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Filed Pursuant to Rule 497
Registration File No.: 333-39791
PROSPECTUS -- JANUARY 26, 1998
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TCW/DW Emerging Markets Opportunities Trust (the "Fund") is an open-end,
non-diversified management investment company, whose investment objective is
long-term capital appreciation through investment primarily in equity
securities of companies in emerging market countries. The Fund seeks to
achieve its investment objective by investing at least 65% of its total
assets in equity securities of companies in emerging market countries. There
is no assurance that the Fund's investment objective will be achieved. See
"Investment Objective and Policies." The Fund may invest up to 35% of its
total assets in high risk debt securities which are unrated or rated below
investment grade. Investments in emerging market countries involve certain
special risk factors and therefore may not be suitable for all investors.
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. Prior to the date of this prospectus
the Fund was organized as a closed-end investment company; all shares of the
Fund held prior to such date have been designated Class A shares. See "The
Fund and its Management" and "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 January 26, 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.
Table of Contents
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 5
Financial Highlights .................................................. 7
The Fund and its Management ........................................... 8
Investment Objective and Policies ..................................... 9
Risk Considerations ................................................. 11
Investment Restrictions ............................................... 20
Purchase of Fund Shares ............................................... 20
Shareholder Services .................................................. 30
Repurchases and Redemptions ........................................... 33
Dividends, Distributions and Taxes .................................... 34
Performance Information ............................................... 35
Additional Information ................................................ 35
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TCW/DW EMERGING MARKETS
OPPORTUNITIES TRUST
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
Dean Witter Distributors Inc.
Distributor
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PROSPECTUS SUMMARY
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<TABLE>
<CAPTION>
<S> <C>
The The Fund is organized as a trust, commonly known as a Massachusetts business trust, and is an open-end,
Fund non-diversified management investment company investing primarily in equity securities of companies in
emerging market countries.
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Shares Shares of beneficial interest with $0.01 par value (see page 35). The Fund offers four Classes of shares, each
Offered with a different combination of sales charges, ongoing fees and other features (see pages 20-29).
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Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened through EasyInvest
Purchase (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 concurrent
investments in Class D shares of the Fund and other multiple class funds for which Dean Witter Services
Company Inc. serves as manager and TCW Funds Management, Inc. serves as investment adviser will be aggregated.
The minimum subsequent investment is $100 (see page 20).
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Investment The investment objective of the Fund is long-term capital appreciation through investment primarily in equity
Objective securities of companies in emerging market countries.
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Manager Dean Witter Services Company Inc. (the "Manager"), a wholly-owned subsidiary of Dean Witter InterCapital Inc.
("InterCapital"), is the Fund's Manager. The Manager also serves as Manager to thirteen other investment
companies which are advised by TCW Funds Management, Inc. (the "TCW/DW Funds"). The Manager and InterCapital
serve in various investment management, advisory, management and administrative capacities to a total of 103
investment companies and other portfolios with assets of approximately $102.9 billion at December 31, 1997.
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Co-Advisers TCW Funds Management, Inc. ("TCW") and Morgan Stanley Asset Management Inc. ("MSAM"), an affiliate of
InterCapital (collectively, the "Co-Advisers") are the Fund's investment advisers. In addition to the Fund, TCW
serves as investment adviser to thirteen other TCW/DW Funds. As of December 31, 1997, TCW and its affiliates
had over $50 billion under management or committed to management in various fiduciary or advisory capacities,
primarily from institutional investors. MSAM serves as investment adviser to one other TCW/DW Fund. MSAM
conducts a worldwide investment advisory business. As of November 30, 1997, MSAM, together with its
institutional investment management affiliates, managed assets in various fiduciary or advisory capacities of
approximately $145.2 billion (see page 8.)
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Sub-Advisers TCW has appointed TCW London International, Limited and TCW Asia Limited as sub-advisers, to assist TCW in
performing its advisory functions.
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Management The Manager receives a monthly fee at the annual rate of 0.75% of daily net assets. The Co-Advisers
and Advisory collectively receive a monthly fee at the annual rate of 0.50% of daily net assets (see page 8).
Fees
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Distributor and Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution plan pursuant to Rule
Distribution 12b-1 under the Investment Company Act (the "12b-1 Plan") with respect to the distribution fees paid by the
Fee 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 20 and 28).
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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 20, 23 and 28). All
shares of the Fund held prior to January 26, 1998 have been designated Class A shares and are not subject to
any CDSC at the time of redemption.
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 average daily net assets of Class B.
Class B shares convert to Class A shares approximately ten years after the date of the original purchase (see
pages 20, 26 and 28).
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 20 and 28).
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 20 and 28).
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Dividends and Dividends from net investment income and distributions from net capital gains, if any, are paid at least
Capital Gains annually. The Fund may, however, determine to retain all or part of any net long-term capital gains in any year
Distributions for reinvestment. Dividends and capital gains distributions paid on shares of a Class are automatically
reinvested in additional shares of the same Class at net asset value unless the shareholder elects to receive
cash. Shares acquired by dividend and distribution reinvestment will not be subject to any sales charge or CDSC
(see pages 30 and 34).
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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 33).
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3
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Risk The net asset value of the Fund's shares will fluctuate with changes in the market value of the Fund's portfolio
Considerations securities. It should be recognized that investing in emerging market country securities includes certain risks
not typically associated with investing in securities of U.S. issuers, including (i) the risks associated with
international investments generally, such as fluctuations in foreign currency exchange rates, (ii) the risks
of investing in countries with smaller, less developed capital markets, such as limited liquidity, price
volatility, custodial settlement issues and restrictions on foreign investment, and (iii) the risks associated
with emerging country economies, including high levels of inflation, large amounts of debt and political and
social uncertainties, such as the risk of expropriation, nationalization or confiscation of the Fund's assets
or the imposition of restrictions on foreign investment or the repatriation of capital invested. In addition,
securities markets in emerging market countries are subject to non-uniform corporate disclosure standards and
governmental regulation which may lead to less publicly available and less reliable information concerning
issuers in emerging market countries than is generally the case for U.S. issuers (see page 12). The Fund may
invest in securities issued by foreign investment companies, which may result in additional costs to the
Fund. 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 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 (see page 16). The Fund may invest in lower rated
or unrated sovereign debt of emerging market countries or debt securities of issuers in emerging market
countries, which involves a high degree of risk (see page 13). The Fund also may engage in options and
futures transactions and swaps and may purchase securities on a when-issued, delayed delivery or "when,
as and if issued" basis, which may involve certain additional risks (see pages 11-19).
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</TABLE>
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The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
4
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The estimated expenses and fees set forth in the table
are based on the expenses and fees for the fiscal year ended January 31,
1997, as adjusted for changes resulting from open-ending the Fund and
implementing the distribution plan.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
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<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)
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Management and Advisory Fees ................................. 1.25% 1.25% 1.25% 1.25%
12b-1 Fees (5)(6)............................................. 0.25% 1.00% 1.00% None
Other Expenses ............................................... 0.44% 0.44% 0.44% 0.44%
Total Fund Operating Expenses (7)............................. 1.94% 2.69% 2.69% 1.69%
</TABLE>
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(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares"). Shares of
the Fund held prior to January 26, 1998 are not subject to a front-end
sales charge.
(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 shares of
the Fund held prior to January 26, 1998 and in certain other 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 B, Class C or Class D prior
to the date of this Prospectus. Accordingly, "Total Fund Operating
Expenses," as shown above with respect to those Classes, are based upon
the sum of 12b-1 Fees, Management and Advisory Fees and estimated
"Other Expenses." "Total Fund Operating Expenses" of Class A shares are
based upon the sum of 12b-1 Fees applicable to the Class A shares,
Management and Advisory Fees and estimated "Other Expenses" based on
actual expenses for the fiscal year ended January 31, 1997 as adjusted
for estimated incremental expenses in connection with open-ending the
Fund.
5
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<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
Class A .......................................................... $71 $110 $152 $267
Class B .......................................................... $77 $114 $162 $302
Class C........................................................... $37 $ 84 $142 $302
Class D .......................................................... $17 $ 53 $ 92 $200
You would pay the following expenses on the same $1,000 investment
assuming no redemption at the end of the period:
Class A .......................................................... $71 $110 $152 $267
Class B .......................................................... $27 $ 84 $142 $302
Class C .......................................................... $27 $ 84 $142 $302
Class D .......................................................... $17 $ 53 $ 92 $200
</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 "Repurchases and Redemptions."
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
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FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each of the periods through January 31, 1997 have been
audited by Price Waterhouse LLP, independent accountants. The information for
the six-month period ended July 31, 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.
The financial information below reflects the Fund's performance as a
closed-end investment company. Accordingly, the financial information below
may not be indicative of the Fund's performance as an open-end investment
company. Shares of the Fund existing at the time of its conversion to an
open-end investment company have been classified as Class A shares. Class B,
Class C and Class D shares were not offered prior to the date of this
prospectus; accordingly, financial information for such shares is not set
forth below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD
FOR THE SIX JANUARY 31, MARCH 30, 1994*
MONTHS ENDED ---------------------- THROUGH
JULY 31, 1997 1997 1996 JANUARY 31, 1995
--------------- ---------- ---------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............. $ 14.70 $ 13.07 $11.18 $ 14.02
--------------- ---------- ---------- ----------------
Net investment income............................. 0.08 0.02 0.04 0.11
Net realized and unrealized gain (loss)........... 2.73 1.65 1.73 (2.89)
--------------- ---------- ---------- ----------------
Total from investment operations.................. 2.81 1.67 1.77 (2.78)
--------------- ---------- ---------- ----------------
Offering costs charged against capital............ -- -- -- (0.02)
--------------- ---------- ---------- ----------------
Less dividends and distributions from:
Net investment income........................... (0.02 ) (0.05 ) (0.02) (0.09)
Net realized gain............................... -- -- -- (0.01)
--------------- ---------- ---------- ----------------
Total dividends and distributions................. (0.02 ) (0.05 ) (0.02) (0.10)
--------------- ---------- ---------- ----------------
Anti-dilutive effect of acquiring treasury
shares........................................... -- 0.01 0.14 0.06
--------------- ---------- ---------- ----------------
Net asset value, end of period ................... $ 17.49 $ 14.70 $13.07 $ 11.18
=============== ========== ========== ================
Market value, end of period....................... $15.813 $13.125 $12.25 $ 9.875
=============== ========== ========== ================
TOTAL INVESTMENT RETURN+.......................... 20.62 %(1) 7.59 % 24.28% (33.52)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 1.66 %(2) 1.72 % 1.69% 1.73%(2)
Net investment income............................. 1.01 %(2) 0.12 % 0.28% 0.94%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $363,058 $305,308 $273,172 $254,358
Portfolio turnover rate........................... 38 %(1) 66 % 66% 61%(1)
Average commission rate paid...................... $0.0008 $0.0012 -- --
</TABLE>
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* Commencement of operations.
+ Total investment return is based upon the current market value on the
last day of each period reported. Dividends and distributions are
assumed to be reinvested at the prices obtained under the Trust's
dividend reinvestment plan. Total investment return does not reflect
brokerage commissions.
(1) Not annualized.
(2) Annualized.
7
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THE FUND AND ITS MANAGEMENT
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TCW/DW Emerging Markets Opportunities Trust (the "Fund") is an open-end,
non-diversified management investment company. The Fund is a trust of the
type commonly known as a "Massachusetts business trust" and was organized
under the laws of Massachusetts on December 22, 1993 as a closed-end
non-diversified investment company. On July 22, 1997, the shareholders of the
Fund voted to, among other things, convert the Fund to an open-end investment
company. Effective as of the date of this Prospectus, the Fund converted to
an open-end investment company.
Dean Witter Services Company Inc. (the "Manager"), whose address is Two
World Trade Center, New York, New York 10048, is the Fund's Manager. The
Manager is a wholly-owned subsidiary of Dean Witter InterCapital Inc.
("InterCapital"). InterCapital is a wholly-owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co., a preeminent global financial services
firm that maintains leading market positions in each of its three primary
businesses--securities, asset management and credit services.
The Manager acts as manager to thirteen other TCW/DW Funds. The Manager
and InterCapital serve in various investment management, advisory, management
and administrative capacities to a total of 103 investment companies, 29 of
which are listed on the New York Stock Exchange, with combined assets of
approximately $98.9 billion as of December 31, 1997. InterCapital also
manages and advises portfolios of pension plans, other institutions and
individuals which aggregated approximately $4 billion at such date.
The Fund has retained the Manager to manage its business affairs,
supervise its overall day-to-day operations (other than providing investment
advice) and provide all administrative services.
TCW Funds Management, Inc. ("TCW"), whose address is 865 South Figueroa
Street, Suite 1800, Los Angeles, California 90017, and Morgan Stanley Asset
Management Inc. ("MSAM"), whose address is 1221 Avenue of the Americas, are
the Fund's investment advisers (the "Co-Advisers").
TCW was organized in 1987 as a wholly-owned subsidiary of The TCW Group,
Inc. (the "TCW Group"), whose subsidiaries, including Trust Company of the
West and TCW Asset Management Company, provide a variety of trust, investment
management and investment advisory services. Robert A. Day, who is Chairman
of the Board of Directors of the TCW Group, may be deemed to be a control
person of TCW by virtue of the aggregate ownership by Mr. Day and his family
of more than 25% of the outstanding voting stock of the TCW Group. TCW serves
as investment adviser to thirteen other TCW/DW Funds in addition to the Fund.
TCW has entered into two sub-advisory agreements with two other wholly-owned
subsidiaries of TCW Group, TCW London International, Limited ("TCW London")
and TCW Asia Limited ("TCW Asia") to assist in performing its advisory
functions. The address of TCW London is 27 Albemarle Street, London W1X 3FA
and the address of TCW Asia is One Pacific Place, 88 Queensway, Hong Kong. As
of December 31, 1997, TCW and its affiliated companies had approximately $50
billion under management or committed to management, primarily from
institutional investors.
MSAM, an affiliate of InterCapital, is a wholly-owned subsidiary of MSDWD.
MSAM, together with its institutional investment management affiliates
manages, as of November 30, 1997, assets in various fiduciary or advisory
capacities of approximately $145.2 billion primarily for U.S. corporate and
public employees benefit plans, investment companies, endowments, foundations
and wealthy individuals.
The Fund has retained the Co-Advisers to invest the Fund's assets. Prior
to the date of this Prospectus, TCW was the sole investment adviser of the
Fund. In November, 1997, TCW indicated its intention to manage only a portion
of the Fund's assets. InterCapital, with the concurrence of TCW, recommended
to the Fund's Board of Trustees that MSAM be appointed as a co-investment
adviser. Under the co-advisory arrangement, TCW and MSAM do not manage the
Fund's total assets jointly; instead, each co-adviser is responsible only for
investment of its
8
<PAGE>
portion of the Fund's assets. Thus, securities will be purchased and sold by
TCW and MSAM based on each co-adviser's independent portfolio management
decisions, which could result in purchases and sales, and concomitant
brokerage commissions, at times when they would not occur in a portfolio
managed by a single adviser. The Board of Trustees recommended that new
Co-Advisory Agreements with TCW and MSAM be submitted to shareholders of the
Fund for approval. The shareholders approved the new Co-Advisory Agreements
with TCW and MSAM on January 12, 1998 and those agreements became effective
as of the date of this Prospectus.
The Fund's Trustees review the various services provided by the Manager
and the Co-Advisers to ensure that the Fund's general investment policies and
programs are being properly carried out and that administrative services are
being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Manager, the Fund pays the
Manager monthly compensation calculated daily by applying the annual rate of
0.75% to the Fund's net assets. As compensation for its investment advisory
services, the Fund pays the Co-Advisers collectively monthly compensation
calculated daily by applying an annual rate of 0.50% to the Fund's net
assets. For the fiscal year ended January 31, 1997, the Fund accrued total
compensation to the Manager and TCW amounting to 0.75% and 0.50%,
respectively, of the Fund's average daily net assets. During that period, the
Fund's expenses amounted to 1.72% of the Fund's average daily net assets.The
expenses of the Fund include: the fee of the Investment Manager; the fee
pursuant to the Plan of Distribution (see "Purchase of Fund Shares"); taxes;
transfer agent, custodian and auditing fees; certain legal fees; and printing
and other expenses relating to the Fund's operations which are not expressly
assumed by the Investment Manager under its Investment Management Agreement
with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The Fund's investment objective is long-term capital appreciation through
investment primarily in equity securities of companies in emerging market
countries. This objective is fundamental and may not be changed without
shareholder approval. There is no assurance that the objective will be
achieved. The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its total assets in equity
securities of companies in emerging market countries.
For the purpose of this Prospectus, an "emerging market country" is any
country that is considered an emerging or developing country by the
International Bank of Reconstruction and Development (the "World Bank"), as
well as Hong Kong, Israel and Singapore. Presently, there are approximately
158 countries considered to be emerging market countries. These countries
generally include every nation in the world except the United States, Canada,
Japan, Australia, New Zealand, most nations located in Western Europe and
certain other nations located in Asia. A list of the countries not falling
within the World Bank definition of an emerging market country is set forth
in the Statement of Additional Information.
The Fund will invest primarily in equity securities of companies that: (i)
are organized under the laws of emerging market countries; (ii) regardless of
where organized, derive at least 50% of their revenues or earnings from goods
produced or sold, investments made, or services performed in emerging market
countries; (iii) maintain at least 50% of their assets in emerging market
countries; or (iv) have securities which are traded principally on a stock
exchange in an emerging market country. Under normal circumstances, the Fund
will invest in at least three emerging market countries. Substantially all of
the Fund's investments may be denominated in currencies other than the U.S.
dollar.
The equity securities in which the Fund may invest include common and
preferred stock (including
9
<PAGE>
convertible preferred stock), bonds, notes and debentures convertible into
common or preferred stock, stock purchase warrants and rights, equity
interests in trusts and partnerships and American, Global or other types of
Depository Receipts. These securities may be listed on securities exchanges,
traded in various over-the-counter markets or have no organized market.
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).
The Fund may invest up to 35% of its total assets in (i) non-convertible
fixed-income securities of government or corporate issuers located in
emerging market countries; (ii) equity and fixed-income securities of issuers
in developed countries; and (iii) cash and money market instruments.
The fixed-income securities (including convertible securities described
above) of government or corporate issuers located in emerging market
countries, the United States or other developed countries in which the Fund
may invest may consist of fixed-income securities that are unrated or rated
Ba or lower by Moody's Investors Service, Inc. ("Moody's") or BB or lower by
Standard & Poor's Corporation ("S&P"), including zero coupon securities.
There is no limit other than the overall 35% limitation described above on
the percentage of the Fund's total assets which may be invested in
fixed-income securities which are unrated or rated below investment grade.
Securities below investment grade are the equivalent of high yield, high risk
bonds, commonly known as "junk bonds." Fixed-income securities rated Ba or
lower by Moody's or BB or lower by S&P are considered to be speculative
investments with respect to the ability of the issuer to pay interest and
repay principal. Furthermore, since the Fund does not have any minimum
quality rating standard for such investments, the Fund may invest in
fixed-income securities rated as low as C by Moody's or as low as D by S&P.
These securities are regarded as having extremely poor prospects of ever
attaining any real investment standing, to have a current identifiable
vulnerability to default and/or to be in default or not current in the
payment of interest or principal. A description of fixed-income securities
ratings (including convertible securities) is contained in the Appendix to
the Statement of Additional Information. See "Risk Considerations" below for
a further discussion of the characteristics and risks associated with high
yield, lower rated fixed-income securities.
The Fund is subject to no restrictions on the maturities of the
fixed-income securities it holds. The value of the fixed-income securities
held by the Fund generally will vary inversely to changes in prevailing
interest rates. The Fund's investments in fixed-rated debt securities with
longer terms to maturity are subject to greater volatility than the Fund's
investments in shorter-term obligations. Debt obligations acquired at a
discount are subject to greater fluctuations of market value in response to
changing interest rates than debt obligations of comparable maturities which
are not subject to such discount.
The Fund's investments in debt obligations of government issuers in
emerging market countries will consist of: (i) debt securities or obligations
issued or guaranteed by governments, governmental agencies or
instrumentalities and political subdivisions located in emerging market
countries (including participations in loans between governments and
financial institutions), (ii) debt securities or obligations issued by
government owned, controlled or sponsored entities located in emerging market
countries, and (iii) interests in issuers organized and operated for the
purpose of restructuring the investment characteristics of instruments issued
by any of the entities described above ("Sovereign Debt"). The Sovereign Debt
held by the Fund will take the form of bonds, notes, bills, debentures,
warrants, short-term paper, loan participations, loan assignments and
securities or
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interests issued by entities organized and operated for the purpose of
restructuring the investment characteristics of such Sovereign Debt. This
Sovereign Debt may include a particular type of debt security known as "Brady
Bonds," which were issued under the "Brady Plan" in exchange for loans and
cash in connection with debt restructurings in various emerging market
countries in 1990. Certain Sovereign Debt held by the Fund will not be traded
on any securities exchange. See "Risk Considerations."
U.S. and non-U.S. corporate fixed-income securities in which the Fund may
invest include debt securities, convertible securities and preferred stocks
of corporate issuers.
The Co-Advisers attempt to minimize the speculative risks associated with
investments in lower rated securities through credit analysis, and by
carefully monitoring current trends in interest rates, political developments
and other factors. Nonetheless, investors should carefully review the
investment objective and policies of the Fund and consider their ability to
assume the investment risks involved before making an investment.
The money market instruments in which the Fund may invest are securities
issued or guaranteed by the U.S. Government (Treasury bills, notes and bonds,
including zero coupon securities); obligations of banks subject to regulation
by the U.S. Government and having total assets of $1 billion or more;
Eurodollar certificates of deposit; obligations of savings banks and savings
and loan associations having total assets of $1 billion or more; fully
insured certificates of deposits; and commercial paper rated within the two
highest grades by Moody's or S&P or, if not rated, issued by an issuer having
an outstanding long-term debt issue rated at least Aa by Moody's or AA by
S&P.
During temporary defensive periods when, in the opinion of either of the
Co-Advisers, market conditions or economic, financial or political conditions
warrant reductions of some or all of the Fund's investments in equity
securities of emerging market countries or other securities in which the Fund
may invest in accordance with its investment objective and policies, the Fund
may adopt a temporary "defensive" posture in which any amount of its total
assets may be invested in U.S. Government securities, short-term high quality
money market instruments or cash.
Investment in Other Investment Vehicles. Under the Investment Company Act
of 1940, as amended (the "Investment Company Act"), the Fund generally may
invest up to 10% of its total assets in the aggregate in shares of other
investment companies (including, to the extent permitted by the Investment
Company Act, those which are advised by the Manager, the Co-Advisers or their
affiliates) and up to 5% of its total assets in any one investment company,
as long as that investment does not represent more than 3% of the voting
stock of the acquired investment company at the time such shares are
purchased. As stated above, investment in other investment companies or
vehicles may be the sole or most practical means by which the Fund can
participate in certain emerging country securities markets. Such investment
may involve the payment of substantial premiums above the value of such
issuers' portfolio securities, and is subject to the limitations described
above and market availability. There can be no assurance that vehicles or
funds for investing in certain emerging market countries will be available
for investment. In addition, special tax considerations may apply. The Fund
does not intend to invest in such vehicles or funds unless, in the judgment
of the Co-Advisers, the potential benefits of such investment justify the
payment of any applicable premium or sales charge. As a shareholder in an
investment company, the Fund would bear its ratable share of that investment
company's expenses, including its advisory and administration fees. At the
same time the Fund would continue to pay its own management and advisory fees
and other expenses, as a result of which the Fund and its shareholders in
effect will be absorbing duplicate levels of advisory fees with respect to
investments in such other investment companies.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in
the market value of the Fund's securities. The market value of the Fund's
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portfolio securities will increase or decrease due to a variety of economic,
market and political factors which cannot be predicted.
Foreign Securities. Investors should carefully consider the risks of
investing in securities of foreign issuers and securities denominated in
non-U.S. currencies. Fluctuations in the relative rates of exchange between
the currencies of different nations will affect the value of the Fund's
investments. 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.
See the Statement of Additional Information for a discussion of additional
risk factors.
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.
In addition, many of the currencies of emerging market countries have
experienced steady devaluations relative to the U.S. dollar, and major
devaluations have historically occurred in certain countries. Any
devaluations in the currencies in which the Fund's portfolio securities are
denominated may have a detrimental impact on the Fund.
Some emerging market countries also may have managed currencies which are
not free floating against the U.S. dollar. In addition, there is a risk that
certain emerging market countries may restrict the free conversion of their
currencies into other currencies. Further, certain emerging market currencies
may not be internationally traded.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer
of Fund assets and any effects of foreign social, economic or political
instability. Political and economic developments in emerging market countries
may have profound effects upon the value of the Fund's portfolio. In the
event of expropriation, nationalization or other complication, the Fund could
lose its entire investment in any one country. In addition, individual
emerging market countries may place restrictions on the ability of foreign
entities such as the Fund to invest in particular segments of the local
economies.
Companies in emerging market countries 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, companies in emerging
market countries are not subject to uniform accounting, auditing and
financial reporting standards and requirements comparable to those applicable
to U.S. companies. Also, certain emerging market countries may impose
unusually high withholding taxes on dividends payable to the Fund, thereby
effectively reducing the Fund's investment income.
The securities markets of emerging market countries are substantially
smaller, less developed, less liquid and more volatile than the major
securities markets in the United States. The limited size of many emerging
market securities markets and limited trading volume in issuers compared to
volume of trading in U.S. securities could cause prices to be erratic for
reasons apart from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly influenced by
traders who control large positions. Adverse publicity and investors'
perceptions, whether or not based on fundamental analysis, may decrease the
value and liquidity of portfolio securities, especially in these markets.
In addition, exchanges and broker-dealers in emerging market countries are
generally subject to less government and exchange scrutiny and regulation
than their U.S. counterparts. Brokerage commissions, dealer concessions,
custodial expenses and other transaction costs may be higher in foreign
markets than in the U.S. Thus, the Fund's operating expenses are expected to
be higher than those of investment com-
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panies investing primarily in domestic or other more established market
regions. Also, differences in clearance and settlement procedures on foreign
markets may occasion delays in settlements of Fund trades effected in such
markets. Inability to dispose of portfolio securities due to settlement
delays could result in losses to the Fund due to subsequent declines in value
of such securities and the inability of the Fund to make intended security
purchases due to settlement problems could result in a failure of the Fund to
make potentially advantageous investments. In addition, certain adverse tax
consequences of the Fund's investments in passive foreign investment
companies are discussed below under "Dividends, Distributions and Taxes."
Most emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have very
negative effects on the economies and securities markets of certain emerging
market countries.
The Fund may not invest more than 15% of its net assets in illiquid
securities. The Fund will treat any emerging market securities that are
subject to restrictions on repatriation for more than seven days, as well as
any securities issued in connection with emerging market debt conversion
programs that are restricted as to remittance of invested capital or profits,
as illiquid securities for purposes of this limitation. The Fund will also
treat repurchase agreements with maturities in excess of seven days as being
illiquid for this purpose.
Debt Securities. Because of the special nature of the Fund's permitted
investments in lower rated convertible and debt securities, each Co-Adviser
must take account of certain special considerations in assessing the risks
associated with such investments. The prices of lower rated securities have
been found to be less sensitive to changes in prevailing interest rates than
higher rated investments, but are likely to be more sensitive to adverse
economic changes or individual corporate developments. During an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress which would adversely affect their
ability to service their principal and interest payment obligations, to meet
their projected business goals or to obtain additional financing. If the
issuer of a fixed-income security owned by the Fund defaults, the Fund may
incur additional expenses to seek recovery. In addition, periods of economic
uncertainty and change can be expected to result in an increased volatility
of market prices of lower rated securities and a corresponding volatility in
the net asset value of a share of the Fund.
Certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times certain emerging market
countries have declared moratoria on the payment of principal and/or interest
on external debt. Trading in Sovereign Debt involves a high degree of risk,
since the governmental entity that controls the repayment of Sovereign Debt
may not be willing or able to repay the principal and/or interest of such
debt obligations when it becomes due, due to factors such as debt service
burden, political constraints, cash flow situation and other national
economic factors. As a result, emerging market governments may default on
their Sovereign Debt, which may require holders of such Sovereign Debt to
participate in debt rescheduling or additional lending to defaulting
governments. There is no bankruptcy proceeding by which defaulted Sovereign
Debt may be collected in whole or in part.
The risks of other investment techniques which may be utilized by the Fund
are described under "Interest Rate Transactions," "Forward Foreign Currency
Exchange Contracts," "Options and Futures Transactions," "Risks of Options
and Futures Transactions," "Short Sales" and "Other Investment Policies"
below.
Interest Rate Transactions. Among the hedging techniques into which the
Fund may enter are interest rate swaps and the purchase or sale of interest
rate caps and floors. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or
portion of its portfolio as a duration management technique or to protect
against any increase in the price of securities the Fund
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anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment. The Fund will
not sell interest rate caps or floors that it does not own. Interest rate
swaps involve the exchange by the Fund with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments with respect to a notional amount of
principal. The purchase of an interest rate cap entitles the purchaser, to
the extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor.
The Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or its liabilities, and will usually enter into interest rate swaps on
a net basis, i.e., the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payment rates. The Fund will accrue the net amount of the excess, if any, of
the Fund's obligations over its entitlements with respect to each interest
rate swap on a daily basis and will segregate with a custodian an amount of
cash or liquid securities having an aggregate net asset value at least equal
to the accrued excess. The Fund will not enter into any interest rate swap,
cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in the highest
rating category of at least one nationally recognized rating organization at
the time of entering into such transactions. If there is a default by the
other party to such a transaction, the Fund will have contractual remedies
pursuant to the agreements related to the transaction. The swap market has
grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. Caps and floors are more recent innovations
for which standardized documentation has not yet been developed and,
accordingly, they are less liquid than swaps.
Forward Foreign Currency Exchange Contracts. To hedge against adverse
price movements in the securities held in its portfolio and the currencies in
which they are denominated (as well as in the securities it might wish to
purchase and their denominated currencies) the Fund may engage in
transactions in forward foreign currency contracts.
A forward foreign currency exchange contract, ("forward contract")
involves an obligation to purchase or sell a currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. The Fund may enter
into forward contracts as a hedge against fluctuations in future foreign
exchange rates.
Currently, only a limited market, if any, exists for hedging transactions
relating to currencies in most emerging markets or to securities of issuers
domiciled or principally engaged in business in emerging markets. This may
limit the Fund's ability to effectively hedge its investments in emerging
markets. Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. Such transactions also limit
the opportunity for gain if the value of the hedged currencies should rise.
In addition, it may not be possible for the Fund to hedge against a
devaluation that is so generally anticipated that the Fund is not able to
contract to sell the currency at a price above the devaluation level it
anticipates.
If the Fund enters into forward contract transactions and the currency in
which the Fund's portfolio securities (or anticipated portfolio securities)
are denominated rises in value with respect to the currency which is being
purchased (or sold), then the Fund will have realized fewer gains than had
the Fund not entered into the forward contracts. Moreover, the precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible, since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into
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and the date it matures. The Fund is not required to enter into such
transactions with regard to its foreign currency-denominated securities and
will not do so unless deemed appropriate by the applicable Co-Adviser.
Options and Futures Transactions. The Fund may purchase and sell (write)
call and put options on portfolio securities which are denominated in either
U.S. dollars or foreign currencies and on the U.S. dollar and foreign
currencies, which are or may in the future be listed on several U.S. and
foreign securities exchanges or are written in over-the-counter transactions
("OTC options"). OTC options are purchased from or sold (written) to dealers
or financial institutions which have entered into direct agreements with the
Fund.
The Fund is permitted to write covered call options on portfolio
securities and the U.S. dollar and foreign currencies, without limit, in
order to hedge against the decline in the value of a security or currency in
which such security is denominated and to close out long call option
positions. The Fund may write covered put options, under which the Fund
incurs an obligation to buy the security (or currency) underlying the option
from the purchaser of the put at the option's exercise price at any time
during the option period, at the purchaser's election. The aggregate value of
the obligation underlying the puts determined as of the date the options are
sold will not exceed 50% of the Fund's net assets.
The Fund may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Fund may purchase call options to
close out a covered call position or to protect against an increase in the
price of a security it anticipates purchasing or, in the case of call options
on a foreign currency, to hedge against an adverse exchange rate change of
the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The Fund
may purchase put options on securities which it holds in its portfolio only
to protect itself against a decline in the value of the security. The Fund
may also purchase put options to close out written put positions in a manner
similar to call option closing purchase transactions. There are no other
limits on the Fund's ability to purchase call and put options.
The Fund may purchase and sell futures contracts that are currently
traded, or may in the future be traded, on U.S. and foreign commodity
exchanges underlying portfolio securities, U.S. Treasury bonds, notes and
bills and/or any other non-U.S. fixed-income security ("interest rate"
futures) on foreign currencies ("currency" futures) and on such indexes of
U.S. or foreign equity or fixed-income securities as may exist or come into
being ("index" futures). The Fund may purchase or sell interest rate futures
contracts for the purpose of hedging some or all of the value of its
portfolio securities (or anticipated portfolio securities) against changes in
prevailing interest rates. The Fund may purchase or sell index futures
contracts for the purpose of hedging some or all of its portfolio (or
anticipated portfolio) securities against changes in their prices (or the
currency in which they are denominated.) As stated above, currently only a
limited market exists for options and futures transactions relating to
emerging market currencies or issuers. As a futures contract purchaser, the
Fund incurs an obligation to take delivery of a specified amount of the
obligation underlying the contract at a specified time in the future for a
specified price. As a seller of a futures contract, the Fund incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
The Fund also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any
such futures, options or products as may be developed, to the extent
consistent with its investment objective and applicable regulatory
requirements.
Risks of Options and Futures Transactions. The Fund may close out its
position as writer of an option,
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<PAGE>
or as a buyer or seller of a futures contract, only if a liquid secondary
market exists for options or futures contracts of that series. There is no
assurance that such a market will exist, particularly in the case of OTC
options, as such options may generally only be closed out by entering into a
closing purchase transaction with the purchasing dealer. Also, exchanges may
limit the amount by which the price of many futures contracts may move on any
day. If the price moves equal to the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit
moves have ceased.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk is that the Adviser could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For
example, if the Fund sold futures contracts for the sale of securities in
anticipation of an increase in interest rates, and then interest rates went
down instead, causing bond prices to rise, the Fund would lose money on the
sale. Another risk which will arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby
the futures contract prices) may correlate imperfectly with the behavior of
the U.S. dollar cash prices of the Fund's portfolio securities and their
denominated currencies. See the Statement of Additional Information for a
further discussion of risks.
Short Sales. The Fund may make short sales of securities, consistent with
applicable legal requirements. A short sale is a transaction in which the
Fund sells a security it does not own in anticipation that the market price
of that security will decline. The Fund expects to make short sales both as a
form of hedging to offset potential declines in long positions in similar
securities and in order to maintain portfolio flexibility.
When the Fund makes a short sale, it must borrow the security sold short
and deliver it to the broker-dealer through which it made the short sale as
collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed
securities.
The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. Government
securities or other high grade liquid securities similar to those borrowed.
The Fund will also be required to deposit similar collateral with its
custodian to the extent, if any, necessary so that the value of both
collateral deposits in the aggregate is at all times equal to at least 100%
of the current market value of the security sold short. Depending on
arrangements made with the broker-dealer from which it borrowed the security
regarding payment over of any payments received by the Fund on such security,
the Fund may not receive any payments (including interest) on its collateral
deposited with such broker-dealer.
If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
gain. Any gain will be decreased, and any loss increased, by the transaction
costs described above. Although the Fund's gain is limited to the price at
which it sold the security short, its potential loss is theoretically
unlimited.
The Fund will not make a short sale if, after giving effect to such sale,
the market value of all securities sold short exceeds 25% of the value of its
total assets or the Fund's aggregate short sales of a particular class of
securities exceeds 25% of the outstanding securities of that class. The Fund
may also make short sales "against the box" without respect to such
limitations. In this type of short sale, at the time of the sale, the Fund
owns or has the immediate and unconditional right to acquire at no additional
cost the identical security.
Year 2000. The management services provided to the Fund by the Manager,
the advisory services provided to the Fund by the Co-Advisers, and the
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services provided by the Distributor and the Transfer Agent to shareholders,
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 1980, 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 account services. The Manager, each Co-Adviser, the
Distributor and the Transfer Agent have been actively working on necessary
changes to their own computer systems to deal with 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
noncomplying computer systems will not impair their services at that time.
OTHER INVESTMENT POLICIES
Non-Diversified Status. The Fund is classified as a non-diversified
investment company under the Investment Company Act, and as such is not
limited by the Investment Company 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 obligations 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.
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.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of the commitment.
There is no overall limit on the percentage of the Fund's assets which may be
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis may increase the volatility of the Fund's net asset
value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. There is no overall limit on
the percentage of the Fund's assets
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which may be committed to the purchase of securities on a "when, as and if
issued" basis. An increase in the percentage of the Fund's assets committed
to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value.
Rights and Warrants. The Fund may acquire rights and/or warrants which are
attached to other securities in its portfolio, or which are issued as a
distribution by the issuer of a security held in its portfolio. Rights and/or
warrants are, in effect, options to purchase equity securities at a specific
price, generally valid for a specific period of time, and have no voting
rights, pay no dividends and have no rights with respect to the corporation
issuing them.
Securities Receipts. The Fund may also invest in securities of foreign
issuers in the form of American Depository Receipts (ADRs), European
Depository Receipts (EDRs), Global Depositary Receipts (GDRs) or other
similar securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically
issued by a United States bank or trust company evidencing ownership of the
underlying securities. EDRs are European receipts evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets and EDRs, in bearer form, are designed for
use in European securities markets.
Loan Participations and Assignments. The Fund may invest in fixed rate and
floating rate loans ("Loans") arranged through private negotiations between
an issuer of sovereign debt obligations and one or more financial
institutions ("Lenders"). The Fund's investments in Loans are expected in
most instances to be in the form of participation in Loans ("Participations")
and assignments of all or a portion of Loans ("Assignments") from third
parties. The Fund will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling
the Participation and only upon receipt by the Lender of the payments from
the borrower. In the event of the insolvency of the Lender selling a
Participation, the Fund may be treated as a general creditor of the Lender
and may not benefit from any set-off between the Lender and the borrower.
Certain Participations may be structured in a manner designed to avoid
purchasers of Participations being subject to the credit risk of the Lender
with respect to the Participation. Even under such a structure, in the event
of the Lender's insolvency, the Lender's servicing of the Participation may
be delayed and the assignability of the Participation may be impaired. The
Fund will acquire Participations only if the Lender interpositioned between
the Fund and the borrower is determined by the Co-Adviser to be creditworthy.
When the Fund purchases Assignments from Lenders it will acquire direct
rights against the borrower on the Loan. However, because Assignments are
arranged through private negotiations between potential assignees and
potential assignors, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those
held by the assigning Lender. Because there is no liquid market for such
securities, the Fund anticipates that such securities could be sold only to a
limited number of institutional investors. The lack of a liquid secondary
market may have an adverse impact on the value of such securities and the
Fund's ability to dispose of particular Assignments or Participations when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the
borrowers. The lack of a liquid secondary market for Assignments and
Participations also may make it more difficult for the Fund to assign a value
to these securities for purposes of valuing the Fund's portfolio and
calculating its net asset value.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at
any time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account
pursuant to applicable regulations and that are equal to at least the market
18
<PAGE>
value, determined daily, of the loaned securities. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans of portfolio securities will only be made to
firms deemed by the Adviser to be creditworthy and when the income which can
be earned from such loans justifies the attendant risks. The Fund will not
under any circumstances lend more than 25% of the value of its total assets.
Private Placements. The Fund may invest up to 15% of its net 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.
Rule 144A under the Securities Act permits the Fund to sell restricted
securities to qualified institutional buyers without limitation. The Adviser,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by
the Fund. If a restricted security is determined to be "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.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by each Co-Adviser acting
independently, each with a view to achieving the Fund's investment objective.
Shaun C.K. Chan, Managing Director of TCW Asia Ltd., Terence F. Mahony,
Managing Director of TCW, and Michael P. Reilly, Managing Director of TCW,
are the primary portfolio managers of TCW for the Fund and Madhav Dhar,
Managing Director of MSAM and Morgan Stanley & Co. ("Morgan Stanley"), and
Robert L. Meyer, Managing Director of MSAM and Morgan Stanley, are primary
portfolio managers of MSAM for the Fund. Mr. Chan has been a portfolio
manager of the Fund since 1993, prior to which time he was Director of
Wardley Investment Services (Hong Kong) Ltd. Mr. Mahony has been a primary
portfolio manager of the Fund since July, 1996 and has been a portfolio
manager with TCW Asia Ltd. since April, 1996, prior to which time he was
Chief Investment Officer for Global Emerging Markets at HSBC Asset Management
(September 1993-April 1996) and prior thereto was a Director at Baring Asset
Management. Mr. Reilly has been a primary portfolio manager of the Fund since
December, 1994 and has been a portfolio manager with affiliates of the TCW
Group for over five years. Madhav Dhar has been with MSAM since 1984. He is a
member of MSAM's executive committee, head of MSAM's emerging markets group
and chief investment officer of MSAM's global emerging market equity
portfolios. Robert L. Meyer has been with MSAM since 1989. He is a co-manager
of MSAM's emerging markets group and head of MSAM's Latin American team.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Co-Advisers will 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 Manager and others
regarding economic developments and interest rate trends, and the
Co-Advisers' 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, Morgan
Stanley & Co. Incorporated and other broker-dealer affiliates of the Manager.
The Fund may incur brokerage
19
<PAGE>
commissions on transactions conducted through DWR, Morgan Stanley & Co.
Incorporated and other brokers and dealers that are affiliates of the
Manager. The Fund intends to buy and hold securities for capital
appreciation. Although the Fund does not intend to engage in substantial
short-term trading as a means of achieving its investment objective, the Fund
may sell portfolio securities without regard to the length of time that they
have been held, in order to take advantage of new investment opportunities or
yield differentials, or because the Fund desires to preserve gains or limit
losses due to changing economic conditions, interest rate trends, or the
financial condition of the issuer. It is not anticipated that the Fund's
portfolio turnover rate will exceed 100% in any one year. Short term gains
and losses may result from such portfolio transactions. See "Dividends,
Distributions and Taxes" for a discussion of the tax implications of the
Fund's transactions.
The expenses of the Fund relating to its portfolio management are likely
to be greater than those incurred by other investment companies investing
only in securities issued by domestic issuers, as custodial costs, brokerage
commissions and other transaction charges related to investing on foreign
markets are generally higher than in the United States.
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 restriction listed below is among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the Act. For purposes of the following limitation:
(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 invest 25% or more of the value of its total assets in
securities of issuers in any one industry. Obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities shall not be
considered investments in the securities of issuers in a single industry.
Additional restrictions which have been adopted by the Fund as fundamental
policies are contained in the Statement of Additional Information.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and
Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the
Manager, shares of the Fund are distributed by the Distributor and offered by
DWR and other dealers (which may include TCW Brokerage Services, an affiliate
of TCW) who have entered into selected dealer agreements with the Distributor
("Selected Broker-Dealers"). The principal executive office of the
Distributor is located at Two World Trade Center, New York, New York 10048.
The 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
20
<PAGE>
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 and concurrent investments in Class D
shares of the Fund and other TCW/DW Funds which are multiple class funds
("TCW/DW Multi-Class Funds") will be aggregated. Subsequent purchases of $100
or more may be made by sending a check, payable to TCW/DW Emerging Markets
Opportunities Trust, 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 $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 (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 requested 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
21
<PAGE>
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 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 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."
22
<PAGE>
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 D shares, holdings of Class A shares in all
TCW/DW Multi-Class Funds, and holdings of shares of "Exchange Funds" (see
"Shareholder Services--Exchange Privilege") for which Class A 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% Initial 0.25% No
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 to
CDSC during the first A shares automatically
year decreasing after approximately
to 0 after six years ten years
- --------- ---------------------------- --------- --------------------------
1.0% CDSC during
C first year 1.0% No
- --------- ---------------------------- --------- --------------------------
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
23
<PAGE>
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 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 TCW/DW Multi-Class Funds. The sales charge payable on the
purchase of the Class A shares of the Fund and the Class A shares of the
other TCW/DW Multi-Class 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 TCW/DW Multi-Class
Funds previously purchased at a price including a front-end sales charge
(including shares of the Fund, other TCW/DW Multi-Class Funds or "Exchange
Funds" (see "Shareholder Services--Exchange Privilege") 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
24
<PAGE>
transaction, amounts to $25,000 or more. If such investor has a cumulative
net asset value of 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 Class A shares of other TCW/DW Multi-Class 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 other TCW/DW
Multi-Class Funds or shares of "Exchange Funds" (see "Shareholder
Services--Exchange Privilege") acquired in exchange for Class A shares of
such funds purchased 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 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.
Prior to the date of this Prospectus the Fund was organized as a
closed-end investment company; all
25
<PAGE>
shares of the Fund held prior to such date have been designated Class A
shares and are not subject to any CDSC upon redemption.
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 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 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 this percentage 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. 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
26
<PAGE>
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
Manager or its parent, Dean Witter InterCapital Inc., as self-directed
investment 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. 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 acquired in exchange for shares
of another fund 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 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 TCW/DW 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 TCW/DW 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
27
<PAGE>
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.
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) certain Unit Investment Trusts
sponsored by DWR; (iv) certain other open-end investment companies whose
shares are distributed by the Distributor; and (v) 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 TCW/DW 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 TCW/DW Multi-Class Funds, and
holdings of shares of "Exchange Funds" (see "Shareholder Services--Exchange
Privilege") for which Class A 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
28
<PAGE>
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 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.
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. 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. 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.
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
29
<PAGE>
such other federal and non-federal holidays as are observed by the New York
Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign exchange is valued at its latest sale price on that
exchange prior to the time assets are valued; if there were no sales that
day, the security is valued at the latest bid price (in cases where a
security is traded on more than one exchange, the security is valued on the
exchange designated as the primary market pursuant to procedures adopted by
the Trustees), and (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest bid price. When market quotations are not readily available, including
circumstances under which it is determined by the Adviser that sale and bid
prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Board of Trustees
(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).
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon
as the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining
what 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 TCW/DW 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 and Distributions Received in Cash. Any
shareholder who receives a cash payment representing a dividend or capital
gains distribution may invest such dividend or distribution 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 thirty days after the payment date. 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").
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 (see "Purchase of Fund Shares" and "Repurchases and Redemptions --
Involuntary Redemption").
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any dollar amount, not less than $25, or in
any whole percentage of the account balance, on an annualized basis. Any
applicable CDSC will be imposed on shares redeemed under the Withdrawal Plan
(see "Purchase of Fund
30
<PAGE>
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 further 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. With respect to shares held through broker-dealers that have
not entered into selected dealer agreements with the Distributor, shares must
be registered directly with the Fund by contacting the Transfer Agent, or by
contacting an account executive of DWR or other Selected Broker-Dealer in
order to receive the shareholder services described in this section.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other TCW/DW Multi-Class Fund without the imposition of any exchange fee.
Shares may also be exchanged for shares of TCW/DW North American Government
Income Trust and for shares of five money market funds for which InterCapital
serves as investment manager: Dean Witter Liquid Asset Fund Inc., Dean Witter
U.S. Government Money Market Trust, Dean Witter Tax-Free Daily Income Trust,
Dean Witter California Tax-Free Daily Income Trust and Dean Witter New York
Municipal Money Market Trust (the foregoing six funds are hereinafter
collectively referred to as "Exchange Funds"). Exchanges may be made after
the shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to another TCW/DW Multi-Class Fund or any Exchange Fund that
is not a money market fund is on the basis of the next calculated net asset
value per share of each fund after the exchange order is received. When
exchanging into a money market fund from the Fund, shares of the Fund are
redeemed out of the Fund at their next calculated net asset value and the
proceeds of the redemption are used to purchase shares of the money market
fund at their net asset value determined the following business day.
Subsequent exchanges between any of the money market funds and any of the
TCW/DW Multi-Class Funds 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 TCW/DW
Multi-Class Fund, the holding period previously frozen when the first
exchange was made resumes on the last day of the month in which shares of a
TCW/DW Multi-Class Fund are reacquired. Thus, the CDSC is based upon the time
(calculated as described above) the shareholder was invested in shares of a
TCW/DW Multi-Class Fund (see "Purchase of Fund Shares"). In the case of
shares exchanged into an Exchange Fund, upon a redemption of shares which
results in a CDSC being imposed, a credit (not to exceed the amount of the
CDSC) will be given in an amount equal to the
31
<PAGE>
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.)
Additional Information Regarding Exchanges. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Manager to be abusive and contrary to the best interests of the
Fund's other shareholders and, at the Manager's discretion, may be limited by
the Fund's refusal to accept additional purchases and/or exchanges from the
investor. Although the Fund does not have any specific definition of what
constitutes a pattern of frequent exchanges, and will consider all relevant
factors in determining whether a particular situation is abusive and contrary
to the best interests of the Fund and its other shareholders, investors
should be aware that the Fund, each of the other TCW/DW Funds and each of the
money market funds may in 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 TCW/DW Funds
or money market funds for which shares of the Fund have been exchanged, upon
such notice as may be required by applicable regulatory agencies.
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions
on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
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 applicable share certificates have been
received by the Transfer Agent and deposited in the shareholder's account. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the 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
32
<PAGE>
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 in the past with other funds managed by the Manager.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REPURCHASES AND REDEMPTIONS
- -----------------------------------------------------------------------------
Repurchases. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to
any of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the
net asset value next computed (see "Purchase of Fund Shares") after such
purchase 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 shares through the Fund's Transfer Agent as set
forth below under "Redemptions."
Redemptions. 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.
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 executives regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase
in shares of the Fund 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 60 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
33
<PAGE>
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 Board of 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 the shareholder 60 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 separately for
each Class of shares and intends to distribute substantially all of its net
investment income and net realized short-term and long-term capital gains, if
any, at least once each year. The Fund may, however, determine 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 net capital gains (to the extent not offset by capital loss
carryovers) to shareholders and remain qualified 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 applicable state and/or local income taxes, on
any dividends and distributions they receive from the Fund. Such dividends
and distributions, to the extent they are derived from net investment income
and net short-term capital gains, are taxable to the shareholder as ordinary
dividend income regardless of whether the shareholder receives such payments
in additional shares or in cash. Any dividends declared in the last quarter
of any calendar year which are paid in the following year prior to February 1
will be deemed, for tax purposes, to have been received by the shareholder in
the prior year.
Long-term and short-term capital gains may be generated by the sale of
portfolio securities by the Fund. Distributions of net long-term capital
gains, if any, are taxable to shareholders as long-term capital gains
regardless of how long a shareholder has held the Fund's shares and
regardless of whether the distribution is received in additional shares or in
cash.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources would, in effect, represent a
return of a portion of each shareholder's investment. All, or a portion, of
such payments would not be taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion characterized as ordinary
income, the portion taxable as long-term capital gains and the amount of
dividends eligible for the Federal dividends received deduction available to
corporations. Shareholders will also be notified of their
34
<PAGE>
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 who are not citizens or
residents of, or entities organized in, the United States may be subject to
withholding taxes of up to 30% on certain payments received from the Fund.
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, or 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 will 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,
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 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.
Prior to the date of this Prospectus, the Fund operated as a closed-end
investment company. The historical performance of the Class A shares of the
Fund has been restated to reflect the front-end sales charge of such Class A
shares in effect as of the date of this Prospectus. Class A shares are also
subject to a 0.25% 12b-1 fee which is not reflected in the restated
historical performance. Including the 12b-1 fee would have the effect of
lowering the Fund's performance.
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
35
<PAGE>
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 the
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 property of the
Fund for any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself
would be unable to meet its obligations. Given the above limitations on
shareholder personal liability, and the nature of the Fund's assets and
operations, the possibility of the Fund being unable to meet its obligations
is remote and thus, in the opinion of Massachusetts counsel to the Fund, the
risk to Fund shareholders of personal liability is remote.
Code of Ethics. Each Co-Adviser is subject to a Code of Ethics with
respect to investment transactions in which the Co-Adviser's officers,
directors and certain other persons have a beneficial interest to avoid any
actual or potential conflict or abuse of their fiduciary position. The Code
of Ethics of TCW, as it pertains to the TCW/DW Funds, contains several
restrictions and procedures designed to eliminate conflicts of interest
including: (a) preclearance of personal investment transactions to ensure
that personal transactions by employees are not being conducted at the same
time as TCW's clients; (b) quarterly reporting of personal securities
transactions; (c) a prohibition against personally acquiring securities in an
initial public offering, entering into uncovered short sales and writing
uncovered options; (d) a seven day "black-out period" prior or subsequent to
a TCW/DW Fund transaction during which portfolio managers are prohibited from
making certain transactions in securities which are being purchased or sold
by a TCW/DW Fund; (e) a prohibition, with respect to certain investment
personnel, from profiting in the purchase and sale, or sale and purchase, of
the same (or equivalent) securities within 60 calendar days; and (f) a
prohibition against acquiring any security which is subject to firm wide or,
if applicable, a department restriction of the Adviser. The Code of Ethics of
TCW provides that exemptive relief may be given from certain of its
requirements, upon application. Each Co-Adviser's Code of Ethics complies
with regulatory requirements and, insofar as it relates to persons associated
with registered investment companies, the 1994 Report of the Advisory Group
on Personal Investing of the Investment Company Institute.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover
of this Prospectus.
36
<PAGE>
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<PAGE>
(This page has been left blank intentionally.)
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
TCW/DW EMERGING
MARKETS OPPORTUNITIES TRUST
Two World Trade Center
New York, New York 10048
BOARD OF TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
Shaun C.K. Chan
Vice President
Terence F. Mahony
Vice President
Michael P. Reily
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank
One Chase Plaza
New York, New York 10005
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
MANAGER
Dean Witter Services Company Inc.
CO-ADVISERS
TCW Funds Management, Inc.
Morgan Stanley Asset Management Inc.
TCW/DW
EMERGING MARKETS
OPPORTUNITIES
TRUST
[GRAPHIC OMITTED]
PROSPECTUS
JANUARY 26, 1998
<PAGE>
TCW/DW
EMERGING MARKETS
OPPORTUNITIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
January 26, 1998
- -----------------------------------------------------------------------------
TCW/DW Emerging Markets Opportunities Trust (the "Fund") is an open-end,
non-diversified management investment company, whose investment objective is
long-term capital appreciation through investment primarily in equity
securities of companies in emerging market countries. See "Investment
Objective and Policies."
A Prospectus for the Fund dated January 26, 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 numbers listed below
or from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean
Witter Reynolds Inc. at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in
addition to and more detailed than that set forth in the Prospectus. It is
intended to provide additional information regarding the activities and
operations of the Fund, and should be read in conjunction with the
Prospectus.
TCW/DW
Emerging Markets Opportunities Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund and its Management .................... 3
Trustees and Officers .......................... 6
Investment Practices and Policies .............. 12
Investment Restrictions ........................ 25
Portfolio Transactions and Brokerage ........... 27
The Distributor ................................ 28
Purchase of Fund Shares......................... 31
Shareholder Services ........................... 33
Repurchases and Redemptions .................... 37
Dividends, Distributions and Taxes ............. 38
Performance Information ........................ 40
Description of Shares .......................... 41
Custodian and Transfer Agent ................... 41
Independent Accountants ........................ 41
Reports to Shareholders ........................ 41
Legal Counsel .................................. 42
Experts ........................................ 42
Registration Statement ......................... 42
Financial Statements--January 31, 1997 ........ 43
Report of Independent Accountants .............. 60
Financial Statements--July 31, 1997
(unaudited).................................... 61
Appendix--Ratings of Corporate Debt Instruments 78
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of the Commonwealth of
Massachusetts on December 22, 1993 as a closed-end non-diversified investment
company. The Fund converted to an open-end non-diversified investment company
on January 26, 1998. The Fund is one of the TCW/DW Funds, which currently
consist of, in addition to the Fund, TCW/DW Core Equity Trust, TCW/DW Small
Cap Growth Fund, TCW/DW North American Government Income Trust, TCW/DW Latin
American Growth Fund, TCW/DW Term Trust 2002, TCW/DW Income and Growth Fund,
TCW/DW Term Trust 2003, TCW/DW Balanced Fund, TCW/DW Term Trust 2000, TCW/DW
Mid-Cap Equity Trust, TCW/DW Strategic Income Trust, TCW/DW Global Telecom
Trust and TCW/DW Total Return Trust.
THE MANAGER
Dean Witter Services Company Inc. (the "Manager"), a Delaware corporation,
whose address is Two World Trade Center, New York, New York 10048, is the
Fund's Manager. The Manager is a wholly-owned subsidiary of Dean Witter
InterCapital Inc. ("InterCapital"), a Delaware corporation. InterCapital is a
wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
("MSDWD"), a Delaware corporation. In an internal reorganization which took
place in January, 1993, InterCapital assumed the management, administrative
and investment advisory activities previously performed by the InterCapital
Division of Dean Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate of
the Manager. (As hereinafter used in this Statement of Additional
Information, the term "InterCapital" refers to DWR's InterCapital Division
prior to the internal reorganization and to Dean Witter InterCapital Inc.
thereafter). The daily management of the Fund is conducted by or under the
direction of officers of the Fund and of the Manager and Adviser (see below),
subject to review by the Fund's Board of Trustees. Information as to these
Trustees and officers is contained under the caption "Trustees and Officers."
Pursuant to a management agreement (the "Management Agreement") with the
Manager, the Fund has retained the Manager to manage the Fund's business
affairs, supervise the overall day-to-day operations of the Fund (other than
rendering investment advice) and provide all administrative services to the
Fund. Under the terms of the Management Agreement, the Manager also maintains
certain of the Fund's books and records and furnishes, at its own expense,
such office space, facilities, equipment, supplies, clerical help and
bookkeeping and certain legal services as the Fund may reasonably require in
the conduct of its business, including the preparation of prospectuses,
statements of additional information, proxy statements and reports required
to be filed with federal and state securities commissions (except insofar as
the participation or assistance of independent accountants and attorneys is,
in the opinion of the Manager, necessary or desirable). In addition, the
Manager pays the salaries of all personnel, including officers of the Fund,
who are employees of the Manager. The Manager also bears the cost of the
Fund's telephone service, heat, light, power and other utilities.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the annual rate of 0.75% to
the daily net assets of the Fund determined as of the close of each business
day. In evaluating the Management Agreement and the Co-Advisory Agreements,
the Board of Trustees recognized that the Manager and the Co-Advisers had,
pursuant to an agreement described under the section entitled "The
Co-Advisers," agreed to a division as between themselves of the total fees
necessary for the management of the business affairs of and the furnishing of
investment advice to the Fund. Accordingly, in reviewing the Management
Agreement and Co-Advisory Agreements, the Board viewed as most significant
the question as to whether the total fees payable under the Management and
Co-Advisory Agreements were in the aggregate reasonable in relation to the
services to be provided thereunder.
The management fee is allocated among the Classes pro rata based on the
net assets of the Fund attributable to each Class. For the fiscal years ended
January 31, 1995, 1996, and 1997, the Fund paid the Manager total
compensation under the Management Agreement in the amounts, of $2,088,757,
$1,950,537, and $2,091,746, respectively.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Manager is not liable to the Fund or any of its
investors for any act or omission by the Manager or for any losses sustained
by the Fund or its investors. The Management Agreement in no way restricts
the Manager from acting as manager to others.
3
<PAGE>
InterCapital paid the organizational expenses of the Fund incurred prior
to the offering of the Fund's shares. The Fund has reimbursed InterCapital
for approximately $50,000 of such expenses, in accordance with the terms of
the Underwriting Agreement between the Fund and DWR. These reimbursed
expenses have been deferred and are being amortized by the Fund on the
straight line method over a period not to exceed five years from the date of
commencement of the Fund's operations.
The Management Agreement was initially approved by the Trustees on
February 9, 1994. The Management Agreement may be terminated at any time,
without penalty, on thirty days' notice by the Trustees of the Fund.
Under its terms, the Management Agreement had an initial term ending April
30, 1995, and will remain in effect from year to year thereafter, provided
continuance of the Agreement is approved at least annually by the Trustees of
the Fund, including the vote of a majority of the Trustees of the Fund who
are not parties to the Management Agreement or either of the Co-Advisory
Agreements or "interested persons" (as defined in the Investment Company Act
of 1940, as amended (the "Act")), of any such party (the "Independent
Trustees"). At their meeting on April 24, 1997, the Trustees, including a
majority of the Independent Trustees, approved an amendment to the Management
Agreement changing the fee calculation from weekly to daily. The amended
Management Agreement took effect on January 26, 1998 upon the conversion of
the Fund to an open-end investment company. Continuation of the Management
Agreement for one year until April 30, 1998 was approved by the Trustees,
including a majority of the Independent Trustees, at a meeting called for
that purpose on April 24, 1997.
THE CO-ADVISERS
TCW Funds Management, Inc. ("TCW") and Morgan Stanley Asset Management
Inc. ("MSAM") are the co-investment advisers of the Fund (the "Co-Advisers").
TCW is a wholly-owned subsidiary of The TCW Group, Inc. (the "TCW Group"),
whose subsidiaries, including Trust Company of the West and TCW Asset
Management Company, provide a variety of trust, investment management and
investment advisory services. As of December 31, 1997, TCW and its affiliates
had approximately $50 billion under management or committed to management.
The TCW Group and its affiliates have managed equity securities portfolios
for institutional investors since 1971. TCW is headquartered at 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017 and is registered
as an investment adviser under the Investment Advisers Act of 1940. In
addition to the Fund, TCW serves as investment adviser to thirteen other
TCW/DW Funds: TCW/DW Core Equity Trust, TCW/DW North American Government
Income Trust, TCW/DW Latin American Growth Fund, TCW/DW Income and Growth
Fund, TCW/DW Small Cap Growth Fund, TCW/DW Balanced Fund, TCW/DW Term Trust
2002, TCW/DW Term Trust 2003, TCW/DW Term Trust 2000, TCW/DW Total Return
Trust, TCW/DW Global Telecom Trust, TCW/DW Strategic Income Trust and TCW/DW
Mid-Cap Equity Trust. TCW also serves as investment adviser to TCW
Convertible Securities Fund, Inc., a closed-end investment company traded on
the New York Stock Exchange, and to TCW Galileo Funds, Inc., an open-end
investment company, and acts as adviser or sub-adviser to other investment
companies.
Robert A. Day, who is Chairman of the Board of Directors of TCW, may be
deemed to be a control person of the Adviser by virtue of the aggregate
ownership of Mr. Day and his family of more than 25% of the outstanding
voting stock of TCW.
MSAM, a subsidiary of MSDWD and an affiliate of the Manager, is located at
1221 Avenue of the Americas, New York, New York 10020. 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 November 30,
1997 MSAM, together with its affiliated asset management companies, had
approximately $145.2 billion in assets under management as an investment
manager or as a fiduciary adviser. MSAM has been managing international
securities since 1986.
Pursuant to co-investment advisory agreements (the "Co-Advisory
Agreements") with TCW and MSAM, respectively, the Fund has retained the
Co-Advisers to invest the Fund's assets, including the placing of orders for
the purchase and sale of portfolio securities. The Co-Advisers obtain and
evaluate such information and advice relating to economy, securities markets,
and specific securities as they consider necessary or useful to continuously
manage the assets of the Fund in a manner consistent with its investment
objective. In addition, the Co-Advisers pay the salaries of all personnel,
including officers of the Fund, who are employees of the respective
Co-Adviser.
4
<PAGE>
TCW has in turn entered into further sub-advisory agreements (the
"Sub-Advisory Agreements") with two of its affiliates, TCW Asia Limited, a
Hong-Kong corporation, and TCW London International, Limited, a California
corporation (the "Sub-Advisers"), pursuant to which the Sub-Advisers assist
TCW in providing services under its Co-Advisory Agreement. Each of the
Sub-Advisers is a wholly-owned subsidiary of the TCW Group.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Co-Advisers, the Fund pays the
Co-Advisers collectively monthly compensation calculated daily by applying
the annual rate of 0.50% to the net assets of the Fund determined as of the
close of each business day. For services to be provided to TCW by the
Sub-Advisers under the Sub-Advisory Agreements, TCW pays each Sub-Adviser
monthly compensation determined by applying the annual rate of 0.50% to the
Fund's average daily net assets for which each Sub-Adviser renders
sub-advisory services. The advisory fee is allocated among the Classes pro
rata based on the net assets of the Fund attributable to each Class. Total
compensation (net of expense reimbursement, if any) accrued to TCW, as sole
investment adviser, for the fiscal years ended January 31, 1995, 1996 and
1997 amounted to $1,392,506, $1,300,358 and $1,394,498, respectively.
The Co-Advisory Agreements provide that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, each Co-Adviser is not liable to the Fund or any of
its investors for any act or omission by that Co-Adviser or for any losses
sustained by the Fund or its investors. The Co-Advisory Agreements in no way
restrict the Co-Advisers from acting as investment advisers to others.
The Co-Advisory Agreements and each Sub-Advisory Agreement was approved by
the Trustees on November 6, 1997 and by shareholders of the Fund on January
12, 1998. The Co-Advisory Agreements may be terminated at any time, without
penalty, on thirty days' notice by the Trustees of the Fund, by the holders
of a majority, as defined in the Act, of the outstanding shares of the Fund,
or by the applicable Co-Adviser. Each Sub-Advisory Agreement may be
terminated at any time, without penalty, on thirty days' notice by the
Trustees of the Fund, by the holders of a majority, as defined in the Act, of
the outstanding shares of the Fund, by TCW, or by the applicable Sub-Adviser.
The Agreements will automatically terminate in the event of their assignment
(as defined in the Act).
Under its terms, each Co-Advisory Agreement and each Sub-Advisory
Agreement will continue in effect until April 30, 1999, and will continue
from year to year thereafter, provided continuance of the Agreements are
approved at least annually by the vote of the holders of a majority, as
defined in the Act, of the outstanding shares of the Fund, or by the Trustees
of the Fund; provided that in either event such continuance is approved
annually by the vote of a majority of the Independent Trustees of the Fund,
which vote must be cast in person at a meeting called for the purpose of
voting on such approval.
Expenses not expressly assumed by the Manager under the Management
Agreement, by the Co-Advisers under the Co-Advisory Agreements 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 and securities transaction costs; taxes;
engraving and printing of share certificates; registration costs of the Fund
and its shares under federal and state securities laws; the cost and expense
of printing, including typesetting, and distributing Prospectuses and
Statements of Additional Information of the Fund and supplements thereto to
the Fund's shareholders; all expenses of shareholders' and trustees' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of trustees or members of any advisory
board or committee who are not employees of the Manager or Co-Advisers or any
corporate affiliate of either; all expenses incident to any dividend,
withdrawal or redemption options; charges and expenses of any outside service
used for pricing of the Fund's shares; fees and expenses of legal counsel,
including counsel to the Trustees who are not interested persons of the Fund
or of the Manager or the Co-Advisers (not including compensation or expenses
of attorneys who are employees of the Manager or the Adviser) and independent
accountants; membership dues of industry associations; interest on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and trustees) of the Fund which inure to its benefit; extraordinary
expenses (including, but not
5
<PAGE>
limited to, legal claims and liabilities and litigation costs and any
indemnification relating thereto); and all other costs of the Fund's
operation. 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 Fund has acknowledged that each of DWR and the TCW Group owns its own
name, initials and logo. The Fund has agreed to change its name at the
request of either the Manager or TCW, if the Management Agreement between the
Manager and the Fund or the Co-Advisory Agreement between TCW and the Fund is
terminated.
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
the Manager or the Adviser, and affiliated companies of either, and with the
14 TCW/DW Funds and with 84 investment companies for which InterCapital
serves as investment manager or investment adviser (the "Dean Witter Funds"),
are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------- ---------------------------------------------------------------------
<S> <C>
John C. Argue (65) Of Counsel, Argue Pearson Harbison & Myers (law firm); Director, Avery
Trustee Dennison Corporation (manufacturer of self-adhesive products and office
c/o Argue Pearson Harbison & Myers supplies) and CalMat Company (producer of aggregates, asphalt and ready
801 South Flower Street mixed concrete); Chairman, Rose Hills Foundation (charitable foundation);
Los Angeles, California advisory director, LAACO Ltd. (owner and operator of private clubs and
real estate); director or trustee of various business and not-for-profit
corporations; Director, Coast Savings Financial Inc. and Coast Federal
Bank (a subsidiary of Coast Savings Financial Inc.); Director, Apex Mortgage
Capital, Inc. (a Real Estate Investment Trust); Director, TCW Galileo Funds,
Inc. and TCW Convertible Securities Fund, Inc.; Trustee of the TCW/DW Funds.
Richard M. DeMartini* (44) President and Chief Operating Officer of Dean Witter Capital, a division
Trustee of DWR; Director of DWR, the Manager, InterCapital, Distributors and Dean
Two World Trade Center Witter Trust FSB ("DWT"); Trustee of the TCW/DW Funds; Formerly Vice Chairman
New York, New York of the Board of the National Association of Securities Dealers, Inc.; formerly
Chairman of the Board of the Nasdaq Market, Inc.
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and Director of the Manager, InterCapital
Chairman of the Board, Chief and Distributors; Executive Vice President and Director of DWR; Chairman
Executive Officer and Trustee of the Board, Chief Executive Officer and Trustee of the TCW/DW Funds;
Two World Trade Center Chairman of the Board, Director or Trustee, President and Chief Executive
New York, New York Officer of the Dean Witter Funds; Chairman and Director of DWT; Director
and/or officer of various MSDWD subsidiaries; formerly Executive Vice
President and Director of Dean Witter, Discover & Co. (until February,
1993).
6
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------- ---------------------------------------------------------------------
John R. Haire (72) Chairman of the Audit Committee and Chairman of the Committee of the Independent
Trustee Trustees and Trustee of the TCW/DW Funds; Chairman of the Audit Committee
Two World Trade Center and Chairman of the Committee of the Independent Directors or Trustees
New York, New York and Director or Trustee of the Dean Witter Funds; formerly President, Council
for Aid to Education (1978-1989) and Chairman and Chief Executive Officer
of Anchor Corporation, an Investment Adviser (1964-1978).
Dr. Manuel H. Johnson (48) Senior Partner, Johnson Smick International, Inc., a consulting firm;
Trustee Co-Chairman and a founder of the Group of Seven Council (G7C), an international
c/o Johnson Smick International, Inc. economic commission; Director of NASDAQ (since June, 1995); Chairman and
1133 Connecticut Avenue, N.W. Trustee of the Financial Accounting Foundation (oversight organization
Washington, D.C. 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); Director or Trustee of the
Dean Witter Funds; Trustee of the TCW/DW Funds.
Thomas E. Larkin, Jr.* (57) Executive Vice President and Director, The TCW Group, Inc.; President and
President and Trustee Director of Trust Company of the West; Vice Chairman and Director of TCW
865 South Figueroa Street Asset Management Company; Chairman of the Adviser; President and Director
Los Angeles, California of TCW Galileo Funds, Inc.; Senior Vice President of TCW Convertible Securities
Fund, Inc.; Member of the Board of Trustees of the University of Notre
Dame; Director of Orthopaedic Hospital of Los Angeles; President and Trustee
of the TCW/DW Funds.
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a private investment partnership;
Trustee formerly Vice President, Bankers Trust Company and BT Capital Corporation
c/o Triumph Capital, L.P. (1984-1988); Director of various business organizations; Director or Trustee
237 Park Avenue of the Dean Witter Funds; Trustee of the TCW/DW Funds.
New York, New York
John L. Schroeder (67) Retired; Director or Trustee of the Dean Witter Funds; Trustee of the TCW/DW
Trustee Funds; Director of Citizens Utilities Company; formerly Executive Vice
c/o Gordon Altman Butowsky President and Chief 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
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------- ---------------------------------------------------------------------
Marc I. Stern* (53) President and Director, The TCW Group, Inc.; President and Director of
Trustee the Adviser; Vice Chairman and Director of TCW Asset Management Company;
865 South Figueroa Street Executive Vice President and Director of Trust Company of the West; Chairman
Los Angeles, California and Director of TCW Galileo Funds, Inc.; Trustee of the TCW/DW Funds; Chairman
of TCW Americas Development, Inc.; Chairman of TCW Asia, Limited (since
January, 1993); Chairman of TCW London International, Limited (since March,
1993); formerly President of SunAmerica, Inc. (financial services company);
Director of Qualcomm, Incorporated (wireless communications); director
or trustee of various not-for-profit organizations.
Barry Fink (43) Senior Vice President (since March, 1997) and Secretary and General Counsel
Vice President, Secretary (since February, 1997) of the Manager and InterCapital; Senior Vice President
and General Counsel (since March, 1997) and Assistant Secretary and Assistant General Counsel
Two World Trade Center (since February, 1997) of Distributors; Assistant Secretary of DWR (since
New York, New York 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 the Manager
and InterCapital and Assistant Secretary of the Dean Witter Funds and the
TCW/DW Funds.
Shaun C.K. Chan (35) Managing Director, TCW Asia Ltd. (since 1993); formerly Regional Strategist
Vice President and Director of Wardley Investment Services (Hong Kong) Ltd. (1986-1993).
3110 One Pacific Place In 1991, he was selected by the Korean Ministry of Finance to manage the
88 Queensway Korea Asia Fund, making him one of the first foreign investors in Korea.
Hong Kong
Terence F. Mahony (54) Managing Director and Head of Emerging Markets Equities of TCW (since April,
Vice President 1996); previously Chief Investment Officer for Global Emerging Markets
865 South Figueroa Street at HSBC Asset Management (September, 1993-April, 1996) and prior thereto
Los Angeles, California a Director of Baring Asset Management.
Michael P. Reilly (33) Managing Director of TCW; Vice President of various TCW/DW Funds.
Vice President
865 South Figueroa Street
Los Angeles, California
Thomas F. Caloia (51) First Vice President and Assistant Treasurer of the Manager and InterCapital;
Treasurer Treasurer of the TCW/DW Funds and the Dean Witter Funds.
Two World Trade Center
New York, New York
</TABLE>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
the Manager and InterCapital, Executive Vice President of Distributors and
DWT and Director of DWT, 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.
8
<PAGE>
and various other MSDWD subsidiaries, and Robert S. Giambrone, Senior Vice
President of InterCapital, DWSC, Distributors and DWT and Director of DWT,
are Vice Presidents of the Fund, and Marilyn K. Cranney, First Vice President
and Assistant General Counsel of the Manager and InterCapital, and Lou Anne
D. McInnis, Ruth Rossi and Carsten Otto, Vice Presidents and Assistant
General Counsels of the Manager and InterCapital, and Frank Bruttomesso 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 trustees for all of the TCW/DW Funds. As of the
date of this Statement of Additional Information, there are a total of 14
TCW/DW Funds. As of December 31, 1997, the TCW/DW Funds had total net assets
of approximately $4.4 billion and approximately a quarter of a million
shareholders.
Five Trustees (56% of the total number) have no affiliation or business
connection with TCW Funds Management, Inc. or Dean Witter Services Company
Inc. or any of their affiliated persons and do not own any stock or other
securities issued by MSDWD or TCW, the parent companies of Dean Witter
Services Company Inc. and TCW Funds Management, Inc., respectively. These are
the "disinterested" or "independent" Trustees. The other four Trustees (the
"management Trustees") are affiliated with either Dean Witter Services
Company Inc. or TCW. Four of the five independent Trustees are also
Independent Trustees of the Dean Witter Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The TCW/DW Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand
by others and for whom there is often competition. To accept a position on
the Funds' Boards, such individuals may reject other attractive assignments
because the Funds make substantial demands on their time. Indeed, by serving
on the Funds' Boards, certain Trustees who would otherwise be qualified and
in demand to serve on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee
and the Committee of the Independent Trustees. Three of them also serve as
members of the Derivatives Committee. During the calendar year ended December
31, 1997, the three Committees held a combined total of sixteen meetings. The
Committees hold some meetings at the offices of the Manager or Adviser and
some outside those offices. Management Trustees or officers do not attend
these meetings unless they are invited for purposes of furnishing information
or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading
among Funds in the same complex; and approving fidelity bond and related
insurance coverage and allocations, as well as other matters that arise from
time to time. The Independent Trustees are required to select and nominate
individuals to fill any Independent Trustee vacancy on the Board of any Fund
that has a Rule 12b-1 plan of distribution. Each of the open-end TCW/DW Funds
has such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance of such
services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting
Committee meeting minutes to the full Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committees maintains an office in the Funds'
headquarters in New York. He is responsible for keeping abreast of regulatory
and industry developments and the Funds' operations and
9
<PAGE>
management. He screens and/or prepares written materials and identifies
critical issues for the Independent Trustees to consider, develops agendas
for Committee meetings, determines the type and amount of information that
the Committees will need to form a judgment on various issues, and arranges
to have that information furnished to Committee members. He also arranges for
the services of independent experts and consults with them in advance of
meetings to help refine reports and to focus on critical issues. Members of
the Committees believe that the person who serves as Chairman of both
Committees and guides their efforts is pivotal to the effective functioning
of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Adviser and the Manager and other
service providers. In effect, the Chairman of the Committees serves as a
combination of chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the TCW/DW Funds and as Chairman of the Committee of the
Independent Trustees and the Audit Committee and Independent Director or
Trustee of the Dean Witter Funds. The current Committee Chairman has had more
than 35 years experience as a senior executive in the investment company
industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL TCW/DW
FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the TCW/DW Funds avoids the duplication
of effort that would arise from having different groups of individuals
serving as Independent Trustees for each of the Funds or even of sub-groups
of Funds. They believe that having the same individuals serve as Independent
Trustees of all the Funds tends to increase their knowledge and expertise
regarding matters which affect the Fund complex generally and enhances their
ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups
of Independent Trustees arriving at conflicting decisions regarding
operations and management of the Funds and avoids the cost and confusion that
would likely ensue. Finally, having the same Independent Trustees serve on
all Fund Boards enhances the ability of each Fund to obtain, at modest cost
to each separate Fund, the services of Independent Trustees, and a Chairman
of their Committees, of the caliber, experience and business acumen of the
individuals who serve as Independent Trustees of the TCW/DW Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $2,225 plus a per
meeting fee of $200 for meetings of the Board of Trustees or committees of
the Board of Trustees attended by the Trustee (the Fund pays the Chairman of
the Audit Committee an annual fee of $750 and pays the Chairman of the
Committee of the Independent Trustees an additional annual fee of $1,200). 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 Manager or the Adviser or an affiliated company of either receive no
compensation or expense reimbursement from the Fund. The Trustees of the
TCW/DW Funds do not have retirement or deferred compensation plans.
10
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended January 31, 1997.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- ---------------
<S> <C>
John C. Argue............... $5,291
John R. Haire............... 6,553
Dr. Manuel H. Johnson....... 5,274
Michael E. Nugent........... 5,054
John L. Schroeder........... 5,491
</TABLE>
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 14 TCW/DW Funds and, in the case of Messrs. Haire, Johnson,
Nugent and Schroeder, the 84 Dean Witter Funds that were in operation at
December 31, 1997, and, in the case of Mr. Argue, TCW Galileo Funds, Inc. and
TCW Convertible Securities Fund, Inc. With respect to Messrs. Haire, Johnson,
Nugent and Schroeder, the Dean Witter Funds are included solely because of a
limited exchange privilege between various TCW/DW Funds and five Dean Witter
Money Market Funds. With respect to Mr. Argue, TCW Galileo Funds, Inc. and
TCW Convertible Securities Fund, Inc. are included solely because the Fund's
Adviser, TCW Funds Management, Inc., also serves as Adviser to those
investment companies.
CASH COMPENSATION FROM FUND GROUPS
<TABLE>
<CAPTION>
FOR SERVICE AS
FOR SERVICES AS CHAIRMAN OF TOTAL CASH
CHAIRMAN OF COMMITTEES OF COMPENSATION
FOR SERVICE COMMITTEES OF INDEPENDENT FOR SERVICES TO
FOR SERVICE AS AS DIRECTOR OR FOR SERVICE AS INDEPENDENT DIRECTORS/ 84 DEAN WITTER
TRUSTEE AND TRUSTEE AND DIRECTOR OF TRUSTEES TRUSTEES FUNDS, 14
COMMITTEE COMMITTEE TCW GALILEO AND AUDIT AND AUDIT TCW/DW FUNDS,
MEMBER MEMBER FUNDS, INC. COMMITTEES COMMITTEES TCW GALILEO FUNDS, INC.
OF 14 OF 84 AND TCW OF 13 OF 84 AND TCW
NAME OF INDEPENDENT TCW/DW DEAN WITTER CONVERTIBLE SECURITIES TCW/DW DEAN WITTER CONVERTIBLE SECURITIES
TRUSTEE FUNDS FUNDS FUND, INC. FUNDS FUNDS FUND, INC.
- --------------------- -------------- ------------- ---------------------- --------------- -------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
John C. Argue......... $71,125 -- $43,250 -- -- $114,375
John R. Haire......... 73,725 $149,702 -- $25,350 $157,463 406,240
Dr. Manuel H. Johnson. 71,125 145,702 -- -- -- 216,827
Michael E. Nugent..... 73,725 149,702 -- -- -- 223,427
John L. Schroeder..... 73,725 149,702 -- -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds have adopted a retirement program under which an Independent
Trustee who retires after serving for at least five years (or such lesser
period as may be determined by the Board) as an Independent Director or
Trustee of any Dean Witter Fund that has adopted the retirement program (each
such Fund referred to as an "Adopting Fund" and each such Trustee referred to
as an "Eligible Trustee") is entitled to retirement payments upon reaching
the eligible retirement age (normally, after attaining age 72). Annual
payments are based upon length of service. Currently, upon retirement, each
Eligible Trustee is entitled to receive from the Adopting Fund, commencing as
of his or her retirement date and continuing for the remainder of his or her
life, an annual retirement benefit (the "Regular Benefit") equal to 25.0% of
his or her Eligible Compensation plus 0.4166666% of such Eligible
Compensation for each full month of service as an Independent Director or
Trustee of any Adopting Fund in excess of five years up to a maximum of 50.0%
after ten years of service. The foregoing percentages may be changed by the
Board.(1) "Eligible Compensation" is one-fifth of the total compensation
earned by such Eligible Trustee for service to the Adopting
- ------------
(1) An Eligible Trustee may elect alternate payments of his or her
retirement benefits based upon the combined life expectancy of such
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. The amount estimated to be payable under this
method, through the remainder of the later of the lives of such Eligible
Trustee and spouse, will be the actuarial equivalent of the Regular
Benefit. In addition, the Eligible Trustee may elect that the surviving
spouse's periodic payment of benefits will be equal to either 50% or
100% of the previous periodic amount, an election that, respectively,
increases or decreases the previous periodic amount so that the
resulting payments will be the actuarial equivalent of the Regular
Benefit.
11
<PAGE>
Fund in the five year period prior to the date of the Eligible Trustee's
retirement. Benefits under the retirement program are not secured or funded
by the Adopting Funds.
The following table illustrates the retirement benefits accrued to Messrs.
Haire, Johnson, Nugent and Schroeder by the 57 Dean Witter Funds for the year
ended December 31, 1997, and the estimated retirement benefits for Messrs.
Haire, Johnson, Nugent and Schroeder, to commence upon their retirement, from
the 57 Dean Witter Funds as of December 31, 1997.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
CREDITED YEARS ESTIMATED RETIREMENT BENEFITS ESTIMATED ANNUAL BENEFITS
OF SERVICE AT PERCENTAGE OF ACCRUED AS EXPENSES UPON RETIREMENT
RETIREMENT ELIGIBLE BY ALL ADOPTING FROM ALL ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- --------------------------- -------------- --------------- ------------------- -------------------------
<S> <C> <C> <C> <C>
John R. Haire............... 10 50.0% $(19,823)(3) $127,897
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
- -----------------------------------------------------------------------------
EMERGING MARKET COUNTRY DESIGNATION
The following countries are not included within the International Bank of
Reconstruction and Development (the "World Bank") definition of an emerging
market country: Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Iceland, Ireland, Italy, Japan, Kuwait,
Luxembourg, The Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, The United Kingdom, and the United States.
RISK FACTORS
Political and Economic Risks. Even though opportunities for investment may
exist in emerging market countries, any change in the leadership or policies
of the governments of those countries or in the leadership or policies of any
other government which exercises a significant influence over those
countries, may halt the expansion of or reverse the liberalization of foreign
investment policies now occurring and thereby eliminate any investment
opportunities which may currently exist.
Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of emerging market countries previously
expropriated large quantities of real and personal property. The claims of
property owners against those governments were never finally settled. There
can be no assurance that any property represented by securities purchased by
the Fund will not also be expropriated, nationalized, or otherwise
confiscated. If such confiscation were to occur, the Fund could lose a
substantial portion of its investments in such countries. The Fund's
investments would similarly be adversely affected by exchange control
regulations in any of those countries.
Securities Markets. The market capitalizations of listed equity securities
on major exchanges in emerging market countries is significantly smaller than
in the United States. A high proportion of the shares of many emerging market
companies may be held by a limited number of persons, which may further limit
the number of shares available for investment by the Fund. A limited number
of issuers in most, if not all, emerging market securities markets may
represent a disproportionately large percentage of market capitalization and
trading value. The limited liquidity of emerging market securities markets
may also affect the Fund's ability to acquire or dispose
12
<PAGE>
of securities at the price and time it wishes to do so. In addition, certain
emerging market securities markets are susceptible to being influenced by
large investors trading significant blocks of securities or by large
dispositions of securities resulting from the failure to meet margin calls
when due.
The high volatility of certain emerging market securities markets, as well
as currency fluctuations, may result in greater volatility in the Fund's net
asset value than would be the case for companies investing in domestic
securities. If the Fund were to experience unexpected net redemptions, it
could be forced to sell securities in its portfolio without regard to
investment merit, thereby decreasing the asset base over which Fund expenses
can be spread and possibly reducing the Fund's rate of return.
Emerging market securities exchanges and brokers are generally subject to
less governmental supervision and regulation than in the U.S., and foreign
securities exchange transactions are usually subject to fixed commissions,
which are generally higher than negotiated commissions on U.S. transactions.
In addition, foreign securities exchange transactions may be subject to
difficulties associated with the settlement of such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of a
portfolio security due to settlement problems either could result in losses
to the Fund due to subsequent declines in value of the portfolio security or,
if the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
Sovereign Debt. Sovereign Debt differs from debt obligations issued by
private entities in that usually remedies from defaults must be pursued in
the courts of the defaulting party. Legal recourse is therefore somewhat
diminished. Political conditions, in terms of a country or agency's
willingness to meet the terms of its debt obligations, is of considerable
significance. Also, there can be no assurance that the holders of commercial
bank debt may not contest payments to the holders of Sovereign Debt in the
event of default under commercial bank loan agreements. Investors should be
aware that the Sovereign Debt instruments in which the Fund may invest
involve great risk and are deemed to be the equivalent in terms of quality to
securities rated below investment grade by Moody's Investors Service, Inc.
and Standard & Poor's Corporation.
Sovereign Debt generally offers high yields, reflecting not only perceived
credit risk, but also the need to compete with other local investments in
domestic financial markets. Certain emerging market countries are among the
largest debtors to commercial banks and foreign governments. A foreign
debtor's willingness or ability to repay principal and interest due in a
timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the foreign debtor's policy towards
the International Monetary Fund and the political constraints to which a
sovereign debtor may be subject. Sovereign debtors may default on their
Sovereign Debt. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and others
abroad to reduce principal and interest arrearages on their debt. The
commitment on the part of these government agencies and others to make such
disbursements may be conditioned on a sovereign debtor's implementation of
economic reforms and/or economic performance and the timely service of such
debtor's obligations. Failure to implement such reforms, achieve such levels
of economic performance or repay principal or interest when due, may result
in the cancellation of such third parties' commitments to lend funds to the
sovereign debtor, which may further impair such debtor's ability or
willingness to service its debts.
Some of the emerging market countries in which the Fund invests have
encountered difficulties in servicing their Sovereign Debt. Some of these
countries have withheld payments of interest and/or principal of Sovereign
Debt. These difficulties have also led to agreements to restructure external
debt obligations; in particular, commercial bank loans, typically by
rescheduling principal payments, reducing interest rates and extending new
credits to finance interest payments on existing debt. In the future, holders
of Sovereign Debt may be requested to participate in similar reschedulings of
such debt.
The ability of emerging market governments to make timely payments on
their Sovereign Debt is likely to be influenced strongly by a country's
balance of trade and its access to trade and other international credits. A
country whose exports are concentrated in a few commodities could be
vulnerable to a decline in the international prices of one or more of such
commodities. Increased protectionism on the part of a country's trading
partners could also adversely affect its exports. Such events could
extinguish a country's trade account surplus, if any. To the extent that a
country receives payment for its exports in currencies other than hard
currencies, its ability to make hard currency payments could be affected.
13
<PAGE>
The occurrence of political, social or diplomatic changes in one or more
of the countries issuing Sovereign Debt could adversely affect the Fund's
investments. The countries issuing such instruments are faced with social and
political issues and some of them have experienced high rates of inflation in
recent years and have extensive internal debt. Among other effects, high
inflation and internal debt service requirements may adversely affect the
cost and availability of future domestic sovereign borrowing to finance
governmental programs, and may have other adverse social, political and
economic consequences. Political changes or a deterioration of a country's
domestic economy or balance of trade may affect the willingness of countries
to service their Sovereign Debt. While the Adviser intends to invest the
Fund's portfolio in a manner that will minimize the exposure to such risks,
there can be no assurance that adverse political changes will not cause the
Fund to suffer a loss of interest or principal on any of its holdings.
Periods of economic uncertainty may result in the volatility of market
prices of Sovereign Debt and in turn, the Fund's net asset value, to a
greater extent than the volatility inherent in domestic securities. The value
of Sovereign Debt will likely vary inversely with changes in prevailing
interest rates, which are subject to considerable variance in the
international market.
Restrictions on Investments. The Fund may be prohibited under the Act from
purchasing the securities of any company that, in its most recent fiscal
year, derived more than 15% of its gross revenues from securities-related
activities. In a number of emerging market countries, commercial banks act as
securities brokers and dealers, investment advisers and underwriters or
otherwise engaged in securities-related activities, which may limit the
Fund's ability to hold securities issued by the banks.
Foreign Investment Restrictions. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets,
particularly their equity markets, by foreign entities such as the Fund. For
example, certain countries require governmental approval prior to investments
by foreign persons or limit the amount of investment by foreign persons in a
particular company or limit the investment by foreign persons to only a
specific class of securities of a company that may have less advantageous
terms than securities of the company available for purchase by nationals.
Moreover, the national policies of certain countries may restrict investment
opportunities in issuers or industries deemed sensitive to national
interests. In addition, some countries require governmental approval for the
repatriation of investment income, capital or the proceeds of securities
sales by foreign investors. The Fund could be adversely affected by delays in
or a refusal to grant any required governmental approval for repatriation,
such as by the application to it of other restrictions on investments.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As discussed in the Prospectus, the Fund may enter into forward foreign
currency exchange contracts ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large, commercial and investment
banks) and their customers. Such forward contracts will only be entered into
with United States banks and their foreign branches or foreign banks whose
assets total $1 billion or more. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades.
The Fund will enter into forward contracts under various circumstances.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in"
the price of a security in U.S. dollars or some other foreign currency which
the Fund is holding in its portfolio. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars or other currency, of the
amount of foreign currency involved in the underlying security transactions,
the fund will be able to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S. dollar or other
currency which is being used for the security purchase and the foreign
currency in which the security is denominated during the period between the
date on which the security is purchased or sold and the date on which payment
is made or received.
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At other times, when, for example, the Adviser believes that the currency
of a particular foreign country may suffer a substantial decline against the
U.S. dollar or some other foreign currency, the Fund may enter into a forward
contract to sell, for a fixed amount of dollars or other currency, the amount
of foreign currency approximating the value of some or all of the Fund's
portfolio securities (or securities which the Fund has purchased for its
portfolio) denominated in such foreign currency. Under identical
circumstances, the Fund may enter into a forward contract to sell, for a
fixed amount of U.S. dollars or other currency, an amount of foreign currency
other than the currency in which the securities to be hedged are denominated
approximating the value of some or all of the portfolio securities to be
hedged. This method of hedging, called "cross-hedging," will be selected by
the Co-Adviser when it is determined that the foreign currency in which the
portfolio securities are denominated has insufficient liquidity or is trading
at a discount as compared with some other foreign currency with which it
tends to move in tandem.
In addition, when the Co-Adviser anticipated purchasing securities at some
time in the future, and wishes to lock in the current exchange rate of the
currency in which those securities are denominated against the U.S. dollar or
some other foreign currency, the Fund may enter into a forward contract to
purchase an amount of currency equal to some or all of the value of the
anticipated purchase, for a fixed amount of U.S. dollars or other currency.
Finally, the Fund is permitted to enter into forward contracts with
respect to currencies in which certain of its portfolio securities are
denominated an don which options have been written (see "Options and Futures
Transactions," below).
The Fund will not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the fund's portfolio securities or other assets denominated in that
currency. Under normal circumstances, consideration of the prospect for
currency parities will be incorporated into the longer term investment
decisions made with regard to overall diversification strategies. However,
the management of the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the fund will be served. The Fund's custodian bank will
place cash, U.S. Government securities or other appropriate liquid portfolio
securities in a segregated account of the Fund in an amount equal to the
value of the Fund's total assets committed to the consummation of forward
contracts entered into under the circumstances set forth above. If the value
of the securities placed in the segregated account declines, additional cash
or securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Fund's commitments with
respect to such contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar; at the maturity of the
forward contract for delivery by the Fund of a foreign currency, the Fund may
either sell the portfolio security and make delivery of the foreign currency,
or it may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date,
the same amount of the foreign currency. It is impossible to forecast the
market value of portfolio securities at the expiration of the contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver and if a decision is made to sell the security
and make delivery of the foreign currency. Conversely, it may be necessary to
sell on the spot market some of the foreign currency received upon the sale
of the portfolio securities if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase
of the foreign currency, the Fund will realize a gain to the extent the price
of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Fund will suffer
a loss to the extent the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell.
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If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell or purchase an amount of the relevant foreign
currency equal to some or all of the principal value of the security.
At times when the Fund has written a call or put option on a fixed-income
security or the currency in which it is denominated, it may wish to enter
into a forward contract to purchase or sell the foreign currency in which the
security is denominated. A forward contract to purchase or sell the foreign
currency in which the security is denominated. A forward contract would, for
example, hedge the risk of the security on which a call currency option has
been written declining in value to a greater extent than the value of the
premium received for the option. The Fund will maintain with its Custodian at
all times, cash, U.S. Government securities or other appropriate liquid
portfolio securities in a segregated account equal in value to all forward
contract obligations and option contract obligations entered into in hedge
situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do realize
a profit based on the spread between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
The Fund generally will not enter into a forward contract with a term of
greater than one year, although it may enter into forward contracts for
periods of up to five years. The Fund may be limited in its ability to enter
into hedging transactions involving forward contracts by the Internal Revenue
Code requirements relating to qualification as a regulated investment company
(see "Dividends, Distributions and Taxes").
OPTIONS AND FUTURES TRANSACTIONS
As stated in the Prospectus, the Fund may write covered call options
against securities held in its portfolio and covered put options on eligible
portfolio securities and purchase options of the same series to effect
closing transactions, and may hedge against potential changes in the market
value of its investments (or anticipated investments) by purchasing put and
call options on portfolio (or eligible portfolio) securities (and the
currencies in which they are denominated) and engaging in transactions
involving futures contracts and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and on
various foreign currencies are listed on several U.S. and foreign securities
exchanges and are written in over-the-counter transactions ("OTC options").
Listed options are issued or guaranteed by the exchange on which they trade
or by a clearing corporation such as the Options Clearing Corporation
("OCC"). Ownership of a listed call option gives the Fund the right to buy
from the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency covered by the option at the stated exercise
price (the price per unit of the underlying security or currency) by filing
an exercise notice prior to the expiration date of the option. The writer
(seller) of the option would then have the obligation to sell, to the OCC (in
the U.S.) or other clearing corporation or exchange, the underlying security
or currency at that exercise price prior to the expiration date of the
option, regardless of its then current market price. Ownership of a listed
put option would give the Fund the right to sell the underlying security or
currency to the OCC (in the U.S.) or other clearing corporation or exchange
at the stated exercise price. Upon notice of exercise of the put option, the
writer of the option would have the obligation to purchase the underlying
security or currency from the OCC (in the U.S.) or other clearing corporation
or exchange at the exercise price.
Options on Foreign Currencies. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the
foreign currency for a fixed amount of U.S. dollars, thereby "locking in" the
dollar value of the portfolio securities (less the amount of the premiums
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paid for the options). Conversely, the Fund may purchase call options on
foreign currencies in which securities it anticipates purchasing are
denominated to secure a set U.S. dollar price for such securities and protect
against a decline in the value of the U.S. dollar against such foreign
currency. The Fund may also purchase call and put options to close out
written option positions.
The Fund may also write call options on foreign currency to protect
against potential declines in its portfolio securities which are denominated
in foreign currencies. If the U.S. dollar value of the portfolio securities
falls as a result of a decline in the exchange rate between the foreign
currency in which it is denominated and the U.S. dollar, then a loss to the
Fund occasioned by such value decline would be ameliorated by receipt of the
premium on the option sold. At the same time, however, the Fund gives up the
benefit of any rise in value of the relevant portfolio securities above the
exercise price of the option and, in fact, only receives a benefit from the
writing of the option to the extent that the value of the portfolio
securities falls below the price of the premium received. The Fund may also
write options to close out long call option positions. A put option on a
foreign currency would be written by the Fund for the same reason it would
purchase a call option, namely, to hedge against an increase in the U.S.
dollar value of a foreign security which the Fund anticipates purchasing.
Here, the receipt of the premium would offset, to the extent of the size of
the premium, any increased cost to the Fund resulting from an increase in the
U.S. dollar value of the foreign security. However, the Fund could not
benefit from any decline in the cost of the foreign security which is greater
than the price of the premium received. The Fund may also write options to
close out long put and call option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. Although the Fund will not
purchase or write such options unless and until, in the opinion of the
Co-Adviser, the market for them has developed sufficiently to ensure that the
risks in connection with such options are not greater than the risks in
connection with the underlying currency, there can be no assurance that a
liquid secondary market will exist for a particular option at any specific
time. In addition, options on foreign currencies are affected by all of those
factors which influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and have no relationship to the investment merits of a foreign
security, including foreign securities held in a "hedged" investment
portfolio. Because foreign currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved
in the use of foreign currency options, investors may be disadvantaged by
having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that
are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. options markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying markets
that are not reflected in the options market.
OTC Options Exchange-listed options are issued by the OCC (in the U.S.) or
other clearing. corporation or exchange which assures that all transactions in
such options are properly executed. OTC options are purchased from or sold
(written) to dealers or financial institutions which have entered into direct
agreements with the Fund. With OTC options, such variables as expiration
date, exercise price and premium will be agreed upon between the fund and the
transacting dealer, without the intermediation of a third party such as the
OCC. If the transacting dealer fails to make or take delivery of the
securities or amount of foreign currency underlying an option it has written,
in accordance with the term s of that option, the Fund would lose the premium
paid for the option as well as any anticipated benefit of the transaction.
The Fund will engage in OTC option transactions only with member banks of the
Federal Reserve System or primary dealers in U.S. Government securities or
with affiliates of such banks or dealers which have capital of at least $50
million or whose obligations are guaranteed by an entity having capital of at
least $50 million.
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Covered Call Writing. As stated in the Prospectus, the Fund is permitted
to write covered call options on portfolio securities and on the U.S. Dollar
and foreign currencies in which they are denominated, without limit, in order
to aid in achieving its investment objective. Generally, a call option is
"covered" if the Fund owns, or has the right to acquire, without additional
cash consideration (or for additional cash consideration held for the Fund by
its Custodian in a segregated account) the underlying security (currency)
subject to the option except that in the case of call options on U.S.
Treasury Bills, the fund might own U.S. Treasury Bills of a different series
from those underlying the call option, but with a principal amount and value
corresponding to the exercise price and a maturity date no later than that of
the security (currency) deliverable under the call option. A call option is
also covered if the fund holds a call on the same security as the underlying
security (currency) of the written option, where the exercise price of the
call used for coverage is equal to or less than the exercise price of the
call written or greater than the exercise price of the call written if the
mark to market difference is maintained by the fund in cash, U.S. Government
securities or other liquid portfolio securities which the Fund holds in a
segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these
premiums may better enable the Fund to earn a higher level of current income
than it would earn from holding the underlying securities (currencies) alone.
Moreover, the premium received will offset a portion of the potential loss
incurred by the Fund if the securities (currencies) underlying the option are
ultimately sold (exchanged) by the Fund at a loss. Furthermore, a premium
received on a call written on a foreign currency will ameliorate any
potential loss of value on the portfolio security due to a decline in the
value of the currency. However, during the option period, the covered call
writer has, in return for the premium or the option, given up the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security (or the exchange rate of the currency in which it is
denominated) increase, but has retained the risk of loss should the price of
the underlying security (or the exchange rate of the currency in which it is
denominated) decline. The premium received will fluctuate with varying
economic market conditions. If the market value of the portfolio securities
(or the currencies in which they are denominated) upon which call options
have been written increases, the Fund may receive a lower total return from
the portion of its portfolio upon which calls have been written than it would
have had such calls not been written.
As regards listed options and certain OTC options, during the option
period, the Fund may be required, at any time, to deliver the underlying
security (currency) against payment of the exercise on any calls it has
written (exercise of certain listed and OTC options may be limited to
specific expiration dates). This obligation is terminated upon the expiration
of the option period or at such earlier time when the writer effects a
closing purchase transaction. A closing purchase transaction is accomplished
by purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit
on an outstanding call option, to prevent an underlying security (currency)
from being called, to permit the sale of an underlying security (or the
exchange of the underlying currency) or to enable the Fund to write another
call option on the underlying security (currency) with either a different
exercise price or expiration date or both. The Fund may realize a net gain or
loss from a closing purchase transaction depending upon whether the amount of
the premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be wholly or partially offset by unrealized
appreciation in the market value of the underlying security (currency).
Conversely, a gain resulting from a closing purchase transaction could be
offset in whole or in part or exceeded by a decline in the market value of
the underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised,
the Fund realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference between the purchase price of the
underlying security (currency) and the proceeds of the sale of the security
(currency) plus the premium received on the option less the commission paid.
Options written by the Fund will normally have expiration dates of up to
eighteen months from the date written. The exercise price of a call option
may be below, equal to or above the current market value of the underlying
security at the time the option is written. See "Risks of Transactions in
Futures Contracts and Related Options," below.
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Covered Put Writing. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period,
at the purchaser's election (certain listed and OTC put options written by
the Fund will be exercisable by the purchaser only on a specific date). A put
is "covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other liquid portfolio securities in an amount equal to at
least the exercise price of the option, at all times during the option
period. Similarly, a short put position could be covered by the Fund by its
purchase of a put option on the same security (currency) as the underlying
security of the written option, where the exercise price of the purchased
option is equal to or more than the exercise price of the put written or less
than the exercise price of the put written if the marked to market difference
is maintained by the Fund in cash, U.S. Government securities or other liquid
portfolio securities which the Fund holds in a segregated account maintained
at its Custodian. In writing puts, the Fund assumes the risk of loss should
the market value of the underlying security (currency) decline below the
exercise price of the option (any loss being decreased by the receipt of the
premium on the option written). In the case of listed options, during the
option period, the Fund may be required, at any time, to make payment of the
exercise price against delivery of the underlying security (currency). The
operation of and limitations on covered put options in other respects are
substantially identical to those of call options.
The Fund will write put options for three purposes: (1) to receive the
income derived from the premiums paid by purchasers; (2) when the Co-Adviser
wishes to purchase the security (or a security denominated in the currency
underlying the option) underlying the option at a price lower than its
current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought; and (3) to close
out a long put option position. The potential gain on a covered put option is
limited to the premium received on the option (less the commissions paid on
the transaction) while the potential loss equals the differences between the
exercise price of the option and the current market price of the underlying
securities (currencies) when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
Purchasing Call and Put Options. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase a call option in order to close out a
covered call position (see "Covered Call Writing" above), to protect against
an increase in price of a security it anticipates purchasing or, in the case
of a call option on foreign currency, to hedge against an adverse exchange
rate move of the currency in which the security it anticipates purchasing is
denominated vis-a-vis the currency in which the exercise price is
denominated. The purchase of the call option to effect a closing transaction
on a call written over-the-counter may be a listed or an OTC option. In
either case, the call purchased is likely to be on the same securities
(currencies) and have the same terms as the written option. If purchased
over-the-counter, the option would generally be acquired from the dealer or
financial institution which purchased the call written by the Fund.
The Fund may purchase put options on securities (currencies) which it
holds in its portfolio to protect itself against a decline in the value of
the security and to close out written put option positions. If the value of
the underlying security (currency) were to fall below the exercise price of
the put purchased in an amount greater than the premium paid for the option,
the Fund would incur no additional loss. In addition, the Fund may sell a put
option which it has previously purchased prior to the sale of the securities
(currencies) underlying such option. Such a sale would result in a net gain
or loss depending on whether the amount received on the sale is more or less
than the premium and other transaction costs paid on the put option which is
sold. And such gain or loss could be offset in whole or in part by a change
in the market value of the underlying security (currency). If a put option
purchased by the Fund expired without being sold or exercised, the premium
would be lost.
Risks of Options Transactions. The successful use of options depends on
the ability of the Co-Adviser to forecast correctly interest rates and market
movements. If the market value of the portfolio securities (or the currencies
in which they are denominated) upon which call options have been written
increases, the Fund may receive a lower total return from the portion of its
portfolio upon which calls have been written than it would have had such
calls not been written. During the option period, the covered call writer
has, in return for the premium on the option, given up the opportunity for
capital appreciation above the exercise price should the market price of the
underlying security (or the value of its denominated currency) increase, but
has retained the risk of loss should the price of the underlying security (or
the value of its denominated currency) decline. The writer has no
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control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice,
it cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or receive the underlying
securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to
purchase an offsetting OTC option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered
call option writer may not be able to sell an underlying security at a time
when it might otherwise be advantageous to do so. A secured put option writer
who is unable to effect a closing purchase transaction or to purchase an
offsetting OTC option would continue to bear the risk of decline in the
market price of the underlying security until the option expires or is
exercised. In addition, a secured put writer would be unable to utilize the
amount held in cash or U.S. Government or other liquid portfolio securities
as security for the put option for other investment purposes until the
exercise or expiration of the option.
As discussed in the Prospectus, the Fund's ability to close out its
position as a writer of an option is dependent upon the existence of a liquid
secondary market on Option Exchanges. There is no assurance that such a
market will exist, particularly in the case of OTC options, as such options
will generally only be closed out by entering into a closing purchase
transaction with the purchasing dealer. However, the Fund may be able to
purchase an offsetting option which does not close out its position as a
writer but constitutes an asset of equal value to the obligation under the
option written. If the Fund is not able to either enter into a closing
purchase transaction or purchase an offsetting position, it will be required
to maintain the securities subject to the call, or the collateral underlying
the put, even though it might not be advantageous to do so, until a closing
transaction can be entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes
or series of options or underlying securities; (iv) interruption of the
normal operations on an Exchange; (v) inadequacy of the facilities of an
Exchange or the OCC to handle current trading volume; or (vi) a decision by
one or more Exchanges to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market on that
Exchange (or in that class or series of options) would cease to exist,
although outstanding options on that Exchange that had been issued by the OCC
as a result of trades on that Exchange would generally continue to be
exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur
a loss of all or part of its margin deposits with the broker. Similarly, in
the event of the bankruptcy of the writer of an OTC option purchased by the
Fund, the Fund could experience a loss of all or part of the value of the
option. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Fund's management.
Each of the Exchanges has established limitations governing the maximum
number of options on the same underlying security or futures contract
(whether or not covered) which may be written by a single investor, whether
acting alone or in concert with others (regardless of whether such options
are written on the same or different Exchanges or are held or written on one
or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict
the number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
The extent to which the Fund may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification
as a regulated investment company and the Fund's intention to qualify as such
(see "Dividends, Distributions and Taxes").
Futures Contracts. As stated in the Prospectus, the Fund may purchase and
sell interest rate, currency, and index futures contracts ("futures
contracts"), that are traded on U.S. and foreign commodity exchanges, on such
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underlying securities as U.S. Treasury bonds, notes and bills and/or any
foreign government fixed-income security ("interest rate" futures), on
various currencies ("currency futures") and on such indexes of U.S. and
foreign securities as may exist or come into being ("index" futures).
The Fund will purchase or sell interest rate futures contracts for the
purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest
rates. If the Adviser anticipates that interest rates may rise and,
concomitantly, the price of certain of its portfolio securities fall, the
Fund may sell an interest rate futures contract. If declining interest rates
are anticipated, the Fund may purchase an interest rate futures contract to
protect against a potential increase in the price of securities the Fund
intends to purchase. Subsequently, appropriate securities may be purchased by
the Fund in an orderly fashion; as securities are purchased, corresponding
futures positions would be terminated by offsetting sales of contracts.
The Fund will purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices. If the Adviser anticipates that the prices
of securities held by the Fund may fall, the Fund may sell an index futures
contract. Conversely, if the Fund wishes to hedge against anticipated price
rises in those securities which the Fund intends to purchase, the Fund may
purchase an index futures contract.
The Fund will purchase or sell currency futures on currencies in which its
portfolio securities (or anticipated portfolio securities) are denominated
for the purposes of hedging against anticipated changes in currency exchange
rates. The Fund will enter into currency futures contracts for the same
reasons as set forth above for entering into forward foreign currency
contracts; namely, to "lock-in" the value of a security purchased or sold in
a given currency vis-a-vis a different currency or to hedge against an
adverse currency exchange rate movement of a portfolio security's (or
anticipated portfolio security's) denominated currency vis-a-vis a different
currency.
In addition to the above, interest rate, index and currency futures will
be bought or sold in order to close out a short or long position maintained
by the Fund in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. A futures contract
sale is closed out by effecting a futures contract purchase for the same
aggregate amount of the specific type of security (currency) and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the
offsetting purchase price exceeds the sale price, the seller would pay the
difference and would realize a loss. Similarly, a futures contract purchase
is closed out by effecting a futures contract sale for the same aggregate
amount of the specific type of security (currency) and the same delivery
date. If the offsetting sale price exceeds the offsetting sale price, the
purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no
assurance that the Fund will be able to enter into a closing transaction.
Interest Rate Futures Contracts. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or
other liquid portfolio securities equal to approximately 2% of the contract
amount. Initial margin requirements are established by the Exchanges on which
futures contracts trade and may, from time to time, change. In addition,
brokers may establish margin deposit requirements in excess of those required
by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a brokers' client but is, rather, a good faith deposit on the
futures contract which will be returned to the Fund upon the proper
termination of the futures contract. The margin deposits made are marked to
market daily and the Fund may be required to make subsequent deposits of cash
or U.S. Government securities called "variation margin," with the Fund's
futures contract clearing broker, which are reflective of price fluctuations
in the futures contract.
Currency Futures. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise date, for
a set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and
under the same circumstances as forward foreign currency exchange contracts.
The Adviser will assess such factors as cost spreads, liquidity and
transaction costs in determining whether to utilize futures contracts or
forward contracts in its foreign currency transactions and hedging strategy.
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Purchasers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures generally.
In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. Further, settlement of a
foreign currency futures contract must occur within the country issuing the
underlying currency. Thus, the Fund must accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign
restrictions or regulations regarding the maintenance of foreign banking
arrangements by U.S. residents and may be required to pay any fees, taxes or
charges associated with such delivery which are assessed in the issuing
country.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To reduce
this risk, the Fund will not purchase or write options on foreign currency
futures contracts unless and until, in the Co-Adviser's opinion, the market
for such options has developed sufficiently that the risks in connection with
such options are not greater than the risks in connection with transactions
in the underlying foreign currency futures contracts.
Index Futures Contracts. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future
time. An index futures contract purchase would create an obligation by the
Fund, as purchaser, to take delivery of cash at a specified future time.
Futures contracts on indexes do not require the physical delivery of
securities, but provide for a final cash settlement on the expiration date
which reflects accumulated profits and losses credited or debited to each
party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. In addition, due to
current industry practice, daily variations in gains and losses on open
contracts are required to be reflected in cash in the form of variation
margin payments. The Fund may be required to make additional margin payments
during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required
to be paid by or released to the Fund and the Fund realizes a loss or gain.
Options on Futures Contracts. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the term of the option.
Upon exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option is accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract at
the time of exercise exceeds, in case of a call, or is less than, in the case
a put, the exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of
a futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, the
Adviser wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Adviser seeks to hedge. Any premiums received in the writing of options
on futures contracts may, of course, provide a further hedge against losses
resulting from price declines in portions of the Fund's portfolio.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid
for premiums for unexpired options on futures contracts exceeds 5% of the
value of the Fund's total assets, after taking into account unrealized gains
and unrealized losses on such contracts it has entered into, provided,
however,
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<PAGE>
that in the case of an option that is in-the-money (the exercise price of the
call (put) option is less (more) than the market price of the underlying
security) at the time of purchase, the in-the-money amount may be excluded in
calculating the 5%. However, there is no overall limitation on the percentage
of the Fund's assets which may be subject to a hedge position. Except as
described above, there are no other limitations on the use of futures and
options thereon by the Fund.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in initial margin deposits.
Risks of Transactions in Futures Contracts and Related Options. As stated
in the Prospectus, the Fund may sell a futures contract to protect against
the decline in the value of securities (or the currency in which they are
denominated) held by the Fund. However, it is possible that the futures
market may advance and the value of securities (or the currency in which they
are denominated) held in the portfolio of the Fund may decline. If this
occurred, the Fund would lose money on the futures contract and also
experience a decline in value of its portfolio securities. However, while
this could occur for a very brief period or to a very small degree, over time
the value of a diversified portfolio will tend to move in the same direction
as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities (currencies) decreases, then
the Fund may determine not to invest in the securities as planned and will
realize a loss on the futures contract that is not offset by a reduction in
the price of the securities.
If the Fund has sold a call option on a futures contract, it will cover
this position by holding in a segregated account maintained at its Custodian,
cash, U.S. Government securities or other liquid portfolio securities equal
in value (when added to any initial or variation margin on deposit) to the
market value of the securities (currencies) underlying the futures contract
or the exercise price of the option. Such a position may also be covered by
owning the securities (currencies) underlying the futures contract, or by
holding a call option permitting the Fund to purchase the same contract at a
price no higher than the price at which the short position was established.
In addition, if the Fund holds a long position in a futures contract it
will hold cash, U.S. Government securities or other liquid portfolio
securities equal to the purchase price of the contract (less the amount of
initial or variation margin on deposit) in a segregated account maintained
for the
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instrument
underlying interest rate futures contracts it holds at a time when it is
disadvantageous to do so. The inability to close out options and futures
positions could also have an adverse impact on the Fund's ability to
effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on
foreign commodities exchanges may have greater price volatility than their
U.S. counterparts. Furthermore, foreign commodities exchanges may be less
regulated and under less governmental scrutiny than U.S. exchanges. Brokerage
commissions, clearing costs and other transaction costs may be higher on
foreign exchanges. Greater margin requirements may limit the Fund's ability
to enter into certain commodity transactions on foreign exchanges. Moreover,
differences in clearance and delivery requirements on foreign exchanges may
occasion delays in the settlement of the Fund's transactions effected on
foreign exchanges.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through
the broker and/or incur a loss of all or part of its martin deposits with the
broker. Similarly in the event of the bankruptcy of the writer of an OTC
option purchased by the Fund, the Fund could experience a loss of all or part
of the value of the option. Transactions are entered into by the Fund only
with brokers or financial institutions deemed creditworthy by the Co-Adviser.
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<PAGE>
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk which may arise in employing futures contracts to
protect against the price volatility of portfolio securities (and the
currencies in which they are denominated) is that the prices of securities
and indexes subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Fund's portfolio securities (and the currencies in which they are
denominated). Another such risk is that prices of interest rate futures
contracts may not move in tandem with the changes in prevailing interest
rates against which the Fund seeks a hedge. A correlation may also be
distorted (a) temporarily, by short-term traders' seeking to profit from the
difference between a contract or security price objective and their cost of
borrowed funds; (b) by investors in futures contracts electing to close out
their contracts through offsetting transactions rather than meet margin
deposit requirements; (c) by investors in futures contracts opting to make or
take delivery of underlying securities rather than engage in closing
transactions, thereby reducing liquidity of the futures market; and (d)
temporarily, by speculators who view the deposit requirements in the futures
markets as less onerous than margin requirements in the cash market. Due to
the possibility of price distortion in the futures market and because of the
imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of interest
rate trends may still not result in a successful hedging transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be
possible to close out a futures position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments
of variation margin. In addition, limitations imposed by an exchange or board
of trade on which futures contracts are traded may compel or prevent the Fund
from closing out a contract which may result in reduced gain or increased
loss to the Fund. The absence of a liquid market in futures contracts might
cause the Fund to make or take delivery of the underlying securities
(currencies) at a time when it may be disadvantageous to do so.
The extent to which the Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the
Fund's intention to qualify as such (see "Dividends, Distributions and
Taxes").
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss
to the Fund notwithstanding that the purchase or sale of a futures contract
would not result in a loss, as in the instance where there is no movement in
the prices of the futures contract or underlying securities (currencies).
Each Co-Adviser has substantial experience in the use of the investment
techniques described above under the heading "Options and Futures
Transactions," which techniques require skills different from those needed to
select the portfolio securities underlying various options and futures
contracts.
New Instruments. New futures contracts, options and other financial
products and various combinations thereof continue to be developed. The Fund
may invest in any such futures, options or products as may be developed, to
the extent consistent with its investment objective and applicable regulatory
requirements.
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
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<PAGE>
notice, or by the Fund on two business days' notice. If the borrower fails to
deliver the loaned securities within two days after receipt of notice, the
Fund could use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. As with
any extensions of credit, there are risks of delay in recovery and in some
cases even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities
will only be made to firms deemed by the Fund's management to be creditworthy
and when the income which can be earned from such loans justifies the
attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price
during the loan period would inure to the Fund. The creditworthiness of firms
to which the Fund lends its portfolio securities will be monitored on an
ongoing basis by the applicable Co-Adviser pursuant to procedures adopted and
reviewed, on an ongoing basis, by the Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned
securities, to be delivered within one day after notice, to permit the
exercise of such rights if the matters involved would have a material effect
on the Fund's investment in such loaned securities. The Fund will pay
reasonable finder's, administrative and custodial fees in connection with a
loan of its securities.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested
or used for payments of obligations of the Fund. These agreements, which may
be viewed as a type of secured lending by the Fund, typically involve the
acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer.
The agreement provides that the Fund will sell back to the institution, and
that the institution will repurchase, the underlying security ("collateral")
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. The collateral will be maintained in a
segregated account and will be marked to market daily to determine that the
value of the collateral, as specified in the agreement, does not decrease
below the purchase price plus accrued interest. If such decrease occurs,
additional collateral will be requested and, when received, added to the
account to maintain full collateralization. The Fund will accrue interest
from the institution until the time when the repurchase is to occur. Although
such date is deemed by the Fund to be the maturity date of a repurchase
agreement, the maturities of securities subject to repurchase agreements are
not subject to any limits.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed
to minimize such risks. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions whose financial condition will be continually monitored by the
Adviser subject to procedures established by the Board of Trustees of the
Fund. In addition, as described above, the value of the collateral underlying
the repurchase agreement will be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. In the
event of a default or bankruptcy by a selling financial institution, the Fund
will seek to liquidate such collateral. However, the exercising of the Fund's
right to liquidate such collateral could involve certain costs or delays and,
to the extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the 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.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate generally will
not exceed 100%. A 100% turnover rate would occur, for example, if 100% of
the securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced
within the year. The portfolio turnover rate for the fiscal year ended
January 31, 1997 was 66%.
INVESTMENT RESTRICTIONS
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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
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<PAGE>
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, although the Fund
may purchase securities secured by real estate or interests therein. This
shall not prohibit the Trust from purchasing, holding and selling real
estate acquired as a result of the ownership of such securities.
2. Purchase or sell commodities or commodity contracts, except for
hedging purposes as described under "Investment Practices and Policies."
3. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in
the securities of companies which operate, invest in, or sponsor such
programs.
4. Borrow money, except that the Fund may borrow up to 5% of its total
assets for temporary purposes.
5. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in Restriction
4. However, for the purpose of this restriction, collateral arrangements
with respect to hedging transactions, short sales, when-issued, when, as
and if issued and forward commitment transactions and similar investment
strategies 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 or options thereon; (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) investments in Loans through
Participations and Assignments; (c) by investment in repurchase
agreements; or (d) by lending its portfolio securities.
8. Make any short sale of securities except in conformity with applicable
laws, rules and regulations and unless, giving effect to such sale, the
market value of all securities sold short does not exceed 25% of the value
of the Fund's total assets and the Fund's aggregate short sales of a
particular class of securities does not exceed 25% of then outstanding
securities of that class.
9. 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.
10. 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. (The Fund may invest in restricted securities
subject to the non-fundamental limitations contained in the Prospectus).
11. Invest for the purpose of exercising control or management of any
other issuer.
12. Invest in securities of any issuer, other than securities of the
Fund, if, to the knowledge of the Fund, any officer or trustee of the Fund
or any officer or director of the Manager or a Co-Adviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers,
trustees and directors who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such issuer.
If (except with respect to Restriction 4) 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.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
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Subject to the general supervision of the Trustees, each Co-Adviser is
responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any, for its respective portion of
the Fund's portfolio. 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 underwriters' concession or discount. Futures transactions
will usually be effected through a broker and a commission will be charged.
On occasion the Fund may also purchase certain money market instruments
directly from an issuer, in which case no commissions or discounts are paid.
During the fiscal years ended January 31, 1995, 1996 and 1997, the Fund paid
a total of $2,435,239, $1,631,927 and $1,483,314, respectively, in brokerage
commissions.
Each Co-Adviser currently serves as investment adviser to a number of
clients, including other investment companies, and may in the future act as
investment adviser to others. It is the practice of the each Co-Adviser to
cause purchase and sale transactions to be allocated among the Fund and
others whose assets it managed in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, the main
factors considered are the respective investment objectives, relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and
the opinions of the persons responsible for managing the portfolios of the
Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. 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 Co-Advisers from
obtaining a high quality of brokerage and research services. In seeking to
determine the reasonableness of brokerage commissions paid in any
transaction, the Adviser relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on securities exchanges. Fixed commissions on
such transactions are generally higher than negotiated commissions on
domestic transactions. There is also generally less government supervision
and regulation of foreign securities exchanges and brokers than in the United
States.
In seeking to implement the Fund's policies, each Co-Adviser effects
transactions with those brokers and dealers who the Adviser believes provide
the most favorable prices and are capable of providing efficient executions.
If the Co-Adviser believes such prices and executions are obtainable from
more than one broker or dealer, it may give consideration to placing
portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Co-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 January 31, 1997, the Fund directed the payment of
$1,483,314, in brokerage commissions in connection with transactions in the
aggregate amount of $281,981,692 to brokers because of research provided.
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<PAGE>
The information and services received by the Co-Advisers from brokers and
dealers may be of benefit to the Co-Advisers 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 Co-Advisers and thereby reduce their expenses, it
is of indeterminable value and the advisory fee paid to the Co-Advisers 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 & Co. Incorporated and other
affiliated brokers and dealers. In order for an affiliated broker or dealer
to effect any portfolio transactions for the Fund, the commissions, fees or
other remuneration received by the affiliated broker or 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 or 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 or
dealer are consistent with the foregoing standard. The Fund does not reduce
the management fee it pays to the Investment Manager by any amount of the
brokerage commissions it may pay to an affiliated broker or dealer. During
the fiscal years ended January 31, 1995, 1996 and 1997, the Fund did not pay
any brokerage commissions to any affiliated brokers or dealers.
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered
into a selected dealer agreement with DWR, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into selected dealer agreements with other selected broker-dealers. The
Distributor, a Delaware corporation, is a wholly-owned subsidiary of MSDWD.
The Trustees of the Fund, including a majority of the Independent Trustees,
approved, at their meeting held on January 12, 1998, 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%, 1.0% and 1.0% of the average
daily net assets of Class A, Class B and Class C, respectively. 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).
28
<PAGE>
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 service fee is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion
of the Plan fees payable by a Class, if any, is characterized as an
"asset-based sales charge" 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 a majority of the Trustees of the Fund who are not "interested
persons" of the Fund (as defined in the Act) and who have no direct or
indirect financial interest in the operation of the Plan (the "Independent
12b-1 Trustees"), cast in person at a meeting called for the purpose of
voting on the Plan, on April 24, 1997, and was amended by the Trustees,
including a majority of the Independent 12b-1 Trustees, at their meeting held
on January 12, 1998 to reflect the multiple-class structure for the Fund. In
making their decision to adopt the Plan, the Trustees requested from the
Distributor and received such information as they deemed necessary to make an
informed determination as to whether or not adoption of the Plan was in the
best interests of the shareholders of the Fund. After due consideration of
the information received, the Trustees, including the Independent 12b-1
Trustees, determined that the adoption of the Plan would benefit the
shareholders of the Fund. The Plan was approved, by the shareholders holding
a majority, as defined in the Act, of the outstanding voting securities of
the Fund at the Annual Meeting of Shareholders of the Fund held on July 22,
1997. The Plan, as amended to reflect the Fund's multiple-class structure,
took effect on January 26, 1998, upon the conversion of the Fund to an
open-end investment company.
Under its terms, the Plan had an initial term ending April 30, 1998, 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.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each fiscal quarter a written report
provided by the Distributor of the amounts expended under the Plan and the
purpose for which such expenditures were made. In the Trustees' quarterly
reviews of the Plan, they will consider its continued appropriateness and the
level of compensation provided therein.
The 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 $1 million or more (for which no
sales charge was paid) or net asset value purchases by employer-sponsored
401(k) plans 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 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, 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.
29
<PAGE>
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
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.
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. 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.
30
<PAGE>
No interested person of the Fund, nor any Trustee of the Fund who is not
an interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that DWR, InterCapital, the Distributor or the Manager or certain of their
employees, may be deemed to have such an interest as a result of benefits
derived from the successful operation of the Plan or as a result of receiving
a portion of the amounts expended thereunder by the Fund.
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. 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 TCW/DW Funds which are multiple
class funds ("TCW/DW 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 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" or "DWT") 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.
31
<PAGE>
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 TCW/DW Multi-Class Funds held by the shareholder which
were previously purchased at a price including a front-end sales charge
(including shares of the Fund, other TCW/DW Multi-Class Funds or "Exchange
Funds" (see "Shareholder Services--Exchange Privilege") 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 TCW/DW 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 Qualified Retirement 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 Qualified Retirement 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 TCW/DW Fund (see
"Shareholder Services--Targeted Dividends"), plus (c) increases in the net
asset value of the investor's shares above the total amount of payments for
the purchase of Fund shares made during the preceding six (three) years. The
CDSC will be paid to the Distributor.
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. 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 Qualified
Retirement Plans, three years) prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions will be subject
to a CDSC.
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<PAGE>
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 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
33
<PAGE>
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 TCW/DW Fund other than TCW/DW Emerging Markets Opportunities Trust
or in another Class of TCW/DW Emerging Markets Opportunities Trust. 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 TCW/DW Fund as of the close of business on the payment date of the
dividend or distribution and will begin to earn dividends, if any, in the
selected TCW/DW Fund the next business day. To participate in the Targeted
Dividends program, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent. Shareholders of the
Fund must be shareholders of the selected Class of the TCW/DW Fund targeted
to receive investments from dividends at the time they enter the Targeted
Dividends program. Investors should review the prospectus of the targeted
TCW/DW Fund before entering the program.
EasyInvest. (Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account 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 (subjected 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.
34
<PAGE>
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 above. The shareholder may also
terminate the Withdrawal Plan at any time by written notice to the Transfer
Agent. In the event of such termination, the account will be continued as a
regular shareholder investment account. The shareholder may also redeem all
or part of the shares held in the Withdrawal Plan account (see "Repurchases
and Redemptions" in the Prospectus) at any time. Shareholders wishing to
enroll in the Withdrawal Plan should contact their account executive or the
Transfer Agent.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
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 TCW/DW Emerging Markets Opportunities Trust, 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 TCW/DW Multi-Class Fund without the imposition of any
exchange fee. Shares may also be exchanged for TCW/DW North American
Government Income Trust and five money market funds for which InterCapital
serves as investment manager (the foregoing six funds are hereinafter
collectively referred to as the "Exchange Funds"). Exchanges may be made
after the shares of the fund acquired by purchase (not by exchange or
dividend reinvestment) have been held for thirty days. There is no waiting
period for exchanges of shares acquired by exchange or dividend reinvestment.
An exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss.
Shareholders utilizing the Fund's Exchange Privilege may subsequently
re-exchange such shares back to the Fund. However, no exchange privilege is
available between the Fund and any other fund managed by the Manager or
InterCapital, except for other TCW/DW Funds and the five money market funds
listed in the Prospectus.
35
<PAGE>
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 caption "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 TCW/DW
Multi-Class Fund are exchanged for shares of an Exchange Fund, the exchange
is executed at no charge to the shareholder, without the imposition of the
CDSC at the time of the exchange. During the period of time the shareholder
remains in the Exchange Fund (calculated from the last day of the month in
which the Exchange Fund shares were acquired), the holding period or "year
since purchase payment made" is frozen. When shares are redeemed out of the
Exchange Fund, they will be subject to a CDSC which would be based upon the
period of time the shareholder held shares in a TCW/DW Multi-Class Fund.
However, in the case of shares exchanged into an Exchange Fund, upon a
redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the
Exchange Fund 12b-1 distribution fees which are attributable to those shares.
Shareholders acquiring shares of an Exchange Fund pursuant to this exchange
privilege may exchange those shares back into a TCW/DW Multi-Class Fund from
the Exchange Fund, with no charge being imposed on such exchange. The holding
period previously frozen when shares were first exchanged for shares of an
Exchange Fund resumes on the last day of the month in which shares of a
TCW/DW Multi-Class Fund are reacquired. A CDSC is imposed only upon an
ultimate redemption, based upon the time (calculated as described above) the
shareholder was invested in a TCW/DW Multi-Class Fund.
When shares initially purchased in a TCW/DW Multi-Class Fund are exchanged
for shares of a TCW/DW Multi-Class 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 and (ii) originally
acquired through reinvestment of dividends or distributions (all such shares
called "Free Shares") will be exchanged first. After an exchange, all
dividends earned on shares in the Exchange Fund will be considered Free
Shares. If the exchanged amount exceeds the value of such Free Shares, an
exchange is made, on a block-by-block basis, of non-Free Shares held for the
longest period of time. Shares equal to any appreciation in the value of
non-Free Shares exchanged will be treated as Free Shares, and the amount of
the purchase payments for the non-Free Shares of the fund exchanged into will
be equal to the lesser of (a) the purchase payments for, or (b) the current
net asset value of, the exchanged non-Free Shares. If an exchange between
funds would result in exchange of only part of a particular block of non-Free
Shares, then shares equal to any appreciation in the value of the block (up
to the amount of the exchange) will be treated as Free Shares and exchanged
first, and the purchase payment for that block will be allocated on a pro
rata basis between the non-Free Shares of that block to be retained and the
non-Free Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase
payment for such shares, and the amount of purchase payment for the exchanged
non-Free Shares will be equal to the lesser of (a) the prorated amount of the
purchase payment for, or (b) the current net asset value of, those exchanged
non-Free Shares. Based upon the procedures described in the Prospectus under
the caption "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.
36
<PAGE>
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 $5,000 for Dean Witter Liquid
Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter New
York Municipal Money Market Trust and Dean Witter California Tax-Free Daily
Income Trust, although those funds may, at their discretion, accept initial
investments of as low as $1,000. The minimum initial investment for the
Exchange Privilege account of each Class for Dean Witter U.S. Government
Money Market Trust and for all TCW/DW Funds is $1,000.) Upon exchange into an
Exchange Fund, the shares of that fund will be held in a special Exchange
Privilege Account separately from accounts of those shareholders who have
acquired their shares directly from that fund. As a result, certain services
normally available to shareholders of money market funds, including the check
writing feature, will not be available for funds held in that account.
The Fund, each of the other TCW/DW Funds and each of the money market
funds may limit the number of times this Exchange Privilege may be exercised
by any investor within a specified period of time. Also, the Exchange
Privilege may be terminated or revised at any time by the Fund and/or any of
the funds for which shares of the Fund have been exchanged, upon such notice
as may be required by applicable regulatory agencies (presently sixty days
for termination or material revision), provided that six months prior written
notice of termination will be given to the shareholders who hold shares of
Exchange Funds pursuant to this Exchange Privilege, and provided further that
the Exchange Privilege may be terminated or materially revised without notice
at times (a) when the New York Stock Exchange is closed for other than
customary weekends and holidays, (b) when trading on that Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange
Commission by order so permits (provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to
whether the conditions prescribed in (b) or (c) exist) or (e) if the Fund
would be unable to invest amounts effectively in accordance with its
investment objective, policies and restrictions.
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,
37
<PAGE>
or sent to the shareholder at an address other than the registered address,
signatures must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). A stock power may be obtained from any dealer or commercial bank.
The Fund may change the signature guarantee requirements from time to time
upon notice to shareholders, which may be by means of a revised prospectus.
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
- -----------------------------------------------------------------------------
As discussed in the Prospectus under "Dividends, Distributions and Taxes,"
the Fund will determine either to distribute or to retain all or part of any
net long-term capital gains in any year for reinvestment. If any such gains
are retained, the Fund will pay federal income tax thereon, and shareholders
at year-end will be able to claim their
38
<PAGE>
share of the tax paid by the Fund as a credit against their individual
federal income tax. Shareholders will increase their tax basis of Fund shares
owned by an amount equal, under current law, to 65% of the amount of
undistributed capital gains.
The Fund, however, intends to distribute substantially all of its net
investment income and net capital gains to shareholders and otherwise qualify
as a regulated investment company under Subchapter M of the Internal Revenue
Code. It is not expected that the Fund will be required to pay any federal
income tax. Shareholders will normally have to pay federal income taxes, and
any state income taxes, on the dividends and distributions they receive from
the Fund. Such dividends and distributions, to the extent that they are
derived from the net investment income or net short-term capital gains, are
taxable to the shareholder as ordinary income regardless of whether the
shareholder receives such payments in additional shares or in cash. Any
dividends declared in the last quarter of any calendar year which are paid in
the following year prior to February 1 will be deemed received by the
shareholder in the prior calendar year. 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 per dividend, generally, must be met by the Fund and the shareholder.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have a tax holding period of more
than twelve months. Gains or losses on the sale of securities with a tax
holding period of twelve months or less will be short-term capital gains or
losses.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income,
the portion taxable as mid-term and long-term capital gains, and the amount
of dividends eligible for the Federal dividends received deduction available
to corporations. 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.
Under current federal tax law, the Fund will receive net investment income
in the form of interest by virtue of holding Treasury bills, notes and bonds,
and will recognize income attributable to it from holding zero coupon
Treasury securities. Current federal tax law requires that a holder (such as
the Fund) of a zero coupon security accrue a portion of the discount at which
the security was purchased as income each year even though the Fund receives
no interest payment in cash on the security during the year. As an investment
company, the Fund must pay out substantially all of its net investment income
each year. Accordingly, the Fund, to the extent it invests in zero coupon
Treasury securities, may be required to pay out as an income distribution
each year an amount which is greater than the total amount of cash receipts
of interest the Fund actually received. Such distributions will be made from
the available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution of cash necessitates the liquidation of
portfolio securities, the Investment Manager will select which securities to
sell. The Fund may realize a gain or loss from such sales. In the event the
Fund realizes net capital gains from such transactions, its shareholders may
receive a larger capital gain distribution, if any, than they would in the
absence of such transactions.
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 some portion of the 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 long-term capital gains, such payment or
distribution would be in part a return of capital but nonetheless would be
taxable to the shareholder. Therefore, an investor should consider the tax
implications of purchasing Fund shares immediately prior to a distribution
record date.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
39
<PAGE>
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
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 separately for Class A, Class B, Class C and Class D shares. Prior
to January 26, 1998, the Fund operated as a closed-end investment company.
Accordingly, the performance information below may not be indicative of the
Fund's performance as an open-end investment company. The historical
performance of the Class A shares of the Fund has been restated to reflect
the front-end sales charge of such Class A shares in effect as of the date of
this Prospectus. Class A shares are also subject to a 0.25% 12b-1 fee which
is not reflected in the restated historical performance. Including the 12b-1
fee would have the effect of lowering the Fund's performance.
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 restated average annual
total returns of the Fund for the fiscal year ended January 31, 1997 and for
the period from March 30, 1994 (commencement of operations) through January
31, 1997 were 7.10% and 0.33%, respectively. These returns are for Class A
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 restated average annual total returns of the Fund for the
fiscal year ended January 31, 1997 and for the period from March 30, 1994
through January 31, 1997 were 13.03% and 2.25%, 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 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 returns for the fiscal year ended
January 31, 1997 and for the period from March 30, 1994 through January 31,
1997 were 13.03% and 6.53%, 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 to reflect the
front-end sales charge of such Class A shares in effect as of the date of
this Prospectus), 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 $10,094
$51,134 and $103,334, respectively, at January 31, 1997. This information is
for Class A 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.
40
<PAGE>
DESCRIPTION OF SHARES
- -----------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share held. 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
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.
CUSTODIAN AND TRANSFER AGENT
- -----------------------------------------------------------------------------
The Chase Manhattan Bank, One Chase Plaza, New York, New York 10005 is the
Custodian of the Fund's assets. The Chase Manhattan Bank has contracted with
various foreign banks and depositaries to hold securities on behalf of the
Fund. Any of the Fund's cash balances with the Custodian in excess of
$100,000 are unprotected by federal deposit insurance. Such balances may, at
time, 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.
41
<PAGE>
The Fund's fiscal year ends on January 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 annual financial statements of the Fund for the year ended January 31,
1997 included in this Statement of Additional Information and incorporated by
reference into the Prospectus have been so included and incorporated in
reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
42
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS, CONVERTIBLE BONDS,
RIGHTS AND WARRANTS (98.5%)
ARGENTINA (3.4%)
BANKS
21,869 Banco de Galicia y Buenos
Aires S.A. de C.V. (ADR).... $ 533,057
27,122 Banco Frances del Rio de la
Plata S.A. (ADR)............ 813,660
---------------
1,346,717
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
88,917 Molinos Rio de la Plata S.A.
(Class B)*.................. 320,213
---------------
MULTI-INDUSTRY
463,997 Perez Companc S.A. (Class B).. 3,467,271
---------------
OIL & GAS
23,840 Transportadora de Gas del Sur
S.A. (ADR).................. 312,900
---------------
OIL RELATED
79,650 Yacimentos Petroliferos
Fiscales S.A. (ADR)......... 2,220,244
---------------
REAL ESTATE
125,798 Inversiones y Representaciones
S.A. (Class B).............. 460,582
---------------
STEEL
443,000 Siderca S.A. (Class A)........ 833,132
---------------
TELECOMMUNICATIONS
64,900 Telecom Argentina Stet -
France Telecom S.A.......... 305,786
10,110 Telecom Argentina Stet -
France Telecom S.A. (ADR)... 477,697
23,300 Telefonica de Argentina S.A.
(ADR)....................... 710,650
---------------
1,494,133
---------------
TOTAL ARGENTINA............... 10,455,192
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
BRAZIL (14.4%)
BANKING
257,997,804 Banco Bradesco S.A. (Pref.)... $ 2,072,668
1,855,940 Banco Itau S.A. (Pref.)....... 860,875
---------------
2,933,543
---------------
BREWERY
3,287,202 Companhia Cervejaria Brahma
(Pref.)*.................... 1,999,484
---------------
ELECTRIC
46,400,000 Companhia Paranaense de
Energia-Copel............... 625,708
---------------
FINANCIAL SERVICES
1,090,000 Itausa Investimentos Itau S.A.
(Pref.)..................... 833,971
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
1,343,000 Brasmotor S.A. (Pref.)........ 346,796
---------------
METALS & MINING
25,542,000 Companhia Siderurgica
Nacional.................... 831,776
128,340 Companhia Vale do Rio Doce
S.A. (Pref.)................ 2,896,733
---------------
3,728,509
---------------
OIL & GAS
30,161,000 Petroleo Brasileiro S.A.
(Pref.)..................... 5,797,973
---------------
STEEL & IRON
490,000,000 Usinas Siderurgicas de Minas
Gerais S.A. (Pref.)......... 557,670
---------------
TELECOMMUNICATIONS
893,000 Cia Riograndense
Telecomunicacoes S.A........ 819,893
7,050,000 Telecomunicacoes Brasileiras
S.A......................... 569,070
61,800 Telecomunicacoes Brasileiras
S.A. (ADR).................. 5,392,050
99,482,155 Telecomunicacoes Brasileiras
S.A. (Pref.)................ 8,667,583
611,870 Telecomunicacoes de Sao Paulo
S.A......................... 141,030
7,869,300 Telecomunicacoes de Sao Paulo
S.A. (Pref.)*............... 1,843,897
---------------
17,433,523
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<S> <C> <C>
TEXTILES
1,458,000 Companhia de Tecidos Norte de
Minas (Pref.)............... $ 517,328
---------------
UTILITIES - ELECTRIC
4,142,483 Centrais Electricas
Brasileiras S.A............. 1,691,699
8,907,677 Centrais Electricas
Brasileiras S.A. (Pref.).... 3,765,487
36,100 Companhia Energetica de Minas
Gerais (CEMIG) S.A. (Pref.)
(ADR)....................... 1,507,175
16,191 Companhia Energetica de Minas
Gerais S.A. (ADR) -
144A**...................... 675,974
5,135,000 Light Participacoes S.A....... 1,448,761
---------------
9,089,096
---------------
TOTAL BRAZIL.................. 43,863,601
---------------
CHILE (4.6%)
BANKS
52,100 Banco BHIF (ADR)*............. 1,002,925
---------------
BUILDING & CONSTRUCTION
41,450 Madeco S.A. (ADR)............. 1,191,687
---------------
CHEMICALS
23,960 Sociedad Quimica y Minera de
Chile S.A. (ADR)............ 1,395,670
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
49,320 Embotelladora Andina S.A.
(ADR)....................... 1,553,580
---------------
INVESTMENT COMPANIES
36,300 Genesis Chile Fund Ltd........ 1,399,910
695,600 The Five Arrows Chile
Investment Trust Ltd........ 1,999,850
---------------
3,399,760
---------------
SUPERMARKETS
43,120 Santa Isabel S.A. (ADR)....... 1,158,850
---------------
TELECOMMUNICATIONS
95,604 Compania de Telecomunicaciones
de Chile S.A. (ADR)......... 2,378,156
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
UTILITIES - ELECTRIC
20,750 Chilgener S.A. (ADR).......... $ 531,719
48,560 Enersis S.A. (ADR)............ 1,499,290
---------------
2,031,009
---------------
TOTAL CHILE................... 14,111,637
---------------
COLOMBIA (0.8%)
BANKING
102,487 Banco de Bogota............... 571,471
24,265 Banco Industrial Colombiano
S.A. (ADR).................. 421,604
---------------
993,075
---------------
BUILDING & CONSTRUCTION
33,765 Cementos Diamante S.A. (ADR) -
144A**...................... 464,269
44,138 Compania de Cementos Argos
S.A......................... 271,144
---------------
735,413
---------------
FINANCIAL SERVICES
20,020 Compania Suramericana de
Seguros S.A................. 359,493
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
42,290 Compania Nacional de
Chocolates S.A.............. 339,767
---------------
RETAIL
45,000 Almacenes Exito S.A........... 127,587
---------------
TOTAL COLOMBIA................ 2,555,335
---------------
CZECH REPUBLIC (0.9%)
BANKING
19,900 Komercni Banka AS (GDR) -
144A** *.................... 619,885
---------------
TELECOMMUNICATIONS
4,649 SPT Telekom AS*............... 569,036
---------------
TOBACCO
5,400 Tabak AS...................... 1,547,752
---------------
TOTAL CZECH REPUBLIC.......... 2,736,673
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<S> <C> <C>
HONG KONG (5.1%)
CONGLOMERATES
4,828,000 Guangzhou Investments Co.,
Ltd......................... $ 2,289,791
10,000 GZI Transport, Ltd. (Warrants
due 01/29/99)*.............. 2,807
570,000 Hutchison Whampoa, Ltd.*...... 4,303,303
---------------
6,595,901
---------------
FINANCIAL SERVICES
1,468,000 Cosco Pacific Ltd............. 1,638,752
---------------
MANUFACTURING
602,000 Shanghai Industrial Holdings,
Ltd.*....................... 2,144,256
---------------
REAL ESTATE
384,000 Cheung Kong (Holdings) Ltd.... 3,580,472
259,700 New World Development......... 1,602,031
---------------
5,182,503
---------------
TOTAL HONG KONG............... 15,561,412
---------------
HUNGARY (1.3%)
CHEMICALS
21,800 BorsodChem RT (GDR)........... 746,650
---------------
PHARMACEUTICALS
14,997 EGIS RT....................... 997,975
19,689 Gedeon Richter RT (GDR)....... 1,240,407
---------------
2,238,382
---------------
PUBLISHING
2,950 Matav RT...................... 903,362
---------------
TOTAL HUNGARY................. 3,888,394
---------------
INDIA (3.6%)
BANKS
182,000 State Bank of India (GDR)*.... 3,503,500
---------------
BUILDING & CONSTRUCTION
102,000 Larsen & Toubro Ltd. (GDR).... 1,326,000
---------------
INDUSTRIALS
127,000 Mahindra & Mahindra Ltd.
(GDR)....................... 1,397,000
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
METALS
75,950 Hindalco Industries Ltd.
(GDR)*...................... $ 1,670,900
---------------
UTILITIES - ELECTRIC
157,500 BSES Ltd. (GDR)............... 2,992,500
---------------
TOTAL INDIA................... 10,889,900
---------------
INDONESIA (4.5%)
BANKING
4,152,566 PT Bank Internasional
Indonesia................... 3,190,919
2,768,377 PT Bank Internasional
Indonesia (Rights)*......... 1,253,055
---------------
4,443,974
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
804,000 PT Gudang Garam............... 3,926,905
478,570 PT Indofood Sukses Makmur..... 1,057,892
579,000 PT London Sumatra
Indonesia*.................. 1,529,779
---------------
6,514,576
---------------
TELECOMMUNICATIONS
1,533,000 PT Telekomunikasi (ADR)....... 2,743,263
---------------
TOTAL INDONESIA............... 13,701,813
---------------
IRELAND (0.2%)
INVESTMENT COMPANIES
80,000 Central Asian Investment
Company Ltd................. 740,000
---------------
MALAYSIA (17.0%)
AGRICULTURE
1,775,000 IOI Corporation Berhad........ 3,142,478
---------------
AUTOMOTIVE
173,000 Edaran Otomobil Nasional
Berhad...................... 1,712,389
---------------
CONGLOMERATES
688,000 Gadek Berhad.................. 5,259,727
344,000 Gadek Berhad (Warrants due
12/19/00)*.................. 1,204,201
2,213,000 Hicom Holdings Berhad......... 5,520,702
371,250 Hicom Holdings Berhad
(Warrants due 12/18/00)*.... 433,197
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<S> <C> <C>
671,000 United Engineers (Malaysia)
Berhad Ltd.................. $ 6,020,722
---------------
18,438,549
---------------
ENTERTAINMENT/GAMING & LODGING
345,000 Genting Berhad................ 2,345,994
---------------
FINANCIAL SERVICES
841,000 Commerce Asset Holdings
Berhad...................... 6,767,795
1,422,000 DCB Holdings Berhad........... 5,378,345
---------------
12,146,140
---------------
PUBLISHING
1,100,000 New Straits Times Press
Berhad...................... 7,170,160
---------------
REAL ESTATE
1,807,000 Larut Consolidated Berhad..... 2,966,467
---------------
TELECOMMUNICATIONS
490,000 Telekom Malaysia Berhad....... 3,844,606
---------------
UTILITIES
19,000 Prime Utilities Berhad
(Warrants due 03/11/01)*.... 42,429
---------------
TOTAL MALAYSIA................ 51,809,212
---------------
MEXICO (10.4%)
BANKING
356,218 Grupo Financiero Inbursa, S.A.
de C.V. (B Shares).......... 1,276,277
---------------
BUILDING & CONSTRUCTION
56,500 Empresas ICA Sociedad
Controladora S.A. de C.V.
(ADR)*...................... 854,562
---------------
BUILDING MATERIALS
136,600 Apasco S.A. de C.V.
(Series A).................. 984,079
680,200 Cemex S.A. de C.V. (B Shares). 2,785,208
268,300 Grupo Cementos de Chihuahua
S.A. de C.V. (B Shares)*.... 302,116
---------------
4,071,403
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
CONGLOMERATES
371,600 Grupo Carso S.A. de C.V.
(Series A1)*................ $ 2,265,738
532,375 Grupo Industria Alfa S.A. de
C.V. (A Shares)............. 2,775,980
---------------
5,041,718
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
55,300 Empresas la Moderna S.A. de
C.V. (ADR).................. 1,251,162
204,300 Fomento Economico Mexicano
S.A. de C.V. (B Shares)..... 714,985
200,800 Grupo Industrial Bimbo S.A. de
C.V. (Series A)............. 1,210,196
134,900 Grupo Modelo S.A. de C.V.
(Series C).................. 809,573
273,300 Jugos de Valle S.A. de C.V. (B
Shares)..................... 414,759
20,210 Panamerican Beverages, Inc.
(Class A)................... 1,058,499
---------------
5,459,174
---------------
MEDIA GROUP
61,590 Grupo Televisa S.A. (GDR)*.... 1,593,641
---------------
METALS & MINING
94,850 Tubos de Acero de Mexico S.A.
de C.V. (ADR)*.............. 1,659,875
---------------
MULTI-INDUSTRY
184,880 DESC S.A. de C.V. (Series B).. 1,052,740
---------------
PAPER & FOREST PRODUCTS
139,850 Kimberly-Clark de Mexico S.A.
de C.V. (A Shares).......... 2,899,002
---------------
RETAIL
1,873,200 Cifra S.A. de C.V. (C Shares)*. 2,488,012
---------------
TELECOMMUNICATIONS
145,485 Telefonos de Mexico S.A. de
C.V. (Series L) (ADR)....... 5,473,873
---------------
TOTAL MEXICO.................. 31,870,277
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<S> <C> <C>
PAKISTAN (0.0%)
BANKING
19,583 Muslim Commercial Bank........ $ 17,345
---------------
PERU (2.5%)
BREWERY
822,797 Cerveceria Backus & Johnston
S.A......................... 684,886
---------------
BUILDING MATERIALS
651,205 Cementos Lima, S.A............ 1,096,429
---------------
FINANCIAL SERVICES
65,922 Credicorp Ltd. (ADR).......... 1,384,362
---------------
METALS & MINING
86,801 Companhia de Minas
Buenaventura S.A.
(A Shares).................. 710,205
20,125 Companhia de Minas
Buenaventura S.A.
(B Shares).................. 157,619
37,000 Companhia de Minas
Buenaventura S.A. (ADR)*.... 587,375
---------------
1,455,199
---------------
TELECOMMUNICATIONS
31,150 CPT Telefonica del Peru S.A.
(ADR)....................... 673,619
1,126,424 CPT Telefonica del Peru S.A.
(B Shares).................. 2,442,077
---------------
3,115,696
---------------
TOTAL PERU.................... 7,736,572
---------------
PHILIPPINES (4.8%)
BANKS
569,900 Bank of the Philippine
Islands..................... 3,940,798
---------------
BUILDING & CONSTRUCTION
$ 2,150,000 Bacnotan Consolidated
Industries 5.50% due
06/21/04 (Conv.)............ 1,795,250
4,596,600 HI Cement Corporation......... 1,921,071
---------------
3,716,321
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
673,020 San Miguel Corp. (Class B).... 2,710,491
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
UTILITIES - ELECTRIC
513,580 Manila Electric Co.
(B Shares).................. $ 4,312,355
---------------
TOTAL PHILIPPINES............. 14,679,965
---------------
POLAND (3.4%)
BANKS
53,334 Bank Rozwoju Exsportu S.A..... 1,688,910
---------------
BUILDING & CONSTRUCTION
474,000 Mostostal Export S.A.......... 1,200,800
---------------
CONGLOMERATES
216,355 Electrim Spolka Akcyjna S.A... 2,278,939
78,748 Powszechne Swiadectwo
Udzialowe................... 3,753,655
---------------
6,032,594
---------------
PUBLISHING
7,892 International Trading &
Investment Co............... 1,499,480
---------------
TOTAL POLAND.................. 10,421,784
---------------
PORTUGAL (2.3%)
BUILDING & CONSTRUCTION
92,000 Sociedade de Construcoes
Soares de Costa S.A......... 937,908
---------------
BUILDING MATERIALS
33,200 Cimentos de Portugal S.A...... 761,136
---------------
FINANCIAL SERVICES
77,400 Espirito Santo Financial
Holdings S.A. (ADR)......... 1,141,650
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
100,687 Corticeira Amorim S.A......... 1,198,567
---------------
FOREST PRODUCTS, PAPER & PACKAGING
29,950 Portucel Industrial Empresa
S.A......................... 176,348
---------------
TELECOMMUNICATIONS
41,000 Portugal Telecom S.A.......... 1,416,545
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<S> <C> <C>
TEXTILES
36,600 Sonae Investimentos Sociedade
Gestora de Participacoes
Sociais S.A................. $ 1,223,339
---------------
TOTAL PORTUGAL................ 6,855,493
---------------
RUSSIA (3.1%)
GAS
48,000 Gazprom (ADR) - 144A**........ 966,000
---------------
OIL & GAS
36,632 Lukoil Holding Co. (ADR) -
144A**...................... 2,069,708
36 Megionnefte Gai (RDC) -
144A**...................... 1,926,000
---------------
3,995,708
---------------
TELECOMMUNICATIONS
57 Rostelecom (RDC) - 144A**..... 1,969,350
---------------
UTILITIES - ELECTRIC
61,594 Mosenergo (ADR) - 144A**...... 2,563,850
---------------
TOTAL RUSSIA.................. 9,494,908
---------------
SOUTH KOREA (3.4%)
ELECTRONIC & ELECTRICAL EQUIPMENT
22,500 Samsung Electronics (GDR)..... 1,547,260
---------------
METALS & MINING
170,200 Pohang Iron & Steel Co., Ltd.
(ADR)....................... 3,893,325
---------------
UTILITIES - ELECTRIC
214,000 Korea Electric Power Corp.
(ADR)....................... 4,789,320
---------------
TOTAL SOUTH KOREA............. 10,229,905
---------------
TAIWAN (4.9%)
COMPUTERS
180,600 Acer Inc. (GDR)............... 1,697,640
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT
$ 1,310,000 United Microelectronics Corp.
- 144A** 1.25% due 06/08/04
(Conv.)..................... 1,837,275
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
INVESTMENT COMPANIES
491,200 ROC Taiwan Fund............... $ 5,341,800
295,466 The Taiwan Index Fund Ltd..... 3,841,058
---------------
9,182,858
---------------
MERCHANDISING
$ 640,000 Far Eastern Department Stores
3.00% due 07/06/01 (Conv.).. 683,200
---------------
STEEL & IRON
82,000 China Steel Corp. (GDS)....... 1,496,500
---------------
TOTAL TAIWAN.................. 14,897,473
---------------
THAILAND (2.1%)
BANKING
252,000 Bangkok Bank PCL.............. 2,179,460
---------------
OIL RELATED
304,000 PTT Exploration & Production
PCL......................... 4,366,332
---------------
TOTAL THAILAND................ 6,545,792
---------------
TURKEY (4.5%)
BANKS - COMMERCIAL
11,725,000 Turkiye Is Bankasi (C Shares). 2,977,938
---------------
BUILDING & CONSTRUCTION
6,837,000 Akcansa Cimento A.S........... 1,000,680
---------------
FINANCIAL SERVICES
42,222,000 Aksigorta..................... 2,253,779
---------------
HOUSEHOLD APPLIANCES
12,898,000 Arcelik AS.................... 2,554,059
---------------
INDUSTRIALS
3,959,000 Kordsa Kord Bezi Sanayi Ve
Ticaret A.S................. 2,215,540
---------------
RETAIL
1,520,000 Migros Turk TAS............... 1,995,695
---------------
TEXTILES
9,545,455 Sasa Sun I Ve Senetik Ejyaf... 862,913
---------------
TOTAL TURKEY.................. 13,860,604
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<S> <C> <C>
VENEZUELA (1.3%)
TELECOMMUNICATIONS
136,300 Compania Anonima Nacional
Telefonos de Venezuela
(Class D) (ADR)*............ $ 3,850,475
---------------
TOTAL COMMON AND PREFERRED
STOCKS, CONVERTIBLE BONDS,
RIGHTS AND WARRANTS
(IDENTIFIED COST
$244,876,925) (A)........... 98.5% 300,773,762
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES....... 1.5 4,533,772
----- ------------
NET ASSETS.................. 100.0% $305,307,534
===== ============
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
GDS Global Depository Shares.
RDC Russian Depository Certificate.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $65,606,851 and the
aggregate gross unrealized depreciation is $9,710,014, resulting in net
unrealized appreciation of $55,896,837.
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JANUARY 31, 1997:
<TABLE>
<CAPTION>
CONTRACTS IN EXCHANGE DELIVERY UNREALIZED
TO RECEIVE FOR DATE APPRECIATION
- -------------------------------------------------------------------
<S> <C> <C> <C>
MYR 1,064,317 $427,643 02/03/97 $ 602
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
SUMMARY OF INVESTMENTS JANUARY 31, 1997
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------
<S> <C> <C>
Agriculture............................. $ 3,142,478 1.0%
Automotive.............................. 1,712,389 0.6
Banking................................. 12,463,559 4.1
Banks................................... 11,482,850 3.8
Banks - Commercial...................... 2,977,938 1.0
Brewery................................. 2,684,370 0.9
Building & Construction................. 10,963,371 3.6
Building Materials...................... 5,928,968 1.9
Chemicals............................... 2,142,320 0.7
Computers............................... 1,697,640 0.6
Conglomerates........................... 36,108,762 11.8
Electric................................ 625,708 0.2
Electronic & Electrical Equipment....... 3,384,535 1.1
Entertainment/Gaming & Lodging.......... 2,345,994 0.8
Financial Services...................... 19,758,147 6.5
Food, Beverage, Tobacco & Household
Products.............................. 18,443,164 6.0
Forest Products, Paper & Packaging...... 176,348 0.1
Gas..................................... 966,000 0.3
Household Appliances.................... 2,554,059 0.8
Industrials............................. 3,612,540 1.2
Investment Companies.................... 13,322,618 4.4
Manufacturing........................... 2,144,256 0.7
Media Group............................. 1,593,641 0.5
Merchandising........................... 683,200 0.2
Metals.................................. 1,670,900 0.5
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------
Metals & Mining......................... $ 10,736,908 3.5%
Multi-Industry.......................... 4,520,011 1.5
Oil & Gas............................... 10,106,581 3.3
Oil Related............................. 6,586,576 2.2
Paper & Forest Products................. 2,899,002 0.9
Pharmaceuticals......................... 2,238,382 0.7
Publishing.............................. 9,573,002 3.1
Real Estate............................. 8,609,552 2.8
Retail.................................. 4,611,294 1.5
Steel................................... 833,132 0.3
Steel & Iron............................ 2,054,170 0.7
Supermarkets............................ 1,158,850 0.4
Telecommunications...................... 44,288,656 14.5
Textiles................................ 2,603,580 0.9
Tobacco................................. 1,547,752 0.5
Utilities............................... 42,429 0.0
Utilities - Electric.................... 25,778,130 8.4
------------ ---
$300,773,762 98.5%
============ ===
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ------------------------------------------------------------------
<S> <C> <C>
Common Stocks........................... $261,854,708 85.8%
Convertible Bonds....................... 4,315,725 1.4
Preferred Stocks........................ 31,667,640 10.3
Rights.................................. 1,253,055 0.4
Warrants................................ 1,682,634 0.6
------------ ---
$300,773,762 98.5%
============ ===
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $244,876,925)............................ $300,773,762
Cash........................................................ 4,280,738
Receivable for:
Investments sold........................................ 1,456,180
Dividends............................................... 204,857
Interest................................................ 119,966
Deferred organizational expenses............................ 21,454
Prepaid expenses and other assets........................... 7,537
-------------
TOTAL ASSETS........................................... 306,864,494
-------------
LIABILITIES:
Payable for:
Investments purchased................................... 1,004,725
Management fee.......................................... 213,606
Investment advisory fee................................. 142,404
Accrued expenses and other payables......................... 196,225
-------------
TOTAL LIABILITIES...................................... 1,556,960
-------------
NET ASSETS:
Paid-in-capital............................................. 300,121,378
Net unrealized appreciation................................. 55,897,414
Dividends in excess of net investment income................ (810,770)
Accumulated net realized loss............................... (49,900,488)
-------------
NET ASSETS............................................. $305,307,534
=============
NET ASSET VALUE PER SHARE,
20,763,733 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$14.70
============================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $553,516 foreign withholding tax)......... $ 4,459,344
Interest.................................................... 639,964
-----------
TOTAL INCOME........................................... 5,099,308
-----------
EXPENSES
Management fee.............................................. 2,091,746
Investment advisory fee..................................... 1,394,498
Custodian fees.............................................. 751,360
Transfer agent fees and expenses............................ 284,526
Professional fees........................................... 98,445
Shareholder reports and notices............................. 45,152
Trustees' fees and expenses................................. 35,290
Registration fees........................................... 28,602
Organizational expenses..................................... 10,065
Other....................................................... 28,086
-----------
TOTAL EXPENSES......................................... 4,767,770
-----------
NET INVESTMENT INCOME.................................. 331,538
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on:
Investments............................................ (1,565,236)
Foreign exchange transactions.......................... (96,922)
-----------
NET LOSS................................................ (1,662,158)
-----------
Net change in unrealized appreciation/depreciation on:
Investments............................................. 35,900,467
Translation of forward foreign currency contracts, other
assets and liabilities denominated in foreign
currencies............................................ 1,373
-----------
NET APPRECIATION........................................ 35,901,840
-----------
NET GAIN................................................ 34,239,682
-----------
NET INCREASE............................................ $34,571,220
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR
ENDED FOR THE YEAR
JANUARY 31, ENDED
1997 JANUARY 31, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 331,538 $ 731,242
Net realized loss........................................... (1,662,158) (30,710,157)
Net change in unrealized appreciation/depreciation.......... 35,901,840 67,504,368
--------------- ----------------
NET INCREASE........................................... 34,571,220 37,525,453
Dividends from net investment income........................ (963,188) (483,373)
Net decrease from transactions in shares of beneficial
interest.................................................. (1,472,887) (18,227,939)
--------------- ----------------
NET INCREASE........................................... 32,135,145 18,814,141
NET ASSETS:
Beginning of period......................................... 273,172,389 254,358,248
--------------- ----------------
END OF PERIOD
(INCLUDING DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME
OF $810,770 AND UNDISTRIBUTED NET INVESTMENT INCOME OF
$544,780, RESPECTIVELY)................................. $ 305,307,534 $ 273,172,389
=============== ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
TCW/DW Emerging Markets Opportunities Trust (the "Trust") is registered under
the Investment Company Act of 1940, as amended, as a non-diversified, closed-end
management investment company. The Trust's investment objective is to seek
capital appreciation through investment in equity securities of emerging market
countries. The Trust was organized as a Massachusetts business trust on
December 22, 1993 and commenced operations on March 30, 1994.
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 (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (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); (4) certain of the Trust's
portfolio securities may be valued by an outside pricing service approved by the
Trustees. The pricing service may utilize a matrix system incorporating security
quality, maturity and coupon as the evaluation model parameters, and/or research
and evaluation by its staff, including review of broker-dealer market price
quotations, if available, in determining what it believes is the fair valuation
of the portfolio securities valued by such pricing service; and (5) short-term
debt securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
54
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1997, CONTINUED
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Dividend
income and other distributions are recorded on the ex-dividend date except for
certain dividends on foreign securities which are recorded as soon as the Trust
is informed after the ex-dividend date. Interest income is accrued daily.
C. FOREIGN CURRENCY TRANSLATION -- The books and records of the Trust are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Trust does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
D. FORWARD FOREIGN CURRENCY CONTRACTS -- The Trust may enter into forward
foreign currency contracts as a hedge against fluctuations in foreign exchange
rates. Forward contracts are valued daily at the appropriate exchange rates. The
resultant exchange gains and losses are included in the Statement of Operations
as unrealized gain/loss on foreign exchange transactions. The Trust records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
E. FEDERAL INCOME TAX STATUS -- It is the Trust'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.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust 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
55
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1997, CONTINUED
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.
G. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc., an affiliate of
Dean Witter Services Company Inc. (the "Manager"), paid the organizational
expenses of the Trust in the amount of approximately $50,000 which have been
reimbursed by the Trust for the full amount thereof. 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 Trust pays the Manager a management fee,
calculated weekly and payable monthly, by applying the annual rate of 0.75% to
the Trust's average weekly net assets.
Under the terms of the Management Agreement, the Manager maintains certain of
the Trust'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 Trust who are employees
of the Manager. The Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Trust.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement with the Adviser, the Trust pays
the Adviser an advisory fee, calculated weekly and payable monthly, by applying
the annual rate of 0.50% to the Trust's average weekly net assets.
Under the terms of the Investment Advisory Agreement, the Trust has retained the
Adviser to invest the Trust'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 Trust in a manner consistent with its investment objective. In addition,
the Adviser pays the salaries of all personnel, including officers of the Trust,
who are employees of the Adviser.
56
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1997, CONTINUED
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended January 31, 1997 aggregated
$179,494,367 and $177,488,161, respectively.
Dean Witter Trust Company, an affiliate of the Manager, is the Trust's transfer
agent. At January 31, 1997, the Trust had transfer agent fees and expenses
payable of approximately $51,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
----------- -------------- ------------
<S> <C> <C> <C>
Balance, January 31, 1995........................................ 22,757,533 $227,575 $319,527,933
Treasury shares purchased and retired (weighted average
discount 15.96%)*................................................ (1,857,300) (18,573) (18,209,366)
----------- -------------- ------------
Balance, January 31, 1996........................................ 20,900,233 209,002 301,318,567
Treasury shares purchased and retired (weighted average
discount 18.33%)*................................................ (136,500) (1,365) (1,471,522)
----------- -------------- ------------
Balance, January 31, 1997........................................ 20,763,733 $207,637 $299,847,045
=========== ============== ============
</TABLE>
- ---------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At January 31, 1997, the Fund had a net capital loss carryover of approximately
$48,382,000 of which $40,283,000 will be available through January 31, 2004 and
$8,099,000 will be available through January 31, 2005 to offset future capital
gains to the extent provided by regulations.
Capital and foreign currency losses incurred after October 31 ("post-October"
losses) within the taxable year are deemed to arise on the first business day of
the Fund's next taxable year. The Fund incurred and will elect to defer net
capital and foreign currency losses of approximately $1,107,000 and $17,000,
respectively, during fiscal 1997.
As of January 31, 1997, the Fund had temporary book/tax differences primarily
attributable to post-October losses, capital loss deferrals on wash sales and
income from the mark-to-market of passive foreign investment companies
("PFICs"). The Fund had permanent book/tax differences primarily attributable to
foreign currency losses and tax adjustments on PFICs sold by the Fund. To
reflect reclassifications arising from the permanent differences, dividends in
excess of net investment income was charged and accumulated net realized loss
was credited $723,900.
57
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1997, CONTINUED
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Trust may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated portfolio
transactions or to manage foreign currency exposure associated with foreign
currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Trust bears the risk
of an unfavorable change in foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At January 31, 1997, the Trust had an outstanding forward contract to facilitate
settlement of a foreign currency denominated portfolio transaction.
At January 31, 1997, the Trust's cash balance consisted principally of interest
bearing deposits with Chase Manhattan N.A., the Trust's custodian.
8. SUBSEQUENT EVENTS (unaudited)
On July 22, 1997 a shareholder proposal to convert the Trust from a closed-end
investment company to an open-end investment company was approved by the Trust's
shareholders. It is anticipated that this conversion will take place by the end
of the Trust's fiscal year in January 1998.
On November 6, 1997 the Board of Trustees of the Trust approved a Co-Investment
Advisory Agreement between the Trust and the Advisor and a Co-Investment
Advisory Agreement between the Trust and Morgan Stanely Asset Management Inc.
("MSAM"), an affiliate of the Manager. The aggregate fees to be paid by the
Trust under the proposed Agreements will be the same as the fees paid by the
Trust under the present Agreement. Both Agreements are subject to the
consent of the Trust's shareholders.
58
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 30, 1994*
FOR THE FOR THE THROUGH
YEAR ENDED YEAR ENDED JANUARY 31,
JANUARY 31, 1997 JANUARY 31, 1996 1995++
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 13.07 $ 11.18 $ 14.02
------- ------ ------
Net investment income.............. 0.02 0.04 0.11
Net realized and unrealized gain
(loss)............................ 1.65 1.73 (2.89)
------- ------ ------
Total from investment operations... 1.67 1.77 (2.78)
------- ------ ------
Offering costs charged against
capital........................... -- -- (0.02)
------- ------ ------
Less dividends and distributions
from:
Net investment income........... (0.05) (0.02) (0.09)
Net realized gain............... -- -- (0.01)
------- ------ ------
Total dividends and distributions.. (0.05) (0.02) (0.10)
------- ------ ------
Anti-dilutive effect of acquiring
treasury shares................... 0.01 0.14 0.06
------- ------ ------
Net asset value, end of period..... $ 14.70 $ 13.07 $ 11.18
======= ====== ======
Market value, end of period........ $13.125 $ 12.25 $ 9.875
======= ====== ======
TOTAL INVESTMENT RETURN+........... 7.59% 24.28% (33.52)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.72% 1.69% 1.73%(2)
Net investment income.............. 0.12% 0.28% 0.94%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $305,308 $273,172 $254,358
Portfolio turnover rate............ 66% 66% 61%(1)
Average commission rate paid....... $0.0012 -- --
- ---------------------
* Commencement of operations.
(1) Not annualized.
(2) Annualized.
++ Restated for comparative purposes.
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends and distributions are assumed to be
reinvested at the prices obtained under the Trust's dividend reinvestment
plan. Total investment return does not reflect brokerage commissions.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF TCW/DW EMERGING MARKETS OPPORTUNITIES 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 Emerging Markets
Opportunities Trust (the "Trust") at January 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 two years in the period then ended and for the period March 30, 1994
(commencement of operations) through January 31, 1995, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust'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 January 31, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
MARCH 13, 1997
1997 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended January 31, 1997, the Trust has elected,
pursuant to Section 853 of the Internal Revenue Code, to pass
through foreign taxes of $0.03 per share to its shareholders. The
Trust generated foreign source income of $0.03 per share with
respect to this election.
60
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS, CONVERTIBLE BONDS
AND WARRANTS (95.5%)
ARGENTINA (5.2%)
BANKS
44,219 Banco de Galicia y Buenos Aires
S.A. de C.V. (ADR)........... $ 1,387,371
46,656 Banco Frances del Rio de la
Plata S.A. (ADR)............. 1,656,288
---------------
3,043,659
---------------
ELECTRIC
41,709 Capex S.A...................... 358,766
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
121,387 Molinos Rio de la Plata S.A.
(Class B)*................... 449,217
---------------
INVESTMENT COMPANIES
158,900 CEI Citicorp Holdings S.A...... 1,188,798
---------------
MULTI-INDUSTRY
593,856 Perez Companc S.A. (Class B)... 4,876,484
---------------
OIL & GAS
113,890 Yacimentos Petroliferos
Fiscales S.A. (ADR).......... 3,687,189
---------------
REAL ESTATE
185,098 Inversiones y Representaciones
S.A. (Class B)............... 809,032
---------------
STEEL
507,401 Siderca S.A. (Class A)......... 1,375,318
---------------
TELECOMMUNICATIONS
64,900 Telecom Argentina Stet - France
Telecom S.A.................. 374,544
12,910 Telecom Argentina Stet - France
Telecom S.A. (ADR)........... 746,359
53,070 Telefonica de Argentina S.A.
(ADR)........................ 2,106,216
---------------
3,227,119
---------------
TOTAL ARGENTINA................ 19,015,582
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
BRAZIL (18.7%)
BANKING
89,187,804 Banco Bradesco S.A. (Pref.).... $ 967,732
1,855,940 Banco Itau S.A. (Pref.)........ 1,098,585
---------------
2,066,317
---------------
BREWERY
3,287,202 Companhia Cervejaria Brahma
(Pref.)...................... 2,489,124
---------------
BUILDING MATERIALS
184,000 Companhia Cimento Portland Itau
(Pref.)...................... 60,319
---------------
ELECTRIC
25,000,000 Companhia Paranaense de
Energia-Copel................ 474,421
51,530 Compania Paranaense de
Energia-Copel (ADR).......... 991,952
---------------
1,466,373
---------------
GAS
43,020,000 Petrobras Distribuidora
(Pref.)...................... 1,418,242
---------------
METALS & MINING
148,140 Companhia Vale do Rio Doce S.A.
(Pref.)...................... 3,885,101
---------------
MISCELLANEOUS
1,458,000 Encorpar S.A................... --
---------------
MULTI-INDUSTRY
2,633,000 Itausa Investimentos Itau S.A.
(Pref.)...................... 2,553,006
---------------
OIL & GAS
32,551,000 Petroleo Brasileiro S.A.
(Pref.)...................... 9,889,444
---------------
STEEL & IRON
48,650 Usinas Siderurgicas de Minas
Gerais S.A. (Pref.).......... 567,860
---------------
TELECOMMUNICATIONS
924,806 Cia Riograndense
Telecomunicacoes S.A......... 1,537,643
9,820,000 Telecomunicacoes Brasileiras
S.A.......................... 1,346,543
67,100 Telecomunicacoes Brasileiras
S.A. (ADR)................... 9,955,962
85,765,125 Telecomunicacoes Brasileiras
S.A. (Pref.)................. 12,751,118
611,870 Telecomunicacoes de Sao Paulo
S.A.*........................ 188,155
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
<S> <C> <C>
369,589 Telecomunicacoes de Sao Paulo
S.A. (Pref.) (RCP)........... $ 123,208
7,869,300 Telecomunicacoes de Sao Paulo
S.A. (Pref.)................. 2,688,744
---------------
28,591,373
---------------
TEXTILES
1,458,000 Companhia de Tecidos Norte de
Minas (Pref.)................ 549,325
---------------
UTILITIES - ELECTRIC
2,268,483 Centrais Electricas Brasileiras
S.A.......................... 1,235,924
7,084,677 Centrais Electricas Brasileiras
S.A. (Pref.)................. 4,187,084
50,584,000 Companhia Energetica de Minas
Gerais S.A. (Pref.).......... 2,849,408
63,700 Companhia Energetica de Minas
Gerais S.A. (ADR)............ 3,583,125
16,191 Companhia Energetica de Minas
Gerais S.A. (Pref.) (ADR) -
144A**....................... 910,744
3,840,800 Light Participacoes, S.A....... 1,737,919
---------------
14,504,204
---------------
TOTAL BRAZIL................... 68,040,688
---------------
CHILE (5.3%)
BANKS
52,100 Banco BHIF (ADR)*.............. 1,107,125
86,700 Banco Santander Chile (ADR).... 1,365,525
---------------
2,472,650
---------------
ELECTRIC
19,500 Chilectra S.A. (ADR) - 144A**.. 591,094
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
81,820 Embotelladora Andina S.A.
(Series A) (ADR)............. 1,738,675
49,320 Embotelladora Andina S.A.
(Series B) (ADR)............. 1,017,225
32,400 Vina Concha Y Toro (ADR)....... 984,150
---------------
3,740,050
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
INVESTMENT COMPANIES
48,715 Genesis Chile Fund Ltd......... $ 2,484,465
826,500 The Five Arrows Chile
Investment Trust Fund Ltd.... 2,756,377
---------------
5,240,842
---------------
MULTI-INDUSTRY
48,050 Madeco S.A. (ADR).............. 1,159,206
---------------
RETAIL
27,315 Supermercados Unimarc S.A.
(ADR)*....................... 472,891
---------------
SUPERMARKETS
15,720 Santa Isabel S.A. (ADR)........ 432,300
---------------
TELECOMMUNICATIONS
95,604 Compania de Telecomunicaciones
de Chile S.A. (ADR).......... 3,148,957
---------------
UTILITIES - ELECTRIC
27,595 Chilgener S.A. (ADR)........... 820,951
32,560 Enersis S.A. (ADR)............. 1,210,825
---------------
2,031,776
---------------
TOTAL CHILE.................... 19,289,766
---------------
CHINA (0.1%)
MACHINERY
596,000 First Tractor Co. (H Shares)*.. 419,610
---------------
COLOMBIA (1.9%)
BANKING
203,774 Banco de Bogota................ 1,216,643
41,665 Banco Industrial Colombiano
S.A. (ADR)................... 708,305
---------------
1,924,948
---------------
BUILDING & CONSTRUCTION
48,265 Cementos Diamante S.A. (ADR) -
144A**....................... 687,776
156,108 Compania de Cementos Argos S.A. 1,177,327
---------------
1,865,103
---------------
FINANCIAL SERVICES
72,114 Compania Suramericana de
Seguros S.A.................. 1,814,181
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
<S> <C> <C>
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
103,490 Compania Nacional de Chocolates
S.A.......................... $ 905,933
---------------
RETAIL
45,000 Almacenes Exito S.A............ 155,549
---------------
TOTAL COLOMBIA................. 6,665,714
---------------
EGYPT (0.9%)
BANKS
85,000 Commercial International Bank
(GDR) -144A**................ 1,921,000
36,000 MISR International Bank, S.A.E
(GDR) - 144A**............... 540,000
---------------
2,461,000
---------------
BUILDING MATERIALS
45,000 Suez Cement Co. (GDR) - 144A**. 882,000
---------------
TOTAL EGYPT.................... 3,343,000
---------------
HONG KONG (6.0%)
CHEMICALS
4,412,000 China Merchants Holdings
International Co., Ltd....... 12,681,437
---------------
ELECTRIC
3,189,000 Beijing Datang Power Generation
Co., Ltd.*................... 1,616,952
---------------
RETAIL - DEPARTMENT STORES
2,556,000 China Everbright-IHD Pacific
Ltd.......................... 7,412,763
---------------
TOTAL HONG KONG................ 21,711,152
---------------
HUNGARY (1.4%)
CHEMICALS
21,800 BorsodChem RT (GDR) - 144A**... 806,600
---------------
HOTELS
30,633 Pannonia Hotels................ 516,055
---------------
PHARMACEUTICALS
14,997 EGIS RT........................ 992,045
19,689 Gedeon Richter RT
(GDR) -144A***................ 1,904,911
---------------
2,896,956
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
PUBLISHING
2,550 Matav RT*...................... $ 778,230
400 Matav RT (Series A)............ 122,075
---------------
900,305
---------------
TOTAL HUNGARY.................. 5,119,916
---------------
INDIA (4.8%)
AUTO TRUCKS & PARTS
97,000 Tata Engineering & Locomotive
Co. Ltd. (GDR) -144A**....... 1,193,100
---------------
BANKS
201,200 State Bank of India (GDR)*..... 5,281,500
---------------
FINANCIAL SERVICES
64,950 Hindalco Industries Ltd.
(GDR)*....................... 2,354,437
---------------
INDUSTRIALS
130,000 Mahindra & Mahindra Ltd.
(GDR)*....................... 1,865,500
---------------
PHARMACEUTICALS
64,000 Ranbaxy Laboratories Ltd.
(GDR)........................ 1,552,000
---------------
TELECOMMUNICATIONS
109,500 Videsh Sanchar Nigam Ltd.
(GDR)*....................... 1,861,500
---------------
UTILITIES - ELECTRIC
139,600 BSES Ltd. (GDR)................ 3,315,500
---------------
TOTAL INDIA.................... 17,423,537
---------------
INDONESIA (3.4%)
BANKING
4,986,939 PT Bank Internasional
Indonesia.................... 3,487,036
615,194 PT Bank Internasional Indonesia
(Warrants due 01/17/00)*..... 192,101
---------------
3,679,137
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
533,000 PT Gudang Garam................ 2,016,619
1,389,600 PT London Sumatra Indonesia*... 1,770,276
---------------
3,786,895
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
<S> <C> <C>
RETAIL
947,000 PT Ramayana Lestari Sentosa*... $ 2,430,996
---------------
TELECOMMUNICATIONS
1,533,000 PT Telekomunikasi.............. 2,349,425
---------------
TOTAL INDONESIA................ 12,246,453
---------------
IRELAND (0.2%)
INVESTMENT COMPANIES
80,000 Central Asian Investment
Company Ltd.................. 600,000
---------------
KAZAKHSTAN (0.3%)
BANKS
42,400 Kazkommertsbank Co. (GDR) -
144A **...................... 1,060,000
---------------
MALAYSIA (5.8%)
AGRICULTURE
151,000 IOI Corporated Berhad.......... 160,004
644,000 Kulim (Malaysia) Berhad........ 1,071,295
---------------
1,231,299
---------------
CONGLOMERATES
636,000 Gadek Berhad................... 2,874,440
305,000 Gadek Berhad (Warrants due
12/19/00)*................... 509,685
173,250 Hicom Holdings Berhad (Warrants
due 12/18/00)*............... 123,703
621,000 United Engineers (Malaysia)
Berhad Ltd................... 4,339,688
---------------
7,847,516
---------------
FINANCIAL SERVICES
1,232,000 Commerce Asset Holdings
Berhad....................... 3,088,188
1,218,000 DCB Holdings Berhad............ 3,307,520
---------------
6,395,708
---------------
LEISURE
372,000 Magnum Corporation Berhad...... 477,539
---------------
RETAIL
1,807,000 Larut Consolidated Berhad...... 1,763,764
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
TELECOMMUNICATIONS
863,000 Tenaga Nasional Berhad......... $ 3,474,288
---------------
TOTAL MALAYSIA................. 21,190,114
---------------
MEXICO (13.2%)
BUILDING & CONSTRUCTION
56,500 Empresas ICA Sociedad
Controladora S.A. de C.V.
(ADR)*....................... 1,059,375
---------------
BUILDING MATERIALS
187,500 Apasco S.A. de C.V............. 1,438,987
767,600 Cemex S.A. de C.V. (B Shares).. 4,329,900
---------------
5,768,887
---------------
CONGLOMERATES
432,200 Grupo Carso S.A. de C.V.
(Series A1)*................. 3,449,639
593,575 Grupo Industria Alfa S.A. de
C.V. (A Shares).............. 4,859,146
---------------
8,308,785
---------------
CONSUMER PRODUCTS
905,250 Kimberly-Clark de Mexico, S.A.
de C.V. (A Shares)........... 4,284,248
---------------
FINANCIAL SERVICES
414,618 Grupo Financiero Inbursa, S.A.
de C.V. (B Shares)........... 1,994,070
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
55,300 Empresas la Moderna S.A. de
C.V. (ADR)................... 1,220,056
260,200 Fomento Economico Mexicano,
S.A. de C.V. (B Shares)...... 2,083,464
200,800 Grupo Industrial Bimbo S.A. de
C.V. (Series A).............. 1,605,270
156,900 Grupo Modelo S.A. de C.V.
(Series C)................... 1,455,008
273,300 Jugos de Valle S.A. de C.V.
(Series B)................... 531,358
40,420 Panamerican Beverages, Inc.
(Class A).................... 1,354,070
---------------
8,249,226
---------------
MEDIA GROUP
61,590 Grupo Televisa S.A. (GDR)*..... 1,890,043
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
<S> <C> <C>
METALS & MINING
94,850 Tubos de Acero de Mexico S.A.
de C.V. (ADR)*............... $ 1,784,366
---------------
MULTI-INDUSTRY
211,580 DESC S.A. de C.V. (Series B)... 1,943,137
---------------
RETAIL
229,106 Cifra S.A. de C.V. (Series A).. 431,369
1,873,200 Cifra S.A. de C.V. (Series C)*. 3,234,612
---------------
3,665,981
---------------
TELECOMMUNICATIONS
162,035 Telefonos de Mexico S.A. de
C.V. (Series L) (ADR)........ 8,992,942
---------------
TOTAL MEXICO................... 47,941,060
---------------
PAKISTAN (0.0%)
BANKING
11 Muslim Commercial Bank Ltd..... 12
---------------
PERU (2.8%)
BREWERS
1,410,440 Union De Cervecerias Peruanas
Backus & Johnson S.A.
(T Shares)................... 1,207,732
---------------
BUILDING MATERIALS
889,558 Cementos Lima, S.A............. 1,879,112
---------------
FINANCIAL SERVICES
84,106 Credicorp Ltd. (ADR)........... 1,619,040
---------------
METALS & MINING
86,801 Compania de Minas Buenaventura
S.A. (A Shares).............. 710,517
37,000 Compania de Minas Buenaventura
S.A. (ADR)................... 670,625
20,125 Compania de Minas Buenaventura
S.A. (B Shares).............. 181,133
---------------
1,562,275
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
TELECOMMUNICATIONS
43,050 Telefonica del Peru S.A.
(ADR)........................ $ 1,062,797
1,126,424 Telefonica del Peru S.A.
(B Shares)................... 2,766,134
---------------
3,828,931
---------------
TOTAL PERU..................... 10,097,090
---------------
PHILIPPINES (2.2%)
BANKS
622,200 Bank of the Philippine
Islands...................... 3,250,941
---------------
BUILDING & CONSTRUCTION
$2,150K Bacnotan Consolidated
Industries 5.50% due 06/21/04
(Conv.)...................... 1,408,250
---------------
DIVERSIFIED MANUFACTURING
7,044,000 Solid Group, Inc............... 1,023,696
---------------
TELECOMMUNICATIONS
57,450 Philippine Long Distance
Telephone Co................. 1,928,253
---------------
UTILITIES - ELECTRIC
103,038 Manila Electric Co. (B Shares). 449,231
---------------
TOTAL PHILIPPINES.............. 8,060,371
---------------
POLAND (1.9%)
BREWERY
12,800 Zaklady Piwowarskie w Zywcu
S.A. (Zywiec)................ 864,915
---------------
GLASS
71,000 Krosno S.A..................... 850,852
---------------
INVESTMENT COMPANIES
52,193 Polish National Investment
Fund*........................ 1,846,272
---------------
MEDIA
83,750 @Entertainment, Inc............ 1,758,750
---------------
PUBLISHING
7,892 International Trading &
Investment Co................ 1,736,240
---------------
TOTAL POLAND................... 7,057,029
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
<S> <C> <C>
PORTUGAL (0.3%)
BUILDING MATERIALS
33,200 Cimentos de Portugal S.A....... $ 854,837
---------------
FOREST PRODUCTS, PAPER & PACKING
29,950 Portucel Industrial Empresa S.A. 256,300
---------------
TOTAL PORTUGAL................. 1,111,137
---------------
RUSSIA (4.6%)
BANKS
28,000 Bank Vozrozhdenie (ADR)........ 504,000
---------------
METALS
266 Norilsk Nickel (RDC) - 144A**.. 4,029,900
---------------
OIL & GAS
27,832 Lukoil Holding Co. (ADR) -
144A**....................... 2,513,591
40,000 Surgutneftegaz (ADR) - 144A**.. 2,430,000
---------------
4,943,591
---------------
TELECOMMUNICATIONS
129 Nizhny Novogrod Svyazinform
(BRIDGE) Certificate -
144A**....................... 651,450
448 Samara Svyazinform (BRIDGE)
Certificate - 144A**......... 627,200
195 Ural Telecom (BRIDGE)
Certificate -144A**.......... 957,450
---------------
2,236,100
---------------
UTILITIES - ELECTRIC
110,594 Mosenergo (ADR) - 144A**....... 5,094,292
---------------
TOTAL RUSSIA................... 16,807,883
---------------
SOUTH AFRICA (2.8%)
BANKS
139,370 Amalgamated Banks of South
Africa....................... 2,055,707
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
FINANCE - DIVERSIFIED
25,030 Anglo American Corp. of South
Africa Ltd................... $ 1,423,578
115,000 Johnnies Industrial Corp., Ltd. 1,652,299
---------------
3,075,877
---------------
METALS & MINING
36,575 Billiton (Letter of
Entitlement)................. 131,673
109,725 Billiton PLC................... 399,779
29,260 Gencor Ltd..................... 69,803
---------------
601,255
---------------
MULTI-INDUSTRY
147,781 Rembrandt Group Ltd............ 1,490,309
---------------
OIL & GAS
117,700 Sasol Ltd...................... 1,410,307
---------------
RETAIL
218,100 JD Group Ltd................... 1,608,198
---------------
TOTAL SOUTH AFRICA............. 10,241,653
---------------
SOUTH KOREA (3.8%)
BANKS - COMMERCIAL
28,497 Housing & Commercial Bank,
Korea (GDR).................. 598,437
---------------
BUILDING & CONSTRUCTION
45,910 L.G. Construction Ltd.......... 697,956
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT
22,873 Samsung Electronics............ 2,396,084
---------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
23,520 L.G. Semiconductor Co.*........ 1,154,811
---------------
STEEL & IRON
170,200 Pohang Iron & Steel Co., Ltd.
(ADR)........................ 4,850,700
---------------
UTILITIES - ELECTRIC
214,000 Korea Electric Power Corp.
(ADR)........................ 3,959,000
---------------
TOTAL SOUTH KOREA.............. 13,656,988
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS JULY 31, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
<S> <C> <C>
TAIWAN (6.2%)
COMPUTERS
225,750 Acer Inc. (GDR)................ $ 3,864,840
212,000 Acer Inc. (GDR) - 144A**....... 3,657,000
---------------
7,521,840
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT
$1,310K United Microelectronics Corp.,
Ltd. 1.25% due 06/08/04
(Conv.) - 144A**............. 6,157,000
---------------
INDUSTRIALS
$640 K Far Eastern Department Stores
3.00% due 07/06/01 (Conv.)... 673,600
---------------
INVESTMENT COMPANIES
491,200 ROC Taiwan Fund................ 6,201,400
---------------
STEEL & IRON
82,000 China Steel Corp. (GDS)........ 1,824,500
---------------
TOTAL TAIWAN................... 22,378,340
---------------
VENEZUELA (3.7%)
TELECOMMUNICATIONS
187,900 Compania Anonima Nacional
Telefonos de Venezuela
(ADR)*....................... 8,197,137
---------------
UTILITIES - ELECTRIC
3,151,300 C.A. la Electridad de Caracas
S.A.C.A...................... 5,144,850
---------------
TOTAL VENEZUELA................ 13,341,987
---------------
<PAGE>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
TOTAL COMMON AND PREFERRED
STOCKS,
CONVERTIBLE BONDS AND
WARRANTS
(IDENTIFIED COST
$257,926,795)............... 95.5% $346,819,082
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES....... 4.5 16,238,926
----- ------------
NET ASSETS.................. 100.0% $363,058,008
----- ------------
----- ------------
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
GDS Global Depository Shares.
RCP Receipt Shares.
RDC Russian Depository Certificate.
K In thousands.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $100,640,036 and the
aggregate gross unrealized depreciation is $11,747,749, resulting in net
unrealized appreciation of $88,892,287.
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JULY 31, 1997:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN DELIVERY APPRECIATION
RECEIVE EXCHANGE FOR DATE (DEPRECIATION)
- ----------------------------------------------------
<S> <C> <C> <C>
HKD 4,856 $ 627 8/04/97 --
ZAR 7,456,188 $ 1,167,043 8/05/97 --
-----
Net unrealized appreciation......... --
-----
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
67
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
SUMMARY OF INVESTMENTS JULY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C>
Agriculture............................... $ 1,231,299 0.3%
Auto Trucks & Parts....................... 1,193,100 0.3
Banking................................... 7,670,414 2.1
Banks..................................... 20,129,457 5.6
Banks - Commercial........................ 598,437 0.2
Brewers................................... 1,207,732 0.3
Brewery................................... 3,354,039 0.9
Building & Construction................... 5,030,684 1.4
Building Materials........................ 9,445,155 2.6
Chemicals................................. 13,488,037 3.7
Computers................................. 7,521,840 2.1
Conglomerates............................. 16,156,301 4.5
Consumer Products......................... 4,284,248 1.2
Diversified Manufacturing................. 1,023,696 0.3
Electric.................................. 4,033,185 1.1
Electronic & Electrical Equipment......... 8,553,084 2.4
Electronics - Semiconductors/
Components.............................. 1,154,811 0.3
Finance - Diversified..................... 3,075,877 0.8
Financial Services........................ 14,177,436 3.9
Food, Beverage, Tobacco & Household
Products................................ 17,131,321 4.7
Forest Products, Paper & Packing.......... 256,300 0.1
Gas....................................... 1,418,242 0.4
Glass..................................... 850,852 0.2
Hotels.................................... 516,055 0.1
Industrials............................... 2,539,100 0.7
Investment Companies...................... 15,077,312 4.2
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C>
Leisure................................... $ 477,539 0.1%
Machinery................................. 419,610 0.1
Media..................................... 1,758,750 0.5
Media Group............................... 1,890,043 0.5
Metals.................................... 4,029,900 1.1
Metals & Mining........................... 7,832,997 2.2
Multi-Industry............................ 12,022,142 3.3
Oil & Gas................................. 19,930,531 5.5
Pharmaceuticals........................... 4,448,956 1.2
Publishing................................ 2,636,545 0.7
Real Estate............................... 809,032 0.2
Retail.................................... 10,097,379 2.8
Retail - Department Stores................ 7,412,763 2.0
Steel..................................... 1,375,318 0.4
Steel & Iron.............................. 7,243,060 2.0
Supermarkets.............................. 432,300 0.1
Telecommunications........................ 67,836,025 18.7
Textiles.................................. 549,325 0.2
Utilities - Electric...................... 34,498,853 9.5
------------------ ---
$346,819,082 95.5%
================== ===
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks............................. $290,765,699 80.1%
Convertible Bonds......................... 8,238,850 2.3
Preferred Stocks.......................... 46,989,044 12.9
Warrants.................................. 825,489 0.2
------------------ ---
$346,819,082 95.5%
================== ===
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
68
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $257,926,795)............................ $346,819,082
Cash........................................................ 20,207,251
Receivable for:
Investments sold........................................ 3,514,049
Dividends............................................... 1,091,022
Interest................................................ 86,400
Foreign withholding taxes reclaimed..................... 24,108
Deferred organizational expenses............................ 16,476
Prepaid expenses and other assets........................... 53,800
------------
TOTAL ASSETS........................................... 371,812,188
------------
LIABILITIES:
Payable for:
Investments purchased................................... 8,028,120
Administration fee...................................... 249,827
Investment advisory fee................................. 166,551
Accrued expenses and other payables......................... 309,682
------------
TOTAL LIABILITIES...................................... 8,754,180
------------
NET ASSETS............................................. $363,058,008
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $300,121,378
Net unrealized appreciation................................. 88,896,777
Accumulated undistributed net investment income............. 459,256
Accumulated net realized loss............................... (26,419,403)
------------
NET ASSETS............................................. $363,058,008
============
NET ASSET VALUE PER SHARE,
20,763,733 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................ $17.49
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
69
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1997 (Unaudited)
NET INVESTMENT INCOME:
INCOME
Dividends (net of $299,786 foreign withholding tax)......... $ 4,026,347
Interest.................................................... 283,027
-----------
TOTAL INCOME........................................... 4,309,374
-----------
EXPENSES
Management fee.............................................. 1,211,207
Investment advisory fee..................................... 807,471
Custodian fees.............................................. 357,041
Shareholder servicing expenses.............................. 135,060
Professional fees........................................... 55,699
Shareholder reports and notices............................. 39,828
Registration fees........................................... 16,136
Trustees' fees and expenses................................. 16,047
Organizational expenses..................................... 4,978
Other....................................................... 34,590
-----------
TOTAL EXPENSES.......................................... 2,678,057
-----------
NET INVESTMENT INCOME................................... 1,631,317
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments............................................. 23,464,956
Foreign exchange transactions........................... 16,129
-----------
NET GAIN................................................ 23,481,085
-----------
Net change in unrealized appreciation/depreciation on:
Investments............................................. 32,995,450
Translation of foreign currency contracts, other assets
and liabilities denominated in foreign currencies..... 3,913
-----------
NET APPRECIATION........................................ 32,999,363
-----------
NET GAIN................................................ 56,480,448
-----------
NET INCREASE................................................ $58,111,765
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
70
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JULY 31, 1997 ENDED
(UNAUDITED) JANUARY 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 1,631,317 $ 331,538
Net realized gain (loss).................................... 23,481,085 (1,662,158)
Net change in unrealized appreciation....................... 32,999,363 35,901,840
----------------- ----------------
NET INCREASE............................................ 58,111,765 34,571,220
Dividends from net investment income........................ (361,291) (963,188)
Net decrease from transactions in shares of beneficial
interest.................................................. -- (1,472,887)
----------------- ----------------
NET INCREASE............................................ 57,750,474 32,135,145
NET ASSETS:
Beginning of period......................................... 305,307,534 273,172,389
----------------- ----------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$459,256 AND DIVIDENDS IN EXCESS OF NET INVESTMENT
INCOME OF $810,770, RESPECTIVELY)....................... $363,058,008 $ 305,307,534
================= ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
71
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
TCW/DW Emerging Markets Opportunities Trust (the 'Trust') is registered under
the Investment Company Act of 1940, as amended, as a non-diversified, closed-end
management investment company. The Trust's investment objective is to seek
capital appreciation through investment in equity securities of emerging market
countries. The Trust was organized as a Massachusetts business trust on December
22, 1993 and commenced operations on March 30, 1994.
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 (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (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); (4) certain of the Trust's
portfolio securities may be valued by an outside pricing service approved by the
Trustees. The pricing service may utilize a matrix system incorporating security
quality, maturity and coupon as the evaluation model parameters, and/or research
and evaluation by its staff, including review of broker-dealer market price
quotations, if available, in determining what it believes is the fair valuation
of the portfolio securities valued by such pricing service; and (5) short-term
debt securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
72
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TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997 (UNAUDITED) CONTINUED
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Dividend
income and other distributions are recorded on the ex-dividend date except for
certain dividends on foreign securities which are recorded as soon as the Trust
is informed after the ex-dividend date. Interest income is accrued daily.
C. FOREIGN CURRENCY TRANSLATION -- The books and records of the Trust are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Trust does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
D. FORWARD FOREIGN CURRENCY CONTRACTS -- The Trust may enter into forward
foreign currency contracts as a hedge against fluctuations in foreign exchange
rates. Forward contracts are valued daily at the appropriate exchange rates. The
resultant exchange gains and losses are included in the Statement of Operations
as unrealized gain/loss on foreign exchange transactions. The Trust records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
E. FEDERAL INCOME TAX STATUS -- It is the Trust'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.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust 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
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<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997 (UNAUDITED) CONTINUED
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.
G. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc., an affiliate of
Dean Witter Services Company Inc. (the "Manager") paid the organizational
expenses of the Trust in the amount of approximately $50,000 which have been
reimbursed for the full amount thereof. 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 Trust pays the Manager a management fee,
calculated weekly and payable monthly, by applying the annual rate of 0.75% to
the Trust's weekly net assets.
Under the terms of the Management Agreement, the Manager maintains certain of
the Trust'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 Trust who are employees
of the Manager. The Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Trust.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement with the Adviser, the Trust pays
the Adviser an advisory fee, calculated weekly and payable monthly, by applying
the annual rate of 0.50% to the Trust's weekly net assets.
Under the terms of the Investment Advisory Agreement, the Trust has retained the
Adviser to invest the Trust'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 Trust in a manner consistent with its investment objective. In addition,
the Adviser pays the salaries of all personnel, including officers of the Trust,
who are employees of the Adviser.
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<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997 (UNAUDITED) CONTINUED
4. 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 July 31, 1997 aggregated
$121,048,620 and $131,463,707, respectively.
For the period May 31, 1997 through July 31, 1997, the Trust incurred brokerage
commissions with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager since May 31, 1997, in the amount of $12,810.
Dean Witter Trust Company, an affiliate of the Manager, is the Trust's transfer
agent. At July 31, 1997, the Trust had transfer agent fees and expenses payable
of approximately $76,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
PAR EXCESS OF
SHARES VALUE PAR VALUE
----------- -------------- -----------
<S> <C> <C> <C>
Balance, January 31, 1996........................................ 20,900,233 $209,002 $301,318,567
Treasury shares purchased and retired
(weighted average discount 18.33%)*............................. (136,500) (1,365) (1,471,522)
----------- -------------- -----------
Balance, January 31, 1997 and July 31, 1997...................... 20,763,733 $ 207,637 $299,847,045
=========== ============== ===========
</TABLE>
<TABLE>
<C> <S>
- ---------------------
* The Trustees have voted to retire the shares purchased.
</TABLE>
6. FEDERAL INCOME TAX STATUS
At January 31, 1997, the Trust had a net capital loss carryover of approximately
$48,382,000 of which $40,283,000 will be available through January 31, 2004 and
$8,099,000 will be available through January 31, 2005 to offset future capital
gains to the extent provided by regulations.
Capital and foreign currency losses incurred after October 31 ("post-October
losses") within the taxable year are deemed to arise on the first business day
of the Trust's next taxable year. The Trust incurred and will elect to defer net
capital and foreign currency losses of approximately $1,107,000 and $17,000,
respectively, during fiscal 1997.
As of January 31, 1997, the Trust had temporary book/tax differences primarily
attributable to post-October losses, capital loss deferrals on wash sales and
income from the mark-to-market of passive foreign investment companies.
75
<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997 (UNAUDITED) CONTINUED
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Trust may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated portfolio
transactions or to manage foreign currency exposure associated with foreign
currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Trust bears the risk
of an unfavorable change in foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At July 31, 1997, the Trust had outstanding forward contracts to facilitate
settlements of foreign currency denominated portfolio transactions.
At July 31, 1997, the Trust's cash balance consisted principally of interest
bearing deposits with Chase Manhattan N.A., the Trust's custodian.
8. OTHER
On July 22, 1997 a shareholder proposal to convert the Trust from a closed-end
investment company to an open-end investment company was approved by the Trust's
shareholders. It is anticipated that this conversion will take place by the end
of the Trust's fiscal year in January 1998.
9. SUBSEQUENT EVENT
On November 6, 1997 the Board of Trustees of the Trust approved a Co-Investment
Advisory Agreement between the Trust and the Advisor and a Co-Investment
Advisory Agreement between the Trust and Morgan Stanley Asset Management Inc.
("MSAM"), an affiliate of the Manager. The aggregate fees to be paid by the
Trust under the proposed Agreements will be the same as the fees paid by the
Trust under the present Agreement. Both Agreements are subject to the consent
of the Trust's shareholders.
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<PAGE>
TCW/DW EMERGING MARKETS OPPORTUNITIES 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 MARCH 30,
SIX MONTHS FOR THE YEAR ENDED 1994*
ENDED JANUARY 31, THROUGH
JULY 31, -------------------- JANUARY
1997 1997 1996 31, 1995
- -------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 14.70 $ 13.07 $ 11.18 $ 14.02
---------- --------- --------- ---------
Net investment income.............. 0.08 0.02 0.04 0.11
Net realized and unrealized gain
(loss)............................ 2.73 1.65 1.73 (2.89)
---------- --------- --------- ---------
Total from investment operations... 2.81 1.67 1.77 (2.78)
---------- --------- --------- ---------
Offering costs charged against
capital........................... - - - (0.02)
---------- --------- --------- ---------
Less dividends and distributions
from:
Net investment income........... (0.02) (0.05) (0.02) (0.09)
Net realized gain............... - - - (0.01)
---------- --------- --------- ---------
Total dividends and
distributions..................... (0.02) (0.05) (0.02) (0.10)
---------- --------- --------- ---------
Anti-dilutive effect of acquiring
treasury shares................... - 0.01 0.14 0.06
---------- --------- --------- ---------
Net asset value, end of period..... $ 17.49 $ 14.70 $ 13.07 $ 11.18
---------- --------- --------- ---------
---------- --------- --------- ---------
Market value, end of period........ $ 15.813 $ 13.125 $ 12.25 $ 9.875
---------- --------- --------- ---------
---------- --------- --------- ---------
TOTAL INVESTMENT RETURN+........... 20.62%(1) 7.59% 24.28% (33.52)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.66%(2) 1.72% 1.69% 1.73%(2)
Net investment income.............. 1.01%(2) 0.12% 0.28% 0.94%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $363,058 $305,308 $273,172 $254,358
Portfolio turnover rate............ 38%(1) 66% 66% 61%(1)
Average commission rate paid....... $0.0008 $0.0012 - -
- ---------------------
* Commencement of operations.
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends and distributions are assumed to be
reinvested at the prices obtained under the Trust's dividend reinvestment
plan. Total investment return does not reflect brokerage commissions.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
77
<PAGE>
APPENDIX
- -----------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
FIXED-INCOME AND CONVERTIBLE SECURITIES RATINGS
Aaa Fixed-income securities 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 Fixed-income securities 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 fixed-income
securities. They are rated lower than the best fixed-income
securities 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 Fixed-income securities 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 Fixed-income securities 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.
Fixed-income securities rated Aaa, Aa, A and Baa are considered
investment grade.
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
fixed-income securities in this class.
B Fixed-income securities 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 Fixed-income securities 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 Fixed-income securities 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 Fixed-income securities which are rated C are the lowest rated
class of fixed-income securities, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any
real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal
fixed-income security rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and a modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess
of nine months. The ratings apply to Municipal Commercial Paper as well as
taxable Commercial Paper. Moody's employs the following three designations,
all judged to be investment grade, to indicate the relative repayment
capacity of rated issuers: Prime-1, Prime-2, Prime-3.
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<PAGE>
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")
FIXED-INCOME AND CONVERTIBLE SECURITIES RATINGS
A Standard & Poor's fixed-income security 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 obligations; (2) nature of and provisions of the obligation; and
(3) protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings
may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
AAA Fixed-income securities rated "AAA" have the highest rating
assigned by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Fixed-income securities rated "AA" have a very strong capacity to
pay interest and repay principal and differs from the
highest-rated issues only in small degree.
A Fixed-income securities rated "A" have 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 fixed-income securities in higher-rated
categories.
BBB Fixed-income securities rated "BBB" are 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
fixed-income securities in this category than for fixed-income
securities in higher-rated categories.
Fixed-income securities rated AAA, AA, A, and BBB are considered
investment grade.
BB Fixed-income securities rated "BB" have less near-term
vulnerability to default than other speculative grade fixed-income
securities. 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 Fixed-income securities rated "B" have 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 Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and is dependent upon favorable
business, financial and economic conditions to meet timely
payments of interest and repayments of principal. In the event of
adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
CC The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or implied
"CCC" rating.
C The rating "C" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or implied
"CCC-" rating.
CI The rating "CI" is reserved for fixed-income securities 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
79
<PAGE>
rating or that Standard & Poor's does not rate a particular type
of obligation as a matter of policy.
Fixed-income securities 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 fixed-income securities will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.
Plus (+) or minus (-): The rating from "AA" to "CCC" may be
modified by the addition of a plus or minus sign to show relative
standing with the major ratings categories.
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 Standard & Poor's from other sources
it considers reliable. The ratings may be changed, suspended, or withdrawn as
a result of changes in or unavailability of such information. Ratings are
graded into group categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Ratings are applicable to both taxable and
tax-exempt commercial paper. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the
designation 1, 2, and 3 to indicate the relative degree of safety.
A-1 indicates that the degree of safety regarding timely payment is
very strong.
A-2 indicates capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is
not as overwhelming as for issues designated "A-1."
A-3 indicates a satisfactory capacity for timely payment. Obligations
carrying this designation are, however, somewhat more vulnerable to
the adverse effects of changes in circumstances than obligations
carrying the higher designations.
80
