<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1996
REGISTRATION NOS.: 33-53955
811-7179
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 3 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
AMENDMENT NO. 4 [X]
DEAN WITTER MID-CAP GROWTH FUND
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
----------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
___ immediately upon filing pursuant to paragraph (b)
_X_ on July 22, 1996 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (A)(1) OF RULE 24f-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE REGISTRANT HAS FILED A RULE 24f-2 NOTICE
FOR ITS FISCAL YEAR ENDED MAY 31, 1996 WITH THE SECURITIES AND EXCHANGE
COMMISSION ON JULY 3, 1996.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
- ------------- --------------------------------------------------
PART A PROSPECTUS
- ------------- --------------------------------------------------
<C> <S>
1. .......... Cover Page
2. .......... Summary of Fund Expenses; Prospectus Summary
3. .......... Financial Highlights; Performance Information
4. .......... Investment Objective and Policies; Risk
Considerations; The Fund and Its Management; Cover
Page; Investment Restrictions; Prospectus Summary
5. .......... The Fund and Its Management; Back Cover;
Investment Objective and Policies
6. .......... Dividends, Distributions and Taxes; Additional
Information
7. .......... Purchase of Fund Shares; Shareholder Services;
Prospectus Summary
8. .......... Redemptions and Repurchases; Shareholder Services
9. .......... Not Applicable
</TABLE>
<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION
- ---------- -------------------------------------------------
<C> <S>
10. .......... Cover Page
11. .......... Table of Contents
12. .......... The Fund and Its Management
13. .......... Investment Practices and Policies; Investment
Restrictions; Portfolio Transactions and
Brokerage
14. .......... The Fund and Its Management; Trustees and
Officers
15. .......... The Fund and Its Management; Trustees and
Officers
16. .......... The Fund and Its Management; The Distributor;
Custodian and Transfer Agent; Independent
Accountants; Shareholder Services
17. .......... Portfolio Transactions and Brokerage
18. .......... Description of Shares
19. .......... The Distributor; Redemptions and Repurchases;
Financial Statements; Determination of Net Asset
Value; Shareholder Services
20. .......... Dividends, Distributions and Taxes
21. .......... The Distributor
22. .......... Performance Information
23. .......... Experts; Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS -- JULY 22, 1996
- -----------------------------------------------------------------------------
Dean Witter Mid-Cap Growth Fund (the "Fund") is an open-end, diversified
management investment company whose investment objective is to seek long-term
capital growth. The Fund seeks to meet its investment objective by investing
primarily in equity securities of "mid-cap" companies.
Shares of the Fund are continuously offered at net asset value without the
imposition of a sales charge. However, redemptions and/or repurchases are
subject in most cases to a contingent deferred sales charge, scaled down from
5% to 1% of the amount redeemed, if made within six years of purchase, which
charge will be paid to the Fund's Distributor, Dean Witter Distributors Inc.
(See "Redemptions and Repurchases--Contingent Deferred Sales Charge.") In
addition, the Fund pays the Distributor a Rule 12b-1 distribution fee
pursuant to a Plan of Distribution at the annual rate of 1% of the lesser of
the (i) average daily aggregate net sales or (ii) average daily net assets of
the Fund. (See "Purchase of Fund Shares--Plan of Distribution.")
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated July 22, 1996, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 3
Financial Highlights .................................................. 4
The Fund and its Management ........................................... 4
Investment Objective and Policies ..................................... 5
Risk Considerations ................................................... 11
Investment Restrictions ............................................... 13
Purchase of Fund Shares ............................................... 13
Shareholder Services .................................................. 16
Redemptions and Repurchases ........................................... 19
Dividends, Distributions and Taxes .................................... 21
Performance Information ............................................... 22
Additional Information ................................................ 22
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.
DEAN WITTER
MID-CAP GROWTH FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 OR
(800) 869-NEWS (TOLL-FREE)
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.
Dean Witter Distributors Inc.,
Distributor
<PAGE>
PROSPECTUS SUMMARY
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an open-end,
diversified management investment company. The Fund invests primarily in equity securities of "mid-cap"
companies.
- ------------------ -----------------------------------------------------------------------------------------------------------
Shares Offered Shares of beneficial interest with $.01 par value (see page 22).
- ------------------ -----------------------------------------------------------------------------------------------------------
Offering At net asset value without a front-end sales charge (see page 13). Shares redeemed within six years of
Price purchase are subject to a contingent deferred sales charge under most circumstances (see page 19)
- ------------------ -----------------------------------------------------------------------------------------------------------
Minimum The minimum initial investment is $1,000 ($100 if the account is opened through EasyInvest (Service Mark))
Purchase and the minimum subsequent investment is $100 (see page 13).
- ------------------ -----------------------------------------------------------------------------------------------------------
Investment The investment objective of the Fund is long-term capital growth.
Objective
- ------------------ -----------------------------------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-owned
Manager subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory, management
and administrative capacities to ninety-eight investment companies and other portfolios with net assets
under management of approximately $84.6 billion at June 30, 1996.
- ------------------ -----------------------------------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual rate of 0.75% of the Fund's average daily net
Fee assets. The fee should not be compared with fees paid by other investment companies without also
considering applicable sales loads and distribution fees, including those noted below (see page 4).
- ------------------ -----------------------------------------------------------------------------------------------------------
Dividends and Dividends from net investment income, if any, are paid at least annually. Capital gains, if any, are
Distributions distributed at least annually or retained for reinvestment by the Fund. Dividends and capital gains
distributions are automatically reinvested in additional shares at net asset value unless the shareholder
elects to receive cash (see page 21).
- ------------------ -----------------------------------------------------------------------------------------------------------
Distributor Dean Witter Distributors Inc. ("Distributor") is the distributor of the Fund's shares. The Distributor
receives from the Fund a Rule 12b-1 distribution fee accrued daily and payable monthly at the rate of 1.0%
per annum of the lesser of (i) the Fund's average daily aggregate net sales or (ii) the Fund's average
daily net assets. This fee compensates the Distributor for the services provided in distributing shares of
the Fund and for sales related expenses. The Distributor also receives the proceeds of any contingent
deferred sales charges (see page 14).
- ------------------ -----------------------------------------------------------------------------------------------------------
Redemption-- Shares are redeemable by the shareholder at net asset value. An account may be involuntarily redeemed if
Contingent the total value of the account is less than $100 or, if the account was opened through EasyInvest (Service
Deferred Mark) if after twelve months the shareholder has invested less than $1,000 in the account. Although no
Sales commission or sales load is imposed upon the purchase of shares, a contingent deferred sales charge (which
Charge declines from 5% to 1%) is imposed on any redemption of shares if after such redemption the aggregate current
value of an account with the Fund is less than the aggregate amount of the investor's purchase payments made
during the six years preceding the redemption. However, there is no charge imposed on redemption of shares
purchased through reinvestment of dividends or distributions (see page 19).
- ------------------ -----------------------------------------------------------------------------------------------------------
Risk The net asset value of the Fund's shares will fluctuate with changes in the market value of portfolio
Considerations securities. Investing in medium-sized market capitalization companies may involve greater risk of
volatility in the Fund's net asset value than is customarily associated with investing in larger, more
established companies. In addition, it should be recognized that the foreign securities and markets in
which the Fund may invest up to 35% of its total assets pose different and greater risks than those
customarily associated with domestic securities and their markets (see page 11).
- ------------------ -----------------------------------------------------------------------------------------------------------
Shareholder Automatic Investment of Dividends and Distributions; Investment of Distributions Received in Cash;
Services Systematic Withdrawal Plan; Exchange Privilege; EasyInvest (Service Mark), Tax-Sheltered Retirement Plans (see
pages 16-19).
- ------------------ -----------------------------------------------------------------------------------------------------------
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus
and in the Statement of Additional Information.
2
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The annualized expenses and fees set forth in the table
are for the fiscal year ended May 31, 1996.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases ........................................... None
Maximum Sales Charge Imposed on Reinvested Dividends ................................ None
Contingent Deferred Sales Charge
(as a percentage of the lesser of original purchase price or redemption proceeds) . 5.0%
</TABLE>
A contingent deferred sales charge is imposed at the following declining
rates:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT MADE PERCENTAGE
- -------------------------- ------------
<S> <C>
First ..................... 5.0%
Second .................... 4.0%
Third ..................... 3.0%
Fourth .................... 2.0%
Fifth ..................... 2.0%
Sixth ..................... 1.0%
Seventh and thereafter ... None
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Redemption Fees .......................................................... None
Exchange Fee ............................................................. None
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
Management Fees .......................................................... 0.75%
12b-1 Fees* .............................................................. 1.00%
Other Expenses ........................................................... 0.30%
Total Fund Operating Expenses ............................................ 2.05%
</TABLE>
- ------------
* A portion of the 12b-1 fee equal to 0.25% of the Fund's average daily
net assets is characterized as a service fee within the meaning of
National Association of Securities Dealers, Inc. ("NASD") guidelines
(see "Purchase of Fund Shares").
<TABLE>
<CAPTION>
Example 1 year 3 years 5 years 10 years
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period: .............................................................. $71 $94 $130 $238
You would pay the following expenses on the same investment, assuming
no redemption: ....................................................... $21 $64 $110 $238
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Plan of Distribution" and "Redemption and
Repurchases."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in
conjunction with the financial statements, notes thereto, and the unqualified
report of independent accountants which are contained in the Statement of
Additional Information. Further information about the performance of the Fund
is contained in the Fund's Annual Report to Shareholders, which may be
obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR SEPTEMBER 29, 1994*
ENDED THROUGH
MAY 31, 1996 MAY 31, 1995
- ----------------------------------------- -------------- -------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $ 10.81 $ 10.00
-------------- -------------------
Net investment loss ...................... (0.10) (0.01)
Net realized and unrealized gain ........ 5.60 0.84
-------------- -------------------
Total from investment operations ........ 5.50 0.83
-------------- -------------------
Less distributions from net realized gain (1.20) (0.02)
-------------- -------------------
Net asset value, end of period ........... $ 15.11 $ 10.81
============== ===================
TOTAL INVESTMENT RETURN+ ................. 53.02% 8.26% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................. 2.05% 2.21% (2)
Net investment loss ...................... (1.05)% (0.16)% (2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $309,272 $115,126
Portfolio turnover rate .................. 328% 199% (1)
Average commission rate paid ............. $0.0582 --
</TABLE>
- ------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter Mid-Cap Growth Fund (the "Fund") is an open-end, diversified
management investment company. The Fund is a trust of the type commonly known
as a "Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on May 25, 1994.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048,
is the Fund's Investment Manager. The Investment Manager, which was
incorporated in July, 1992, is a wholly-owned subsidiary of Dean Witter,
Discover & Co. ("DWDC"), a balanced financial services organization providing
a broad range of nationally marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to ninety-eight investment companies, thirty of
which are listed on the New York Stock Exchange, with combined assets of
approximately $81.8 billion at June 30, 1996. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $2.8 billion at such date.
4
<PAGE>
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of
portfolio securities. InterCapital has retained Dean Witter Services Company
Inc. to perform the aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by the Investment
Manager to ensure that the Fund's general investment policies and programs
are being properly carried out and that administrative services are being
provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.75% to the Fund's net assets. This fee is higher than the
fee paid by most other investment companies. For the fiscal year ended May
31, 1996, the Fund accrued total compensation to the Investment Manager
amounting to 0.75% of the Fund's average daily net assets and the Fund's
total expenses amounted to 2.05% of the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the Fund is long-term capital growth. The
objective is a fundamental policy of the Fund and may not be changed without
a vote of a majority of the outstanding voting securities of the Fund. There
is no assurance that the objective will be achieved. The following policies
may be changed by the Board of Trustees without shareholder approval.
The Fund seeks to achieve its investment objective by investing, under
normal circumstances, at least 65% of its total assets in a diversified
portfolio of domestic and foreign equity securities of "mid-cap" companies.
A mid-cap company is a company whose market capitalization falls within the
range of $250 million to $5 billion. The Fund may invest up to 35% of its
total assets in (i) U.S. Government Securities and investment grade corporate
debt securities; or (ii) equity securities of companies with market
capitalizations which fall outside of the range of $250 million to $5 billion
at the time of purchase as long as such investments are consistent with the
Fund's investment objective. The Fund may invest up to 35% of its total
assets in the equity securities of non-U.S. companies, including American or
other Depository Receipts, rights, warrants, and the direct purchase of
foreign securities. Equity securities in which the Fund may invest include
common stocks and securities convertible into common stocks. The Fund
utilizes an investment process that places primary emphasis on seeking to
identify industries, rather than individual companies, as prospects for
capital appreciation and whereby the Investment Manager seeks to invest
assets of the Fund in industries it considers to be attractive at the time of
purchase and to sell those it considers overvalued. The Investment Manager
will invest principally in those mid-cap companies that in the opinion of the
Investment Manager have above-average relative growth potential. Mid-cap
companies typically have a better growth potential than their large-cap
counterparts because they are still in the early and more dynamic period of
their corporate existences. Often mid-size companies and the industries in
which they are focused are still evolving as opposed to the more mature
industries served by large-cap companies. Moreover, mid-cap companies are not
considered "emerging" stocks, nor are they as volatile as small-cap firms.
This is due to the fact that mid-cap companies have increased liquidity,
attributable to their larger market capitalization as well as longer and more
established track records, and a stronger market presence and dominance than
small-cap
5
<PAGE>
firms. Consequently, because of the better growth inherent in these companies
and their industries, mid-cap companies offer superior return potential to
large-cap companies, yet owing to their relatively larger size and better
recognition in the investment community, they have a reduced risk profile
compared to smaller, emerging or micro-cap companies.
In selecting stocks within the mid-cap universe, the Investment Manager
will use an industry approach that seeks to diversify the assets of the Fund
in approximately 18 to 35 industries. The Fund will hold less than 5% of its
net assets in any one security and will hold less than 10% of its net assets
in any one industry. Companies will be selected based on at least three-year
track records, and purchases will be primarily focused on companies that: (1)
have the potential for above-average relative earnings growth; (2) are
focused in industries that are rapidly expanding or have the potential to see
increasing sales or earnings; (3) historically have had well-defined and
recurring revenues; or (4) are attractive based on an assessment of private
market or franchise values.
After selection of the Fund's target industries, specific company
investments are selected. In this process, the Investment Manager seeks to
identify companies whose prospects are deemed attractive on the basis of an
evaluation of valuation screens and prospective company fundamentals. From
the total of all companies included in the industry valuation process, the
Investment Manager selects a limited number from each industry as
representative of that industry. Such selections are made on the basis of
various criteria, including size and quality of a company, the visibility of
its earnings and various valuation parameters. Valuation screens may include
dividend discount model values, price-to-book ratios, price-to-cash flow
values, relative and absolute price-to-earnings ratios and ratios of price-
earnings multiples to earnings growth. Price and earnings momentum ratings
derived from external sources are also factored into the stock selection
decision. Those companies which the Investment Manager believes to be
attractive investments are finally selected for inclusion in the Fund. For a
discussion of the risks of mid-cap stocks, see "Risk Considerations" below.
Asset Allocation. Common stocks, particularly those sought for possible
capital appreciation, have historically experienced a great amount of price
fluctuation. The Investment Manager believes it is desirable to attempt to
reduce the risks of extreme price fluctuations even if such an attempt
results, as it likely will at times, in reducing the probabilities of
obtaining greater capital appreciation. Accordingly, the Investment Manager's
investment process incorporates elements which may reduce, although certainly
not eliminate, the volatility of a portfolio. The Fund may hold a portion of
its portfolio in investment grade fixed-income securities, including
convertible securities, in an effort to moderate extremes of price
fluctuation. The determination of the appropriate asset allocation as between
equity and fixed-income investments will be made by the Investment Manager in
its discretion, based upon its evaluation of economic and market conditions.
PORTFOLIO CHARACTERISTICS
Fixed-income Securities. Investments in fixed-income securities rated
either BBB by S&P or Baa by Moody's (the lowest credit ratings designated
"investment grade") have speculative characteristics and, therefore, changes
in economic conditions or other circumstances are more likely to weaken their
capacity to make principal and interest payments than would be the case with
investments in securities with higher credit ratings. If a non-convertible
fixed-income security held by the Fund is rated BBB or Baa and is
subsequently downgraded by a rating agency, the Fund will retain such
security in its portfolio until the Investment Manager determines that it is
practicable to sell the security without undue market or tax consequences to
the Fund. In the event that such downgraded securities constitute 5% or more
of the Fund's net assets, the Investment Manager will sell such securities as
soon as is practicable, in sufficient amounts to reduce the total to below
5%.
Convertible Securities. The Fund may acquire, through purchase or a
distribution by the issuer of a security held in its portfolio, a fixed-
income security which is convertible into common
6
<PAGE>
stock of the issuer. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function
of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security
(the credit standing of the issuer and other factors may also have an effect
on the convertible security's value). If the conversion value exceeds the
investment value, the price of the convertible security will rise above its
investment value and, in addition, will sell at some premium over its
conversion value. (This premium represents the price investors are willing to
pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the conversion privilege.) At such
times the price of the convertible security will tend to fluctuate directly
with the price of the underlying equity security.
Because of the special nature of the Fund's permitted investments in lower
rated convertible securities, the Investment Manager 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 lower rated convertible 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.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of the commitment.
An increase in the percentage of the Fund's assets committed to the purchase
of securities on a when-issued, delayed delivery or forward commitment basis
may increase the volatility of the Fund's net asset value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at
any time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account
pursuant to applicable regulations and that are equal to at least the market
value, determined daily, of the loaned securities. As with any extensions of
credit, there
7
<PAGE>
are risks of delay in recovery and in some cases even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans of portfolio securities will only be made to firms deemed by the
Investment Manager to be creditworthy and when the income which can be earned
from such loans justifies the attendant risks.
Private Placements. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible
for resale pursuant to Rule 144A under the Securities Act, and determined to
be liquid pursuant to the procedures discussed in the following paragraph,
are not subject to the foregoing restriction.) These securities are generally
referred to as private placements or restricted securities. Limitations on
the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Adviser, pursuant to
procedures adopted by the Trustees of the Fund, will make a determination as
to the liquidity of each restricted security purchased by the Fund. If a
restricted security is determined to be "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.
Options. The Fund also may purchase and sell (write) call and put options
on debt and equity securities which are listed on Exchanges or are written in
over-the-counter transactions ("OTC Options"). Listed options, which are
currently listed on several different Exchanges, are issued by the Options
Clearing Corporation ("OCC"). Ownership of a listed call option gives the
Fund the right to buy from the OCC the underlying security covered by the
option at the stated exercise price (the price per unit of the underlying
security) 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 the underlying security 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 to the OCC at the stated exercise price. The Fund will
not write covered options on portfolio securities exceeding in the aggregate
25% of the value of its total assets.
OTC Options. 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. The Fund will
engage in OTC option transactions only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities in order to aid it in achieving its investment
objective. As a writer of a call option, the Fund has the obligation, upon
notice of exercise of the option, to deliver the security underlying the
option (certain listed call options written by the Fund will be exercisable
by the purchaser only on a specific date). See "Options and Futures
Transactions--Covered Call Writing" in the Statement of Additional
Information.
Covered Put Writing. As a writer of covered put options, 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
8
<PAGE>
during the option period. The Fund will write put options for two purposes:
(1) to receive the premiums paid by purchasers; and (2) when the Investment
Manager wishes to purchase the security 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. See
"Options and Futures Transactions--Covered Put Writing" in the Statement of
Additional Information.
Purchasing Call and Put Options. The Fund may invest up to 5% of its total
assets in the purchase of put and call options on securities and stock
indexes. The Fund may purchase put options on securities which it holds (or
has the right to acquire) 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.
Stock Index Options. The Fund may purchase and write options on stock
indexes only for hedging purposes. Options on stock indexes are similar to
options on stock except that, rather than the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the stock index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. See "Stock Index Options" and "Risks of Options on
Indexes" in the Statement of Additional Information.
Futures Contracts. The Fund may purchase and sell interest rate and stock
index futures contracts ("futures contracts") that are traded on U.S.
commodity exchanges on such underlying securities as U.S. Treasury bonds,
notes, and bills and GNMA Certificates ("interest rate" futures) and such
indexes as the S&P 500 Index and the New York Stock Exchange Composite Index
("stock index" futures) and the Moody's Investment-Grade Corporate Bond Index
("bond index" futures). As a futures contract purchaser, the Fund incurs an
obligation to take delivery of a specified amount of the obligation
underlying the contract at a specified time in the future for a specified
price. As a seller of a futures contract, the Fund incurs an obligation to
deliver the specified amount of the underlying obligation at a specified time
in return for an agreed upon price. The Fund will purchase or sell interest
rate futures contracts and bond index futures contracts for the purpose of
hedging its fixed-income portfolio (or anticipated portfolio) securities
against changes in prevailing interest rates. The Fund will purchase or sell
stock index futures contracts for the purpose of hedging its equity portfolio
(or anticipated portfolio) securities against changes in their prices. See
"Options and Futures Transactions--Futures Contracts" in the Statement of
Additional Information.
The Fund also may purchase and write call and put options on futures
contracts and enter into closing transactions with respect to such options to
terminate an existing position.
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 whose
financial condition will be continually monitored by the Investment Manager
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
9
<PAGE>
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.
Foreign Securities. The Fund may invest up to 35% of the value of its
total assets, at the time of purchase, in equity securities, rights and
warrants issued by foreign issuers. Such investments may also be in the form
of American Depository Receipts (ADRs), European Depository Receipts (EDRs)
or other similar 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. The Fund's investments in unlisted foreign securities are subject to
the Fund's overall policy limiting its investment in illiquid securities to
15% or less of its net assets. For a discussion of the risks of foreign
securities, see "Risk Considerations" below.
Zero Coupon Securities. A portion of the fixed- income securities
purchased by the Fund may be zero coupon securities. Such securities are
purchased at a discount from their face amount, giving the purchaser the
right to receive their full value at maturity. The interest earned on such
securities is, implicitly, automatically compounded and paid out at maturity.
While such compounding at a constant rate eliminates the risk of receiving
lower yields upon reinvestment of interest if prevailing interest rates
decline, the owner of a zero coupon security will be unable to participate in
higher yields upon reinvestment of interest received on interest-paying
securities if prevailing interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payments in cash
on the security during the year.
Investment in Real Estate Investment Trusts. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in a real estate investment trust,
the Fund would bear its ratable share of the real estate investment trust's
expenses, including its advisory and administration fees. At the same time
the Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will
be absorbing duplicate levels of fees with respect to investments in real
estate investment trusts. Real estate investment trusts are not diversified
and are subject to the risk of financing projects. They are also subject to
heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation, and the possibility of failing to qualify for tax-free
status under the Internal Revenue Code and failing to maintain exemption from
the Investment Company Act of 1940, as amended.
10
<PAGE>
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean
Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate of InterCapital, the
views of Trustees of the Fund and others regarding economic developments and
interest rate trends, and the Investment Manager's own analysis of factors it
deems relevant. No particular emphasis is given to investments in securities
for the purpose of earning current income. The Fund's portfolio is managed
within InterCapital's Growth Group, which manages twenty-six funds and fund
portfolios with approximately $11 billion in assets as of June 30, 1996.
Anita H. Kolleeny, Senior Vice President of InterCapital, and Kirk Balzer,
Vice President of InterCapital, each a member of InterCapital's Growth Group,
have been the primary portfolio co-managers of the Fund since the inception
of the Fund and April 1996, respectively. Ms. Kolleeny has been a portfolio
manager at InterCapital for over five years. Prior to joining InterCapital in
April 1996, Mr. Balzer was a portfolio manager at Chancellor Capital
Management (July 1994-March 1996) and GT Capital Management (June 1992-July
1994) and prior thereto was a graduate student at the University of Chicago.
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, it may sell portfolio
securities without regard to the length of time they have been held, in
accordance with the investment policies described earlier. Portfolio changes
will be effected whenever the Fund's Investment Manager believes they will
benefit the performance of the portfolio. As a result the Fund does expect to
engage in a substantial number of portfolio transactions. It is anticipated
that, under normal market conditions, the Fund's portfolio turnover rate will
not exceed 350% in any one year. The Fund will incur brokerage costs
commensurate with its portfolio turnover rate; thus a higher level (over
100%) of portfolio transactions will increase the Fund's overall brokerage
expenses. 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 trading policy. A more extensive
discussion of the Fund's portfolio brokerage policies is set forth in the
Statement of Additional Information.
Pursuant to an order of the Securities and Exchange Commission the Fund
may effect principal transactions in certain money market instruments with
DWR. In addition, the Fund may incur brokerage commissions on transactions
conducted through DWR.
RISK CONSIDERATIONS
- -----------------------------------------------------------------------------
The net asset value of the Fund's shares will fluctuate with changes in
the market value of its portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted. The Fund is intended
for long-term investors who can accept the risks involved in seeking
long-term growth of capital through investment primarily in the securities of
medium-sized growth companies. It should be recognized that investing in
such companies involves greater risk than is customarily associated with
investing in more established companies.
Mid-Cap Stocks. Investing in medium-sized market capitalization companies
may involve greater risk of volatility of the Fund's net asset value than is
customarily associated with investing in larger, more established companies.
Often mid-size companies and the industries in which they are focused are
still evolving and while this may offer better growth potential than larger,
established companies, it also
11
<PAGE>
may make them more sensitive to changing market conditions. Because prices of
stocks, including mid- cap stocks, fluctuate from day to day, the value of an
investment in the Fund will vary based upon the Fund's investment
performance.
Foreign Securities. The Fund may invest up to 35% of its total assets in
equity securities of non-U.S. companies, including American or other
Depository Receipts, rights, warrants and the direct purchase of foreign
securities. While investments in foreign securities are intended to reduce
risk by providing further diversification, such investments involve risks
relating to local foreign political or economic developments, potential
nationalization, withholding taxes on dividend or interest payments, and
limitations on the use or transfer of Fund assets and any effects of foreign
social, economic or political instability. Foreign securities investments may
be affected by changes in currency rates or exchange control regulations,
changes in governmental administration or economic or monetary policy (in the
United States and abroad) or changed circumstances in dealings between
nations. Costs may be incurred in connection with conversions between various
currencies held by the Fund. Foreign companies may have less public or less
reliable information available about them and may be subject to less
governmental regulation than U.S. companies. Securities of foreign companies
may be less liquid and more volatile than securities of U.S. companies.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their
American counterparts. Brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S. In
addition, differences in clearance and settlement procedures on foreign
markets may occasion delays in settlements of the Fund's trades effected in
such markets. As such, the inability to dispose of portfolio securities due
to settlement delays could result in losses to the Fund due to subsequent
declines in value of such securities and the inability of the Fund to make
intended security purchases due to settlement problems could result in a
failure of the Fund to make potentially advantageous investments. To the
extent the Fund purchases Eurodollar certificates of deposit issued by
foreign branches of domestic United States banks, consideration will be given
to their domestic marketability, the lower reserve requirements normally
mandated for overseas banking operations, the possible impact of
interruptions in the flow of international currency transactions and future
international political and economic developments which might adversely
affect the payment of principal or interest.
Options and Futures Transactions. The Fund may close out its position as
writer of an option, or as a buyer or seller of a futures contract only if a
liquid secondary market exists for options or futures contracts of that
series. There is no assurance that such a market will exist. Also, exchanges
may limit the amount by which the price of many futures contracts may move on
any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit
moves have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts 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."
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 Investment Manager 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, causing bond prices to rise, the Fund would incur a loss on
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<PAGE>
the sale. Another risk which may arise in employing futures contracts to
protect against the price volatility of portfolio securities is that the
prices of securities 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. See the Statement of
Additional Information for a further discussion of risks.
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.
For additional risk disclosure, please refer to the "Portfolio
Characteristics" section of the Prospectus and to the "Investment Practices
and Policies" section of the Statement of Additional Information.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the Act. For purposes of the following
limitations: (i) all percentage limitations apply immediately after a
purchase or initial investment; and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund may not:
1. Invest more than 5% of the value of its total assets in the
securities of any one issuer (other than obligations issued, or
guaranteed by, the United States Government, its agencies or
instrumentalities).
2. Purchase more than 10% of all outstanding voting securities or any
class of securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to
obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities.
4. Invest more than 5% of the value of its total assets in securities
of issuers having a record, together with predecessors, of less than
three years of continuous operation. This restriction shall not apply to
any obligation of the United States Government, its agencies or
instrumentalities.
See the Statement of Additional Information for additional investment
restrictions.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment
Manager, shares of the Fund are distributed by the Distributor and offered by
DWR and other dealers 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.
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<PAGE>
The minimum initial purchase is $1,000. Minimum subsequent purchases of
$100 or more may be made by sending a check, payable to Dean Witter Mid-Cap
Growth Fund, directly to Dean Witter Trust Company (the "Transfer Agent") at
P.O. Box 1040, Jersey City, NJ 07303 or by contacting an account executive of
DWR or other Selected Broker-Dealer. The minimum initial purchase in the
case of investments through EasyInvest (Service Mark), an automatic purchase
plan (see "Shareholder Services"), is $100, provided that the schedule of
automatic investments will result in investments totalling at least $1,000
within the first twelve months. In the case of investments pursuant to
Systematic Payroll Deduction Plans (including Individual Retirement Plans),
the Fund, in its discretion, may accept investments without regard to any
minimum amounts which would otherwise be required if the Fund has reason to
believe that additional investments will increase the investment in all
accounts under such Plans to at least $1,000. Certificates for shares
purchased will not be issued unless a request is made by the shareholder in
writing to the Transfer Agent.
The offering price will be the net asset value per share next determined
following receipt of an order by the Transfer Agent (see "Determination of
Net Asset Value"). While no sales charge is imposed at the time shares are
purchased, a contingent deferred sales charge may be imposed at the time of
redemption (see "Repurchases and Redemptions"). Sales personnel are
compensated for selling shares of the Fund at the time of their sale by the
Distributor and/or Selected Broker-Dealer. In addition, some sales personnel
of the Selected Broker-Dealer will receive various types of non-cash
compensation as special sales incentives, including trips, educational and/or
business seminars and merchandise. The Fund and the Distributor reserve the
right to reject any purchase orders.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Shares
of the Fund purchased through the Distributor are entitled to any dividends
declared beginning on the next business day following settlement date. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is
made prior thereto. Shares purchased through the Transfer Agent are entitled
to any dividends declared beginning on the next business day following
receipt of an order. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan"), under which the Fund pays the Distributor a fee, which
is accrued daily and payable monthly, at an annual rate of 1.0% of the lesser
of: (a) the average daily aggregate gross sales of the Fund's shares since
the inception of the Fund (not including reinvestments of dividends or
capital gains distributions), less the average daily aggregate net asset
value of the Fund's shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the
Fund's average daily net assets. This fee is treated by the Fund as an
expense in the year it is accrued. A portion of the fee payable pursuant to
the Plan, equal to 0.25% of the Fund's average daily net assets, is
characterized as a service fee within the meaning of NASD guidelines. The
service fee is a payment made for personal service and/or the maintenance of
shareholder accounts.
Amounts paid under the Plan are paid to the Distributor for services
provided and the expenses borne by the Distributor and others in the
distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to and expenses of
DWR's account executives and others who engage in or support distribution of
shares or who service shareholder accounts, including overhead and telephone
expenses; printing and distribution of prospectuses and reports used in
connection with the offering of the Fund's shares to other than current
shareholders; and preparation, printing and distribution of
14
<PAGE>
sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan to compensate DWR and other Selected
Broker-Dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
For the fiscal year ended May 31, 1996, the Fund accrued payments under
the Plan amounting to $1,958,421, which amount is equal to 1.0% of the Fund's
average daily net assets for the fiscal year. The payments accrued under the
Plan were calculated pursuant to clause (b) of the compensation formula under
the Plan.
At any given time, the expenses in distributing shares of the Fund may be
in excess of the total of (i) the payments made by the Fund pursuant to the
Plan, and (ii) the proceeds of contingent deferred sales charges paid by
investors upon the redemption of shares (see "Redemption and Repurchases--
Contingent Deferred Sales Charge"). For example, if $1 million in expenses in
distributing shares of the Fund had been incurred and $750,000 had been
received as described in (i) and (ii) above, the excess expense would amount
to $250,000. The Distributor has advised the Fund that such excess amount,
including the carrying charge described above, totalled $9,085,300 at May 31,
1996, which was equal to 2.94% of the Fund's net assets on such date.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses or any requirement that the Plan be
continued from year to year, 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.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes
prior to 4:00 p.m., at such earlier time), by taking the value of all assets
of the Fund, subtracting all its liabilities, dividing by the number of
shares outstanding and adjusting to the nearest cent. The net asset value per
share will not be determined on Good Friday and on such other federal and
non-federal holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange or quoted by NASDAQ is valued at its
latest sale price on that exchange or quotation service prior to the time
assets are valued; if there were no sales that day, the security is valued at
the latest bid price (in cases where a security is traded on more than one
exchange, the security is valued on the exchange designated as the primary
market pursuant to procedures adopted by the Trustees); (2) an option is
valued at the mean between the latest bid and asked prices; (3) a futures
contract is valued at the latest sales price on the commodities exchange on
which it trades unless the Board determines that such price does not reflect
its market value, in which case it will be valued at its fair value as
determined by the Board of Trustees; (4) all other portfolio securities for
which over-the-counter market quotations are readily available are valued at
the latest bid price; (5) when market quotations are not readily available,
including circumstances under which it is determined by the Investment
Manager that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in
good faith under procedures established by and under the general supervision
of the Fund's Trustees (valuation of debt securities for
15
<PAGE>
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); (6) the value
of short-term debt securities which mature at a date less than sixty days
subsequent to valuation date will be determined on an amortized cost or
amortized value basis; and (7) the value of other assets will be determined
in good faith at fair value under procedures established by and under the
general supervision of the Fund's Trustees. For valuation purposes,
quotations of foreign portfolio securities, other assets and liabilities and
forward contracts stated in foreign currency are translated into U.S. dollar
equivalents at the prevailing market rates prior to the close of the New York
Stock Exchange. Dividends receivable are accrued as of the ex-dividend date
or as of the time that the relevant ex-dividend date and amounts become
known. Interest income is accrued daily except when collection is uncertain.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon
as the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining
what it believes is the fair valuation of the portfolio securities valued by
such pricing service.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other open-end
investment company for which InterCapital serves as investment manager
(collectively, with the Fund, the "Dean Witter Funds")), unless the
shareholder requests that they be paid in cash. Shares so acquired are not
subject to the imposition of a contingent deferred sales charge upon their
redemption (see "Redemptions and Repurchases").
Investment of Dividends or Distributions Received in Cash. Any
shareholder who receives a cash payment representing a dividend or capital
gains distribution may invest such dividend or distribution at the net asset
value next determined after receipt by the Transfer Agent, by returning the
check or the proceeds to the Transfer Agent within thirty days after the
payment date. Shares so acquired are not subject to the imposition of a
contingent deferred sales charge upon their redemption (see "Redemptions and
Repurchases").
EasyInvest (Service Mark). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Redemptions and Repurchases--
Involuntary Redemption").
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any amount, not less than $25, or in any
whole percentage of the account balance, on an annualized basis. Any
applicable contingent deferred sales charge will be imposed on shares
redeemed under the Withdrawal Plan (See "Redemptions and Repurchases--
Contingent Deferred Sales Charge"). Therefore, any shareholder participating
in the Withdrawal Plan will have sufficient shares redeemed from his or her
account so that the proceeds (net of any applicable contingent deferred sales
charge) to the shareholder will be the designated monthly or quarterly
amount.
16
<PAGE>
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 DWR or other Selected Broker-
Dealer account executive or the Transfer Agent.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of shares of the Fund for shares of other Dean Witter
Funds sold with a contingent deferred sales charge ("CDSC funds"), and for
shares of Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited
Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter Balanced
Income Fund, Dean Witter Balanced Growth Fund, Dean Witter Intermediate Term
U.S. Treasury Trust and five Dean Witter Funds which are money market funds
(the foregoing eleven non-CDSC funds are hereinafter collectively referred to
in this section as the "Exchange Funds.") Exchanges may be made after the
shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to another CDSC fund or 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 day. Subsequent exchanges between any of
the money market funds and any of the CDSC funds can be effected on the same
basis. No contingent deferred sales charge ("CDSC") is imposed at the time of
any exchange, although any applicable CDSC will be imposed upon ultimate
redemption. Shares of the Fund acquired in exchange for shares of another
CDSC fund having a different CDSC schedule than that of this Fund will be
subject to the CDSC schedule of this Fund, even if such shares are
subsequently re-exchanged for shares of the CDSC fund originally purchased.
During the period of time the shareholder remains in the Exchange Fund
(calculated from the last day of the month in which the Exchange Fund shares
were acquired) the holding period (for the purpose of determining the rate of
the CDSC) is frozen. If those shares are subsequently reexchanged for shares
of a CDSC fund, the holding period previously frozen when the first exchange
was made resumes on the last day of the month in which shares of a CDSC fund
are reacquired. Thus, the CDSC is based upon the time (calculated as
described above) the shareholder was invested in a CDSC fund (see
"Redemptions and Repurchases--Contingent Deferred Sales Charge"). However, in
the case of shares exchanged into an Exchange Fund on or after April 23,
1990, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount
equal to the Exchange Fund 12b-1 distribution fees, if any, incurred on or
after that date which are attributable to those shares. (Exchange Fund 12b-1
distribution fees are described in the prospectuses for those funds.)
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds"), but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for
shares of
17
<PAGE>
other Dean Witter Funds for which shares of a front-end sales charge fund
have been exchanged) are not subject to any CDSC upon their redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders
and, at the Investment Manager's discretion, may be limited by the Fund's
refusal to accept additional purchases and/or exchanges from the investor.
Although the Fund does not have any specific definition of what constitutes a
pattern of frequent exchanges, and will consider all relevant factors in
determining whether a particular situation is abusive and contrary to the
best interests of the Fund and its other shareholders, investors should be
aware that the Fund and each of the other Dean Witter Funds may in their
discretion limit or otherwise restrict the number of times this Exchange
Privilege may be exercised by any investor. Any such restriction will be made
by the Fund on a prospective basis only, upon notice to the shareholder not
later than ten days following such shareholder's most recent exchange. Also,
the Exchange Privilege may be terminated or revised at any time by the Fund
and/or any of such Dean Witter Funds for which shares of the Fund have been
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another
Selected Broker-Dealer are referred to their account executive regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. In the case of any shareholder
holding a share certificate or certificates, no exchanges may be made until
all applicable share certificates have been received by the Transfer Agent
and deposited in the Shareholder's account. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares,
on which the shareholder may realize a capital gain or loss. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an
exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean
Witter Funds (for which the Exchange Privilege is available) pursuant to this
Exchange Privilege by contacting their account executive (no Exchange
Privilege Authorization Form is required). Other shareholders (and those
shareholders who are clients of DWR or another Selected Broker-Dealer but who
wish to make exchanges directly by 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
18
<PAGE>
Form and who is unable to reach the Fund by telephone should contact his or
her DWR or other Selected Broker-Dealer account executive, if appropriate, or
make a written exchange request. Shareholders are advised that during periods
of drastic economic or market changes, it is possible that the telephone
exchange procedures may be difficult to implement, although this has not been
the case with the Dean Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their account executive or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. Shares of the Fund can be redeemed for cash at any time at
the net asset value per share next determined; however, such redemption
proceeds will be reduced by the amount of any applicable contingent deferred
sales charge (see below). If shares are held in a shareholder's account
without a share certificate, a written request for redemption sent to the
Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along
with any additional documentation required by the Transfer Agent.
Contingent Deferred Sales Charge. Shares of the Fund which are held for
six years or more after purchase (calculated from the last day of the month
in which the shares were purchased) will not be subject to any charge upon
redemption. Shares redeemed sooner than six years after purchase may,
however, be subject to a charge upon redemption. This charge is called a
"contingent deferred sales charge" ("CDSC"), which will be a percentage of
the dollar amount of shares redeemed and will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The size of this percentage will depend upon how long the shares
have been held, as set forth in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE REDEEMED
- -------------------------- -----------------------
<S> <C>
First ..................... 5.0%
Second .................... 4.0%
Third ..................... 3.0%
Fourth .................... 2.0%
Fifth ..................... 2.0%
Sixth ..................... 1.0%
Seventh and thereafter ... None
</TABLE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption;
(ii) the current net asset value of shares purchased more than six years
prior to the redemption; and (iii) the current net asset asset value of
shares purchased through reinvestment of dividends or distributions and/or
shares acquired in exchange for shares of Dean Witter Funds sold with a
front-end sales charge or of other Dean Witter Funds acquired in exchange for
such shares. Moreover, in determining whether a CDSC is applicable it will be
assumed that amounts described in (i), (ii) and (iii) above (in that order)
are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint
19
<PAGE>
tenants with right of survivorship; or (B) held in a qualified corporate or
self-employed retirement plan, Individual Retirement Account ("IRA") or
Custodial Account under Section 403(b)(7) of the Internal Revenue Code
("403(b) Custodial Account"), provided in either case that the redemption is
requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self- employed retirement plan following retirement (or, in the case of a
"key employee" of a "top heavy" plan, following attainment of age 59 1/2);
(B) distributions from an IRA or 403(b) Custodial Account following
attainment of age 59 1/2; or (C) a tax-free return of an excess contribution
to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
corporate or self-employed retirement plan qualified under Section 401(k) of
the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which Dean Witter Trust
Company, an affiliate of the Investment Manager, serves as recordkeeper or
Trustee ("Eligible 401(k) Plan"), provided that either: (A) the plan
continues to be an Eligible 401(k) Plan after the redemption; or (B) the
redemption is in connection with the complete termination of the plan
involving the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to
engage in gainful employment. With reference to (2) above, the term
"distribution" does not encompass a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee. All
waivers will be granted only following receipt by the Distributor of
confirmation of the shareholder's entitlement.
Repurchase. DWR and other Selected Broker- Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to
any of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the
net asset value per share next determined (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 upon repurchase by the
Fund, the Distributor, DWR or other Selected Broker-Dealer. 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 above under
"Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances, e.g. when normal trading is not taking
place on the New York Stock Exchange. If the shares to be redeemed have
recently been purchased by check, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another Selected Dealer are referred to their account
executive regarding restrictions on redemption of shares of the Fund pledged
in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the redemption or
repurchase, reinstate any portion or all of the proceeds of such redemption
or repurchase in shares of the Fund at the net asset value
20
<PAGE>
next determined after a reinstatement request, together with the proceeds, is
received by the Transfer Agent and receive a pro-rata credit for any CDSC
paid in connection with such redemption or repurchase.
Involuntary Redemption. The Fund reserves the right to redeem, upon sixty
days' notice and at net asset value, the shares of any shareholder (other
than shares held in an Individual Retirement Account or Custodial Account
under Section 403(b)(7) of the 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 Fund's 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 sixty days to make an additional investment in an
amount which will increase the value of the account to at least the applicable
amount before the redemption is processed. No CDSC will be imposed on any
involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Dividends and Distributions. The Fund intends to 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 either to distribute or to retain all or part of any net long-term
capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional Fund shares and automatically credited to the shareholder's
account without issuance of a share certificate unless the shareholder
requests in writing that all dividends be paid in cash. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions".)
Taxes. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise 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 state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from
net investment income or short-term capital gains, are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash.
One of the requirements for the Fund to remain qualified as a regulated
investment company is that less than 30% of the Fund's gross income be
derived from gains from the sale or other disposition of securities held for
less than three months. Accordingly, the Fund may be restricted in the
writing of options on securities held for less than three months, in the
writing of options which expire in less than three months, and in effecting
closing transactions with respect to call or put options which have been
written or purchased less than three months prior to such transactions. The
Fund may also be restricted in its ability to engage in transactions
involving futures contracts.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction.
After the end of the calendar year, shareholders will be sent full
information on their dividends and
21
<PAGE>
capital gains distributions for tax purposes, including information as to the
portion taxable as ordinary income, the portion taxable as long-term capital
gains, and the 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.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. The "average
annual total return" of the Fund refers to a figure reflecting the average
annualized percentage increase (or decrease) in the value of an initial
investment in the Fund of $1,000 over periods of one, five and ten years, or
over the life of the Fund, if less than any of the foregoing. Average annual
total return reflects all income earned by the Fund, any appreciation or
depreciation of the Fund's assets, all expenses incurred by the Fund and all
sales charges which would be incurred by redeeming shareholders, for the
stated periods. It also assumes reinvestment of all dividends and
distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or
other types of total return figures. The Fund may also advertise the growth
of hypothetical investments of $10,000, $50,000 and $100,000 in shares of the
Fund. Such calculations may or may not reflect the deduction of the
contingent deferred sales charge which, if reflected, would reduce the
performance quoted. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc., the S&P Mid-Cap Index, NASDAQ Composite, Russell
Mid Cap Index, S&P 500 Index and the Wilshire Mid Cap Index).
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. There
are no conversion, pre-emptive or other subscription rights. In the event of
a liquidation, each share of beneficial interest of the Fund is entitled to
its portion of all the Fund's assets after all debts and expenses have been
paid. The shares do not have cumulative voting rights.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by
the Shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain limited 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 notice of such Fund obligations include such disclaimer,
and provides for indemnification out of the Fund's property for any
shareholder held personally liable for the obligations of the Fund. Thus,
22
<PAGE>
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. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to
ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from a
person's employment activities and that actual and potential conflicts of
interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an
advance clearance process to monitor that no Dean Witter Fund is engaged at
the same time in a purchase or sale of the same security. The Code of Ethics
bans the purchase of securities in an initial public offering, and also
prohibits engaging in futures and options transactions and profiting on
short-term trading (that is, a purchase within sixty days of a sale or a sale
within sixty days of a purchase) of a security. In addition, investment
personnel may not purchase or sell a security for their personal account
within thirty days before or after any transaction in any Dean Witter Fund
managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute
Advisory Group on Personal Investing.
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.
23
<PAGE>
Dean Witter
Mid-Cap Growth Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Anita H. Kolleeny
Vice President
Kirk Balzer
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
DEAN WITTER
MID-CAP
GROWTH FUND
PROSPECTUS--JULY 22, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JULY 22, 1996
DEAN WITTER
MID-CAP GROWTH
FUND
- -----------------------------------------------------------------------------
Dean Witter Mid-Cap Growth Fund (the "Fund") is an open-end, diversified
management investment company whose investment objective is long-term capital
growth. The Fund invests principally in equity securities of "mid-cap"
companies. (See "Investment Practices and Policies.")
A Prospectus for the Fund dated July 22, 1996, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone numbers listed below
or from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean
Witter Reynolds Inc. at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in
addition to and more detailed than that set forth in the Prospectus. It is
intended to provide additional information regarding the activities and
operations of the Fund, and should be read in conjunction with the
Prospectus.
Dean Witter Mid-Cap Growth Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund and its Management ......... 3
Trustees and Officers ............... 6
Investment Practices and Policies .. 12
Investment Restrictions ............. 24
Portfolio Transactions and Brokerage 25
The Distributor ..................... 27
Shareholder Services ................ 30
Redemptions and Repurchases ......... 35
Dividends, Distributions and Taxes . 37
Performance Information ............. 38
Shares of the Fund .................. 39
Custodian and Transfer Agent ....... 39
Independent Accountants ............. 40
Reports to Shareholders ............. 40
Legal Counsel ....................... 40
Experts ............................. 40
Registration Statement .............. 40
Financial Statements ................ 41
Report of Independent Accountants .. 52
</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 May 25, 1994.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or
"InterCapital"), a Delaware corporation, whose address is Two World Trade
Center, New York, New York 10048, is the Fund's Investment Manager.
InterCapital is a wholly-owned subsidiary of Dean Witter, Discover & Co.
("DWDC"), a Delaware corporation. In an internal reorganization which took
place in January, 1993, InterCapital assumed the investment advisory,
administrative and management activities previously performed by the
InterCapital Division of Dean Witter Reynolds Inc. ("DWR"), a broker-dealer
affiliate of InterCapital. (As hereinafter used in this Statement of
Additional Information, the terms "InterCapital" and "Investment Manager"
refer to DWR's InterCapital Division prior to the internal reorganization and
to Dean Witter InterCapital Inc. thereafter). The daily management of the
Fund and research relating to the Fund's portfolio are conducted by or under
the direction of officers of the Fund and of the Investment Manager, subject
to review of investments by the Fund's Board of Trustees. In addition,
Trustees of the Fund provide guidance on economic factors and interest rate
trends. Information as to these Trustees and officers is contained under the
caption "Trustees and Officers".
InterCapital is also the investment manager or investment adviser of the
following investment companies: Dean Witter Liquid Asset Fund Inc.,
InterCapital Income Securities Inc., Dean Witter High Yield Securities Inc.,
Dean Witter Tax-Free Daily Income Trust, Dean Witter Value-Added Market
Series, Dean Witter Tax-Exempt Securities Trust, Dean Witter Natural Resource
Development Securities Inc., Dean Witter Dividend Growth Securities Inc.,
Dean Witter American Value Fund, Dean Witter Developing Growth Securities
Trust, Dean Witter U.S. Government Money Market Trust, Dean Witter Variable
Investment Series, Dean Witter World Wide Investment Trust, Dean Witter
Select Municipal Reinvestment Fund, Dean Witter U.S. Government Securities
Trust, Dean Witter California Tax-Free Income Fund, Dean Witter New York
Tax-Free Income Fund, Dean Witter Convertible Securities Trust, Dean Witter
Federal Securities Trust, High Income Advantage Trust, High Income Advantage
Trust II, High Income Advantage Trust III, Dean Witter Government Income
Trust, Dean Witter Utilities Fund, Dean Witter California Tax-Free Daily
Income Trust, Dean Witter Strategist Fund, Dean Witter World Wide Income
Trust, Dean Witter Intermediate Income Securities, Dean Witter New York
Municipal Money Market Trust, Dean Witter Capital Growth Securities, Dean
Witter European Growth Fund Inc., Dean Witter Precious Metals and Minerals
Trust, Dean Witter Global Short-Term Income Fund Inc., Dean Witter Pacific
Growth Fund Inc., Dean Witter Multi-State Municipal Series Trust, Dean Witter
Premier Income Trust, Dean Witter Short-Term U.S. Treasury Trust,
InterCapital Insured Municipal Bond Trust, InterCapital Insured Municipal
Trust, InterCapital Insured Municipal Income Trust, InterCapital California
Insured Municipal Income Trust, InterCapital Quality Municipal Investment
Trust, InterCapital Quality Municipal Income Trust, InterCapital Quality
Municipal Securities, InterCapital California Quality Municipal Securities,
InterCapital New York Quality Municipal Securities, Dean Witter Diversified
Income Trust, Dean Witter Health Sciences Trust, Dean Witter Retirement
Series, Dean Witter Global Dividend Growth Securities, Dean Witter Limited
Term Municipal Trust, InterCapital Insured Municipal Securities, InterCapital
Insured California Municipal Securities, Dean Witter Short-Term Bond Fund,
Dean Witter Global Utilities Fund, Dean Witter National Municipal Trust, Dean
Witter High Income Securities, Dean Witter International SmallCap Fund, Dean
Witter Select Dimensions Investment Series, Dean Witter Balanced Income Fund,
Dean Witter Balanced Growth Fund, Dean Witter Hawaii Municipal Trust, Dean
Witter Intermediate Term U.S. Treasury Trust, Dean Witter Capital
Appreciation Fund, Dean Witter Information Fund, Dean Witter Japan Fund, Dean
Witter Income Builder Fund, Active Assets Money Trust, Active Assets Tax-Free
Trust, Active Assets California Tax-Free Trust, Active Assets Government
Securities Trust, Municipal Income Trust, Municipal Income Trust II,
Municipal Income Trust III, Municipal
3
<PAGE>
Income Opportunities Trust, Municipal Income Opportunities Trust II,
Municipal Income Opportunities Trust III, Municipal Premium Income Trust and
Prime Income Trust. The foregoing investment companies are collectively
referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser:
TCW/DW Core Equity Trust, TCW/DW North American Government Income Trust,
TCW/DW Latin American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW
Small Cap Growth Fund, TCW/DW Balanced Fund, TCW/DW Total Return Trust,
TCW/DW Mid-Cap Equity Trust, TCW/DW Global Telecom Trust, TCW/DW Emerging
Markets Opportunities Trust, TCW/DW Term Trust 2000, TCW/DW Term Trust 2002
and TCW/DW Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves as:
(i) sub-adviser to Templeton Global Opportunities Trust, an open-end
investment company; (ii) administrator of The BlackRock Strategic Term Trust
Inc., a closed-end investment company; and (iii) sub-administrator of
MassMutual Participation Investors and Templeton Global Governments Income
Trust, closed-end investment companies.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage
the investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and legal services as the Fund may
reasonably require in the conduct of its business, including the preparation
of prospectuses, statements of additional information, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the
Investment Manager. The Investment Manager also bears the cost of telephone
service, heat, light, power and other utilities provided to the Fund. The
Investment Manager has retained DWSC to provide its administrative services
under the Agreement.
Expenses not expressly assumed by the Investment Manager under the
Agreement or by Dean Witter Distributiors Inc., the Distributor of the Fund's
shares ("Distributors" or "the Distributor"), will be paid by the Fund. The
expenses borne by the Fund include, but are not limited to: expenses of the
Plan of Distribution pursuant to Rule 12b-1 (see "The Distributor"); charges
and expenses of any registrar; custodian, stock transfer and dividend
disbursing agent; brokerage commissions; taxes; engraving and printing of
share certificates; registration costs of the Fund and its shares under
federal and state securities laws; the cost and expense of printing,
including typesetting, and distributing Prospectuses and Statements of
Additional Information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Trustees or members of any advisory
board or committee who are not employees of the Investment Manager or any
corporate affiliate of the Investment Manager; all expenses incident to any
dividend, withdrawal or redemption options; charges and expenses of any
outside service used for pricing of the Fund's shares; fees and expenses of
legal counsel, including counsel to the Trustees who are not interested
persons of the Fund or of the Investment Manager (not including compensation
or expenses of attorneys who are employees of the Investment Manager) and
independent accountants; membership dues of industry associations; interest
on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Trustees) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto);
and all other costs of the Fund's operation.
4
<PAGE>
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.75% to the Fund's daily net assets. For the period September
29, 1994 (commencement of operations) through May 31, 1995 and for the fiscal
year ended May 31, 1996, the Fund accrued to the Investment Manager total
compensation of $470,526 and $1,468,816, respectively.
Pursuant to the Agreement, total operating expenses of the Fund are
subject to applicable limitations under rules and regulations of states where
the Fund is authorized to sell its shares. Therefore, operating expenses are
effectively subject to the most restrictive of such limitations as the same
may be amended from time to time. Presently, the most restrictive limitation
is as follows. If, in any fiscal year, the Fund's total operating expenses,
exclusive of taxes, interest, brokerage fees, distribution fees and
extraordinary expenses (to the extent permitted by applicable state
securities laws and regulations), exceed 2 1/2% of the first $30,000,000 of
average daily net assets, 2% of the next $70,000,000 and 1 1/2% of any
excess over $100,000,000, the Investment Manager will reimburse the Fund for
the amount of such excess. Such amount, if any, will be calculated daily and
credited on a monthly basis. The Fund's expenses did not exceed the
limitation set forth above during the period September 29, 1994 through May
31, 1995 and during the fiscal year ended May 31, 1996.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Investment Manager paid the organizational expenses of the Fund,
approximately $156,000, incurred prior to the offering of the Fund's shares.
The Fund has reimbursed the Investment Manager for such expenses. Such
expenses have been deferred and are being amortized by the straight line
method over a period not to exceed five years from the date of commencement
of the Fund's operations.
The Agreement was initially approved by the Trustees of the Fund on July
14, 1994 and by InterCapital as the then sole shareholder on July 15, 1994.
The Agreement may be terminated at any time, without penalty, on thirty days'
notice by the Trustees of the Fund, by the holders of a majority of the
outstanding shares of the Fund, as defined in the Investment Company Act of
1940, as amended (the "Act"), or by the Investment Manager. The Agreement
will automatically terminate in the event of its assignment (as defined in
the Act).
Under its terms, the Agreement had an initial term ending April 30, 1996
and will continue in effect from year to year thereafter, provided
continuance of the Agreement is approved at least annually by the vote of the
holders of a majority of the outstanding shares of the Fund, as defined in
the Act, or by the Trustees of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Trustees of
the Fund who are not parties to the Agreement or "interested persons" (as
defined in the Act) of any such party (the "Independent Trustees"), which
vote must be cast in person at a meeting called for the purpose of voting on
such approval. At their meeting held on April 17, 1996, the Trustees,
including all of the Independent Trustees, approved the continuation of the
Agreement until April 30, 1997.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR. The Fund has agreed that DWR or its parent company may use, or at any
time permit others to use, the name "Dean Witter." The Fund has also agreed
that in the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate
the name "Dean Witter" from its name if DWR or its parent company shall so
request.
5
<PAGE>
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital, and with 81 Dean Witter Funds and 13 TCW/DW Funds, are shown
below:
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
<S> <C>
Michael Bozic (55).......................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of
c/o Levitz Furniture Corporation the Dean Witter Funds; formerly President and Chief Executive
6111 Broken Sound Parkway, N.W. Officer of Hills Department Stores (May, 1991-July, 1995);
Boca Raton, Florida formerly variously Chairman, Chief Executive Officer,
President and Chief Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and Co.; Director of
Eaglemark Financial Services, Inc., the United Negro College
Fund and Weirton Steel Corporation.
Charles A. Fiumefreddo* (63)................ Chairman, Chief Executive Officer and Director of InterCapital,
Chairman, President, Distributors and DWSC; Executive Vice President and Director
Chief Executive Officer and Trustee of DWR; Chairman, Director or Trustee, President and Chief
Two World Trade Center Executive Officer of the Dean Witter Funds; Chairman, Chief
New York, New York Executive Officer and Trustee of the TCW/DW Funds; Chairman
and Director of Dean Witter Trust Company ("DWTC"); Director
and/or officer of various DWDC subsidiaries; formerly Executive
Vice President and Director of DWDC (until February, 1993).
Edwin J. Garn (63) ......................... Director or Trustee of the Dean Witter Funds; formerly United
Trustee States Senator (R-Utah) (1974-1992) and Chairman, Senate
c/o Huntsman Chemical Corporation Banking Committee (1980-1986); formerly Mayor of Salt Lake
500 Huntsman Way City, Utah (1972-1974); formerly Astronaut, Space Shuttle
Salt Lake City, Utah Discovery (April 12-19, 1985); Vice Chairman, Huntsman Chemical
Corporation (since January, 1993); Member of the board of
various civic and charitable organizations.
John R. Haire (71) ......................... Chairman of the Audit Committee and Chairman of the Committee
Trustee of the Independent Directors or Trustees and Director or Trustee
Two World Trade Center of the Dean Witter Funds; Chairman of the Audit Committee
New York, New York and Chairman of the Committee of the Independent Trustees
and Trustee of the TCW/DW Funds; formerly President, Council
for Aid to Education (1978-1989) and Chairman and Chief Executive
Officer of Anchor Corporation, an Investment Adviser
(1964-1978); Director of Washington National Corporation
(insurance).
6
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Dr. Manuel H. Johnson (47) ................. Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm (since June, 1985); Koch Professor of International
c/o Johnson Smick International, Inc. Economics and Director of the Center for Global Market Studies
1133 Connecticut Avenue, N.W. at George Mason University (since September, 1990); Co-Chairman
Washington, DC and a founder of the Group of Seven Council (G7C), an
international economic commission (since September, 1990);
Director or Trustee of the Dean Witter Funds; Trustee of the
TCW/DW Funds; Director of NASDAQ (since June, 1995); Director
of Greenwich Capital Markets, Inc. (broker-dealer); formerly
Vice Chairman of the Board of Governors of the Federal Reserve
System (February, 1986-August, 1990) and Assistant Secretary
of the U.S. Treasury (1982-1986).
Michael E. Nugent (60) ..................... General Partner, Triumph Capital, L.P., a private investment
Trustee partnership (since April, 1988); Director or Trustee of the
Triumph Capital, L.P. Dean Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital Corporation;
New York, New York Director of various business organizations.
Philip J. Purcell* (52) .................... Chairman of the Board of Directors and Chief Executive Officer
Trustee of DWDC, DWR, and Novus Credit Services Inc.; Director of
Two World Trade Center InterCapital, DWSC, and Distributors; Director or Trustee
New York, New York of the Dean Witter Funds; Director and/or officer of various
DWDC subsidiaries.
John L. Schroeder (65) ..................... Retired; Director or Trustee of the Dean Witter Funds; Trustee
Trustee of the TCW/DW Funds; Director of Citizens Utilities Company;
c/o Gordon Altman Butowsky Weitzen formerly Executive Vice President and Chief Investment Officer
Shalov & Wein of the Home Insurance Company (August, 1991- September, 1995),
Counsel to the Independent Trustees Chairman and Chief Investment Officer of Axe-Houghton
114 West 47th Street Management and the Axe-Houghton Funds (April, 1983-June, 1991)
New York, New York and President of USF&G Financial Services, Inc. (June,
1990-June, 1991).
Sheldon Curtis (64).......................... Senior Vice President, Secretary and General Counsel of
Vice President, InterCapital and DWSC; Senior Vice President and Secretary
Secretary and General Counsel of DWTC; Senior Vice President, Assistant Secretary and
Two World Trade Center Assistant General Counsel of Distributors; Assistant Secretary
New York, New York of DWR; Vice President, Secretary and General Counsel of the
Dean Witter Funds and the TCW/DW Funds.
Anita H. Kolleeny (41)....................... Senior Vice President of InterCapital; Vice President of various
Vice President Dean Witter Funds.
Two World Trade Center
New York, New York
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Kirk Balzer (33)............................. Vice President of InterCapital (since April, 1996); previously
Vice President Portfolio Manager with Chancellor Capital Management (July,
Two World Trade Center 1994-March, 1996) and GT Capital Management (June, 1992-July,
New York, New York 1994) and prior thereto a graduate student at the University
of Chicago.
Thomas F. Caloia (50)........................ First Vice President (since May, 1991) and Assistant Treasurer
Treasurer (since January, 1993) of InterCapital; First Vice President
Two World Trade Center and Assistant Treasurer of DWSC; Treasurer of the Dean Witter
New York, New York Funds and the TCW/DW Funds; previously Vice President of
InterCapital.
</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
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, David A. Hughey, Executive Vice President and Chief
Administrative Officer of InterCapital, DWSC, Distributors and DWTC and
Director of DWTC, Robert S. Giambrone, Senior Vice President of InterCapital,
DWSC, Distributors and DWTC and Director of DWTC, Joseph J. McAlinden,
Executive Vice President and Chief Investment Officer of InterCapital and
Director of DWTC, and Kenton J. Hinchliffe, Ira N. Ross and Paul D. Vance,
Senior Vice Presidents of InterCapital, are Vice Presidents of the Fund, and
Marilyn K. Cranney and Barry Fink, First Vice Presidents and Assistant
General Counsels of InterCapital and DWSC, LouAnne D. McInnis and Ruth Rossi,
Vice Presidents and Assistant General Counsels of InterCapital and DWSC, and
Carsten Otto, a Staff Attorney with InterCapital, are Assistant Secretaries
of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of eight (8) trustees. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of
this Statement of Additional Information, there are a total of 81 Dean Witter
Funds, comprised of 121 portfolios. As of June 30, 1996, the Dean Witter
Funds had total net assets of approximately $76.3 billion and more than five
million shareholders.
Six Trustees (75% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own
any stock or other securities issued by InterCapital's parent company, DWDC.
These are the "disinterested" or "independent" Trustees. The other two
Trustees (the "management Trustees") are affiliated with InterCapital. Four
of the six independent Trustees are also Independent Trustees of the TCW/DW
Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Dean Witter Funds seek as Independent
Trustees individuals of distinction and experience in business and finance,
government service or academia; these are people whose advice and counsel are
in demand by others and for whom there is often competition. To accept a
position on the Funds' Boards, such individuals may reject other attractive
assignments because the Funds make substantial demands on their time. Indeed,
by serving on the Funds' Boards, certain Trustees who would otherwise be
qualified and in demand to serve on bank boards would be prohibited by law
from doing so.
All of the Independent Trustees serve as members of the Audit Committee
and the Committee of the Independent Trustees. Three of them also serve as
members of the Derivatives Committee. During the calendar year ended December
31, 1995, the three Committees held a combined total of fifteen meetings. The
Committees hold some meetings at InterCapital's offices and some outside
InterCapital. Management Trustees or officers do not attend these meetings
unless they are invited for purposes of furnishing information or making a
report.
8
<PAGE>
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading
among Funds in the same complex; and approving fidelity bond and related
insurance coverage and allocations, as well as other matters that arise from
time to time. The Independent Trustees are required to select and nominate
individuals to fill any Independent Trustee vacancy on the Board of any Fund
that has a Rule 12b-1 plan of distribution. Most of the Dean Witter Funds
have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance of such
services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting
Committee meeting minutes to the full Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and
the Funds' operations and management. He screens and/or prepares written
materials and identifies critical issues for the Independent Trustees to
consider, develops agendas for Committee meetings, determines the type and
amount of information that the Committees will need to form a judgment on
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 Manager and other service
providers. In effect, the Chairman of the Committees serves as a combination
of chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and, since
July 1, 1996, as Chairman of the Committee of the Independent Trustees and
the Audit Committee of the TCW/DW Funds. The current Committee Chairman has
had more than 35 years experience as a senior executive in the investment
company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of
separate groups of Independent Trustees
9
<PAGE>
arriving at conflicting decisions regarding operations and management of the
Funds and avoids the cost and confusion that would likely ensue. Finally,
having the same Independent Trustees serve on all Fund Boards enhances the
ability of each Fund to obtain, at modest cost to each separate Fund, the
services of Independent Trustees, and a Chairman of their Committees, of the
caliber, experience and business acumen of the individuals who serve as
Independent Trustees of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee
of the Independent Trustees an additional annual fee of $1,200). The Fund
also reimburses such Trustees for travel and other out-of-pocket expenses
incurred by them in connection with attending such meetings. Trustees and
officers of the Fund who are or have been employed by the Investment Manager
or an affiliated company receive no compensation or expense reimbursement
from the Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended May 31, 1996.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
---------------
<S> <C>
Michael Bozic ................. $1,800
Edwin J. Garn ................. 1,900
John R. Haire ................. 4,375(1)
Dr. Manuel H. Johnson ........ 1,850
Michael E. Nugent ............. 1,700
John L. Schroeder ............. 1,850
</TABLE>
- ----------
(1) Of Mr. Haire's compensation from the Fund, $3,150 was paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($750).
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1995 for
services to the 79 Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 11 TCW/DW Funds that were in operation at
December 31, 1995. With respect to Messrs. Haire, Johnson, Nugent and
Schroeder, the TCW/DW Funds are included solely because of a limited exchange
privilege between those Funds and five Dean Witter Money Market Funds. Mr.
Schroeder was elected as a Trustee of the TCW/DW Funds on April 20, 1995.
COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF TOTAL
FOR SERVICE AS COMMITTEES OF COMPENSATION
DIRECTOR OR FOR SERVICE AS INDEPENDENT PAID FOR
TRUSTEE AND TRUSTEE AND DIRECTORS/ SERVICES TO 79
COMMITTEE MEMBER COMMITTEE MEMBER TRUSTEES AND DEAN WITTER
OF 79 DEAN WITTER OF 11 TCW/DW AUDIT FUNDS AND 11
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS COMMITTEES TCW/DW FUNDS
- --------------------------- ----------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Michael Bozic .............. $126,050 -- -- $126,050
Edwin J. Garn .............. 136,450 -- -- 136,450
John R. Haire .............. 98,450 $82,038 $217,350(2) 397,838
Dr. Manuel H. Johnson ..... 136,450 82,038 -- 218,488
Michael E. Nugent .......... 124,200 75,038 -- 199,238
John L. Schroeder .......... 136,450 46,964 -- 183,414
</TABLE>
- ----------
(2) For the 79 Dean Witter Funds in operation at December 31, 1995. As
noted above, on July 1, 1996, Mr. Haire became Chairman of the
Committee of the Independent Trustees and the Audit Committee of the
TCW/DW Funds in addition to continuing to serve in such positions for
the Dean Witter Funds.
10
<PAGE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, not including the Fund, have adopted a retirement program under
which an Independent Trustee who retires after serving for at least five
years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Dean Witter Fund that has adopted the
retirement program (each such Fund referred to as an "Adopting Fund" and each
such Trustee referred to as an "Eligible Trustee") is entitled to retirement
payments upon reaching the eligible retirement age (normally, after attaining
age 72). Annual payments are based upon length of service. Currently, upon
retirement, each Eligible Trustee is entitled to receive from the Adopting
Fund, commencing as of his or her retirement date and continuing for the
remainder of his or her life, an annual retirement benefit (the "Regular
Benefit") equal to 25.0% of his or her Eligible Compensation plus 0.4166666%
of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years
up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the Board.(3) "Eligible Compensation" is
one-fifth of the total compensation earned by such Eligible Trustee for
service to the Adopting Fund in the five year period prior to the date of the
Eligible Trustee's retirement. Benefits under the retirement program are not
secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Dean Witter Funds (not including the
Fund) as of December 31, 1995, and the estimated retirement benefits for the
Fund's Independent Trustees from the 57 Dean Witter Funds as of December 31,
1995.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
ANNUAL
RETIREMENT BENEFITS
ESTIMATED BENEFITS UPON
CREDITED YEARS ESTIMATED ACCRUED AS RETIREMENT
OF SERVICE AT PERCENTAGE OF EXPENSES BY FROM ALL
RETIREMENT ELIGIBLE ALL ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS (4)
- -------------------------- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Michael Bozic ............. 10 50.0% $ 26,359 $ 51,550
Edwin J. Garn ............. 10 50.0 41,901 51,550
John R. Haire ............. 10 50.0 261,763 130,404
Dr. Manuel H. Johnson .... 10 50.0 16,748 51,550
Michael E. Nugent ......... 10 50.0 30,370 51,550
John L. Schroeder ......... 8 41.7 51,812 42,958
</TABLE>
- ----------
(3) 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.
(4) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (3)
above.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
11
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers investors an opportunity
to participate in a diversified portfolio of securities, consisting
principally of common stocks. The portfolio reflects an investment
decision-making process developed by the Fund's Investment Manager.
INDUSTRY AND STOCK SELECTION APPROACH
As stated in the Prospectus, in managing the Fund's portfolio the
Investment Manager generally seeks to identify industries, rather than
individual companies, as prospects for capital appreciation. This approach is
designed to capitalize on four basic assumptions: (1) industry trends are a
primary force governing company earnings; (2) conventional forecasts by
security analysts of company earnings do not fully reflect underlying
industry conditions or changing economic cycles; (3) the market's perception
of industry trends is often transitory or exaggerated; and (4) distortions in
relative valuations beyond their normal ranges provide significant buying or
selling opportunities.
The Investment Manager will invest principally in those mid-cap companies
that have above- average relative growth potential. Mid-cap companies
typically have a better growth potential than their large-cap counterparts
because they are still in the early and more dynamic period of their
corporate existences. Often mid-size companies and the industries in which
they are focused are still evolving as opposed to the more mature industries
served by large-cap companies. Moreover, mid-cap companies are not considered
"emerging" stocks, nor are they as volatile as small-cap firms. This is due
to the fact that mid-cap companies have increased liquidity, attributable to
their larger market capitalization as well as longer and more established
track records, and a stronger market presence and dominance than small-cap
firms. Consequently, because of the better growth inherent in these companies
and their industries, mid-cap companies offer superior return potential to
large-cap companies, yet owing to their relatively larger size and better
recognition in the investment community, they have a reduced risk profile
compared to smaller, emerging or micro-cap companies.
The Investment Manager may use models which employ economic indicators or
other financial variables to evaluate the relative attractiveness of
industries. Considerations may pertain to an assessment of the stage of the
economic cycle, the anticipated direction or movement of interest rates, or a
judgment as to which industries and common stocks may show relative
outperformance based on the following: (1) economic indicators that may be
specific to particular industries; and (2) financial variables which could
include an analysis of cash flow, asset value, historical or projected
earnings, absolute or relative price/earnings ratios, dividend discount
models, or other factors.
The Investment Manager will use an industry approach that seeks to
diversify the assets of the Fund in approximately 18 to 35 industries. The
Fund will hold less than 5% of its net assets in any one security and will
hold less than 10% of its net assets in any one industry. Companies will be
selected based on at least three-year track records, and purchases will be
primarily focused on companies that: (1) have the potential for above-average
relative earnings growth; (2) are focused in industries that are rapidly
expanding or have the potential to see increasing sales or earnings; (3)
historically have had well-defined and recurring revenues; or (4) are
attractive based on an assessment of private market or franchise values.
Asset Allocation. Common stocks, particularly those sought for possible
capital appreciation, have historically experienced a great amount of price
fluctuation. The Investment Manager believes it is desirable to attempt to
reduce the risks of extreme price fluctuations even if such an attempt
results, as it likely will at times, in reducing the probabilities of
obtaining greater capital appreciation. Accordingly, the Investment Manager's
investment process incorporates elements which may reduce, although certainly
not eliminate, the volatility of a portfolio. The Fund may hold a portion of
its portfolio in fixed-income securities in an effort to moderate extremes of
price fluctuation. The determination of the appropriate asset allocation as
between equity and fixed-income investments will be made by the Investment
Manager in its discretion, based upon its evaluation of economic and market
conditions.
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SECURITY LOANS
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 100% of the
market value, determined daily, of the loaned securities. The advantage of
such loans is that the Fund continues to receive the income on the loaned
securities while at the same time earning interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations.
The Fund will not lend its portfolio securities if such loans are not
permitted by the laws or regulations of any state in which its shares are
qualified for sale and will not lend more than 25% of the value of its total
assets.
A loan may be terminated by the borrower on one business day's notice, or
by the Fund on two business days' notice. If the borrower fails to deliver
the loaned securities within two days after receipt of notice, the Fund could
use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and, in some
cases, even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities
will only be made to firms deemed by the 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.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned
securities, to be delivered within one day after notice, to permit the
exercise of such rights if the matters involved would have a material effect
on the Fund's investment in such loaned securities. The Fund will pay
reasonable finder's, administrative and custodial fees in connection with a
loan of its securities. The creditworthiness of firms to which the Fund lends
its portfolio securities will be monitored on an ongoing basis. During the
fiscal year ended May 31, 1996, the Fund did not loan any of its portfolio
securities.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and stock
indexes and purchase options of the same securities to effect closing
transactions, and may hedge against potential changes in the market value of
investments (or anticipated investments) by purchasing put and call options
on portfolio (or eligible portfolio) securities 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 equity securities are
listed on Exchanges and are written in over-the-counter transactions ("OTC
options"). Listed options are issued by the Options Clearing Corporation
("OCC"). Ownership of a listed call option gives the Fund the right to buy
from the OCC the underlying security covered by the option at the stated
exercise price (the price per unit of the underlying security) 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 the
underlying security 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 to the OCC at the stated exercise price. Upon notice of exercise of
the put option, the writer of the put would have the obligation to purchase
the underlying security from the OCC at the exercise price.
Options on Treasury Bonds and Notes. Because trading in options written
on Treasury bonds and notes tends to center on the most recently auctioned
issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each issue of
bonds or notes will thus be phased out as new options are listed on more
recent issues, and options representing a full range of expirations will not
ordinarily be available for every issue on which options are traded.
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Options on Treasury Bills. Because a deliverable Treasury bill changes
from week to week, writers of Treasury bill calls cannot provide in advance
for their potential exercise settlement obligations by acquiring and holding
the underlying security. However, if the Fund holds a long position in
Treasury bills with a principal amount of the securities deliverable upon
exercise of the option, the position may be hedged from a risk standpoint by
the writing of a call option. For so long as the call option is outstanding,
the Fund will hold the Treasury bills in a segregated account with its
Custodian, so that they will be treated as being covered.
OTC Options. Exchange-listed options are issued by the OCC 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 underlying an option it has written, in accordance
with the terms 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 primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities 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 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 not later than that of the securities 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 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 high grade debt obligations 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 achieve a greater total return than
would be realized from holding the underlying securities alone. Moreover, the
premium received will offset a portion of the potential loss incurred by the
Fund if the securities underlying the option are ultimately sold by the Fund
at a loss. The premium received will fluctuate with varying economic market
conditions. If the market value of the portfolio securities upon which call
options have been written increases, the Fund may receive less total return
from the portion of its portfolio upon which calls have been written than it
would have had such call not been written.
During the option period, the Fund may be required, at any time, to
deliver the underlying security against payment of the exercise price on any
calls it has written (exercise of certain listed 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 from being
called, to permit the sale of an underlying security or to enable the Fund to
write another call option on the underlying security with either a different
exercise price or expiration date or both. Also, effecting a closing purchase
transaction will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments by the
Fund. 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
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wholly or partially offset by unrealized appreciation in the market value of
the underlying security. 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.
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 during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security equal to the
difference between the purchase price of the underlying security and the
proceeds of the sale of the security plus the premium received on the option
less the commission paid.
Options written by a Fund normally have expiration dates of from up to
nine months (equity securities) to eighteen months (fixed-income securities)
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 Options and Futures Transactions,"
below.
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 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 high grade debt obligations 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 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 mark to market difference is
maintained by the Fund in cash, U.S. Government securities or other high
grade debt obligations 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 decline below the
exercise price of the option (any loss being decreased by the receipt of the
premium on the option written). During the option period, the Fund may be
required, at any time, to make payment of the exercise price against delivery
of the underlying security. 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 two purposes: (1) to receive the
income derived from the premiums paid by purchasers; and (2) when the
Investment Manager wishes to purchase the security 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.
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 difference between the exercise price of the option
and the current market price of the underlying securities 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 on securities and stock
indexes in amounts equalling up to 10% of its total assets, with a maximum of
5% of the Fund's assets invested in stock index options. The Fund may
purchase call options only in order to close out a covered call position (see
"Covered Call Writing" above). The purchase of a call option to effect a
closing transaction on a call written over-the-counter may be a listed or OTC
option. In either case, the call purchased is likely to be on the same
securities 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 which it holds (or has the
right to acquire) in its portfolio only to protect itself against a decline
in the value of the security. If the value of the underlying security 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. The
Fund may also purchase put options to close out written put positions in a
manner similar to call options closing purchase transactions. In addi-
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tion, the Fund may sell a put option which it has previously purchased prior
to the sale of the securities 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. If a put
option purchased by the Fund expired without being sold or exercised, the
premium would be lost.
Risks of Options Transactions. 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 increase, but has retained the risk of loss should
the price of the underlying security decline. The secured put writer also
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option less the premium received on
the sale of the option. In both cases, the writer has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver or receive the underlying securities at the
exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction, 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 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 high grade debt obligations as security for
the put option for other investment purposes until the exercise or expiration
of the option.
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. 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 Investment Manager.
Each of the Exchanges has established limitations governing the maximum
number of call or put 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
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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.
Stock Index Options. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at
a specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level
of the stock index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple (the "multiplier"). The multiplier for an index
option performs a function similar to the unit of trading for a stock option.
It determines the total dollar value per contract of each point in the
difference between the exercise price of an option and the current level of
the underlying index. A multiplier of 100 means that a one-point difference
will yield $100. Options on different indexes may have different multipliers.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. Unlike stock options, all settlements are in
cash and a gain or loss depends on price movements in the stock market
generally (or in a particular segment of the market) rather than the price
movements in individual stocks. Currently, options are traded on the S&P 100
Index and the S&P 500 Index on the Chicago Board Options Exchange, the Major
Market Index and the Computer Technology Index, Oil Index and Institutional
Index on the American Stock Exchange and the NYSE Index and NYSE Beta Index
on the New York Stock Exchange, The Financial News Composite Index on the
Pacific Stock Exchange and the Value Line Index, National O-T-C Index and
Utilities Index on the Philadelphia Stock Exchange, each of which and any
similar index on which options are traded in the future which include stocks
that are not limited to any particular industry or segment of the market is
referred to as a "broadly based stock market index." The Fund will invest
only in broadly based indexes. Options on broad-based stock indexes provide
the Fund with a means of protecting the Fund against the risk of market wide
price movements. If the Investment Manager anticipates a market decline, the
Fund could purchase a stock index put option. If the expected market decline
materialized, the resulting decrease in the value of the Fund's portfolio
would be offset to the extent of the increase in the value of the put option.
If the Investment Manager anticipates a market rise, the Fund may purchase a
stock index call option to enable the Fund to participate in such rise until
completion of anticipated common stock purchases by the Fund. Purchases and
sales of stock index options also enable the Investment Manager to more
speedily achieve changes in the Fund's equity positions.
The Fund will write put options on stock indexes only if such positions
are covered by cash, U.S. government securities or other high grade debt
obligations equal to the aggregate exercise price of the puts, or by a put
option on the same stock index with a strike price no lower than the strike
price of the put option sold by the Fund, which cover is held for the Fund in
a segregated account maintained for it by the Fund's Custodian. All call
options on stock indexes written by the Fund will be covered either by a
portfolio of stocks substantially replicating the movement of the index
underlying the call option or by holding a separate call option on the same
stock index with a strike price no higher than the strike price of the call
option sold by the Fund.
Risks of Options on Indexes. Because exercises of stock index options are
settled in cash, call writers such as the Fund cannot provide in advance for
their potential settlement obligations by acquiring and holding the
underlying securities. A call writer can offset some of the risk of its
writing position by holding a diversified portfolio of stocks similar to
those on which the underlying index is based. However, most investors cannot,
as a practical matter, acquire and hold a portfolio containing exactly the
same stocks as the underlying index, and, as a result, bear a risk that the
value of the securities held will vary from the value of the index. Even if
an index call writer could assemble a stock portfolio that exactly
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reproduced the composition of the underlying index, the writer still would
not be fully covered from a risk standpoint because of the "timing risk"
inherent in writing index options. When an index option is exercised, the
amount of cash that the holder is entitled to receive is determined by the
difference between the exercise price and the closing index level on the date
when the option is exercised. As with other kinds of options, the writer will
not learn that it had been assigned until the next business day, at the
earliest. The time lag between exercise and notice of assignment poses no
risk for the writer of a covered call on a specific underlying security, such
as a common stock, because there the writer's obligation is to deliver the
underlying security, not to pay its value as of a fixed time in the past. So
long as the writer already owns the underlying security, it can satisfy its
settlement obligations by simply delivering it, and the risk that its value
may have declined since the exercise date is borne by the exercising holder.
In contrast, even if the writer of an index call holds stocks that exactly
match the composition of the underlying index, it will not be able to satisfy
its assignment obligations by delivering those stocks against payment of the
exercise price. Instead, it will be required to pay cash in an amount based
on the closing index value on the exercise date; and by the time it learns
that it has been assigned, the index may have declined, with a corresponding
decrease in the value of its stock portfolio. This "timing risk" is an
inherent limitation on the ability of index call writers to cover their risk
exposure by holding stock positions.
A holder of an index option who exercises it before the closing index
value for that day is available runs the risk that the level of the
underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the exercising holder will be
required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the
assigned writer.
If dissemination of the current level of an underlying index is
interrupted, or if trading is interrupted in stocks accounting for a
substantial portion of the value of an index, the trading of options on that
index will ordinarily be halted. If the trading of options on an underlying
index is halted, an exchange may impose restrictions prohibiting the exercise
of such options.
Futures Contracts. As stated in the Prospectus, the Fund may purchase and
sell interest rate and stock index futures contracts ("futures contracts")
that are traded on U.S. commodity exchanges on such underlying securities as
U.S. Treasury bonds, notes, bills and GNMA Certificates ("interest rate"
futures) and such indexes as the S&P 500 Index, the Moody's Investment-Grade
Corporate Bond Index and the New York Stock Exchange Composite Index ("index"
futures).
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of
the underlying obligation at a specified time in return for an agreed upon
price.
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) securities against changes in prevailing interest
rates. If the Investment Manager anticipates that interest rates may rise
and, concomitantly, the price of fixed-income securities falls, the Fund may
sell an interest rate futures contract or a bond index 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
U.S. Government securities the Fund intends to purchase. Subsequently,
appropriate fixed-income 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 stock index futures contracts for the
purpose of hedging its equity portfolio (or anticipated portfolio) securities
against changes in their prices. If the Investment Manager anticipates that
the prices of stock held by the Fund may fall, the Fund may sell a stock
index futures contract. Conversely, if the Investment Manager wishes to hedge
against anticipated price rises in those stocks which the Fund intends to
purchase, the Fund may purchase stock index futures contracts. In addition,
interest rate and stock index futures contracts will be bought or sold in
order to close out a short or long position in a corresponding futures
contract.
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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. Stock index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open
or close of the last trading day of the contract and the futures contract
price. A futures contract sale is closed out by effecting a futures contract
purchase for the same aggregate amount of the specific type of equity
security and the same delivery date. If the sales 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 and the same
delivery date. If the offsetting sale price exceeds the purchase price, the
purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no
assurance that the Fund will be able to enter into a closing transaction.
Interest Rate Futures Contracts. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or
other high grade short-term obligations 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 broker's client but is, rather, a good faith deposit on the
futures contract which will be returned to the Fund upon the proper
termination of the futures contract. The margin deposits made are marked to
market daily and the Fund may be required to make subsequent deposits of cash
or U.S. Government securities called "variation margin", with the Fund's
futures contract clearing broker, which are reflective of price fluctuations
in the futures contract. Currently, interest rate futures contracts can be
purchased on debt securities such as U.S. Treasury Bills and Bonds, U.S.
Treasury Notes with Maturities between 6 1/2 and 10 years, GNMA Certificates
and Bank Certificates of Deposit.
Index Futures Contracts. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future
time. An index futures contract purchase would create an obligation by the
Fund, as purchaser, to take delivery of cash at a specified future time.
Futures contracts on indexes do not require the physical delivery of
securities, but provide for a final cash settlement on the expiration date
which reflects accumulated profits and losses credited or debited to each
party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in
the form of variation margin payments. The Fund may be required to make
additional margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required
to be paid by or released to the Fund and the Fund realizes a loss or a gain.
Currently, index futures contracts can be purchased or sold with respect
to, among others, the Standard & Poor's 500 Stock Price Index and the
Standard & Poor's 100 Stock Price Index on the Chicago Mercantile Exchange,
the New York Stock Exchange Composite Index on the New York Futures Exchange,
the Major Market Index on the American Stock Exchange, the Value Line Stock
Index on the Kansas City Board of Trade and the Moody's Investment-Grade
Corporate Bond Index on the Chicago Board of Trade.
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Options on Futures Contracts. The Fund may purchase and write call and
put options on futures contracts 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), and the writer the obligation, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the term of
the option. Upon exercise of the option, the delivery of the futures position
by the writer of the option to the holder of the option is accompanied by
delivery of the accumulated balance in the writer's futures margin account,
which represents the amount by which the market price of the futures contract
at the time of exercise exceeds, in the case of a call, or is less than, in
the case of a put, the exercise price of the option on the futures contract.
The 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
Investment Manager 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 Investment Manager seeks to hedge. Any premiums
received in the writing of options on futures contracts may, of course,
augment the total return of the Fund and thereby provide a further hedge
against losses resulting from price declines in portions of the Fund's
portfolio.
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.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid
for premiums for unexpired options on futures contracts exceeds 5% of the
value of the Fund's total assets, after taking into account unrealized gains
and unrealized losses on such contracts it has entered into, provided,
however, that in the case of an option that is in-the-money (the exercise
price of the call (put) option is less (more) than the market price of the
underlying security) at the time of purchase, the in-the-money amount may be
excluded in calculating the 5%. However, there is no overall limitation on
the percentage of the Fund's assets which may be subject to a hedge position.
In addition, in accordance with the regulations of the Commodity Futures
Trading Commission ("CFTC") under which the Fund is exempted from
registration as a commodity pool operator, the Fund may only enter into
futures contracts and options on futures contracts transactions for purposes
of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that the Fund would be permitted to write options on futures
contracts for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of
futures and options thereon by the Fund.
Risks of Transactions in Futures Contracts and Related Options. The Fund
may sell a futures contract to protect against the decline in the value of
securities held by the Fund. However, it is possible that the futures market
may advance and the value of securities 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, and the value of such securities
decreases, then the Investment Manager 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 maintains a short position in a futures contract or has sold a
call option in a futures contract, it will cover this position by holding, in
a segregated account maintained at its Custodian, cash,
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<PAGE>
U.S. Government securities or other high grade debt obligations equal in
value (when added to any initial or variation margin on deposit) to the
market value of the securities underlying the futures contract or the
exercise price of the option. Such a position may also be covered by owning
the securities underlying the futures contract (in the case of a stock index
futures contract a portfolio of securities substantially replicating the
relevant index), 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 or
has sold a put option on a futures contract, it will hold cash, U.S.
Government securities or other high grade debt obligations equal to the
purchase price of the contract or the exercise price of the put option (less
the amount of initial or variation margin on deposit) in a segregated account
maintained for the Fund by its Custodian. Alternatively, the Fund could cover
its long position by purchasing a put option on the same futures contract
with an exercise price as high or higher than the price of the contract held
by the Fund.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments
underlying interest rate futures 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.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through
the broker and/or incur a loss of all or part of its margin deposits with the
broker. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Investment Manager.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of
the securities which are the subject of the hedge. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the securities and futures markets could result.
Price distortions could also result if investors in futures contracts opt to
make or take delivery of underlying securities rather than engage in closing
transactions due to the resultant reduction in the liquidity of the futures
market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions.
Due to the possibility of price distortions in the futures market and because
of the imperfect correlation between movements in the prices of securities
and movements in the prices of futures contracts, a correct forecast of stock
price or interest rate trends by the Investment Manager may still not result
in a successful hedging transaction.
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 at a time when it may be
disadvantageous to do so.
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
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<PAGE>
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.
FOREIGN SECURITIES
As stated in the Prospectus, the Fund may invest in securities issued by
foreign issuers. 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.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected
by the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer
of Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly available
information about such companies. Moreover, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their
American counterparts. Brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S. In
addition, differences in clearance and settlement procedures on foreign
markets may occasion delays in settlements of 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.
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
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<PAGE>
effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions whose financial condition will be
continually monitored by the Investment Manager 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 total
assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time 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 commitment. While the Fund will only purchase
securities on a when-issued, delayed delivery or forward commitment basis
with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date, if it is deemed advisable. The
securities so purchased or sold are subject to market fluctuation and no
interest or dividends accrue to the purchaser prior to the settlement date.
At the time the Fund makes the commitment to purchase or sell securities on a
when-issued, delayed delivery or forward commitment basis, it will record the
transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be
more or less than the purchase or sale price. The Fund will also establish a
segregated account with its custodian bank in which it will continually
maintain cash or cash equivalents or other high grade debt portfolio
securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis.
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 or
debt restructuring. The commitment for the purchase of any such security will
not be recognized in the portfolio of the Fund until the Investment Manager
determines that issuance of the security is probable. At such time, the Fund
will record the transaction and, in determining its net asset value, will
reflect the value of the security daily. At such time, the Fund will also
establish a segregated account with its custodian bank in which it will
maintain cash or cash equivalents or other high grade debt portfolio
securities equal in value to recognized commitments for such securities. The
value of the Fund's commitments to purchase the securities of any one issuer,
together with the value of all securities of such issuer owned by the Fund,
may not exceed 5% of the value of the Fund's total assets at the time the
initial commitment to purchase such securities is made (see "Investment
Restrictions"). An increase in the percentage of the Fund's assets committed
to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value. The Investment Manager and
the Trustees do not believe that the net asset value of the Fund will be
adversely affected by its purchase of securities on such basis. The Fund may
also sell securities on a "when, as and if issued" basis provided that the
issuance of the security will result automatically from the exchange or
conversion of a security owned by the Fund at the time of sale.
PRIVATE PLACEMENTS
The Fund may invest up to 5% of its total assets in securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or which are
otherwise not readily marketable. (Securities eligible for resale pursuant
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<PAGE>
to Rule 144A of the Securities Act, and determined to be liquid pursuant to
the procedures discussed in the following paragraph, are not subject to the
foregoing restriction.) These securities are generally referred to as private
placements or restricted securities. Limitations on the resale of such
securities may have an adverse effect on their marketability, and may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may
have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by
the Fund. The procedures require that the following factors be taken into
account in making a liquidity determination: (1) the frequency of trades and
price quotes for the security; (2) the number of dealers and other potential
purchasers who have issued quotes on the security; (3) any dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (the time needed to dispose
of the security, the method of soliciting offers, and the mechanics of
transfer). 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.
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
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. For purposes of the following restrictions:
(i) all percentage limitations apply immediately after a purchase or initial
investment; and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets
does not require elimination of any security from the portfolio.
The Fund may not:
1. Invest in securities of any issuer if, to the knowledge of the
Fund, any officer or trustee/director of the Fund or of the Investment
Manager owns more than 1/2 of 1% of the outstanding securities of such
issuer, and such officers and trustees/directors who own more than 1/2 of
1% own in the aggregate more than 5% of the outstanding securities of such
issuer.
2. Purchase or sell real estate or interests therein (including
limited partnership interests), although the Fund may purchase securities
of issuers which engage in real estate operations and securities secured
by real estate or interests therein.
3. Purchase or sell commodities except that the Fund may purchase or
sell (write) futures contracts and related options.
4. 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.
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
6. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
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<PAGE>
7. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(6). For the purpose of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect
to initial or variation margin for futures are not deemed to be pledges of
assets.
8. 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) borrowing money in accordance
with restrictions described above; or (c) lending portfolio securities.
9. Make loans of money or securities, except: (a) by the purchase of
debt obligations in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; or (c) by lending its portfolio securities.
10. Make short sales of securities.
11. 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 or related options thereon is not considered the
purchase of a security on margin.
12. 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.
13. Invest for the purpose of exercising control or management of any
other issuer.
In addition, the Fund, as a non-fundamental policy, will not invest more
than 5% of the value of its net assets in warrants, including not more than
2% of such assets in warrants not listed on the New York or American Stock
Exchange. However, the acquisition of warrants attached to other securities
is not subject to this restriction.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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Subject to the general supervision of the Board of Trustees, the
Investment Manager is responsible for decisions to buy and sell securities
for the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. The Fund also
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation, generally referred
to as the underwriter's concession or discount. Options and futures
transactions will usually be effected through a broker and a commission will
be charged. On occasion, the Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or
discounts are paid. For the period September 29, 1994 (commencement of
operations) through May 31, 1995 and for the fiscal year ended May 31, 1996,
the Fund paid a total of $456,252 and $964,704, respectively, in brokerage
commissions.
The Investment Manager currently serves as investment manager or adviser
to a number of clients, including other investment companies, and may in the
future act as investment manager or adviser to others. It is the practice of
the Investment Manager to cause purchase and sale transactions to be
allocated among the Fund and others whose assets it manages in such manner as
it deems equitable. In making such allocations among the Fund and other
client accounts, various factors may be considered, including the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client
accounts. In the case of certain initial and secondary public offerings, the
Investment Manager may utilize a pro-rata allocation process based on the
size of the Dean Witter Funds involved and the number of shares available
from the public offering.
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<PAGE>
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange,
the Fund's policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the Fund and the Investment
Manager from obtaining a high quality of brokerage and research services. In
seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Investment Manager 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 foreign securities exchanges. Fixed
commissions on such transactions are generally higher than negotiated
commissions on domestic transactions. There is also generally less government
supervision and regulation of foreign securities exchanges and brokers than
in the United States.
In seeking to implement the Fund's policies, the Investment Manager
effects transactions with those brokers and dealers who the Investment
Manager believes provide the most favorable prices and are capable of
providing efficient executions. If the Investment Manager believes such
prices and executions are obtainable from more than one broker or dealer, it
may give consideration to placing portfolio transactions with those brokers
and dealers who also furnish research and other services to the Fund or the
Investment Manager. Such services may include, but are not limited to, any
one or more of the following: information as to the availability of
securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or
evaluations of portfolio securities.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager in the
management of accounts of some of its other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of
research or services otherwise performed by the Investment Manager and
thereby reduce its expenses, it is of indeterminable value and the management
fee paid to the Investment Manager is not reduced by any amount that may be
attributable to the value of such services. During the fiscal year ended May
31, 1996, the Fund directed the payment of $813,976 in brokerage commissions
in connection with transactions in the aggregate amount of $503,720,937 to
brokers because of research services provided.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR. In order for DWR to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration
received by DWR must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on an
exchange during a comparable period of time. This standard would allow DWR to
receive no more than the remuneration which would be expected to be received
by an unaffiliated broker in a commensurate arm's-length transaction.
Furthermore, the Board of Trustees of the Fund, including a majority of the
Trustees who are not "interested" persons of the Fund, as defined in the Act,
have adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to DWR are consistent with the
foregoing standard. 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 DWR. During the period September 29, 1994 (commencement of operations)
through May 31, 1995 and during the fiscal year ended May 31, 1996, the Fund
paid a total of $70,688 and $114,915, respectively, in brokerage commissions
to DWR. During the fiscal year ended May 31, 1996, the brokerage commissions
paid to DWR represented approximately 11.91% of the total brokerage
commissions paid by the Fund during the year and were paid on account of
transactions having an aggregate dollar value equal to approximately 14.10%
of the aggregate dollar value of all portfolio transactions of the Fund
during the year for which commissions were paid.
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<PAGE>
Pursuant to an order of the Securities and Exchange Commission, the Fund
may effect principal transactions in certain money market instruments with
DWR. The Fund will limit its transactions with DWR to U.S. Government and
Government Agency Securities, Bank Money Instruments (i.e., Certificates of
Deposit and Bankers' Acceptances) and Commercial Paper. Such transactions
will be effected with DWR only when the price available from DWR is better
than that available from other dealers. During the period September 29, 1994
through May 31, 1995 and during the fiscal year ended May 31, 1996, the Fund
did not effect any principal transactions with DWR.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate for the fiscal year ended May 31, 1996
was 328%. It is anticipated that under normal market conditions the Fund's
portfolio turnover rate will not exceed 350% in any one year. It was
previously believed that under normal market conditions, the rate would not
exceed 300%; however, as stated in the prospectus, when the Investment
Manager believes portfolio changes may benefit the performance of the Fund,
it may sell portfolio securities without regard to the length of time they
have been held in the Fund's portfolio. The higher than previously
anticipated portfolio turnover rate for the fiscal year ended May 31, 1996
resulted from the portfolio managers' response to market and individual
portfolio security conditions.
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered
into a selected dealer agreement with DWR, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into selected dealer agreements with other selected broker-dealers. The
Distributor, a Delaware corporation, is a wholly-owned subsidiary of DWDC.
The Board of Trustees of the Fund, including a majority of the Trustees who
are not, and were not at the time they voted, interested persons of the Fund,
as defined in the Act (the "Independent Trustees"), approved, at their
meeting held on July 14, 1994, a 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 had an initial term ending April 30, 1995,
and will remain in effect from year to year thereafter if approved by the
Board. At their meeting held on April 17, 1996, the Trustees of the Fund,
including all of the Independent Trustees, approved the continuation of the
Distribution Agreement until April 30, 1997.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
account executives. The Distributor also pays certain expenses in connection
with the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears
the costs of initial typesetting, printing and distribution of prospectuses
and supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal and state securities laws.
The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. Under the Distribution Agreement, the Distributor uses its best
efforts in rendering services to the Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations, the Distributor is not liable to the Fund or any of its
shareholders for any error of judgment or mistake of law or for any act or
omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
To compensate the Distributor for the services it or any selected dealer
provides and for the expenses it bears under the Distribution Agreement, the
Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Act
(the "Plan") pursuant to which the Fund pays the Distributor compensation
accrued daily and payable monthly at the annual rate of 1.0% of the lesser
of: (a) the average daily aggregate gross sales of the Fund's shares since
the inception of the Fund (not including reinvestments of dividends or
capital gains distributions), less the average daily aggregate net asset
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<PAGE>
value of the Fund's shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or upon which such charge
has been waived; or (b) the Fund's average daily net assets. The Distributor
receives the proceeds of contingent deferred sales charges imposed on certain
redemptions of shares, which are separate and apart from payments made
pursuant to the Plan (see "Redemptions and Repurchases--Contingent Deferred
Sales Charge" in the Prospectus). The Distributor has informed the Fund that
it received approximately $158,000 and $490,000 in contingent deferred sales
charges for the period September 29, 1994 (commencement of the Fund's
operations) through May 31, 1995 and for the fiscal year ended May 31, 1996,
respectively, none of which was retained by the Distributor.
The Distributor has informed the Fund that an amount of the fees payable
by the Fund each year pursuant to the Plan of Distribution equal to 0.25% of
the Fund's average daily net assets is characterized as a "service fee" under
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (of which the Distributor is a member). Such portion of the fee is a
payment made for personal service and/or the maintenance of shareholder
accounts. The remaining portion of the Plan fees payable by the Fund is
characterized as an "asset-based sales charge" as such is defined by the
aforementioned Rules of Fair Practice.
The Plan was originally adopted by a majority vote of the Board of
Trustees, including all of the Independent Trustees (none of whom had or have
any 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, at their Meeting held on July 14, 1994, and by
InterCapital, the then sole shareholder of the Fund, on July 15, 1994. At
their meeting held on October 26, 1995, the Trustees of the Fund, including
all of the Independent 12b-1 Trustees, approved an amendment to the Plan to
permit payments to be made under the Plan with respect to certain
distribution expenses incurred in connection with the distribution of shares,
including personal services to shareholders with respect to holdings of such
shares, of an investment company whose assets are acquired by the Fund in a
tax-free reorganization.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report
provided by the Distributor of the amounts expended by the Distributor under
the Plan and the purpose for which such expenditures were made. The Fund
accrued amounts payable to the Distributor under the Plan, for the fiscal
year ended May 31, 1996, of $1,958,421. This amount is equal to 1.0% of the
Fund's average daily net assets for the fiscal year and was calculated
pursuant to clause (b) of the compensation formula under the Plan. This
amount is treated by the Fund as an expense in the year it is accrued.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method shares of the Fund are
sold without a sales load being deducted at the time of purchase, so that the
full amount of an investor's purchase payment will be invested in shares
without any deduction for sales charges. Shares of the Fund may be subject to
a contingent deferred sales charge, payable to the Distributor, if redeemed
during the six years after their purchase. DWR compensates its account
executives by paying them, from its own funds, commissions for the sale of
the Fund's shares, currently a gross sales credit of up to 5% of the amount
sold and an annual residual commission of up to 0.25 of 1% of the current
value (not including reinvested dividends or distributions) of the amount
sold. The gross sales credit is a charge which reflects commissions paid by
DWR to its account executives and DWR's Fund associated distribution-related
expenses, including sales compensation and overhead and other branch office
distribution-related expenses including: (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery
and supplies, (b) the costs of client sales seminars, (c) travel expenses of
mutual fund sales coordinators to promote the sale of Fund shares and (d)
other expenses relating to branch promotion of Fund sales. The distribution
fee that the Distributor receives from the Fund under the Plan, in effect,
offsets distribution expenses incurred on behalf of the Fund and opportunity
costs, such as the gross sales credit and an assumed interest charge thereon
("carrying charge"). In the Distributor's reporting of the distribution
expenses to the Fund, such assumed interest (computed at the "broker's call
rate") has been calculated on the gross sales credit as it is reduced by
amounts received
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<PAGE>
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 paid 100% of the $1,958,421 accrued under the Plan for the fiscal
year ended May 31, 1996 to the Distributor. The Distributor and DWR estimate
that they have spent, pursuant to the Plan, $12,323,327 on behalf of the Fund
since the inception of the Fund. It is estimated that this amount was spent
in approximately the following ways: (i) 8.02% ($988,437)--advertising and
promotional expenses; (ii) 1.63% ($201,117)--printing of prospectuses for
distribution to other than current shareholders; and (iii) 90.35%
($11,133,773)--other expenses, including the gross sales credit and the
carrying charge, of which 4.33% ($482,345) represents carrying charges,
38.09% ($4,240,333) represents commission credits to DWR branch offices for
payments of commissions to account executives and 57.58% ($6,411,095)
represents overhead and other branch office distribution-related expenses.
At any given time, the expenses in distributing shares of the Fund may be
more or less than the total of (i) the payments made by the Fund pursuant to
the Plan and (ii) the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares. The Distributor has advised the Fund
that such excess amount, including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges
imposed at the time of sale of the Fund's shares, totalled $9,085,300 at May
31, 1996, which amount constitutes 2.94% of the Fund's net assets on such
date. Because there is no requirement under the Plan that the Distributor be
reimbursed for all expenses or any requirement that the Plan be continued
from year to year, this excess amount does not constitute a liability of the
Fund. Although there is no legal obligation for the Fund to pay distribution
expenses in excess of payments made under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of
shares, if for any reason the Plan is terminated, the Trustees will consider
at that time the manner in which to treat such expenses. Any cumulative
expenses incurred, but not yet recovered through distribution fees or
contingent deferred sales charges, may or may not be recovered through future
distribution fees or contingent deferred sales charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that the Distributor, InterCapital, DWSC and DWR or certain of their
employees may be deemed to have such an interest as a result of benefits
derived from the successful operation of the Plan or as a result of receiving
a portion of the amounts expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1995, and
will remain in effect from year to year thereafter, provided such continuance
is approved annually by a vote of the Trustees in the manner described above.
Continuance of the Plan for one year, until April 30, 1997, was approved by
the Board of Trustees of the Fund, including a majority of the Independent
12b-1 Trustees, at a Board meeting held on April 17, 1996. Prior to approving
the continuation of the Plan, the Board requested and received from the
Distributor and reviewed all the information which it deemed necessary to
arrive at an informed determination. In making their determination to
continue the Plan, the Trustees considered: (1) the Fund's experience under
the Plan and whether such experience indicates that the Plan is operating as
anticipated; (2) the benefits the Fund had obtained, was obtaining and would
be likely to obtain under the Plan; and (3) what services had been provided
and were continuing to be provided under the Plan by the Distributor to the
Fund and its shareholders. Based upon their review, the Trustees of the Fund,
including each of the Independent 12b-1 Trustees, determined that
continuation of the Plan would be in the best interest of the Fund and would
have a reasonable likelihood of continuing to benefit the Fund and its
shareholders. In the Trustees' quarterly review of the Plan, they will
consider its continued appropriateness and the level of compensation provided
therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of
the Fund, and all material amendments of the Plan must also be approved by
the Trustees in the manner described above. The Plan may be
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<PAGE>
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
As stated in the Prospectus, short-term securities with remaining
maturities of sixty days or less at the time of purchase are valued at
amortized cost, unless the Trustees determine such does not reflect the
securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty days, whereupon they will be valued at
amortized cost using their value on the 61st day unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. Listed options on debt securities are valued at the latest sale
price on the exchange on which they are listed unless no sales of such
options have taken place that day, in which case they will be valued at the
mean between their latest bid and asked prices. Unlisted options on debt
securities and all options on equity securities are valued at the mean
between their latest bid and asked prices. Futures are valued at the latest
sale price on the commodities exchange on which they trade unless the
Trustees determine such price does not reflect their market value, in which
case they will be valued at their fair value as determined by the Trustees.
All other securities and other assets are valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
Generally, trading in foreign securities, as well as corporate bonds,
United States government securities and money market instruments, is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of
the New York Stock Exchange. Occasionally, events which affect the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange and will
therefore not be reflected in the computation of the Fund's net asset value.
If events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time), on each day that the New York Stock
Exchange is open and on each other day in which there is a sufficient degree
of trading in the Fund's investments to affect the net asset value, except
that the net asset value may not be computed on a day on which no orders to
purchase, or tenders to sell or redeem, Fund shares have been received by
taking the value of all assets of the Fund, subtracting its liabilities,
dividing by the number of shares outstanding and adjusting to the nearest
cent. The New York Stock Exchange currently observes the following holidays:
New Year's Day; Presidents Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day.
SHAREHOLDER SERVICES
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Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund and maintained by Dean
Witter Trust Company (the "Transfer Agent"). This is an open account in which
shares owned by the investor are credited by the Transfer Agent in lieu of
issuance of a share certificate. If a share certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only
for full shares and may be redeposited in the account at any time. There is
no charge to the investor for issuance of a certificate. Whenever a
shareholder instituted transaction takes place in the Shareholder Investment
Account, the shareholder will be mailed a confirmation of the transaction
from the Fund or from DWR or other selected broker-dealer.
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Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the Fund, unless the
shareholder requests that they be paid in cash. Each purchase of shares of
the Fund is made upon the condition that the Transfer Agent is thereby
automatically appointed as agent of the investor to receive all dividends and
capital gains distributions on shares owned by the investor. Such dividends
and distributions will be paid, at the net asset value per share, in shares
of the Fund (or in cash if the shareholder so requests) as of the close of
business on the record date. At any time an investor may request the Transfer
Agent, in writing, to have subsequent dividends and/or capital gains
distributions paid to him or her in cash rather than shares. To assure
sufficient time to process the change, such request should be received by the
Transfer Agent at least five business days prior to the record date of the
dividend or distribution. In the case of recently purchased shares for which
registration instructions have not been received on the record date, cash
payments will be made to DWR or other selected broker-dealer, and will be
forwarded to the shareholder, upon the receipt of proper instructions.
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 an open-end Dean
Witter Fund other than Dean Witter Mid-Cap Growth Fund. Such investment will
be made as described above for automatic investment in shares of the Fund, at
the net asset value per share of the selected Dean Witter Fund as of the
close of business on the payment date of the dividend or distribution and
will begin to earn dividends, if any, in the selected Dean Witter Fund the
next business day. To participate in the Targeted Dividends program,
shareholders should contact their DWR or other selected broker-dealer
account executive or the Transfer Agent. Shareholders of the Fund must be
shareholders of the Dean Witter Fund targeted to receive investments from
dividends at the time they enter the Targeted Dividends program. Investors
should review the prospectus of the targeted Dean Witter Fund before entering
the program.
EasyInvest. (Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for
investment in shares of the Fund. Shares purchased through EasyInvest will be
added to the shareholder's existing account at the net asset value calculated
the same business day the transfer of funds is effected. For further
information or to subscribe to EasyInvest, shareholders should contact their
DWR or other selected broker-dealer account executive or the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution at net
asset value, without the imposition of a contingent deferred sales charge
upon redemption, by returning the check or the proceeds to the Transfer Agent
within thirty 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 then $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable contingent deferred sales charge will be
imposed on shares redeemed under the Withdrawal Plan (see "Redemptions and
Repurchases--Contingent Deferred Sales Charge" in the Prospectus). Therefore,
any shareholder participating in the Withdrawal Plan will have sufficient
shares redeemed from his or her account so that the proceeds (net of any
applicable contingent deferred sales charge) to the shareholder will be the
designated monthly or quarterly amount.
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
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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 share- holder's original
investment will be correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the contingent deferred sales charge
applicable to the redemption of shares purchased during the preceding six
years (see "Redemptions and Repurchases--Contingent Deferred Sales Charge").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the
account must send complete written instructions to the Transfer Agent to
enroll in the Withdrawal Plan. The shareholder's signature on such
instructions must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). A shareholder may, at any time, change the amount and interval of
withdrawal payments through his or her Account Executive or by written
notification to the Transfer Agent. In addition, the party and/or the address
to which checks are mailed may be changed by written notification to the
Transfer Agent, with signature guarantees required in the manner described
above. The shareholder may also terminate the Withdrawal Plan at any time by
written notice to the Transfer Agent. In the event of such termination, the
account will be continued as a regular shareholder investment account. The
shareholder may also redeem all or part of the shares held in the Withdrawal
Plan account (see "Redemptions and Repurchases" in the Prospectus) at any
time.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
a shareholder may make additional investments in Fund shares at any time by
sending a check in any amount, not less than $100, payable to Dean Witter
Mid-Cap Growth Fund, directly to the Fund's Transfer Agent. Such amounts will
be applied to the purchase of Fund shares at the net asset value per share
next computed after receipt of the check or purchase payment by the Transfer
Agent. The shares so purchased will be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of the Fund may
exchange their shares for shares of other Dean Witter Funds sold with a
contingent deferred sales charge ("CDSC funds") and for shares of Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust,
Dean Witter Short-Term Bond Fund, Dean Witter Balanced Income Fund, Dean
Witter Balanced Growth Fund, Dean Witter Intermediate Term U.S. Treasury
Trust and five Dean Witter Funds which are money market funds (the foregoing
eleven non-CDSC Funds are hereinafter 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 will be treated for federal income tax purposes the
same as a repurchase or redemption of shares, on which the shareholder may
realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to
the contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
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<PAGE>
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit
should not be endorsed.)
As described below, and in the Prospectus under the captions "Exchange
Privilege" and "Contingent Deferred Sales Charge," a contingent deferred
sales charge ("CDSC") may be imposed upon a redemption, depending on a number
of factors, including the number of years from the time of purchase until the
time of redemption or exchange ("holding period"). When shares of the Fund or
any other CDSC fund are exchanged for shares of an Exchange Fund, the
exchange is executed at no charge to the shareholder, without the imposition
of the CDSC at the time of the exchange. During the period of time the
shareholder remains in the Exchange Fund (calculated from the last day of the
month in which the Exchange Fund shares were acquired), the investment period
or "year since purchase payment made" is frozen. When shares are redeemed out
of the Exchange Fund, they will be subject to a CDSC which would be based
upon the period of time the shareholder held shares in a CDSC fund. However,
in the case of shares of the Fund exchanged into the Exchange Fund on or
after April 23, 1990, upon a redemption of shares which results in a CDSC
being imposed, a credit (not to exceed the amount of the CDSC) will be given
in an amount equal to the Exchange Fund 12b-1 distribution fees, if any,
incurred on or after that date which are attributable to those shares.
Shareholders acquiring shares of an Exchange Fund pursuant to this exchange
privilege may exchange those shares back into a CDSC fund from the Exchange
Fund, with no CDSC being imposed on such exchange. The investment period
previously frozen when shares were first exchanged for shares of the Exchange
Fund resumes on the last day of the month in which shares of a CDSC fund are
reacquired. A CDSC is imposed only upon an ultimate redemption, based upon
the time (calculated as described above) the shareholder was invested in a
CDSC fund.
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds"), but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for
shares of other Dean Witter Funds for which shares of a front-end sales
charge fund have been exchanged) are not subject to any CDSC upon their
redemption.
When shares initially purchased in a CDSC fund are exchanged for shares of
another CDSC fund, or for shares of an Exchange Fund, the date of purchase of
the shares of the fund exchanged into, for purposes of the CDSC upon
redemption, will be the last day of the month in which the shares being
exchanged were originally purchased. In allocating the purchase payments
between funds for purposes of the CSDC, the amount which represents the
current net asset value of shares at the time of the exchange which were (i)
purchased more than three or six years (depending on the CDSC schedule
applicable to the shares) prior to the exchange, (ii) originally acquired
through reinvestment of dividends or distributions and (iii) acquired in
exchange for shares of front-end sales charge funds, or for shares of other
Dean Witter Funds for which shares of front-end sales charge funds have been
exchanged (all such shares called "Free Shares"), will be exchanged first.
Shares of Dean Witter Dividend Growth Securities Inc. and Dean Witter Natural
Resource Development Securities Inc. acquired prior to July 2, 1984, and
shares of Dean Witter Strategist Fund acquired prior to November 8, 1989, are
also considered Free Shares and will be the first Free Shares to be
exchanged. After an exchange, all dividends earned on shares in an Exchange
Fund will be considered Free Shares. If the exchanged amount exceeds the
value of such Free Shares, an exchange is made, on a block-by-block basis, of
non-Free Shares held for the longest period of time (except that if shares
held for identical periods of time but subject to different CDSC schedules
are held in the same Exchange Privilege account, the shares of that block
that are subject to a lower CDSC rate will be exchanged prior to the shares
of that block that are subject to a higher CDSC rate). Shares equal to any
appreciation in the value of non-Free Shares exchanged will be treated as
Free Shares, and the amount of the purchase payments for the non-Free Shares
of the fund exchanged into will be equal to the lesser of (a) the purchase
payments for, or (b) the current net asset value of, the exchanged non-Free
Shares. If an exchange between funds would result in exchange of only part of
a particular block of non-Free Shares, then shares equal to any appreciation
33
<PAGE>
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 purchaser payment for, or (b) the
current net asset value of, those exchanged in non-Free Shares. Based upon
the procedures described in the Prospectus under the caption "Contingent
Deferred Sales Charge," any applicable CDSC will be imposed upon the ultimate
redemption of shares of any fund, regardless of the number of exchanges since
those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any
other of the funds and the general administration of the Exchange Privilege,
the Transfer Agent acts as agent for the Distributor and for the
shareholder's selected broker-dealer, if any, in the performance of such
functions. With respect to exchanges, redemptions or repurchases, the
Transfer Agent shall be liable for its own negligence and not for the default
or negligence of its correspondents or for losses in transit. The Fund shall
not be liable for any default or negligence of the Transfer Agent, the
Distributor or any selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000
for Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income
Trust, Dean Witter California Tax-Free Daily Income Trust and Dean Witter New
York Municipal Money Market Trust although those funds may, at their
discretion, accept initial investments of as low as $1,000. The minimum
initial investment is $10,000 for Dean Witter Short-Term U.S. Treasury Trust,
although that fund, in its discretion, may accept initial purchases of as low
as $5,000. The minimum initial investment for all other Dean Witter Funds for
which the Exchange Privilege is available is $1,000.) Upon exchange into an
Exchange Fund, the shares of that fund will be held in a special Exchange
Privilege Account separately from accounts of those shareholders who have
acquired their shares directly from that fund. As a result, certain services
normally available to shareholders of money market funds, including the check
writing feature, will not be available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter funds for which
shares of the Fund have been exchanged, upon such notice as may be required
by applicable regulatory agencies (presently sixty days' prior written notice
for termination or material revision), provided that six months' prior
written notice of termination will be given to the shareholders who hold
shares of Exchange Funds, pursuant to the Exchange Privilege, and provided
further that the Exchange Privilege may be terminated or materially revised
without notice at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on that Exchange
is restricted, (c) when an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the 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.
34
<PAGE>
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of the Fund can be
redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds may be reduced by the amount of
any applicable contingent deferred sales charges (see below). If shares are
held in a shareholder's account without a share certificate, a written
request for redemption to the Fund's Transfer Agent at P.O. Box 983, Jersey
City, NJ 07303 is required. If certificates are held by the shareholder, the
shares may be redeemed by surrendering the certificates with a written
request for redemption. The share certificate, or an accompanying stock
power, and the request for redemption, must be signed by the shareholder or
shareholders exactly as the shares are registered. Each request for
redemption, whether or not accompanied by a share certificate, must be sent
to the Fund's Transfer Agent, which will redeem the shares at their net asset
value next computed (see "Purchase of Fund Shares") after it receives the
request, and certificate, if any, in good order. Any redemption request
received after such computation will be redeemed at the next determined net
asset value. The term "good order" means that the share certificate, if any,
and request for redemption are properly signed, accompanied by any
documentation required by the Transfer Agent, and bear signature guarantees
when required by the Fund or the Transfer Agent. If redemption is requested
by a corporation, partnership, trust or fiduciary, the Transfer Agent may
require that written evidence of authority acceptable to the Transfer Agent
be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other
than the record owner, or if the proceeds are to be paid to a corporation
(other than the Distributor or a selected broker-dealer for the account of
the shareholder), partnership, trust or fiduciary, or sent to the shareholder
at an address other than the registered address, signatures must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A stock
power may be obtained from any dealer or commercial bank. The Fund may change
the signature guarantee requirements from time to time upon notice to
shareholders, which may be by means of a new prospectus.
Contingent Deferred Sales Charge. As stated in the Prospectus, a
contingent deferred sales charge ("CDSC") will be imposed on any redemption
by an investor if after such redemption the current value of the investor's
shares of the Fund is less than the dollar amount of all payments by the
shareholder for the purchase of Fund shares during the preceding six years.
However, no CDSC will be imposed to the extent that the net asset value of
the shares redeemed does not exceed: (a) the current net asset value of
shares purchased more than six years prior to the redemption, plus (b) the
current net asset value of shares purchased through reinvestment of dividends
or distributions of the Fund or another Dean Witter Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) the current net asset value of
shares acquired in exchange for (i) shares of Dean Witter front-end sales
charge funds, or (ii) shares of other Dean Witter Funds for which shares of
front-end sales charge funds have been exchanged (see "Shareholder
Services--Exchange Privilege"), plus (d) increases in the net asset value of
the investor's shares above the total amount of payments for the purchase of
Fund shares made during the preceding six years. The CDSC will be paid to the
Distributor.
In determining the applicability of a CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will
be the amount which represents the net asset value of the Investor's shares
purchased more than six years prior to the redemption and/or shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of Dean Witter front-end sales charge funds, or for
shares of other Dean Witter funds for which shares of front-end sales charge
funds have been exchanged. A portion of the amount redeemed which exceeds an
amount which represents both such increase in value and the value of shares
purchased more than six years prior to the redemption and/or shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
the above-described exchanges will be subject to a CDSC.
35
<PAGE>
The amount of CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Fund shares until the time of
redemption of such shares. For purposes of determining the number of years
from the time of any payments for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last
day of the month. The following table sets forth the rates of the CDSC:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE REDEEMED
- --------------------------- -----------------------
<S> <C>
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year period. This will result in any such CDSC being
imposed at the lowest possible rate. Accordingly, shareholders may redeem,
without incurring any CDSC, amounts equal to any net increase in the value of
their shares above the amount of their purchase payments made within the past
six years and amounts equal to the current value of shares purchased more
than six years prior to the redemption and shares purchased through
reinvestment of dividends or distributions or acquired in exchange for shares
of Dean Witter front-end sales charge funds, or for shares of other Dean
Witter Funds for which shares of front-end sales charge funds have been
exchanged. The CDSC will be imposed, in accordance with the table shown
above, on any redemptions within six years of purchase which are in excess of
these amounts and which redemptions are not (a) requested within one year of
death or initial determination of disability of a shareholder, or (b) made
pursuant to certain taxable distributions from retirement plans or retirement
accounts, as described in the Prospectus.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares presented for repurchase or redemption will be
made by check within seven days after receipt by the Transfer Agent of the
certificate and/or written request in good order. The term good order means
that the share certificate, if any, and request for redemption are properly
signed, accompanied by any documentation required by the Transfer Agent, and
bear signature guarantees when required by the Fund or Transfer Agent. Such
payment may be postponed or the right of redemption suspended at times (a)
when the New York Stock Exchange is closed for other than customary weekends
and holidays, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) during
any other period when the Securities and Exchange Commission by order so
permits; provided that applicable rules and regulations of the Securities and
Exchange Commission shall govern as to whether the conditions prescribed in
(b) or (c) exist. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum
time needed to verify that the check used for investment has been honored
(not more than fifteen days from the time of receipt of the check by the
Transfer Agent). Shareholders maintaining margin accounts with DWR or another
selected broker-dealer are referred to their account executive regarding
restrictions on redemption of shares of the Fund pledged in the margin
account.
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the contingent deferred sales charge or free of such charge
(and with regard to the length of time shares subject to the charge have been
held), any transfer involving less than all of the shares in an account will
be made on a pro-rata basis (that is, by transferring shares in the same
proportion that the transferred shares bear to the total shares in the
account immediately prior to the transfer). The transferred shares will
continue to be subject to any applicable contingent deferred sales charge as
if they had not been so transferred.
36
<PAGE>
Reinstatement Privilege. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within thirty days after the date
of redemption or repurchase, reinstate any portion or all of the proceeds of
such redemption or repurchase in shares of the Fund at the net asset value
next determined after a reinstatement request, together with the 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 share of the tax paid by the Fund as
a credit against their individual federal income tax.
The Fund, however, intends to distribute all of its net investment income
and 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 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 calendar
year prior to February 1 will be deemed received by the shareholder in the
prior year. Dividend payments will be eligible for the federal dividends
received deduction available to the Fund's corporate shareholders only to the
extent the aggregate dividends received by the Fund would be eligible for the
deduction if the Fund were the shareholder claiming the dividends received
deduction. In this regard, a 46-day holding period generally must be met by
both the Fund and the shareholder.
Gains or losses on the Fund's transactions in listed non-equity options,
futures and options on futures generally are treated as 60% long-term and 40%
short-term. When the Fund engages in options and futures transactions,
various tax regulations applicable to the Fund may have the effect of causing
the Fund to recognize a gain or loss for tax purposes before the gain or loss
is realized, or to defer recognition of a realized loss for tax purposes.
Recognition, for taxes purposes, of an unrealized loss may result in a lesser
amount of the Fund's realized gains being available for annual distribution.
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 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 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.
One of the requirements for the Fund to remain qualified as a regulated
investment company is that less than 30% of its gross income be derived from
gains from the sale or other disposition of securities held for less than
three months. Accordingly, the Fund may be restricted in the writing of
options on securities held for less than three months, in the writing of
options which expire in less than three months,
37
<PAGE>
and in effecting closing transactions with respect to call or put options
which have been written or purchased less than three months prior to such
transactions. The Fund may also be restricted in its ability to engage in
transactions involving futures contracts.
As stated under "Investment Objectives and Policies" in the Prospectus,
the Fund may invest up to 35% of its portfolio in securities other than
common stocks, including U.S. Government securities. 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.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. The Fund's "average
annual total return" represents an annualization of the Fund's total return
over a particular period and is computed by finding the annual percentage
rate which will result in the ending redeemable value of a hypothetical
$1,000 investment made at the beginning of a one, five or ten year period, or
for the period from the date of commencement of operations, if shorter than
any of the foregoing. The ending redeemable value is reduced by any
contingent deferred sales charge at the end of the one, five or ten year or
other period. For the purpose of this calculation, it is assumed that all
dividends and distributions are reinvested. The formula for computing the
average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment, taking a
root of the quotient (where the root is equivalent to the number of years in
the period) and subtracting 1 from the result. The average annual total
returns of the Fund for the fiscal year ended May 31, 1996 and for the period
September 29, 1994 (commencement of the Fund's operation) through May 31,
1995 were 48.02% and 33.32%, respectively.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or
other types to total return figures. Such calculations may or may not reflect
the deduction of the contingent deferred sales charge which, if reflected,
would reduce the performance quoted. For example, the average annual total
return of the Fund may be calculated in the manner described above, but
without deduction for any applicable contingent deferred sales charge. Based
upon this calculation, the average annual total returns of the Fund for the
fiscal year ended May 31, 1996 and for the period September 29, 1994 through
May 31, 1995 were 53.02% and 35.29%, respectively.
38
<PAGE>
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without
the reduction for any contingent deferred sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the Fund's total returns for the fiscal year ended May 31, 1996
and for the period September 29, 1994 through May 31, 1996 were 53.02% and
65.66%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of the Fund by adding 1 to the Fund's
aggregate total return to date (expressed as a decimal and without taking
into account the effect of any applicable contingent deferred sales charge)
and multiplying by $10,000, $50,000 or $100,000, as the case may be.
Investments of $10,000, $50,000 and $100,000 in the Fund at inception would
have increased to $16,566, $82,830 and $165,660, respectively, at May 31,
1996.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent
organizations.
SHARES OF THE FUND
- -----------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share of beneficial interest held. The Fund is authorized to issue an
unlimited number of shares of beneficial interest. The Trustees themselves
have the power to alter the number and the terms of office of the Trustees
(as provided for in the Declaration of Trust), and they may at any time
lengthen or shorten their own terms or make their terms of unlimited duration
and appoint their own successors, provided that always at least a majority of
the Trustees has been elected by the shareholders of the Fund. Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove the
Trustees. The voting rights of shareholders are not cumulative, so that
holders of more than 50 percent of the shares voting can, if they choose,
elect all Trustees being selected, while the holders of the remaining shares
would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future
regulations or other unforeseen circumstances). However, the Trustees have
not authorized any such additional series or classes of shares and the Fund
has no present intention to add additional series or classes of shares.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor
is any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise
from his/her or its own bad faith, willful misfeasance, gross negligence or
reckless disregard of his/her or its duties. It also provides that all third
persons shall look solely to the Fund property for satisfaction of claims
arising in connection with the affairs of the Fund. With the exceptions
stated, the Declaration of Trust provides that a Trustee, officer, employee
or agent is entitled to be indemnified against all liability in connection
with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of
beneficial interest. The Fund shall be of unlimited duration subject to the
provisions in the Declaration of Trust concerning termination by action of
the shareholders or the Trustees.
CUSTODIAN AND TRANSFER AGENT
- -----------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is
the Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
39
<PAGE>
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and
Dividend Disbursing Agent for payment of dividends and distributions on Fund
shares and Agent for shareholders under various investment plans described
herein. Dean Witter Trust Company is an affiliate of Dean Witter InterCapital
Inc., the Fund's Investment Manager and Dean Witter Distributors Inc., the
Fund's Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean
Witter Trust Company's responsibilities include maintaining shareholder
accounts, including providing subaccounting and recordkeeping services for
certain retirement accounts; disbursing cash dividends and reinvesting
dividends; processing account registration changes; handling purchase and
redemption transactions; mailing prospectuses and reports; mailing and
tabulating proxies; processing share certificate transactions; and
maintaining shareholder records and lists. For these services Dean Witter
Trust Company receives a per shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund.
The independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- -----------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports
showing the Fund's portfolio and other information. An annual report,
containing financial statements audited by independent accountants, will be
sent to shareholders each year.
The Fund's fiscal year is May 31. The financial statements of the Fund
must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- -----------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The financial statements of the Fund included in this Statement of
Additional Information and incorporated by reference in the Prospectus have
been so included and incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
40
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.4%)
Agriculture Related (2.1%)
75,000 AGCO Corp. ..................................................... $2,259,375
40,000 IMC Global, Inc. ............................................... 1,465,000
23,500 Pioneer Hi-Bred International, Inc. ............................ 1,327,750
20,000 Potash Corp. of Saskatchewan, Inc. (Canada) .................... 1,330,000
--------------
6,382,125
--------------
Apparel (2.7%)
31,700 Fila Holding SpA (ADR) (Italy) ................................. 2,746,012
50,000 Jones Apparel Group, Inc.* ..................................... 2,550,000
30,000 Nike, Inc. (Class B) ........................................... 3,011,250
--------------
8,307,262
--------------
Auto Related (1.6%)
65,000 Autozone, Inc.* ................................................ 2,283,125
15,000 Lear Corp.* .................................................... 579,375
52,000 OEA, Inc.* ..................................................... 2,132,000
--------------
4,994,500
--------------
Banks (0.9%)
20,000 First Bank System, Inc. ........................................ 1,207,500
45,000 First Tennessee National Corp. ................................. 1,513,125
--------------
2,720,625
--------------
Basic Cyclicals (0.5%)
9,000 Cytec Industries, Inc.* ........................................ 805,500
36,100 Polymer Group, Inc.* ........................................... 694,925
--------------
1,500,425
--------------
Biotechnology (2.8%)
59,000 Biochem Pharma, Inc.* .......................................... 2,706,625
40,000 Centocor, Inc.* ................................................ 1,405,000
70,000 Cephalon Inc.* ................................................. 1,890,000
3,500 Genzyme Corp.* ................................................. 202,125
50,000 IDEC Pharmaceuticals Corp.* .................................... 1,287,500
5,300 Millennium Pharmaceuticals, Inc.* .............................. 107,325
50,000 QLT Phototherapeutics, Inc.* ................................... 1,068,750
--------------
8,667,325
--------------
Capital Goods (0.8%)
40,000 Crane Co. ...................................................... 1,685,000
20,000 Sundstrand Corp. ............................................... 705,000
--------------
2,390,000
--------------
<PAGE>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
Communications (10.0%)
60,000 ACT Networks, Inc.* ............................................ $ 2,535,000
9,000 ADC Telecommunications, Inc.* .................................. 414,000
41,000 Ascend Communications, Inc.* ................................... 2,736,750
52,000 Cascade Communications Corp.* .................................. 2,931,500
45,000 Cisco Systems, Inc.* ........................................... 2,458,125
26,000 FORE Systems, Inc.* ............................................ 2,099,500
50,000 Geoworks* ...................................................... 1,725,000
30,000 Pairgain Technologies, Inc.* ................................... 3,037,500
8,500 Premiere Technologies, Inc.* ................................... 395,250
37,000 Premisys Communications, Inc.* ................................. 2,109,000
2,900 Sawtek, Inc.* .................................................. 79,025
33,000 Shiva Corp.* ................................................... 2,450,250
25,000 Stratacom, Inc.* ............................................... 1,356,250
50,000 Tellabs, Inc.* ................................................. 3,200,000
38,000 U.S. Robotics Corp.* ........................................... 3,458,000
--------------
30,985,150
--------------
Communications -Equipment &
Software (1.2%)
43,000 Adtran, Inc.* .................................................. 2,945,500
25,000 EchoStar Communications Corp. (Class A)* ....................... 850,000
--------------
3,795,500
--------------
Computer Equipment (2.0%)
60,000 Dell Computer Corp.* ........................................... 3,307,500
80,000 Gateway 2000, Inc.* ............................................ 3,020,000
--------------
6,327,500
--------------
Computer Services (1.8%)
25,000 Cambridge Technology Partners, Inc.* ........................... 1,900,000
16,600 First USA Paymentech, Inc. ..................................... 769,825
2,400 NOVA Corp.* .................................................... 91,200
34,750 Remedy Corp.* .................................................. 2,667,062
3,500 Renaissance Solutions, Inc.* ................................... 124,250
--------------
5,552,337
--------------
Computer Software (8.6%)
25,000 Arbor Software Corp.* .......................................... 1,518,750
22,000 Atria Software, Inc.* .......................................... 1,391,500
26,000 Baan Company NV* (Netherlands) ................................. 936,000
30,000 BMC Software, Inc.* ............................................ 1,890,000
70,000 Business Objects S.A. (ADR)* (France) .......................... 3,255,000
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1996, continued
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
40,000 Citrix Systems, Inc.* .......................................... $ 2,970,000
24,300 Cognos, Inc.* (Canada) ......................................... 577,125
28,000 Computer Horizons Corp.* ....................................... 1,295,000
27,000 Edify Corp.* ................................................... 1,134,000
31,200 Forte Software, Inc.* .......................................... 1,996,800
2,300 Mechanical Dynamics, Inc.* ..................................... 40,537
30,000 Parametric Technology Corp.* ................................... 1,368,750
23,000 Peoplesoft, Inc.* .............................................. 1,615,750
43,100 Rational Software Corp.* ....................................... 2,666,813
73,000 Viasoft, Inc.* ................................................. 3,905,500
--------------
26,561,525
--------------
Consumer Business Services (8.0%)
80,100 Accustaff, Inc.* ............................................... 2,523,150
30,000 Alternative Resources Corp.* ................................... 1,155,000
66,000 CBT Group PLC (ADR)* (Ireland) ................................. 3,036,000
25,000 Corestaff, Inc.* ............................................... 1,106,250
70,000 Corporate Express, Inc.* ....................................... 2,931,250
20,000 Culligan Water Technologies, Inc.* ............................. 762,500
79,700 Dendrite International, Inc.* .................................. 2,151,900
55,000 DST Systems, Inc.* ............................................. 1,918,125
28,000 First Data Corp. ............................................... 2,233,000
40,000 Interim Services, Inc.* ........................................ 1,870,000
1,400 PIA Merchandising Services, Inc.* .............................. 22,400
17,000 Reynolds & Reynolds Co. (Class A) .............................. 847,875
46,900 Service Corp. International .................................... 2,620,538
30,000 Transaction Systems Architects, Inc. (Class A)* ................ 1,665,000
--------------
24,842,988
--------------
Consumer Products (3.4%)
30,000 Avon Products, Inc. ............................................ 2,775,000
37,000 Cannondale Corp.* .............................................. 795,500
1,500 Clorox, Co. .................................................... 127,688
30,000 Luxottica Group SpA (ADR) (Italy) .............................. 2,321,250
55,000 Oakley, Inc.* .................................................. 2,798,125
70,000 Whitman Corp. .................................................. 1,758,750
--------------
10,576,313
--------------
Educational Services (2.2%)
56,000 Apollo Group, Inc. (Class A)* .................................. 2,632,000
9,500 Devry, Inc.* ................................................... 377,625
10,000 ITT Educational Services, Inc.* ................................ 302,500
181,000 National Education Corp.* ...................................... 3,371,125
--------------
6,683,250
--------------
<PAGE>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
Energy (6.3%)
90,000 Baker Hughes Inc. .............................................. $ 2,823,750
48,600 BJ Services Co.* ............................................... 1,640,250
11,400 Chesapeake Energy Corp.* ....................................... 874,950
80,000 Diamond Offshore Drilling, Inc.* ............................... 3,830,000
56,700 Global Marine, Inc.* ........................................... 694,575
217,000 Marine Drilling Company, Inc.* ................................. 2,170,000
90,000 Reading & Bates Corp.* ......................................... 1,980,000
50,000 Rowan Companies, Inc.* ......................................... 756,250
67,000 Tidewater, Inc. ................................................ 2,763,750
30,100 Western Atlas Inc.* ............................................ 1,843,625
--------------
19,377,150
--------------
Entertainment/Gaming & Lodging (3.5%)
55,000 HFS, Inc.* ..................................................... 3,430,625
100,000 International Game Technology .................................. 1,587,500
55,000 Mirage Resorts, Inc.* .......................................... 3,128,125
2,900 Premier Parks, Inc. ............................................ 58,725
100,000 Showboat, Inc. ................................................. 2,787,500
--------------
10,992,475
--------------
Financial -Miscellaneous (1.8%)
25,000 Aames Financial Corp. .......................................... 818,750
19,400 Advanta Corp. (Class A) ........................................ 1,086,400
5,900 Conseco Inc. ................................................... 213,875
32,300 First USA, Inc. ................................................ 1,873,400
47,700 Green Tree Financial Corp. ..................................... 1,562,175
--------------
5,554,600
--------------
Healthcare Products & Services (6.4%)
2,000 Aksys, Ltd.* ................................................... 33,000
30,000 Elan Corporation PLC (ADR)* (Ireland) .......................... 1,882,500
24,500 HBO & Co. ...................................................... 3,056,375
45,000 Health Management Associates, Inc. (Class A)* .................. 1,552,500
20,000 Healthsouth Corp.* ............................................. 700,000
50,000 HPR Inc.* ...................................................... 1,162,500
15,300 Medic Computer Systems, Inc.* .................................. 1,415,250
60,000 Phycor, Inc.* .................................................. 3,255,000
54,300 Renal Treatment Centers, Inc.* ................................. 1,846,200
60,000 Rotech Medical Corp.* .......................................... 1,260,000
18,000 Shared Medical Systems Corp. ................................... 1,201,500
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1996, continued
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
8,600 Sunrise Assisted Living, Inc.* ................................. $ 208,550
23,500 Total Renal Care Holdings, Inc.* ............................... 969,375
44,800 Vivra, Inc.* ................................................... 1,528,800
--------------
20,071,550
--------------
Internet (4.7%)
37,000 America Online, Inc.* .......................................... 2,090,500
30,000 HNC Software, Inc. ............................................. 1,290,000
2,000 NETCOM On-Line Communication Services, Inc.* ................... 68,000
46,000 Netscape Communications Corp.* ................................. 3,128,000
23,000 PsiNet, Inc.* .................................................. 327,750
40,000 Security Dynamics Technologies, Inc.* .......................... 3,550,000
90,000 Sterling Commerce, Inc.* ....................................... 3,948,750
--------------
14,403,000
--------------
Media Group (5.3%)
40,000 Argyle Television, Inc. (Class A)* ............................. 960,000
21,000 Clear Channel Communications, Inc.* 1,706,250
74,500 Emmis Broadcasting Corp. (Class A)* ............................ 3,240,750
50,000 Evergreen Media Corp. (Class A)* ............................... 1,975,000
70,000 Gartner Group, Inc. (Class A)* ................................. 2,502,500
78,750 Gaylord Entertainment Co. (Class A) ............................ 2,057,344
46,400 Renaissance Communications Corp.* .............................. 1,392,000
50,000 Sinclair Broadcast Group, Inc. (Class A)* ...................... 1,850,000
10,000 Telemundo Group, Inc. (Class A)* ............................... 208,750
20,000 United Video Satellite Group, Inc. (Class A)* .................. 385,000
--------------
16,277,594
--------------
Medical Products & Supplies (2.4%)
42,000 Guidant Corp. .................................................. 2,436,000
2,600 Heartport, Inc.* ............................................... 100,100
41,000 Idexx Laboratories, Inc.* ...................................... 1,773,250
42,500 Spine-Tech, Inc.* .............................................. 1,232,500
23,000 Target Therapeutics, Inc.* ..................................... 1,121,250
15,000 Thermo Cardiosystems, Inc.* .................................... 765,000
--------------
7,428,100
--------------
Medical Supplies (2.5%)
9,600 Becton, Dickinson & Co. ........................................ 816,000
40,000 Martek Biosciences Corp.* ...................................... 1,430,000
<PAGE>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
25,000 Physio-Control International Corp.* ............................ $ 484,375
20,000 SangStat Medical Corp.* ........................................ 397,500
40,000 Thermo Electron Corp. .......................................... 2,550,000
40,000 ThermoTrex Corp.* .............................................. 2,120,000
--------------
7,797,875
--------------
Restaurants (0.8%)
29,700 Landry's Seafood Restaurants, Inc.* ............................ 712,800
10,000 Planet Hollywood International, Inc. (Class A)* ................ 265,000
61,000 Starbucks Corp.* ............................................... 1,639,375
--------------
2,617,175
--------------
Retail (9.3%)
100,000 Bed Bath & Beyond, Inc.* ....................................... 2,812,500
11,800 CompUSA, Inc.* ................................................. 516,250
4,500 Gadzooks, Inc.* ................................................ 149,625
60,000 Gucci Group NV* (Italy) ........................................ 4,020,000
20,000 Just For Feet, Inc.* ........................................... 1,067,500
40,000 Kohl's Corp.* .................................................. 1,325,000
20,000 Kroger Co.* .................................................... 785,000
3,900 Loehmann's Holdings, Inc.* ..................................... 98,475
60,000 Officemax, Inc.* ............................................... 1,567,500
30,000 Orchard Supply Hardware Stores Corp.* .......................... 858,750
55,000 Pacific Sunwear of California* ................................. 1,361,250
30,000 PetSmart, Inc.* ................................................ 1,320,000
30,000 Proffitt's, Inc.* .............................................. 1,102,500
53,000 Quiksilver, Inc.* .............................................. 2,305,500
80,000 Safeway, Inc.* ................................................. 2,700,000
8,500 Saks Holdings, Inc.* ........................................... 276,250
49,000 Tiffany & Co. .................................................. 3,717,875
25,000 Urban Outfitters, Inc.* ........................................ 1,043,750
40,000 Vons Companies, Inc.* .......................................... 1,460,000
--------------
28,487,725
--------------
Semiconductors (0.2%)
17,000 Atmel Corp.* ................................................... 603,500
--------------
Telecommunications (3.5%)
36,000 Brooks Fiber Properties, Inc.* ................................. 1,197,000
70,000 MFS Communications Company, Inc.* .............................. 2,415,000
30,000 Newbridge Networks Corp.* (Canada) ............................. 2,133,750
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1996, continued
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
100,000 Winstar Communications, Inc.* .................................. $ 3,112,500
40,000 WorldCom, Inc.* ................................................ 1,945,000
--------------
10,803,250
--------------
Transportation (2.1%)
42,000 Atlas Air, Inc. ................................................ 2,446,500
36,000 Continental Airlines, Inc. (Class A)* .......................... 2,047,500
75,000 Southwest Airlines Co.* ........................................ 2,053,125
--------------
6,547,125
--------------
TOTAL COMMON STOCKS
(Identified Cost $257,953,160) ................................. 301,247,944
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------- ---------------------------------------------------------------- -------------
<S> <C> <C>
SHORT-TERM INVESTMENT (1.0%) REPURCHASE AGREEMENT
The Bank of New York 5.25% due 06/03/96 (dated 05/31/96;
proceeds $3,100,281; collateralized by $3,048,892 U.S.Treasury
Bond 7.25% due 08/15/22 valued at $3,160,904) (Identified Cost
$3,099 $3,098,925) .................................................... $3,098,925
-------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $261,052,085)
(a) .............................. 98.4% 304,346,869
OTHER ASSETS IN EXCESS OF
LIABILITIES ...................... 1.6 4,924,842
-------- -------------
NET ASSETS ....................... 100.0% $309,271,711
======== =============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $262,251,582.
The aggregate gross unrealized appreciation is $45,023,592 and the
aggregate gross unrealized depreciation is $2,928,305, resulting in
net unrealized appreciation of $42,095,287.
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $261,052,085) ............ $304,346,869
Receivable for:
Investments sold ......................... 6,591,569
Shares of beneficial interest sold ...... 3,224,129
Dividends ................................ 41,613
Deferred organizational expenses ........... 103,110
Receivable from affiliate .................. 3,875
Prepaid expenses ........................... 14,179
TOTAL ASSETS ............................. 314,325,344
--------------
LIABILITIES:
Payable for:
Investments purchased .................... 4,212,683
Shares of beneficial interest
repurchased ............................ 305,425
Plan of distribution fee ................. 248,099
Investment management fee ................ 186,074
Accrued expenses and other payables ....... 101,352
--------------
TOTAL LIABILITIES ........................ 5,053,633
--------------
NET ASSETS:
Paid-in-capital ............................ 238,479,393
Net unrealized appreciation ................ 43,294,784
Accumulated undistributed net realized gain 27,497,534
--------------
NET ASSETS ............................... $309,271,711
==============
NET ASSET VALUE PER SHARE,
20,474,077 shares outstanding (unlimited
shares authorized of $.01 par value) ..... $ 15.11
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended May 31, 1996
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
Income
Interest .............................. $ 1,056,112
Dividends (net of $4,133 foreign
withholding tax) ..................... 893,612
-------------
TOTAL INCOME ........................ 1,949,724
-------------
EXPENSES
Plan of distribution fee .............. 1,958,421
Investment management fee ............. 1,468,816
Transfer agent fees and expenses ..... 245,751
Custodian fees ........................ 91,475
Registration fees ..................... 83,485
Shareholder reports and notices ...... 60,303
Professional fees ..................... 49,756
Organizational expenses ............... 30,312
Trustees' fees and expenses ........... 18,372
Other ................................. 5,552
-------------
Total Expenses ...................... 4,012,243
-------------
NET INVESTMENT LOSS ................. (2,062,519)
-------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ..................... 45,084,990
Net change in unrealized appreciation 36,875,007
-------------
NET GAIN ............................ 81,959,997
-------------
NET INCREASE .......................... $79,897,478
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR SEPTEMBER 29, 1994*
ENDED THROUGH
MAY 31, 1996 MAY 31, 1995
- ------------------------------------------------------ -------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ................................... $ (2,062,519) $ (102,556)
Net realized gain ..................................... 45,084,990 1,744,548
Net change in unrealized appreciation ................. 36,875,007 6,419,777
-------------- -------------------
NET INCREASE ........................................ 79,897,478 8,061,769
Distributions from net realized gain .................. (17,035,698) (131,657)
Net increase from transactions in shares of beneficial
interest ............................................. 131,283,761 107,096,058
-------------- -------------------
TOTAL INCREASE ...................................... 194,145,541 115,026,170
NET ASSETS:
Beginning of period ................................... 115,126,170 100,000
-------------- -------------------
END OF PERIOD ....................................... $309,271,711 $115,126,170
============== ===================
</TABLE>
- ------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1996
1. Organization and Accounting Policies
Dean Witter Mid-Cap Growth Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
seek long-term capital growth. The Fund seeks to achieve its objective by
investing primarily in domestic and foreign equity securities of "mid-cap"
companies. The Fund was organized as a Massachusetts business trust on May
25, 1994 and had no operations other than those relating to organizational
matters and the issuance of 10,000 shares of beneficial interest for $100,000
to Dean Witter InterCapital Inc. (the "Investment Manager") to effect the
Fund's initial capitalization. The Fund commenced operations on September 29,
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 security is valued on the exchange designated as the primary market 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
the Investment Manager that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Trustees (valuation of debt securities for which
market quotations are not readily available may be based upon current market
prices of securities which are comparable in coupon, rating and maturity or
an appropriate matrix utilizing similar factors); and (4) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date
47
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1996, continued
except for certain dividends on foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted
over the life of the respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $156,000 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. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close
of each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
48
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1996, continued
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act
pursuant to which the Fund pays the Distributor compensation, accrued daily
and payable monthly, at an annual rate of 1.0% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's shares since the Fund's
inception (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived; or
(b) the Fund's average daily net assets. Amounts paid under the Plan are paid
to the Distributor to compensate it for the services provided and the
expenses borne by it and others in the distribution of the Fund's shares,
including the payment of commissions for sales of the Fund's shares and
incentive compensation to, and expenses of, the account executives of Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and other employees or selected broker-dealers who engage in or
support distribution of the Fund's shares or who service shareholder
accounts, including overhead and telephone expenses, printing and
distribution of prospectuses and reports used in connection with the offering
of the Fund's shares to other than current shareholders and preparation,
printing and distribution of sales literature and advertising materials. In
addition, the Distributor may be compensated under the Plan for its
opportunity costs in advancing such amounts, which compensation would be in
the form of a carrying charge on any unreimbursed expenses incurred by the
Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred
but not yet recovered, may be recovered through future distribution fees from
the Fund and contingent deferred sales charges from the Fund's shareholders.
The Distributor has informed the Fund that for the year ended May 31, 1996,
it received approximately $490,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended May 31, 1996 aggregated
$729,117,032 and $622,251,752, respectively. Included in the aforementioned
are purchases and sales of U.S. Government securities of $56,684,788 and
$58,054,855, respectively.
For the year ended May 31, 1996, the Fund incurred $114,915 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the
Fund.
49
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1996, continued
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At May 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $16,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR SEPTEMBER 29, 1994*
ENDED THROUGH
MAY 31, 1996 MAY 31, 1995
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Sold 22,165,276 $ 297,479,183 13,151,977 $133,121,351
Reinvestment of distributions 1,247,724 15,771,239 12,288 122,022
-------------- --------------- ------------- --------------
23,413,000 313,250,422 13,164,265 133,243,373
Repurchased (13,590,922) (181,966,661) (2,522,266) (26,147,315)
-------------- --------------- ------------- --------------
Net increase 9,822,078 $ 131,283,761 10,641,999 $107,096,058
============== =============== ============= ==============
</TABLE>
- ------------
* Commencement of operations.
6. FEDERAL INCOME TAX STATUS
As of May 31, 1996, the Fund had temporary book/tax differences attributable
to capital loss deferrals on wash sales and permanent book/tax differences
primarily attributable to a net operating loss. To reflect reclassifications
arising from permanent book/tax differences for the year ended May 31, 1996,
accumulated undistributed net realized gain was charged $2,062,093,
paid-in-capital was charged $426 and net investment loss was credited
$2,062,519.
50
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR SEPTEMBER 29, 1994*
ENDED THROUGH
MAY 31, 1996 MAY 31, 1995
- ----------------------------------------- -------------- -------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $ 10.81 $ 10.00
-------------- -------------------
Net investment loss ...................... (0.10) (0.01)
Net realized and unrealized gain ........ 5.60 0.84
-------------- -------------------
Total from investment operations ........ 5.50 0.83
-------------- -------------------
Less distributions from net realized gain (1.20) (0.02)
-------------- -------------------
Net asset value, end of period ........... $ 15.11 $ 10.81
============== ===================
TOTAL INVESTMENT RETURN+ ................. 53.02% 8.26% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................. 2.05% 2.21% (2)
Net investment loss ...................... (1.05)% (0.16)% (2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $309,272 $115,126
Portfolio turnover rate .................. 328% 199% (1)
Average commission rate paid ............. $0.0582 --
</TABLE>
- ------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER MID-CAP GROWTH FUND
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Dean Witter
Mid-Cap Growth Fund (the "Fund") at May 31, 1996, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the year then ended and for the period September 29,
1994 (commencement of operations) through May 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 Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at May 31,
1996 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 8, 1996
1996 FEDERAL TAX NOTICE (unaudited)
During the year ended May 31, 1996, the Fund paid to its shareholders
$0.02 per share from long-term capital gains. For such period, 4.07% of
the income paid qualified for the dividends received deduction
available to corporations.
52
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial statements and schedules, included in Prospectus
(Part A):
Page in
-------
Prospectus
----------
Financial highlights for the period September 29, 1994
through May 31, 1995 and for the year ended
May 31, 1996 ..................................... 4
(2) Financial statements included in the Statement of
Additional Information (Part B): Page in
SAI
--------
Portfolio of Investments at May 31, 1996 ............... 41
Statement of assets and liabilities at May 31, 1996 .... 45
Statement of operations for the year ended
May 31, 1996 ........................................... 45
Statement of changes in net assets for the period
September 29, 1994 through May 31, 1995 and for the
year ended May 31, 1996................................. 46
Notes to Financial Statements .......................... 47
Financial highlights for the period September 29, 1994
through May 31, 1995 and for the year ended
May 31, 1996............................................ 51
(3) Financial statements included in Part C:
None
(b) Exhibits:
8. -- Amendment to The Custody Agreement between the Registrant and The Bank
of New York
11. -- Consent of Independent Accountants
15. -- Amended and Restated Plan of Distribution pursuant to Rule 12b-1
1
<PAGE>
16. -- Schedule for Computations of Performance Quotations
27. -- Financial Data Schedule
________________________
All other exhibits previously filed and incorporated by reference.
Item 25. Persons Controlled by or Under Common Control With Registrant.
None
Item 26. Number of Holders of Securities.
(1) (2) Number of Record Holders
Title of Class at June 30, 1996
-------------- ------------------------
Shares of Beneficial Interest 31,430
Item 27. Indemnification.
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and
under Section 4.8 of the Registrant's By-Laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was
not unlawful. In addition, indemnification is permitted only if it is
determined that the actions in question did not render them liable by reason
of willful misfeasance, bad faith or gross negligence in the performance of
their duties or by reason of reckless disregard of their obligations and
duties to the Registrant. Trustees, officers, employees and agents will be
indemnified for the expense of litigation if it is determined that they are
entitled to indemnification against any liability established in such
litigation. The Registrant may also advance money for these expenses provided
that they give their undertakings to repay the Registrant unless their conduct
is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the
Registrant shall be liable for any action or failure to act, except in the
case of bad faith, willful misfeasance, gross negligence or reckless disregard
of duties to the Registrant.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such
2
<PAGE>
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the
Registrant in connection with the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such trustee, officer or
controlling person in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act, and will be governed by the final adjudication
of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940,
so long as the interpretation of Sections 17(h) and 17(i) of such Act remains
in effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was
a Trustee, officer, employee, or agent of Registrant, or who is or was serving
at the request of Registrant as a trustee, director, officer, employee or
agent of another trust or corporation, against any liability asserted against
him and incurred by him or arising out of his position. However, in no event
will Registrant maintain insurance to indemnify any such person for any act
for which Registrant itself is not permitted to indemnify him.
Item 28. Business and Other Connections of Investment Adviser.
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment adviser. The following information is given
regarding officers of Dean Witter InterCapital Inc. InterCapital is a
wholly-owned subsidiary of Dean Witter, Discover & Co. The principal address
of the Dean Witter Funds is Two World Trade Center, New York, New York 10048.
The term "Dean Witter Funds" used below refers to the following
registered investment companies:
Closed-End Investment Companies
- -------------------------------
(1) InterCapital Income Securities Inc.
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) Municipal Income Trust
(6) Municipal Income Trust II
3
<PAGE>
(7) Municipal Income Trust III
(8) Dean Witter Government Income Trust
(9) Municipal Premium Income Trust
(10) Municipal Income Opportunities Trust
(11) Municipal Income Opportunities Trust II
(12) Municipal Income Opportunities Trust III
(13) Prime Income Trust
(14) InterCapital Insured Municipal Bond Trust
(15) InterCapital Quality Municipal Income Trust
(16) InterCapital Quality Municipal Investment Trust
(17) InterCapital Insured Municipal Income Trust
(18) InterCapital California Insured Municipal Income Trust
(19) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
Open-end Investment Companies:
- ------------------------------
(1) Dean Witter Short-Term Bond Fund
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
(11) Dean Witter U.S. Government Securities Trust
(12) Dean Witter Select Municipal Reinvestment Fund
(13) Dean Witter High Yield Securities Inc.
(14) Dean Witter Intermediate Income Securities
(15) Dean Witter New York Tax-Free Income Fund
(16) Dean Witter California Tax-Free Income Fund
(17) Dean Witter Health Sciences Trust
(18) Dean Witter California Tax-Free Daily Income Trust
(19) Dean Witter Global Asset Allocation Fund
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(22) Dean Witter Utilities Fund
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
(31) Dean Witter Premier Income Trust
(32) Dean Witter Short-Term U.S. Treasury Trust
(33) Dean Witter Diversified Income Trust
(34) Dean Witter U.S. Government Money Market Trust
4
<PAGE>
(35) Dean Witter Global Dividend Growth Securities
(36) Active Assets California Tax-Free Trust
(37) Dean Witter Natural Resource Development Securities Inc.
(38) Active Assets Government Securities Trust
(39) Active Assets Money Trust
(40) Active Assets Tax-Free Trust
(41) Dean Witter Limited Term Municipal Trust
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Balanced Growth Fund
(51) Dean Witter Balanced Income Fund
(52) Dean Witter Hawaii Municipal Trust
(53) Dean Witter Capital Appreciation Fund
(54) Dean Witter Intermediate Term U.S. Treasury Trust
(55) Dean Witter Information Fund
(56) Dean Witter Japan Fund
(57) Dean Witter Income Builder Fund
The term "TCW/DW Funds" refers to the following registered investment
companies:
Open-End Investment Companies
- -----------------------------
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
Closed-End Investment Companies
- -------------------------------
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
5
<PAGE>
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- ----------------- ------------------------------------------------
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Witter Reynolds Inc. ("DWR"); Chairman, Chief
Executive Officer and Executive Officer and Director of Dean Witter
Director Distributors Inc. ("Distributors") and Dean
Witter Services Company Inc. ("DWSC"); Chairman
and Director of Dean Witter Trust Company
("DWTC"); Chairman, Director or Trustee,
President and Chief Executive Officer of the
Dean Witter Funds and Chairman, Chief Executive
Officer and Trustee of the TCW/DW Funds;
Formerly Executive Vice President and Director of
Dean Witter, Discover & Co. ("DWDC"); Director
and/or officer of various DWDC subsidiaries.
Philip J. Purcell Chairman, Chief Executive Officer and Director of
Director of DWDC and DWR; Director of DWSC and
Distributors; Director or Trustee of the Dean
Witter Funds; Director and/or officer of various
DWDC subsidiaries.
Richard M. DeMartini Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Capital;
Director of DWR, DWSC, Distributors and DWTC;
Trustee of the TCW/DW Funds; Member (since
January, 1993) and Chairman (since January, 1995)
of the Board of Directors of NASDAQ.
James F. Higgins Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Financial;
Director of DWR, DWSC, Distributors and DWTC.
Thomas C. Schneider Executive Vice President and Chief Financial
Executive Vice Officer of DWDC, DWR, DWSC and Distributors;
President, Chief Director of DWR, DWSC and Distributors.
Financial Officer and
Director
Christine A. Edwards Executive Vice President, Secretary and General
Director Counsel of DWDC and DWR; Executive Vice President,
Secretary and Chief Legal Officer of Distributors;
Director of DWR, DWSC and Distributors.
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
6
<PAGE>
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- ----------------- ------------------------------------------------
David A. Hughey Executive Vice President and Chief Administrative
Executive Vice Officer of DWSC, Distributors and DWTC; Director
President and Chief of DWTC; Vice President of the Dean Witter Funds
Administrative Officer and the TCW/DW Funds.
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Joseph J. McAlinden Vice President of the Dean Witter Funds.
Executive Vice President
and Chief Investment
Officer
Sheldon Curtis Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
General Counsel and President, Assistant General Counsel and Assistant
Secretary Secretary of Distributors; Senior Vice President
and Secretary of DWTC; Vice President, Secretary
and General Counsel of the Dean Witter Funds and
the TCW/DW Funds.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Richard Felegy
Senior Vice President
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone Senior Vice President of DWSC, Distributors
Senior Vice President and DWTC and Director of DWTC; Vice President of
the Dean Witter Funds and the TCW/DW Funds.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
7
<PAGE>
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- ----------------- ------------------------------------------------
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira N. Ross
Senior Vice President Vice President of various Dean Witter Funds.
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer and Chief Financial Officer of the
Treasurer Dean Witter Funds and the TCW/DW Funds.
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds.
Barry Fink First Vice President and Assistant Secretary of
First Vice President DWSC; Assistant Secretary of the Dean Witter
and Assistant Secretary Funds and the TCW/DW Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors;First Vice
and Controller President and Treasurer of DWTC.
Robert Zimmerman
First Vice President
8
<PAGE>
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- ----------------- ------------------------------------------------
Joan Allman
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Kirk Balzer
Vice President Vice President of Dean Witter Mid-Cap Growth Fund.
Douglas Brown
Vice President
Philip Casparius
Vice President
Thomas Chronert
Vice President
Rosalie Clough
Vice President
Patricia A. Cuddy
Vice President Vice President of various Dean Witter Funds.
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Dwight Doolan
Vice President
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Peter W. Gurman
Vice President
9
<PAGE>
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- ----------------- -----------------------------------------------
John Hechtlinger
Vice President
Peter Hermann
Vice President Vice President of various Dean Witter Funds.
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
David Johnson
Vice President
Christopher Jones
Vice President
James Kastberg
Vice President
Stanley Kapica
Vice President
Michael Knox
Vice President Vice President of various Dean Witter Funds.
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paula LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
Gerard Lian
Vice President Vice President of various Dean Witter Funds.
LouAnne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
10
<PAGE>
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- ----------------- ------------------------------------------------
David Myers
Vice President
James Nash
Vice President
Richard Norris
Vice President
Anne Pickrell
Vice President Vice President of Dean Witter Global Short-
Term Income Fund Inc.
Hugh Rose
Vice President
Robert Rossetti
Vice President
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
Rafael Scolari
Vice President Vice President of Prime Income Trust.
Peter Seeley Vice President of Dean Witter World
Vice President Wide Income Trust.
Jayne M. Stevlingson
Vice President Vice President of various Dean Witter Funds.
Kathleen Stromberg
Vice President Vice President of various Dean Witter Funds.
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
11
<PAGE>
Item 29. Principal Underwriters
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Global Asset Allocation
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Limited Term Municipal Trust
(22) Dean Witter Natural Resource Development Securities Inc.
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Federal Securities Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Premier Income Trust
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Balanced Growth Fund
12
<PAGE>
(49) Dean Witter Balanced Income Fund
(50) Dean Witter Hawaii Municipal Trust
(51) Dean Witter Variable Investment Series
(52) Dean Witter Capital Appreciation Fund
(53) Dean Witter Intermediate Term U.S. Treasury Trust
(54) Dean Witter Information Fund
(55) Dean Witter Japan Fund
(56) Dean Witter Income Builder Fund
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(b) The following information is given regarding directors and officers
of Distributors not listed in Item 28 above. The principal address of
Distributors is Two World Trade Center, New York, New York 10048. None of
the following persons has any position or office with the Registrant.
Positions and
Office with
Name Distributors
- ---- ------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
are maintained by the Investment Manager at its offices, except records
relating to holders of shares issued by the Registrant, which are maintained
by the Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. Management Services
Registrant is not a party to any such management-related service
contract.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485 (b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York on the 17th of July, 1996.
DEAN WITTER MID-CAP GROWTH FUND
By /s/ Sheldon Curtis
----------------------------
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 3 has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- -----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 07/17/96
--------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 07/17/96
--------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman) 07/17/96
Philip J. Purcell
By /s/ Sheldon Curtis 07/17/96
--------------------------
Sheldon Curtis
Attorney-in-Fact
Michael Bozic
Edwin J. Garn
John R. Haire
Manuel H. Johnson
Michael E. Nugent
John L. Schroeder
By /s/ David M. Butowsky 07/17/96
--------------------------
David M. Butowsky
Attorney-in-Fact
14
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
EXHIBIT INDEX
Exhibit No. Description
8. -- Amendment to Custody Agreement bewteen
the Registrant and The Bank of New York
11. -- Consent of Independent Accountants
15. -- Amended and Restated Plan of Distribution
pursuant to Rule 12b-1
16. -- Schedule for Computations of Performance Quotations
27. -- Financial Data Schedule
AMENDMENT TO CUSTODY AGREEMENT
Amendment made as of this 17th day of April, 1996 by and between
Dean Witter Mid-Cap Growth Fund (the "Fund") and The Bank of New York (the
"Custodian") to the Custody Agreement between the Fund and the Custodian dated
July 27, 1994 (the "Custody Agreement"). The Custody Agreement is hereby
amended as follows:
Article XV Section 8 of the Custody Agreement shall be deleted and be
replaced by Sections 8.(a), 8.(b) and 8.(c) as set forth below:
"8. (a) The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of Securities and moneys
owned by the Fund. The Custodian shall indemnify the Fund against and save the
Fund harmless from all liability, claims, losses and demands whatsoever,
including attorneys' fees, howsoever arising or incurred as the result of the
failure of a subcustodian which is a banking institution located in a foreign
country and identified on Schedule A attached hereto and as amended from time
to time upon mutual agreement of the parties (each, a "Subcustodian") to
exercise reasonable care with respect to the safekeeping of such Securities
and moneys to the same extent that the Custodian would be liable to the Fund
if the Custodian were holding such securities and moneys in New York. In the
event of any loss to the Fund by reason of the failure of the Custodian or a
Subcustodian to utilize reasonable care, the Custodian shall be liable to the
Fund only to the extent of the Fund's direct damages, to be determined based
on the market value of the Securities and moneys which are the subject of the
loss at the date of discovery of such loss and without reference to any
special conditions or circumstances.
8. (b) The Custodian shall not be liable for any loss which results
from (i) the general risk of investing, or (ii) investing or holding
Securities and moneys in a particular country including, but not limited to,
losses resulting from nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; or market conditions which prevent
the orderly execution of securities transactions or affect the value of
Securities or moneys.
8. (c) Neither party shall be liable to the other for any loss due
to forces beyond its control including, but not limited to, strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DEAN WITTER MID-CAP GROWTH FUND
[SEAL] By: /s/ David A. Hughey
------------------------
Attest:
/s/ R. M. Scanlan
- ------------------
THE BANK OF NEW YORK
[SEAL] By: /s/ S. Grunston
-------------------------
Attest:
/s/ V. Blazewicz
- -------------------
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Argentina The Bank of Boston
Australia ANZ Banking Group Limited
Austria Girocredit Bank AG
Bangladesh* Standard Charted Bank
Belgium Banque Bruxelles Lambert
Botswana* Stanbic Bank Botswana Ltd.
Brazil The Bank of Boston
Canada Royal Trust/Royal Bank of Canada
Chile The Bank of Boston/Banco de Chile
China Standard Charted Bank
Columbia Citibank, N.A.
Denmark Den Danske Bank
Euromarket CEDEL
Euroclear
First Chicago Clearing Centre
Finland Union Bank of Finland
France Banque Paribas/Credit Commercial de France
Germany Dresdner Bank A.G.
Ghana* Merchant Bank Ghana Ltd.
Greece Alpha Credit Bank
Hong Kong Hong Kong and Shanghai Banking Corp.
Indonesia Hong Kong and Shanghai Banking Corp.
Ireland Allied Irish Bank
Israel Israel Discount Bank
Italy Banca Commerciale Italiana
Japan Yasuda Trust & Banking Co., Lt.
Korea Bank of Seoul
Luxembourg Kredietbank S.A.
Malaysia Hong Kong Bank Malaysia Berhad
Mexico Banco Nacional de Mexico (Banamex)
Netherlands Mees Pierson
New Zealand ANZ Banking Group Limited
Norway Den Norske Bank
Pakistan Standard Chartered Bank
Peru Citibank N.A.
Philippines Hong Kong and Shanghai Banking Corp.
Poland Bank Handlowy w Warsawie
Portugal Banco Comercial Portugues
Singapore United Overseas Bank
South Africa Standard Bank of South Africa Limited
Spain Banco Bilbao Vizcaya
Sri Lanka Standard Chartered Bank
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Sweden Skandinaviska Enskilda Banken
Switzerland Union Bank of Switzerland
Taiwan Hong Kong and Shanghai Banking Corp.
Thailand Siam Commercial Bank
Turkey Citibank N.A.
United Kingdom The Bank of New York
United States The Bank of New York
Uruguay The Bank of Boston
Venezuela Citibank N.A.
Zimbabwe* Stanbic Bank Zimbabwe Ltd.
* Not yet 17(f)5 compliant
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 3 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
July 8, 1996, relating to the financial statements and financial highlights
of Dean Witter Mid-Cap Growth Fund, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report
into the Prospectus which constitutes part of this Registration Statement. We
also consent to the references to us under the headings "Independent
Accountants" and "Experts" in such Statement of Additional Information and to
the reference to us under the heading "Financial Highlights" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
July 8, 1996
AMENDED AND RESTATED PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
DEAN WITTER MID-CAP GROWTH FUND
WHEREAS, Dean Witter Mid-Cap Growth Fund (the "Fund") is engaged
in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended
(the "Act"); and
WHEREAS, on July 27, 1994, the Fund adopted a Plan of Distribution
pursuant to Rule 12b-1 under the Act, and the Trustees then determined
that there was a reasonable likelihood that adoption of the Plan of
Distribution would benefit the Fund and its shareholders; and
WHEREAS, the Trustees believe that continuation of said Plan of
Distribution, as amended and restated herein, is reasonably likely to
continue to benefit the Fund and its shareholders; and
WHEREAS, the Fund and the Distributor entered into a separate
Distribution Agreement dated as of July 27, 1994, pursuant to which the
Fund has employed the Distributor in such capacity during the continuous
offering of shares of the Fund.
NOW, THEREFORE, the Fund hereby amends the Plan of Distribution
previously adopted, and the Distributor hereby agrees to the terms of
said Plan of Distribution (the "Plan"), as amended herein, in accordance
with Rule 12b-1 under the Act on the following terms and conditions:
1. The Fund shall pay to the Distributor, as the distributor of
securities of which the Fund is the issuer, compensation for
distribution of its shares at the rate of the lesser of (i) 1.0% per
annum of the average daily aggregate sales of the shares of the Fund
since its inception (not including reinvestment of dividends and capital
gains distributions from the Fund) less the average daily aggregate net
asset value of the shares of the Fund redeemed since the Fund's
inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived, or (ii) 1.0% per annum of the
Fund's average daily net assets. Such compensation shall be calculated
and accrued daily and paid monthly or at such other intervals as the
Trustees shall determine. The Distributor may direct that all or any
part of the amounts receivable by it under this Plan be paid directly to
Dean Witter Reynolds Inc. ("DWR"), its affiliates or other
broker-dealers who provide distribution and shareholder services. All
payments made hereunder pursuant to the Plan shall be in accordance with
the terms and limitations of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc.
2. The amount set forth in paragraph 1 of this Plan shall be paid
for services of the Distributor, DWR, its affiliates and other
broker-dealers it may select, in connection with the distribution of the
Fund's shares, including personal services to shareholders with respect
to their holdings of Fund shares, and may be spent by the Distributor,
DWR, its affiliates and such broker-dealers on any activities or
expenses related to the distribution of the Fund's shares or services to
shareholders, including, but not limited to: compensation to, and
expenses of, account executives or other employees of the Distributor,
DWR, its affiliates or other broker-dealers; overhead and other branch
office distribution-related expenses and telephone expenses of persons
who engage in or support distribution of shares or who provide personal
services to shareholders; printing of prospectuses and reports for other
than existing shareholders; preparation, printing and distribution of
sales literature and advertising materials and opportunity costs in
incurring the foregoing expenses (which may be calculated as a carrying
charge on the excess of the distribution expenses incurred by the
Distributor, DWR, its affiliates or other broker-dealers over
distribution revenues received by them, such excess being hereinafter
referred to as "carryover expenses"). The overhead and other branch
office distribution-related expenses referred to in this paragraph 2 may
include: (a) the expenses of operating the branch offices of the
Distributor or other broker-dealers, including DWR, 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. Payments may also be made
with respect to distribution expenses incurred in connection with the
distribution of shares, including personal services to shareholders with
respect to holdings of such shares, of an investment company whose assets
are acquired by the Fund in a tax-free reorganization, provided that
carryover expenses as a percentage of Fund assets will not be materially
increased thereby.
1
<PAGE>
3. This Plan, as amended and restated, shall not take effect until
it has been approved, together with any related agreements, by votes of
a majority of the Board of Trustees of the Fund and of the Trustees who
are not "interested persons" of the Fund (as defined in the Act) and
have no direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1 Trustees"), cast
in person at a meeting (or meetings) called for the purpose of voting on
this Plan and such related agreements.
4. This Plan shall continue in effect until April 30, 1996, and
from year to year thereafter, provided such continuance is specifically
approved at least annually in the manner provided for approval of this
Plan in paragraph 3 hereof.
5. The Distributor shall provide to the Trustees of the Fund and
the Trustees shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were
made. In this regard, the Trustees shall request the Distributor to
specify such items of expenses as the Trustees deem appropriate. The
Trustees shall consider such items as they deem relevant in making the
determinations required by paragraph 4 hereof.
6. This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Trustees, or by vote of a majority of the outstanding
voting securities of the Fund. In the event of any such termination or
in the event of nonrenewal, the Fund shall have no obligation to pay
expenses which have been incurred by the Distributor, DWR, its
affiliates or other broker-dealers in excess of payments made by the
Fund pursuant to this Plan. However, this shall not preclude
consideration by the Trustees of the manner in which such excess
expenses shall be treated.
7. This Plan may not be amended to increase materially the amount
the Fund may spend for distribution provided in paragraph 1 hereof
unless such amendment is approved by a vote of at least a majority (as
defined in the Act) of the outstanding voting securities of the Fund,
and no material amendment to the Plan shall be made unless approved in
the manner provided for approval in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the Act) of the
Fund shall be committed to the discretion of the Trustees who are not
interested persons.
9. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof, for a
period of not less than six years from the date of this Plan, any such
agreement or any such report, as the case may be, the first two years in
an easily accessible place.
10. The Declaration of Trust establishing Dean Witter Mid-Cap
Growth Fund, dated May 25, 1994, a copy of which, together with all
amendments thereto (the "Declaration"), is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name
Dean Witter Mid-Cap Growth Fund refers to the Trustees under the
Declaration collectively as Trustees but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of
Dean Witter Mid-Cap Growth Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of
any obligation or claim or otherwise, in connection with the affairs of
said Dean Witter Mid-Cap Growth Fund, but the Trust Estate only shall be
liable.
IN WITNESS WHEREOF, the Fund and the Distributor have executed
this amended and restated Plan of Distribution as of the day and year
set forth below in New York, New York.
Date: July 27, 1994 DEAN WITTER MID-CAP GROWTH FUND
As amended on October 26, 1995
By /s/ Sheldon Curtis
-------------------------------
Attest:
/s/ Marilyn K. Cranney
---------------------------------
DEAN WITTER DISTRIBUTORS INC.
By /s/ R. M. Scanlan
-------------------------------
Attest:
/s/ David A. Hughey
---------------------------------
2
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
DEAN WITTER MID-CAP GROWTH FUND
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
- -
| ---------------------- |
FORMULA: | | |
|/\ n | ERV |
T = | \ | ------------ | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-96 YEARS - n COMPOUND RETURN - T
- -------------- ----------- ----------- -------------------
<S> <C> <C> <C>
31-May-95 $1,480.20 1.00 48.02%
29-Sep-94 $1,616.60 1.67 33.32%
</TABLE>
(B) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
(C) AVERAGE ANNUAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
- -
| ---------------------- |
FORMULA: | | |
|/\ n | EV |
t = | \ | ---------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL COMPOUND RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(B) (C)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-96 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ ----------- ----------- ----------------- --------------------
<S> <C> <C> <C> <C>
31-May-95 $1,530.20 53.02% 1.00 53.02%
29-Sep-94 $1,656.60 65.66% 1.67 35.29%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT-G $100,000 INVESTMENT - G
- ------------ ----------- ----------------------- --------------------- ------------------------
<S> <C> <C> <C> <C>
29-Sep-94 65.66 $16,566 $82,830 $165,660
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 261,052,085
<INVESTMENTS-AT-VALUE> 304,346,869
<RECEIVABLES> 9,861,186
<ASSETS-OTHER> 117,289
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 314,325,344
<PAYABLE-FOR-SECURITIES> 4,212,683
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 840,950
<TOTAL-LIABILITIES> 5,053,633
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 238,479,393
<SHARES-COMMON-STOCK> 20,474,077
<SHARES-COMMON-PRIOR> 10,651,999
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 27,497,534
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 43,294,784
<NET-ASSETS> 309,271,711
<DIVIDEND-INCOME> 893,612
<INTEREST-INCOME> 1,056,112
<OTHER-INCOME> 0
<EXPENSES-NET> 4,012,243
<NET-INVESTMENT-INCOME> (2,062,519)
<REALIZED-GAINS-CURRENT> 45,084,990
<APPREC-INCREASE-CURRENT> 36,875,007
<NET-CHANGE-FROM-OPS> 79,897,478
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (17,035,698)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,165,276
<NUMBER-OF-SHARES-REDEEMED> (13,590,922)
<SHARES-REINVESTED> 1,247,724
<NET-CHANGE-IN-ASSETS> 194,145,541
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,510,335
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,468,816
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,012,243
<AVERAGE-NET-ASSETS> 195,842,131
<PER-SHARE-NAV-BEGIN> 10.81
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> 5.60
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.20)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.11
<EXPENSE-RATIO> 2.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
