<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-45450
PROSPECTUS
MARCH 2, 1998
Morgan Stanley Dean Witter Growth Fund (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.")
The Fund offers four classes of shares (each, a "Class"), each
with a different combination of sales charges, ongoing fees and other
features. The different distribution arrangements permit an investor to
choose the method of purchasing shares that the investor believes is most
beneficial given the amount of the purchase, the length of time the investor
expects to hold the shares and other relevant circumstances. (See "Purchase
of Fund Shares--Alternative Purchase Arrangements.")
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 March 2, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 5
Financial Highlights .................................................. 7
The Fund and its Management ........................................... 10
Investment Objective and Policies ..................................... 11
Risk Considerations and Investment
Practices ........................................................... 12
Investment Restrictions ............................................... 16
Purchase of Fund Shares ............................................... 17
Shareholder Services .................................................. 27
Redemptions and Repurchases ........................................... 30
Dividends, Distributions and Taxes .................................... 31
Performance Information ............................................... 32
Additional Information ................................................ 33
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 AP-PROVED OR DISAPPROVED BY THE SECURI TIES
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.
MORGAN STANLEY DEAN WITTER
GROWTH FUND
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
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PROSPECTUS SUMMARY
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<TABLE>
<CAPTION>
<S> <C>
The The Fund is organized as a Trust, commonly known as a
Fund Massachusetts business trust, and is an open-end,
non-diversified management investment company investing
primarily in common stocks and securities convertible
into common stocks.
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Shares Offered Shares of beneficial interest with $0.01 par value (see
page 33). The Fund offers four Classes of shares, each
with a different combination of sales charges, ongoing
fees and other features (see pages 17-26).
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Minimum The minimum initial investment for each Class is $1,000
Purchase ($100 if the account is opened through EasyInvest
(Service Mark) ). Class D shares are only available to
persons investing $5 million ($25 million for certain
qualified plans) or more and to certain other limited
categories of investors. For the purpose of meeting the
minimum $5 million (or $25 million) investment for Class
D shares, and subject to the $1,000 minimum initial
investment for each Class of the Fund, an investor's
existing holdings of Class A shares and shares of funds
for which Dean Witter InterCapital Inc. serves as
investment manager ("Dean Witter Funds") that are sold
with a front-end sales charge, and concurrent investments
in Class D shares of the Fund and other Dean Witter Funds
that are multiple class funds will be aggregated. The
minimum subsequent investment is $100 (see page 17).
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Investment The investment objective of the Fund is long-term growth
Objective of capital (see page 11).
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Investment Dean Witter InterCapital Inc., the Investment Manager of
Manager and the Fund, and its wholly-owned subsidiary, Dean Witter
Sub-Adviser Services Company Inc., serve in various investment
management, advisory, management and administrative
capacities to 101 investment companies and other
portfolios with net assets under management of
approximately $105 billion at January 31, 1998. Morgan
Stanley Asset Management Inc. ("MSAM"), an affiliate of
the Investment Manager, has been retained by the
Investment Manager as Sub-Adviser to provide investment
advice and manage the Fund's portfolio. MSAM conducts a
worldwide investment advisory business. As of January 31,
1998, MSAM, together with its institutional investment
management affiliates, had approximately $148.7 billion
in assets under management as an investment manager or as
a fiduciary adviser (see pages 10-11).
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Management The Investment Manager receives a monthly fee from the
Fee Fund at the annual rate of 0.80% of the Fund's net
assets up to $750 million, scaled down at various levels
to 0.45% on assets over $1.5 billion. The Sub-Adviser
receives a monthly fee from the Investment Manager equal
to 40% of the Investment Manager's monthly fee (see
pages 10-11).
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Distributor Distributor Dean Witter Distributors Inc. (the
and Distribution "Distributor"). The Fund has adopted a distribution plan
Fee pursuant to Rule 12b-1 under the Investment Company Act
(the "12b-1 Plan") with respect to the distribution fees
paid by the Class A, Class B and Class C shares of the
Fund to the Distributor. The entire 12b-1 fee payable by
Class A and a portion of the 12b-1 fee payable by each of
Class B and Class C equal to 0.25% of the average daily
net assets of the Class are currently each characterized
as a service fee within the meaning of the National
Association of Securities Dealers, Inc. guidelines. The
remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge (see pages
17 and 25).
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2
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Alternative Four classes of shares are offered:
Purchase
Arrangements o Class A shares are offered with a front-end sales
charge, starting at 5.25% and reduced for larger
purchases. Investments of $1 million or more (and
investments by certain other limited categories of
investors) are not subject to any sales charge at the
time of purchase but a contingent deferred sales charge
("CDSC") of 1.0% may be imposed on redemptions within one
year of purchase. The Fund is authorized to reimburse the
Distributor for specific expenses incurred in promoting
the distribution of the Fund's Class A shares and
servicing shareholder accounts pursuant to the Fund's
12b-1 Plan. Reimbursement may in no event exceed an
amount equal to payments at an annual rate of 0.25% of
average daily net assets of the Class (see pages 17, 20
and 25).
o Class B shares are offered without a front-end
sales charge, but will in most cases be subject to a CDSC
(scaled down from 5.0% to 1.0%) if redeemed within six
years after purchase. The CDSC will be imposed on any
redemption of shares if after such redemption the
aggregate current value of a Class B account with the
Fund falls below the aggregate amount of the investor's
purchase payments made during the six years preceding the
redemption. A different CDSC schedule applies to
investments by certain qualified plans. Class B shares
are also subject to a 12b-1 fee assessed at the annual
rate of 1.0% of the lesser of: (a) the average daily net
sales of the Fund's Class B shares or (b) the average
daily net assets of Class B. All shares of the Fund held
prior to July 28, 1997 have been designated Class B
shares. Shares held before May 1, 1997 will convert to
Class A shares in May, 2007. In all other instances,
Class B shares convert to Class A shares approximately
ten years after the date of the original purchase (see
pages 17, 22 and 25).
o Class C shares are offered without a front-end sales
charge, but will in most cases be subject to a CDSC of
1.0% if redeemed within one year after purchase. The Fund
is authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the
Fund's Class C shares and servicing shareholder accounts
pursuant to the Fund's 12b-1 Plan. Reimbursement may in
no event exceed an amount equal to payments at an annual
rate of 1.0% of average daily net assets of the Class
(see pages 17 and 25).
o Class D shares are offered only to investors meeting an
initial investment minimum of $5 million ($25 million for
certain qualified plans) and to certain other limited
categories of investors. Class D shares are offered
without a front-end sales charge or CDSC and are not
subject to any 12b-1 fee (see pages 17 and 25).
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3
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Dividends and Dividends from net investment income and
Capital Gains distributions from net capital gains, if any, are paid at
Distributions least once each year. Dividends and capital gains
distributions are automatically reinvested in additional
shares of the same Class at net asset value unless the
shareholder elects to receive cash. The Fund may,
however, determine to retain all or part of any net
long-term capital gains in any year for reinvestment.
Shares acquired by dividend and distribution reinvestment
will not be subject to any sales charge or CDSC (see
pages 27 and 31).
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Redemption Shares are redeemable by the shareholder at net asset
value less any applicable CDSC on Class A, Class B or
Class C shares. An account may be involuntarily redeemed
if the total value of the account is less than $100 or,
if the account was opened through EasyInvest (Service
Mark), if after twelve months the shareholder has
invested less than $1,000 in the account (see page 30).
- -------------------- ---------------------------------------------------------
Risk The net asset value of the Fund's shares will fluctuate
Considerations with changes in the market value of the Fund's portfolio
securities. The Fund may purchase foreign securities,
which involve certain special risks. 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
12-16).
- -------------------- ---------------------------------------------------------
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
4
<PAGE>
SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. The expenses and fees set forth in the table are
based on the expenses and fees expected to be paid for the fiscal year ended
March 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
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Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ..................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments .... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds)............................... None(2) 5.00%(3) 1.00%(4) None
Redemption Fees..................................... None None None None
Exchange Fee........................................ None None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
- ----------------------------------------------------------------------
Management and Advisory Fees* ...................... 0.80% 0.80% 0.80% 0.80%
12b-1 Fees (5)(6)................................... 0.25% 0.74% 1.00% None
Other Expenses ..................................... 0.14% 0.14% 0.14% 0.14%
Total Fund Operating Expenses (7)*.................. 1.19% 1.68% 1.94% 0.94%
</TABLE>
- ------------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1
fee payable by Class A and a portion of the 12b-1 fee payable by each
of Class B and Class C equal to 0.25% of the average daily net assets
of the Class are currently each characterized as a service fee within
the meaning of National Association of Securities Dealers, Inc.
("NASD") guidelines and are payments made for personal service and/or
maintenance of shareholder accounts. The remainder of the 12b-1 fee, if
any, is an asset-based sales charge, and is a distribution fee 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 (see "Purchase of Fund Shares--Plan of Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will
be subject to the lower 12b-1 fee applicable to Class A shares. No
sales charge is imposed at the time of conversion of Class B shares to
Class A shares. Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing 1.00% distribution fee (see
"Purchase of Fund Shares--Alternative Purchase Arrangements").
(7) There were no outstanding shares of Class A, Class C or Class D prior
to July 28, 1997. Accordingly, "Total Fund Operating Expenses," as
shown above with respect to those Classes, are estimates based upon the
sum of 12b-1 Fees, Management Fees and estimated "Other Expenses."
* Effective March 2, 1998, the management agreement between the Fund and
its former manager (the "Former Management Agreement") and the advisory
agreement between the Fund and its former adviser (the "Former Advisory
Agreement") were terminated and the Fund entered into an investment
management agreement with Dean Witter InterCapital Inc. (the
"Investment Management Agreement"). (See "The Fund and its
Management.") The fee under the Investment Management Agreement is
0.05% lower than the total aggregate fee previously paid by the Fund
pursuant to the Former Management Agreement and the Former Advisory
Agreement combined. "Management and Advisory Fees" and "Total Fund
Operating Expenses" have been restated to reflect the lower fee. Actual
"Management and Advisory Fees" pursuant to the Former Management
Agreement and the Former Advisory Agreement for the fiscal year ended
March 31, 1997 were 0.85% of the average daily net assets of Class B
(Class B was the only class of shares outstanding at March 31, 1997)
and "Total Fund Operating Expenses" were 1.73% of the average daily net
assets of Class B.
5
<PAGE>
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<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------- -------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
Class A ...................................................... 64 88 114 189
Class B ...................................................... 67 83 111 198
Class C....................................................... 30 61 104 226
Class D ...................................................... 10 30 52 115
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ...................................................... 64 88 114 189
Class B ...................................................... 17 53 91 198
Class C ...................................................... 20 61 104 226
Class D ...................................................... 10 30 52 115
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS 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," "Purchase of Fund Shares--Plan of
Distribution" and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of the
maximum front-end sales charges permitted by the NASD.
6
<PAGE>
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each of the periods through March 31, 1997 have been
audited by Price Waterhouse LLP, independent accountants. The information for
the six-month period ended September 30, 1997 is unaudited. 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
SIX MONTHS FOR THE PERIOD
ENDED FOR THE YEAR ENDED MARCH 31, MAY 29, 1992*
SEPTEMBER 30, -------------------------------------- THROUGH
1997**++ 1997 1996 1995 1994 MARCH 31, 1993
------------ ---- ---- ---- ---- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period.................. $ 15.09 $ 15.09 $ 12.11 $ 12.10 $ 11.26 $ 10.00
-------- --------- ---------- -------- --------- ----------
Net investment loss ........ (0.05) (0.12) (0.11) (0.06) (0.06) (0.01)
Net realized and unrealized
gain ...................... 3.88 1.39 3.09 0.07 0.90 1.27
--------- --------- ---------- -------- --------- ---------
Total from investment
operations ................ 3.83 1.27 2.98 0.01 0.84 1.26
--------- --------- ---------- -------- --------- ---------
Less distributions from net
realized gain ............. (1.28) (1.27) -- -- -- --
--------- --------- ---------- -------- --------- ---------
Net asset value, end of
period .................... $ 17.64 $ 15.09 $ 15.09 $ 12.11 $ 12.10 $ 11.26
========= ========= ========== ======== ========= =========
TOTAL INVESTMENT RETURN+ ... 26.02%(1) 8.31% 24.69% 0.08% 7.46% 12.60%(1)
RATIOS TO AVERAGE NET
ASSETS:
Expenses ................... 1.63%(2) 1.73% 1.82% 1.96% 1.93% 2.07%(2)
Net investment loss ........ (0.05)%(2) (0.75)% (0.72)% (0.48)% (0.59)% (0.14)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands .............. $840,330 $727,528 $767,170 $697,350 $707,069 $486,829
Portfolio turnover rate ... 17%(1) 45% 48% 38% 35% 26%(1)
Average commission rate
paid ...................... $ 0.0596 $0.0590 $0.0595 -- -- --
</TABLE>
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* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated
Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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.
7
<PAGE>
FINANCIAL HIGHLIGHTS continued
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<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
- --------------------------------------- -------------------
<S> <C>
(unaudited)
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 17.58
---------------
Net realized and unrealized gain ....... 0.07
---------------
Net asset value, end of period.......... $ 17.65
===============
TOTAL INVESTMENT RETURN+................ 0.40%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 1.24%(2)
Net investment loss..................... -- %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $ 20
Portfolio turnover rate................. 17%(1)
Average commission rate paid............ $ 0.0596
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 17.58
---------------
Net investment loss..................... (0.03)
Net realized and unrealized gain ....... 0.08
---------------
Total from investment operations ....... 0.05
---------------
Net asset value, end of period.......... $ 17.63
===============
TOTAL INVESTMENT RETURN+................ 0.28%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 2.00%(2)
Net investment loss..................... (0.03)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $ 128
Portfolio turnover rate................. 17%(1)
Average commission rate paid............ $ 0.0596
</TABLE>
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* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
8
<PAGE>
FINANCIAL HIGHLIGHTS continued
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<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
- -------------------------------------- -------------------
<S> <C>
(unaudited)
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . $ 17.58
---------------
Net investment income.................. 0.01
Net realized and unrealized gain ...... 0.07
---------------
Total from investment operations ...... 0.08
---------------
Net asset value, end of period......... $ 17.66
===============
TOTAL INVESTMENT RETURN+............... 0.46%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses............................... 0.97%(2)
Net investment income.................. 0.01%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands............................. $ 10
Portfolio turnover rate................ 17%(1)
Average commission rate paid........... $ 0.0596
</TABLE>
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* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
9
<PAGE>
THE FUND AND ITS MANAGEMENT
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Morgan Stanley Dean Witter Growth Fund (the "Fund") is an open-end,
non-diversified, management investment company. The Fund is a trust of the
type commonly known as a "Massachusetts business trust" and was organized
under the laws of The Commonwealth of Massachusetts on January 31, 1992.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048,
is the Fund's Investment Manager. The Investment Manager is a wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"), a
preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses--securities, asset
management and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 101 investment companies, twenty-nine of which
are listed on the New York Stock Exchange, with combined assets of
approximately $101 billion at January 31, 1998. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $4 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and supervise the investment of the
Fund's assets. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
Under a Sub-Advisory Agreement between Morgan Stanley Asset Management
Inc. ("MSAM" or the "Sub-Adviser") and the Investment Manager, the
Sub-Adviser provides the Fund with investment advice and portfolio management
relating to the Fund's investments, subject to the overall supervision of the
Investment Manager. The Fund's Trus tees review the various services provided
by the Investment Manager and the Sub-Adviser to ensure that the Fund's
general investment policies and programs are being properly carried out and
that administrative services are being provided to the Fund in a satisfactory
manner.
The Sub-Adviser, whose address is 1221 Avenue of the Americas, New York,
New York, together with its institutional investment management affiliates
manages, as of January 31, 1998, assets of approximately $148.7 billion
primarily for U.S. corporate and public employee benefit plans, investment
companies, endowments, foundations and wealthy individuals. MSAM, like
InterCapital, is a wholly-owned subsidiary of MSDWD.
Prior to March, 1998, the Fund was named "TCW/DW Core Equity Trust" and
was managed by Dean Witter Services Company Inc. (the "Former Manager")
pursuant to a management agreement between the Fund and the Former Manager
(the "Former Management Agreement") and was advised by TCW Funds Management,
Inc. (the "Former Adviser") pursuant to an advisory agreement between the
Fund and the Former Adviser (the "Former Advisory Agreement"). The Former
Adviser had informed the Board of Trustees of the Fund that it planned to
resign as investment adviser to the Fund and on November 6, 1997, the Board
of Trustees recommended that a new investment management agreement between
the Fund and InterCapital (the "Investment Management Agreement") be
submitted to shareholders for approval. At the same meeting the Trustees also
recommended that shareholders approve a new sub-advisory agreement between
InterCapital and MSAM (the "Sub-Advisory Agreement"). The shareholders
approved the Investment Management Agreement and the Sub-Advisory Agreement
on February 26, 1998 and the Investment Management Agreement and the
Sub-Advisory Agreement became effective on March 2, 1998.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the
10
<PAGE>
Fund pays the Investment Manager monthly compensation calculated by applying
the annual rate of 0.80% of the Fund's net assets up to $750 million, scaled
down at various asset levels to 0.70% on assets over $1.5 billion. As
compensation for its services pursuant to the Sub-Advisory Agreement, the
Investment Manager pays the Sub-Adviser compensation equal to 40% of its
compensation. The fee rate under the Investment Management Agreement is 0.05%
lower than the total aggregate fee rate previously in effect under the Former
Management Agreement and the Former Advisory Agreement combined. For the
fiscal year ended March 31, 1997, the Fund accrued total compensation to the
Former Manager and the Former 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
- -----------------------------------------------------------------------------
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 Sub-Adviser invests the Fund's assets by pursuing its "equity growth"
philosophy. That strategy involves a two-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 Sub-Adviser emphasizes individual
security selection. Individual companies 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 a second step, the Sub-Adviser considers the weightings that
the selected companies and industries 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 Sub-Adviser anticipates that the Fund will focus its investments
in fewer than 100 companies, although the Sub-Adviser continuously monitors
up to 250 companies for possible investment by the Fund. The Fund's holdings
are changed by the Sub-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
11
<PAGE>
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 Investment
Manager or Sub-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% and, in some
circumstances up to 100%, of its 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
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 Investment Manager and the Sub-Adviser must
take account of certain special consid-
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<PAGE>
erations 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 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
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<PAGE>
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 Investment Manager
and/or the Sub-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
"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
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<PAGE>
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 Investment Manager and/or the Sub-Adviser to be
creditworthy and when the income which can be earned from such loans
justifies the attendant risks.
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.
Year 2000. The investment management services provided to the Fund by the
Investment Manager and the Sub-Adviser and the services provided to
shareholders by the Distributor and the Transfer Agent depend on the smooth
functioning of their computer systems. Many computer software systems in use
today cannot recognize the year 2000, but revert to 1900 or some other date,
due to the manner in which dates were encoded and calculated. That failure
could have a negative impact on the handling of securities trades, pricing
and
15
<PAGE>
account services. The Investment Manager, the Sub-Adviser, the Distributor
and the Transfer Agent have been actively working on necessary changes to
their own computer systems to prepare for the year 2000 and expect that their
systems will be adapted before that date, but there can be no assurance that
they will be successful, or that interaction with other non-complying
computer systems will not impair their services at that time.
PORTFOLIO MANAGEMENT
- -----------------------------------------------------------------------------
The Fund's portfolio is actively managed by its Investment Manager and the
Sub-Adviser with a view to achieving the Fund's investment objective. Kurt
Feuerman, a Managing Director of MSAM in its Institutional Equity Group, and
Margaret Johnson, a Principal of MSAM and a portfolio manager in its
Institutional Equity Group, have been the primary portfolio co-managers of
the Fund since March, 1998. Ms. Johnson has been a portfolio manager with
MSAM for over five years. Prior to joining MSAM in July 1993, Mr. Feuerman
was a Managing Director of Drexel Burnham Lambert.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Investment Manager and the Sub-Adviser rely on
information from various sources, including research, analysis and appraisals
of brokers and dealers, including Dean Witter Reynolds Inc. ("DWR"), Morgan
Stanley & Co. Incorporated and other broker-dealer affiliates of the
Investment Manager and the Sub-Adviser, and others regarding economic
developments and interest rate trends, and the Investment Manager's and the
Sub-Adviser's own analysis of factors they deem relevant.
Orders for transactions in portfolio securities and commodities are placed
for the Fund with a number of brokers and dealers, including DWR and other
broker-dealer affiliates of the Investment Manager and the Sub-Adviser. The
Fund may incur brokerage commissions on transactions conducted through DWR,
Morgan Stanley & Co. Incorporated and other brokers and dealers that are
affiliates of the Investment Manager and the Sub-Adviser. It is not
anticipated that the portfolio trading will result in the Fund's portfolio
turnover rate exceeding 200% in any one year. A portfolio turnover rate in
excess of 100% may be considered high and the Fund will incur correspondingly
higher transaction costs. In addition, high portfolio turnover may result in
more capital gains which would be taxable to the shareholders of the Fund.
(See ''Dividends, Distributions and Taxes.")
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 industry. 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.
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<PAGE>
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
GENERAL
The Fund offers each Class of 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 Investment
Manager, pursuant to a Distribution Agreement between the Fund and the
Distributor and offered by DWR and other dealers who have entered into
selected dealer agreements with the Distributor ("Selected Broker-Dealers").
The principal ex-ecutive office of the Distributor is located at Two World
Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares
are sold to investors with an initial sales charge that declines to zero for
larger purchases; however, Class A shares sold without an initial sales
charge are subject to a contingent deferred sales charge ("CDSC") of 1.0% if
redeemed within one year of purchase, except for certain specific
circumstances. Class B shares are sold without an initial sales charge but
are subject to a CDSC (scaled down from 5.0% to 1.0%) payable upon most
redemptions within six years after purchase. (Class B shares purchased by
certain qualified plans are subject to a CDSC scaled down from 2.0% to 1.0%
if redeemed within three years after purchase.) Class C shares are sold
without an initial sales charge but are subject to a CDSC of 1.0% on most
redemptions made within one year after purchase. Class D shares are sold
without an initial sales charge or CDSC and are available only to investors
meeting an initial investment minimum of $5 million ($25 million for certain
qualified plans), and to certain other limited categories of investors. At
the discretion of the Board of Trustees of the Fund, Class A shares may be
sold to categories of investors in addition to those set forth in this
prospectus at net asset value without a front-end sales charge, and Class D
shares may be sold to certain other categories of investors, in each case as
may be described in the then current prospectus of the Fund. See "Alternative
Purchase Arrangements--Selecting a Particular Class" for a discussion of
factors to consider in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25
million for certain qualified plans) or more and to certain other limited
categories of investors. For the purpose of meeting the minimum $5 million
(or $25 million) initial investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of the Fund, an investor's
existing holdings of Class A shares of the Fund and other Dean Witter Funds
that are multiple class funds ("Dean Witter Multi-Class Funds") and shares of
Dean Witter Funds sold with a front-end sales charge ("FSC Funds") and
concurrent investments in Class D shares of the Fund and other Dean Witter
Multi-Class Funds will be aggregated. Subsequent purchases of $100 or more
may be made by sending a check, payable to Morgan Stanley Dean Witter Growth
Fund, directly to Dean Witter Trust FSB (the "Transfer Agent" or "DWT") at
P.O. Box 1040, Jersey City, NJ 07303, or by contacting an account executive
of DWR or other Selected Broker-Dealer. When purchasing shares of the Fund,
investors must specify whether the purchase is for Class A, Class B, Class C
or Class D shares. If no Class is specified, the Transfer Agent will not
process the transaction until the proper Class is identified. 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. The
minimum initial purchase in the case of an "Education IRA" is $500, if the
Distributor has reason to believe that additional investments will increase
the investment in the account to $1,000 within three years. In the case of
investments pursuant to (i) Systematic Payroll Deduction Plans (including
Individual Retirement Plans), (ii) the InterCapital mutual fund asset
allocation program, and
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<PAGE>
(iii) fee-based programs approved by the Distributor, pursuant to which
participants pay an asset based fee for services in the nature of investment
advisory or administrative services, the Fund, in its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required, provided, in the case of Systematic Payroll Deduction Plans, that
the Distributor 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. Sales personnel of a Selected Broker-Dealer are
compensated for selling shares of the Fund 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.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their
needs. The general public is offered three Classes of shares: Class A shares,
Class B shares and Class C shares, which differ principally in terms of sales
charges and rate of expenses to which they are subject. A fourth Class of
shares, Class D shares, is offered only to limited categories of investors
(see "No Load Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class
A, Class B and Class C shares bear the expenses of the ongoing shareholder
service fees, Class B and Class C shares bear the expenses of the ongoing
distribution fees and Class A, Class B and Class C shares which are redeemed
subject to a CDSC bear the expense of the additional incremental distribution
costs resulting from the CDSC applicable to shares of those Classes. The
ongoing distribution fees that are imposed on Class A, Class B and Class C
shares will be imposed directly against those Classes and not against all
assets of the Fund and, accordingly, such charges against one Class will not
affect the net asset value of any other Class or have any impact on investors
choosing another sales charge option. See "Plan of Distribution" and
"Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and
the factors an investor should consider when selecting a particular Class.
This summary is qualified in its entirety by detailed discussion of each
Class that follows this summary.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain
other limited categories of investors) are not subject to any sales charges
at the time of purchase but are subject to a CDSC of 1.0% on redemptions made
within one year after purchase, except for certain specific circumstances.
Class A shares are also subject to a 12b-1 fee of up to 0.25% of the average
daily net assets of the Class. See "Initial Sales Charge Alternative--Class A
Shares."
Class B Shares. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to
1.0%) if redeemed within six years of purchase. (Class B
18
<PAGE>
shares purchased by certain qualified plans are subject to a CDSC scaled down
from 2.0% to 1.0% if redeemed within three years after purchase.) This CDSC
may be waived for certain redemptions. Class B shares are also subject to an
annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate
gross sales of the Fund's Class B 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 Class B shares
redeemed since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B. The Class B shares'
distribution fee will cause that Class to have higher expenses and pay lower
dividends than Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition,
a certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time.
See "Contingent Deferred Sales Charge Alternative--Class B Shares."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They
are subject to an annual 12b-1 fee of up to 1.0% of the average daily net
assets of the Class C shares. The Class C shares' distribution fee may cause
that Class to have higher expenses and pay lower dividends than Class A or
Class D shares. See "Level Load Alternative--Class C Shares."
Class D Shares. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are
not subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
Selecting a Particular Class. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any
other relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are
not available with respect to Class B or Class C shares. Moreover, Class A
shares are subject to lower ongoing expenses than are Class B or Class C
shares over the term of the investment. As an alternative, Class B and Class
C shares are sold without any initial sales charge so the entire purchase
price is immediately invested in the Fund. Any investment return on these
additional investment amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to
an ongoing 12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A
shares) for an indefinite period of time. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks. Other investors, however, may elect to purchase Class C shares if,
for example, they determine that they do not wish to be subject to a
front-end sales charge and they are uncertain as to the length of time they
intend to hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class
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<PAGE>
D shares, holdings of Class A shares in all Dean Witter Multi-Class Funds,
shares of FSC Funds and shares of Dean Witter Funds for which such shares
have been exchanged will be included together with the current investment
amount.
Sales personnel may receive different compensation for selling each Class
of shares. Investors should understand that the purpose of a CDSC is the same
as that of the initial sales charge in that the sales charges applicable to
each Class provide for the financing of the distribution of shares of that
Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
Conversion
Class Sales Charge 12b-1 Fee Feature
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
A Maximum 5.25% 0.25% No
initial sales charge
reduced for
purchases of
$25,000 and over;
shares sold without
an initial sales
charge generally
subject to a 1.0%
CDSC during first
year.
- -------------------------------------------------------------------------------
B Maximum 5.0% 1.0% B shares convert
CDSC during the first to A shares
year decreasing automatically
to 0 after six years after
approximately
ten years
- -------------------------------------------------------------------------------
C 1.0% CDSC during 1.0% No
first year
- -------------------------------------------------------------------------------
D None None No
- -------------------------------------------------------------------------------
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees
for each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge.
In some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase (calculated from the last day of the month in which the
shares were purchased), except for certain specific circumstances. The CDSC
will be assessed on an amount equal to the lesser of the current market value
or the cost of the shares being redeemed. The CDSC will not be imposed (i) in
the circumstances set forth below in the section "Contingent Deferred Sales
Charge Alternative--Class B Shares--CDSC Waivers," except that the references
to six years in the first paragraph of that section shall mean one year in
the case of Class A shares, and (ii) in the circumstances identified in the
section "Additional Net Asset Value Purchase Options" below. Class A shares
are also subject to an annual 12b-1 fee of up to 0.25% of the average daily
net assets of the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
--------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- -------------------- --------------- ---------------
<S> <C> <C>
Less than $25,000 .. 5.25% 5.54%
$25,000 but less
than $50,000 ...... 4.75% 4.99%
$50,000 but less
than $100,000 ..... 4.00% 4.17%
$100,000 but less
than $250,000 ..... 3.00% 3.09%
$250,000 but less
than $1 million .. 2.00% 2.04%
$1 million and over 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable
20
<PAGE>
sales charge as shown in the above schedule during periods specified in such
notice. During periods when 90% or more of the sales charge is reallowed,
such Selected Broker-Dealers may be deemed to be underwriters as that term is
defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or
her spouse and their children under the age of 21 purchasing shares for his,
her or their own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified
under Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue
Code of a single employer or of employers who are "affiliated persons" of
each other within the meaning of Section 2(a)(3)(c) of the Act; and for
investments in Individual Retirement Accounts of employees of a single
employer through Systematic Payroll Deduction plans; or (g) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
Combined Purchase Privilege. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class
A shares of other Dean Witter Multi-Class Funds and shares of FSC Funds. The
sales charge payable on the purchase of the Class A shares of the Fund, the
Class A shares of the other Dean Witter Multi-Class Funds and shares of the
FSC Funds will be at their respective rates applicable to the total amount of
the combined concurrent purchases of such shares.
Right of Accumulation. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single
transaction, together with shares of the Fund and other Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Dean Witter Funds acquired in exchange for those
shares, and including in each case shares acquired through reinvestment of
dividends and distributions), which are held at the time of such transaction,
amounts to $25,000 or more. If such investor has a cumulative net asset value
of shares of FSC Funds and Class A and Class D shares that, together with the
current investment amount, is equal to at least $5 million ($25 million for
certain qualified plans), such investor is eligible to purchase Class D
shares subject to the $1,000 minimum initial investment requirement of that
Class of the Fund. See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Selected Broker-Dealer or the Transfer Agent
fails to confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from DWR or other Selected Broker-Dealers. The cost of Class A
shares of the Fund or shares of other Dean Witter Funds which were previously
purchased at a price including a front-end sales charge during the 90-day
period prior to the date of receipt by the Distributor of the Letter of
Intent, or of Class A shares of the Fund or shares of other Dean Witter Funds
acquired in exchange for shares of such funds purchased
21
<PAGE>
during such period at a price including a front-end sales charge, which are
still owned by the shareholder, may also be included in determining the
applicable reduction.
Additional Net Asset Value Purchase Options. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value
by the following:
(1) trusts for which DWT (an affiliate of the Investment Manager) provides
discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for
services in the nature of investment advisory or administrative services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") with at
least 200 eligible employees and for which DWT serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which DWT serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class
A shares, regardless of the plan's asset size or number of eligible
employees;
(5) investors who are clients of a Dean Witter account executive who
joined Dean Witter from another investment firm within six months prior to
the date of purchase of Fund shares by such investors, if the shares are
being purchased with the proceeds from a redemption of shares of an open-end
proprietary mutual fund of the account executive's previous firm which
imposed either a front-end or deferred sales charge, provided such purchase
was made within sixty days after the redemption and the proceeds of the
redemption had been maintained in the interim in cash or a money market fund;
and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase
payment may be immediately invested in the Fund. A CDSC, however, will be
imposed on most Class B shares redeemed within six years after purchase. The
CDSC will be imposed on any redemption of shares if after such redemption the
aggregate current value of a Class B account with the Fund falls below the
aggregate amount of the investor's purchase payments for Class B shares made
during the six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) preceding the redemption. In addition, Class B
shares are subject to an annual 12b-1 fee of 1.0% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's Class B 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 Class B shares redeemed since the Fund's inception upon which a CDSC
has been imposed or waived, or (b) the average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after
22
<PAGE>
purchase (calculated from the last day of the month in which the shares were
purchased) will not be subject to any CDSC upon redemption. Shares redeemed
earlier than six years after purchase may, however, be subject to a 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 thispercentage will depend
upon how long the shares have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First...................... 5.0%
Second..................... 4.0%
Third...................... 3.0%
Fourth..................... 2.0%
Fifth...................... 2.0%
Sixth...................... 1.0%
Seventh and thereafter .... None
</TABLE>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which DWT serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject
to any CDSC upon redemption. However, shares redeemed earlier than three
years after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First ..................... 2.0%
Second .................... 2.0%
Third ..................... 1.0%
Fourth and thereafter .... None
</TABLE>
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or,
in the case of shares held by certain Qualified Retirement Plans, three
years) preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
Qualified Retirement Plans, three years) prior to the redemption; and (iii)
the current net asset value of shares purchased through reinvestment of
dividends or distributions and/or shares acquired in exchange for shares of
FSC Funds or of other Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held
in a qualified corporate or self-employed retirement plan, Individual
Retirement Account ("IRA") or Custodial Account under Section 403(b)(7) of
the Internal Revenue Code ("403(b) Custodial Account"), provided in either
case that the redemption is requested within one year of the death or initial
determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified
corporate or self-employed retirement plan following retirement (or, in the
case of a "key employee" of a "top heavy" plan, following attainment of age
59 1/2); (B) distributions from an IRA or 403(b) Custodial Account following
attainment of age 59 1/2; or (C) a tax-free return of an excess contribution
to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment
23
<PAGE>
alternatives and for which DWT serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement ("Eligible Plan"), provided that either: (A) the plan continues to
be an Eligible Plan after the redemption; or (B) the redemption is in
connection with the complete termination of the plan involving the
distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to
engage in gainful employment. With reference to (2) above, the term
"distribution" does not encompass a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee. All
waivers will be granted only following receipt by the Distributor of
confirmation of the shareholder's entitlement.
Conversion to Class A Shares. All shares of the Fund held prior to July
28, 1997 have been designated Class B shares. Shares held before May 1, 1997
will convert to Class A shares in May, 2007. In all other instances Class B
shares will convert automatically to Class A shares, based on the relative
net asset values of the shares of the two Classes on the conversion date,
which will be approximately ten (10) years after the date of the original
purchase. The ten year period is calculated from the last day of the month in
which the shares were purchased or, in the case of Class B shares acquired
through an exchange or a series of exchanges, from the last day of the month
in which the original Class B shares were purchased, provided that shares
originally purchased before May 1, 1997 will convert to Class A shares in
May, 2007. The conversion of shares purchased on or after May 1, 1997 will
take place in the month following the tenth anniversary of the purchase.
There will also be converted at that time such proportion of Class B shares
acquired through automatic reinvestment of dividends and distributions owned
by the shareholder as the total number of his or her Class B shares
converting at the time bears to the total number of outstanding Class B
shares purchased and owned by the shareholder. In the case of Class B shares
held by a Qualified Retirement Plan for which DWT serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, the plan is treated as a single investor
and all Class B shares will convert to Class A shares on the conversion date
of the first shares of a Dean Witter Multi-Class Fund purchased by that plan.
In the case of Class B shares previously exchanged for shares of an "Exchange
Fund" (see "Shareholder Services--Exchange Privilege"), the period of time
the shares were held in the Exchange Fund (calculated from the last day of
the month in which the Exchange Fund shares were acquired) is excluded from
the holding period for conversion. If those shares are subsequently
re-exchanged for Class B shares of a Dean Witter Multi-Class Fund, the
holding period resumes on the last day of the month in which Class B shares
are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior
to the date for conversion. Class B shares evidenced by share certificates
that are not received by the Transfer Agent at least one week prior to any
conversion date will be converted into Class A shares on the next scheduled
conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
24
<PAGE>
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions
made within one year after purchase (calculated from the last day of the
month in which the shares were purchased). The CDSC will be assessed on an
amount equal to the lesser of the current market value or the cost of the
shares being redeemed. The CDSC will not be imposed in the circumstances set
forth above in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case
of Class C shares. Class C shares are subject to an annual 12b-1 fee of up to
1.0% of the average daily net assets of the Class. Unlike Class B shares,
Class C shares have no conversion feature and, accordingly, an investor that
purchases Class C shares will be subject to 12b-1 fees applicable to Class C
shares for an indefinite period subject to annual approval by the Fund's
Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million
for Qualified Retirement Plans for which DWT serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement) and the following categories of investors:
(i) investors participating in the InterCapital mutual fund asset allocation
program pursuant to which such persons pay an asset based fee; (ii) persons
participating in a fee-based program approved by the Distributor, pursuant to
which such persons pay an asset based fee for services in the nature of
investment advisory or administrative services (subject to all of the terms
and conditions of such programs referred to in (i) and (ii) above, which may
include termination fees, mandatory redemption upon termination and such
other circumstances as specified in the programs' agreements, and
restrictions on transferability of Fund shares); (iii) 401(k) plans
established by DWR and SPS Transaction Services, Inc. (an affiliate of DWR)
for their employees; (iv) certain Unit Investment Trusts sponsored by DWR;
(v) certain other open-end investment companies whose shares are distributed
by the Distributor; and (vi) other categories of investors, at the discretion
of the Board, as disclosed in the then current prospectus of the Fund.
Investors who require a $5 million (or $25 million) minimum initial
investment to qualify to purchase Class D shares may satisfy that requirement
by investing that amount in a single transaction in Class D shares of the
Fund and other Dean Witter Multi-Class Funds, subject to the $1,000 minimum
initial investment required for that Class of the Fund. In addition, for the
purpose of meeting the $5 million (or $25 million) minimum investment amount,
holdings of Class A shares in all Dean Witter Multi-Class Funds, shares of
FSC Funds and shares of Dean Witter Funds for which such shares have been
exchanged, will be included together with the current investment amount. If a
shareholder redeems Class A shares and purchases Class D shares, such
redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act with respect to the distribution of Class A, Class B and Class C
shares of the Fund. In the case of Class A and Class C shares, the Plan
provides that the Fund will reimburse the Distributor and others for the
expenses of certain activities and services incurred by them specifically on
behalf of those shares. Reimbursements for these expenses will be made in
monthly payments by the Fund to the Distributor, which will in no event
exceed amounts equal to payments at the annual rates of 0.25% and 1.0% of the
average daily net assets of Class A and Class C, respectively. In the case of
Class B shares, the Plan provides that the Fund will pay the Distributor a
fee, which is accrued daily and paid monthly, at the annual rate of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's
Class B shares since the inception of the Fund (not including
25
<PAGE>
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since
the Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B. The fee is treated by the Fund as an
expense in the year it is accrued. In the case of Class A shares, the entire
amount of the fee currently represents a service fee within the meaning of
the NASD guidelines. In the case of Class B and Class C shares, a portion of
the fee payable pursuant to the Plan, equal to 0.25% of the average daily net
assets of each of these Classes, is currently characterized as a service fee.
A service fee is a payment made for personal service and/or the maintenance
of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses
borne by the Distributor and others in the distribution of the shares of
those Classes, including the payment of commissions for sales of the shares
of those Classes and incentive compensation to and expenses of DWR's account
executives and others who engage in or support distribution of shares or who
service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan in the case of Class B shares to compensate DWR and other Selected
Broker-Dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
For the fiscal year ended March 31, 1997, Class B shares of the Fund
accrued payments under the Plan amounting to $5,711,981, which amount is
equal to 0.74% of the average daily net assets of Class B for the fiscal
year. These payments were calculated pursuant to clause (a) of the
compensation formula under the Plan. All shares held prior to July 28, 1997
have been designated Class B shares.
In the case of Class B shares, at any given time, the expenses in
distributing Class B 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
CDSCs paid by investors upon the redemption of Class B shares (see
"Redemptions and Repurchases--Contingent Deferred Sales Charge"). For
example, if $1 million in expenses in distributing Class B shares of the Fund
had been incurred and $750,000 had been received as described in (i) and (ii)
above, the excess expense would amount to $250,000. The Distributor has
advised the Fund that such excess amounts, including the carrying charge
described above, totalled $21,584,533 at March 31, 1997, which was equal to
2.97% of the net assets of Class B 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 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 CDSCs 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 CDSCs, may or may not be
recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses
representing a gross sales commission credited to account executives at the
time of sale may be reimbursed in the subsequent calendar year. No interest
or other financing charges will be incurred on any Class A or Class C
distribution expenses incurred by the Distributor under the Plan or on any
unreimbursed expenses due to the Distributor pursuant to the Plan.
26
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share 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 net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the
Class A, Class B, Class C and Class D shares will be invested together in a
single portfolio. The net asset value of each Class, however, will be
determined separately by subtracting each Class's accrued expenses and
liabilities. 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 Investment
Manager or Sub-Adviser that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the 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 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 applicable Class of the Fund (or, if specified by the
shareholder, in shares of any other open-end Dean Witter Fund), unless the
shareholder requests that they be paid in cash. Shares so acquired are
acquired at net asset value and are not subject to the imposition of a
front-end sales charge or a CDSC (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 in shares of the
applicable Class 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
acquired at net asset value and are not subject to the
27
<PAGE>
imposition of a front-end sales charge or a CDSC (see "Redemptions and
Repurchases").
EasyInvest (Service Mark). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Fund's Transfer Agent for investment in
shares of the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--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 CDSC will be imposed on shares redeemed under the Withdrawal Plan
(see "Purchase of Fund Shares"). 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 CDSC) to the shareholder
will be the designated monthly or quarterly amount. 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.
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.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Dean Witter Multi-Class Fund without the imposition of any exchange
fee. Shares may also be exchanged for shares of the following funds: Dean
Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S.
Treasury Trust and five Dean Witter funds which are money market funds (the
"Exchange Funds"). Class A shares may also be exchanged for shares of Dean
Witter Multi-State Municipal Series Trust and Dean Witter Hawaii Municipal
Trust, which are Dean Witter Funds sold with a front-end sales charge ("FSC
Funds"). Class B shares may also be exchanged for shares of Dean Witter
Global Short-Term Income Fund Inc. ("Global Short-Term") which is a Dean
Witter Fund offered with a CDSC. Exchanges may be made after the shares of
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, Global
Short-Term or any Exchange Fund that is not a money market fund is on the
basis of the next calculated net asset value per share of each fund after the
exchange order is received. When exchanging into a money market fund from the
Fund, shares of the Fund are redeemed out of the Fund at their next
calculated net asset value and the proceeds of the redemption are used to
purchase shares of the money market fund at their net asset value determined
the following business day. Subsequent exchanges between any of the money
market funds and any of the Dean
28
<PAGE>
Witter Multi-Class Funds, FSC Funds, Global Short-Term or any Exchange Fund
that is not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period
of time the shareholder remains in an Exchange Fund (calculated from the last
day of the month in which the Exchange Fund shares were acquired), the
holding period (for the purpose of determining the rate of the CDSC) is
frozen. If those shares are subsequently re-exchanged for shares of a Dean
Witter Multi-Class Fund or shares of Global Short-Term, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a Dean Witter Multi-Class Fund or shares of
Global Short-Term are reacquired. Thus, the CDSC is based upon the time
(calculated as described above) the shareholder was invested in shares of a
Dean Witter Multi-Class Fund or in shares of Global Short-Term (see "Purchase
of Fund Shares"). In the case of exchanges of Class A shares which are
subject to a CDSC, the holding period also includes the time (calculated as
described above) the shareholder was invested in shares of a FSC Fund. In the
case of shares exchanged into an Exchange Fund on or after April 23, 1990,
upon a redemption of shares which results in a CDSC being imposed, a credit
(not to exceed the amount of the CDSC) will be given in an amount equal to
the Exchange Fund 12b-1 distribution fees which are attributable to those
shares. (Exchange Fund 12b-1 distribution fees are described in the
prospectuses for those funds.) Class B shares of the Fund acquired in
exchange for shares of Global Short-Term or Class B shares of another Dean
Witter Multi-Class Fund having a different CDSC schedule than that of this
Fund will be subject to the higher CDSC schedule, even if such shares are
subsequently re-exchanged for shares of the fund with the lower CDSC
schedule.
Additional Information Regarding Exchanges. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional
purchases and/or exchanges from the investor. Although the Fund does not have
any specific definition of what constitutes a pattern of frequent exchanges,
and will consider all relevant factors in determining whether a particular
situation is abusive and contrary to the best interests of the Fund and its
other shareholders, investors should be aware that the Fund and each of the
other Dean Witter Funds may in their discretion limit or otherwise restrict
the number of times this Exchange Privilege may be exercised by any investor.
Any such restriction will be made by the Fund on a prospective basis only,
upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Dean Witter
Funds for which shares of the Fund have been exchanged, upon such notice as
may be required by applicable regulatory agencies. Shareholders maintaining
margin accounts with DWR or another Selected Broker-Dealer are referred to
their account executive regarding restrictions on exchange of shares of the
Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
of each Class of shares and any other conditions imposed by each fund. In the
case of a shareholder holding a share certificate or certificates, no
exchanges may be made until all appplicable share certificates have been
received by the Transfer Agent and deposited in the shareholder's account. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is
29
<PAGE>
an exchange of shares within ninety days after the shares are purchased. The
Exchange Privilege is only available in states where an exchange may legally
be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean
Witter Funds (for which the Exchange Privilege is available) pursuant to this
Exchange Privilege by contacting their account executive (no Exchange
Privilege Authorization Form is required). Other shareholders (and those
shareholders who are clients of DWR or another Selected Broker-Dealer but who
wish to make exchanges directly by writing or telephoning the Transfer Agent)
must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent,
to initiate an exchange. If the Authorization Form is used, exchanges may be
made in writing or by contacting the Transfer Agent at (800) 869-NEWS
(toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name,
mailing address, social security or other tax identification number and DWR
or other Selected Broker-Dealer account number (if any). Telephone
instructions may also be recorded. If such procedures are not employed, the
Fund may be liable for any losses due to unauthorized or fraudulent
instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her DWR or other
Selected Broker-Dealer account executive, if appropriate, or make a written
exchange request. Shareholders are advised that during periods of drastic
economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the case
with the Dean Witter Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. Shares of each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of
any applicable CDSC in the case of Class A, Class B or Class C shares (see
"Purchase of Fund Shares"). 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 information required by the Transfer Agent.
Repurchase. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to
any of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic or telegraphic request of the shareholder. The repurchase
price is the net asset value next computed (see "Purchase of Fund Shares")
after such repurchase order is received by DWR or other Selected
Broker-Dealer, reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The offer by DWR and other Selected Broker-Dealers to repurchase
shares may be suspended without notice by them at any time. In that event,
shareholders may redeem their
30
<PAGE>
shares through the Fund's Transfer Agent as set forth above under
"Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances e.g., when normal trading is not taking
place on the New York Stock Exchange. If the shares to be redeemed have
recently been purchased by check, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
repurchased or redeemed and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the repurchase or redemption,
reinstate any portion or all of the proceeds of such redemption or repurchase
in shares of the Fund in the same Class from which such shares were redeemed
or repurchased, at their net asset value next determined after a
reinstatement request, together with the proceeds, is received by the
Transfer Agent and receive a pro rata credit for any CDSC paid in connection
with such redemption or repurchase.
Involuntary Redemption. The Fund reserves the right, on sixty days'
notice, to redeem, at their net asset value, the shares of any shareholder
(other than shares held in an Individual Retirement Account or custodial
account under Section 403(b)(7) of the Internal Revenue Code) whose shares
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 declares dividends for each Class of
shares separately and 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 shares of the same Class 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. Shares acquired by dividend and distribution reinvestments will
not be subject to any front-end sales charge or CDSC. Class B shares acquired
through dividend and distribution reinvestments will become eligible for
conversion to Class A shares on a pro rata basis. Distributions paid on Class
A and Class D shares will be higher than for Class B and Class C shares
because distribution fees paid by Class B and Class C shares are higher. (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
31
<PAGE>
shareholders and otherwise continue to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code, it is not expected
that the Fund will be required to pay any federal income tax. Shareholders
who are required to pay taxes on their income will normally have to pay
federal income taxes, and any state income taxes, on the dividends and
distributions they receive from the Fund. Such dividends and distributions,
to the extent that they are derived from net investment income or 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, for tax purposes, to have been 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 year, shareholders will be sent full information on
their dividends and capital gains distributions for tax purposes.
Shareholders will also be notified of their proportionate share of long-term
capital gains distributions that are eligible for a reduced rate of tax under
the Taxpayer Relief Act of 1997. 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. These figures are computed separately for Class A,
Class B, Class C and Class D shares. 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 a Class of 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 applicable Class and all sales charges which would be
incurred by shareholders, for the stated periods. It also assumes
reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class 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 any 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 each
32
<PAGE>
Class of 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.).
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 except
that each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other
matter in which the interests of one Class differ from the interests of any
other Class. In addition, Class B shareholders will have the right to vote on
any proposed material increase in Class A 's expenses, if such proposal is
submitted separately to Class A shareholders. Also, as discussed herein,
Class A, Class B and Class C bear the expenses related to the distribution of
their respective shares.
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. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to
ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from a
person's employment activities and that actual and potential conflicts of
interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an
advance clearance process to monitor that no Dean Witter Fund is engaged at
the same time in a purchase or sale of the same security. The Code of Ethics
bans the purchase of securities in an initial public offering, and also
prohibits engaging in futures and options transactions and profiting on
short-term trading (that is, a purchase within sixty days of a sale or a sale
within sixty days of a purchase) of a security. In addition, investment
personnel may not purchase or sell a security for their personal account
within thirty days before or after any transaction in any Dean Witter Fund
managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute
Advisory Group on Personal Investing.
The Fund's Sub-Adviser also has a code of ethics which complies with
regulatory requirements
33
<PAGE>
and, insofar as it relates to persons associated with the Fund, the 1994
report by the Investment Company Institute Advisory Group on Personal
Investing.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover
of this Prospectus.
34
<PAGE>
Morgan Stanley Dean Witter
Growth Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
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 FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
SUB-ADVISER
Morgan Stanley Asset Management Inc.
MORGAN STANLEY
DEAN WITTER
GROWTH FUND
PROSPECTUS
MARCH 2, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MARCH 2, 1998
MORGAN STANLEY DEAN WITTER
GROWTH FUND
- -----------------------------------------------------------------------------
Morgan Stanley Dean Witter Growth Fund (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 March 2, 1998, 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.
Morgan Stanley Dean Witter Growth Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management ...................... 3
Trustees and Officers ............................ 7
Investment Practices and Policies ................ 13
Investment Restrictions .......................... 16
Portfolio Transactions and Brokerage ............. 17
The Distributor .................................. 19
Purchase of Fund Shares........................... 23
Shareholder Services ............................. 26
Repurchases and Redemptions ...................... 30
Dividends, Distributions and Taxes ............... 31
Performance Information .......................... 32
Description of Shares ............................ 33
Custodian and Transfer Agent ..................... 34
Independent Accountants .......................... 34
Reports to Shareholders .......................... 34
Legal Counsel .................................... 34
Experts .......................................... 34
Registration Statement ........................... 34
Financial Statements--March 31, 1997 ............. 35
Report of Independent Accountants ................ 45
Financial Statements--September 30, 1997 (unaudited)46
Appendix--Ratings of Corporate Debt Instruments . 60
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the name "TCW/DW Core Equity Trust"
under the laws of the Commonwealth of Massachusetts on January 31, 1992. On
February 26, 1998, the Trustees of the Fund adopted an Amended and Restated
Declaration of Trust changing the name of the Fund to Morgan Stanley Dean
Witter Growth Fund.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or
"InterCapital"), a Delaware corporation, whose address is Two World Trade
Center, New York, New York 10048, is the Fund's investment manager.
InterCapital is a wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co. ("MSDWD"), a Delaware corporation. In an internal
reorganization which took place in January, 1993, InterCapital assumed the
advisory, administrative and management activities previously performed by
the InterCapital Division of Dean Witter Reynolds Inc. ("DWR"), a
broker-dealer affiliate of InterCapital. (As hereinafter used in this
Statement of Additional Information, the terms "InterCapital" and "Investment
Manager" refer to DWR's InterCapital Division prior to the internal
reorganization and to Dean Witter InterCapital Inc. thereafter.) The daily
management of the Fund and research relating to the Fund's portfolio are
conducted by or under the direction of officers of the Fund and of the
Investment Manager, subject to review by the Fund's Trustees. Information as
to these Trustees and officers is contained under the caption "Trustees and
Officers."
InterCapital is also the investment manager or investment adviser of the
following management investment companies: Active Assets Money Trust, Active
Assets Tax-Free Trust, Active Assets California Tax-Free Trust, Active Assets
Government Securities Trust, InterCapital Income Securities Inc.,
InterCapital Insured Municipal Bond Trust, InterCapital Insured Municipal
Trust, InterCapital Insured Municipal Income Trust, InterCapital Insured
Municipal Securities, InterCapital California Insured Municipal Income Trust,
InterCapital Insured California Municipal Securities, InterCapital Quality
Municipal Investment Trust, InterCapital Quality Municipal Income Trust,
InterCapital Quality Municipal Securities, InterCapital California Quality
Municipal Securities, InterCapital New York Quality Municipal Securities,
High Income Advantage Trust, High Income Advantage Trust II, High Income
Advantage Trust III, Dean Witter Government Income Trust, Dean Witter High
Yield Securities Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter
Tax-Exempt Securities Trust, Dean Witter Dividend Growth Securities Inc.,
Dean Witter Natural Resource Development Securities Inc., Dean Witter
American Value Fund, Dean Witter Developing Growth Securities Trust, Dean
Witter U.S. Government Money Market Trust, Dean Witter Variable Investment
Series, Dean Witter World Wide Investment Trust, Dean Witter Select Municipal
Reinvestment Fund, Dean Witter U.S. Government Securities Trust, Dean Witter
World Wide Income Trust, Dean Witter California Tax-Free Income Fund, Dean
Witter New York Tax-Free Income Fund, Dean Witter Convertible Securities
Trust, Dean Witter Federal Securities Trust, Dean Witter Value-Added Market
Series, Dean Witter Utilities Fund, Dean Witter California Tax-Free Daily
Income Trust, Dean Witter Strategist Fund, Dean Witter Intermediate Income
Securities, Dean Witter Capital Growth Securities, Dean Witter Precious
Metals and Minerals Trust, Dean Witter New York Municipal Money Market Trust,
Dean Witter European Growth Fund Inc., Dean Witter Global Short-Term Income
Fund Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter Multi-State
Municipal Series Trust, Dean Witter Short-Term U.S. Treasury Trust, Dean
Witter Diversified Income Trust, Dean Witter Health Sciences Trust, Dean
Witter Retirement Series, Dean Witter Global Dividend Growth Securities, Dean
Witter Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean
Witter Global Utilities Fund, Dean Witter International SmallCap Fund, Dean
Witter Mid-Cap Growth Fund, Dean Witter Select Dimensions Investment Series,
Dean Witter Balanced Growth Fund, Dean Witter Balanced Income Fund, Dean
Witter Hawaii Municipal Trust, Dean Witter Capital Appreciation Fund, Dean
Witter Information Fund, Dean Witter Intermediate Term U.S. Treasury Trust,
Dean Witter Japan Fund, Dean Witter Income Builder Fund, Dean Witter Special
Value Fund, Dean Witter Financial Services Trust, Dean Witter Market Leader
Trust, Dean Witter S&P 500 Index Fund, Dean Witter Fund of Funds, Morgan
3
<PAGE>
Stanley Dean Witter Competitive Edge Fund--"Best Ideas" Portfolio, Municipal
Income Trust, Municipal Income Trust II, Municipal Income Trust III,
Municipal Income Opportunities Trust, Municipal Income Opportunities Trust
II, Municipal Income Opportunities Trust III, Municipal Premium Income Trust
and Prime Income Trust. The foregoing investment companies, together with the
Fund, are collectively referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies, for which TCW Funds Management, Inc. is the investment adviser:
TCW/DW North American Government Income Trust, TCW/DW Latin American Growth
Fund, TCW/DW Term Trust 2002, TCW/DW Income and Growth Fund, TCW/DW Small Cap
Growth Fund, TCW/DW Balanced Fund, TCW/DW Total Return Trust, TCW/DW Emerging
Markets Opportunities Trust, TCW/DW Term Trust 2001, TCW/DW Term Trust 2000
and TCW/DW Term Trust 2003, TCW/DW Mid-Cap Equity Trust, TCW/DW Global
Telecom Trust (the "TCW/DW Funds"). InterCapital also serves as: (i)
administrator of the BlackRock Strategic Term Trust Inc., a closed-end
investment company; (ii) sub-administrator of MassMutual Participation
Investors and Templeton Global Governments Income Trust, closed-end
investment companies; and (iii) investment advisor of Offshore Dividend
Growth Fund and Offshore Money Market Fund, mutual funds established under
the laws of the Cayman Islands and available only to investors who are
participants in DWR's International Active Assets Account program and are
neither citizens nor residents of the United States.
Pursuant to an investment management agreement (the "Management
Agreement") with the Investment Manager, the Fund has retained the Investment
Manager to manage its business affairs and to supervise the investment of the
Fund's assets. The Investment Manager, in conjunction with Morgan Stanley
Asset Management Inc. (the "Sub-Adviser") and through its own portfolio
management staff, obtains and evaluates such information and advice relating
to the economy, securities markets, and specific securities as it considers
necessary or useful to continuously manage the assets of the Fund in a manner
consistent with its investment objective.
Under the terms of the Management Agreement, the Investment Manager
maintains certain of the Fund's books and records and furnishes, at its own
expense, such office space, facilities, equipment, clerical help and
bookkeeping and certain legal services as the Fund may reasonably require in
the conduct of its business, including the preparation of prospectuses,
statements of additional information, proxy statements and reports required
to be filed with federal and state securities commissions (except insofar as
the participation or assistance of independent accountants and attorneys is,
in the opinion of the Investment Manager, necessary or desirable). In
addition, the Investment Manager pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Manager.
The Investment Manager also bears the cost of telephone service, heat, light,
power and other utilities provided to the Fund. The Investment Manager has
retained DWSC to perform its administrative services under the Agreement.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, by the Sub-Adviser pursuant to the Sub-Advisory
Agreement (see below) or by the distributor of the Fund's shares, Dean Witter
Distributors Inc. ("Distributors" or the "Distributor") (see "The
Distributor") will be paid by the Fund. These expenses will be allocated
among the four classes of shares of the Fund (each, a "Class") pro rata based
on the net assets of the Fund attributable to each Class, except as described
below. Such expenses include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1 (the "12b-1 fee") (see "The
Distributor"); charges and expenses of any registrar, custodian, stock
transfer and dividend disbursing agent; brokerage commissions; taxes;
engraving and printing of share certificates; registration costs of the Fund
and its shares under federal and state securities laws; the cost and expense
of printing, including typesetting, and distributing Prospectuses and
Statements of Additional Information of the Fund and supplements thereto to
the Fund's shareholders; all expenses of shareholders' and trustees' meetings
and of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of trustees or members of any advisory
board or committee who are not employees of the Investment Manager or
Sub-Adviser or any corporate affiliate of the Investment Manager or
Sub-Adviser; all expenses incident to any dividend, withdrawal or redemption
options; charges and expenses of any outside service used for pricing of the
4
<PAGE>
Fund's shares; fees and expenses of legal counsel, including counsel to the
trustees who are not interested persons of the Fund or of the Investment
Manager or Sub-Adviser (not including compensation or expenses of attorneys
who are employees of the Investment Manager) and independent accountants;
membership dues of industry associations; interest on the Fund's 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 (depending upon the nature of
the legal claim, liability or lawsuit) and all other costs of the Fund's
operations properly payable by the Fund. The 12b-1 fees relating to a
particular Class will be allocated directly to that Class. In addition, other
expenses associated with a particular Class (except advisory or custodial
fees) may be allocated directly to that Class, provided that such expenses
are reasonably identified as specifically attributable to that Class and the
direct allocation to that Class is approved by the Trustees.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligation thereunder, the Investment Manager is not liable to the Fund or
any of its investors for any act or omission by the Investment Manager or for
any losses sustained by the Fund or its investors. The Management Agreement
in no way restricts the Investment Manager from acting as investment manager
or adviser to others.
Pursuant to a sub-advisory agreement between the Investment Manager and
Sub-Adviser (the "Sub-Advisory Agreement"), the Sub-Adviser has been
retained, subject to the overall supervision of the Investment Manager and
the Trustees of the Fund, to continuously furnish investment advice
concerning individual security selections, asset allocations and overall
economic trends with respect to issuers and to manage the Fund's portfolio.
Morgan Stanley Asset Management Inc. ("MSAM"), a subsidiary of Morgan
Stanley, Dean Witter, Discover & Co. and an affiliate of the Investment
Manager, whose address is 1221 Avenue of the Americas, New York, New York
10020, became the Fund's Sub-Adviser effective March 2, 1998. MSAM, together
with its affiliated asset management companies, conducts a worldwide
portfolio management business and provides a broad range of portfolio
management services to customers in the United States and abroad. As of
January 31, 1998 MSAM, together with its affiliated institutional asset
management companies, had approximately $148.7 billion in assets under
management as an investment manager or as a fiduciary adviser. MSAM has been
managing international securities since 1986.
Prior to March, 1998, the Fund was managed by Dean Witter Services Company
Inc. (the "Former Manager") pursuant to a management agreement between the
Fund and the Former Manager (the "Former Management Agreement") and was
advised by TCW Funds Management, Inc. (the "Former Adviser") pursuant to an
advisory agreement between the Fund and the Former Adviser (the "Former
Advisory Agreement"). The Former Adviser had informed the Board of Trustees
of the Fund that it planned to resign as investment adviser to the Fund and
on November 6, 1997, the Board of Trustees recommended that the Investment
Management Agreement between the Fund and InterCapital be submitted to
shareholders for approval. At the same meeting the Trustees also recommended
that shareholders approve the Sub-Advisory Agreement between InterCapital and
MSAM described above. The shareholders approved the Investment Management
Agreement and the Sub-Advisory Agreement (together referred to herein as the
"Agreements") on February 26, 1998 and the Agreements became effective on
March 2, 1998.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated by applying the annual
rate of 0.80% of the Fund's net assets up to $750 million; 0.75% of the
portion of daily net assets exceeding $750 million but not exceeding $1.5
billion; and 0.70% of the portion of daily net assets exceeding $1.5 billion.
The management fee is allocated among the Classes pro rata based on the net
assets of the Fund attributable to each Class. As compensation for its
services provided pursuant to the Sub-Advisory Agreement, the Investment
Manager pays the Sub-Adviser compensation equal to 40% of its monthly
compensation. The fee rate under the Investment Management Agreement is 0.05%
lower than the total aggregate fee rate previously in effect under the
5
<PAGE>
Former Management Agreement and the Former Advisory Agreement combined (the
Former Manager was entitled to receive 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; the Former Adviser was
entitled to receive 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 Former 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. Total compensation accrued to the
Former 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.
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 Former Management Agreement was initially approved by the Trustees on
June 1, 1994 and became effective on April 17, 1995. The Former Management
Agreement replaced a prior management agreement in effect between the Fund
and the Former Manager, which in turn had earlier replaced a prior management
agreement between the Fund and InterCapital, the parent company of the Former
Manager. The nature and scope of services provided to the Fund, and the
formula to determine fees paid by the Fund under the Former Management
Agreement, were identical to those of the Fund's previous management
agreements. The Former Advisory Agreement was initially approved by the
Trustees on March 9, 1992 and by DWR as the then sole shareholder on March
16, 1992.
Both the Investment Manager and the Sub-Adviser have authorized any of
their directors, officers and employees who have been elected as Trustees or
officers of the Fund to serve in the capacities in which they have been
elected. Services furnished by the Investment Manager and the Sub-Adviser may
be furnished by directors, officers and employees of the Investment Manager
and the Sub-Adviser. In connection with the services rendered by the
Sub-Adviser, the Sub-Adviser bears the following expenses: (a) the salaries
and expenses of its personnel; and (b) all expenses incurred by it in
connection with performing the services provided by it as Sub-Adviser, as
described above.
Under their terms, the Agreements have an initial term ending April 30,
1999, and will remain in effect from year to year thereafter, provided
continuance of the Agreements is approved at least annually by the vote of
the holders of a majority of the outstanding shares of the Fund, as defined
in the Act, or by the Trustees of the Fund; provided that in either event
such continuance is approved annually by the vote of a majority of the
Trustees of the Fund who are not parties to the Agreement or "interested
persons" (as defined in the Act) of any such party (the "Independent
Trustees"), which vote must be cast in person at a meeting called for the
purpose of voting on such approval.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR and that the name "Morgan Stanley" is a property right of MSDWD, the
parent company of DWR. The Fund has agreed that DWR or MSDWD may use, or at
any time permit others to use, the names "Dean Witter" and "Morgan Stanley."
The Fund has also agreed that in the event the Management Agreement is
terminated, or if the affiliation between InterCapital and MSDWD is
terminated, the Fund will eliminate the names "Dean Witter" and "Morgan
Stanley" from its name if DWR or MSDWD shall so request.
The following owned more than 5% of the outstanding Class A shares of the
Fund on December 1, 1997: Dean Witter InterCapital Inc., Attn: Frank DeVito,
2 World Trade Center, 73rd Floor, New York, NY 10048--50.7%; and Elmer R.
Rintz REV TR DTD 8-7-8 and Richard T. Rintz (Successor Trustee), 39 Lyon
Drive, Deland, FL 32724--49.1%.
The following owned more than 5% of the outstanding Class C shares of the
Fund on December 1, 1997: Dean Witter Reynolds Custodian for Chris Orlowski
IRA STD/Rollover DTD 09/04/90, 15831 South 15th Place, Phoenix, AZ
85048--9.8%; Sharon B. Freund and Deborah File JTTEN, 77 7th Avenue, #3D, New
York, NY 10011--23.4%; Dean Witter Reynolds Custodian for William B. Gould
IRA Rollover Dated 07/19/93, 780 Boylston Street, #8C, Boston, MA
02199--6.9%; and Jeffrey L. Stratton and Carol S. Stratton JTTEN, 12152
Southwick Circle, Knoxville, TN 37922--39.5%.
6
<PAGE>
The following owned more than 5% of the outstanding Class D shares of the
Fund on December 1, 1997: Dean Witter InterCapital Inc., Attn: Frank DeVito,
2 World Trade Center, 73rd Floor, New York, NY 10048--99.7%.
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and the Sub-Adviser, and affiliated companies thereof, and with
the 85 Dean Witter Funds and the 11 TCW/DW Funds, are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------
<S> <C>
Michael Bozic (57) ...................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of the
c/o Levitz Furniture Corporation Dean Witter Funds; formerly President and Chief Executive Officer
6111 Broken Sound Parkway, N.W. of Hills Department Stores (May, 1991-July, 1995); formerly
Boca Raton, Florida variously Chairman, Chief Executive Officer, President and Chief
Operating Officer (1987-1991) of the Sears Merchandise Group of
Sears, Roebuck and Co.; Director of Eaglemark Financial Services,
Inc., the United Negro College Fund and Weirton Steel
Corporation.
Charles A. Fiumefreddo* (64)............. Chairman, Chief Executive Officer and Director of InterCapital,
Chairman of the Board, Chief DWSC and Distributors; Executive Vice President and Director of
Executive Officer and Trustee DWR; Chairman, Director or Trustee, President and Chief Executive
Two World Trade Center Officer of the Dean Witter Funds; Chairman of the Board, Chief
New York, New York Executive Officer and Trustee of the TCW/DW Funds; Chairman and
Director of Dean Witter Trust FSB ("DWT''); Director and/or
officer of various MSDWD subsidiaries.
Edwin J. Garn (65) ...................... Director or Trustee of the Dean Witter Funds; formerly United
Trustee States Senator (R-Utah)(1974-1992) and Chairman, Senate Banking
c/o Huntsman Corporation Committee (1980-1986); formerly Mayor of Salt Lake City, Utah
500 Huntsman Way (1971-1974); formerly Astronaut, Space Shuttle Discovery (April
Salt Lake City, Utah 12-19, 1985); Vice Chairman, Huntsman Corporation (since January,
1993); Director of Franklin Covey (time management systems), John
Alden Financial Corp. (health insurance), United Space Alliance
(joint venture between Lockheed Martin and the Boeing Company)
and Naskin Asia Pacific (multilevel marketing); member of the
board of various civic and charitable organizations.
John R. Haire (73) ...................... Chairman of the Audit Committee and Chairman of the Independent
Trustee Directors or Trustees and Director or Trustee of the Dean Witter
Two World Trade Center Funds; Chairman of the Audit Committee and Chairman of the
New York, New York Committee of Independent Trustees and Trustee of the TCW/DW
Funds; formerly President, Council for Aid to Education
(1978-1989) and Chairman and Chief Executive Officer of Anchor
Corporation, an Investment Adviser (1964-1978).
7
<PAGE>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------
Wayne E. Hedien (63) .................... Retired; Director or Trustee of the Dean Witter Funds; Director
Trustee of The PMI Group, Inc. (private mortgage insurance); Trustee and
c/o Gordon Altman Butowsky Vice Chairman of The Field Museum of Natural History; formerly
Weitzen Shalov & Wein associated with the Allstate Companies (1966-1994), most recently
Counsel to the Independent Trustees as Chairman of The Allstate Corporation (March, 1993-December,
114 West 47th Street 1994) and Chairman and Chief Executive Officer of its
New York, New York wholly-owned subsidiary, Allstate Insurance Company (July,
1989-December, 1994); director of various other business and
charitable organizations.
Dr. Manuel H. Johnson (49) .............. Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm; Co-Chairman and a founder of the Group of Seven Council
c/o Johnson Smick International, Inc. (G7C), an international economic commission (since September,
1133 Connecticut Avenue, N.W. 1990); Director or Trustee of the Dean Witter Funds; Trustee of
Washington D.C. the TCW/DW Funds; Director of NASDAQ (since June, 1995); Director
of Greenwich Capital Markets, Inc. (broker-dealer). Chairman and
Trustee of the Financial Accounting Foundation (oversight
organization for the Financial Accounting Standards Board);
formerly Vice Chairman of the Board of Governors of the Federal
Reserve System (1986-1990) and Assistant Secretary of the U.S.
Treasury (1982-1986).
Michael E. Nugent (61)................... General Partner, Triumph Capital, L.P., a private investment
Trustee partnership; Director or Trustee of the Dean Witter Funds;
c/o Triumph Capital, L.P. Trustee of the TCW/DW Funds; formerly Vice President, Bankers
237 Park Avenue Trust Company and BT Capital Corporation (1984-1988); Director of
New York, New York various business organizations.
Philip J. Purcell* (54).................. Chairman of the Board of Directors and Chief Executive Officer of
Trustee MSDWD, DWR and Novus Credit Services Inc.; Director of
1585 Broadway InterCapital, DWSC and Distributors; Director or Trustee of the
New York, New York Dean Witter Funds; Director and/or officer of various MSDWD
subsidiaries.
John L. Schroeder (67)................... Retired; Director or Trustee of the Dean Witter Funds; Trustee of
Trustee 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).
Counsel to the Independent Trustees
114 West 47th Street
New York, New York
Barry Fink (43).......................... Senior Vice President (since March, 1997) and Secretary and
Vice President, Secretary General Counsel (since February, 1997) of InterCapital and DWSC;
and General Counsel Senior Vice President (since March, 1997) and Assistant Secretary
Two World Trade Center and Assistant General Counsel (since February, 1997) of
New York, New York Distributors; 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 DWSC and Assistant Secretary of the
Dean Witter Funds and the TCW/DW Funds.
8
<PAGE>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------
Thomas F. Caloia (51).................... First Vice President and Assistant Treasurer of InterCapital and
Treasurer DWSC; Treasurer of the Dean Witter Funds and the TCW/DW Funds.
Two World Trade Center
New York, New York
<FN>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
</TABLE>
In addition, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Executive Vice President and Director of DWR, and Director
of SPS Transaction Services, Inc. and various other MSDWD subsidiaries,
Robert M. Scanlan, President and Chief Operating Officer of InterCapital and
DWSC, Executive Vice President of Distributors and DWT and Director of DWT,
Joseph J. McAlinden, Executive Vice President and Chief Investment Officer of
InterCapital and Director of DWT, Robert S. Giambrone, Senior Vice President
of InterCapital, DWSC, Distributors and DWT and Director of DWT, are Vice
Presidents of the Fund. Marilyn K. Cranney, First Vice President and
Assistant General Counsel of InterCapital and DWSC, and Lou Anne D. McInnis,
Carsten Otto and Ruth Rossi, Vice Presidents and Assistant General Counsels
of InterCapital and DWSC, and Frank Bruttomesso and Todd Lebo, staff
attorneys with InterCapital, are Assistant Secretaries 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 directors or trustees for all of the Dean Witter
Funds and are referred to in this section as Trustees. As of the date of this
Statement of Additional Information, there are a total of 85 Dean Witter
Funds, comprised of 129 portfolios. As of January 31, 1998, the Dean Witter
Funds had total net assets of approximately $96 billion and more than six
million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own
any stock or other securities issued by InterCapital's parent company, MSDWD.
These are the "disinterested" or "independent" Trustees. The other two
Trustees (the "management Trustees") are affiliated with InterCapital. Four
of the seven Independent Trustees are also Independent Trustees of the TCW/DW
Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Dean Witter Funds seek as Independent
Trustees individuals of distinction and experience in business and finance,
government service or academia; these are people whose advice and counsel are
in demand by others and for whom there is often competition. To accept a
position on the Funds' Boards, such individuals may reject other attractive
assignments because the Funds make substantial demands on their time. Indeed,
by serving on the Funds' Boards, certain Trustees who would otherwise be
qualified and in demand to serve on bank boards would be prohibited by law
from doing so.
All of the Independent Trustees serve as members of the Audit Committee
and the Committee of the Independent Trustees. Three of them also serve as
members of the Derivatives Committee. During the calendar year ended December
31, 1997, the three Committees held a combined total of seventeen meetings.
The Committees hold some meetings at InterCapital's offices and some outside
InterCapital. Management Trustees or officers do not attend these meetings
unless they are invited for purposes of furnishing information or making a
report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading
among Funds in the same complex; and approving fidelity bond and related
insurance coverage and allocations, as well as other matters that arise from
time to time. The Independent Trustees are required to select and nominate
individuals to fill any Independent Trustee vacancy on the Board of any Fund
that has a Rule 12b-1 plan of distribution. Most of the Dean Witter Funds
have such a plan.
9
<PAGE>
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance of such
services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting
Committee meeting minutes to the full Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office 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 Dean Witter Funds and Independent Trustee and as Chairman of
the Committee of the Independent Trustees and the Audit Committee of the
TCW/DW Funds. The current Committee Chairman has had more than 35 years
experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of
separate groups of Independent Trustees arriving at conflicting decisions
regarding operations and management of the Funds and avoids the cost and
confusion that would likely ensue. Finally, having the same Independent
Trustees serve on all Fund Boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of Independent
Trustees, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Dean Witter Funds.
10
<PAGE>
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee
of the Independent Trustees an additional annual fee of $1,200). If a Board
meeting and a Committee meeting, or more than one Committee meeting, take
place on a single day, the Trustees are paid a single meeting fee by the
Fund. The Fund also reimburses such Trustees for travel and other
out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by
the Investment Manager or the Sub-Adviser or an affiliated company of either
receive no compensation or expense reimbursement from the Fund.
At their November 6, 1997 meeting, the Trustees of the Fund nominated for
election or re-election, as appropriate, the following nine nominees to the
Fund's Board of Trustees to serve for indefinite terms: Michael Bozic,
Charles A. Fiumefreddo, Edwin Jacob (Jake) Garn, John R. Haire, Wayne E.
Hedien, Dr. Manuel H. Johnson, Michael E. Nugent, Philip J. Purcell and John
L. Schroeder, and these nominees were elected by the shareholders of the Fund
on February 26, 1998. Messrs. Fiumefreddo, Haire, Johnson, Nugent and
Schroeder previously served as Trustees of the Fund and, with the exception
of Mr. Schroeder, were previously elected by shareholders. Messrs. Bozic,
Garn, Hedien and Purcell currently hold directorships or trusteeships with
the other Dean Witter Funds and were elected to replace Messrs. Argue,
DeMartini, Larkin and Stern who resigned as Trustees. Messrs. Bozic, Garn,
Hedien and Purcell commenced service at the time the Investment Management
Agreement took effect on March 2, 1998. Prior to the February 26, 1998
election of Messrs. Bozic, Garn, Hedien and Purcell and the resignation of
Messrs. Argue, DeMartini, Larkin and Stern, the Fund paid 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 attended by the Trustee.
The fee paid by the Fund to the Chairman of the Audit Committee and the
Chairman of the Committee of the Independent Trustees remained unchanged
after the February 26, 1998 election.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended March 31, 1997.
<TABLE>
<CAPTION>
FUND COMPENSATION
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- ---------------
<S> <C>
John R. Haire............... $7,341
Dr. Manuel H. Johnson....... 5,575
Michael E. Nugent........... 5,791
John L. Schroeder........... 5,791
</TABLE>
At such time as the Fund has paid fees to the Independent Trustees for a
full fiscal year at the current compensation rates set forth above, and
assuming that during such fiscal year the Fund holds the same number of Board
and committee meetings as were held by the Dean Witter Funds during the
calendar year ended December 31, 1997, it is estimated that the compensation
paid to each Independent Trustee by the Fund during such fiscal year will be
the amount shown in the following table:
<TABLE>
<CAPTION>
FUND COMPENSATION (ESTIMATED)
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT FROM THE FUND
TRUSTEE (ESTIMATED)
- -------------------------- ---------------
<S> <C>
Michael Bozic.............. $1,600
Edwin J. Garn ............. 1,600
John R. Haire.............. 3,550
Wayne E. Hedien ........... 1,600
Dr. Manuel H. Johnson .... 1,600
Michael E. Nugent ......... 1,600
John L. Schroeder.......... 1,600
</TABLE>
11
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for
services to the 84 Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1997. With respect to Messrs. Haire, Johnson, Nugent and
Schroeder, the 14 TCW/DW Funds are included solely because of a limited
exchange privilege between those funds and five Dean Witter Money Market
Funds. Mr. Hedien's term as Director or Trustee of each Dean Witter Fund
commenced on September 1, 1997.
<TABLE>
<CAPTION>
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
FOR SERVICE AS
CHAIRMAN OF
COMMITTEES OF FOR SERVICE AS
INDEPENDENT CHAIRMAN OF
FOR SERVICE DIRECTORS/ COMMITTEES OF TOTAL CASH
AS DIRECTOR OR FOR SERVICE AS TRUSTEES AND INDEPENDENT COMPENSATION
TRUSTEE AND TRUSTEE AND AUDIT TRUSTEES FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER COMMITTEES OF 84 AND AUDIT 84 DEAN WITTER
NAME OF OF 84 DEAN WITTER OF 14 TCW/DW DEAN WITTER COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS TCW/DW FUNDS TCW/DW FUNDS
- --------------------- ----------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael Bozic ........ $133,602 -- -- -- $133,602
Edwin J. Garn ........ 149,702 -- -- -- 149,702
John R. Haire ........ 149,702 $73,725 $157,463 $25,350 406,240
Wayne E. Hedien....... 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson 145,702 71,125 -- -- 216,827
Michael E. Nugent ... 149,702 73,725 -- -- 223,427
John L. Schroeder .... 149,702 73,725 -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, not including the Fund, have adopted a retirement program under
which an Independent Trustee who retires after serving for at least five
years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Dean Witter Fund that has adopted the
retirement program (each such Fund referred to as an "Adopting Fund" and each
such Trustee referred to as an "Eligible Trustee") is entitled to retirement
payments upon reaching the eligible retirement age (normally, after attaining
age 72). Annual payments are based upon length of service. Currently, upon
retirement, each Eligible Trustee is entitled to receive from the Adopting
Fund, commencing as of his or her retirement date and continuing 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 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.
(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.
12
<PAGE>
The following table illustrates the retirement benefits accrued to Messrs.
Haire, Johnson, Nugent and Schroeder by the 57 Dean Witter Funds (not
including the Fund) for the year ended December 31, 1997, and the estimated
retirement benefits for the Fund's Independent Trustees, to commence upon
their retirement, from the 57 Dean Witter Funds as of December 31, 1997.
<TABLE>
<CAPTION>
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
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>
Michael Bozic .............. 10 50.0% $ 20,499 $ 47,025
Edwin J. Garn .............. 10 50.0 30,878 47,025
John R. Haire............... 10 50.0 (19,823)(3) 127,897
Wayne E. Hedien ............ 9 42.5 0 39,971
Dr. Manuel H. Johnson....... 10 50.0 12,832 47,025
Michael E. Nugent........... 10 50.0 22,546 47,025
John L. Schroeder........... 8 41.7 39,350 39,504
</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.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until June 1, 1998.
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
13
<PAGE>
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
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 Investment Manager and/or the
Sub-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 Sub-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
14
<PAGE>
effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions whose financial condition will be
continually monitored by the Investment Manager and/or Sub-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 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 Investment Manager and/or the Sub-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
15
<PAGE>
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.
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
Investment Manager and/or the Sub-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 Investment Manager and/or the Sub-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 200%. 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.
16
<PAGE>
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.
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.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered
a violation of any of the foregoing restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- -----------------------------------------------------------------------------
Subject to the general supervision of the Trustees, the Investment Manager
and the Sub-Adviser are 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. Any options and futures transactions
will usually be effected through a broker and a commission will be charged.
On occasion, the Fund may also purchase certain money market instruments
directly from an issuer, in which case no commissions or discounts are paid.
During the fiscal years ended 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 Investment Manager and the Sub-Adviser currently each serve as
investment advisers 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 InterCapital and the Sub-Adviser to cause purchase and sale
transactions to be allocated among the Fund and others whose assets they
manage in such manner as they deem equitable. In making such allocations
among the Fund and other client accounts, various factors may be
17
<PAGE>
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 Investment
Manager and/or Sub-Adviser from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Investment Manager and/or
Sub-Adviser rely upon their experience and knowledge regarding commissions
generally charged by various brokers and on their judgment in evaluating the
brokerage and research services received from the broker effecting the
transaction. Such determinations are necessarily subjective and imprecise, as
in most cases an exact dollar value for those services is not ascertainable.
In seeking to implement the Fund's policies, the Investment Manager and/or
Sub-Adviser effect transactions with those brokers and dealers who the
Investment Manager and/or the Sub-Adviser believe provide the most favorable
prices and are capable of providing efficient executions. If the Investment
Manager and/or the Sub-Adviser believe such prices and executions are
obtainable from more than one broker or dealer, they may give consideration
to placing portfolio transactions with those brokers and dealers who also
furnish research and other services to the Fund or the Investment Manager
and/or the Sub-Adviser. Such services may include, but are not limited to,
any one or more of the following: 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, (under the
management of the Former Adviser) 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 Investment Manager and the
Sub-Adviser from brokers and dealers may be of benefit to them in the
management of accounts of some of their other clients and may not in all
cases benefit the Fund directly. While the receipt of such information and
services is useful in varying degrees and would generally reduce the amount
of research or services otherwise performed by the Investment Manager and/or
the Sub-Adviser and thereby reduce their expenses, it is of indeterminable
value and the advisory fee paid to the Investment Manager 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, Morgan Stanley and Co. Inc. and other affiliated
brokers and dealers. In order for an affiliated broker-dealer to effect any
portfolio transactions for the Fund, the commissions, fees or other
remuneration received by an affiliated broker-dealer 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 the affiliated broker-dealer 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 an affiliated broker-dealer are consistent
with the
18
<PAGE>
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
- -----------------------------------------------------------------------------
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 June 30, 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 Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
account executives. The Distributor also pays certain expenses in connection
with the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears
the costs of initial typesetting, printing and distribution of prospectuses
and supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal securities laws and pays
filing fees in accordance with 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 each Class, other
than Class D, pays the Distributor compensation accrued daily and payable
monthly at the following annual rates: 0.25% and 1.0% of the average daily
net assets of Class A and Class C, respectively, and, with respect to Class
B, 1.0% of the lesser of: (a) the average daily aggregate gross sales of the
Fund's Class B 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 Class B 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 average daily
net assets of Class B. The Distributor also receives the proceeds of
front-end sales charges and of contingent deferred sales charges imposed on
certain redemptions of shares, which are separate and apart from payments
made pursuant to the Plan (see "Purchase of Fund Shares" 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 the entire fee payable by Class
A and a portion of the fees payable by each of Class B and Class C each year
under the Plan equal to 0.25% of such Class's average daily net assets are
currently each 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). The
19
<PAGE>
service fee is a payment made for personal service and/or the maintenance of
shareholder accounts. The remaining portions of the Plan of Distribution fee
payments made by a Class, if any, are characterized as "asset-based sales
charges" as such is defined by the aforementioned Rules of the Association.
The Plan was adopted by a majority vote of the Board of Trustees,
including all of the Trustees of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan (the "Independent 12b-1 Trustees"),
cast in person at a meeting called for the purpose of voting on the Plan, on
March 9, 1992, and by Intercapital as the then sole shareholder on March 9,
1992.
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 an internal reorganization described above, the share
distribution activities theretofore performed for the Fund by DWR were
assumed by the Distributor and DWR's sales activities are now being performed
pursuant to the terms of a selected dealer agreement between the Distributor
and DWR. The amendments provide that payments under the Plan will be made to
the Distributor rather than to DWR as before the amendment, and that the
Distributor in turn is authorized to make payments to DWR, its affiliates or
other selected broker-dealers (or direct that the Fund pay such entities
directly). The Distributor is also authorized to retain part of such fee as
compensation for its own distribution-related expenses. At their meeting held
on April 28, 1993, the Trustees, including a majority of the Independent
12b-1 Trustees, approved certain technical amendments in connection with
amendments adopted by the National Association of Securities Dealers, Inc. To
its 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
June 30, 1997, the Trustees, including a majority of the Independent 12b-1
Trustees, approved amendments to the Plan to reflect the multiple-class
structure for the Fund, which took effect on July 28, 1997.
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. Class B shares of 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. This amount
represents amounts paid by Class B only; there were no Class A or Class C
shares outstanding on such date.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a distribution arrangement as set forth in the
Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the account executives or
dealers of record in all cases. On orders of
20
<PAGE>
$1 million or more (for which no sales charge was paid) or net asset value
purchases by employer-sponsored 401(k) and other plans qualified under
Section 401(a) of the Internal Revenue Code ("Qualified Retirement Plans")
for which Dean Witter Trust FSB ("DWT") serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement, InterCapital compensates DWR's account executives by
paying them, from its own funds, a gross sales credit of 1.0% of the amount
sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission,
currently a residual of up to 0.25% of the current value (not including
reinvested dividends or distributions) of the amount sold in all cases. In
the case of Class B shares purchased on or after July 28, 1997 by Qualified
Retirement Plans for which DWT serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement, 401(k) of the Internal Revenue Code and other employer-sponsored
plans qualified under Section 401(a) of the Internal Revenue Code for which
DWT serves as Trustee or the 401(k) Support Services Group of DWR serves as
recordkeeper, and which plans are opened on or after July 28, 1997, DWR
compensates its account executives by paying them, from its own funds, a
gross sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value
of the respective accounts for which they are the account executives of
record.
With respect to Class D shares other than shares held by participants in
the InterCapital mutual fund asset allocation program, InterCapital
compensates DWR's account executives by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of
up to 1.0% of the amount sold. There is a chargeback of 100% of the amount
paid if the Class D shares are redeemed in the first year and a chargeback of
50% of the amount paid if the Class D shares are redeemed in the second year
after purchase. InterCapital also compensates DWR's account executives by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the account executives of record (not including accounts of
participants in the InterCapital mutual fund asset allocation program).
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 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, in the case of Class B shares, opportunity costs, such as the gross
sales credit and an assumed interest charge thereon ("carrying charge"). In
the Distributor's reporting of the distribution expenses to the Fund, in the
case of Class B shares, such assumed interest (computed at the "broker's call
rate") has been calculated on the gross credit as it is reduced by amounts
received by the Distributor under the Plan and any contingent deferred sales
charges received by the Distributor upon redemption of shares of the Fund. No
other interest charge is included as a distribution expense in the
Distributor's calculation of its distribution costs for this purpose. The
broker's call rate is the interest rate charged to securities brokers on
loans secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments
at the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case
21
<PAGE>
of Class A, and 1.0%, in the case of Class C, of the average net assets of
the respective Class during the month. No interest or other financing
charges, if any, incurred on any distribution expenses on behalf of Class A
and Class C will be reimbursable under the Plan. With respect to Class A, in
the case of all expenses other than expenses representing the service fee,
and, with respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to account executives, such
amounts shall be determined at the beginning of each calendar quarter by the
Trustees, including, a majority of the Independent 12b-1 Trustees. Expenses
representing the service fee (for Class A) or a gross sales credit or a
residual to account executives (for Class C) may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall
be reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Trustees will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund,
together with a report explaining the purposes and anticipated benefits of
incurring such expenses. The Trustees will determine which particular
expenses, and the portions thereof, that may be borne by the Fund, and in
making such a determination shall consider the scope of the Distributor's
commitment to promoting the distribution of the Fund's Class A and Class C
shares.
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. These amounts represent amounts paid by
Class B only; there were no Class A or Class C shares outstanding on such
date.
In the case of Class B shares, 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 in the case of Class B
shares 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 Class B 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 with respect to Class B shares 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 Sub-Adviser 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 in the manner
described above. Prior to the Board's approval of amendments to the Plan to
reflect the
22
<PAGE>
multiple Class structure for the Fund, the 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 affected Class or Classes 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 for each Class of shares 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, Reverend Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without
an initial sales charge are subject to a contingent deferred sales charge
("CDSC") of 1.0% if redeemed within one year of purchase, except in the
circumstances discussed in the Prospectus.
Right of Accumulation. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for
purchases of shares of the Fund totalling at least $25,000 in net asset
value. For example, if any person or entity who qualifies for this privilege
holds Class A shares of the Fund and/or other Dean Witter Funds which are
multiple class funds ("Dean Witter Multi-Class Funds") purchased at a price
including a front-end sales charge having a current value of $5,000, and
purchases $20,000 of additional shares of the Fund, the sales charge
applicable to the $20,000 purchase would be 4.75% of the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of
23
<PAGE>
Accumulation. Similar notification must be made in writing by the selected
broker-dealer or shareholder when such an order is placed by mail. The
reduced sales charge will not be granted if: (a) such notification is not
furnished at the time of the order; or (b) a review of the records of the
Distributor or Dean Witter Trust FSB (the "Transfer Agent") fails to confirm
the investor's represented holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges
are available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase of Class A shares made during the period will receive the
reduced sales commission applicable to the amount represented by the goal, as
if it were a single purchase. A number of shares equal in value to 5% of the
dollar amount of the Letter of Intent will be held in escrow by the Transfer
Agent, in the name of the shareholder. The initial purchase under a Letter of
Intent must be equal to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to
pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the
Distributor is authorized by the shareholder to liquidate a sufficient number
of his or her escrowed shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced
sales charges in the same manner as set forth above under "Right of
Accumulation," but there will be no retroactive reduction of sales charges on
previous purchases. For the purpose of determining whether the investor is
entitled to a further reduced sales charge applicable to purchases at or
above a sales charge level which exceeds the stated goal of a Letter of
Intent, the cumulative current net asset value of any shares owned by the
investor in any other Dean Witter Funds held by the shareholder which were
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Dean Witter Funds acquired in exchange for those
shares, and including in each case shares acquired through reinvestment of
dividends and distributions) will be added to the cost or net asset value of
shares of the Fund owned by the investor. However, shares of "Exchange Funds"
and the purchase of shares of other Dean Witter Funds will not be included in
determining whether the stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As
stated in the Prospectus, a CDSC will be imposed on any redemption by an
investor if after such redemption the current value of the investor's Class B
shares of the Fund is less than the dollar amount of all payments by the
shareholder for the purchase of Class B shares during the preceding six years
(or, in the case of shares held by certain employer-sponsored benefit plans,
three years). However, no CDSC will be imposed to the extent that the net
asset value of the shares redeemed does not exceed: (a) the current net asset
value of shares purchased more than six years (or, in the case of shares held
by certain employer-sponsored benefit plans, three years) prior to the
redemption, plus (b) the current net asset value of shares purchased through
reinvestment of dividends or distributions of the Fund or another Dean Witter
Fund (see "Shareholder Services--Targeted Dividends"), plus (c) the current
net asset value of shares acquired in exchange for (i) shares of Dean Witter
front-end sales charge funds, or (ii) shares of other Dean Witter Funds for
which shares
24
<PAGE>
of front-end sales charge funds have been exchanged (see "Shareholder
Services--Exchange Privilege"), plus (d) increases in the net asset value of
the investor's shares above the total amount of payments for the purchase of
Fund shares made during the preceding six (three) years. The CDSC will be
paid to the Distributor. In addition, no CDSC will be imposed on redemptions
of shares which are attributable to reinvestment of dividends or
distributions from, or the proceeds of, certain Unit Investment Trusts.
In determining the applicability of the 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 (or, in the case of shares held by certain
Qualified Retirement Plans, three 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 (three) years prior to the
redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of Dean Witter
front-end sales charge funds, or for shares of other Dean Witter funds for
which shares of front-end sales charge funds have been exchanged. A portion
of the amount redeemed which exceeds an amount which represents both such
increase in value and the value of shares purchased more than six years (or,
in the case of shares held by certain employer-sponsored benefit plans, three
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 Class B shares of the Fund 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 applicable to most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- --------------------------- ------------------------
<S> <C>
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified
Retirement Plans for which DWT serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement.
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------- ------------------------
<S> <C>
First .................... 2.0%
Second ................... 2.0%
Third .................... 1.0%
Fourth and thereafter .... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year or three-year period. This will
25
<PAGE>
result in any such CDSC being imposed at the lowest possible rate. The CDSC
will be imposed, in accordance with the table shown above, on any redemptions
within six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) of purchase which are in excess of these
amounts and which redemptions do not qualify for waiver of the CDSC, as
described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC
of 1.0% on most redemptions made within one year after purchase, except in
the circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund and maintained by the
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 applicable Class 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 applicable Class 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. It has been and remains the Fund's policy
and practice that, if checks for dividends or distributions paid in cash
remain uncashed, no interest will accrue on amounts represented by such
uncashed checks.
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 any Class of an
open-end Dean Witter Fund other than Morgan Stanley Dean Witter Growth Fund
or in another Class of Morgan Stanley Dean Witter Growth Fund. Such
investment will be made as described above for automatic investment in shares
of the applicable Class of the Fund, at the net asset value per share of the
selected Dean Witter Fund as of the close of business on the payment date of
the dividend or distribution and will begin to earn dividends, if any, in the
selected Dean Witter Fund the next business day. To participate in the
Targeted Dividends program, shareholders should contact their DWR or other
selected broker-dealer account executive or the Transfer Agent. Shareholders
of the Fund must be shareholders of the selected Class of the Dean Witter
Fund targeted to receive investments from dividends at the time they enter
the Targeted Dividends program. Investors should review the prospectus of the
targeted Dean Witter Fund before entering the program.
26
<PAGE>
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 or following
redemption of shares of a Dean Witter money market fund, 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 (subject to any applicable
sales charges). Shares of the Dean Witter money market funds redeemed in
connection with EasyInvest are redeemed on the business day preceding the
transfer of funds. 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 in shares
of the applicable Class at the net asset value per share, without the
imposition of a CDSC 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 CDSC will be imposed on shares redeemed
under the Withdrawal Plan (see "Purchase of Fund Shares"). 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
CDSC) 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 sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the
account must send complete written instructions to the Transfer Agent to
enroll in the Withdrawal Plan. The shareholder's signature on such
instructions must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). A shareholder may, at any time, change the amount and interval of
withdrawal payments through his or her 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
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<PAGE>
above. The shareholder may also terminate the Withdrawal Plan at any time by
written notice to the Transfer Agent. In the event of such termination, the
account will be continued as a regular shareholder investment account. The
shareholder may also redeem all or part of the shares held in the Withdrawal
Plan account (see "Redemptions and Repurchases" in the Prospectus) at any
time.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the
Fund for which they qualify at any time by sending a check in any amount, not
less than $100, payable to Morgan Stanley Dean Witter Growth Fund, and
indicating the selected Class, directly to the Fund's Transfer Agent. In the
case of Class A shares, after deduction of any applicable sales charge, the
balance will be applied to the purchase of Fund shares, and, in the case of
shares of the other Classes, the entire amount 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 each Class of
shares of the Fund may exchange their shares for shares of the same Class of
shares of any other Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be exchanged for shares of any of the
following funds: Dean Witter Short-Term U.S. Treasury Trust, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter
Intermediate Term U.S. Treasury Trust and five Dean Witter Funds which are
money market funds (the foregoing nine funds are hereinafter referred to as
the "Exchange Funds"). Class A shares may also be exchanged for shares of
Dean Witter Multi-State Municipal Series Trust and Dean Witter Hawaii
Municipal Trust, which are Dean Witter Funds sold with a front-end sales
charge ("FSC Funds"). Class B shares may also be exchanged for shares of Dean
Witter Global Short-Term Income Fund Inc. ("Global Short-Term"), which is a
Dean Witter Fund offered with a CDSC. Exchanges may be made after the shares
of the fund acquired by purchase (not by exchange or dividend reinvestment)
have been held for thirty days. There is no waiting period for exchanges of
shares acquired by exchange or dividend reinvestment. An exchange will be
treated for federal income tax purposes the same as a repurchase or
redemption of shares, on which the shareholder may realize a capital gain or
loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to
the contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit
should not be endorsed.)
As described below, and in the Prospectus under the captions "Purchase of
Fund Shares," a 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 a Dean
Witter Multi-Class Fund or Global Short-Term are exchanged for shares of an
Exchange Fund, the exchange is executed at no charge to the shareholder,
without the imposition of the CDSC at the time of the exchange. During the
period of time the shareholder remains in the Exchange Fund (calculated from
the last day of the month in which the Exchange Fund shares were acquired),
the holding period or "year since purchase payment made" is frozen. When
shares are redeemed out of the Exchange Fund, they will be subject to a CDSC
which would be based upon the period of time the shareholder held shares in a
Dean Witter Multi-Class Fund or in Global Short-Term. However, in the case of
shares exchanged into an Exchange Fund on or after April 23, 1990, upon a
redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the
Exchange Fund 12b-1 distribution fees which are attributable to those shares.
Shareholders acquiring shares of an Exchange Fund pursuant to this exchange
privilege may exchange those shares back into a Dean Witter Multi-Class Fund
or Global Short-Term from the Exchange Fund, with no charge
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<PAGE>
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 of a Dean Witter Multi-Class Fund or of
Global Short-Term 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 Dean Witter Multi-Class Fund or in Global
Short-Term. In the case of exchanges of Class A shares which are subject to a
CDSC, the holding period also includes the time (calculated as described
above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or in
Global Short-Term are exchanged for shares of a Dean Witter Multi-Class Fund,
shares of Global Short-Term, shares of a FSC Fund, or 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 one, three or six years (depending on the
CDSC schedule applicable to the shares) prior to the exchange, (ii)
originally acquired through reinvestment of dividends or distributions and
(iii) acquired in exchange for shares of FSC Funds, or for shares of other
Dean Witter Funds for which shares of FSC Funds have been exchanged (all such
shares called "Free Shares"), will be exchanged first. After an exchange, all
dividends earned on shares in an Exchange Fund will be considered Free
Shares. If the exchanged amount exceeds the value of such Free Shares, an
exchange is made, on a block-by-block basis, of non-Free Shares held for the
longest period of time (except that, with respect to Class B shares, if
shares held for identical periods of time but subject to different CDSC
schedules are held in the same Exchange Privilege account, the shares of that
block that are subject to a lower CDSC rate will be exchanged prior to the
shares of that block that are subject to a higher CDSC rate). Shares equal to
any appreciation in the value of non-Free Shares exchanged will be treated as
Free Shares, and the amount of the purchase payments for the non-Free Shares
of the fund exchanged into will be equal to the lesser of (a) the purchase
payments for, or (b) the current net asset value of, the exchanged non-Free
Shares. If an exchange between funds would result in exchange of only part of
a particular block of non-Free Shares, then shares equal to any appreciation
in the value of the block (up to the amount of the exchange) will be treated
as Free Shares and exchanged first, and the purchase payment for that block
will be allocated on a pro rata basis between the non-Free Shares of that
block to be retained and the non-Free Shares to be exchanged. The prorated
amount of such purchase payment attributable to the retained non-Free Shares
will remain as the purchase payment for such shares, and the amount of
purchase payment for the exchanged non-Free Shares will be equal to the
lesser of (a) the prorated amount of the purchase payment for, or (b) the
current net asset value of, those exchanged non-Free Shares. Based upon the
procedures described in the Prospectus under the caption "Purchase of Fund
Shares," any applicable CDSC will be imposed upon the ultimate redemption of
shares of any fund, regardless of the number of exchanges since those shares
were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any
other of the funds and the general administration of the Exchange Privilege,
the Transfer Agent acts as agent for the Distributor and for the
shareholder's selected broker-dealer, if any, in the performance of such
functions. With respect to exchanges, redemptions or repurchases, the
Transfer Agent shall be liable for its own negligence and not for the default
or negligence of its correspondents or for losses in transit. The Fund shall
not be liable for any default or negligence of the Transfer Agent, the
Distributor or any selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is
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<PAGE>
$5,000 for Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily
Income Trust, Dean Witter California Tax-Free Daily Income Trust and Dean
Witter New York Municipal Money Market Trust, although those funds may, in
their discretion, accept initial investments of as low as $1,000. The minimum
initial investment for the Exchange Privilege account of each Class is
$10,000 for Dean Witter Short-Term U.S. Treasury Trust, although that fund,
in its discretion, may accept initial purchases of as low as $5,000. The
minimum initial investment for the Exchange Privilege account of each Class
is $5,000 for Dean Witter Special Value Fund. The minimum initial investment
for the Exchange Privilege account of each Class of all other Dean Witter
Funds for which the Exchange Privilege is available is $1,000.) Upon exchange
into an Exchange Fund, the shares of that fund will be held in a special
Exchange Privilege Account separately from accounts of those shareholders who
have acquired their shares directly from that fund. As a result, certain
services normally available to shareholders of money market funds, including
the check writing feature, will not be available for funds held in that
account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the 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.
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 each Class 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 CDSC. 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,
30
<PAGE>
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.
Repurchase. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by
DWR and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer
reduced by any applicable CDSC.
Payment for Shares Repurchased or Redeemed. As discussed in the
Prospectus, payment for shares of any Class 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 at times (a)
when the New York Stock Exchange is closed for other than customary weekends
and holidays, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) during
any other period when the Securities and Exchange Commission by order so
permits; provided that applicable rules and regulations of the Securities and
Exchange Commission shall govern as to whether the conditions prescribed in
(b) or (c) exist. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum
time needed to verify that the check used for investment has been honored
(not more than fifteen days from the time of receipt of the check by the
Transfer Agent). It has been and remains the Fund's policy and practice that,
if checks for redemption proceeds remain uncashed, no interest will accrue on
amounts represented by such uncashed checks. 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 CDSC 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 CDSC 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 35 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 in the same Class 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
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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
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<PAGE>
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. The Treasury Department
intends to issue regulations to permit shareholders to take into account
their proportionate share of the Fund's capital gains distributions that will
be subject to a reduced rate under the Taxpayer Relief Act of 1997. The
Taxpayer Relief Act reduced the maximum tax on long-term capital gains from
28% to 20%; however, it also lengthened the required holding period to obtain
this lower rate from more than 12 months to more than 18 months. These lower
rates do not apply to collectibles and certain other assets. Additionally,
the maximum capital gain rate for assets that are held more than 5 years and
that are acquired after December 31, 2000 is 18%.
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
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As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. These figures are
computed for Class A, Class B, Class C and Class D shares. 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 CDSC at the end of the one, five or ten year or other
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing the average
annual total return involves a percentage obtained by dividing the ending
redeemable value by the amount of the initial investment, taking a root of
the quotient (where the root is equivalent to the number of years in the
period) and subtracting 1 from the result. The average annual total returns
of the Fund for the fiscal year ended 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. These returns are for Class B only; there were no
other Classes of shares outstanding on such date.
In addition to the foregoing, the Fund may advertise its total return for
each Class 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 imposition of the maximum front-end sales charge for Class A or
the deduction of the CDSC for each of Class B and Class C 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 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 each
Class for specified periods by determining the aggregate percentage rate
which will result in the ending value of a hypothetical $1,000
32
<PAGE>
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 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 each Class of 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 $9,475, $48,000 and $97,000 in the case of Class A
(investments of $10,000, $50,000 or $100,000 adjusted for the initial sales
charge), or by $10,000, $50,000 and $100,000 in the case of each of Class B,
Class C and Class D, 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. This information is for Class B
only; there were no other Classes of shares outstanding on such date.
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 26, 1998. 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 other
than as set forth in the Prospectus.
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 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.
33
<PAGE>
CUSTODIAN AND TRANSFER AGENT
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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 FSB, 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 FSB 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 FSB'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 FSB 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 for the year ended March 31, 1997,
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.
34
<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
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
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%)
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
35
<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
-------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------- ---------------------------------------------------------------- -------------
SHORT-TERM INVESTMENT (0.4%)
<S> <C> <C>
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
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
======== =============
<FN>
- ------------
* 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
TCW/DW CORE EQUITY TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<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
37
<PAGE>
TCW/DW CORE EQUITY TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
<TABLE>
<S> <C>
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
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<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
39
<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.
40
<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.
41
<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.
42
<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.
43
<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>
- ------------
* 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
44
<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.
45
<PAGE>
TCW/DW CORE EQUITY TRUST
PORTFOLIO OF INVESTMENTS September 30, 1997 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.1%)
Air Transport (5.8%)
64,300 AMR Corp.* ..................................................... $ 7,117,206
257,300 Delta Air Lines, Inc. .......................................... 24,234,444
205,900 UAL Corp.* ..................................................... 17,424,287
--------------
48,775,937
--------------
Aircraft & Aerospace (6.7%)
500,600 Boeing Co. ..................................................... 27,251,412
361,400 United Technologies Corp. ...................................... 29,273,400
--------------
56,524,812
--------------
Auto Parts -Original Equipment (4.9%)
460,800 Lear Corp.* .................................................... 22,694,400
Magna International, Inc.
265,900 (Class A)(Canada) .............................................. 18,380,337
--------------
41,074,737
--------------
Automobiles (3.8%)
703,600 Ford Motor Co. ................................................. 31,837,900
--------------
Banks -Money Center (3.1%)
193,600 Citicorp ....................................................... 25,930,300
--------------
Beverages -Soft Drinks (2.2%)
458,600 PepsiCo, Inc. .................................................. 18,601,962
--------------
Brokerage (2.8%)
316,200 Merrill Lynch & Co., Inc. ...................................... 23,458,087
--------------
Commercial Services (2.3%)
435,100 Corrections Corp. of America* .................................. 18,926,850
--------------
Communications -Equipment & Software (4.0%)
464,406 Cisco Systems, Inc.* ........................................... 33,930,663
--------------
Computer Services (2.6%)
312,800 Computer Sciences Corp.* ....................................... 22,130,600
--------------
Computer Software (5.3%)
274,300 Microsoft Corp.* ............................................... 36,293,319
218,100 Oracle Corp.* .................................................. 7,947,019
--------------
44,240,338
--------------
Computers -Systems (1.2%)
312,200 Tandy Corp. .................................................... 10,497,725
--------------
Electrical Equipment (4.7%)
203,100 Honeywell, Inc. ................................................ 13,645,781
969,111 Westinghouse Electric Corp. .................................... 26,226,566
--------------
39,872,347
--------------
Electronics -Semiconductors/
Components (6.6%)
598,900 Intel Corp. .................................................... 55,323,387
--------------
Entertainment (2.1%)
594,900 Mirage Resorts, Inc.* .......................................... 17,921,363
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
Financial (2.3%)
413,700 Fannie Mae ..................................................... $19,443,900
--------------
Financial Services (2.4%)
318,500 Associates First Capital Corp. (Class A) ....................... 19,826,625
--------------
Foods (1.5%)
301,100 Kellogg Company ................................................ 12,683,838
--------------
Healthcare -Diversified (5.6%)
196,100 Johnson & Johnson .............................................. 11,300,263
206,300 United Healthcare Corp. ........................................ 10,315,000
188,800 Warner-Lambert Co. ............................................. 25,476,200
--------------
47,091,463
--------------
Healthcare -Drugs (2.9%)
204,500 Lilly (Eli) & Co. .............................................. 24,680,594
--------------
Insurance (2.4%)
258,200 Marsh & McLennan Companies, Inc. ............................... 19,784,575
--------------
Machinery -Construction & Materials (3.0%)
461,200 Caterpillar, Inc. .............................................. 24,875,975
--------------
Office Equipment & Supplies (1.6%)
156,000 Xerox Corp. .................................................... 13,133,250
--------------
Oil -Exploration & Production (1.2%)
338,700 Canadian Natural Resources Ltd. (Canada)* ...................... 9,994,949
--------------
Oil Integrated -International (1.0%)
89,900 Amoco Corp. .................................................... 8,664,113
--------------
Publishing (2.9%)
445,400 Time Warner, Inc. .............................................. 24,135,113
--------------
Railroads (1.7%)
150,997 Burlington Northern Santa Fe Corp. ............................. 14,590,085
--------------
Retail -Specialty (3.7%)
600,850 Home Depot, Inc. ............................................... 31,319,306
--------------
Soap & Household Products (3.3%)
404,200 Procter & Gamble Co. ........................................... 27,915,063
--------------
Telecommunications (2.9%)
382,800 Ascend Communications, Inc.* ................................... 12,369,225
151,600 Lucent Technologies, Inc. ...................................... 12,336,450
--------------
24,705,675
--------------
Tobacco (2.6%)
515,800 Philip Morris Companies, Inc. .................................. 21,437,938
--------------
TOTAL COMMON STOCKS (Identified Cost $513,011,199) ............. 833,329,470
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
TCW/DW CORE EQUITY TRUST
PORTFOLIO OF INVESTMENTS September 30, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (0.3%)
REPURCHASE AGREEMENT
The Bank of New York
5.25% due 10/01/97
(dated 09/30/97; proceeds $2,403,617)(a)
$2,403 (Identified Cost $2,403,267) ................................... $2,403,267
-------------
TOTAL INVESTMENTS
(Identified Cost $515,414,466)(b) . 99.4% 835,732,737
OTHER ASSETS IN EXCESS OF
LIABILITIES ........................ 0.6 4,755,680
-------- -------------
NET ASSETS ......................... 100.0% $840,488,417
======== =============
</TABLE>
- ------------
* Non-income producing security.
(a) Collateralized by $2,305,251 U.S. Treasury Note 7.50% due 10/31/99
valued at $2,451,332.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$334,119,336 and the aggregate gross unrealized depreciation is
$13,801,065, resulting in net unrealized appreciation of
$320,318,271.
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
TCW/DW CORE EQUITY TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $515,414,466).......................... $835,732,737
Receivable for:
Investments sold....................................... 5,328,000
Shares of beneficial interest sold..................... 562,963
Dividends.............................................. 514,911
Prepaid expenses and other assets........................ 184,390
--------------
TOTAL ASSETS .......................................... $842,323,001
--------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased.............. 704,516
Plan of distribution fee............................... 471,945
Management fee ........................................ 374,452
Investment advisory fee................................ 249,635
Accrued expenses and other payables ..................... 34,036
--------------
TOTAL LIABILITIES...................................... 1,834,584
--------------
NET ASSETS............................................. $840,488,417
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital.......................................... $443,111,377
Net unrealized appreciation ............................. 320,318,271
Net investment loss...................................... (2,570,926)
Accumulated undistributed net realized gain.............. 79,629,695
--------------
NET ASSETS ............................................ $840,488,417
==============
CLASS A SHARES:
Net Assets............................................... $19,781
Shares Outstanding (unlimited authorized, $.01 par
value).................................................. 1,121
NET ASSET VALUE PER SHARE ............................. $17.65
==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ...... $18.63
==============
CLASS B SHARES:
Net Assets............................................... $840,330,312
Shares Outstanding (unlimited authorized, $.01 par
value).................................................. 47,640,662
NET ASSET VALUE PER SHARE ............................. $17.64
==============
CLASS C SHARES:
Net Assets............................................... $128,258
Shares Outstanding (unlimited authorized, $.01 par
value).................................................. 7,274
NET ASSET VALUE PER SHARE ............................. $17.63
==============
CLASS D SHARES:
Net Assets............................................... $10,066
Shares Outstanding (unlimited authorized, $.01 par
value).................................................. 570
NET ASSET VALUE PER SHARE ............................. $17.66
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
TCW/DW CORE EQUITY TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended September 30, 1997* (unaudited)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $17,747 foreign withholding
tax).............................................. $ 4,027,911
Interest........................................... 74,567
-------------
TOTAL INCOME..................................... 4,102,478
-------------
EXPENSES
Plan of distribution fee (Class B shares) ......... 2,744,816
Management fee .................................... 2,083,167
Investment advisory fee ........................... 1,388,778
Transfer agent fees and expenses................... 335,087
Shareholder reports and notices.................... 27,240
Custodian fees..................................... 22,474
Professional fees.................................. 22,171
Trustees' fees and expenses........................ 18,818
Registration fees.................................. 15,357
Organizational expenses............................ 6,681
Other.............................................. 8,815
-------------
TOTAL EXPENSES .................................. 6,673,404
-------------
NET INVESTMENT LOSS.............................. (2,570,926)
-------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain.................................. 79,731,203
Net change in unrealized appreciation.............. 107,209,341
-------------
NET GAIN......................................... 186,940,544
-------------
NET INCREASE....................................... $184,369,618
=============
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
TCW/DW CORE EQUITY TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 1997* MARCH 31, 1997
- ------------------------------------------------------ ------------------- --------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................................... $ (2,570,926) $ (5,793,842)
Net realized gain...................................... 79,731,203 90,999,031
Net change in unrealized appreciation ................. 107,209,341 (22,753,082)
------------------- --------------
NET INCREASE ........................................ 184,369,618 62,452,107
DISTRIBUTIONS TO SHAREHOLDERS FROM NET
REALIZED GAIN
Class B shares........................................ (59,461,770) (61,217,104)
Net decrease from transactions in shares of beneficial
interest.............................................. (11,947,461) (40,876,663)
------------------- --------------
NET INCREASE (DECREASE).............................. 112,960,387 (39,641,660)
NET ASSETS:
Beginning of period.................................... 727,528,030 767,169,690
------------------- --------------
END OF PERIOD
(Including a net investment loss of $2,570,926 and
$0, respectively)................................... $840,488,417 $727,528,030
=================== ==============
</TABLE>
- ------------
* Class A, Class C, and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
TCW/DW CORE EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited)
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.
On July 28, 1997, the Fund commenced offering three additional classes of
shares, with the then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.
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
the 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
51
<PAGE>
TCW/DW CORE EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited) continued
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.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. 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.
E. 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.
F. 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
for the full amount thereof, 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.
52
<PAGE>
TCW/DW CORE EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited) continued
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.
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. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily
and paid monthly at the following annual rates: (i) Class A -0.25% of the
average daily net assets of Class A; (ii) Class B -1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon
53
<PAGE>
TCW/DW CORE EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited) continued
which a contingent deferred sales charge has been imposed or waived; or (b)
the average daily net assets of Class B; and (iii) Class C -1.0% of the
average daily net assets of Class C. In the case of Class A shares, amounts
paid under the Plan are paid to the Distributor for services provided. In the
case of
Class B and Class C shares, amounts paid under the Plan are paid to the
Distributor for services provided and the expenses borne by it and others in
the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, the account executives of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Manager and Distributor, and others who engage in or support
distribution of the 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 these 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, in the case of Class B shares, to
compensate DWR and other selected broker-dealers for their opportunity costs
in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. 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 $20,200,651 at
September 30, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant
to the Plan in any calendar year in excess of 0.25% or 1.0% of the average
daily net assets of Class A or Class C, respectively, will not be reimbursed
by the Fund through payments in any subsequent year, except that expenses
representing a gross sales credit to account executives may be reimbursed in
the subsequent calendar year. For the period ended September 30, 1997, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the period ended September 30,
1997, it received contingent deferred sales charges from certain redemptions
of the Fund's Class B shares of $687,899 and received $524 in front-end sales
charges from sales of the Fund's Class A shares. The respective shareholders
pay such charges which are not an expense of the Fund.
54
<PAGE>
TCW/DW CORE EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited) continued
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the six months ended September 30, 1997
aggregated $133,456,965 and $212,730,152, respectively.
For the six months ended September 30, 1997, the Fund incurred $3,195 in
brokerage commissions with DWR for portfolio transactions executed on behalf
of the Fund.
For the period May 31, 1997 through September 30, 1997, the Fund incurred
brokerage commissions of $3,040 with Morgan Stanley & Co. Inc., an affiliate
of the Manager since May 31, 1997, for portfolio transactions executed on
behalf of the Fund.
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997
------------------------------ ------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold 1,121 $ 19,497 -- --
------------- --------------- ------------- ---------------
CLASS B SHARES
Sold 1,217,575 20,625,735 3,329,142 $ 52,606,423
Reinvestment of distributions 3,375,053 55,418,369 3,693,581 57,173,675
Redeemed (5,169,883) (88,150,072) (9,631,148) (150,656,761)
------------- --------------- ------------- ---------------
Net decrease -Class B (577,255) (12,105,968) (2,608,425) (40,876,663)
------------- --------------- ------------- ---------------
CLASS C SHARES*
Sold 8,398 148,798
Redeemed (1,124) (19,809) -- --
------------- --------------- ------------- ---------------
Net increase -Class C 7,274 128,989 -- --
------------- --------------- ------------- ---------------
CLASS D SHARES*
Sold 570 10,021 -- --
------------- --------------- ------------- ---------------
Net decrease in Fund (568,290) $(11,947,461) (2,608,425) $ (40,876,663)
============= =============== ============= ===============
</TABLE>
- ------------
* For the period July 28, 1997 (issue date) through September 30, 1997.
55
<PAGE>
TCW/DW CORE EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited) continued
7. SUBSEQUENT EVENT
On November 6, 1997, the Board of Trustees of the Fund recommended that the
Fund engage InterCapital to serve as the Fund's new investment manager.
InterCapital would be responsible for all of the services that are presently
being provided in accordance with the current management agreement between
the Fund and the Manager and the current investment advisory agreement
between the Fund and the Adviser. The fee paid to InterCapital would be five
basis points lower than the total aggregate fees paid to the Manager and the
Adviser.
Additionally, the Board recommended that InterCapital engage Morgan Stanley
Asset Management Inc. ("MSAM"), an affiliate of the Manager, as the Fund's
Sub-Adviser. In return for MSAM's services, InterCapital would pay MSAM 40%
of its compensation.
Both proposals are subject to the consent of the Fund's shareholders.
56
<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 SIX
FOR THE YEAR ENDED MARCH 31,
MONTHS ENDED
SEPTEMBER 30, 1997** ---------------------------------------------------------
++ 1997 1996 1995 1994
- ------------------------------------------ ---------------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $15.09 $15.09 $12.11 $12.10 $11.26
---------------------- ------------- ------------- ------------- -------------
Net investment loss........................ (0.05) (0.12) (0.11) (0.06) (0.06)
Net realized and unrealized gain........... 3.88 1.39 3.09 0.07 0.90
---------------------- ------------- ------------- ------------- -------------
Total from investment operations........... 3.83 1.27 2.98 0.01 0.84
---------------------- ------------- ------------- ------------- -------------
Less distributions from net realized gain (1.28) (1.27) -- -- --
---------------------- ------------- ------------- ------------- -------------
Net asset value, end of period............. $17.64 $15.09 $15.09 $12.11 $12.10
====================== ============= ============= ============= =============
TOTAL INVESTMENT RETURN+ .................. 26.02%(1) 8.31% 24.69% 0.08% 7.46%
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 1.63%(2) 1.73% 1.82% 1.96% 1.93%
Net investment loss........................ (0.05)%(2) (0.75)% (0.72)% (0.48)% (0.59)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ... $840,330 $727,528 $767,170 $697,350 $707,069
Portfolio turnover rate.................... 17%(1) 45% 48% 38% 35%
Average commission rate paid............... $0.0596 $0.0590 $0.0595 -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 29, 1992*
THROUGH
MARCH 31, 1993
- ------------------------------------------ --------------
<S> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 10.00
--------------
Net investment loss........................ (0.01)
Net realized and unrealized gain........... 1.27
--------------
Total from investment operations........... 1.26
--------------
Less distributions from net realized gain --
--------------
Net asset value, end of period............. $ 11.26
==============
TOTAL INVESTMENT RETURN+ .................. 12.60%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 2.07%(2)
Net investment loss........................ (0.14)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ... $486,829
Portfolio turnover rate.................... 26%(1)
Average commission rate paid............... --
</TABLE>
- ------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All
shares of the Fund held prior to that date have been designated Class
B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on
the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
TCW/DW CORE EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
- ---------------------------------------- ------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 17.58
------------------
Net realized and unrealized gain ....... 0.07
------------------
Net asset value, end of period .......... $ 17.65
==================
TOTAL INVESTMENT RETURN+ ................ 0.40%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 1.24%(2)
Net investment loss ..................... -- %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 20
Portfolio turnover rate ................. 17%(1)
Average commission rate paid ............ $0.0596
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 17.58
------------------
Net investment loss ..................... (0.03)
Net realized and unrealized gain ....... 0.08
------------------
Total from investment operations ....... 0.05
------------------
Net asset value, end of period .......... $ 17.63
==================
TOTAL INVESTMENT RETURN+ ................ 0.28%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 2.00%(2)
Net investment loss ..................... (0.03)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 128
Portfolio turnover rate ................. 17%(1)
Average commission rate paid ............ $0.0596
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on
the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
TCW/DW CORE EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
- ---------------------------------------- ------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $17.58
------------------
Net investment income ................... 0.01
Net realized and unrealized gain ....... 0.07
------------------
Total from investment operations ....... 0.08
------------------
Net asset value, end of period .......... $17.66
==================
TOTAL INVESTMENT RETURN+ ................ 0.46%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 0.97%(2)
Net investment income ................... 0.01%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 10
Portfolio turnover rate ................. 17%(1)
Average commission rate paid ............ $0.0596
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day
of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
APPENDIX
- -----------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
<TABLE>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations; i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate, and therefore not well safeguarded during
both good and bad times in the future. Uncertainty of position characterizes bonds
in this class.
B Bonds which are rated B generally lack characteristics of 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.
</TABLE>
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and a modifier 3 indicates that the issue ranks in the lower end 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
60
<PAGE>
Commercial Paper as well 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.
<TABLE>
<S> <C>
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and
differs from the highest-rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for debt in higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated "BB" has less near-term vulnerability to default than other speculative
grade debt. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate capacity
or willingness to pay interest and repay principal.
B Debt rated "B" has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to pay
interest and repay principal.
CCC Debt rated "CCC" has a current identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet timely
payments of interest and repayments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the capacity to pay
interest and repay principal.
61
<PAGE>
CC The rating "CC" is typically applied to debt subordinated to senior debt which is
assigned an actual or implied "CCC" rating.
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.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to
purchase or sell a security. The ratings are based upon current information
furnished by the issuer or obtained by S&P from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into
group categories, ranging from "A" for the highest quality obligations to "D"
for the lowest. Ratings are applicable to both taxable and tax-exempt
commercial paper. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the
designation 1, 2, and 3 to indicate the relative degree of safety.
<TABLE>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this
designation are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
</TABLE>
62
