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Filed Pursuant to Rule 497(c)
Registration File No.: 33-?????
PROSPECTUS
JUNE 26, 1997
TCW/DW Core Equity Trust (the "Fund") is an open-end, non-diversified management
investment company, whose investment objective is long-term growth of capital.
The Fund seeks to achieve its investment objective by investing primarily in
common stocks and securities convertible into common stocks issued by domestic
and foreign companies. See "Investment Objective and Policies."
Shares of the Fund are continuously offered at net asset value without the
imposition of a sales charge. However, repurchases and/or redemptions 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 "Repurchases and Redemptions--Contingent Deferred Sales Charge." In
addition, the Fund pays the Distributor a Rule 12b-1 distribution fee pursuant
to a Plan of Distribution at the annual rate of 1% of the lesser of the (i)
average daily aggregate net sales or (ii) average daily net assets of the Fund.
See "Purchase of Fund Shares--Plan of Distribution."
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated June 26, 1997, 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.
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 3
Financial Highlights .................................................. 4
The Fund and its Management ........................................... 4
Investment Objective and Policies ..................................... 5
Risk Considerations and Investment Practices ......................... 6
Investment Restrictions ............................................... 10
Purchase of Fund Shares ............................................... 10
Shareholder Services .................................................. 13
Repurchases and Redemptions ........................................... 15
Dividends, Distributions and Taxes .................................... 17
Performance Information ............................................... 18
Additional Information ................................................ 19
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TCW/DW CORE EQUITY TRUST
Two World Trade Center
New York, New York 10048
(212 392-2550 or
(800) 869-NEWS (toll-free)
Dean Witter Distributors Inc.
Distributor
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PROSPECTUS SUMMARY
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<TABLE>
<CAPTION>
<S> <C>
THE The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an open-end,
FUND non-diversified management investment company investing primarily in common stocks and securities convertible
into common stocks.
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SHARES Shares of beneficial interest with $0.01 par value (see page 19).
OFFERED
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OFFERING At net asset value without sales charge (see page 11). Shares redeemed within six years of purchase are subject
PRICE to a contingent deferred sales charge under most circumstances (see page 16).
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MINIMUM The minimum initial investment is $1,000 ($100 if the account is opened through EasyInvest (Service Mark) ); and
PURCHASE the minimum subsequent investment is $100 (see page 11).
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INVESTMENT The investment objective of the Fund is long-term growth of capital.
OBJECTIVE
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MANAGER Dean Witter Services Company Inc. (the "Manager"), a wholly-owned subsidiary of Dean Witter InterCapital Inc.
("InterCapital"), is the Fund's manager. The Manager also serves as manager to thirteen other investment
companies advised by TCW Funds Management, Inc. (the "TCW/DW Funds"). The Manager and InterCapital serve in
various investment management, advisory, management and administrative capacities to a total of 101 investment
companies and other portfolios with assets of approximately $92.2 billion at April 30, 1997.
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ADVISER TCW Funds Management, Inc. (the "Adviser") is the Fund's investment adviser. In addition to the Fund, the
Adviser serves as investment adviser to eleven other TCW/DW Funds. As of April 30, 1997, the Adviser and its
affiliates had approximately $53 billion under management or committed to management in various fiduciary or
advisory capacities, primarily to institutional investors.
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MANAGEMENT The Manager receives a monthly fee at the annual rate of 0.51% of daily net assets, scaled down on assets over
AND ADVISORY $750 million. The Adviser receives a monthly fee at an annual rate of 0.34% of daily net assets, scaled down on
FEES assets over $750 million (see page 5).
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DIVIDENDS Income dividends and capital gains, if any, will be distributed no less than annually. Dividends and capital
gains distributions are automatically reinvested in additional shares at net asset value unless the shareholder
elects to receive cash.
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DISTRIBUTOR Dean Witter Distributors Inc. (the "Distributor") is the distributor of the Fund's shares. The Distributor
receives from the Fund a distribution fee accrued daily and payable monthly at the rate of 1% per annum of the
lesser of (i) the 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 10-12).
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REDEMPTION-- Shares are redeemable by the shareholder at net asset value. An account may be involuntarily redeemed if the
CONTINGENT total value of the account is less than $100 or, if the account was opened through EasyInvest (Service Mark), if
DEFERRED after twelve months the shareholder has invested less than $1,000 in the account. Although no commission or
SALES sales load is imposed upon the purchase of shares, a contingent deferred sales charge (scaled down from 5% to
CHARGE 1%) is imposed on any redemption of shares if after such redemption the aggregate current value of an account
with the Fund falls below the aggregate amount of the investor's purchase payments made during the six years
preceding the redemption. However, there is no charge imposed on redemption of shares purchased through
reinvestment of dividends or distributions (see pages 15-17).
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RISK The net asset value of the Fund's shares will fluctuate with changes in the market value of the Fund's
CONSIDERATIONS portfolio securities. The Fund is a non-diversified investment company and, as such, is not subject to the
diversification requirements of the Investment Company Act of 1940, as amended. As a result, a relatively high
percentage of the Fund's assets may be invested in a limited number of issuers. However, the Fund intends to
continue to qualify as a regulated investment company under the federal income tax laws and, as such, is subject
to the diversification requirements of the Internal Revenue Code. The Fund may invest in lower rated or unrated
convertible securities, may invest in foreign securities and may purchase securities on a when-issued, delayed
delivery or "when, as and if issued" basis, which may involve certain special risks (see pages 6-10).
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</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
2
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended March 31, 1997.
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
<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%
</TABLE>
A contingent deferred sales charge is imposed at the following declining
rates:
Year Since Purchase Payment Made Percentage
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First ............................... 5.0%
Second .............................. 4.0%
Third ............................... 3.0%
Fourth .............................. 2.0%
Fifth ............................... 2.0%
Sixth ............................... 1.0%
Seventh and thereafter .............. None
<TABLE>
<CAPTION>
<S> <C>
Redemption Fees .......................................................... None
Exchange Fee ............................................................. None
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
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Management and Advisory Fees ............................................. 0.85%
12b-1 Fees* .............................................................. 0.74%
Other Expenses ........................................................... 0.14%
Total Fund Operating Expenses ............................................ 1.73%
</TABLE>
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* A PORTION OF THE 12B-1 FEE EQUAL TO 0.25% OF THE FUND'S AVERAGE DAILY NET
ASSETS IS CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES (SEE "PURCHASE
OF FUND SHARES").
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<CAPTION>
<S> <C> <C> <C> <C>
Example 1 year 3 years 5 years 10 years
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You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period: $68 $84 $114 $204
You would pay the following expenses on the same investment, assuming no
redemption: ............................................................ $18 $54 $94 $204
</TABLE>
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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 "Repurchases and
Redemptions" in this Prospectus.
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
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FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, notes thereto, and the unqualified report of
independent accountants which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE
PERIOD
MAY 29,
FOR THE YEAR ENDED MARCH 31, 1992*
THROUGH
MARCH 31,
1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 15.09 $ 12.11 $ 12.10 $ 11.26 $ 10.00
---------------------------- -------------- ---------- ---------- ------------
Net investment loss ...................... (.12) (0.11) (0.06) (0.06) (0.01)
Net realized and unrealized gain ........ 1.39 3.09 0.07 0.90 1.27
---------------------------- -------------- ---------- ---------- ------------
Total from investment operations ........ 1.27 2.98 0.01 0.84 1.26
---------------------------- -------------- ---------- ---------- ------------
Less distributions from net realized gain (1.27) -- -- -- --
---------------------------- -------------- ---------- ---------- ------------
Net asset value, end of period ........... $ 15.09 $ 15.09 $ 12.11 $ 12.10 $ 11.26
============================ ============== ========== ========== ============
TOTAL INVESTMENT RETURN+.................. 8.31% 24.69% 0.08% 7.46% 12.60%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................. 1.73% 1.82% 1.96% 1.93% 2.07%(2)
Net investment loss ...................... (0.75)% (0.72)% (0.48)% (0.59)% (0.14)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $727,528 $767,170 $697,350 $707,069 $486,829
Portfolio turnover rate .................. 45% 48% 38% 35% 26%(1)
Average commission rate paid ............. $ 0.0590 $ 0.0595 -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....
Net investment loss ......................
Net realized and unrealized gain ........
Total from investment operations ........
Less distributions from net realized gain
Net asset value, end of period ...........
TOTAL INVESTMENT RETURN+ .................
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................
Net investment loss ......................
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .
Portfolio turnover rate ..................
Average commission rate paid .............
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* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of last business day of the period.
(1) Not annualized.
(2) Annualized.
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THE FUND AND ITS MANAGEMENT
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TCW/DW Core Equity Trust (the "Fund") is an open-end, non-diversified
management investment company. The Fund is a trust of the type commonly known as
a "Massachusetts business trust" and was organized under the laws of
Massachusetts on January 31, 1992.
Dean Witter Services Company Inc. (the "Manager"), whose address is Two World
Trade Center, New York, New York 10048, is the Fund's Manager. The Manager is a
wholly-owned subsidiary of Dean Witter InterCapital Inc. ("InterCapital").
InterCapital is a wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co., a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses--securities,
asset management and credit services.
The Manager acts as manager to thirteen other TCW/DW Funds. The Manager and
InterCapital serve in various investment management, advisory, management and
administrative capacities to a total of 101 investment companies, thirty of
which are listed on the New York Stock Exchange, with combined
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assets of approximately $89 billion as of April 30, 1997. InterCapital also
manages and advises portfolios of pension plans, other institutions and
individuals which aggregated approximately $3.2 billion at such date.
The Fund has retained the Manager to manage its business affairs, supervise
its overall day-to-day operations (other than providing investment advice) and
provide all administrative services.
TCW Funds Management, Inc. (the "Adviser"), whose address is 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017, is the Fund's
investment adviser. The Adviser was organized in 1987 as a wholly-owned
subsidiary of The TCW Group, Inc. ("TCW"), whose subsidiaries, including Trust
Company of the West and TCW Asset Management Company, provide a variety of
trust, investment management and investment advisory services. Robert A. Day,
who is Chairman of the Board of Directors of TCW, may be deemed to be a control
person of the Adviser by virtue of the aggregate ownership by Mr. Day and his
family of more than 25% of the outstanding voting stock of TCW. The Adviser
serves as investment adviser to thirteen other TCW/DW Funds in addition to the
Fund. As of March 31, 1997, the Adviser and its affiliated companies had
approximately $53 billion under management or committed to management, primarily
from institutional investors.
The Fund has retained the Adviser to invest the Fund's assets.
The Fund's Trustees review the various services provided by the Manager and
the 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.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the annual rate of 0.51% to
the Fund's net assets up to $750 million, scaled down at various asset levels to
0.45% on assets over $1.5 billion. As compensation for its investment advisory
services, the Fund pays the Adviser monthly compensation calculated daily by
applying an annual rate of 0.34% to the Fund's net assets up to $750 million,
scaled down at various asset levels to 0.30% on assets over $1.5 billion. The
total fees paid by the Fund to the Manager and the Adviser are higher than the
fees paid by most other investment companies for similar services. For the
fiscal year ended March 31, 1997, the Fund accrued total compensation to the
Manager and the Adviser amounting to 0.51% and 0.34%, respectively, of the
Fund's average daily net assets. During that period, the Fund's total expenses
amounted to 1.73% of the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is long-term growth of capital. This
objective is fundamental and may not be changed without shareholder approval.
There is no assurance that the objective will be achieved.
The Fund invests primarily in common stocks and securities convertible into
common stocks of companies which offer the prospect for growth of earnings. The
Fund seeks to achieve its investment objective by investing under normal
circumstances at least 65% of its total assets in common stocks and convertible
securities. There are no minimum rating or quality requirements with respect to
convertible securities in which the Fund may invest and, thus, all or some of
such securities may be below investment grade. See the Appendix to the Statement
of Additional Information for a discussion of ratings of fixed-income
securities.
The Adviser invests the Fund's assets by pursuing its "top down sector
rotational core equity" philosophy. That strategy involves a three-step process
to achieve value for the Fund's shareholders by taking advantage of unrecognized
appreciation potential created by changes in the economic, social and political
environments. Pursuant to its approach, the Adviser first determines those
market sectors, and the indus-
5
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tries within those sectors, that the Adviser believes offer opportunities for
capital appreciation. The Adviser makes this determination by utilizing an
industry matrix to divide the stock market by economic sectors and industries,
and then by continuously reviewing those industries. Following the
identification of those specific industries, individual companies within those
industries are chosen for investment by the Fund, based on factors including but
not limited to: potential growth in earnings and dividends; quality of
management; new products and/or new markets; research and development
capabilities; historical rate of return on equity and invested capital; cash
flow and balance sheet strength; and forcing value through company initiatives
such as cost reduction or share repurchase. As the third step, the Adviser
determines the weightings that the selected industries and companies will have
in the portfolio.
The Fund intends to invest primarily, but not exclusively, in companies
having stock market capitalizations (calculated by multiplying the number of
outstanding shares of a company by the current market price) of at least $1
billion. The Adviser anticipates that the Fund will focus its investments in
fewer than 100 companies, although the Adviser continuously monitors up to 250
companies for possible investment by the Fund. The Fund's holdings are changed
by the Adviser as warranted based on changes in the overall market or economic
environment, as well as factors specific to particular companies.
While the Fund invests primarily in common stocks and securities convertible
into common stock, under ordinary circumstances it may invest up to 35% of its
total assets in money market instruments, which are short-term (maturities of up
to thirteen months) fixed-income securities issued by private and governmental
institutions. Money market instruments in which the Fund may invest are
securities issued or guaranteed by the U.S. Government or its agencies (Treasury
bills, notes and bonds); obligations of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more; Eurodollar
certificates of deposit; obligations of savings banks and savings and loan
associations having total assets of $1 billion or more; fully insured
certificates of deposit; and commercial paper rated within the two highest
grades by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P") or, if not rated, issued by a company having an outstanding
debt issue rated AAA by S&P or Aaa by Moody's.
There may be periods during which, in the opinion of the Adviser, market
conditions warrant reduction of some or all of the Fund's securities holdings.
During such periods, the Fund may adopt a temporary "defensive" posture in which
greater than 35% of its total assets is invested in money market instruments or
cash.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940, as amended (the "Act"), and as such is not
limited by the Act in the proportion of its assets that it may invest in the
obligations of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" under Subchapter
M of the Internal Revenue Code. See "Dividends, Distributions and Taxes." In
order to qualify, among other requirements, the Fund will limit its investments
so that at the close of each quarter of the taxable year, (i) not more than 25%
of the market value of the Fund's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market value
of its total assets not more than 5% will be invested in the securities of a
single issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. To the extent that a relatively high percentage
of the Fund's assets may be invested in the securities of a limited number of
issuers, the Fund's portfolio securities may be more susceptible to any single
economic, political or regulatory occurrence than the portfolio securities of a
diversified investment company. The limitations described in this paragraph are
not fundamental policies and may be revised to the extent applicable Federal
income tax requirements are revised.
RISK CONSIDERATIONS AND INVESTMENT PRACTICES
The net asset value of the Fund's shares will fluctuate with changes in the
market value of the Fund's portfolio securities. The market value of the
6
<PAGE>
Fund's portfolio securities will increase or decrease due to a variety of
economic, market and political factors which cannot be predicted.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. Convertible
securities rank senior to common stocks in a corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The value
of a convertible security is a function of its "investment value" (its value as
if it did not have a conversion privilege), and its "conversion value" (the
security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
Because of the special nature of the Fund's permitted investments in lower
rated convertible securities, the Adviser must take account of certain special
considerations in assessing the risks associated with such investments. The
prices of lower rated securities have been found to be less sensitive to changes
in prevailing interest rates than higher rated investments, but are likely to be
more sensitive to adverse economic changes or individual corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet their projected business goals or to obtain additional
financing. If the issuer of a fixed-income security owned by the Fund defaults,
the Fund may incur additional expenses to seek recovery. In addition, periods of
economic uncertainty and change can be expected to result in an increased
volatility of market prices of lower rated securities and a corresponding
volatility in the net asset value of a share of the Fund.
Foreign Securities. The Fund may invest in securities of foreign companies.
However, the Fund will not invest more than 25% of the value of its total
assets, at the time of purchase, in foreign securities (other than securities of
Canadian issuers registered under the Securities Exchange Act of 1934 or
American Depository Receipts, on which there is no such limit). The Fund's
investments in unlisted foreign securities are subject to the Fund's overall
policy limiting its investment in illiquid securities to 15% or less of its net
assets. Investments in certain Canadian issuers may be speculative due to
certain political risks and may be subject to substantial price fluctuations.
Foreign securities investments may be affected by changes in currency rates
or exchange control regulations, changes in governmental administration or
economic or monetary policy (in the United States and abroad) or changed
circumstances in dealings between nations. Fluctuations in the relative rates of
exchange between the currencies of different nations will affect the value of
the Fund's investments denominated in foreign currency. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S. dollar
value of the Fund's assets denominated in that currency and thereby impact upon
the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and demand
on the foreign exchange markets. These forces are themselves affected by the
international balance of payments and other economic and financial conditions,
government
7
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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.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of the Fund's trades effected in such markets. As such, the
inability to dispose of portfolio securities due to settlement delays could
result in losses to the Fund due to subsequent declines in value of such
securities and the inability of the Fund to make intended security purchases due
to settlement problems could result in a failure of the Fund to make potentially
advantageous investments. To the extent the Fund purchases Eurodollar
certificates of deposit issued by foreign branches of domestic United States
banks, consideration will be given to their domestic marketability, the lower
reserve requirements normally mandated for overseas banking operations, the
possible impact of interruptions in the flow of international currency
transactions and future international political and economic developments which
might adversely affect the payment of principal or interest.
Repurchase Agreements. 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
designed to minimize those risks. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions and maintaining adequate collateralization.
Private Placements. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the 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 Adviser, pursuant to
procedures adopted by the Trustees of the Fund, will make a determination as to
the liquidity of each restricted security purchased by the Fund. If a restricted
security is determined to be
8
<PAGE>
"liquid," such security will not be included within the category "illiquid
securities," which under current policy may not exceed 15% of the Fund's net
assets. However, investing in Rule 144A securities could have the effect of
increasing the level of Fund illiquidity to the extent the Fund, at a particular
point in time, may be unable to find qualified institutional buyers interested
in purchasing such securities.
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. 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. 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.
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.
Investment in Real Estate Investment Trusts. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments primarily
in commercial real estate properties. Investment in real estate investment
trusts may be the most practical available means for the Fund to invest in the
real estate industry (the Fund is prohibited from investing in real estate
directly). As a shareholder in a real estate investment trust, the Fund would
bear its ratable share of the real estate investment trust's expenses, including
its advisory and administration fees. At the same time the Fund would continue
to pay its own investment management fees and other expenses, as a result of
which the Fund and its shareholders in effect will be absorbing duplicate levels
of fees with respect to investments in real estate investment trusts.
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 money market
instruments, which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least the market value, determined daily,
of the loaned securities. As with any extensions of credit, there are risks of
delay in recovery and in some cases even loss of rights in the collateral should
the borrower of the securities fail financially. However, loans of portfolio
securities will only be made to firms deemed by the Adviser to be creditworthy
and when the income which can be earned from such loans justifies the attendant
risks.
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<PAGE>
Futures and Options Transactions. The Fund is authorized to engage in options
and futures transactions, although it has no current intention to do so during
the coming year. The Fund will not engage in such options and futures
transactions unless and until the Fund's Prospectus has been revised to reflect
such a change following approval by the Fund's Board of Trustees.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Adviser with a view to
achieving the Fund's investment objective. Robert M. Hanisee, Managing Director
of the Adviser, is the Fund's primary portfolio manager. Mr. Hanisee has been
the primary portfolio manager of the Fund since its inception and has been a
portfolio manager with affiliates of TCW for over five years.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Adviser will rely on information from various sources,
including research, analysis and appraisals of brokers and dealers, including
Dean Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate of the Manager, and
others regarding economic developments and interest rate trends, and the
Adviser's own analysis of factors it deems relevant.
Orders for transactions in portfolio securities and commodities are placed
for the Fund with a number of brokers and dealers, including DWR. The Fund may
incur brokerage commissions on transactions conducted through DWR. It is not
anticipated that the portfolio trading will result in the Fund's portfolio
turnover rate exceeding 100% in any one year. The Fund will incur brokerage
costs commensurate with its portfolio turnover rate.
Except as specifically noted, all investment policies and practices discussed
above are not fundamental policies of the Fund and thus may be changed without
shareholder approval.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. For purposes
of the following limitations: (i) all percentage limitations apply immediately
after a purchase or initial investment, and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund may not:
1. Invest 25% or more of the value of its total assets in securities of
issuers in any one in-dustry. This restriction does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities.
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction does not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities.
In addition, as a non-fundamental policy, the Fund may not, as to 75% of its
total assets, purchase more than 10% of the voting securities of any issuer.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Manager, pursuant to a Distribution
Agreement between the Fund and the Distributor and offered by DWR and other
dealers (which may include TCW Brokerage Services, an affiliate of the Adviser)
who have entered into selected
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<PAGE>
broker-dealer agreements with the Distributor ("Selected Broker-Dealers"). The
principal executive office of the Distributor is located at Two World Trade
Center, New York, New York 10048.
The minimum initial purchase is $1,000 and subsequent purchases of $100 or
more may be made by sending a check, payable to TCW/DW Core Equity Trust,
directly to Dean Witter Trust Company (the "Transfer Agent") at P.O. Box 1040,
Jersey City, NJ 07303, or by contacting an account executive of DWR or other
Selected Broker-Dealer. The minimum initial purchase in the case of investments
through EasyInvest (Service Mark), 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 gains distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions.
The offering price will be the net asset value per share next determined
following receipt of an order by the Transfer Agent (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 "Repurchases and Redemptions"). Sales personnel of a Selected
Broker-Dealer 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% 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
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<PAGE>
Fund's shares to other than current shareholders; and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan to compensate DWR and
other Selected Broker-Dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed distribution expenses.
For the fiscal year ended March 31, 1997, the Fund accrued payments under the
Plan amounting to $5,711,981, which amount is equal to 0.74% of the Fund's
average daily net assets for the fiscal year. The payments accrued under the
Plan were calculated pursuant to clause (a) of the compensation formula under
the Plan.
At any given time, the expenses in distributing shares of the Fund may be in
excess of the total of (i) the payments made by the Fund pursuant to the Plan,
and (ii) the proceeds of contingent deferred sales charges paid by investors
upon the redemption of shares (see "Repurchases and Redemptions--Contingent
Deferred Sales Charge"). For example, if $1 million in expenses in distributing
shares of the Fund had been incurred and $750,000 had been received as described
in (i) and (ii) above, the excess expense would amount to $250,000. The
Distributor has advised the Fund that the excess distribution expenses
(including the carrying charge described above) totalled $21,584,533 at March
31, 1997, 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 Trustees
will consider at that time the manner in which to treat such expenses. Any
cumulative expenses incurred but not yet recovered through distribution fees or
contingent deferred sales charges, may or may not be recovered through future
distribution fees or contingent deferred sales charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time), on each day that the New York Stock
Exchange is open by taking the value of all assets of the Fund, subtracting all
its liabilities, dividing by the number of shares outstanding and adjusting to
the nearest cent. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by the
New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
stock exchange is valued at its latest sale price on that exchange; if there
were no sales that day, the security is valued at the latest bid price (in cases
where a security is traded on more than one exchange, the security is valued on
the exchange designated as the primary market pursuant to procedures adopted by
the Trustees), and (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest bid price. When
market quotations are not readily available, including circumstances under which
it is determined by the 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 Board of Trustees.
Short-term debt securities with remaining maturities of 60 days or less at
the time of purchase are valued at amortized cost, unless the Trustees determine
such does not reflect the securities' market value, in which case these
securities will be valued at their fair value as determined by the Trustees.
Other short-term debt securities will be valued on a mark-to-market basis until
such time as they reach a remaining
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<PAGE>
maturity of 60 days, whereupon they will be valued at amortized cost using their
value on the 61st day unless the Trustees determine such does not reflect the
securities' market value, in which case these securities will be valued at their
fair value as determined by the Trustees. All other securities and other assets
are valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what 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 TCW/DW Fund), 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 "Repurchases and Redemptions").
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 30 days after the payment
date. Shares so acquired are not subject to the imposition of a contingent
deferred sales charge upon their redemption (see "Repurchases and Redemptions").
EasyInvest (Service Mark). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Fund's Transfer Agent for investment in
shares of the Fund. 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. (See "Purchases of Fund
Shares" and "Repurchases and Redemptions--Involuntary Redemption.")
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable
contingent deferred sales charge will be imposed on shares redeemed under the
Withdrawal Plan (See "Repurchases and Redemptions--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 information about any of the above services.
Tax Sheltered Retirement Plans. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the Transfer
Agent.
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<PAGE>
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege" allowing
the exchange of shares of the Fund for shares of any other TCW/DW Fund sold with
a contingent deferred sales charge ("CDSC Funds"), for shares of TCW/DW North
American Government Income Trust, TCW/DW Income and Growth Fund and TCW/DW
Balanced Fund, and for shares of five money market funds for which InterCapital
serves as investment manager: Dean Witter Liquid Asset Fund Inc., Dean Witter
U.S. Government Money Market Trust, Dean Witter Tax-Free Daily Income Trust,
Dean Witter California Tax-Free Daily Income Trust and Dean Witter New York
Municipal Money Market Trust (the foregoing eight 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.
Shareholders utilizing the Fund's Exchange Privilege may subsequently
re-exchange such shares back to the Fund. However, no exchange privilege is
available between the Fund and any other fund managed by the Manager or
InterCapital, other than other TCW/DW Funds and the five money market funds
listed above.
An exchange to another CDSC Fund or to any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share of
each fund after the exchange order is received. When exchanging into a money
market fund from the Fund or any other TCW/DW 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 TCW/DW Fund 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. During the period of time the shareholder
remains in the Exchange Fund (calculated from the last day of the month in which
the Exchange Fund shares were acquired), the holding period (for the purpose of
determining the rate of the CDSC) is frozen. If those shares are subsequently
reexchanged for shares of a CDSC Fund, the holding period previously frozen when
the first exchange was made resumes on the last day of the month in which shares
of a CDSC Fund are reacquired. Thus, the CDSC is based upon the time (calculated
as described above) the shareholder was invested in a CDSC Fund (see
"Repurchases and Redemptions--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 which are attributable to those shares. (Exchange
Fund 12b-1 distribution fees are described in the prospectuses for those funds.)
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Manager to be abusive and
contrary to the best interests of the Fund's other shareholders and, at the
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, each of the other TCW/DW
Funds and each of the money market funds may in its discretion limit or
otherwise restrict the number of times this Exchange Privilege may be exercised
by any investor. Any such restriction will be made by the Fund on a prospective
basis only, upon notice to the shareholder not later than ten days following
such shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such
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other TCW/DW Funds or money market funds for which shares of the Fund have been
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares, on
which the shareholder may realize a capital gain or loss. However, the ability
to deduct capital losses on an exchange may be limited in situations where there
is an exchange of shares within ninety days after the shares are purchased. The
Exchange Privilege is only available in states where an exchange may legally be
made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the money market
funds for which the Exchange Privilege is available pursuant to this Exchange
Privilege by contacting their DWR or other Selected Broker-Dealer 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 will 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 in the past with
other funds managed by the Manager.
Shareholders should contact their DWR or other Selected Broker-Dealer account
executive or the Trans-fer Agent for further information about the Exchange
Privilege.
REPURCHASES AND REDEMPTIONS
- -----------------------------------------------------------------------------
Repurchase. DWR and other Selected Dealers are authorized to repurchase
shares represented by a share certificate which is delivered to any of their
offices. Shares held in a shareholder's account without a share certificate may
also be repurchased by DWR and other Selected Broker-Dealers upon the telephonic
or telegraphic request of the shareholder. The repurchase price is the net asset
value next computed (see "Purchase of Fund Shares") after such repurchase order
is received by DWR or other Selected Broker-Dealer, reduced by any applicable
CDSC (see below).
The CDSC, if any, will be the only fee imposed 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
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<PAGE>
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 below under
"Redemption."
Redemption. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds
will be reduced by the amount of any applicable contingent deferred sales charge
(see below). If shares are held in a shareholder's account without a share
certificate, a written request for redemption to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by the
shareholder, the shares may be redeemed by surrendering the certificates with a
written request for redemption along with any additional documentation required
by the Transfer Agent.
Contingent Deferred Sales Charge. Shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any charge upon redemption.
Shares redeemed sooner than six years after purchase may, however, be subject to
a charge upon redemption. This charge is called a "contingent deferred sales
charge" ("CDSC"), which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the table below:
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- --------------------------- -----------------------
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
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. 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 Manager
or its parent, Dean Witter InterCapital Inc., 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 Manager, serves as trustee or the 401(k)
Support Services Group of DWR serves as recordkeeper ("Eligible 401(k) Plan"),
provided that either: (A) the plan continues to be an Eligible 401(k) Plan
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<PAGE>
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.
Payment for Shares Redeemed or Repurchased. Pay ment for shares presented for
repurchase or redemption will be made by check within seven days after receipt
by the Transfer Agent of the certificate and/or written request in good order.
Such payment may be postponed or the right of redemption suspended under unusual
circumstances. If the shares to be redeemed have recently been purchased by
check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
repurchased or redeemed and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the repurchase or
redemption, reinstate any portion or all of the proceeds of such repurchase or
redemption 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
repurchase or redemption.
Involuntary Redemption. The Fund reserves the right, on sixty days notice, to
redeem, at their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or custodial account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100 or such lesser amount as may
be fixed by the Trustees or, in the case of an account opened through EasyInvest
(Service Mark), 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 him or her sixty days
to make an additional investment in an amount which will increase the value of
his or her 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
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 net long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
Fund shares and automatically credited to the shareholder's account without
issuance of a share certificate unless the shareholder requests in writing that
all dividends and/or distributions be paid in cash. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and capital gains to shareholders and otherwise continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code, it
is not expected that the Fund will be required to pay any federal income
17
<PAGE>
tax. Shareholders who are required to pay taxes on their income will normally
have to pay federal income taxes, and any state income taxes, on the dividends
and distributions they receive from the Fund. Such dividends and distributions,
to the extent that they are derived from net investment income or short-term
capital gains, are taxable to the shareholder as ordinary income regardless of
whether the shareholder receives such payments in additional shares or in cash.
Any dividends declared with a record date in the last quarter of any calendar
year which are paid in the following year prior to February 1 will be deemed
received by the shareholder in the prior year. Dividend payments will be
eligible for the federal dividends received deduction available to the Fund's
corporate shareholders only to the extent the aggregate dividends received by
the Fund would be eligible for the deduction if the Fund were the shareholder
claiming the dividends received deduction. In this regard, a 46-day holding
period generally must be met.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the dividends received deduction.
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 calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of the
foregoing to their current situation.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements and
sales literature. The total return of the Fund is based on historical earnings
and is not intended to indicate future performance. The "average annual total
return" of the Fund refers to a figure reflecting the average annualized
percentage increase (or decrease) in the value of an initial investment in the
Fund of $1,000 over periods of one, five and ten years, as well as over the life
of the Fund if less than any of the foregoing. Average annual total return
reflects all income earned by the Fund, any appreciation or depreciation of the
Fund's assets, all expenses incurred by the Fund and all sales charges which
would be incurred by redeeming shareholders, for the stated periods. It also
assumes reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, and year-by-year or
other types of total return figures. Such calculations may or may not reflect
the deduction of the contingent deferred sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the Fund.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations
(such as mutual fund performance rankings of Lipper Analytical Services, Inc.).
18
<PAGE>
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of $0.01 par
value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitation on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
Code of Ethics. The Adviser is subject to a Code of Ethics with respect to
investment transactions in which the Adviser's officers, directors and certain
other persons have a beneficial interest to avoid any actual or potential
conflict or abuse of their fiduciary position. The Code of Ethics, as it
pertains to the TCW/DW Funds, contains several restrictions and procedures
designed to eliminate conflicts of interest including: (a) pre-clearance of
personal investment transactions to ensure that personal transactions by
employees are not being conducted at the same time as the Adviser's clients; (b)
quarterly reporting of personal securities transactions; (c) a prohibition
against personally acquiring securities in an initial public offering, entering
into uncovered short sales and writing uncovered options; (d) a seven day "black
out period" prior or subsequent to a TCW/DW Fund transaction during which
portfolio managers are prohibited from making certain transactions in securities
which are being purchased or sold by a TCW/DW Fund; (e) a prohibition, with
respect to certain investment personnel, from profiting in the purchase and
sale, or sale and purchase, of the same (or equivalent) securities within 60
calendar days; and (f) a prohibition against acquiring any security which is
subject to firm wide or, if applicable, a department restriction of the Adviser.
The Code of Ethics provides that exemptive relief may be given from certain of
its requirements, upon application. The Adviser's Code of Ethics complies with
regulatory requirements and, insofar as it relates to persons associated with
registered investment companies, the 1994 Report of the Advisory Group on
Personal Investing of the Investment Company Institute.
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.
19
<PAGE>
TCW/DW Core Equity Trust
Two World Trade Center
New York, New York 10048
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
Robert M. Hanisee
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
TCW/DW
Core Equity
Trust
PROSPECTUS
JUNE 26, 1997
<PAGE>
TCW/DW
CORE EQUITY
TRUST
STATEMENT OF ADDITIONAL INFORMATION
JUNE 26, 1997
- -----------------------------------------------------------------------------
TCW/DW Core Equity Trust (the "Fund") is an open-end, non-diversified
management investment company, whose investment objective is long-term growth of
capital. The Fund seeks to achieve its investment objective by investing
primarily in common stocks and securities convertible into common stocks. See
"Investment Objective and Policies."
A Prospectus for the Fund dated June 26, 1997, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone number listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc. at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
TCW/DW Core Equity Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
The Fund and its Management .................... 3
Trustees and Officers .......................... 6
Investment Practices and Policies .............. 12
Investment Restrictions ........................ 15
Portfolio Transactions and Brokerage ........... 16
The Distributor ................................ 17
Shareholder Services ........................... 20
Repurchases and Redemptions .................... 24
Dividends, Distributions and Taxes ............. 26
Performance Information ........................ 26
Description of Shares .......................... 27
Custodian and Transfer Agent ................... 28
Independent Accountants ........................ 28
Reports to Shareholders ........................ 28
Legal Counsel .................................. 28
Experts ........................................ 28
Registration Statement ......................... 28
Financial Statements--March 31, 1997 ........... 29
Report of Independent Accountants .............. 39
Appendix--Ratings of Corporate Debt Instruments 40
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts business
trust" and was organized under the laws of the Commonwealth of Massachusetts on
January 31, 1992. The Fund is one of the TCW/DW Funds, which currently consist,
in addition to the Fund, of TCW/DW Small Cap Growth Fund, TCW/DW North American
Government Income Trust, TCW/DW Latin American Growth Fund, TCW/DW Term Trust
2002, TCW/DW Income and Growth Fund, TCW/DW Term Trust 2003, TCW/DW Balanced
Fund, TCW/DW Term Trust 2000, TCW/DW Mid-Cap Equity Trust, TCW/DW Global Telecom
Trust, TCW/DW Strategic Income Trust, TCW/DW Emerging Markets Opportunities
Trust and TCW/DW Total Return Trust.
THE MANAGER
Dean Witter Services Company Inc. (the "Manager"), a Delaware corporation,
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Manager. The Manager is a wholly-owned subsidiary of Dean Witter InterCapital
Inc. ("InterCapital"), a Delaware corporation. InterCapital is a wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"), a Delaware
corporation. In an internal reorganization which took place in January, 1993,
InterCapital assumed the management, administrative and investment advisory
activities previously performed by the InterCapital Division of Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of the Manager. (As hereinafter
used in this Statement of Additional Information, the term "InterCapital" refers
to DWR's InterCapital Division prior to the internal reorganization and to 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 Manager
and Adviser (see below), subject to review by the Fund's Board of Trustees.
Information as to these Trustees and officers is contained under the caption
"Trustees and Officers."
Pursuant to a management agreement (the "Management Agreement") with the
Manager, the Fund has retained the Manager to manage the Fund's business
affairs, supervise the overall day-to-day operations of the Fund (other than
rendering investment advice) and provide all administrative services to the
Fund. Under the terms of the Management Agreement, the Manager also maintains
certain of the Fund's books and records and furnishes, at its own expense, such
office space, facilities, equipment, supplies, 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 Manager,
necessary or desirable). In addition, the Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the Manager. The
Manager also bears the cost of the Fund's telephone service, heat, light, power
and other utilities.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the following annual rates to
the net assets of the Fund determined as of the close of each business day:
0.51% of the portion of daily net assets not exceeding $750 million; 0.48% of
the portion of daily net assets exceeding $750 million but not exceeding $1.5
billion; and 0.45% of the portion of daily net assets exceeding $1.5 billion.
Total compensation accrued to the Manager for the fiscal years ended March 31,
1995, 1996 and 1997 amounted to $3,594,353, $3,854,301 and $3,918,537,
respectively. While the total fees payable under the Management Agreement and
the Advisory Agreement (described below) are higher than that paid by most other
investment companies for similar services, the Board of Trustees determined that
the total fees payable under the Management Agreement and the Advisory Agreement
(described below) are reasonable in relation to the scope and quality of
services to be provided thereunder. In this regard, in evaluating the Management
Agreement and the Advisory Agreement, the Board of Trustees recognized that the
Manager and the Adviser had, pursuant to an agreement described under the
section entitled "The Adviser," agreed to a division as between themselves of
the total fees necessary for the management of the business affairs of and the
furnishing of investment advice to the Fund. Accordingly, in reviewing the
Management Agreement and Advisory Agreement, the Board viewed as most
significant the question as to whether the total fees payable under the
Management and Advisory Agreements were in the aggregate reasonable in relation
to the services to be provided thereunder.
3
<PAGE>
The Management Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations thereunder,
the Manager is not liable to the Fund or any of its investors for any act or
omission by the Manager or for any losses sustained by the Fund or its
investors. The Management Agreement in no way restricts the Manager from acting
as manager to others.
InterCapital paid the organizational expenses of the Fund incurred prior to
the offering of the Fund's shares. The Fund has reimbursed InterCapital for
$200,000 of such expenses, in accordance with the terms of the Underwriting
Agreement between the Fund and DWR. The Fund has deferred and is amortizing the
reimbursed expenses on the straight line method over a period not to exceed five
years from the date of commencement of the Fund's operations.
The Management Agreement was initially approved by the Trustees on June 1,
1994 and became effective on April 17, 1995. The Management Agreement replaced a
prior management agreement in effect between the Fund and the Manager, which in
turn had earlier replaced a prior management agreement between the Fund and
InterCapital, the parent company of the Manager. The nature and scope of
services provided to the Fund, and the formula to determine fees paid by the
Fund under the Management Agreement, are identical to those of the Fund's
previous management agreements. The Management Agreement may be terminated at
any time, without penalty, on thirty days notice by the Trustees of the Fund.
Under its terms, the Management Agreement had an initial term ending April
30, 1993, and will continue in effect from year to year thereafter, provided
continuance of the Agreement is approved at least annually by the vote of the
Trustees of the Fund, including the vote of a majority of the Trustees of the
Fund who are not parties to the Management or Advisory Agreement or "interested
persons" (as defined in the Investment Company Act of 1940, as amended (the
"Act")) of any such party (the "Independent Trustees"). At a meeting held on
April 24, 1997, the Board of Trustees, including a majority of the Independent
Trustees, approved continuation of the Management Agreement until April 30,
1998.
THE ADVISER
TCW Funds Management, Inc. (the "Adviser") is a wholly-owned subsidiary of
The TCW Group, Inc. ("TCW"), whose subsidiaries, including Trust Company of the
West and TCW Asset Management Company, provide a variety of trust, investment
management and investment advisory services. As of April 30, 1997, the Adviser
and its affiliates had approximately $53 billion under management or committed
to management. Trust Company of the West and its affiliates have managed equity
securities portfolios for institutional investors since 1971. The Adviser is
headquartered at 865 South Figueroa Street, Suite 1800, Los Angeles, California
90017 and is registered as an investment adviser under the Investment Advisers
Act of 1940. In addition to the Fund, the Adviser serves as investment adviser
to thirteen other TCW/DW Funds: TCW/DW Small Cap Growth Fund, TCW/DW North
American Government Income Trust, TCW/DW Latin American Growth Fund, TCW/DW Term
Trust 2002, TCW/DW Income and Growth Fund, TCW/DW Term Trust 2003, TCW/DW
Balanced Fund, TCW/DW Term Trust 2000, TCW/DW Emerging Markets Opportunities
Trust, TCW/DW Mid-Cap Equity Trust, TCW/DW Global Telecom Trust, TCW/DW
Strategic Income Trust, and TCW/DW Total Return Trust. The Adviser also serves
as investment adviser to TCW Convertible Securities Fund, Inc., a closed-end
investment company traded on the New York Stock Exchange, and to TCW Galileo
Funds, Inc., an open-end investment company, and acts as adviser or sub-adviser
to other investment companies.
Robert A. Day, who is Chairman of the Board of Directors of TCW, may be
deemed to be a control person of the Adviser by virtue of the aggregate
ownership of Mr. Day and his family of more than 25% of the outstanding voting
stock of TCW.
Pursuant to an investment advisory agreement (the "Advisory Agreement") with
the Adviser, the Fund has retained the Adviser to invest the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. The Adviser obtains and evaluates such information and advice
relating to the economy, securities markets, and specific securities as it
considers necessary or useful to continuously manage the assets of the Fund in a
manner consistent with its investment objective. In addition, the Adviser pays
the salaries of all personnel, including officers of the Fund, who are employees
of the Adviser.
4
<PAGE>
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Adviser, the Fund pays the Adviser
monthly compensation calculated daily by applying the following annual rates to
the net assets of the Fund determined as of the close of each business day:
0.34% of the portion of daily net assets not exceeding $750 million; 0.32% of
the portion of daily net assets exceeding $750 million but not exceeding $1.5
billion; and 0.30% of the portion of daily net assets exceeding $1.5 billion.
Total compensation accrued to the Adviser for the fiscal years ended March 31,
1995, 1996 and 1997 amounted to $2,396,236, $2,569,533 and $2,612,358,
respectively.
The Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations thereunder,
the Adviser is not liable to the Fund or any of its investors for any act or
omission by the Adviser or for any losses sustained by the Fund or its
investors. The Advisory Agreement in no way restricts the Adviser from acting as
investment adviser to others.
The Advisory Agreement was initially approved by the Trustees on March 9,
1992 and by DWR as the then sole shareholder on March 16, 1992. The Advisory
Agreement may be terminated at any time, without penalty, on thirty days notice
by the Trustees of the Fund, by the holders of a majority, as defined in the
Act, of the outstanding shares of the Fund, or by the Adviser. The Agreement
will automatically terminate in the event of its assignment (as defined in the
Act).
Under its terms, the Advisory Agreement had an initial term ending April 30,
1993, and provides that it will continue from year to year thereafter, provided
continuance of the Agreement is approved at least annually by the vote of the
holders of a majority, as defined in the Act, of the outstanding shares of the
Fund, or by the Trustees of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Independent
Trustees of the Fund, which vote must be cast in person at a meeting called for
the purpose of voting on such approval. Continuation of the Advisory Agreement
until April 30, 1998 was approved by the Trustees, including a majority of the
Independent Trustees, at a meeting called for that purpose on April 24, 1997.
Expenses not expressly assumed by the Manager under the Management Agreement,
by the Adviser under the Advisory Agreement or by the Distributor of the Fund's
shares, Dean Witter Distributors Inc. ("Distributors" or the "Distributor") (see
"The Distributor"), will be paid by the Fund. The expenses borne by the Fund
include, but are not limited to: expenses of the Plan of Distribution pursuant
to Rule 12b-1 (see "The Distributor"); charges and expenses of any registrar;
custodian, stock transfer and dividend disbursing agent; brokerage commissions
and securities transaction costs; taxes; engraving and printing of share
certificates; registration costs of the Fund and its shares under federal and
state securities laws; the cost and expense of printing, including typesetting,
and distributing Prospectuses and Statements of Additional Information of the
Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and trustees' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
trustees or members of any advisory board or committee who are not employees of
the Manager or Adviser or any corporate affiliate of either; all expenses
incident to any dividend, withdrawal or redemption options; charges and expenses
of any outside service used for pricing of the Fund's shares; fees and expenses
of legal counsel, including counsel to the Trustees who are not interested
persons of the Fund or of the Manager or the Adviser (not including compensation
or expenses of attorneys who are employees of the Manager or the Adviser) and
independent accountants; membership dues of industry associations; interest on
Fund borrowings; postage; insurance premiums on property or personnel (including
officers and trustees) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification relating thereto); and all other costs
of the Fund's operation.
DWR and TCW have entered into an Agreement for the purpose of creating,
managing, administering and distributing a family of investment companies and
other managed pooled investment vehicles offered on a retail basis within the
United States. The Agreement contemplates that, subject to approval of the board
of trustees or directors of a particular investment entity, DWR or its
affiliates will provide management and distribution services and TCW or its
affiliates will provide investment advisory services for each such investment
entity. The Agree-ment sets forth the terms and conditions of the relationship
between TCW and its affiliates and DWR and its affiliates and the manner in
which the parties will implement the creation and maintenance of the investment
entities, including the parties' expectations as to respective allocation of
fees to be paid by an investment entity to each party for the services to be
provided to it by such party.
5
<PAGE>
The Fund has acknowledged that each of DWR and TCW owns its own name,
initials and logo. The Fund has agreed to change its name at the request of
either the Manager or the Adviser, if the Management Agreement between the
Manager and the Fund or the Advisory Agreement between the Adviser and the Fund
is terminated.
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Manager or the Adviser, and affiliated companies of either, and with the 14
TCW/DW Funds and with 83 investment companies for which InterCapital serves as
investment manager or investment adviser (the "Dean Witter Funds"), are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------- -------------------------------------------------------------
<S> <C>
John C. Argue (65) Of Counsel, Argue Pearson Harbison & Myers (law firm); Director,
Trustee Avery Dennison Corporation (manufacturer of self-adhesive products
c/o Argue Pearson Harbison & Myers and office supplies) and CalMat Company (producer of aggregates,
801 South Flower Street asphalt and ready mixed concrete); Chairman, Rose Hills Foundation
Los Angeles, California (charitable foundation); advisory director, LAACO Ltd. (owner and
operator of private clubs and real estate); director or trustee
of various business and not-for-profit corporations; Director,
Coast Savings Financial Inc. and Coast Federal Bank (a subsidiary
of Coast Savings Financial Inc.); Director, TCW Galileo Funds,
Inc.; Trustee, University of Southern California, Occidental College
and Pomona College; Trustee of the TCW/DW Funds.
Richard M. DeMartini* (44) President and Chief Operating Officer of Dean Witter Capital, a
Trustee division of DWR; Director of DWR, the Manager, InterCapital,
Two World Trade Center Distributors and Dean Witter Trust Company ("DWTC"); Executive
New York, New York Vice President of Morgan Stanley, Dean Witter, Discover & Co.
("MSDWD"); Member of the MSDWD management committee; Trustee of
the TCW/DW Funds; Formerly Vice Chairman of the Board of the National
Association of Securities Dealers, Inc.; Formerly Chairman of the
Board of the Nasdaq Market, Inc.
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and Director of the Manager,
Chairman of the Board, Chief InterCapital and Distributors; Executive Vice President and Director
Executive Officer and Trustee of DWR; formerly Executive Vice President and Director of Dean
Two World Trade Center Witter, Discover & Co. (until February, 1993); Chairman of the
New York, New York Board, Director or Trustee, President and Chief Executive Officer
of the Dean Witter Funds; Chairman of the Board, Chief Executive
Officer and Trustee of the TCW/DW Funds; Chairman and Director
of DWTC; Director and/or officer of various MSDWD subsidiaries.
6
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------- -------------------------------------------------------------
John R. Haire (72) Chairman of the Audit Committee and Chairman of the Independent
Trustee Trustees and Trustee of the TCW/DW Fund; Chairman of the Audit
Two World Trade Center Committee and Chairman of the Committee of Independent Directors
New York, New York or Trustees and Director or Trustee of the Dean Witter Funds; formerly
President, Council for Aid to Education (1978-1989) and Chairman
and Chief Executive Officer of Anchor Corporation, an Investment
Adviser (1964-1978); Director of Washington National Corporation
(insurance).
Dr. Manuel H. Johnson (48) Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm; Co-Chairman and a founder of the Group of Seven Council (G7C),
c/o Johnson Smick International, Inc. an international economic commission (since September, 1990);
1133 Connecticut Avenue, N.W. Director of NASDAQ (since June, 1995); Director of Greenwich Capital
Washington D.C. Markets, Inc. (broker-dealer); Trustee of the Financial Accounting
Foundation (oversight organiz ation for the FASB); 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);
Director or Trustee of the Dean Witter Funds; Trustee of the TCW/DW
Funds.
Thomas E. Larkin, Jr.* (57) Executive Vice President and Director, The TCW Group, Inc.; President
President and Trustee and Director of Trust Company of the West and Vice Chairman and
865 South Figueroa Street Director of TCW Asset Management Company; Chairman of the Adviser;
Los Angeles, California President and Director of TCW Galileo Funds, Inc.; Senior Vice
President of TCW Convertible Securities Fund, Inc.; Member of the
Board of Trustees of the University of Notre Dame; Director of
Orthopaedic Hospital of Los Angeles; President and Trustee of the
TCW/DW Funds.
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a private investment
Trustee partnership; formerly Vice President, Bankers Trust Company and
c/o Triumph Capital, L.P. BT Capital Corporation (1984-1988); Director of various business
237 Park Avenue organizations; Director or Trustee of the Dean Witter Funds; Trustee
New York, New York of the TCW/DW Funds.
John L. Schroeder (66) Retired; Director or Trustee of the Dean Witter Funds; Trustee
Trustee of the TCW/DW Funds; formerly Executive Vice President and Chief
c/o Gordon Altman Butowsky Investment Officer of the Home Insurance Company (August,
Weitzen Shalov & Wein 1991-September, 1995); Director of Citizens Utilities Company.
Counsel to the Independent Trustees
114 West 47th Street
New York, New York
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------- -------------------------------------------------------------
Marc I. Stern* (53) President, The TCW Group, Inc.; President and Director of the Adviser;
Trustee Vice Chairman and Director of TCW Asset Management Company; Executive
865 South Figueroa Street Vice President and Director of Trust Company of the West; Chairman
Los Angeles, California and Director of TCW Galileo Funds, Inc; Trustee of the TCW/DW Funds;
Chairman of TCW Americas Development, Inc.; Chairman of TCW Asia,
Limited (since January, 1993); Chairman of TCW London International,
Limited (since March, 1993); formerly President of SunAmerica,
Inc. (financial services company); Director of Qualcomm,
Incorporated (wireless communications); director or trustee of
various not-for-profit organizations.
Barry Fink (42) Senior Vice President (since March, 1997) and Secretary and General
Vice President, Secretary Counsel (since February, 1997) of InterCapital and the Manager;
and General Counsel Senior Vice President (since March, 1997) and Assistant Secretary
Two World Trade Center and Assistant General Counsel (since February, 1997) of Distributors;
New York, New York Assistant Secretary of DWR (since August, 1996); Vice President,
Secretary and General Counsel of the Dean Witter Funds and the
TCW/DW Funds (since February, 1997); previously First Vice President
(June, 1993-February, 1997), Vice President (until June, 1993)
and Assistant Secretary and Assistant General Counsel of InterCapital
and the Manager and Assistant Secretary of the Dean Witter Funds
and the TCW/DW Funds.
Robert M. Hanisee (58) Managing Director of the Adviser; Managing Director, Director of
Vice President Research and Chairman of the Equity Policy Committee of Trust Company
865 South Figueroa Street of the West and TCW Asset Management Company; Vice President of
Los Angeles, California TCW/DW Income and Growth Fund and TCW/DW Global Convertible Trust.
James A. Tilton (56) Managing Director of the Adviser; Managing Director, Equities of
Vice President Trust Company of the West and TCW Asset Management Company; Chairman
865 South Figueroa Street of the Board of Verdugo Hills Hospital and Chairman of the Board
Los Angeles, California of Councilors of the University of Southern California School of
Public Administration; director of various other business
organizations; Vice President of TCW/DW Balanced Fund and TCW/DW
Total Return Trust.
Thomas F. Caloia (51) First Vice President and Assistant Treasurer of the Manager and
Treasurer InterCapital; Treasurer of the Dean Witter Funds and the TCW/DW
Two World Trade Center Funds.
</TABLE>
New York, New York
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of the
Manager and InterCapital, Executive Vice President of Distributors and DWTC and
Director of DWTC, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
8
<PAGE>
Director of DWTC, Executive Vice President and Director of DWR, Director of SPS
Transaction Services, Inc. and various other MSDWD subsidiaries, and Robert S.
Giambrone, Senior Vice President of the Manager, InterCapital, Distributors,
DWTC and Director of DWTC, are Vice Presidents of the Fund. Marilyn K. Cranney,
First Vice President and Assistant General Counsel of the Manager and
InterCapital, and Lou Anne D. McInnis, Ruth Rossi and Carsten Otto, Vice
Presidents and Assistant General Counsels of the Manager and InterCapital and
Frank Bruttomesso, Staff Attorney with InterCapital, is Assistant Secretary of
the Fund. THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same individuals
also serve as trustees for all of the TCW/DW Funds. As of the date of this
Statement of Additional Information, there are a total of 14 TCW/DW Funds. As of
April 30, 1997, the TCW/DW Funds had total net assets of approximately $4.1
billion and approximately a quarter of a million shareholders.
Five Trustees (56% of the total number) have no affiliation or business
connection with TCW Funds Management, Inc. or Dean Witter Services Company Inc.
or any of their affiliated persons and do not own any stock or other securities
issued by MSDWD or TCW, the parent companies of Dean Witter Services Company
Inc. and TCW Funds Management, Inc., respectively. These are the "disinterested"
or "independent" Trustees. The other four Trustees (the "management Trustees")
are affiliated with either Dean Witter Services Company Inc. or TCW. Four of the
five independent Trustees are also Independent Trustees of the Dean Witter
Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The TCW/DW Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee and
the Committee of the Independent Trustees. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1996,
the three Committees held a combined total of fifteen meetings. The Committees
hold some meetings at the offices of the Manager or Adviser and some outside
those offices. Management Trustees or officers do not attend these meetings
unless they are invited for purposes of furnishing information or making a
report.
The Committee of the Independent Trustees is charged with recommending to the
full Board approval of management, advisory and administration contracts, Rule
12b-1 plans and distribution and underwriting agreements; continually reviewing
Fund performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
Independent Trustees are required to select and nominate individuals to fill any
Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1 plan
of distribution. Each of the open-end TCW/DW Funds has 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 TRUSTEES AND AUDIT
COMMITTEE
On July 1, 1996, Mr. Haire became Chairman of the Committee of the
Independent Trustees and the Audit Committee of the TCW/DW Funds. The Chairman
of the Committees maintains an office in the Funds' headquarters in New York. He
is responsible for keeping abreast of regulatory and industry developments and
the Funds' operations and management. He screens and/or prepares written
materials and identifies critical issues for the Independent Trustees to
consider, develops agendas for Committee meetings, determines the type and
amount of information that the Committees will need to form a judgment on
various issues, and arranges to have that information furnished to Committee
members. He also arranges for the services of independent experts and consults
with them in advance of meetings to help refine reports and to focus on critical
issues. Members of the Committees believe that the person who serves as Chairman
of both Committees and guides their efforts is pivotal to the effective
functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment advisory, management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Adviser and the Manager and other service
providers. In effect, the Chairman of the Committees serves as a combination of
chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the TCW/DW Funds and as Chairman of the Committee of the Independent
Trustees and the Audit Committee and Independent Director or Trustee of the Dean
Witter Funds. The current Committee Chairman has had more than 35 years
experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL TCW/DW
FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the TCW/DW Funds avoids the duplication of
effort that would arise from having different groups of individuals serving as
Independent Trustees for each of the Funds or even of sub-groups of Funds. They
believe that having the same individuals serve as Independent Trustees of all
the Funds tends to increase their knowledge and expertise regarding matters
which affect the Fund complex generally and enhances their ability to negotiate
on behalf of each Fund with the Fund's service providers. This arrangement also
precludes the possibility of separate groups of Independent Trustees arriving at
conflicting decisions regarding operations and management of the Funds and
avoids the cost and confusion that would likely ensue. Finally, having the same
Independent Trustees serve on all Fund Boards enhances the ability of each Fund
to obtain, at modest cost to each separate Fund, the services of Independent
Trustees, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
TCW/DW Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $2,225 plus a per
meeting fee of $200 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee of
the Independent Trustees an additional annual fee of $1,200). The Fund also
reimburses such Trustees for travel and other out-of-pocket expenses incurred by
them in connection with attending such meetings. Trustees and officers of the
Fund who are or have been employed by the Manager or the Adviser or an
affiliated company of either receive no compensation or expense reimbursement
from the Fund. The Trustees of the TCW/DW Funds do not have retirement or
deferred compensation plans.
10
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended March 31, 1997.
FUND COMPENSATION
AGGREGATE
NAME OF INDEPENDENT TRUSTEE COMPENSATION
FROM THE FUND
- --------------------------- ---------------
John C. Argue.............. $5,591
John R. Haire.............. 7,341
Dr. Manuel H. Johnson ..... 5,575
Michael E. Nugent.......... 5,791
John L. Schroeder.......... 5,791
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1996 for services
to the 14 TCW/DW Funds and, in the case of Messrs. Haire, Johnson, Nugent and
Schroeder, the 82 Dean Witter Funds that were in operation at December 31, 1996,
and, in the case of Mr. Argue, TCW Galileo Funds, Inc. With respect to Messrs.
Haire, Johnson, Nugent and Schroeder, the Dean Witter Funds are included solely
because of a limited exchange privilege between various TCW/DW Funds and five
Dean Witter Money Market Funds. With respect to Mr. Argue, TCW Galileo Funds,
Inc. is included solely because the Fund's Adviser, TCW Funds Management, Inc.,
also serves as Adviser to that investment company.
COMPENSATION FROM FUND GROUPS
<TABLE>
<CAPTION>
FOR SERVICE AS
FOR SERVICES AS CHAIRMAN OF
CHAIRMAN OF COMMITTEES OF
FOR SERVICE COMMITTEES OF INDEPENDENT TOTAL
FOR SERVICE AS AS DIRECTOR OR INDEPENDENT DIRECTORS/ COMPENSATION PAID
TRUSTEE AND TRUSTEE AND TRUSTEES TRUSTEES FOR SERVICES TO
COMMITTEE COMMITTEE AND AUDIT AND AUDIT 82 DEAN WITTER
MEMBER MEMBER FOR SERVICE AS COMMITTEES COMMITTEES FUNDS, 14
OF 14 OF 82 DIRECTOR OF OF 14 OF 82 TCW/DW FUNDS
NAME OF INDEPENDENT TRUSTEE TCW/DW DEAN WITTER TCW GALILEO TCW/DW DEAN WITTER AND TCW
FUNDS FUNDS FUNDS, INC. FUNDS FUNDS GALILEO FUNDS, INC.
- -------------------------- --------------- -------------- -------------- --------------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
John C. Argue.............. $66,483 -- $39,000 -- -- $105,483
John R. Haire.............. 64,283 $106,400 -- $12,187 $195,450 378,320
Dr. Manuel H. Johnson ..... 66,483 137,100 -- -- -- 203,583
Michael E. Nugent.......... 64,283 138,850 -- -- -- 203,133
John L. Schroeder.......... 69,083 137,150 -- -- -- 206,233
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds have adopted a retirement program under which an Independent
Trustee who retires after serving for at least five years (or such lesser period
as may be determined by the Board) as an Independent Director or Trustee of any
Dean Witter Fund that has adopted the retirement program (each such Fund
referred to as an "Adopting Fund" and each such Trustee referred to as an
"Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Trustee
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing 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. (1) "Eligible
- ------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
11
<PAGE>
Compensation" is one-fifth of the total compensation earned by such Eligible
Trustee for service to the Adopting Fund in the five year period prior to the
date of the Eligible Trustee's retirement. Benefits under the retirement program
are not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to Messrs.
Haire, Johnson, Nugent and Schroeder by the 57 Dean Witter Funds for the year
ended December 31, 1996, and the estimated retirement benefits for Messrs.
Haire, Johnson, Nugent and Schroeder, to commence upon their retirement, from
the 57 Dean Witter Funds as of December 31, 1996.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
CREDITED YEARS ESTIMATED RETIREMENT BENEFITS ESTIMATED ANNUAL BENEFITS
OF SERVICE AT PERCENTAGE OF ACCRUED AS EXPENSES UPON RETIREMENT
RETIREMENT ELIGIBLE BY ALL ADOPTING FROM ALL ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- -------------------------- -------------- --------------- ------------------- -------------------------
<S> <C> <C> <C> <C>
John R. Haire.............. 10 50.0% $46,952 $129,550
Dr. Manuel H. Johnson ..... 10 50.0 10,926 51,325
Michael E. Nugent.......... 10 50.0 19,217 51,325
John L. Schroeder.......... 8 41.7 38,700 42,771
</TABLE>
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) 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 Trustees as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
MONEY MARKET SECURITIES
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, bankers'
acceptances, commercial paper (see below) and other debt obligations) of banks
subject to regulation by the U.S. Government and having total assets of $1
billion or more, and instruments secured by such obligations, not including
obligations of foreign branches of domestic banks except as permitted below;
Eurodollar Certificates of Deposit. Eurodollar certificates of deposit issued
by foreign branches of domestic banks having total assets of $1 billion or more
(investments in Eurodollar certificates may be affected by changes in currency
rates or exchange control regulations, or changes in governmental administration
or economic or monetary policy in the United States and abroad);
Obligations of Savings Institutions. Certificates of deposit of savings banks
and savings and loan associations, having total assets of $1 billion or more
(investments in savings institutions above $100,000 in principal amount are not
protected by Federal deposit insurance);
Fully Insured Certificates of Deposit. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is insured by the Bank Insurance Fund or the
Savings Association Insurance Fund (each of which is administered by the Federal
Deposit Insurance Corporation), limited to $100,000 principal amount per
certificate and to 15% or less of the Fund's total assets in all such
obligations and in all illiquid assets, in the aggregate; and
12
<PAGE>
Commercial Paper. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation or the highest grade by Moody's Investors Service,
Inc. or, if not rated, issued by a company having an outstanding debt issue
rated at least AAA by Standard & Poor's or Aaa by Moody's.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund (subject to notice
provisions described below), and are at all times secured by cash or money
market instruments, which are maintained in a segregated account pursuant to
applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive the income on the loaned securities while at the
same time earning interest on the cash amounts deposited as collateral, which
will be invested in short-term obligations. The Fund will not lend its portfolio
securities if such loans are not permitted by the laws or regulations of any
state in which its shares are qualified for sale and will not lend more than 25%
of the value of its total assets. A loan may be terminated by the borrower on
one business day's notice, or by the Fund on two business days' notice. If the
borrower fails to deliver the loaned securities within two days after receipt of
notice, the Fund could use the collateral to replace the securities while
holding the borrower liable for any excess of replacement cost over collateral.
As with any extensions of credit, there 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 Adviser 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 Adviser
pursuant to procedures adopted and reviewed, on an ongoing basis, by the Board
of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested or
used for payments of obligations of the Fund. These agreements, which may be
viewed as a type of secured lending by the Fund, typically involve the
acquisition by the Fund of debt securities from a selling financial institution
such as a bank, savings and loan association or broker-dealer. The agreement
provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral") at a
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The collateral will be maintained in a
segregated account and will be marked to market daily to determine that the
value of the collateral, as specified in the agreement, does not decrease below
the purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to the account to
maintain full collateralization. The Fund will accrue interest from the
institution until the time when the repurchase is to occur. Although such date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to any
limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Adviser subject to
procedures established by the Board of Trustees of the Fund. In addition, as
described above, the value of the collateral underlying the repurchase agreement
will be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the
13
<PAGE>
repurchase price, the Fund could suffer a loss. It is the current policy of the
Fund not to invest in repurchase agreements that do not mature within seven days
if any such investment, together with any other illiquid assets held by the
Fund, amounts to more than 15% of its net assets.
WARRANTS
The Fund may invest up to 5% of the value of its net assets in warrants,
including not more than 2% in warrants not listed on either the New York or
American Stock Exchange. Warrants are, in effect, an option to purchase equity
securities at a specific price, generally valid for a specific period of time,
and have no voting rights, pay no dividends and have no rights with respect to
the corporations issuing them. The Fund may acquire warrants attached to other
securities without reference to the foregoing limitations.
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 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 or sold are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date. 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 or sell securities on a when-issued,
delayed delivery or forward commitment basis, the Fund will record the
transaction and thereafter reflect the value, each day, of such security
purchased or, if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, the value may be more or
less than the purchase or sale 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 to purchase securities on a when-issued, delayed delivery
or forward commitment basis; 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.
WHEN, AS AND IF ISSUED SECURIITIES
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 Adviser 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. Once
a segregated account has been established, if the anticipated event does not
occur and the securities are not issued the Fund will have lost an investment
opportunity. 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 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.
RESTRICTED SECURITIES
The Fund may invest up to 5% of its total assets in securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933, as amended, or which are otherwise not readily
marketable. 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.
14
<PAGE>
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act of 1933, which will permit the Fund to sell restricted securities
to qualified institutional buyers without limitation. The Adviser, pursuant to
procedures adopted by the Board of Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid," such security will
not be included within the category "illiquid securities," which under the
Fund's current policies may not exceed 15% of the Fund's net assets, and will
not be subject to the 5% limitation set out in the preceding paragraph. The Rule
144A marketplace of sellers and qualified institutional buyers is new and still
developing and may take a period of time to develop into a mature liquid market.
As such, the market for certain private placements purchased pursuant to Rule
144A may be initially small or may, subsequent to purchase, become illiquid.
Furthermore, the Adviser may not possess all the information concerning an issue
of securities that it wishes to purchase in a private placement to which it
would normally have had access, had the registration statement necessitated by a
public offering been filed with the Securities and Exchange Commission.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate generally will not
exceed 100%. A 100% turnover rate would occur, for example, if 100% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced within
one year.
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 limited
partnership interests), 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. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
4. Borrow money, except that the Fund may borrow from a bank for temporary
or emergency purposes in amounts not exceeding 5% (taken at the lower of
cost or current value) of its total assets (not including the amount
borrowed).
5. Pledge its assets or assign or otherwise encumber them except to secure
borrowings effected within the limitations set forth in restriction (4). For
the purpose of this restriction, collateral arrangements with respect to
initial or variation margin for futures are not deemed to be pledges of
assets.
6. Issue senior securities as defined in the Act except insofar as the Fund
may be deemed to have issued a senior security by reason of (a) entering
into any repurchase agreement; (b) purchasing any securities on a
when-issued or delayed delivery basis; (c) purchasing or selling any
financial futures contracts; (d) borrowing money in accordance with
restrictions described above; or (e) lending portfolio securities.
7. Make loans of money or securities, except: (a) by the purchase of
portfolio securities in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; or (c) by lending its portfolio securities.
8. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or sell financial or stock index futures contracts or
options thereon.
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<PAGE>
9. Make short sales of securities.
10. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of portfolio securities. The deposit or payment
by the Fund of initial or variation margin in connection with futures
contracts is not considered the purchase of a security on margin.
11. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
12. Invest for the purpose of exercising control or management of any other
issuer.
In addition, as a nonfundamental policy, the Fund may not invest in
securities of any issuer if, to the knowledge of the Fund, any officer or
trustee of the Fund or any officer or director of the Adviser or the Manager
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuers.
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
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Subject to the general supervision of the Trustees, the Adviser is
responsible for decisions to buy and sell securities for the Fund, the selection
of brokers and dealers to effect the transactions, and the negotiation of
brokerage commissions, if any. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In addition, securities may 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. Futures transactions
will usually be effected through a broker and a commission will be charged. On
occasion, the Fund may also purchase certain money market instruments directly
from an issuer, in which case no commissions or discounts are paid. During the
fiscal years ended March 31, 1995, 1996 and 1997 the Fund paid a total of
$1,021,933, $1,197,865 and $863,405, respectively, in brokerage commissions.
The Adviser currently serves as investment adviser to a number of clients,
including other investment companies, and may in the future act as investment
adviser to others. It is the practice of the 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 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 investments generally held and the opinions of the persons responsible for
managing the portfolios of the Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the 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 Adviser relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
In seeking to implement the Fund's policies, the Adviser effects transactions
with those brokers and dealers who the Adviser believes provide the most
favorable prices and are capable of providing efficient executions. If the
Adviser believes such prices and executions are obtainable from more than one
broker or dealer, it may give consideration to placing portfolio transactions
with those brokers and dealers who also furnish research and other services to
the Fund or the Adviser. Such services may include, but are not limited to, any
one or more of the
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<PAGE>
following: reports on industries and companies, economic analyses and review of
business conditions, portfolio strategy, analytic computer software, account
performance services, computer terminals and various trading and/or quotation
equipment. They also include advice from broker-dealers as to the value of
securities, availability of securities, availability of buyers, and availability
of sellers. In addition, they include recommendations as to purchase and sale of
individual securities and timing of such transactions. The Fund will not
purchase at a higher price or sell at a lower price in connection with
transactions effected with a dealer, acting as principal, who furnishes research
services to the Fund than would be the case if no weight were given by the Fund
to the dealer's furnishing of such services. During the fiscal year ended March
31, 1997, the Fund directed the payment of $500,241 in brokerage commissions in
connection with transactions in the aggregate amount of $374,557,965 to brokers
because of research services provided.
The information and services received by the Adviser from brokers and dealers
may be of benefit to the Adviser in the management of accounts of some of its
other clients and may not in all cases benefit the Fund directly. While the
receipt of such information and services is useful in varying degrees and would
generally reduce the amount of research or services otherwise performed by the
Adviser and thereby reduce its expenses, it is of indeterminable value and the
advisory fee paid to the Adviser is not reduced by any amount that may be
attributable to the value of such services.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR. In order for DWR to effect any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by DWR must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. This standard would allow DWR to receive no more than the remuneration
which would be expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction. Furthermore, the Board of Trustees of the
Fund, including a majority of the Trustees who are not "interested" persons of
the Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to DWR
are consistent with the foregoing standard. During the fiscal years ended March
31, 1995, 1996 and 1997 the Fund paid a total of $73,285, $63,490 and $53,710,
respectively, in brokerage commissions to DWR. During the fiscal year ended
March 31, 1997, the brokerage commissions paid to DWR represented approximately
6.22% of the total brokerage commissions paid by the Fund during the period and
were paid on account of transactions having an aggregate dollar value equal to
approximately 8.39% of the aggregate dollar value of all portfolio transactions
of the Fund during the period for which commissions were paid.
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund. In addition, the Distributor may enter into selected
dealer agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDWD. The Trustees who
are not, and were not at the time they voted, interested persons of the Fund, as
defined in the Act (the "Independent Trustees"), approved, at their meeting held
on April 24, 1997, 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. By its terms, the
Distribution Agreement has an initial term ending April 30, 1998, and will
remain in effect from year to year thereafter if approved by the Board. The
Current Distribution Agreement took effect on May 31, 1997 upon the consummation
of the merger of Dean Witter, Discover & Co. with Morgan Stanley Group Inc. and
is substantially identical to the Fund's previous Distribution Agreement except
for its dates of effectiveness and termination. At their meeting held on April
28, 1993, the Trustees of the Fund, including a majority of the Independent
Trustees, approved certain technical amendments to the Distribution Agreement in
connection with recent amendments adopted by the National Association of
Securities Dealers to its Rules of the Association.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and
17
<PAGE>
supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal and state securities laws. The
Fund and the Distributor have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Under the Distribution Agreement, the Distributor uses its best efforts in
rendering services to the Fund, but in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations, the
Distributor is not liable to the Fund or any of its shareholders for any error
of judgment or mistake of law or for any act or omission or for any losses
sustained by the Fund or its shareholders.
Plan of Distribution. The Fund has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the Act (the "Plan") pursuant to which the Fund pays the
Distributor compensation accrued daily and payable monthly at the annual rate of
1% of the lesser of: (a) the average daily aggregate gross sales of the Fund's
shares since the inception of the Fund (not including reinvestments of dividends
or capital gains distributions), less the average daily aggregate net asset
value of the Fund's shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or 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 "Repurchases and Redemptions--Contingent Deferred Sales Charge"
in the Prospectus). The Distributor has informed the Fund that it received
approximately $2,328,000, $2,306,000 and $1,579,138 in contingent deferred sales
charges for the fiscal years ended March 31, 1995, 1996 and 1997, respectively,
none of which was retained by the Distributor.
The Distributor has informed the Fund that a portion of the fees payable by
the Fund each year under the Plan of Distribution, equal to 0.25% of the Fund's
average daily net assets, is characterized as a "service fee" under the Rules of
the Association of the National Association of Securities Dealers (of which the
Distributor is a member). Such fee is payments made for personal service and/or
the maintenance of shareholder accounts. The remaining portions of the Plan of
Distribution fee payments made by the Fund are characterized as "asset-based
sales charges" pursuant to the aforementioned Rules of the Association. At their
meeting held on October 26, 1995, the Trustees of the Fund, including all the
Independent 12b-1 Trustees, 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.
At their meeting held on October 30, 1992, the Trustees of the Fund,
including all of the Independent 12b-1 Trustees, approved certain amendments to
the Plan which took effect in January, 1993 and were designed to reflect the
fact that upon the reorganization described above, the share distribution
activities theretofore performed for the Fund by DWR were assumed by the
Distributor and DWR's sales activities are now being performed pursuant to the
terms of a selected dealer agreement between the Distributor and DWR. The
amendments provide that payments under the Plan will be made to the Distributor
rather than to DWR as before the amendment, and that the Distributor in turn is
authorized to make payments to DWR, its affiliates or other selected
broker-dealers (or direct that the Fund pay such entities directly). The
Distributor is also authorized to retain part of such fee as compensation for
its own distribution-related expenses.
Under the Plan and as required by Rule 12b-1, the Trustees receive and review
promptly after the end of each fiscal quarter a written report provided by the
Distributor of the amounts expended under the Plan and the purpose for which
such expenditures were made. In the Trustees' quarterly reviews of the Plan,
they will consider its continued appropriateness and the level of compensation
provided therein. The Fund accrued amounts payable to the Distributor under the
Plan, during the fiscal year ended March 31, 1997, of $5,711,981. 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 amount is
treated by the Fund as an expense in the year it is accrued.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method shares of the Fund are
sold without a sales load being deducted at the time of purchase, so that the
full amount of an investor's purchase payment will be invested in shares without
any deduction for sales
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<PAGE>
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 under the Plan 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 distribution expenses to the Fund, such
assumed interest (computed at the "broker's call rate") has been calculated on
the gross sales credit as it is reduced by amounts received by the Distributor
under the Plan and any contingent deferred sales charges received by the
Distributor upon redemption of shares of the Fund. No other interest charge is
included as a distribution expense in the Distributor's calculation of
distribution costs for this purpose. The broker's call rate is the interest rate
charged to securities brokers on loans secured by exchange-listed securities.
The Fund paid 100% of the $5,711,981 accrued under the Plan for the fiscal
year ended March 31, 1997 to the Distributor. The Distributor and DWR estimate
that they have spent, pursuant to the Plan, $57,116,735 on behalf of the Fund
since the inception of the Plan. It is estimated that this amount was spent in
approximately the following ways: (i) 4.05% ($2,311,647)--advertising and
promotional expenses; (ii) 0.21% ($121,639)--printing of prospectuses for
distribution to other than current shareholders; and (iii) 95.74%
($54,683,449)--other expenses, including the gross sales credit and the carrying
charge, of which 9.20% ($5,032,558) represents carrying charges, 36.27%
($19,835,531) represents commission credits to DWR branch offices for payments
of commissions to account executives and 54.53% ($29,815,360) 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. The Distributor has advised the Fund that
the excess distribution expenses, 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 $21,584,533 as of March 31,
1997. 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, this excess amount does not constitute a liability
of the Fund. Although there is no legal obligation for the Fund to pay expenses
incurred in excess of payments made to the Distributor under the Plan and the
proceeds of contingent deferred sales charges paid by investors upon redemption
of shares, if for any reason the Plan is terminated, the Trustees will consider
at that time the manner in which to treat such expenses. Any cumulative expenses
incurred, but not yet recovered through distribution fees or contingent deferred
sales charges, may or may not be recovered through future distribution fees or
contingent deferred sales charges.
No interested person of the Fund, nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial interest in the operation of the Plan except to the extent that DWR,
InterCapital, the Distributor or the Manager or certain of their employees, may
be deemed to have such an interest as a result of benefits derived from the
successful operation of the Plan or as a result of receiving a portion of the
amounts expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1993, and
provides that it will continue from year to year thereafter, provided such
continuance is approved annually by a vote of the Trustees, including a majority
of the Trustees who are not "interested persons" of the Fund (as defined in the
Act) and who have no direct or indirect financial interest in the operation of
the Plan (the "Independent 12b-1 Trustees"). The Plan was submitted to and
approved by the Trustees of the Fund, including a majority of the Independent
12b-1 Trustees, at their meeting held on March 9, 1992. DWR, as the then sole
shareholder of the Fund, approved the Plan on
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<PAGE>
March 16, 1992. Most recent continuance of the Plan for one year, until April
30, 1998, was approved by the Board of Trustees of the Fund, including a
majority of the Independent 12b-1 Trustees, at a Board meeting held on April 24,
1997. Prior to approving the continuation of the Plan, the Board requested and
received from the Distributor and reviewed all the information which it deemed
necessary to arrive at an informed determination. In making their determination
to continue the Plan, the Trustees considered: (1) the Fund's experience under
the Plan and whether such experience indicates that the Plan is operating as
anticipated; (2) the benefits the Fund had obtained, was obtaining and would be
likely to obtain under the Plan; and (3) what services had been provided and
were continuing to be provided under the Plan by the Distributor, DWR and other
selected broker-dealers to the Fund and its shareholders. Based upon their
review, the Trustees of the Fund, including each of the Independent 12b-1
Trustees, determined that continuation of the Plan would be in the best interest
of the Fund and would have a reasonable likelihood of continuing to benefit the
Fund and its shareholders. This determination was based upon the conclusion of
the Trustees that the Plan provides an effective means of stimulating sales of
shares of the Fund and of reducing or avoiding net redemptions and the
potentially adverse effects that may occur therefrom. In the Trustees' quarterly
review of the Plan, they will consider its continued appropriateness and the
level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent for
the services described therein without approval of the shareholders of the Fund,
and all material amendments of the Plan must also be approved by the Trustees in
the manner described above. The Plan may be terminated at any time, without
payment of any penalty, by vote of a majority of the Independent 12b-1 Trustees
or by a vote of a majority of the outstanding voting securities of the Fund (as
defined in the Act) on not more than thirty days written notice to any other
party to the Plan. So long as the Plan is in effect, the election and nomination
of Independent Trustees shall be committed to the discretion of the Independent
Trustees.
DETERMINATION OF NET ASSET VALUE
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 p.m., at such earlier time) on each day that the New York Stock Exchange is
open by taking the value of all assets of the Fund, subtracting its liabilities,
dividing by the number of shares outstanding and adjusting to the nearest cent.
The New York Stock Exchange currently observes the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by Dean Witter
Trust Company (the "Transfer Agent"). This is an open account in which shares
owned by the investor are credited by the Transfer Agent in lieu of issuance of
a share certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares and
may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder-instituted
transaction takes place in the Shareholder Investment Account, the shareholder
will be mailed a confirmation of the transaction from the Fund or from DWR or
other selected broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the Fund, unless the
shareholder requests that they be paid in cash. Each purchase of shares of the
Fund is made upon the condition that the Transfer Agent is thereby automatically
appointed as agent of the investor to receive all dividends and capital gains
distributions on shares owned by the investor. Such dividends and distributions
will be paid, at the net asset value per share, in shares of the Fund (or in
cash if the shareholder so requests) as of the close of business on the record
date. At any time an investor may request the Transfer Agent, in writing, to
have subsequent dividends and/or capital gains distributions paid to him or her
in cash rather than shares. To assure sufficient time to process the change,
such request should be received by the Transfer Agent at least five business
days prior to the record date of the dividend or distribution. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payments will be made to DWR or the other
selected broker-dealer, and which will be forwarded to the shareholder, upon the
receipt of proper instructions.
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<PAGE>
Targeted Dividends.(Service Mark) In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of a TCW/DW Fund other than TCW/DW Core Equity
Trust. Such investment will be made as described above for automatic investment
in shares of the Fund, at the net asset value per share of the selected TCW/DW
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 TCW/DW
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 TCW/DW Fund targeted to receive investments from dividends at the time
they enter the Targeted Dividends program. Investors should review the
prospectus of the targeted TCW/DW Fund before entering the program.
EasyInvest.(Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the 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 per share, without the imposition of a contingent deferred sales
charge upon redemption, by returning the check or the proceeds to the Transfer
Agent within 30 days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset value
per share next determined after receipt of the check or proceeds by the Transfer
Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount, not
less than $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable contingent deferred sales charge will be
imposed on shares redeemed under the Withdrawal Plan (see "Repurchases and
Redemptions--Contingent Deferred Sales Charge" in the Prospectus). Therefore,
any shareholder participating in the Withdrawal Plan will have sufficient shares
redeemed from his or her account so that the proceeds (net of any applicable
contingent deferred sales charge) to the shareholder will be the designated
monthly or quarterly amount.
The Transfer Agent acts as agent for the shareholder in tendering to the Fund
for redemption sufficient full and fractional shares to provide the amount of
the periodic withdrawal payment designated in the application. The shares will
be redeemed at their net asset value determined, at the shareholder's option, on
the tenth or twenty-fifth day (or next following business day) of the relevant
month or quarter and normally a check for the proceeds will be mailed by the
Transfer Agent, or amounts credited to a shareholder's DWR or other selected
broker-dealer brokerage account, within five business days after the date of
redemption. The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the contingent deferred sales charge
applicable to the redemption of shares purchased during the preceding six years
(see "Repurchases and Redemptions--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
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<PAGE>
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 DWR or other selected
broker-dealer account executive or by written notification to the Transfer
Agent. In addition, the party and/or the address to which checks are mailed may
be changed by written notification to the Transfer Agent, with signature
guarantees required in the manner described above. The shareholder may also
terminate the Withdrawal Plan at any time by written notice to the Transfer
Agent. In the event of such termination, the account will be continued as a
regular shareholder investment account. The shareholder may also redeem all or
part of the shares held in the Withdrawal Plan account (see "Repurchases and
Redemptions" in the Prospectus) at any time. Shareholders wishing to enroll in
the Withdrawal Plan should contact their account executive or the Transfer
Agent.
Direct Investments through Transfer Agent. As discussed in the Prospectus, a
shareholder may make additional investments in Fund shares at any time by
sending a check in any amount, not less than $100, payable to TCW/DW Core Equity
Trust, directly to the Fund's Transfer Agent. Such amounts will be applied to
the purchase of Fund shares at the net asset value per share next computed after
receipt of the check or purchase payment by the Transfer Agent. The shares so
purchased will be credited to the investor's account.
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 TCW/DW Funds sold with a contingent deferred sales charge
("CDSC Funds"), TCW/DW North American Government Income Trust, TCW/DW Income and
Growth Fund and TCW/DW Balanced Fund and five money market funds for which
InterCapital serves as investment manager (the foregoing eight 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 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.
Shareholders utilizing the Fund's Exchange Privilege may subsequently
re-exchange such shares back to the Fund. However, no exchange privilege is
available between the Fund and any other fund managed by the Manager or
InterCapital, except for other TCW/DW Funds and the five money market funds
listed in the Prospectus.
Any new account established through the Exchange Privilege will have the same
registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be forwarded
to the Transfer Agent and deposited into the shareholder's account before being
eligible for exchange. (Certificates mailed in for deposit should not be
endorsed.)
As described below, and in the Prospectus under the captions "Exchange
Privilege" and "Contingent Deferred Sales Charge," a contingent deferred sales
charge ("CDSC") may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of the Fund or any
other CDSC Fund are exchanged for shares of an Exchange Fund, the exchange is
executed at no charge to the shareholder, without the imposition of the CDSC at
the time of the exchange. During the period of time the shareholder remains in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired), the holding period or "year since purchase
payment made" is frozen. When shares are redeemed out of the Exchange Fund, they
will be subject to a CDSC which would be based upon the period of time the
shareholder held shares in the Fund. However, in the case of shares 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 which are attributable
to those shares. Shareholders acquiring shares of an Exchange Fund pursuant to
this exchange privilege may exchange those shares back into the Fund from the
Exchange Fund, with no charge being imposed on such exchange. The holding period
previously frozen when shares were first exchanged for shares of an Exchange
Fund resumes on the last day of the month in which shares
22
<PAGE>
of a CDSC Fund are reacquired. A CDSC is imposed only upon an ultimate
redemption, based upon the time (calculated as described above) the shareholder
was invested in a CDSC Fund.
When shares initially purchased in a CDSC Fund are exchanged 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 six years prior to the exchange and (ii)
originally acquired through reinvestment of dividends or distributions (all such
shares called "Free Shares") will be exchanged first. After an exchange, all
dividends earned on shares in the 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. Shares equal to any appreciation in the value of non-Free Shares
exchanged will be treated as Free Shares, and the amount of the purchase
payments for the non-Free Shares of the fund exchanged into will be equal to the
lesser of (a) the purchase payments for, or (b) the current net asset value of,
the exchanged non-Free Shares. If an exchange between funds would result in
exchange of only part of a particular block of non-Free Shares, then shares
equal to any appreciation in the value of the block (up to the amount of the
exchange) will be treated as Free Shares and exchanged first, and the purchase
payment for that block will be allocated on a pro rata basis between the
non-Free Shares of that block to be retained and the non-Free Shares to be
exchanged. The prorated amount of such purchase payment attributable to the
retained non-Free Shares will remain as the purchase payment for such shares,
and the amount of purchase payment for the exchanged non-Free Shares will be
equal to the lesser of (a) the prorated amount of the purchase payment for, or
(b) the current net asset value of, those exchanged non-Free Shares. Based upon
the procedures described in the Prospectus under the caption "Contingent
Deferred Sales Charge," any applicable CDSC will be imposed upon the ultimate
redemption of shares of any fund, regardless of the number of exchanges since
those shares were originally purchased.
The Transfer Agent acts as agent for shareholders of the Fund in effecting
redemptions of Fund shares and in applying the proceeds to the purchase of other
fund shares. In the absence of negligence on its part, neither the Transfer
Agent nor the Fund shall be liable for any redemption of Fund shares caused by
unauthorized telephone or telegraph instructions. Accordingly, in such event the
investor shall bear the risk of loss. The staff of the Securities and Exchange
Commission is currently considering the propriety of such a policy.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions.
With respect to exchanges, redemptions or repurchases, the Transfer Agent
shall be liable for its own negligence and not for the default or negligence of
its correspondents or for losses in transit. The Fund shall not be liable for
any default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000 for
Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust,
Dean Witter New York Municipal Money Market Trust and Dean Witter California
Tax-Free Daily Income Trust, although those funds may, at their discretion,
accept initial investments of as low as $1,000. The minimum initial investment
for Dean Witter U.S. Government Money Market Trust and for all TCW/DW Funds 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.
23
<PAGE>
The Fund, each of the other TCW/DW Funds and each of the money market 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 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 this
Exchange Privilege, and provided further that the Exchange Privilege may be
terminated or materially revised without notice at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, (d) during any other period when the Securities and
Exchange Commission by order so permits (provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist) or (e) if the Fund would be
unable to invest amounts effectively in accordance with its investment
objective, policies and restrictions.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. 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.
REPURCHASES AND REDEMPTIONS
- -----------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of the Fund can be redeemed
for cash at any time at the net asset value per share next determined; however,
such redemption proceeds may be reduced by the amount of any applicable
contingent deferred sales charges (see below). If shares are held in a
shareholder's account without a share certificate, a written request for
redemption to the Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303
is required. If certificates are held by the shareholder, the shares may be
redeemed by surrendering the certificates with a written request for redemption.
The share certificate, or an accompanying stock power, and the request for
redemption, must be signed by the shareholder or shareholders exactly as the
shares are registered. Each request for redemption, whether or not accompanied
by a share certificate, must be sent to the Fund's Transfer Agent, which will
redeem the shares at their net asset value next computed (see "Purchase of Fund
Shares") after it receives the request, and certificate, if any, in good order.
Any redemption request received after such computation will be redeemed at the
next determined net asset value. The term "good order" means that the share
certificate, if any, and request for redemption are properly signed, accompanied
by any documentation required by the Transfer Agent, and bear signature
guarantees when required by the Fund or the Transfer Agent. If redemption is
requested by a corporation, partnership, trust or fiduciary, the Transfer Agent
may require that written evidence of authority acceptable to the Transfer Agent
be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor 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 revised
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
24
<PAGE>
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 TCW/DW Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) 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. 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 will
be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Fund shares until the time of
redemption of such shares. For purposes of determining the number of years from
the time of any payment for the purchase of shares, all payments made during a
month will be aggregated and deemed to have been made on the last day of the
month. The following table sets forth the rates of the CDSC:
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------- -----------------------
First...................... 5.0%
Second..................... 4.0%
Third...................... 3.0%
Fourth..................... 2.0%
Fifth...................... 2.0%
Sixth...................... 1.0%
None
Seventh and thereafter ....
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. 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 Repurchased or Redeemed. As discussed in the Prospectus,
payment for shares presented for repurchase or redemption will be made by check
within seven days after receipt by the Transfer Agent of the certificate and/or
written request in good order. The term good order means that the share
certificate, if any, and request for redemption are properly signed, accompanied
by any documentation required by the Transfer Agent, and bear signature
guarantees when required by the Fund or the Transfer Agent. Such payment may be
postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for investment
has been honored (not more
25
<PAGE>
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another selected
broker-dealer are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the contingent deferred sales charge or free of such charge
(and with regard to the length of time shares subject to the charge have been
held), any transfer involving less than all of the shares in an account will be
made on a pro-rata basis (that is, by transferring shares in the same proportion
that the transferred shares bear to the total shares in the account immediately
prior to the transfer). The transferred shares will continue to be subject to
any applicable contingent deferred sales charge as if they had not been so
transferred.
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 shareholders will be required to include such undistributed
gains in their taxable income and 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 be long-term capital
gains or losses if the securities have been held by the Fund for more than
twelve months. Gains or losses on the sale of securities held for twelve months
or less will be short-term gains or losses.
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 at either ordinary or capital gain rates.
Therefore, an investor should consider the tax implications of purchasing Fund
shares immediately prior to a dividend or distribution record date.
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.
26
<PAGE>
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 fiscal year ended March 31, 1997 and for
the period from May 29, 1992 (commencement of operations) through March 31, 1997
was 3.31% and 10.42%, respectively.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, year-by-year or other types of
total return figures. Such calculations may or may not reflect the deduction of
the contingent deferred sales charge which, if reflected, would reduce the
performance quoted. For example, the average annual total return of the Fund may
be calculated in the manner described above, but without deduction for any
applicable contingent deferred sales charge. Based on this calculation, the
average annual total return of the Fund for the fiscal year ended March 31, 1997
and for the period from May 29, 1992 through March 31, 1997 was 8.31% and
10.70%, respectively.
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without the
reduction for any contingent deferred sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the Fund's total return for the fiscal year ended March 31, 1997
and for the period from May 29, 1992 through March 31, 1997 was 8.31% and
63.54%, 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 $16,354, $81,770 and $163,540,
respectively, at March 31, 1997.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF SHARES
- -----------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. Trustees have been elected by the Fund's shareholders at a Special Meeting
of Shareholders on February 15, 1994. Messrs. Schroeder and Stern were elected
by the other Trustees of the Fund on April 20, 1995. The Trustees themselves
have the power to alter the number and the terms of office of the Trustees, and
they may at any time lengthen their own terms or make their terms of unlimited
duration and appoint their own successors, provided that always at least a
majority of the Trustees has been elected by the shareholders of the Fund. Under
certain circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right to remove the Trustees following a meeting
called for that purpose requested in writing by the record holders of not less
than ten percent of the Fund's outstanding shares. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances). The Trustees have not presently authorized
any such additional series or classes of shares.
The Declaration of Trust provides that no Trustee, officer, employee or agent
of the Fund is liable to the Fund or to a shareholder, nor is any Trustee,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, except as such liability may arise from his own bad faith,
willful misfeasance, gross negligence, or reckless disregard of his duties. It
also provides that all third persons shall look solely to the Fund's
27
<PAGE>
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated, the Declaration of Trust provides that a
Trustee, officer, employee or agent is entitled to be indemnified against all
liabilities in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration subject to the provisions of
the Declaration of Trust concerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
- -----------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter Services Company Inc., the
Fund's Manager, and of Dean Witter Distributors Inc., the Fund's Distributor. As
Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust Company's
responsibilities include maintaining shareholder accounts, disbursing cash
dividends and reinvesting dividends, processing account registration changes,
handling purchase and redemption transactions, mailing prospectuses and reports,
mailing 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 March 31. The financial statements of the Fund
must be audited at least once a year by independent accountants whose selection
is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- -----------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the Manager,
is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The financial statements of the Fund 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.
28
<PAGE>
TCW/DW CORE EQUITY TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.7%)
Air Transport (6.1%)
57,800 AMR Corp.* ..................................................... $ 4,768,500
291,100 Delta Air Lines, Inc. .......................................... 24,488,787
233,900 UAL Corp.* ..................................................... 15,145,025
--------------
44,402,312
--------------
Aircraft & Aerospace (8.1%)
283,100 Boeing Co. ..................................................... 27,920,737
413,900 United Technologies Corp. ...................................... 31,145,975
--------------
59,066,712
--------------
Auto Parts -Original Equipment (4.4%)
512,900 Lear Corp.* .................................................... 17,118,037
Magna International, Inc.
294,400 (Class A)(Canada) ............................................... 14,609,600
--------------
31,727,637
--------------
Automobiles (4.1%)
666,200 Chrysler Corp. ................................................. 19,986,000
309,600 Ford Motor Co. ................................................. 9,713,700
--------------
29,699,700
--------------
Banks -Money Center (3.7%)
250,600 Citicorp ........................................................ 27,127,450
--------------
Beverages -Soft Drinks (2.3%)
516,800 PepsiCo, Inc. .................................................. 16,860,600
--------------
Brokerage (2.1%)
176,000 Merrill Lynch & Co., Inc. ...................................... 15,114,000
--------------
Business Services (2.2%)
476,100 Green Tree Financial Corp. ..................................... 16,068,375
--------------
Commercial Services (1.6%)
484,700 Corrections Corp. of America* ................................... 11,753,975
--------------
Communications -Equipment &
Software (4.0%)
187,700 Cascade Communications Corp.* .................................. 4,950,587
504,906 Cisco Systems, Inc. * ........................................... 24,298,601
--------------
29,249,188
--------------
Computer Equipment (2.1%)
385,000 Storage Technology Corp.* ...................................... 15,111,250
--------------
Computer Services (2.4%)
286,500 Computer Sciences Corp.* ....................................... 17,691,375
--------------
Computer Software (3.9%)
309,200 Microsoft Corp.* ............................................... 28,330,450
--------------
Drugs (1.9%)
241,200 Amgen, Inc.* ................................................... 13,477,050
--------------
Electrical Equipment (3.6%)
224,400 Honeywell, Inc. ................................................ $15,231,150
608,011 Westinghouse Electric Corp. .................................... 10,792,195
--------------
26,023,345
--------------
Electronics -Semiconductors/
Components (6.4%)
337,100 Intel Corp. .................................................... 46,856,900
--------------
Entertainment (1.3%)
453,800 Mirage Resorts, Inc.* .......................................... 9,643,250
--------------
Financial Services (2.1%)
357,000 Associates First Capital Corp. (Class A) ....................... 15,351,000
--------------
Healthcare -Diversified (4.6%)
215,700 Johnson & Johnson ............................................... 11,405,138
149,300 United Healthcare Corp. ........................................ 7,110,413
172,000 Warner-Lambert Co. ............................................. 14,878,000
--------------
33,393,551
--------------
Healthcare -Drugs (1.8%)
157,200 Lilly (Eli) & Co. .............................................. 12,929,700
--------------
Household Appliances (3.0%)
490,300 American Standard Companies, Inc.* ............................. 22,063,500
--------------
Insurance (1.6%)
103,200 Marsh & McLennan Companies, Inc. ............................... 11,687,400
--------------
Machinery -Construction &
Materials (2.8%)
258,400 Caterpillar, Inc. .............................................. 20,736,600
--------------
Office Equipment & Supplies (3.2%)
256,700 Hewlett-Packard Co. ............................................ 13,669,275
163,600 Xerox Corp. .................................................... 9,304,750
--------------
22,974,025
--------------
Oil -Exploration & Production (1.2%)
372,500 Canadian Natural Resources Ltd. (Canada)* ....................... 9,009,928
--------------
Oil Integrated -International (1.1%)
93,900 Amoco Corp. .................................................... 8,134,088
--------------
Railroads (2.6%)
TCW/DW CORE EQUITY TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C>
253,097 Burlington Northern Santa Fe Corp. ............................. 18,729,178
--------------
Restaurants (1.2%)
284,500 Boston Chicken, Inc.* .......................................... 8,641,688
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
TCW/DW CORE EQUITY TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail -Specialty (3.1%)
422,700 Home Depot, Inc. ............................................... $ 22,614,450
-------------
Soap & Household Products (5.6%)
153,600 Kimberly-Clark Corp. ........................................... 15,264,000
221,100 Procter & Gamble Co. ........................................... 25,426,500
-------------
40,690,500
-------------
Telecommunications (2.6%)
242,700 Ascend Communications, Inc.* ................................... 9,890,025
166,700 Lucent Technologies, Inc. ...................................... 8,793,425
-------------
18,683,450
-------------
Tobacco (3.0%)
194,500 Philip Morris Companies, Inc. .................................. 22,197,313
-------------
TOTAL COMMON STOCKS
(Identified Cost $512,931,010) ................................. 726,039,940
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------- ---------------------------------------------------------------- -------------
<S> <C> <C>
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT
The Bank of New York
5.375% due 04/01/97
(dated 03/31/97; proceeds $2,554,302; collateralized by
$1,086,566 U.S. Treasury Note 5.75% due 10/31/00 valued at
$1,081,048 and $1,530,005 U.S. Treasury Note 6.00% due 08/15/99
valued at $1,523,951)
$2,554(Identified Cost $2,553,921) .................................... $2,553,921
-------------
</TABLE>
TOTAL INVESTMENTS
(Identified Cost $515,484,931)(a) . 100.1% 728,593,861
LIABILITIES IN EXCESS OF OTHER
ASSETS............................. (0.1) (1,065,831)
-------- -------------
NET ASSETS......................... 100.0% $727,528,030
======== =============
- ------------
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$237,346,226 and the aggregate gross unrealized depreciation is
$24,237,296, resulting in net unrealized appreciation of $213,108,930.
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
TCW/DW CORE EQUITY TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $515,484,931)....................................... $728,593,861
Receivable for:
Dividends........................................................... 789,837
Shares of beneficial interest sold.................................. 346,389
Deferred organizational expenses...................................... 6,681
Prepaid expenses and other assets..................................... 49,671
--------------
TOTAL ASSETS........................................................ 729,786,439
--------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased........................... 1,045,692
Plan of distribution fee............................................ 475,502
Management fee...................................................... 334,885
Investment advisory fee............................................. 223,257
Accrued expenses...................................................... 179,073
--------------
TOTAL LIABILITIES................................................... 2,258,409
--------------
NET ASSETS:
Paid-in-capital ...................................................... 455,058,838
Net unrealized appreciation........................................... 213,108,930
Accumulated undistributed net realized gain........................... 59,360,262
--------------
NET ASSETS.......................................................... $727,528,030
==============
NET ASSET VALUE PER SHARE,
48,217,917 shares outstanding (unlimited shares authorized of $.01
par value)........................................................... $ 15.09
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
TCW/DW CORE EQUITY TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
NET INVESTMENT INCOME:
INCOME
Dividends (net of $51,765 foreign withholding
tax).............................................. $ 7,379,844
Interest........................................... 125,839
--------------
TOTAL INCOME..................................... 7,505,683
--------------
EXPENSES
Plan of distribution fee .......................... 5,711,981
Management fee..................................... 3,918,537
Investment advisory fee............................ 2,612,358
Transfer agent fees and expenses................... 686,285
Professional fees.................................. 82,401
Shareholder reports and notices.................... 62,903
Custodian fees..................................... 48,319
Registration fees.................................. 40,492
Organizational expenses............................ 39,979
Trustees' fees and expenses........................ 33,530
Other.............................................. 62,740
--------------
TOTAL EXPENSES .................................. 13,299,525
--------------
NET INVESTMENT LOSS.............................. (5,793,842)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain.................................. 90,999,031
Net change in unrealized appreciation.............. (22,753,082)
--------------
NET GAIN......................................... 68,245,949
--------------
NET INCREASE....................................... $ 62,452,107
==============
SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
TCW/DW CORE EQUITY TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
- ------------------------------------------------------ -------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................................... $ (5,793,842) $ (5,429,759)
Net realized gain...................................... 90,999,031 68,877,185
Net change in unrealized appreciation.................. (22,753,082) 100,384,305
-------------- --------------
NET INCREASE......................................... 62,452,107 163,831,731
Distributions from net realized gain................... (61,217,104) --
Net decrease from transactions in shares of beneficial
interest.............................................. (40,876,663) (94,012,499)
-------------- --------------
NET INCREASE (DECREASE)................................ (39,641,660) 69,819,232
NET ASSETS:
Beginning of period.................................... 767,169,690 697,350,458
-------------- --------------
END OF PERIOD ...................................... $727,528,030 $767,169,690
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
TCW/DW CORE EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
TCW/DW Core Equity Trust (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, open-end management investment
company. The Fund's investment objective is long-term growth of capital. The
Fund seeks to achieve its objective by investing primarily in common stocks and
securities convertible into common stocks issued by domestic and foreign
companies. The Fund was organized as a Massachusetts business trust on January
31, 1992 and commenced operations on May 29, 1992.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, 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;
(2) all other portfolio securities for which over-the-counter market quotations
are readily available are valued at the latest available bid price prior to the
time of valuation; (3) when market quotations are not readily available,
including circumstances under which it is determined by TCW Funds Management,
Inc. (the "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 Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); and (4) short-term debt securities having a maturity
date of more than sixty days at time of purchase are valued on a mark-to-market
basis until sixty days prior to maturity and thereafter at amortized cost based
on their value on the 61st day. Short-term 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 ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
34
<PAGE>
TCW/DW CORE EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1997 continued
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the 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.
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. ("InterCapital"), an
affiliate of Dean Witter Services Company Inc. (the "Manager"), paid the
organizational expenses of approximately $202,000 which have been reimbursed,
exclusive of $2,000 which has been absorbed by InterCapital. Such expenses have
been deferred and are being amortized on the straight-line method over a period
not to exceed five years from the commencement of operations.
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Manager a management fee,
accrued daily and payable monthly, by applying the following annual rates to the
Fund's daily net assets determined at the close of each business day: 0.51% to
the portion of daily net assets not exceeding $750 million; 0.48% to the portion
of daily net assets exceeding $750 million but not exceeding $1.5 billion; and
0.45% to the portion of daily net assets exceeding $1.5 billion.
Under the terms of the Management Agreement, the Manager maintains certain of
the Fund's books and records and furnishes, at its own expense, office space,
facilities, equipment, clerical, bookkeeping and certain legal services and pays
the salaries of all personnel, including officers of the Fund who are employees
of the Manager. The Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
35
<PAGE>
TCW/DW CORE EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1997 continued
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays the Adviser an
advisory fee, accrued daily and payable monthly, by applying the following
annual rates to the Fund's daily net assets determined at the close of each
business day: 0.34% to the portion of daily net assets not exceeding $750
million; 0.32% to the portion of daily net assets exceeding $750 million but not
exceeding $1.5 billion; and 0.30% to the portion of daily net assets exceeding
$1.5 billion.
Under the terms of the Investment Advisory Agreement, the Fund has retained the
Adviser to invest the Fund's assets, including placing orders for the purchase
and sale of portfolio securities. The Adviser obtains and evaluates such
information and advice relating to the economy, securities markets, and specific
securities as it considers necessary or useful to continuously manage the assets
of the Fund in a manner consistent with its investment objective. In addition,
the Adviser pays the salaries of all personnel, including officers of the Fund,
who are employees of the Adviser.
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the 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 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.
36
<PAGE>
TCW/DW CORE EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1997 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 Trustees will consider at that
time the manner in which to treat such expenses. The Distributor has advised the
Fund that such excess amounts, including carrying charges, totaled $21,584,533
at March 31, 1997.
The Distributor has informed the Fund that for the year ended March 31, 1997, it
received approximately $1,579,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended March 31, 1997 aggregated
$340,647,512 and $443,667,096, respectively.
For the year ended March 31, 1997, the Fund incurred $53,710 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
Dean Witter Trust Company, an affiliate of the Manager and Distributor, is the
Fund's transfer agent. At March 31, 1997, the Fund had transfer agent fees and
expenses payable of approximately $110,000.
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold 3,329,142 $ 52,606,423 4,293,001 $ 60,014,162
Reinvestment of distributions 3,693,581 57,173,675 -- --
------------- --------------- -------------- ---------------
7,022,723 109,780,098 4,293,001 60,014,162
Repurchased (9,631,148) (150,656,761) (11,052,750) (154,026,661)
------------- --------------- -------------- ---------------
Net decrease (2,608,425) $ (40,876,663) (6,759,749) $ (94,012,499)
============= =============== ============== ===============
</TABLE>
7. FEDERAL INCOME TAX STATUS
As of March 31, 1997, the Fund had temporary book/tax differences attributable
to capital loss deferrals on wash sales and permanent book/tax differences
attributable to a net operating loss. To reflect reclassifications arising from
the permanent difference, paid-in-capital was charged and net investment loss
was credited $5,793,842.
37
<PAGE>
TCW/DW CORE EQUITY TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED MARCH 31, MAY 29, 1992*
------------------------------------------- THROUGH
1997 1996 1995 1994 MARCH 31, 1993
- ------------------------------------------ ---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 15.09 $ 12.11 $ 12.10 $ 11.26 $ 10.00
---------- ---------- ---------- ---------- --------------
Net investment loss ....................... (.12) (0.11) (0.06) (0.06) (0.01)
Net realized and unrealized gain .......... 1.39 3.09 0.07 0.90 1.27
---------- ---------- ---------- ---------- --------------
Total from investment operations .......... 1.27 2.98 0.01 0.84 1.26
---------- ---------- ---------- ---------- --------------
Less distributions from net realized gain (1.27) -- -- -- --
---------- ---------- ---------- ---------- --------------
Net asset value, end of period ............ $ 15.09 $ 15.09 $ 12.11 $ 12.10 $ 11.26
========== ========== ========== ========== ==============
TOTAL INVESTMENT RETURN+................... 8.31% 24.69% 0.08% 7.46% 12.60%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.73% 1.82% 1.96% 1.93% 2.07%(2)
Net investment loss ....................... (0.75)% (0.72)% (0.48)% (0.59)% (0.14)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $727,528 $767,170 $697,350 $707,069 $486,829
Portfolio turnover rate ................... 45% 48% 38% 35% 26%(1)
Average commission rate paid .............. $ 0.0590 $ 0.0595 -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
- ------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .....
Net investment loss .......................
Net realized and unrealized gain ..........
Total from investment operations ..........
Less distributions from net realized gain
Net asset value, end of period ............
TOTAL INVESTMENT RETURN+ ..................
RATIOS TO AVERAGE NET ASSETS:
Expenses ..................................
Net investment loss .......................
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ..
Portfolio turnover rate ...................
Average commission rate paid ..............
- ------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
TCW/DW CORE EQUITY TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF TCW/DW CORE EQUITY TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of TCW/DW Core Equity Trust (the
"Fund") at March 31, 1997, 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 four years in the period
then ended and for the period May 29, 1992 (commencement of operations) through
March 31, 1993, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at March
31, 1997 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 9, 1997
1997 FEDERAL TAX NOTICE (unaudited)
During the year ended March 31, 1997, the Fund paid to its shareholders
$1.27 per share from long-term capital gains.
39
<PAGE>
APPENDIX
- -----------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well. Bonds rated Aaa, Aa, A and Baa are considered investment grade
bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not
well safeguarded during both good and bad times in the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and a modifier 3 indicates that the issue ranks in the lower end if its
generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well
40
<PAGE>
as taxable Commercial Paper. Moody's employs the following three designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher-rated categories. Bonds rated AAA, AA, A and BBB are considered
investment grade bonds.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions which
could lead to inadequate capacity or willingness to pay interest and
repay principal.
B Debt rated "B" has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC Debt rated "CCC" has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal.
CC The rating "CC" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC" rating.
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C The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating.
Cl The rating "Cl" is reserved for income bonds on which no interest is
being paid.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does
not rate a particular type of obligation as a matter of policy. Bonds
rated "BB", "B", "CCC", "CC" and "C" are regarded as having
predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions. Plus (+) or minus (-): The rating from "AA" to "CCC" may be
modified by the addition of a plus or minus sign to show relative
standing within the major ratings categories.
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2, and 3 to indicate the relative degree of safety.
A-1 indicates that the degree of safety regarding timely payment is very
strong.
A-2 indicates capacity for timely payment on issues with this designation
is strong. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations
carrying this designation are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying
the higher designations.
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