCK. Transfers of shares of the capital stock
of the Corporation shall be made only on the books of the Corporation by the
holder thereof, or by his attorney thereunto duly authorized by a power of
attorney duly executed and filed with the Corporation or a Transfer Agent of
the Corporation, if any, upon written request in proper form if no share
certificate has been issued, or in the event such certificate has been
issued, upon presentation and surrender in proper form of said certificate.
SECTION 6.4. RECORD DATE. The Board of Directors may fix in advance a date
as the record date for the purpose of determining stockholders entitled to
notice of, or to vote at, any meeting of stockholders, or stockholders
entitled to receive payment of any dividend or the allotment of any rights,
or in order to make a determination of stockholders for any other purpose.
Such date, in any case shall be not more than ninety (90) days, and in case
of a meeting of stockholders not less than ten (10) days prior to the date on
which particular action requiring such determination of stockholders is to be
taken. In lieu of fixing a record date the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, twenty (20) days. If the stock transfer books are closed
for the purpose of determining stockholders entitled to notice of a vote at a
meeting of stockholders, such books shall be closed for at least ten (10)
days immediately preceding such meeting.
SECTION 6.5. LOST, STOLEN, DESTROYED AND MULTILATED CERTIFICATES. The
Board of Directors may direct a new certificate or certificates to be issued
in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon satisfactory
proof of such loss, theft, or destruction; and the Board of Directors may, in
its discretion, require the owner of the lost, stolen or destroyed
certificate, or his legal representative, to give to the Corporation and to
such Registrar, Transfer Agent and/or Transfer Clerk as may be authorized or
required to countersign such new certificate or certificates, a bond in such
sum and of such type as they may direct, and with such surety or sureties, as
they may direct, as indemnity against any claim that may be against them or
any of them on account of or in connection with the alleged loss, theft or
destruction of any such certificate.
SECTION 6.6. REGISTERED OWNERS OF STOCK. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares of stock to receive dividends, and to vote as such owner, and
to hold liable for calls and assessments a person registered on its books as
the
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owner of shares of stock, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Maryland.
SECTION 6.7. FRACTIONAL DENOMINATIONS. Subject to any applicable
provisions of law and the Charter of the Corporation, the Corporation may
issue shares of its capital stock in fractional denominations, provided that
the transactions in which and the terms and conditions upon which shares in
fractional denominations may be issued may from time to time be limited or
determined by or under the authority of the Board of Directors.
ARTICLE VII
SALE OF STOCK
SECTION 7.1. SALE OF STOCK. Upon the sale of each share of its Common
Stock, except as otherwise permitted by applicable laws and regulations, the
Corporation shall receive in cash or in securities valued as provided in
Article VIII of these By-Laws, not less than the current net asset value
thereof, exclusive of any distributing commission or discount, and in no
event less than the par value thereof.
SECTION 7.2. REDEMPTION OF STOCK. Subject to and in accordance with any
applicable laws and regulations and any applicable provisions of the
Corporation's Articles of Incorporation, the Corporation shall redeem all
outstanding shares of its capital stock duly delivered or offered for
redemption by any registered stockholder in a manner prescribed by or under
authority of the Board of Directors. Any shares so delivered or offered for
redemption shall be redeemed at a redemption price prescribed by the Board of
Directors in accordance with applicable laws and regulations; provided that
in no event shall such price be less than the applicable net asset value of
such shares as determined in accordance with the provisions of Article VIII
of these By-Laws. The Corporation may redeem, at current net asset value,
shares not offered for redemption held by any shareholder whose shares have a
value of less than $100, or such lesser amount as may be fixed by the Board
of Directors; provided that before the Corporation redeems such shares it
must notify the shareholder that the value of his shares is less than $100
and allow him 60 days to make an additional investment in an amount which
will increase the value of his account to $100 or more. The Corporation shall
pay redemption prices in cash.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE; VALUATION OF
PORTFOLIO SECURITIES AND OTHER ASSETS
SECTION 8.1. NET ASSET VALUE. The net asset value of a share of Common
Stock of the Corporation shall be determined in accordance with applicable
laws and regulations under the supervision of such persons and at such time
or times as shall from time to time be prescribed by the Board of Directors.
Each such determination shall be made by subtracting from the value of the
assets of the Corporation (as determined pursuant to Section 8.2 of these
By-Laws) the amount of its liabilities, dividing the remainder by the number
of shares of Common Stock issued and outstanding, and adjusting the results
to the nearest full cent per share.
SECTION 8.2. VALUATION OF PORTFOLIO SECURITIES AND OTHER ASSETS. Except as
otherwise required by any applicable law or regulation of any regulatory
agency having jurisdiction over the activities of the Corporation, the
Corporation shall determine the value of its portfolio securities and other
assets as follows:
(a) securities for which market quotations are readily available shall
be valued at current market value determined in such manner as the Board
of Directors may from time to time prescribe;
(b) all other securities and assets shall be valued at amounts deemed
best to reflect their fair value as determined in good faith by or under
the supervision of such persons and at such time or times as shall from
time to time be prescribed by the Board of Directors.
10
<PAGE>
All quotations, sale prices, bid and asked prices and other information
shall be obtained from such sources as the persons making such determination
believe to be reliable and any determination of net asset value based thereon
shall be conclusive.
ARTICLE IX
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Charter of the
Corporation, dividends and distributions upon the Common Stock of the
Corporation may be declared at such intervals as the Board of Directors may
determine, in cash, in securities or other property, or in shares of stock of
the Corporation, from any sources permitted by law, all as the Board of
Directors shall from time to time determine.
Inasmuch as the computation of net income and net profits from the sale of
securities or other properties for federal income tax purposes may vary from
the computation thereof on the books of the Corporation, the Board of
Directors shall have power, in its discretion, to distribute as income
dividends and as capital gain distributions, respectively, amounts sufficient
to enable the Corporation to avoid or reduce liability for federal income
taxes.
ARTICLE X
CUSTODIAN
SECTION 10.1. APPOINTMENT AND DUTIES. The Corporation shall at all times
employ a bank or trust company having the qualifications specified by the
Investment Company Act of 1940, as amended, as custodian with authority as
its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in these By-Laws and the Investment
Company Act of 1940, as amended:
(1) to receive and hold the securities owned by the Corporation and
deliver the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Corporation and
deposit the same in its own banking department or elsewhere as the
Directors may direct;
(3) to distribute such funds upon orders or vouchers;
(4) to keep the books and accounts of the Corporation and furnish
clerical and accounting services;
(5) to compute the net income of the Corporation and the net asset value
of the Corporation and its shares;
all upon such basis of compensation as may be agreed upon between the
Directors and the custodian. If so directed by a vote of a majority of the
shares of stock outstanding, the custodian shall deliver and pay over all
property of the Corporation held by it as specified in such vote.
The Board of Directors may also authorize the custodian to employ one or
more sub-custodians from time to time to perform such of the acts and
services of the custodian and upon such terms and conditions as may be agreed
upon between the custodian and such sub-custodian and approved by the Board
of Directors.
SECTION 10.2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Directors may direct
the custodian to deposit all or any part of the securities owned by the
Corporation in a system for the central handling of securities established by
a national securities exchange or a national securities association
registered with the Commission under the Securities Exchange Act of 1934, or
such other person as may be permitted by the Securities and Exchange
Commission, or otherwise in accordance with the Investment Company Act of
1940, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery
of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Corporation.
11
<PAGE>
ARTICLE XI
BOOKS AND RECORDS
SECTION 11.1. LOCATION. The books and records of the Corporation may be
kept outside the State of Maryland at such place or places as the Board of
Directors may from time to time determine, except as otherwise required by
law.
SECTION 11.2. STOCK LEDGERS. The Corporation shall maintain at the office
of its Transfer Agent an original stock ledger containing the names and
addresses of all stockholders and the number of shares held by each
stockholder. Such stock ledger may be in written form or any other form
capable of being converted into written form within a reasonable time for
visual inspection.
SECTION 11.3. ANNUAL STATEMENT. The President or a Vice President or the
Treasurer shall prepare or cause to be prepared annually a full and correct
statement of the affairs of the Corporation, including a statement of assets
and liabilities and a statement of operations for the preceding fiscal year,
which shall be submitted at the annual meeting of stockholders if such
meeting be held, and shall be filed within twenty (20) days thereafter at the
principal office of the Corporation in the State of Maryland.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
stockholders, directors, or of any committee is required to be given under
the provisions of the statute or under the provisions of the Charter of the
Corporation or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice and filed with the records of the
meeting, whether before or after the holding thereof, or actual attendance at
the meeting of Directors or committee in person, shall be deemed equivalent
to the giving of such notice to such person.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. SEAL. The Board of Directors shall adopt a corporate seal,
which shall be in the form of a circle, and shall have inscribed thereon the
name of the Corporation, the year of its incorporation, and the words
"Corporate Seal--Maryland." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 13.2. FISCAL YEAR. The fiscal year of the Corporation shall end on
such date as the Board of Directors may by resolution specify, and the Board
of Directors may by resolution change such date for future fiscal years at
any time and from time to time.
SECTION 13.3. ORDERS FOR PAYMENT OF MONEY. All orders or instructions for
the payment of money of the Corporation, and all notes or other evidences of
indebtedness issued in the name of the Corporation, shall be signed by such
officer or officers or such other person or persons as the Board of Directors
may from time to time designate, or as may be specified in or pursuant to the
agreement between the Corporation and the bank or trust company appointed as
Custodian of the securities and funds of the Corporation.
ARTICLE XIV
COMPLIANCE WITH FEDERAL REGULATIONS
The Board of Directors is hereby empowered to take such action as they may
deem to be necessary, desirable or appropriate so that the Corporation is or
shall be in compliance with any federal or state statute, rule or regulation
with which compliance by the Corporation is required.
12
<PAGE>
ARTICLE XV
AMENDMENTS
These By-Laws may be amended, altered, or repealed at any annual or
special meeting of the stockholders by the affirmative vote of the holders of
a majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote, provided notice of the general purpose of
the proposed amendment, alteration or repeal is given in the notice of said
meeting; or, at any meeting of the Board of Directors, by a vote of a
majority of the whole Board of Directors, provided, however, that any By-Law
or amendment or alteration of the By-Laws adopted by the Board of Directors
may be amended, altered or repealed and any By-Law repealed by the Board of
Directors may be reinstated, by vote of the stockholders of the Corporation.
13
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 7 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
December 17, 1996, relating to the financial statements and financial
highlights of Dean Witter Pacific Growth Fund, which appears in such Statement
of Additional Information, and to the incorporation by reference of our report
into the Prospectus which constitutes part of this Registration Statement. We
also consent to the reference to us under the heading "Independent
Accountants" and "Experts" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 17, 1996
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
PACIFIC GROWTH FUND
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-96 TOTAL RETURN YEARS - n TOTAL RETURN - T
- ------------ --------- ------------ --------- ----------------
31-Oct-95 $980.00 (2.00%) 1.00 (2.00%)
31-Oct-91 $1,766.40 76.64% 5.00 12.05%
30-Nov-90 $2,089.90 108.99% 5.92 13.25%
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ______________________|
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \ |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-96 RETURN - TR YEARS - n TOTAL RETURN - t
- ------------ --------- ----------- --------- ----------------
31-Oct-95 $1,030.00 3.00% 1.00 3.00%
31-Oct-91 $1,786.40 78.64% 5.00 12.30%
30-Nov-90 $2,099.90 109.99% 5.92 13.35%
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR-1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
(D) (E) (F)
$10,000 TOTAL GROWTH OF GROWTH OF GROWTH OF
INVESTED - RETURN - $10,000 $50,000 $100,000
P TR INVESTMENT INVESTMENT INVESTMENT
- ----------- -------- ---------- ---------- ----------
30-Nov-90 109.99 $20,999 $104,995 $209,990
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 1,520,145,247
<INVESTMENTS-AT-VALUE> 1,598,327,295
<RECEIVABLES> 22,565,847
<ASSETS-OTHER> 12,159,969
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,633,053,111
<PAYABLE-FOR-SECURITIES> 2,722,795
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,862,436
<TOTAL-LIABILITIES> 8,585,231
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,571,133,362
<SHARES-COMMON-STOCK> 86,011,075
<SHARES-COMMON-PRIOR> 76,803,856
<ACCUMULATED-NII-CURRENT> 1,241,493
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (26,059,409)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 78,152,434
<NET-ASSETS> 1,624,467,880
<DIVIDEND-INCOME> 40,517,977
<INTEREST-INCOME> 1,922,169
<OTHER-INCOME> 0
<EXPENSES-NET> 39,525,728
<NET-INVESTMENT-INCOME> 2,914,418
<REALIZED-GAINS-CURRENT> 2,758,084
<APPREC-INCREASE-CURRENT> 28,304,565
<NET-CHANGE-FROM-OPS> 33,977,067
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (33,521,569)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,199,038
<NUMBER-OF-SHARES-REDEEMED> (30,677,011)
<SHARES-REINVESTED> 1,685,192
<NET-CHANGE-IN-ASSETS> 182,919,069
<ACCUMULATED-NII-PRIOR> 14,407,774
<ACCUMULATED-GAINS-PRIOR> (11,376,623)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,242,482
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 39,525,728
<AVERAGE-NET-ASSETS> 1,657,103,521
<PER-SHARE-NAV-BEGIN> 18.77
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> .50
<PER-SHARE-DIVIDEND> (.43)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.89
<EXPENSE-RATIO> 2.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
