<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1997
REGISTRATION NOS.: 33-56239
811-07233
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 GLOBAL ASSET ALLOCATION 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
BARRY FINK, 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)
X immediately upon filing pursuant to paragraph (b)
___
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (A)(1) OF RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. PURSUANT TO SECTION (B)(2) OF RULE 24F-2, THE
REGISTRANT HAS FILED A RULE 24F-2 NOTICE FOR ITS FISCAL YEAR ENDED JANUARY 31,
1997 WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1997.
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
- ------------- -----------------------------------------------------
PART A PROSPECTUS
- ------------- -----------------------------------------------------
<S> <C>
1. Cover Page
2. Summary of Fund Expenses; Prospectus Summary
3. Performance Information; Financial Highlights
4. Investment Objective and Policies; Risk
Considerations; The Fund and its Management; Cover
Page; Investment Restrictions; Prospectus Summary;
Appendix
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;
Redemptions and Repurchases
8. Redemptions and Repurchases; Shareholder Services
9. Not Applicable
</TABLE>
<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION
- ---------- ----------------------------------------------------------
<S> <C>
10. Cover Page
11. Table of Contents
12. The Fund and Its Management
13. Investment Practices and Policies; Risk Considerations;
Investment Restrictions; Portfolio Transactions and
Brokerage
14. The Fund and Its Management; Trustees and Officers
15. Trustees and Officers
16. The Fund and Its Management; Purchase of Fund Shares;
Custodian and Transfer Agent; Independent Accountants
Portfolio Transactions and Brokerage
18. Description of Shares
19. Repurchase of Fund Shares; Redemptions and Repurchases;
Statements of Assets and Liabilities; Shareholder Services
20. Dividends, Distributions and Taxes
21. Purchase of Fund Shares
22. Dividends, Distributions and Taxes
23. Performance Information
</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 -- MARCH 31, 1997
- -----------------------------------------------------------------------------
Dean Witter Global Asset Allocation Fund (the "Fund") is an open-end,
diversified management investment company whose investment objective is to seek
long-term total return on its investments. The Fund seeks to meet its
investment objective by allocating its assets among U.S. and foreign equities,
fixed-income and adjustable rate securities ("fixed-income securities") and
money market instruments.
Shares of the Fund are continuously offered at net asset value.
However, redemptions and/or repurchases are subject, in most cases, to a
contingent deferred sales charge, which declines from 5% to 1% of the amount
redeemed, if made within six years of purchase, which charge will be paid to
the Fund's Distributor, Dean Witter Distributors Inc. See "Repurchases and
Redemptions--Contingent Deferred Sales Charge." In addition, the Fund pays the
Distributor a Rule 12b-1 distribution fee pursuant to a Plan of Distribution at
the annual rate of 1.0% of the lesser of the (i) average daily aggregate net
sales or (ii) average daily net assets of the Fund. See "Purchase of Fund
Shares--Continuous Offering--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 March 31, 1997, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
Table of Contents
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 3
Financial Highlights .................................................. 4
The Fund and its Management ........................................... 5
Investment Objective and Policies ..................................... 6
Risk Considerations ................................................... 7
Investment Restrictions ............................................... 15
Purchase of Fund Shares ............................................... 15
Shareholder Services .................................................. 18
Redemptions and Repurchases ........................................... 21
Dividends, Distributions and Taxes .................................... 23
Performance Information ............................................... 24
Additional Information ................................................ 24
Appendix .............................................................. 26
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Dean Witter
Global Asset Allocation Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
Dean Witter Distributors Inc.,
DISTRIBUTOR
<PAGE>
PROSPECTUS SUMMARY
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an open-end,
Fund diversified management investment company. The Fund allocates its assets among U.S. and foreign equities,
income securities and money market instruments.
- ------------------ -------------------------------------------------------------------------------------------------------------
Offering At net asset value without sales charge (see page 15). Shares redeemed within six years of purchase are
Price subject to a contingent deferred sales charge under most circumstances (see page 21).
- ------------------ -------------------------------------------------------------------------------------------------------------
Minimum Minimum initial investment, $1,000 ($100 if the account is opened through EasyInvest(Service Mark));
Purchase minimum subsequent investment, $100 (see page 15).
- ------------------ -------------------------------------------------------------------------------------------------------------
Investment The investment objective of the Fund is to seek long-term total return on its investments.
Objective
- ------------------ -------------------------------------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-owned
Manager and subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory, management
Sub-Advisers and administrative capacities to 102 investment companies and other portfolios with net assets under
management of approximately $93 billion at February 28, 1997. InterCapital has retained TCW Funds Management,
Inc. ("TCW") and Morgan Grenfell Investment Services Ltd. ("MGIS") as Sub-Advisers to provide investment
advice and manage the Fund's non-U.S. portfolio. TCW, which is responsible for Canadian and Latin American
investments, serves as investment adviser to 14 TCW/DW Funds and had at January 31, 1997, together with its
affiliates, approximately $52.7 billion under management or committed to management in various fiduciary or
advisory capacities, primarily to institutional investors. MGIS, which is responsible for the Fund's
investments outside of the Western Hemisphere, currently serves as investment adviser for primarily U.S.
corporate and public employee benefit plans, investment companies, endowments and foundations with assets of
approximately $13.8 billion at December 31, 1996 (see page 5).
- ------------------ -------------------------------------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual rate of 1.0% of the Fund's average daily net
Fee assets. The Sub-Advisers each receive a monthly fee from InterCapital equal to 30% of InterCapital's
investment management fee (see page 5). The management fee is higher than that paid by most other investment
companies.
- ------------------ -------------------------------------------------------------------------------------------------------------
Dividends and Dividends from net investment income are paid at least annually. Capital gains, if any, are distributed at
Distributions 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 23).
- ------------------ -------------------------------------------------------------------------------------------------------------
Distributor Dean Witter Distributors Inc. (the "Distributor"). 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 16).
- ------------------ -------------------------------------------------------------------------------------------------------------
Redemption-- Shares are redeemable by the shareholder at net asset value. An account may be involuntarily redeemed if the
Contingent total value of the account is less than $100 or, if the account was opened through EasyInvest, if
Deferred after twelve months the shareholder has invested less than $1,000 in the account. Although no commission or
Sales sales load is imposed upon the purchase of shares, a contingent deferred sales charge (scaled down from 5% to
Charge 1%) is imposed on any redemption of shares, if, after such redemption, the aggregate current value of an account
with the Fund falls below the aggregate amount of the investor's purchase payments made during the first six
years preceding the redemption. However, there is no charge imposed on redemption of shares purchased through
reinvestment of dividends or distributions (see pages 21-22).
- ------------------ -------------------------------------------------------------------------------------------------------------
Risk The net asset value of the Fund's shares will fluctuate with changes in market value of portfolio securities.
Considerations It should be recognized that the foreign securities and markets in which the Fund may invest pose different and
greater risks than those customarily associated with domestic securities and their markets. The Fund may engage
in various investment practices which present special risks, including investments in forward foreign currency
exchange contracts, lower-rated fixed-income securities, convertible securities, adjustable rate mortgages,
options and futures, investment companies, rights and warrants, repurchase agreements, when-issued and delayed
delivery securities and forward commitments, when, as and if issued securities, reverse repurchase agreements
and dollar rolls and private placements (see pages 7-15).
- ------------------ -------------------------------------------------------------------------------------------------------------
Shareholder Automatic Investment of Dividends and Distributions; Investment of Distributions Received in Cash; Systematic
Services Withdrawal Plan; Exchange Privilege; EasyInvest (Service Mark), Tax-Sheltered Retirement Plans (see pages 18
through 21).
- ------------------ -------------------------------------------------------------------------------------------------------------
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
2
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended January 31, 1997.
<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%
None
Seventh and thereafter...............
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Redemption Fees........................................................... None
Exchange Fee.............................................................. None
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
- -------------------------------------------------------------------------
Management Fees........................................................... 1.00%
12b-1 Fees*............................................................... 0.90%
Other Expenses............................................................ 0.63%
Total Fund Operating Expenses............................................. 2.53%
</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 and will be
paid annually to the selling broker (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: ...... $76 $109 $154 $286
You would pay the following expenses on the same investment, assuming no
redemption:................................................................ $26 $ 79 $134 $286
</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 the period beginning with the commencement of the Fund's
operations and ended January 31, 1997 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 FEBRUARY 28, 1995*
ENDED THROUGH
JANUARY 31, 1997 JANUARY 31, 1996
- -------------------------------------- ---------------- ------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $11.79 $10.00
---------------- ------------------
Net investment income (loss)........... (0.01) 0.17
Net realized and unrealized gain ...... 0.55 2.20
---------------- ------------------
Total from investment operations ...... 0.54 2.37
---------------- ------------------
Less dividends and distributions: ....
Net investment income................. (0.11) (0.34)
Net realized gain..................... (0.38) (0.24)
---------------- ------------------
Total dividends and distributions ..... (0.49) (0.58)
---------------- ------------------
Net asset value, end of period......... $11.84 $11.79
================ ==================
TOTAL INVESTMENT RETURN+............... 4.58% 23.89%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses............................... 2.53% 1.14%(2)(3)
Net investment income.................. 0.11% 1.71%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands............................. $65,314 $44,271
Portfolio turnover rate................ 63% 71%(1)
Average commission rate paid........... $0.00126 --
</TABLE>
- ------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Investment Manager had not reimbursed expenses, the annualized
expense and net investment loss ratios would have been 2.87% and (0.02)%,
respectively.
4
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter Global Asset Allocation 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 October 18, 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.
On February 5, 1997, DWDC and Morgan Stanley Group Inc. announced that they
had entered into an Agreement and Plan of Merger, with the combined company to
be named Morgan Stanley, Dean Witter, Discover & Co. The business of Morgan
Stanley Group Inc. and its affiliated companies is providing a wide range of
financial services for sovereign governments, corporations, institutions and
individuals throughout the world. DWDC is the direct parent of InterCapital and
Dean Witter Distributors Inc., the Fund's distributor. It is currently
anticipated that the transaction will close in mid-1997. Thereafter,
InterCapital and Dean Witter Distributors Inc. will be direct subsidiaries of
Morgan Stanley, Dean Witter, Discover & Co.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 102 investment companies (the "Dean Witter
Funds"), 30 of which are listed on the New York Stock Exchange, with combined
assets of approximately $89.8 billion at February 28, 1997. The Investment
Manager also manages portfolios of pension plans, other institutions and
individuals which aggregated approximately $3.2 billion at such date.
The Fund has retained the Investment Manager to manage its business affairs
and manage the investment of the Fund's U.S. assets, including the placing of
orders for the purchase and sale of portfolio securities, and to supervise the
investment of all the Fund's assets. In addition, the Fund has retained
InterCapital to provide it with administrative services and InterCapital has,
in turn, retained Dean Witter Services Company to perform these administrative
services.
Under Sub-Advisory Agreements between InterCapital and TCW Funds Management,
Inc. ("TCW") and Morgan Grenfell Investment Services Ltd. ("MGIS"), TCW and
MGIS provide the Fund with investment advice and portfolio management relating
to the Fund's investments in securities issued by issuers located in Canada and
Latin America (TCW) and outside the Western Hemisphere (MGIS), subject to the
overall supervision of the Investment Manager.
TCW is located at 865 South Figueroa Street, Suite 1800, Los Angeles,
California 90017. TCW was organized in 1987 as a wholly-owned subsidiary of The
TCW Group, Inc., whose subsidiaries, including Trust Company of the West and
TCW Asset Management Company, provide a variety of trust, investment management
and investment advisory services. Robert A. Day, who is Chairman of the Board
of Directors of The TCW Group, Inc., may be deemed to be a control person of
TCW by virtue of the aggregate ownership by Mr. Day and his family of more than
25% of the outstanding voting stock of The TCW Group, Inc. As of January 31,
1997, TCW and its affiliated companies had approximately $52.7 billion under
management or committed to management, primarily from institutional investors.
MGIS, whose address is 20 Finsbury Circus, London, England, manages, as of
December 31, 1996, assets in excess of $13.8 billion for primarily U.S.
corporate and public employee benefit plans, investment companies, endowments
and foundations. MGIS is an indirect subsidiary of Deutsche Bank AG, the
largest commercial bank in Germany.
The Fund's Trustees review the various services provided by the Investment
Manager and the Sub-Advisers to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner.
5
<PAGE>
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 1.0% to the Fund's average daily net assets. As compensation for
their services provided pursuant to their Sub-Advisory Agreements, the
Investment Manager pays each Sub-Adviser monthly compensation equal to 30% of
its monthly compensation. For the fiscal year ended January 31, 1997, the Fund
accrued total compensation to the Investment Manager amounting to 1.0% of the
Fund's average daily net assets (of which 30% was accrued to each Sub-Adviser
by the Investment Manager) and the Fund's total expenses amounted to 2.53% of
the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the Fund is to seek long-term total return on
its investments. This objective is a fundamental policy of the Fund and may not
be changed without shareholder approval. There is no assurance that the
objective will be achieved. The Fund's investment policies described below,
unless otherwise stated, are not fundamental and may be changed without
shareholder approval.
The Fund seeks to achieve its investment objective through a managed
investment policy utilizing a portfolio of U.S. and foreign equity, debt and
money market securities. The Investment Manager, with the assistance of the
Fund's Sub-Advisers, will initially allocate, and periodically reallocate, the
composition of the Fund's assets based upon an overall evaluation of global
monetary, economic and financial market trends and the anticipated relative
total return on securities available in different capital markets around the
world. In allocating among equity, fixed-income and money market securities
within a given capital market, the Investment Manager, with the assistance of
the Sub-Advisers, will consider the relative opportunity for price appreciation
of equity and fixed-income securities, dividend yields and the level of
interest rates paid on fixed-income securities of various maturities.
Therefore, at any given time, the Fund's assets may be invested in any amounts
of either U.S. or foreign equity or fixed-income (including money market)
securities, or in any combination thereof. Under normal circumstances, the Fund
will have at least 65% of its total assets invested in securities issued in at
least three separate countries (including the U.S.).
The Investment Manager will meet with the Fund's Sub-Advisers, at least
quarterly, to discuss the Fund's overall strategy of asset allocation described
above. Once determinations of the equity, fixed-income and money market sector
allocation and geographic distribution of the Fund's assets have been made, the
Investment Manager and each Sub-Adviser will be responsible for the individual
security selection within its geographic area of responsibility. The final
determinations of the sector and geographic asset allocations of the Fund will
be made by the Investment Manager.
Within the equity sector, the Fund seeks to invest in those economic sectors
expected by the Investment Manager or Sub-Adviser to benefit from major trends
and in individual stocks which are deemed by them to have superior investment
potential. The Fund may purchase equity securities (including convertible debt
obligations and, except for certain foreign jurisdictions, convertible
preferred stock) sold on the New York, American and other domestic and foreign
stock exchanges and in the over-the-counter market.
Within the fixed-income sector, the Fund seeks to maximize the return on its
investments by adjusting maturities and coupon rates to prevailing interest
rate trends around the world, and by taking cognizance of various conditions
and trends in the foreign currency exchange markets. The fixed-income
securities in which the Fund may invest include debt securities with maturities
of greater than one year, which are issued or guaranteed by the U.S. Government
and its agencies or instrumentalities, by foreign governments (including
foreign states, provinces and municipalities) and agencies or instrumentalities
thereof and debt securities and preferred stocks issued by U.S. and foreign
corporations and other similar business entities. The Fund may also invest in
fixed-income securities issued or guaranteed by international organizations
designed
6
<PAGE>
or supported by multiple governmental entities (which are not obligations of
the U.S. Government or foreign governments) to promote economic reconstruction
or development such as the International Bank for Reconstruction and
Development (the "World Bank").
Generally, the fixed-income securities (including "convertible" securities,
see below) in which the Fund will invest will be rated at the time of their
purchase BBB or better by Standard & Poor's Corporation ("S&P") or Baa or
better by Moody's Investor Service, Inc. ("Moody's"), or investment grade by a
nationally recognized statistical rating organization ("NRSRO"), or which, if
unrated, are deemed to be of comparable quality by the Fund's Investment
Manager and/or Sub-Adviser. However, the Fund may invest up to 10% of its net
assets in fixed-income securities (including convertible securities) which are
rated below investment grade by a NRSRO or which are unrated (see below for a
discussion of the risks of investing in lower-rated and unrated fixed-income
securities and the Appendix for a description of the Moody's and S&P's
ratings).
Investments in securities rated either Baa by Moody's or BBB by S&P may 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 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 and/or
Sub-Adviser determines that it is practicable to sell the security without
undue negative market or tax consequences to the Fund. In the event that the
Fund's below investment grade portfolio securities, including downgraded
securities, constitute 10% or more of the Fund's total assets, the Fund will
seek to immediately sell sufficient securities to reduce the total to below
10%.
Within its money market sector, the Fund seeks to maximize returns by
exploiting spreads among short-term instruments. The money market portion of
the Fund's portfolio will contain short-term (maturities of up to thirteen
months) fixed-income securities, issued by private and governmental
institutions. Such securities may include: U.S. and foreign government
securities; domestic and foreign bank obligations; certificates of deposit
issued by foreign and domestic banks; obligations of savings institutions;
fully insured certificates of deposit; and commercial paper rated within the
two highest grades by S&P or the highest grade by Moody's or, if not rated,
issued by a company having an outstanding debt issue rated at least AA by S&P
or Aa by Moody's. Also included within the money market sector are repurchase
agreements and reverse repurchase agreements with maturities of under thirteen
months.
The principal currencies in which securities held in the Fund's portfolio
will be denominated are: the U.S. dollar; Australian dollar; Deutsche mark;
Japanese yen; French franc; British pound; Canadian dollar; Mexican peso; Swiss
franc; Dutch guilder; Hong Kong dollar; New Zealand dollar; Spanish peseta;
Swedish krona; and European Currency Unit.
RISK CONSIDERATIONS
- -----------------------------------------------------------------------------
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities and foreign currency rate
fluctuations. 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.
FOREIGN SECURITIES
Foreign securities investments may be affected by changes in currency rates
or exchange control regulations, changes in governmental administration or
economic or monetary policy (in the United States and abroad) or changed
circumstances in dealings between nations. Fluctuations in the relative rates
of exchange between the currencies of different nations will affect the value
of the Fund's investments denominated in foreign currency. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S. dollar
value of the Fund's assets denominated in that currency and thereby impact upon
the Fund's total return on such assets.
7
<PAGE>
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade. The foreign currency transactions
of the Fund will be conducted on a spot basis or through forward foreign
currency exchange contracts (described below). The Fund will incur certain
costs in connection with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly available
information about such companies. Moreover, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition,
differences in clearance and settlement procedures on foreign markets may
occasion delays in settlements of the Fund's trades effected in such markets.
As such, the inability to dispose of portfolio securities due to settlement
delays could result in losses to the Fund due to subsequent declines in value
of such securities, and the inability of the Fund to make intended security
purchases due to settlement problems could result in a failure of the Fund to
make potentially advantageous investments.
Certain of the foreign markets in which the Fund may invest will be emerging
markets. These new and incompletely formed markets will have increased risk
levels above those occasioned by investing in foreign markets generally. The
types of these risks are set forth above. The Fund's management will take
cognizance of these risks in allocating any of the Fund's investments in either
fixed-income or equity securities issued by issuers in emerging market
countries.
Forward Foreign Currency Exchange Contracts. The Fund may enter into forward
foreign currency exchange contracts ("forward contracts") in connection with
its foreign securities investments.
A forward contract involves an obligation to purchase or sell a currency at
a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. The Fund may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase (by the Fund or
the counterparty) and the foreign currency in which the security is denominated
during the period between the date on which the security is purchased or sold
and the date on which payment is made or received.
At other times, when, for example, the Fund's Investment Manager or one of
its Sub-Adviser's believes that the currency of a particular foreign country
may suffer a substantial decline against the
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U.S. dollar or some other foreign currency, the Fund may enter into a forward
contract to sell, for a fixed amount of dollars or other currency, the amount
of foreign currency approximating the value of some or all of the Fund's
securities holdings (or securities which the fund has purchased for its
portfolio) denominated in such foreign currency. Under identical circumstances,
the Fund may enter into a forward contract to sell, for a fixed amount of U.S.
dollars or other currency, an amount of foreign currency other than the
currency in which the securities to be hedged are denominated approximating the
value of some or all of the portfolio securities to be hedged. This method of
hedging, called "cross-hedging," will be selected when it is determined that
the foreign currency in which the portfolio securities are denominated has
insufficient liquidity or is trading at a discount as compared with some other
foreign currency with which it tends to move in tandem.
In addition, when the Fund anticipates purchasing securities at some time in
the future, and wishes to lock in the current exchange rate of the currency in
which those securities are denominated against the U.S. dollar or some other
foreign currency, the Fund may enter into a forward contract to purchase an
amount of currency equal to some or all of the value of the anticipated
purchase, for a fixed amount of U.S. dollars or other currency.
In all of the above circumstances, if the currency in which the Fund
securities holdings (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be
possible, since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
The Fund is not required to enter into such transactions with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate. The Fund generally will not enter into a forward contract with a
term of greater than one year, although it may enter into forward contracts for
periods of up to five years. The Fund may be limited in its ability to enter
into hedging transactions involving forward contracts by the Internal Revenue
Code requirements relating to qualification as a regulated investment company
(see "Dividends, Distributions and Taxes").
American Depository Receipts. The Fund may also invest in securities of
foreign issuers in the form of American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying securities. EDRs are European
receipts evidencing a similar arrangement. Generally, ADRs, in registered form,
are designed for use in the United States securities markets and EDRs, in
bearer form, are designed for use in European securities markets.
FIXED-INCOME SECURITIES
All fixed-income securities are subject to two types of risks: the credit
risk and the interest rate risk. The credit risk relates to the ability of the
issuer to meet interest or principal payments or both as they come due. The
interest rate risk refers to the fluctuations in the net asset value of any
portfolio of fixed-income securities resulting from the inverse relationship
between price and yield of fixed-income securities; that is, when the general
level of interest rates rises, the prices of outstanding fixed-income
securities decline, and when interest rates fall, prices rise.
Lower-Rated Securities. There is no limitation other than the overall 10%
limitation described above on the percentage of the Fund's total assets which
may be invested in convertible securities (see below) and debt securities below
investment grade. Securities below investment grade are the equivalent of high
yield, high risk bonds, commonly known
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as "junk bonds." Investment grade is generally considered to be debt securities
rated BBB or higher by S&P or Baa or higher by Moody's. However, the Fund will
not invest in debt securities that are in default in payment of principal or
interest.
Because of the special nature of the Fund's permitted investments in lower
rated debt securities, it must take account of certain special considerations
in assessing the risks associated with such investments. The prices of lower
rated securities have been found to be less sensitive to changes in prevailing
interest rates than higher rated investments, but are likely to be more
sensitive to adverse economic changes or individual corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet their projected business goals or to obtain additional
financing. If the issuer of a fixed-income security owned by the Fund defaults,
the Fund may incur additional expenses to seek recovery. In addition, periods
of economic uncertainty and change can be expected to result in an increased
volatility of market prices of lower rated securities and a corresponding
volatility in the net asset value of a share of the Fund.
Convertible Securities. Among the fixed-income securities in which the Fund
may invest are "convertible" securities. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into
or exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula.
Convertible securities rank senior to common stocks in a corporation's capital
structure and, therefore, entail less risk than the corporation's common stock.
The value of a convertible security is a function of its "investment value"
(its value as if it did not have a conversion privilege), and its "conversion
value" (the security's worth if it were to be exchanged for the underlying
security, at market value, pursuant to its conversion privilege).
Adjustable Rate Mortgage Securities. The Fund may also invest in adjustable
rate mortgage securities ("ARMs"), which are pass-through mortgage securities
collateralized by mortgages with adjustable rather than fixed rates. ARMs
eligible for inclusion in a mortgage pool generally provide for a fixed initial
mortgage interest rate for either the first three, six, twelve or thirteen
scheduled monthly payments. Thereafter, the interest rates are subject to
periodic adjustment based on changes to a designated benchmark index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain ARMs
provide for additional limitations on the maximum amount by which the mortgage
interest rate may adjust for any single adjustment period. Alternatively,
certain ARMs contain limitations on changes in the required monthly payment. In
the event that a monthly payment is not sufficient to pay the interest accruing
on an ARM, any such excess interest is added to the principal balance of the
mortgage loan, which is repaid through future monthly payments. If the monthly
payment for such an instrument exceeds the sum of the interest accrued at the
applicable mortgage interest rate and the principal payment required at such
point to amortize the outstanding principal balance over the remaining term of
the loan, the excess is utilized to reduce the then outstanding principal
balance of the ARM.
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.
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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.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on portfolio
securities which are denominated in either U.S. dollars or foreign currencies
and on the U.S. dollar and foreign currencies, which are or may in the future
be listed on several U.S. and foreign securities exchanges or are written in
over-the-counter transactions ("OTC options"). OTC options are purchased from
or sold (written) to dealers or financial institutions which have entered into
direct agreements with the Fund.
The Fund is permitted to write covered call options on portfolio securities
and the U.S. dollar and foreign currencies, without limit, in order to hedge
against the decline in the value of a security or currency in which such
security is denominated (although such hedge is limited to the value of the
premium received), to close out long call option positions and to generate
income. The Fund may write covered put options, under which the Fund incurs an
obligation to buy the security (or currency) underlying the option from the
purchaser of the put at the option's exercise price at any time during the
option period, at the purchaser's election.
The Fund may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Fund may purchase call options to
close out a covered call position or to protect against an increase in the
price of a security it anticipates purchasing or, in the case of call options
on a foreign currency, to hedge against an adverse exchange rate change of the
currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The Fund may
purchase put options on securities which it holds in its portfolio to protect
itself against a decline in the value of the security and to close out written
put positions in a manner similar to call option closing purchase transactions.
There are no limits on the Fund's ability to purchase call and put options
other than compliance with the foregoing policies.
The Fund may purchase and sell futures contracts that are currently traded,
or may in the future be traded, on U.S. and foreign commodity exchanges on
underlying portfolio securities, on any currency ("currency" futures), on U.S.
and foreign fixed-income securities ("interest rate" futures) and on such
indexes of U.S. or foreign equity or fixed-income securities as may exist or
come into being ("index" futures). The Fund may purchase or sell interest rate
futures contracts for the purpose of attempting hedging some or all of the
value of its portfolio securities (or anticipated portfolio securities) against
anticipated changes in prevailing interest rates. The Fund may purchase or sell
index futures contracts for the purpose of hedging some or all of its portfolio
(or anticipated portfolio) securities against changes in their prices (or the
currency in which they are denominated). As a futures contract purchaser, the
Fund incurs an obligation to take delivery of a specified amount of the
obligation underlying the contract at a specified time in the future for a
specified price. As a seller of a futures contract, the Fund incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
The Fund also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any
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<PAGE>
such futures, options or products as may be developed, to the extent consistent
with its investment objective and applicable regulatory requirements.
Risks of Options and Futures Transactions. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options may generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer. Also,
exchanges may limit the amount by which the price of many futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Investment Manager or Sub-Adviser could be incorrect
in its expectations as to the direction or extent of various interest rate or
price movements or the time span within which the movements take place. For
example, if the Fund sold futures contracts for the sale of securities in
anticipation of an increase in interest rates, and then interest rates went
down instead, causing bond prices to rise, the Fund would lose money on the
sale. Another risk which will arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby
the futures contract prices) may correlate imperfectly with the behavior of the
U.S. dollar cash prices of the Fund's portfolio securities and their
denominated currencies. See the Statement of Additional Information for a
further discussion of risks.
Investment in Other Investment Vehicles. Under the Investment Company Act of
1940, as amended (the "Act"), the Fund generally may invest up to 10% of its
total assets in the aggregate in shares of other investment companies and up to
5% of its total assets in any one investment company. The Fund may not own more
than 3% of the outstanding voting stock of any investment company. Investment
in other investment companies or vehicles may be the sole or most practical
means by which the Fund can participate in certain foreign markets. Such
investment may involve the payment of substantial premiums above the value of
such issuers' portfolio securities, and is subject to limitations under the Act
and market availability. In addition, special tax considerations may apply. The
Fund does not intend to invest in such vehicles or funds unless, in the
judgment of the Investment Manager or Sub-Adviser, the potential benefits of
such investment justify the payment of any applicable premium or sales charge.
As a shareholder in an investment company, the Fund would bear its ratable
share of that investment company's expenses, including its advisory and
administration fees. At the same time the Fund would continue to pay its own
management fees and other expenses, as a result of which the Fund and its
shareholders in effect will be absorbing duplicate levels of advisory fees with
respect to investments in such other investment companies.
Rights and Warrants. The Fund may acquire rights and/or warrants which are
attached to other securities in its portfolio, or which are issued as a
distribution by the issuer of a security held in its portfolio. Rights and/or
warrants are, in effect, options to purchase equity securities at a specific
price, generally valid for a specific period of time, and have no voting
rights, pay no dividends and have no other rights with respect to the
corporation issuing them.
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 government securities or other
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 repur-
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<PAGE>
chase, the underlying security at a specified price and at a fixed time in the
future, usually not more than seven days from the date of purchase. While
repurchase agreements involve certain risks not associated with direct
investments in debt securities, including the risks of default or bankruptcy of
the selling financial institution, the Fund follows procedures to minimize such
risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions and
maintaining adequate collateralization.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery and
payment can take place a month or more after the date of the commitment. There
is no overall limit on the percentage of the Fund's assets which may be
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis may increase the volatility of the Fund's net asset
value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as and
if issued" basis may increase the volatility of its net asset value.
Reverse Repurchase Agreements and Dollar Rolls. The Fund may also use
reverse repurchase agreements and dollar rolls as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. The Fund may enter into dollar rolls in which
the Fund sells securities and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. Reverse repurchase agreements and dollar rolls involve the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of proceeds of the agreement
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the
securities. Reverse Repurchase agreements and dollar rolls are speculative
techniques involving leverage (which may increase investment risk), and are
considered borrowings by the Fund.
Restricted Securities. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (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
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<PAGE>
permits the Fund to sell restricted securities to qualifed 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). Investing in restricted securities sellable pursuant to
Rule 144A could have the effect of increasing the level of the illiquidity of
the Fund to the extent that qualified institutional buyers of such securities
become, for a time, uninterested in purchasing these securities. 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.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager and its
Sub-Advisers with a view to achieving the Fund's investment objective. In
determining which securities to purchase for the Fund or hold in the Fund's
portfolio, the Investment Manager and the Sub-Advisers will rely on information
from various sources, including research, analysis and appraisals of brokers
and dealers, the views of Trustees of the Fund and others regarding economic
developments and interest rate trends, and the Investment Manager's and
Sub-Adviser's own analysis of factors they deem relevant.
The individuals who are primarily responsible for the day-to-day
management of the Fund's portfolio are Mark Bavoso, Senior Vice President of
InterCapital, Michael P. Reilly, Managing Director of TCW and Michael
Bullock, Chairman and Chief Investment Officer of MGIS. Mr. Bavoso is a
member of InterCapital's Growth & Income Group and has been a portfolio
manager at InterCapital for over five years. Mr. Reilly has been a portfolio
manager of affiliates of The TCW Group, Inc. since June, 1992, prior to which
he was Vice President of Security Pacific Bank. Mr. Bullock is Chairman of
MGIS and chief investment officer of its parent company, Morgan Grenfell
Asset Management Limited.
Personnel of the Investment Manager and the Sub-Advisers have substantial
experience in the use of the investment techniques described above under the
heading "Options and Futures Transactions," which techniques require skills
different from those needed to select the portfolio securities underlying
various options and futures contracts.
Orders for transactions in portfolio securities and commodities may be
placed for the Fund with a number of brokers and dealers, including Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of InterCapital, and
affiliated broker-dealers of MGIS. Pursuant to an order of the Securities and
Exchange Commission, the Fund may effect principal transactions in certain
money market instruments with DWR, a broker-dealer affiliate of the Investment
Manager. In addition, the Fund may incur brokerage commissions on transactions
conducted through DWR and affiliated broker-dealers of the MGIS.
Although the Fund does not intend to engage in short-term trading, it may
sell portfolio securities without regard to the length of time they have been
held when such sale will, in the opinion of the Investment Manager or
Sub-Adviser, contribute to the Fund's investment objective.
The portfolio trading engaged in by the Fund may result in its portfolio
turnover rate exceeding 200%. The Fund is expected to incur higher than normal
brokerage commission costs due to its portfolio turnover rate. Short-term gains
and losses taxable at ordinary income rates may result from such portfolio
transactions. See "Dividends, Distributions and Taxes" for a full discussion of
the tax
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<PAGE>
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.
The expenses of the Fund relating to its portfolio management are likely to
be greater than those incurred by other investment companies investing
primarily in securities issued by domestic issuers as custodial costs,
brokerage commissions and other transaction charges related to investing on
foreign markets are generally higher than in the United States.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. For purposes
of the following limitations: (i) all percentage limitations apply immediately
after a purchase or initial investment, and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities).
2. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities.
3. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction shall not apply to any
obligation issued or guaranteed by the United States Government, its
agencies or instrumentalities.
4. As to 75% of its total assets, purchase more than 10% of the voting
securities, or more than 10% of any class of securities, of any issuer.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other dealers which have entered into agreements with the Distributor
("Selected Broker-Dealers"). The principal executive office of the Distributor
is located at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Minimum subsequent purchases of $100
or more may be made by sending a check, payable to Dean Witter Global Asset
Allocation 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, 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
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<PAGE>
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 (see "Determination of Net Asset Value").
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since DWR
and other Selected Broker-Dealers forward investors' funds on settlement date,
they will benefit from the temporary use of the funds if payment is made prior
thereto. Orders placed directly with the Transfer Agent must be accompanied by
payment. Investors will be entitled to receive income dividends and capital
gains distributions if their order is received by the close of business on the
day prior to the record date for such dividends and distributions. While no
sales charge is imposed at the time shares are purchased, a contingent deferred
sales charge may be imposed at the time of redemption (see "Redemptions and
Repurchases"). Sales personnel are compensated for selling shares of the Fund
at the time of their sale by the Distributor 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.
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 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 January 31, 1997, the Fund accrued payments under
the Plan amounting to $532,624, which amount is equal to 0.90% of the Fund's
average daily net sales for the fiscal year. The payments accrued under the
Plan were calculated pursuant to clause (a) of the compensation formula under
the Plan.
At any given time, the expenses in distributing shares of the Fund may be in
excess of the total of (i) the payments made by the Fund pursuant to the Plan,
and (ii) the proceeds of contingent deferred sales charges paid by investors
upon the redemp-
16
<PAGE>
tion 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 amounts, including the carrying charge
described above, totalled $3,656,452 at January 31, 1997, which equalled 5.60%
of the Fund's net assets at such date.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses or any requirement that the Plan be
continued from year to year, such excess amount, if any, does not constitute a
liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to the Distributor under the
Plan, and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated the
Trustees will consider at that time the manner in which to treat such expenses.
Any cumulative expenses incurred, but not yet recovered through distribution
fees or contingent deferred sales charges, may or may not be recovered through
future distribution fees or contingent deferred sales charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time) by taking the value of all assets of the
Fund, subtracting all its liabilities, dividing by the number of shares
outstanding and adjusting to the nearest cent. The net asset value per share
will not be determined on Good Friday and on such other federal and non-federal
holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange or 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 or Sub-Adviser that sale or bid prices are not reflective of
a security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Fund's 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); (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.
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
17
<PAGE>
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 some
Trustees.
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.
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.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of
the above services.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of
18
<PAGE>
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 Intermediate 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 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 business day. Subsequent exchanges between any of the
money market funds and any of the CDSC funds can be effected on the same basis.
No contingent deferred sales charge ("CDSC") is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate
redemption. Shares of the Fund acquired in exchange for shares of another CDSC
fund having a different CDSC schedule than that of this Fund will be subject to
the CDSC schedule of this Fund, even if such shares are subsequently
re-exchanged for shares of the CDSC fund originally purchased. During the
period of time the shareholder remains invested in shares of an Exchange Fund
(calculated from the last day of the month in which the shares were acquired)
the holding period (for the purpose of determining the rate of the contingent
deferred sales charge) 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 shares of a CDSC fund (see
"Redemptions and Repurchases--Contingent Deferred Sales Charge"). However, in
the case of shares exchanged for shares of an Exchange Fund, upon a redemption
of shares which results in a CDSC being imposed, a credit (not to exceed the
amount of the CDSC) will be given in an amount equal to the Exchange Fund 12b-1
distribution fees, 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 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 and its 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
19
<PAGE>
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.
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 (presently sixty days' prior written notice for termination or
material revision), provided that six months' prior written notice of
termination will be given to shareholders who hold shares of an Exchange Fund
pursuant to the Exchange Privilege, and provided further that the Exchange
Privilege may be terminated or materially revised without notice under certain
unusual circumstances. Shareholders maintaining margin accounts with DWR or
another Selected Dealer are referred to their account executive regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares,
on which the shareholder may realize a capital gain or loss. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their DWR or other Selected Broker-Dealer account
executive (no Exchange Privilege Authorization Form is required). Other
shareholders (and those shareholders who are clients of DWR or another Selected
Broker-Dealer but who wish to make exchanges directly by telephoning the
Transfer Agent) must complete and forward to the Transfer Agent an Exchange
Privilege Authorization Form, copies of which may be obtained from the Transfer
Agent, to initiate an exchange. If the Authorization Form is used, exchanges
may be made in writing or by contacting the Transfer Agent at (800) 869-NEWS
(toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name,
mailing address, social security or other tax identification number and DWR or
other Selected Broker-Dealer account number (if any). Telephone instructions
may also be recorded. If such procedures are not employed, the Fund may be
liable for any losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean
Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
20
<PAGE>
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds
may be reduced by the amount of any applicable contingent deferred sales
charges (see below). If shares are held in a shareholder's account without a
share certificate, a written request for redemption 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
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------- -----------------------
<S> <C>
First...................... 5.0%
Second..................... 4.0%
Third...................... 3.0%
Fourth..................... 2.0%
Fifth...................... 2.0%
Sixth...................... 1.0%
Seventh and thereafter .... None
</TABLE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption;
(ii) the current net asset value of shares purchased more than six years prior
to the redemption; and (iii) the current net asset asset value of shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Dean Witter Funds sold with a front-end
sales charge or of other Dean Witter Funds acquired in exchange for such
shares. Moreover, in determining whether a CDSC is applicable it will be
assumed that amounts described in (i), (ii) and (iii) above (in that order) are
redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination
of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a
"key employee" of a "top heavy" plan, following attainment of age 59 1/2); (B)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (C) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
corporate or self-employed retirement plan qualified under Section 401(k) of
the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which
21
<PAGE>
Dean Witter Trust Company or Dean Witter Trust FSB, each of which is an
affiliate of the Investment Manager, serves as Trustee or for which the 401(k)
Support Services Group of DWR serves as record keeper ("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 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 have a value of
less than $100 as a result of redemptions or repurchases, or such lesser amount
as may be fixed by the Board of Trustees or, in the case of an account opened
through EasyInvest (Service Mark), if after twelve months the shareholder has
invested less than $1,000 in the account. However, before the Fund redeems such
shares and sends the proceeds to the shareholder, it will notify the
shareholder that the value of the shares is less than the applicable amount and
allow the shareholder 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.
22
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Dividends and Distributions. The Fund intends to pay at least annually
dividends and to distribute substantially all of the Fund's net investment
income and net short-term capital gains, if there are any. The Fund intends to
distribute dividends from net long-term capital gains, if any, at least once
each year. The Fund may, however, determine either to distribute or to retain
all or part of any long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
Fund shares and automatically credited to the shareholder's account without
issuance of a share certificate unless the shareholder requests in writing that
all dividends 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.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return
of a portion of each shareholder's investment. All, or a portion, of such
payments will not be taxable to shareholders.
At 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.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and makes the appropriate election with the Internal Revenue Service, the Fund
will report annually to its shareholders the amount per share of such taxes to
enable shareholders to claim United States foreign tax credits or deductions
with respect to such taxes. In the absence of such an election, the Fund would
deduct foreign tax in computing the amount of its distributable income.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
23
<PAGE>
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
for 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.).
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by the
Shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
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, 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, 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
24
<PAGE>
initial public offering and 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. Each of the Fund's Sub-Advisers also have Code of
Ethics which comply with regulatory requirements and, insofar as they relate to
persons associated with the Fund, the 1994 report by the Investment Company
Institute Advisory Group on Personal Investing.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover
of this Prospectus.
25
<PAGE>
APPENDIX
- -----------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
<TABLE>
<CAPTION>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Bonds rated Aaa, Aa, A and Baa
are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate,
and therefore not well safeguarded during both good and bad times in
the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
</TABLE>
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and a modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
26
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
<TABLE>
<CAPTION>
<S> <C>
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories. Bonds rated AAA, AA, A and BBB are
considered investment grade bonds.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity or willingness to pay interest
and repay principal.
27
<PAGE>
B Debt rated "B" has a greater vulnerability to default but presently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC Debt rated "CCC" has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal.
CC The rating "CC" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating.
Cl The rating "Cl" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
'D' rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard
& Poor's does not rate a particular type of obligation as a matter
of policy. Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded
as having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. "BB" indicates the
least degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. Plus
(+) or minus (-): The rating from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing
within major ratings categories.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to purchase
or sell a security. The ratings are based upon current information furnished by
the issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into group
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Ratings are applicable to both taxable and tax-exempt commercial paper.
The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the
designation 1, 2, and 3 to indicate the relative degree of safety.
<TABLE>
<CAPTION>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very
strong.
A-2 indicates capacity for timely payment on issues with this designation
is strong. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations
carrying this designation are, however, somewhat more vulnerable to
the adverse effects of changes in circumstances than obligations
carrying the higher designations.
</TABLE>
28
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS
Dean Witter Liquid Asset Fund Inc.
Dean Witter U.S. Government Money
Market Trust
Dean Witter Tax-Free Daily Income Trust
Dean Witter California Tax-Free Daily
Income Trust
Dean Witter New York Municipal Money
Market Trust
EQUITY FUNDS
Dean Witter American Value Fund
Dean Witter Natural Resource Development
Securities Inc.
Dean Witter Dividend Growth Securities Inc. Dean Witter Developing Growth
Securities Trust Dean Witter World Wide Investment Trust Dean Witter
Value-Added Market Series Dean Witter Utilities Fund Dean Witter Capital Growth
Securities Dean Witter European Growth Fund Inc. Dean Witter Precious Metals
and Minerals Trust Dean Witter Pacific Growth Fund Inc. Dean Witter Health
Sciences Trust Dean Witter Global Dividend Growth Securities Dean Witter Global
Utilities Fund Dean Witter International Small Cap Fund Dean Witter Mid-Cap
Growth Fund Dean Witter Balanced Growth Fund Dean Witter Capital Appreciation
Fund Dean Witter Information Fund Dean Witter Japan Fund Dean Witter Financial
Services Trust Dean Witter Market Leader Trust Dean Witter Income Builder Fund
Dean Witter Special Value Fund
FIXED-INCOME FUNDS Dean Witter High Yield Securities Inc. Dean Witter
Tax-Exempt Securities Trust Dean Witter U.S. Government Securities Trust Dean
Witter Federal Securities Trust Dean Witter Convertible Securities Trust Dean
Witter California Tax-Free Income Fund Dean Witter New York Tax-Free Income
Fund Dean Witter World Wide Income Trust Dean Witter Intermediate Income
Securities Dean Witter Global Short-Term Income Fund Inc. Dean Witter
Multi-State Municipal Series Trust Dean Witter Premier Income Trust Dean Witter
Short-Term U.S. Treasury Trust Dean Witter Diversified Income Trust Dean Witter
Limited Term Municipal Trust Dean Witter Short-Term Bond Fund Dean Witter
National Municipal Trust Dean Witter High Income Securities Dean Witter
Balanced Income Fund Dean Witter Hawaii Municipal Trust Dean Witter
Intermediate Term U.S. Treasury Trust
DEAN WITTER RETIREMENT SERIES
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Strategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
ASSET ALLOCATION FUNDS
Dean Witter Strategist Fund
Dean Witter Global Asset Allocation Fund
ACTIVE ASSETS ACCOUNT PROGRAM
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
<PAGE>
Dean Witter
Global Asset Allocation 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
Barry Fink
Vice President, Secretary and
General Counsel
Mark Bavoso
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank
One Chase Plaza
New York, NY 10005
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
SUB-ADVISERS
TCW Funds Management, Inc.
Morgan Grenfell Investment Services Limited
DEAN WITTER
GLOBAL ASSET
ALLOCATION FUND
PROSPECTUS--MARCH 31, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MARCH 31, 1997
DEAN WITTER
GLOBAL ASSET ALLOCATION
FUND
- -----------------------------------------------------------------------------
Dean Witter Global Asset Allocation Fund (the "Fund") is an open-end
diversified management investment company whose investment objective is to
seek long-term total return on its investments. The Fund seeks to meet its
investment objective by allocating its assets among U.S. and foreign
equities, fixed-income securities and money market instruments. (See
"Investment Practices and Policies.")
A Prospectus for the Fund dated March 31, 1997, 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 Global Asset Allocation 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....................... 7
Investment Practices and Policies........... 12
Investment Restrictions..................... 27
Portfolio Transactions and Brokerage ....... 28
The Distributor............................. 30
Shareholder Services........................ 33
Redemptions and Repurchases................. 37
Dividends, Distributions and Taxes.......... 39
Performance Information..................... 41
Shares of the Fund.......................... 42
Custodian and Transfer Agent ............... 43
Independent Accountants..................... 43
Reports to Shareholders..................... 43
Legal Counsel............................... 43
Experts .................................... 43
Registration Statement...................... 43
Financial Statements at January 31, 1997 ... 44
Report of Independent Accountants........... 63
</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
October 18, 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 portfolio of of the Fund is
conducted by or under the direction of officers of the Fund and of the
Investment Manager and Sub-Advisers, subject to review by the Fund's Board of
Trustees. Information as to these Trustees and Officers is contained under the
caption "Trustees and Officers."
InterCapital is also the investment manager (or investment adviser and
administrator) of the following investment companies: Dean Witter Liquid Asset
Fund, Inc., InterCapital Income Securities Inc., Dean Witter High Yield
Securities Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter
Developing Growth Securities Trust, Dean Witter Tax-Exempt Securities Trust,
Dean Witter Dividend Growth Securities Inc., Dean Witter Natural Resource
Development Securities Inc., Dean Witter American Value Fund, 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, Dean Witter
Value-Added Market Series, High Income Advantage Trust, Dean Witter Government
Income Trust, InterCapital Insured Municipal Bond Trust, Dean Witter Utilities
Fund, High Income Advantage Trust II, Dean Witter California Tax-Free Daily
Income Trust, Dean Witter Strategist Fund, High Income Advantage Trust III,
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
Pacific Growth Fund Inc., Dean Witter Precious Metals and Minerals Trust, Dean
Witter Global Short-Term Income Fund Inc., Dean Witter Multi-State Municipal
Series Trust, Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Premier
Income Trust, InterCapital Quality Municipal Investment Trust, InterCapital
Insured Municipal Trust, Dean Witter Diversified Income Trust, Dean Witter
Health Sciences Trust, Dean Witter Global Dividend Growth Securities, Dean
Witter Limited Term Municipal Trust, Dean Witter Special Value Fund, Dean
Witter Income Builder Fund, Dean Witter Financial Services Trust, Dean Witter
Market Leader Trust, InterCapital Insured Municipal Securities, InterCapital
Insured California Municipal Securities, InterCapital Insured Municipal Income
Trust, InterCapital California Insured Municipal Income Trust, InterCapital
Quality Municipal Income Trust, InterCapital Quality Municipal Securities,
InterCapital California Quality Municipal Securities, InterCapital New York
Quality Municipal Securities, 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 Income Opportunities Trust, Municipal Income
Opportunities Trust II, Municipal Income Opportunities Trust III, Prime Income
Trust, Municipal Premium Income Trust, Dean Witter Short-Term Bond Fund, Dean
Witter High Income Securities, Dean Witter Global Utilities Fund, Dean Witter
National Municipal Trust, Dean Witter International SmallCap Fund, Dean Witter
Retirement Series, Dean Witter Mid-Cap Growth Fund, Dean Witter Balanced Income
Fund, Dean Witter Balanced Growth Fund, Dean
3
<PAGE>
Witter Hawaii Municipal Trust, Dean Witter Information Fund, Dean Witter
Intermediate Term U.S. Treasury Trust, Dean Witter Japan Fund and Dean Witter
Select Dimensions Investment Series. The foregoing investment companies,
together with the Fund, are collectively referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser:
TCW/DW Core Equity Trust, TCW/DW North American Government Income Trust, TCW/DW
Latin American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap
Growth Fund, TCW/DW Balanced Fund, TCW/DW Term Trust 2000, TCW/DW Term Trust
2002, TCW/DW Term Trust 2003, TCW/DW Mid-Cap Equity Trust, TCW/DW Total Return
Trust, TCW/DW Emerging Markets Opportunities Trust, TCW/DW Global Telecom Trust
and TCW/DW Strategic Income Fund (the "TCW/DW Funds"). InterCapital also serves
as: (i) sub-adviser to Templeton Global Opportunities Trust, an open-end
investment company; (ii) administrator of The BlackRock Strategic Term Trust
Inc., a closed-end investment company; and (iii) sub-administrator of
MassMutual Participation Investors and Templeton Global Governments Income
Trust, closed-end investment companies.
Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
manage the investment of the Fund's U.S. assets, including the placing of
orders for the purchase and sale of portfolio securities and supervise the
investment of all of the Fund's assets. The Investment Manager in conjunction
with TCW Funds Management, Inc. ("TCW") and Morgan Grenfell Investment Services
Ltd. ("MGIS") (the "Sub-Advisers") 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.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Manager is not liable to the Fund or any
of its investors for any act or omission by the Investment Manager or for any
losses sustained by the Fund or its investors. The Management Agreement in no
way restricts the Investment Manager from acting as investment manager or
adviser to others.
Under the terms of the Management 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.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, the Sub-Advisers pursuant to the Sub-Advisory Agreements
(see below), or by Dean Witter Distributors 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 Sub-Adviser or any corporate affiliate
4
<PAGE>
of the Investment Manager or Sub-Adviser; all expenses incident to any
dividend, withdrawal or redemption options; charges and expenses of any outside
service used for pricing of the Fund's shares; fees and expenses of legal
counsel, including counsel to the Trustees who are not interested persons of
the Fund or of the Investment Manager or Sub-Adviser (not including
compensation or expenses of attorneys who are employees of the Investment
Manager) and independent accountants; membership dues of industry associations;
interest on 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.
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 1.0% to the Fund's average daily net assets. The Investment Manager
assumed all operating expenses (except for the Plan of Distribution fee and
any brokerage fees) and waived the compensation provided for in the Management
Agreement for the period February 28, 1995 (commencement of operations) through
December 31, 1995. For the period February 28, 1995 through January 31, 1996
and for the fiscal year ended January 31, 1997, the Fund accrued to the
Investment Manager total compensation under the Investment Management
Agreement of $35,663 (after deduction of waived fees) and $589,449,
respectively.
Pursuant to a Sub-Advisory Agreement between the Investment Manager and TCW,
TCW has been retained, subject to the overall supervision of the Investment
Manager and the Trustees of the Fund, to assist the Investment Manager in
determining the asset allocations of the Fund, and to manage the portion of the
Fund's portfolio invested in securities issued by issuers located in Canada and
Latin America.
TCW is a wholly-owned subsidiary of The TCW Group, Inc., whose subsidiaries,
including Trust Company of the West and TCW Asset Management Company, provide a
variety of trust, investment management and investment advisory services. As of
January 31, 1997, TCW and its affiliates had approximately $52.7 billion under
management or committed to management. Trust Company of the West and its
affiliates have managed equity securities portfolios for institutional
investors since 1971. TCW is headquartered at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017 and is registered as an investment adviser
under the Investment Advisers Act of 1940.
Pursuant to a Sub-Advisory Agreement between the Investment Manager and
MGIS, MGIS has been retained, subject to the overall supervision of the
Investment Manager and the Trustees of the Fund, to assist the Investment
Manager in determining the asset allocations of the Fund, and to manage the
portion of the Fund's portfolio invested in securities issued by issuers
located outside of the Western Hemisphere.
MGIS was organized as a British corporation in 1972 and manages, as of
December 31, 1996, assets of approximately $13.8 billion for primarily U.S. and
Canadian corporate and public employee benefit plans, investment companies,
endowments and foundations. MGIS' principal office is located at 20 Finsbury
Circus, London, England. MGIS is a subsidiary of London based Morgan Grenfell
Asset Management Limited, which is itself a subsidiary of London-based Morgan
Grenfell Group plc (which is owned by Deutsche Bank AG, an international
commercial and investment banking group) and is registered as an investment
adviser under the Investment Advisers Act of 1940. In 1838, Morgan Grenfell was
founded to provide merchant banking services, primarily trade financing between
Great Britain and the United States. In 1958, its investment management arm
began operations. In recent years, Morgan Grenfell Group plc has achieved a
prominent position in the securities industry by providing investment and
commercial banking services, financial services, and discretionary management
and advisory services covering all of the world's leading securities markets.
Morgan Grenfell Asset Management Limited, through its various investment
management subsidiaries, which have extensive experience in global investment
management, is managing, as of December 31, 1996, in excess of $118 billion
worldwide.
5
<PAGE>
Both the Investment Manager and the Sub-Advisers have authorized any of
their directors, officers and employees who have been elected as Trustees or
officers of the Fund to serve in the capacities in which they have been
elected. Services furnished by the Investment Manager and the Sub-Advisers may
be furnished by directors, officers and employees of the Investment Manager and
the Sub-Advisers. In connection with the services rendered by the Sub-Advisers,
the Sub-Advisers bear the following expenses: (a) the salaries and expenses of
their personnel; and (b) all expenses incurred by them in connection with
performing the services provided by it as Sub-Advisers, as described above.
As full compensation for the services and facilities furnished to the Fund
and the Investment Manager and expenses of the Fund and the Investment Manager
assumed by the Sub-Advisers, the Investment Manager pays each Sub-Adviser
monthly compensation equal to 30% of the Investment Manager's monthly
compensation payable under the Management Agreement. For the period February
28, 1995 (commencement of operations) through January 31, 1996, and for the
fiscal year ended January 31, 1997, the Investment Manager informed the Fund
that it accrued to each Sub-Adviser total compensation of $10,699 and $176,835,
respectively, under their respective Sub-Advisory Agreements.
The Investment Manager has paid the organizational expenses of the Fund,
approximately $35,400, incurred prior to the offering of the Fund's shares. The
Fund has reimbursed the Investment Manager for such expenses. The Fund has
deferred and is amortizing the organizational expenses on the straight line
method over a period not to exceed five years from the date of commencement of
the Fund's operations.
The Management Agreement and the Sub-Advisory Agreements were initially
approved by the Trustees on December 6, 1994 and by InterCapital, as the then
sole shareholder, on December 7, 1994. The agreements may be terminated at any
time, without penalty, on thirty days' notice by the Trustees of the Fund, by
the holders of a majority 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 and/or Sub-Adviser. The agreements will automatically
terminate in the event of their assignment (as defined in the Act).
Under their terms, the Management Agreement and the Sub-Advisory Agreement
had initial terms ending April 30, 1996, and will continue from year to year
thereafter, provided their continuance 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
continuance of each Agreement until April 30, 1997.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use, or at any time
permit others to use, the name "Dean Witter." The Fund has also agreed that in
the event the Management 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.
6
<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 84 Dean Witter Funds and 14 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 (56).......................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November 1995); formerly President and
c/o Levitz Furniture Corporation Chief Executive Officer of Hills Department Stores (May,
6111 Broken Sound Parkway, N.W. 1991-July, 1995); formerly variously Chairman, Chief Executive
Boca Raton, Florida Officer, President and Chief Operating Officer (1987-1991)
of the Sears Merchandise Group of Sears, Roebuck and Co.; Director
or Trustee of the Dean Witter Funds; 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 of the Board, DWSC and Distributors; Executive Vice President and Director
President, Chief Executive Officer of DWR; Chairman, Director or Trustee, President and Chief
and Trustee Executive Officer of the Dean Witter Funds; Chairman, Chief
Two World Trade Center Executive Officer and Trustee of the TCW/DW Funds; Chairman
New York, New York and Director of Dean Witter Trust Company ("DWTC"); Director
and/or officer of various DWDC subsidiaries; formerly Executive
Vice President and Director of DWDC (until February, 1993).
Edwin J. Garn (64).......................... Director or Trustee of the Dean Witter Funds; formerly 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 (1971-1974); formerly Astronaut, Space Shuttle
Salt Lake City, Utah Discovery (April 12-19, 1985); Vice Chairman, Huntsman
Corporation (since January, 1993); Director of Franklin Quest
(time management systems) and John Alden Financial Corp.
(health insurance), member of the board of various civic and
charitable organizations.
John R. Haire (72).......................... 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 Advisor (1964-1978);
Director of Washington National Corporation (insurance).
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Dr. Manuel H. Johnson (48).................. Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm; Co-Chairman and a founder of the Group of Seven Council
c/o Johnson Smick International, Inc. (G7C), an international economic commission; Director or
1133 Connecticut Avenue, N.W. Trustee of the Dean Witter Funds; Trustee of the TCW/DW Funds;
Washington, DC Director of NASDAQ (since June, 1995); Director of Greenwich
Capital Markets Inc. (broker-dealer); Trustee of the Financial
Accounting Foundation (oversight organization for the FASB);
formerly Vice Chairman of the Board of Governors of the Federal
Reserve System (1986-1990) and Assistant Secretary of the
U.S. Treasury (1982-1986).
Michael E. Nugent (60)...................... General Partner, Triumph Capital, L.P., a private investment
Trustee partnership; Director or Trustee of the Dean Witter Funds;
c/o Triumph Capital, L.P. Trustee of the TCW/DW Funds; formerly Vice President, Bankers
237 Park Avenue Trust Company and BT Capital Corporation (1984-1988); Director
New York, New York of various business organizations.
Philip J. Purcell* (53)..................... 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 of
New York, New York the Dean Witter Funds; Director and/or officer of various
DWDC subsidiaries.
John L. Schroeder (66)...................... Retired; Director or Trustee of the Dean Witter Funds; Trustee
Trustee of the TCW/DW Funds; Director of Citizens Utilities Company;
c/o Gordon Altman Butowsky formerly, Executive Vice President and Chief Investment Officer
Weitzen Shalov & Wein of the Home Insurance Company (August, 1991-September, 1995)
Counsel to the Independent Trustees and formerly Chairman and Chief Investment Officer of
114 West 47th Street Axe-Houghton Management and the Axe-Houghton Funds (April, 1983-June, 1991).
New York, New York
Barry Fink (42)............................. Senior Vice President (since March, 1997) and Secretary and
Vice President, Secretary General Counsel (since February, 1997) of InterCapital and
and General Counsel DWSC; Senior Vice President (since March, 1997) and Assistant
Two World Trade Center Secretary and Assistant General Counsel (since February, 1997)
New York, New York of Distributors; Assistant Secretary of DWR (since August,
1996); Vice President, Secretary and General Counsel of the Dean
Witter Funds and the TCW/DW Funds (since February, 1997);
previously First Vice President (June, 1993-February, 1997), Vice
President (until June, 1993) and Assistant Secretary and Assistant
General Counsel of InterCapital and DWSC and Assistant Secretary
of the Dean Witter Funds and the TCW/DW Funds.
8
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Mark Bavoso (36)............................ Senior Vice President of InterCapital since June, 1993);
Vice President formerly Vice President of InterCapital; Vice President of
Two World Trade Center various Dean Witter Funds.
New York, New York
Thomas F. Caloia (51)....................... First Vice President and Assistant Treasurer of InterCapital
Treasurer and DWSC; Treasurer and Chief Financial and Accounting Officer
Two World Trade Center of the Dean Witter Funds and the TCW/DW Funds.
New York New York
</TABLE>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of InterCapital and Director of DWTC, Robert S. Giambrone,
Senior Vice President of InterCapital, DWSC, Distributors and DWTC and Director
of DWTC, and Edward F. Gaylor and Paul D. Vance, Senior Vice Presidents of
InterCapital, are Vice Presidents of the Fund, and Marilyn K. Cranney, First
Vice President and Assistant General Counsel of InterCapital and DWSC, Lou Anne
D. McInnis and Ruth Rossi, Vice Presidents and Assistant General Counsels of
InterCapital and DWSC, and Frank Bruttomesso and Carsten Otto, Staff Attorneys
with InterCapital, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of 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 84 Dean Witter Funds, comprised of
127 portfolios. As of February 28, 1997, the Dean Witter Funds had total net
assets of approximately $84.2 billion and more than six 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, 1996,
the three Committees held a combined total of sixteen meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Trustees or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to
time. The Independent Trustees are required to select and nominate individuals
to fill any Independent Trustee vacancy on the Board of any Fund that has a
Rule 12b-1 plan of distribution. Most of the Dean Witter Funds have such a
plan.
9
<PAGE>
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office 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 accountants. 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 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
10
<PAGE>
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 January 31, 1997.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- ---------------
<S> <C>
Michael Bozic .............. $1,800
Edwin J. Garn .............. 1,850
John R. Haire .............. 3,700
Dr. Manuel H. Johnson ..... 1,800
Michael E. Nugent........... 1,800
John L. Schroeder........... 1,800
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1996 for services
to the 82 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 14 TCW/DW Funds that were in operation at December 31, 1996.
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.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF FOR SERVICE AS
COMMITTEES OF CHAIRMAN OF
FOR SERVICE INDEPENDENT COMMITTEES OF TOTAL CASH
AS DIRECTOR OR FOR SERVICE AS DIRECTORS/ INDEPENDENT COMPENSATION
TRUSTEE AND TRUSTEE AND TRUSTEES TRUSTEES PAID
COMMITTEE COMMITTEE AND AUDIT AND AUDIT FOR SERVICES TO
MEMBER OF 82 MEMBER OF COMMITTEES COMMITTEES 82 DEAN WITTER
NAME OF DEAN WITTER 14 TCW/DW OF 82 DEAN OF 14 TCW/DW FUNDS AND 14
INDEPENDENT TRUSTEE FUNDS FUNDS WITTER FUNDS FUNDS TCW/DW FUNDS
- ---------------------- -------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael Bozic ......... $138,850 -- -- -- $138,850
Edwin J. Garn ......... 140,900 -- -- -- 140,900
John R. Haire ......... 106,400 $64,283 $195,450 $12,187 378,320
Dr. Manuel H. Johnson 137,100 66,483 -- -- 203,583
Michael E. Nugent .... 138,850 64,283 -- -- 203,133
John L. Schroeder...... 137,150 69,083 -- -- 206,233
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, not including the Fund, have adopted a retirement program under
which an Independent Trustee who retires after serving for at least five years
(or such lesser period as may be determined by the Board) as an Independent
Director or Trustee of any Dean Witter Fund that has adopted the retirement
program (each such Fund referred to as an "Adopting Fund" and each such Trustee
referred to as an "Eligible Trustee") is entitled to retirement payments upon
reaching the eligible retirement age (normally, after attaining age 72). Annual
payments are based upon length of service. Currently, upon retirement, each
Eligible Trustee is entitled to receive from the Adopting Fund, commencing as
of his or her retirement date and continuing for the remainder of his or her
life, an annual retirement benefit (the "Regular Benefit") equal to 25.0% of
his or her Eligible Compensation plus 0.4166666% of such Eligible Compensation
for each full month of service as an Independent Director or Trustee of any
Adopting Fund in excess of five years up to a maximum of 50.0% after ten years
of service. The foregoing percentages may be changed by the
11
<PAGE>
Board.(1) "Eligible Compensation" is one-fifth of the total compensation earned
by such Eligible Trustee for service to the Adopting Fund in the five year
period prior to the date of the Eligible Trustee's retirement. Benefits under
the retirement program are not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Dean Witter Funds (not including the
Fund) for the year ended December 31, 1996, and the estimated retirement
benefits for the Fund's Independent Trustees, to commence upon their
retirement, from the 57 Dean Witter Funds as of December 31, 1996.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
ESTIMATED BENEFITS BENEFITS
CREDITED ACCRUED AS UPON
YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
NAME OF INDEPENDENT RETIREMENT ELIGIBLE ADOPTING ADOPTING
TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS (2)
- -------------------------- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Michael Bozic ............. 10 50.0% $20,147 $ 51,325
Edwin J. Garn ............. 10 50.0 27,772 51,325
John R. Haire ............. 10 50.0 46,952 129,550
Dr. Manuel H. Johnson .... 10 50.0 10,926 51,325
Michael E. Nugent ......... 10 50.0 19,217 51,325
John L. Schroeder.......... 8 41.7 38,700 42,771
</TABLE>
(1) An Eligible Trustee may elect alternate payments of his or her
retirement benefits based upon the combined life expectancy of such
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. The amount estimated to be payable under this
method, through the remainder of the later of the lives of such Eligible
Trustee and spouse, will be the actuarial equivalent of the Regular
Benefit. In addition, the Eligible Trustee may elect that the surviving
spouse's periodic payment of benefits will be equal to either 50% or
100% of the previous periodic amount, an election that, respectively,
increases or decreases the previous periodic amount so that the
resulting payments will be the actuarial equivalent of the Regular
Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
Forward Foreign Currency Exchange Contracts. As discussed in the Prospectus,
the Fund may enter into forward foreign currency exchange contracts ("forward
contracts") as a hedge against fluctuations in future foreign exchange rates.
The Fund will conduct its foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into forward contracts to purchase or sell
foreign currencies. A forward contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large, commercial and
investment banks) and their customers. Such forward contracts will only be
entered into with United States banks and their foreign branches or foreign
banks whose assets total $1 billion or more. A forward contract generally has
no deposit requirement, and no commissions are charged at any stage for trades.
When management of the Fund believes that the currency of a particular
foreign country may suffer a substantial movement against the U.S. dollar, it
may enter into a forward contract to purchase or sell, for a fixed amount of
dollars or other currency, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The Fund will not
12
<PAGE>
enter into such forward contracts or maintain a net exposure to such contracts
where the consummation of the contracts would obligate the Fund to deliver an
amount of foreign currency in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, the management of the Fund
believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the Fund will
be served. The Fund's custodian bank will place cash, U.S. Government
securities or other appropriate liquid portfolio securities in a segregated
account of the Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of forward contracts entered into under the
circumstances set forth above. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will equal the
amount of the Fund's commitments with respect to such contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign securities denominated in a foreign currency against adverse exchange
rate moves vis-a-vis the U.S. dollar, at the maturity of the forward contract
for delivery by the Fund of a foreign currency, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency (however, the ability of the Fund to terminate a contract is
contingent upon the willingness of the currency trader with whom the contract
has been entered into to permit an offsetting transaction). It is impossible to
forecast the market value of portfolio securities at the expiration of the
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency
the Fund is obligated to deliver and if a decision is made to sell the security
and make delivery of the foreign currency. Conversely, it may be necessary to
sell on the spot market some of the foreign currency received upon the sale of
the portfolio securities if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Fund has written a call option on a security or the
currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a
greater extent than the value of the premium received for the option. The Fund
will maintain with its Custodian at all times, cash, U.S. Government
securities, or other appropriate liquid portfolio securities in a segregated
account equal in value to all forward contract obligations and option contract
obligations entered into in hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time,
13
<PAGE>
and investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the spread between the prices at which they are buying and
selling various currencies. Thus a dealer may offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer.
OPTIONS AND FUTURES TRANSACTIONS
As stated in the Prospectus, the Fund may write covered call options against
securities held in its portfolio and covered put options on eligible portfolio
securities and stock indexes and purchase options of the same series to effect
closing transactions, and may hedge against potential changes in the market
value of investments (or anticipated investments) and facilitate the
reallocation of the Fund's assets into and out of equities and fixed-income
securities by purchasing put and call options on portfolio (or eligible
portfolio) securities and engaging in transactions involving futures contracts
and options on such contracts. The Fund may also hedge against potential
changes in the market value of the currencies in which its investments (or
anticipated investments) are denominated by purchasing put and call options on
currencies and engage in transactions involving currency 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") and other clearing entities including foreign exchanges.
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.
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.
Options on Foreign Currencies. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the
portfolio securities involved. As a result, the Fund would be enabled to sell
the foreign currency for a fixed amount of U.S. dollars, thereby "locking in"
the dollar value of the portfolio securities (less the amount of the premiums
paid for the options). Conversely, the
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Fund may purchase call options on foreign currencies in which securities it
anticipates purchasing are denominated to secure a set U.S. dollar price for
such securities and protect against a decline in the value of the U.S. dollar
against such foreign currency. The Fund may also purchase call and put options
to close out written option positions.
The Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which
a security is denominated and the U.S. dollar, then a loss to the Fund
occasioned by such value decline would be ameliorated by receipt of the premium
on the option sold. At the same time, however, the Fund gives up the benefit of
any rise in value of the relevant portfolio securities above the exercise price
of the option and, in fact, only receives a benefit from the writing of the
option to the extent that the value of the portfolio securities falls below the
price of the premium received. The Fund may also write options to close out
long call option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase
or write such options unless and until, in the opinion of the management of the
Fund, the market for them has developed sufficiently to ensure that the risks
in connection with such options are not greater than the risks in connection
with the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by all of those factors which
influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of less than $1
million) for the underlying foreign currencies at prices that are less
favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the
extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may
take place in the underlying markets that are not reflected in the options
market.
OTC Options. Exchange-listed options are issued by the OCC 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 and the U.S. dollar and foreign currencies, without
limit. Generally, a call option is "covered" if the Fund owns, or has the
right to acquire, without additional cash consideration (or for additional
cash consideration held for the Fund by its Custodian in a segregated
account) the underlying security (currency) subject to the option except that
in the case of call options on U.S. Treasury Bills, the Fund
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might own U.S. Treasury Bills of a different series from those underlying the
call option, but with a principal amount and value corresponding to the
exercise price and a maturity date no later than that of the securities
(currency) deliverable under the call option. A call option is also covered if
the Fund holds a call on the same security (currency) as the underlying
security (currency) of the written option, where the exercise price of the call
used for coverage is equal to or less than the exercise price of the call
written or greater than the exercise price of the call written if the mark to
market difference is maintained by the Fund in cash, U.S. Government securities
or other liquid portfolio securities which the Fund holds in a segregated
account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to achieve a greater total return than would be
realized from holding the underlying securities (currency) alone. Moreover, the
income received from the premium will offset a portion of the potential loss
incurred by the Fund if the securities (currency) underlying the option are
ultimately sold (exchanged) by the Fund at a loss. The premium received will
fluctuate with varying economic market conditions. If the market value of the
portfolio securities (or the currencies in which they are denominated) upon
which call options have been written increases, the Fund may receive less total
return from the portion of its portfolio upon which calls have been written
than it would have had such calls not been written.
As regards listed options and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Fund to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. 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 wholly or partially offset by
unrealized appreciation in the market value of the underlying security
(currency). Conversely, a gain resulting from a closing purchase transaction
could be offset in whole or in part or exceeded by a decline in the market
value of the underlying security (currency).
The Fund may also purchase put options to close out written put positions in
a manner similar to call options closing purchase transactions. In addition,
the Fund may sell a put option which it has previously purchased prior to the
sale of the securities (currency) 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. Any such gain or loss could be offset in whole or in
part by a change in the market value of the underlying security (currency). If
a put option purchased by the Fund expired without being sold or exercised, the
premium would be lost.
Covered Put Writing. As a writer of a covered put option, the Fund incurs an
obligation to buy the security underlying the option from the purchaser of the
put, at the option's exercise price at any time during the option period, at
the purchaser's election (certain listed and OTC put options written by the
Fund will be exercisable by the purchaser only on a specific date). A put is
"covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other liquid portfolio securities in an amount equal to at least
the exercise price of the option, at all times during the option period.
Similarly, a short put position could be covered by the Fund by its purchase of
a put option on the same security as the underlying security of the written
option,
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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 liquid portfolio securities which the Fund
holds in a segregated account maintained at its Custodian. In writing puts, the
Fund assumes the risk of loss should the market value of the underlying
security decline below the exercise price of the option (any loss being
decreased by the receipt of the premium on the option written). In the case of
listed options, during the option period, the Fund may be required, at any
time, to make payment of the exercise price against delivery of the underlying
security. 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. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options in order to close out a covered call position (see
"Covered Call Writing" above) or purchase call options on securities they
intend to purchase. The Fund may also purchase a call option on foreign
currency to hedge against an adverse exchange rate move of the currency in
which the security it anticipates purchasing is denominated vis-a-vis the
currency in which the exercise price is denominated. The purchase of the call
option to effect a closing transaction or a call written over-the-counter may
be a listed or an OTC option. In either case, the call purchased is likely to
be on the same securities (currencies) and have the same terms as the written
option. If purchased over-the-counter, the option would generally be acquired
from the dealer or financial institution which purchased the call written by
the Fund.
The Fund may purchase put options on securities (currency) 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 (currency), if the value of the underlying
security (currency) were to fall below the exercise price of the put purchased
in an amount greater than the premium paid for the option, the Fund would incur
no additional loss. The Fund may also purchase put options to close out written
put positions in a manner similar to call options closing purchase
transactions. In addition, the Fund may sell a put option which it has
previously purchased prior to the sale of the securities (currency) 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. Any such gain or
loss could be offset in whole or in part by a change in the market value of the
underlying security (currency). If a put option purchased by the Fund expired
without being sold or exercised, the premium would be lost.
Risks of Options Transactions. The successful use of options depends on the
ability of the Adviser to forecast correctly interest rates and market
movements. If the market value of the portfolio securities (or the currencies
in which they are denominated) upon which call options have been written
increases, the Fund may receive a lower total return from the portion of its
portfolio upon which calls have been written than it would have had such calls
not been written. During the option period, the covered call writer has, in
return for the premium on the option, given up the opportunity for capital
appreciation above the exercise price should the market price of the underlying
security (or the currency in which it is denominated) increase, but has
retained the risk of loss should the price of the underlying security
(currency) decline. The covered put writer also retains the risk of loss should
the market value of the underlying security (currency) 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 (currency) at the exercise price.
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Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting over-the-counter option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered
call option writer may not be able to sell (exchange) an underlying security
(currency) at a time when it might otherwise be advantageous to do so. A
covered put option writer who is unable to effect a closing purchase
transaction or to purchase an offsetting over-the-counter option would continue
to bear the risk of decline in the market price of the underlying security
(currency) until the option expires or is exercised. In addition, a covered put
writer would be unable to utilize the amount held in cash or U.S. Government or
other liquid portfolio securities as security for the put option for other
investment purposes until the exercise or expiration of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case
of OTC options, as such options will generally only be closed out by entering
into a closing purchase transaction with the purchasing dealer. However, the
Fund may be able to purchase an offsetting option which does not close out its
position as a writer but constitutes an asset of equal value to the obligation
under the option written. If the Fund is not able to either enter into a
closing purchase transaction or purchase an offsetting position, it will be
required to maintain the securities subject to the call, or the collateral
underlying the put, even though it might not be advantageous to do so, until a
closing transaction can be entered into (or the option is exercised or
expires).
Among the possible reasons for the absence of a liquid secondary market on
an exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by
the OCC as a result of trades on that exchange would generally continue to be
exercisable in accordance with their terms.
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 options, futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through
the broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly, in the event of the bankruptcy of the writer of an OTC
option purchased by the Fund, the Fund could experience a loss of all or part
of the value of the option. Transactions are entered into by the Fund only with
brokers or financial institutions deemed creditworthy by the Investment
Manager.
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
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.
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While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities 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. Another such risk is that prices of interest rate
futures contracts may not move in tandem with the changes in prevailing
interest rates against which the Fund seeks a hedge. A correlation may also be
distorted by the fact that the futures market is dominated by short-term
traders seeking to profit from the difference between a contract or security
price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.
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." Options on 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, 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
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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 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 has 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 or 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. The Fund may purchase and sell interest rate and stock
index futures contracts ("futures contracts") that are traded on U.S. and
foreign commodity exchanges on such underlying securities as U.S. Treasury
bonds, notes and bills ("interest rate" futures), on the U.S. dollar and
foreign currencies, 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 or a Sub-Adviser anticipates that interest
rates may rise and, concomitantly, the price of fixed-income securities fall,
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 futures contracts on the U.S. dollar and on
foreign currencies to hedge against an anticipated rise or decline in the value
of the U.S. dollar or foreign currency in which a portfolio security of the
Fund is denominated vis-a-vis another currency.
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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 or a Sub-Adviser 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 or a Sub-Adviser
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.
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. 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 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 sale price exceeds the
offsetting purchase price, the seller would be paid the difference and would
realize a gain. If the offsetting purchase price exceeds the sale price, the
seller would pay the difference and would realize a loss. Similarly, a futures
contract purchase is closed out by effecting a futures contract sale for the
same aggregate amount of the specific type of equity 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
liquid portfolio securities equal to approximately 2% of the contract amount.
Initial margin requirements are established by the exchanges on which futures
contracts trade and may, from time to time, change. In addition, brokers may
establish margin deposit requirements in excess of those required by the
exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a 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 called "variation
margin", with the Fund's Custodian, in the account in the name of the broker,
which are reflective of price fluctuations in the futures contract. Currently,
interest rates 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. 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 requirement is approximately 5% 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.
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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 Moody's Investment-Grade
Corporate Bond Index on the Chicago Board of Trade and the Value Line Stock
Index on the Kansas City Board of Trade.
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 or a Sub-Adviser wished to protect against an increase in interest
rates and the resulting negative impact on the value of a portion of its
fixed-income portfolio, it might write a call option on an interest rate
futures contract, the underlying security of which correlates with the portion
of the portfolio the Investment Manager or Sub-Adviser 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.
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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 Fund may determine not to invest in the securities as
planned and will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities.
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 liquid portfolio securities 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.
If the Fund maintains a short position in a futures contract or has sold a
call option on a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government
securities or other liquid portfolio securities equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities 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.
Exchanges may limit the amount by which the price of 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" in the
Prospectus and the Statement of Additional Information.
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 whcih are the subject of the hedge. If participants in the futures
market elect to close out their contracts through offsetting transactions
rather than meet margin deposit requirements, distortions in the normal
relationship between the debt securities and futures markets could result.
Price distortions could also result if investors in futures contracts opt to
make or take delivery of underlying securities rather than engage in closing
transactions due to the resultant reduction in the liquidity of the futures
market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions. Due
to the possibility of price distortions in the futures market and because of
the imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of interest
rate trends 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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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.
OTHER INVESTMENT PRACTICES
Zero Coupon Securities. As discussed in the Prospectus, a portion of the
U.S. Government securities purchased by the Fund may be "zero coupon" Treasury
securities. These are U.S. Treasury bills, notes and bonds which have been
stripped of their unmatured interest coupons and receipts or which are
certificates representing interests in such stripped debt obligations and
coupons. In addition, a portion of the fixed-income securities purchased by the
Fund may be "zero coupon" securities. "Zero coupon" securities are purchased at
a discount from their face amount, giving the purchaser the right to receive
their full value at maturity. A zero coupon security pays no interest to its
holder during its life. Its value to an investor consists of the difference
between its face value at the time of maturity and the price for which it was
acquired, which is generally an amount significantly less than its face value
(sometimes referred to as a "deep discount" price).
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received
if prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as the Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though
the Fund receives no interest payments in cash on the security during the year.
Currently, the only U.S. Treasury security issued without coupons is the
Treasury bill. However, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account).
Warrants and Rights. The Fund may invest up to 5% of the value of its net
assets in warrants, including not more than 2% in warrants not listed on either
the New York or American Stock Exchange. Warrants are, in effect, an option to
purchase equity securities at a specific price, generally valid for a specific
period of time, and have no voting rights, pay no dividends and have no rights
with respect to the corporations issuing them. The Fund may acquire warrants
attached to other securities without reference to the foregoing limitations.
The Fund may also invest up to 5% of the value of its net assets in stock
rights.
Repurchase Agreements. As discussed in the Prospectus, 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 ot repurchase agreements are not subject to any limits.
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While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continually monitored by the Investment
Manager and Sub-Advisers subject to procedures established by the Board of
Trustees of the Fund. In addition, as described above, the value of the
collateral underlying the repurchase agreement will be at least equal to the
repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, the Fund will seek to liquidate such collateral. However, the
exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price,
the Fund could suffer a loss. It is the current policy of the Fund not to
invest in repurchase agreements that do not mature within seven days if any
such investment, together with any other illiquid assets held by the Fund,
amounts to more than 15% of its net assets. The Fund's investments in
repurchase agreements may at times be substantial when, in the view of the
Investment Manager, liquidity, tax or other considerations warrant.
Reverse Repurchase Agreements and Dollar Rolls. As discussed in the
Prospectus, the Fund may also use reverse repurchase agreements and dollar
rolls as part of its investment strategy. Reverse repurchase agreements involve
sales by the Fund of portfolio assets concurrently with an agreement by the
Fund to repurchase the same assets at a later date at a fixed price. Generally,
the effect of such a transaction is that the Fund can recover all or most of
the cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
The Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current months and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish a segregated account with its custodian bank in
which it will maintain cash, U.S. Government Securities or other liquid
portfolio securities equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements and
dollar rolls involve the risk that the market value of the securities the Fund
is obligated to repurchase under the agreement may decline below the repurchase
price. In the event the buyer of securities under a reverse repurchase
agreement or dollar roll files for bankruptcy or becomes insolvent, the Fund's
use of proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. Reverse repurchase agreements and
dollar rolls are speculative techniques involving leverage and are considered
borrowings by the Fund.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at any
time by the Fund (subject to notice provisions described below), and are at all
times secured by cash or cash equivalents, which are maintained in a segregated
account pursuant to applicable regulations and that are equal to at least the
market value, determined daily, of the loaned securities. The advantage of such
loans is that the Fund continues to receive the income on the loaned securities
while at the same time earning interest on the cash amounts deposited as
collateral, which will be invested in short-term obligations. The Fund will not
lend its portfolio securities if such loans are not permitted by the laws or
regulations of any state in which its shares are qualified for sale and will
not lend more than 25% of the value of its total assets. A loan may be
terminated by the borrower on one business day's notice, or by the Fund on four
business days' notice. If the borrower fails to deliver the loaned securities
within four days after recepit 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
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<PAGE>
any extensions of credit, there are risks of delay in recovery and in some
cases even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities will
only be made to firms deemed by the Fund's management to be creditworthy and
when the income which can be earned from such loans justifies the attendant
risks. Upon termination of the loan, the borrower is required to return the
securities to the Fund. Any gain or loss in the market price during the loan
period would inure to the Fund. The creditworthiness of firms to which the Fund
lends its portfolio securities will be monitored on an ongoing basis by the
Investment Manager and Sub-Advisers pursuant to procedures adopted and
reviewed, on an ongoing basis, by the Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment
in such loaned securities. The Fund will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
However, the Fund has no intention of lending any of its portfolio securities
during its fiscal year ending January 31, 1998.
When-Issued and Delayed Delivery Securities and Forward Commitments. As
discussed in the Prospectus, 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, the 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. Subject to the foregoing restrictions, the Fund may
purchase securities on such basis without limit. The Investment Manager and the
Board of Trustees do not believe that the Fund's net asset value will be
adversely affected by the purchase of securities on such basis.
When, As and If Issued Securities. As discussed in the Prospectus, the Fund
may purchase securities on a "when, as and if issued" basis under which the
issuance of the security depends upon the occurrence of a subsequent event,
such as approval of a merger, corporate reorganization, leveraged buyout or
debt restructuring. The commitment for the purchase of any such security will
not be recognized in the portfolio of the Fund until the Investment Manager or
Sub-Adviser determines that issuance of the security is probable. At such time,
the Fund will record the transaction and, in determining its net asset value,
will reflect the value of the security daily. At such time, the Fund will also
establish a segregated account with its custodian bank in which it will
maintain cash or cash equivalents or other liquid portfolio securities equal in
value to recognized commitments for such securities. Once a segregated account
has been established, if the anticipated event does not occur and the
securities are not issued, the Fund will have lost an investment opportunity.
The value of the Fund's commitments to purchase the securities of any one
issuer, together with the value of all securities of such issuer owned by the
Fund, may not exceed 5% of the value of the Fund's total assets at the time the
initial commitment to purchase such securities is made (see "Investment
Restrictions"). Subject to the foregoing restrictions, the Fund may purchase
securities on such basis without limit. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value. The
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 the sale.
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Private Placements. As discussed in the Prospectus, 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 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.) 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 ("SEC") 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 the SEC's
current policies may not exceed 15% of the Fund's net assets, and will not be
subject to the 5% limitation set out in the preceding paragraph.
The Rule 144A marketplace of sellers and qualified institutional buyers is
new and still developing and may take a period of time to develop into a mature
liquid market. As such, the market for certain private placements purchased
pursuant to Rule 144A may be initially small or may, subsequent to purchase,
become illiquid. Furthermore, the Investment Manager may not posses all the
information concerning an issue of securities that it wishes to purchase in a
private placement to which it would normally have had access, had the
registration statement necessitated by a public offering been filed with the
Securities and Exchange Commission.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate for the fiscal year ended January 31,
1997 was 62.82%. A 100% turnover rate would occur, for example, if 100% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced within
one year.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of Shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund. 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. Purchase or sell real estate or interests therein, including
investments in limited partnerships the sole purpose of which is investing
in real estate, although the Fund may purchase securities of issuers which
engage in real estate operations and securities secured by real estate or
interests therein.
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2. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in
the securities of companies which operate, invest in, or sponsor such
programs.
3. Borrow money, except 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), and (ii) may engage in reverse repurchase agreements and
dollar rolls.
4. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(3). 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.
5. Issue senior securities as defined in the Act, except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase or reverse repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; (c)
purchasing or selling futures contracts, forward foreign exchange contracts
or options; (d) borrowing money in accordance with restrictions described
above; or (e) lending portfolio securities.
6. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objective and policies; (b) by investment in
repurchase agreements; or (c) by lending its portfolio securities.
7. Make short sales of securities.
8. 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.
9. 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.
10. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or sell futures contracts or option on futures.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- -----------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the Investment
Manager and the Sub-Advisers are responsible for decisions to buy and sell
securities for the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. 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.
The Investment Manager and the Sub-Advisers currently serve as investment
manager to a number of clients, including other investment companies, and may
in the future act as investment adviser to others. It is the practice of the
Investment Manager and the Sub-Advisers 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
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<PAGE>
commitments generally held and the opinions of the persons responsible for
managing the portfolios of the Fund and other client accounts. In the case of
certain initial and secondary public offerings, the Investment Manager may
utilize a pro-rata allocation process based on the size of the Dean Witter
Funds involved and the number of shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid
in all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager and Sub-Advisers from obtaining a
high quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Investment
Manager and Sub-Advisers rely upon their experience and knowledge regarding
commissions generally charged by various brokers and on their judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
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 and
Sub-Advisers effect transactions with those brokers and dealers who the
Investment Manager and Sub-Advisers believe provide the most favorable prices
and are capable of providing efficient executions. If the Investment Manager
and/or Sub-Advisers believe such prices and executions are obtainable from more
than one broker or dealer, they may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Investment Manager and/or Sub-Advisers. 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. During the
period from February 28, 1995 (commencement of operations) through January 31,
1996 and for the fiscal year ended January 31, 1997, the Fund paid $84,109 and
$131,642, respectively, in brokerage commissions.
The information and services received by the Investment Manager and
Sub-Advisers from brokers and dealers may be of benefit to them in the
management of accounts of some of their other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of research
or services otherwise performed by the Investment Manager and/or Sub-Advisers
and thereby reduce their 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 January 31, 1997, the Fund directed the payment of $9,360 in brokerage
commissions in connection with transactions in the aggregate amount of
$3,623,343 to brokers because of research services provided.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to the unlisted trading privileges
may be effected through DWR and/or affiliated broker-dealers of a Sub-Adviser.
In order for these broker-dealers to effect any portfolio transactions for the
Fund, the commissions, fees or other remuneration received by them must be
reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a
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<PAGE>
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 and affiliates of the Sub-Adviser 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. The Fund paid DWR $16,682 in brokerage
commissions (12.67% of all commissions) during the fiscal year ended January
31, 1997 to effect 30.94% of all transactions entered into by the Fund during
the fiscal year in which brokerage commissions were incurred.
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 December
6, 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 provides that it 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 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. The Distributor has informed the Fund that it and/or DWR received
approximately $132,581 in contingent deferred sales charges during the fiscal
year ended January 31, 1997.
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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 fee is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion
of the Plan of Distribution fee payments made 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 adopted by a vote of the Trustees of the Fund on December 6,
1994, at a meeting of the Trustees called for the purpose of voting on such
Plan. The vote included the vote of a majority of the Trustees of the Fund who
are not "interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of the Plan (the
"Independent 12b-1 Trustees"). In making their decision to adopt the Plan, the
Trustees requested from the Distributor and received such information as they
deemed necessary to make an informed determination as to whether or not
adoption of the Plan was in the best interests of the shareholders of the Fund.
After due consideration of the information received, the Trustees, including
the Independent 12b-1 Trustees, determined that adoption of the Plan would
benefit the shareholders of the Fund. InterCapital, as then sole shareholder of
the Fund, approved the Plan on December 7, 1994, whereupon the Plan went into
effect.
Under its terms, the Plan continued until April 30, 1995 and provides that
it 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.
The most recent continuance of the Plan for one year, until April 30, 1997,
was approved by the Trustees of the Fund, including a majority of the
Independent 12b-1 Trustees, at their meeting held on April 17, 1996. Prior to
approving the continuation of the Plan, the Trustees requested and received
from the Distributor and reviewed all the information which they 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 stockholders. 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.
Under the Plan and as required by Rule 12b-1, the Trustees will receive and
review promptly after the end of each fiscal 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
$532,624 payable to the Distributor, pursuant to the Plan, for the fiscal year
ended January 31, 1997. This is an accrual at an annual rate of 0.90% of the
average daily net assets of the Fund. 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 Fund associated distribution-related expenses, including sales
compensation and overhead. 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
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<PAGE>
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 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 $532,624 accrued under the Plan for the fiscal
year ended January 31, 1997, to the Distributor. The Distributor and DWR
estimate that they have spent, pursuant to the Plan, $4,660,652 on behalf of
the Fund since the inception of the Plan. It is estimated that this amount was
spent in approximately the following ways: (i) 24.98% ($1,164,025)--advertising
and promotional expenses; (ii) 4.09% ($190,542)--printing of prospectuses for
distribution to other than current shareholders; and (iii) 70.93%
($3,306,085)--other expenses, including the gross sales credit and the carrying
charge, of which 5.20% ($172,015) represents carrying charges, 37.92%
($1,253,628) represents commission credits to DWR branch offices for payments
of commissions to account executives and 56.88% ($1,880,442) represents
overhead and other branch office distribution-related expenses. The term
"overhead and other branch office distribution-related expenses" represents (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 shaes; and (d) other expenses relating to branch promotion of Fund share
sales.
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 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 $3,656,452 as of January 31, 1997, which amount
constitutes 5.60% 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, 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.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
Fund, and all material amendments of the Plan must also be approved by the
Trustees in the manner described above. The Plan may be terminated at any time,
without payment of any penalty, by vote of a majority of the Independent 12b-1
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the Act) on not more than thirty days' written notice to
any other party to the Plan. So long as the Plan is in effect, the election and
nomination of Independent Trustees shall be committed to the discretion of the
Independent Trustees.
DETERMINATION OF NET ASSET VALUE
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
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<PAGE>
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.
The net asset value per share of the Fund is determined once daily at 4:00
p.m. New York time (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time), on each day that the New York Stock
Exchange is open by taking the value of all assets of the Fund, subtracting 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.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to 4:00 p.m., New York time. The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
also generally determined prior to 4:00 p.m., New York time. Occasionally,
events which affect the values of such securities and such exchange rates may
occur between the times at which they are determined and 4:00 p.m., New York
time, and will therefore not be reflected in the computation of the Fund's net
asset value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
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.
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.
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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 Global Asset Allocation 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
30 days after the payment date. If the shareholder returns the proceeds of a
dividend or distribution, such funds must be accompanied by a signed statement
indicating that the proceeds constitute a dividend or distribution to be
invested. Such investment will be made at the net asset value per share next
determined after receipt of the check or proceeds by the Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own
or purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount,
not less then $25, or in any whole percentage of the account balance, on an
annualized basis.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of
the relevant month or quarter and normally a check for the proceeds will be
mailed by the Transfer Agent, or amounts credited to a shareholder's 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
34
<PAGE>
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
Global Asset Allocation 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 Intermediate Term U.S. Treasury Trust, Dean
Witter Balanced Income Fund, Dean Witter Balanced Growth Fund 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.
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 Fund
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, 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
35
<PAGE>
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 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
36
<PAGE>
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 is $5,000 for Dean Witter Special Value Fund. The
minimum initial investment for all other Dean Witter Funds for which the
Exchange Privilege is available is $1,000.) Upon exchange into an Exchange
Fund, the shares of that fund will be held in a special Exchange Privilege
Account separately from accounts of those shareholders who have acquired their
shares directly from that fund. As a result, certain services normally
available to shareholders of money market funds, including the check writing
feature, will not be available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days for termination or
material revision), provided that six months' prior written notice of
termination will be given to the shareholders who hold shares of Exchange
Funds, pursuant to the Exchange Privilege, and provided further that the
Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, (d)
during any other period when the Securities and Exchange Commission by order so
permits (provided that applicable rules and regulations of the Securities and
Exchange Commission shall govern as to whether the conditions prescribed in (b)
or (c) exist) or (e) if the Fund would be unable to invest amounts effectively
in accordance with its investment objective, 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.
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
37
<PAGE>
a corporation (other than the Distributor or a selected broker-dealer for the
account of the shareholder), partnership, trust or fiduciary, or sent to the
shareholder at an address other than the registered address, signatures must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A stock power
may be obtained from any dealer or commercial bank. The Fund may change the
signature guarantee requirements from time to time upon notice to shareholders,
which may be by means of a supplement to the prospectus or a new prospectus.
Contingent Deferred Sales Charge. As stated in the Prospectus, a contingent
deferred sales charge ("CDSC") will be imposed on any redemption by an investor
if after such redemption the current value of the investor's shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Fund shares during the preceding six years. However, no CDSC will
be imposed to the extent that the net asset value of the shares redeemed does
not exceed: (a) the current net asset value of shares purchased more than six
years prior to the redemption, plus (b) the current net asset value of shares
purchased through reinvestment of dividends or distributions of the Fund or
another Dean Witter Fund (see "Shareholder Services--Targeted Dividends"), plus
(c) the current net asset value of shares acquired in exchange for (i) shares
of Dean Witter front-end sales charge funds, or (ii) shares of other Dean
Witter Funds for which shares of front-end sales charge funds have been
exchanged (see "Shareholder Services--Exchange Privilege"), plus (d) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of Fund shares made during the preceding six years.
The CDSC will be paid to the Distributor.
In determining the applicability of a CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the Investor's shares
purchased more than six years prior to the redemption and/or shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of Dean Witter front-end sales charge funds, or for shares
of other Dean Witter funds for which shares of front-end sales charge funds
have been exchanged. A portion of the amount redeemed which exceeds an amount
which represents both such increase in value and the value of shares purchased
more than six years prior to the redemption and/or shares purchased through
reinvestment of dividends or distributions and/or shares acquired in the
above-described exchanges will be subject to a CDSC.
The amount of 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
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- --------------------------- -----------------------
<S> <C>
First....................... 5.0%
Second...................... 4.0%
Third....................... 3.0%
Fourth...................... 2.0%
Fifth....................... 2.0%
Sixth....................... 1.0%
Seventh and thereafter .... None
</TABLE>
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
38
<PAGE>
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 (including a
certified check or bank cashiers 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.
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, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and, if the Fund makes an election, the shareholders would include
such
39
<PAGE>
undistributed gains in their income and shareholders will be able to claim
their share of the tax paid by the Fund as a credit against their individual
federal income tax.
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 calendar year.
Gains or losses on sales of securities by the Fund will generally be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be generally short-term capital gains or losses.
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). If so
qualified, the Fund will not be subject to federal income tax on its net
investment income and capital gains, if any, realized during any fiscal year if
it distributes such income and capital gains to its shareholders. In addition,
the Fund intends to distribute to its shareholders each calendar year a
sufficient amount of ordinary income and capital gains to avoid the imposition
of a 4% excise tax.
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.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable. Therefore, an investor should consider the
tax implications of purchasing Fund shares immediately prior to a distribution
record date.
The Fund may elect to retain net capital gains and pay corporate income tax
thereon. In such event, each shareholder of record on the last day of the
Fund's taxable year would be required to include in income for tax purposes
such shareholder's proportionate share of the Fund's undistributed net capital
gain. In addition, each shareholder would be entitled to credit such
shareholder's proportionate share of the tax paid by the Fund against federal
income tax liabilities, to claim refunds to the extent that the credit exceeds
such liabilities, and to increase the basis of his shares held for federal
income tax purposes by an amount equal to 65% of such shareholder's
proportionate share of the undistributed net capital gain.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains during
the six-month period.
Dividends, interest and capital gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim United States foreign tax credits or
deductions with respect to such taxes, subject to certain provisions and
limitations contained in the Code. If more than 50% of the Fund's total assets
at the close of its fiscal year consist of securities of foreign corporations,
the Fund would be eligible and would determine whether or not to file an
election with the Internal Revenue Service pursuant to which shareholders of
the Fund will be required to include their respective pro rata portions of such
withholding taxes in their United States income tax returns as gross income,
treat such respective pro rata portions as taxes paid by them, and deduct such
respective pro rata portions in computing their taxable income or,
alternatively, use them as foreign tax credits against their United States
income taxes. If the Fund does elect to file the election with the Internal
Revenue Service, the Fund will report annually to its shareholders the amount
per share of such withholding.
40
<PAGE>
Special Rules for Certain Foreign Currency Transactions. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in
stock, securities or foreign currencies are currently considered to be
qualifying income for purposes of determining whether the Fund qualifies as a
regulated investment company. It is currently unclear, however, who will be
treated as the issuer of certain foreign currency instruments or how foreign
currency options, futures, or forward foreign currency contracts will be valued
for purposes of the regulated investment company diversification requirements
applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's function currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts", and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also,
certain foreign exchange gains or losses derived with respect to foreign
fixed-income securities are also subject to Section 988 treatment. In general,
therefore, Code Section 988 gains or losses will increase or decrease the
amount of the Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. Additionally, if Code
Section 988 losses exceed other investment company taxable income during a
taxable year, the Fund would not be able to make any ordinary dividend
distributions.
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of certain
technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the Fund
level which could not be eliminated by distributions to shareholders. The U.S.
Treasury issued proposed regulation section 1.1291-8 which establishes a
mark-to-market regime which allows invesmtent companies investing in PFIC's to
avoid most, if not all, of the difficulties posed by the PFIC rules. In any
event, it is not anticipated that any taxes on the Fund wilth respect to
investments in PFIC's would be significant.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. The Fund's "average
annual total return" represents an annualization of the Fund's total return
over a particular period and is computed by finding the annual percentage rate
which will result in the ending redeemable value of a hypothetical $1,000
investment made at the beginning of a one, five or ten year period, or for the
period from the date of commencement of the Fund's operations, if shorter than
any of the foregoing. The ending redeemable value is reduced by any contingent
deferred sales charge at the end of the one, five or ten year or other period.
For the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing the average annual
total return involves a percentage obtained by dividing the ending redeemable
value by the amount of the initial investment, taking a root of the quotient
(where the root is equivalent to the number of years in the period) and
subtracting 1 from the result. The average annual total returns of the Fund for
the fiscal year ended January 31, 1997 and for the period February 28, 1995
(commencement of the Fund's operation) through January 31, 1997 were -0.42% and
12.56%, respectively. InterCapital assumed all expenses (except 12b-1 fee and
brokerage fees) and waived the compensation provided for in its management
agreement until December 31, 1995. Had the Fund borne such expenses and paid
the compensation under the management agreement, the Fund's average annual
total return for the period February 28, 1995 through January 31, 1997 would
have been 12.15%.
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 sale charge which, if reflected, would
reduce the performance quoted. For example, the average annual total return of
the Fund may be calculated in
41
<PAGE>
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 January 31, 1997 and for the
period February 28, 1995 through January 31, 1997 were 4.58% and 14.40%,
respectively.
The Fund may compute its aggregate total return for specified periods by
determining the aggregate percentage rate which will result in the ending value
of a hypothetical $1,000 investment made at the beginning of the period. For
the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing aggregate total return
involves a percentage obtained by dividing the ending value (without the
reduction for any contingent deferred sales charge) by the initial
$1,000 investment and subtracting 1 from the result. Based on the foregoing
calculation, the Fund's total return for the fiscal year ended
January 31, 1997 and for the period February 28, 1995 (commencement of
operations) through January 31, 1997 were 4.58% and 29.56%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of the Fund by adding 1 to the Fund's
aggregate total return to date (expressed as a decimal and without taking into
account the effect of any applicable CDSC) and multiplying by $10,000, $50,000
or $100,000, as the case may be. Investments of $10,000, $50,000 and $100,000
in the Fund at inception would have grown to $12,956, $64,780 and $129,560,
respectively, at January 31, 1997.
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). The Trustees have not presently
authorized any such 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.
42
<PAGE>
CUSTODIAN AND TRANSFER AGENT
- -----------------------------------------------------------------------------
The Chase Manhattan Bank, One Chase Plaza, New York, New York 10005 is the
Custodian of the Fund's assets in the United States and around the world. As
Custodian, The Chase Manhattan Bank has contracted with various foreign banks
and depositaries to hold portfolio securities of non-U.S. issuers on behalf of
the Fund. Any of the Fund's cash balances with the Custodian in excess of
$100,000 are unprotected by federal deposit insurance. Such balances may, at
times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager and Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses
and reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services
Dean Witter Trust Company receives a per shareholder account fee 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 account-ants, will be sent to
shareholders each year.
The Fund's fiscal year ends on January 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- -----------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
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.
43
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1997
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
COMMON AND PREFERRED
STOCKS, BONDS, WARRANTS
<S> <C> <C>
AND RIGHTS (97.6%)
ARGENTINA (0.5%)
Banking
1,880 Banco de Galicia y Buenos Aires S.A. de C.V. (ADR) .............. $ 45,825
1,610 Banco Frances del Rio de la Plata S.A. (ADR) .................... 48,300
-------------
94,125
-------------
Energy
2,700 Yacimentos Petroliferos Fiscales S.A. (ADR) ..................... 75,263
-------------
Food, Beverage, Tobacco & Household Products
1,100 Disco S.A. (ADR)* ............................................... 29,700
-------------
Multi-Industry
17,298 Perez Companc S.A. (Class B) .................................... 129,261
-------------
TOTAL ARGENTINA ................................................. 328,349
-------------
BELGIUM (0.3%)
Retail
3,750 G.I.B. Holdings Ltd. ........................................... 174,068
-------------
BRAZIL (1.4%)
Appliances & Household Durables
3,500 Refrigeracao Parana S.A. (ADR)* ................................. 33,469
-------------
Banking
4,250,000 Banco Bradesco S.A. (Pref.) ..................................... 34,143
-------------
Brewery
153,600 Companhia Cervejaria Brahma (Conv. Pref.) ....................... 93,429
-------------
Energy
944,000 Petroleo Brasileiro S.A. (Pref.) ................................ 181,469
-------------
Industrials
25,000 Dixie Toga S.A. (Pref.) ......................................... 19,845
-------------
Metals & Mining
2,840 Companhia Vale do Rio Doce S.A. (Pref.)(ADR) .................... 63,368
-------------
Steel & Iron
84,500,000 Usinas Siderurgicas de Minas Gerais S.A. (Pref.) ................ 96,170
-------------
Telecommunications
3,280 Telecomunicacoes Brasileiras S.A. (ADR) ......................... $ 286,180
17,871 Telecomunicacoes de Sao Paulo S.A.* ............................. 4,119
217,000 Telecomunicacoes de Sao Paulo S.A. (Pref.) ...................... 50,846
-------------
341,145
-------------
Utilities -Electric
1,600 Companhia Energetica de Minas Gerais S.A. (Pref.)(ADR) .......... 66,800
-------------
TOTAL BRAZIL ................................................... 929,838
-------------
CANADA (0.5%)
Telecommunication Equipment
10,000 Newbridge Networks Corp.* ....................................... 345,000
-------------
CHILE (0.4%)
Beverages -Soft Drinks
1,420 Embotelladora Andina S.A. (ADR) ................................. 44,730
-------------
Investment Companies
21,000 The Five Arrows Chile Investment Trust Ltd. .................... 60,375
-------------
Telecommunications
3,125 Compania de Telecommunicaciones de Chile S.A. (ADR) ............. 77,734
-------------
Utilities -Electric
2,100 Enersis S.A. (ADR) .............................................. 64,838
-------------
TOTAL CHILE ..................................................... 247,677
-------------
COLOMBIA (0.1%)
Banking
3,500 Banco Industrial Colombiano S.A. (ADR) .......................... 60,813
-------------
DENMARK (2.7%)
Air Transport
1,465 Kobenhavns Lufthavne AS ......................................... 160,472
-------------
Government Obligations
Kingdom of Denmark
DKK 2,000K 7.00% due 12/15/04............................................. 335,071
Kingdom of Denmark
DKK 1,500K 8.00% due 03/15/06............................................. 264,424
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1997, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
Kingdom of Denmark
DKK 2,800K 8.00% due 05/13/03............................................. $ 497,441
Kingdom of Denmark
DKK 1,750K 9.00% due 11/15/00............................................. 319,100
-------------
1,416,036
-------------
Pharmaceuticals
1,880 Novo-Nordisk AS (Series B) ...................................... 174,363
-------------
TOTAL DENMARK ................................................... 1,750,871
-------------
FRANCE (3.3%)
Building Materials
1,000 Imetal S.A. ..................................................... 153,791
-------------
Energy
2,300 Elf Aquitaine S.A. .............................................. 223,204
-------------
Financial Services
1,950 Cetelem ........................................................ 243,155
-------------
Foods & Beverages
580 LVMH Moet-Hennessy Louis Vuitton ................................ 146,743
3,800 SEITA ........................................................... 144,075
-------------
290,818
-------------
Household Products
1,030 Societe BIC S.A. ................................................ 164,175
-------------
Insurance
2,700 AXA-UAP ......................................................... 178,097
3,500 Scor ........................................................... 125,870
-------------
303,967
-------------
Oil & Gas
1,650 Total S.A. (B Shares) ........................................... 141,935
-------------
Pharmaceuticals
1,345 Sanofi S.A. ..................................................... 134,901
-------------
Retail
420 Carrefour Supermarche ........................................... 251,992
673 Castorama Dubois Investissement ................................. 110,677
Castorama Dubois Investissement
3.15% due 01/01/03
26 (Conv. Pref.).................................................. 5,798
-------------
368,467
-------------
Steel & Iron
9,500 Usinor Sacilor .................................................. 134,942
-------------
TOTAL FRANCE ................................................... 2,159,355
-------------
GERMANY (3.7%)
Automotive
Bayerische Motoren Werke
280 (BMW) AG....................................................... $ 179,240
580 Volkswagen AG ................................................... 272,179
-------------
451,419
-------------
Chemicals
4,638 BASF AG ......................................................... 167,836
3,700 Bayer AG ........................................................ 140,441
2,100 SGL Carbon AG ................................................... 277,189
-------------
585,466
-------------
Consumer Products
1,400 Adidas AG ....................................................... 132,337
-------------
Government Obligations
German Unity Fund
DEM 290K 8.00% due 01/12/02............................................. 202,152
DEM 250K Germany (Federal Republic) 6.50% due 10/14/05 ................... 160,951
DEM 390K Germany (Federal Republic) 7.25% due 10/21/02 ................... 264,720
Treuhandanstalt
DEM 520K 5.00% due 12/17/98 ............................................ 326,305
-------------
954,128
-------------
Pharmaceuticals
1,850 Gehe AG ......................................................... 122,039
-------------
Utilities -Electric
2,650 VEBA AG ......................................................... 146,512
-------------
TOTAL GERMANY ................................................... 2,391,901
-------------
HONG KONG (7.5%)
Banking
57,000 Guoco Group Ltd. ................................................ 322,196
19,600 HSBC Holdings PLC ............................................... 454,038
-------------
776,234
-------------
Conglomerates
75,000 Hutchison Whampoa, Ltd. ......................................... 566,224
38,000 Swire Pacific Ltd. (Class A) .................................... 349,413
-------------
915,637
-------------
Leisure
78,000 Hong Kong & Shanghai Hotels Ltd. ................................ 143,443
-------------
Real Estate
64,000 Cheung Kong (Holdings) Ltd. ..................................... 596,745
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1997, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
51,000 Henderson Land Development Co. Ltd. ............................. $ 472,241
179,000 Hong Kong Land Holdings Ltd. .................................... 495,830
91,000 Hysan Development Co. Ltd. ...................................... 331,178
54,000 New World Development Co. Ltd. .................................. 333,114
14,000 Sun Hung Kai Properties Ltd. .................................... 158,091
-------------
2,387,199
-------------
Telecommunications
165,600 Hong Kong Telecommunications Ltd. .............................. 286,376
-------------
Utilities
221,000 Hong Kong & China Gas Co. Ltd. .................................. 416,405
-------------
TOTAL HONG KONG ................................................ 4,925,294
-------------
ITALY (2.8%)
Energy
27,500 Ente Nazionale Idrocarburi SpA .................................. 153,365
-------------
Government Obligations
Italy (Republic of)
ITL 320,000K 9.50% due 02/01/01............................................. 218,561
Italy (Republic of)
ITL 800,000K 10.00% due 08/01/03............................................ 574,441
Italy (Republic of)
ITL 440,000K 10.50% due 04/01/00............................................ 302,705
Italy (Republic of)
ITL 320,000K 10.50% due 11/01/00............................................ 224,020
-------------
1,319,727
-------------
Household Furnishings & Appliances
6,400 Industrie Natuzzi SpA (ADR) ..................................... 147,200
-------------
Telecommunications
60,000 Telecom Italia Mobile SpA ....................................... 178,288
-------------
TOTAL ITALY .................................................... 1,798,580
-------------
JAPAN (22.0%)
Automotive
65,000 Suzuki Motor Co. Ltd. ........................................... 615,885
-------------
Banking
26,000 Asahi Bank, Ltd. ................................................ 177,803
20,000 Bank of Tokyo-Mitsubishi Ltd. ................................... $ 293,318
20,000 Mitsubishi Trust & Banking ...................................... 205,982
13,000 Sanwa Bank, Ltd. ................................................ 142,457
19,000 Sumitomo Trust & Banking ........................................ 148,719
-------------
968,279
-------------
Building & Construction
27,000 Kandenko Co., Ltd. .............................................. 229,134
19,000 Nishimatsu Construction Co. ..................................... 144,805
17,000 Sekisui House Ltd. .............................................. 151,273
-------------
525,212
-------------
Business Services
33,000 Ricoh Co., Ltd. ................................................. 364,340
-------------
Chemicals
70,000 Asahi Chemical Industrial Co. Ltd. .............................. 362,198
67,000 Nippon Zeon Co. Ltd. ............................................ 257,246
27,000 Shin-Etsu Chemical Co. .......................................... 493,862
-------------
1,113,306
-------------
Electrical Equipment
20,000 Sumitomo Electric Industries ................................... 268,600
-------------
Electronic & Electrical Equipment
4,400 Advantest Corp. ................................................. 236,006
29,000 Canon, Inc. ..................................................... 614,073
41,000 Hitachi, Ltd. ................................................... 368,213
5,000 Kyocera Corp.* .................................................. 293,318
27,000 Matsushita Electric Industrial Co., Ltd.* ....................... 407,102
26,000 NGK Insulators, Ltd. ............................................ 227,074
7,000 Sony Corp. ...................................................... 471,781
-------------
2,617,567
-------------
Engineering & Construction
33,000 Kajima Corp. .................................................... 203,922
-------------
Financial Services
3,000 Japan Associated Finance ........................................ 182,170
47,000 New Japan Securities Co., Ltd.* ................................. 138,634
16,000 Nomura Securities Co. Ltd. ...................................... 204,334
8,400 Promise Co., Ltd ................................................ 349,510
-------------
874,648
-------------
Insurance
24,000 Tokio Marine & Fire Insurance Co. ............................... 217,517
-------------
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1997, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
International Trade
41,000 Mitsubishi Corp. ............................................... $ 378,347
-------------
Machinery
25,000 Daifuku Co. Ltd. ................................................ 282,195
81,000 Kawasaki Heavy Industries* ...................................... 315,671
3,800 Keyence Corp. ................................................... 425,805
33,000 Minebea Co., Ltd. ............................................... 263,195
56,000 Mitsubishi Heavy Industries, Ltd. ............................... 402,801
60,000 NSK Ltd. ........................................................ 335,668
-------------
2,025,335
-------------
Manufacturing
6,900 Sony Music Entertainment Inc. .................................. 245,028
-------------
Metals & Mining
73,000 Mitsubishi Materials Corp. ...................................... 268,254
-------------
Pharmaceuticals
14,000 Yamanouchi Pharmaceutical Co. .................................. 261,844
-------------
Real Estate
21,000 Mitsubishi Estate Co. Ltd. ...................................... 233,583
17,000 Mitsui Fudosan Co. .............................................. 175,084
-------------
408,667
-------------
Retail
11,000 Ito-Yokado Co. Ltd. ............................................. 509,352
-------------
Retail -Specialty
20,000 Best Denki Co. Ltd. ............................................ 212,573
11,000 Joshin Denki .................................................... 106,039
-------------
318,612
-------------
Steel & Iron
179,000 NKK Corp.* ...................................................... 362,808
36,000 Yamato Kogyo Co., Ltd. .......................................... 290,681
-------------
653,489
-------------
Telecommunications
68 DDI Corp. ....................................................... 416,281
44 Nippon Telegraph & Telephone .................................... 317,212
-------------
733,493
-------------
Textiles
58,000 Teijin Ltd. ..................................................... 214,089
-------------
Textiles -Apparel
21,000 Tokyo Style ..................................................... 256,077
-------------
Transportation
41 East Japan Railway Co. .......................................... $ 170,932
32,000 Nippon Yusen Kabushiki Kaish .................................... 125,237
-------------
296,169
-------------
TOTAL JAPAN .................................................... 14,338,032
-------------
MALAYSIA (3.5%)
Automotive
57,000 Diversified Resources Berhad .................................... 220,175
-------------
Banking
63,000 Public Finance Berhad ........................................... 113,564
-------------
Building & Construction
42,000 Gamuda Berhad ................................................... 163,924
3,000 Gamuda Berhad (Rights) .......................................... 4,611
6,000 Gamuda Berhad (Warrants) due 05/01/97 ........................... 6,977
44,000 Metacorp Berhad ................................................. 125,699
40,000 Road Builder (M) Holdings Berhad ................................ 239,810
57,000 United Engineers (Malaysia) Berhad Ltd. ......................... 511,447
-------------
1,052,468
-------------
Entertainment
51,000 Resorts World Berhad ............................................ 256,508
-------------
Financial Services
28,000 Arab Malaysian Finance Berhad ................................... 172,373
-------------
Leisure
154,000 Magnum Corporation Berhad ....................................... 309,822
-------------
Property
60,000 Sunway City Berhad .............................................. 147,266
-------------
TOTAL MALAYSIA ................................................. 2,272,176
-------------
MEXICO (1.4%)
Banking
8,750 Grupo Financiero Inbursa, S.A. de C.V. (B Shares) ............... 31,350
-------------
Brewery
Grupo Modelo S.A. de C.V.
4,400 (Series C)..................................................... 26,406
-------------
Building & Construction
4,000 Apasco S.A. de C.V. ............................................ 28,816
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1997, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
2,300 Empresa ICA Sociedad Controladora S.A. de C.V. (ADR)* ........... $ 34,787
-------------
63,603
-------------
Building Materials
20,300 Cemex S.A. de C.V. (B Shares) ................................... 83,382
-------------
Conglomerates
Grupo Carso S.A. de C.V.
15,900 (Series A1).................................................... 97,658
20,443 Grupo Industria Alfa S.A. de C.V. (A Shares) .................... 106,597
-------------
204,255
-------------
Food, Beverage, Tobacco & Household Products
11,300 Fomento Economico Mexicano S.A. de C.V. (B Shares) .............. 39,836
2,365 Panamerican Beverages, Inc. (Class A)(ADR) ..................... 123,867
-------------
163,703
-------------
Media Group
1,200 Grupo Televisa S.A. (GDR)* ...................................... 31,050
-------------
Paper & Forest Products
3,120 Kimberly-Clark de Mexico S.A. de C.V. (A Shares) ................ 64,676
-------------
Retail
29,000 Cifra S.A. de C.V. (C Shares)* .................................. 38,518
-------------
Steel & Iron
4,400 Tubos de Acero de Mexico S.A. de C.V. (ADR)* .................... 77,000
-------------
Telecommunications
3,000 Telefonos de Mexico S.A. de C.V. (Series L)(ADR) ................ 112,875
-------------
TOTAL MEXICO ................................................... 896,818
-------------
NETHERLANDS (2.7%)
Banking
2,450 ABN-AMRO Holding NV ............................................. 161,221
-------------
Chemicals
780 Akzo Nobel ...................................................... 109,564
-------------
Food Processing
1,035 Nutricia Verenigde Bedrijven NV ................................. 148,476
-------------
Insurance
2,480 Aegon NV ........................................................ $ 151,740
4,650 ING Groep NV .................................................... 175,105
-------------
326,845
-------------
Publishing
12,250 Elsevier NV ..................................................... 188,380
9,000 Ver Ned Uitgev Ver Bezit NV ..................................... 174,591
1,200 Wolters Kluwer NV ............................................... 148,019
-------------
510,990
-------------
Record & Tape Distribution
3,100 PolyGram NV ..................................................... 136,445
-------------
Retail
2,200 Gucci Group NV .................................................. 148,476
4,045 Koninklijke Ahold NV ............................................ 249,474
-------------
397,950
-------------
TOTAL NETHERLANDS .............................................. 1,791,491
-------------
PERU (0.2%)
Brewery
Cervercia Backus &
41,706 Johnston S.A................................................... 34,716
-------------
Metals & Mining
Companhia de Minas Buenaventura S.A.
3,600 (A Shares)..................................................... 24,681
900 Companhia de Minas Buenaventura S.A. (ADR) ...................... 14,287
-------------
38,968
-------------
Telecommunications
2,000 Telefonica del Peru S.A. (ADR) .................................. 43,250
-------------
TOTAL PERU ..................................................... 116,934
-------------
SINGAPORE (1.6%)
Banking
8,000 Development Bank of Singapore, Ltd. ............................. 110,890
34,000 Overseas Union Bank, Ltd. ....................................... 275,519
-------------
386,409
-------------
Electrical Equipment
22,000 Elec & Eltek International Co. Ltd. ............................. 106,480
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1997, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
16,000 GP Batteries International Ltd. ................................. $ 50,560
-------------
157,040
-------------
Real Estate
47,000 DBS Land Ltd. ................................................... 193,773
43,000 Parkway Holdings Ltd. ........................................... 169,640
-------------
363,413
-------------
Shipbuilding
25,000 Sembawang Corp. Ltd. ........................................... 142,167
-------------
TOTAL SINGAPORE ................................................ 1,049,029
-------------
SPAIN (2.1%)
Banks
4,000 Banco Bilbao Vizcaya ............................................ 242,739
1,020 Banco Popular Espanol S.A. ...................................... 185,254
-------------
427,993
-------------
Financial Services
1,250 Corporacion Financiera Alba ..................................... 114,415
-------------
Gas
600 Gas Natural SDG S.A. ............................................ 140,584
-------------
Government Obligation
Spain (Government of)
ESP 55,000K 8.40% due 04/30/01............................................. 436,670
-------------
Telecommunications
6,800 Telefonica de Espana S.A. ....................................... 159,279
-------------
Utilities
9,404 Iberdrola S.A. ................................................. 112,170
-------------
TOTAL SPAIN .................................................... 1,391,111
-------------
SWEDEN (1.6%)
Auto Trucks & Parts
6,000 Scania AB (A Shares) ............................................ 151,494
-------------
Business Services
12,400 Assa Abloy AB (Series B) ........................................ 232,678
5,940 Securitas AB (Series "B" Free) .................................. 176,205
-------------
408,883
-------------
Electrical Equipment
4,950 Ericsson (L.M.) Telephone Co. AB (Series "B" Free) .............. 165,961
-------------
Multi-Line Insurance
5,500 Skandia Forsakrings AB .......................................... 147,976
-------------
Pharmaceuticals
3,200 Astra AB (B Shares) ............................................. $ 149,231
-------------
TOTAL SWEDEN ................................................... 1,023,545
-------------
SWITZERLAND (1.3%)
Chemicals
180 Novartis AG* .................................................... 206,203
-------------
Conglomerates
120 ABB AG -Bearer .................................................. 153,586
-------------
Insurance
Schweizerische Rueckversicherungs-
215 Gesellschaft................................................... 211,976
-------------
Pharmaceuticals
30 Roche Holdings AG ............................................... 263,608
-------------
TOTAL SWITZERLAND .............................................. 835,373
-------------
UNITED KINGDOM (8.3%)
Aerospace
29,000 Rolls-Royce PLC ................................................. 111,302
-------------
Auto Parts
31,000 BBA Group PLC ................................................... 173,654
-------------
Banking
7,000 HSBC Holdings PLC ............................................... 167,268
18,000 National Westminster Bank PLC ................................... 222,045
-------------
389,313
-------------
Building Materials
36,000 Blue Circle Industries PLC ...................................... 223,846
27,000 Redland PLC ..................................................... 146,926
-------------
370,772
-------------
Chemicals
18,000 Courtaulds PLC .................................................. 111,491
-------------
Electrical Equipment
18,909 BICC Group (The) PLC ............................................ 86,857
31,000 General Electric Co. PLC ........................................ 193,252
-------------
280,109
-------------
Food, Beverage, Tobacco & Household Products
13,500 Bass PLC ........................................................ 182,793
-------------
Government Obligations
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1997, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
pounds
sterling 110K United Kingdom Treasury Gilt 7.50% due 12/07/06 ................. 177,155
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1997, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
pounds
sterling 100K United Kingdom Treasury Gilt 7.75% due 09/08/06 ................. $ 163,101
pounds
sterling 95K United Kingdom Treasury Gilt 9.50% due 04/18/05 ................. 171,743
pounds
sterling 55K United Kingdom Treasury Gilt 10.00% due 09/08/03 ................ 100,145
-------------
612,144
-------------
Insurance
27,000 Prudential Corp. PLC ............................................ 232,921
40,804 Royal & Sun Alliance Insurance Group PLC ........................ 312,167
-------------
545,088
-------------
Leisure
10,000 Granada Group PLC ............................................... 143,725
-------------
Multi-Industry
36,000 Tomkins PLC ..................................................... 161,331
16,000 Williams Holdings PLC ........................................... 83,098
-------------
244,429
-------------
Oil -International Integrated
17,800 Shell Transport & Trading Co. PLC ............................... 306,541
-------------
Paper
18,000 De La Rue PLC ................................................... 167,668
-------------
Pharmaceuticals
24,500 Glaxo Wellcome PLC .............................................. 391,730
-------------
Publishing
14,000 EMAP PLC ........................................................ 177,015
-------------
Retail
9,000 Great Universal Stores PLC ...................................... 93,485
26,500 W.H. Smith Group PLC ............................................ 181,529
-------------
275,014
-------------
Telecommunications
47,000 British Telecommunications PLC .................................. 321,204
51,762 Securicor PLC ................................................... 241,494
-------------
562,698
-------------
Transportation
27,000 British Airways PLC ............................................. 256,256
-------------
Utilities
13,000 Seven Trent Water PLC ........................................... 146,270
-------------
TOTAL UNITED KINGDOM ........................................... 5,448,012
-------------
UNITED STATES (29.7%)
Aerospace & Defense
3,100 Boeing Co. ..................................................... $ 332,087
General Motors Corp.
5,600 (Class H)...................................................... 341,600
5,600 McDonnell Douglas Corp. ........................................ 376,600
11,700 Watkins-Johnson Co. ............................................. 312,975
-------------
1,363,262
-------------
Automotive
9,300 Chrysler Corp. .................................................. 324,337
-------------
Banking
4,200 BankAmerica Corp. .............................................. 468,825
$ 100K Banque Paribas of New York 6.875% due 03/01/09 .................. 95,280
3,850 Citicorp ........................................................ 448,044
$ 100K Standard Federal Bankcorp 7.75% due 07/17/06 .................... 103,757
9,300 Washington Mutual, Inc. ......................................... 504,525
-------------
1,620,431
-------------
Chemicals
7,200 Monsanto Co. .................................................... 272,700
-------------
Computer Software
5,000 Microsoft Corp.* ................................................ 509,375
-------------
Computers -Systems
5,900 Diebold, Inc. ................................................... 348,100
7,500 Hewlett-Packard Co. ............................................. 394,687
-------------
742,787
-------------
Drugs & Healthcare
4,900 American Home Products Corp. ................................... 310,537
3,000 Bristol-Myers Squibb Co. ........................................ 381,000
6,000 Johnson & Johnson ............................................... 345,750
4,000 Pfizer, Inc. ................................................... 371,500
-------------
1,408,787
-------------
Electronics
3,300 General Electric Co. ........................................... 339,900
-------------
Electronics -Semiconductors/Components
3,400 Intel Corp. .................................................... 551,225
-------------
Financial Services
Associates Corp. N.A.
$ 100K 6.375% due 08/15/99............................................ 100,018
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1997, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
Conseco, Inc.
$ 50K 10.50% due 12/15/04............................................ $ 59,054
9,466 Travelers Group, Inc. .......................................... 495,782
-------------
654,854
-------------
Food, Beverage, Tobacco & Household Products
4,000 Campbell Soup Co. ............................................... 332,000
11,000 PepsiCo, Inc. .................................................. 383,625
-------------
715,625
-------------
Hardware & Tools
7,300 Black & Decker Corp. ............................................ 244,550
-------------
Healthcare -Diversified
4,000 PacifiCare Health Systems, Inc. (Class B)* ...................... 321,000
-------------
Insurance
6,900 Allstate Corp. ................................................. 453,675
$ 200K Jefferson-Pilot Capital Trust A 8.14% due 01/15/46 .............. 199,750
-------------
653,425
-------------
Office Equipment & Supplies
8,200 Ikon Office Solutions, Inc. .................................... 361,825
4,100 Unisource Worldwide, Inc. ....................................... 89,175
-------------
451,000
-------------
Oil -Domestic Integrated
3,100 Atlantic Richfield Co. ......................................... 409,975
-------------
Oil -International Integrated
4,670 Exxon Corp. ..................................................... 483,929
4,100 Texaco, Inc. ................................................... 434,087
-------------
918,016
-------------
Retail -Specialty
52,000 Charming Shoppes, Inc.* ......................................... 243,750
8,300 Circuit City Stores, Inc. ....................................... 291,538
8,400 Payless ShoeSource, Inc.* ....................................... 315,000
-------------
850,288
-------------
Savings & Loan Associations
First Nationwide Bank
$ 50K 10.00% due 10/01/06............................................ 57,487
$ 200K Great Western Financial Trust II 8.206% due 02/01/27 ............ 200,750
21,000 Roosevelt Financial Group, Inc. ................................ $ 451,500
-------------
709,737
-------------
Steel
5,800 Nucor Corp. .................................................... 301,600
-------------
Telecommunication Equipment
5,250 Cisco Systems, Inc.* ............................................ 365,531
-------------
U.S. Government Obligations
U.S. Treasury Bond
$ 2,100K 6.875% due 08/15/25 ........................................... 2,104,242
U.S. Treasury Bond
$ 50K 7.50% due 11/15/24............................................. 53,821
U.S. Treasury Bond
$ 225K 7.625% due 02/15/25 ........................................... 245,887
U.S. Treasury Note
$ 400K 5.625% due 11/30/00 ........................................... 392,448
U.S. Treasury Note
$ 100K 5.75% due 08/15/03............................................. 96,706
U.S. Treasury Note
$ 175K 6.50% due 04/30/99............................................. 176,971
U.S. Treasury Note
$ 1,650K 6.50% due 05/15/05............................................. 1,652,921
U.S. Treasury Note
$ 150K 6.625% due 03/31/97............................................ 150,302
U.S. Treasury Note
$ 745K 6.875% due 08/31/99 ........................................... 759,766
U.S. Treasury Note
$ 75K 7.50% due 11/15/01............................................. 78,746
-------------
5,711,810
-------------
TOTAL UNITED STATES ............................................ 19,440,215
-------------
VENEZUELA (0.0%)
Telecommunications
1,000 Compania Anonima Nacional Telefonos de Venezuela (ADR)* ......... 28,250
-------------
TOTAL COMMON AND PREFERRED STOCKS, BONDS, WARRANTS AND RIGHTS
(Identified Cost $59,085,409) ................................... 63,742,732
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1997, continued
<TABLE>
<CAPTION>
CURRENCY
AMOUNT IN
THOUSANDS VALUE
- ------------ ---------------------------------------------------------------- -------------
<S> <C> <C>
PURCHASED CALL OPTIONS ON FOREIGN CURRENCY (0.1%)
DEM 11,500 July 17, 1997/DEM 1.6026 ........................................ $ 35,650
DEM 5,000 July 17, 1997/DEM 1.6110 ....................................... 14,250
-------------
TOTAL PURCHASED CALL
OPTIONS ON FOREIGN
CURRENCY
(Identified Cost $31,655) ....................................... 49,900
-------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $59,117,064)(a) . 97.7% 63,792,632
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES............. 2.3 1,521,158
-------- ------------
NET ASSETS ....................... 100.0% $65,313,790
======== ============
</TABLE>
[FN]
- ------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
K In thousands.
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$8,647,895 and the aggregate gross unrealized depreciation is
$3,972,327, resulting in net unrealized appreciation of $4,675,568.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JANUARY 31, 1997:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN DELIVERY APPRECIATION
TO RECEIVE EXCHANGE FOR DATE (DEPRECIATION)
- ---------------------- ---------------------- ---------- --------------
<S> <C> <C> <C>
$ 46,134 ESP 6,383,142 02/05/97 $ 130
$ 687,301 SEK 4,969,184 02/06/97 1,688
DKK 1,756,650 $ 281,966 02/06/97 (1,064)
ITL 928,446,640 $ 576,639 02/06/97 (680)
--------------
Net unrealized appreciation ......................... $ 74
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
SUMMARY OF INVESTMENTS January 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Aerospace ..................... $ 111,302 0.2%
Aerospace & Defense ........... 1,363,262 2.1
Air Transport.................. 160,472 0.2
Appliances & Household
Durables ..................... 33,469 0.1
Auto Parts .................... 173,654 0.3
Auto Trucks & Parts ........... 151,494 0.2
Automotive .................... 1,611,816 2.5
Banking ....................... 4,635,882 7.3
Banks ......................... 427,993 0.7
Beverages -Soft Drinks ........ 44,730 0.1
Brewery ....................... 154,551 0.2
Building & Construction ...... 1,641,283 2.5
Building Materials ............ 607,945 0.9
Business Services ............. 773,223 1.2
Chemicals ..................... 2,398,730 3.7
Computer Software ............. 509,375 0.8
Computers -Systems ............ 742,787 1.1
Conglomerates ................. 1,273,478 1.9
Consumer Products ............. 132,337 0.2
Drugs & Healthcare ............ 1,408,787 2.2
Electrical Equipment .......... 871,710 1.3
Electronic & Electrical
Equipment .................... 2,617,567 4.0
Electronics ................... 339,900 0.5
Electronics
-Semiconductors/Components ... 551,225 0.8
Energy ........................ 633,301 1.0
Engineering & Construction ... 203,922 0.3
Entertainment ................. 256,508 0.4
Financial Services ............ 2,059,445 3.2
Food Processing ............... 148,476 0.2
Food, Beverage, Tobacco &
Household Products ........... 1,091,821 1.7
Foods & Beverages ............. 290,818 0.4
Foreign Currency Call Options . 49,900 0.1
Gas ........................... 140,584 0.2
Government Obligations
(Foreign) .................... 4,738,705 7.3
Government Obligations (U.S.) . 5,711,810 8.7
Hardware & Tools .............. 244,550 0.4
Healthcare -Diversified ...... 321,000 0.5
Household Furnishings &
Appliances ................... 147,200 0.2
Household Products ............ 164,175 0.3
Industrials ................... 19,845 --
Insurance ..................... 2,258,818 3.4
International Trade ........... 378,347 0.6
Investment Companies .......... 60,375 0.1
Leisure ....................... $ 596,990 0.9%
Machinery...................... 2,025,335 3.0
Manufacturing ................. 245,028 0.4
Media Group.................... 31,050 --
Metals & Mining ............... 370,590 0.6
Multi-Industry................. 373,690 0.6
Multi-Line Insurance .......... 147,976 0.2
Office Equipment & Supplies .. 451,000 0.7
Oil -Domestic Integrated ..... 409,975 0.6
Oil -International Integrated . 1,224,557 1.8
Oil & Gas ..................... 141,935 0.2
Paper ......................... 167,668 0.3
Paper & Forest Products ...... 64,676 0.1
Pharmaceuticals ............... 1,497,716 2.3
Property ...................... 147,266 0.2
Publishing .................... 688,005 1.1
Real Estate ................... 3,159,279 4.8
Record & Tape Distribution .... 136,445 0.2
Retail ........................ 1,763,369 2.7
Retail -Specialty ............. 1,168,900 1.8
Savings & Loan Associations ... 709,737 1.1
Shipbuilding .................. 142,167 0.2
Steel ......................... 301,600 0.5
Steel & Iron .................. 961,601 1.5
Telecommunication Equipment ... 710,531 1.1
Telecommunications ............ 2,523,388 3.9
Textiles ...................... 214,089 0.3
Textiles -Apparel ............. 256,077 0.4
Transportation ................ 552,425 0.8
Utilities ..................... 674,845 1.0
Utilities -Electric ........... 278,150 0.4
------------- ------
$63,792,632 97.7%
============= ======
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ----------------------------- ------------- ------------
<S> <C> <C>
Common Stocks ................ $51,982,832 79.6%
Convertible Preferred Stocks 99,227 0.2
Corporate Bonds .............. 816,097 1.2
Foreign Currency Call Options 49,900 0.1
Preferred Stocks ............. 382,473 0.6
Rights & Warrants ............ 11,588 --
U.S. & Foreign Government
Obligations ................. 10,450,515 16.0
------------- ------------
$63,792,632 97.7%
============= ============
</TABLE>
53
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $59,117,064)............ $63,792,632
Cash (including $930 in foreign
currency)................................ 892,354
Receivable for:
Investments sold........................ 1,310,742
Interest................................ 273,359
Shares of beneficial interest sold .... 131,028
Dividends............................... 31,564
Foreign withholding taxes reclaimed .... 19,804
Deferred organizational expenses.......... 108,542
Prepaid expenses and other assets ........ 51,813
Receivable from affiliate ................ 18,158
-------------
TOTAL ASSETS ........................... 66,629,996
-------------
LIABILITIES:
Payable for:
Investments purchased................... 856,965
Shares of beneficial interest
repurchased............................ 247,761
Investment management fee............... 56,200
Plan of distribution fee................ 51,696
Accrued expenses and other payables ..... 103,584
-------------
TOTAL LIABILITIES....................... 1,316,206
-------------
NET ASSETS:
Paid-in-capital........................... 60,746,693
Net unrealized appreciation .............. 4,668,208
Dividends in excess of net investment
income................................... (41,886)
Accumulated net realized loss............. (59,225)
-------------
NET ASSETS.............................. $65,313,790
=============
NET ASSET VALUE PER SHARE,
5,516,229 shares outstanding (unlimited
shares authorized of $.01 value)......... $ 11.84
=============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest (net of $3,131 foreign withholding
tax)....................................... $ 923,088
Dividends (net of $53,211 foreign
withholding tax)........................... 632,390
-----------
TOTAL INCOME ............................. 1,555,478
-----------
EXPENSES
Investment management fee................... 589,449
Plan of distribution fee.................... 532,624
Professional fees .......................... 77,775
Transfer agent fees and expenses............ 77,059
Custodian fees.............................. 68,118
Shareholder reports and notices ............ 43,988
Organizational expenses..................... 35,407
Registration fees .......................... 32,840
Trustees' fees and expenses................. 16,842
Other....................................... 15,405
-----------
TOTAL EXPENSES............................ 1,489,507
-----------
NET INVESTMENT INCOME..................... 65,971
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain (loss) on:
Investments .............................. 1,937,217
Foreign exchange transactions............. (60,451)
-----------
NET GAIN.................................. 1,876,766
-----------
Net change in unrealized appreciation/depreciation on:
Investments .............................. 602,842
Translation of forward foreign currency
contracts, other assets and liabilities
denominated in foreign currencies ........ (18,717)
-----------
NET APPRECIATION.......................... 584,125
-----------
NET GAIN.................................. 2,460,891
-----------
NET INCREASE................................ $2,526,862
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FEBRUARY 28, 1995*
ENDED THROUGH
JANUARY 31, 1997 JANUARY 31, 1996
- ------------------------------------------------------ ---------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 65,971 $ 482,720
Net realized gain...................................... 1,876,766 1,981,039
Net change in unrealized appreciation.................. 584,125 4,084,083
---------------- ------------------
NET INCREASE......................................... 2,526,862 6,547,842
---------------- ------------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income.................................. (554,313) (1,130,515)
Net realized gain...................................... (2,041,599) (812,800)
---------------- ------------------
TOTAL................................................ (2,595,912) (1,943,315)
---------------- ------------------
Net increase from transactions in shares of beneficial
interest.............................................. 21,111,669 39,566,644
---------------- ------------------
NET INCREASE......................................... 21,042,619 44,171,171
NET ASSETS:
Beginning of period.................................... 44,271,171 100,000
---------------- ------------------
END OF PERIOD
(Including dividends in excess of net investment
income of $41,886 and undistributed net investment
income of $463,448, respectively)................... $65,313,790 $44,271,171
================ ==================
</TABLE>
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Global Asset Allocation 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 total return on its investments. The Fund seeks to achieve its
objective through a managed investment policy utilizing a portfolio of U.S. and
foreign equity, debt and money market securities. The Fund was organized as a
Massachusetts business trust on October 18, 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 February 28, 1995.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price
(in cases where securities are traded on more than one exchange; the securities
are valued on the exchange designated as the primary market pursuant to
procedures adopted by the Trustees); (2) all other portfolio securities for
which over-the-counter market quotations are readily available are valued at
the latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by the Investment Manager or by TCW Funds Management, Inc. or Morgan
Grenfell Investment Services, Ltd. (the "Sub-Advisers") that sale and bid
prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees (valuation of
debt securities for which market quotations are not readily available may be
based upon current market prices of securities which are comparable in coupon,
rating and maturity or an appropriate matrix utilizing similar factors); (4)
certain of the Fund's portfolio securities may be valued by an outside pricing
service approved by the Trustees. The pricing service utilizes a matrix system
incorporating security quality, maturity and coupon as the evaluation model
parameters, and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service; and (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are
56
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997, continued
valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign
currency contracts are translated at the exchange rates prevailing at the end
of the period; and (2) purchases, sales, income and expenses are translated at
the exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a
reduction of ordinary income for federal income tax purposes. The Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the changes in the market prices of
the securities.
D. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are included in the
Statement of Operations as unrealized foreign currency gain or loss. The Fund
records realized gains or losses on delivery of the currency or at the time the
forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery.
E. OPTION ACCOUNTING PRINCIPLES -- When the Fund writes a call option, an
amount equal to the premium received is included in the Fund's Statement of
Assets and Liabilities as a liability which is subsequently marked-to-market to
reflect the current market value of the option written. If a written option
either expires or the Fund enters into a closing purchase transaction, the Fund
realizes a gain or loss without regard to any unrealized gain or loss on the
underlying security or currency and the liability related to
57
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997, continued
such option is extinguished. If a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security or currency
and the proceeds from such sale are increased by the premium originally
received.
When the Fund purchases a call or put option, the premium paid is recorded as
an investment and is subsequently marked-to-market to reflect the current
market value. If a purchased option expires, the Fund will realize a loss to
the extent of the premium paid. If the Fund enters into a closing sale
transaction, a gain or loss is realized for the difference between the proceeds
from the sale and the cost of the option. If a put option is exercised, the
cost of the security or currency sold upon exercise will be increased by the
premium originally paid. If a call option is exercised, the cost of the
security purchased upon exercise will be increased by the premium originally
paid.
F. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
H. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $177,000 of which
approximately $144,000 have been reimbursed. The balance has been absorbed by
the Investment Manager. 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.
58
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997, continued
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying the
annual rate of 1.0% 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.
Under Sub-Advisory Agreements between the Sub-Advisers and the Investment
Manager, the Sub-Advisers provide the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for the services
provided pursuant to the Sub-Advisory Agreements, the Investment Manager pays
each Sub-Adviser monthly compensation equal to 30% of its monthly compensation.
At January 31, 1997, included in the Statement of Assets and Liabilities, was a
receivable from an affiliate which represents expense reimbursements due to the
Fund by the Investment Manager.
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 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
59
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997, continued
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 by the Distributor, may be recovered through future
distribution fees from the Fund and contingent deferred sales charges from the
Fund's shareholders.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Trustees will consider at that
time the manner in which to treat such expenses. The Distributor has advised
the Fund that such excess amounts, including carrying charges, totaled
$3,656,452 at January 31, 1997.
The Distributor has informed the Fund that for the year ended January 31, 1997,
it received approximately $133,000 in contingent deferred sales charges from
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 January 31, 1997
aggregated $57,718,245 and $34,074,039, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$7,630,188 and $2,965,056, respectively.
For the year ended January 31, 1997, the Fund incurred brokerage commissions of
$16,682 with DWR for portfolio transactions executed on behalf of the Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At January 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $13,000.
60
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997, continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FEBRUARY 28, 1995*
ENDED THROUGH
JANUARY 31, 1997 JANUARY 31, 1996
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold 2,505,555 $ 30,094,772 4,035,815 $42,743,175
Reinvestment of dividends and distributions 199,063 2,368,262 64,960 741,197
----------- -------------- ----------- -------------
2,704,618 32,463,034 4,100,775 43,484,372
Repurchased (944,898) (11,351,365) (354,266) (3,917,728)
----------- -------------- ----------- -------------
Net increase 1,759,720 $ 21,111,669 3,746,509 $39,566,644
=========== ============== =========== =============
</TABLE>
* Commencement of operations.
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $56,000 during fiscal 1997.
As of January 31, 1997, the Fund had temporary book/tax differences primarily
attributable to post-October losses and income from the mark-to-market of
passive foreign investment companies ("PFICs") and permanent book/tax
differences primarily attributable to foreign currency losses, tax adjustments
on PFICs sold by the Fund and nondeductible organizational expense. To reflect
reclassifications arising from permanent book/tax differences for the year
ended January 31, 1997, dividends in excess of net investment income was
charged $16,992, paid-in-capital was charged $31,620 and accumulated net
realized loss was credited $48,612.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated portfolio
transactions or to manage foreign currency exposure associated with foreign
currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk
of an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At January 31, 1997, the Fund had outstanding forward contracts to facilitate
settlement of foreign currency denominated portfolio transactions.
61
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION 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 FEBRUARY 28, 1995*
ENDED THROUGH
JANUARY 31, 1997 JANUARY 31, 1996
- --------------------------------------- ---------------- ------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $11.79 $10.00
---------------- ------------------
Net investment income (loss)............ (0.01) 0.17
Net realized and unrealized gain ....... 0.55 2.20
---------------- ------------------
Total from investment operations ....... 0.54 2.37
---------------- ------------------
Less dividends and distributions: .....
Net investment income.................. (0.11) (0.34)
Net realized gain...................... (0.38) (0.24)
---------------- ------------------
Total dividends and distributions ...... (0.49) (0.58)
---------------- ------------------
Net asset value, end of period.......... $11.84 $11.79
================ ==================
TOTAL INVESTMENT RETURN+................ 4.58% 23.89%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 2.53% 1.14%(2)(3)
Net investment income................... 0.11% 1.71%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $65,314 $44,271
Portfolio turnover rate................. 63% 71%(1)
Average commission rate paid............ $0.00126 --
</TABLE>
- ------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Investment Manager had not reimbursed expenses, the annualized
expense and net investment loss ratios would have been 2.87% and (0.02)%,
respectively.
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER GLOBAL ASSET ALLOCATION 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 Global Asset
Allocation Fund (the "Fund") at January 31, 1997, 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 February 28, 1995
(commencement of operations) through January 31, 1996, 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 January 31, 1997 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
March 13, 1997
1997 FEDERAL TAX NOTICE (unaudited)
During the year ended January 31, 1997 the Fund paid to shareholders
$0.20 per share from long-term capital gains. For such period, 12.23% of
the income dividends qualified for the dividends-received-deduction
available to corporations.
63
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION 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 fiscal period
February 28, 1995 through January 31, 1996 and
for the fiscal year ended January 31, 1997............ 4
(2) Financial statements included in the Statement of
Additional Information (Part B): Page in
SAI
-------
Portfolio of Investments at January 31, 1997.......... 44
Statement of assets and liabilities at
January 31, 1997...................................... 54
Statement of operations for the period ended
January 31, 1997...................................... 54
Statement of changes in net assets for the fiscal
period February 28, 1995 through January 31, 1996
and for the fiscal year ended January 31, 1997........ 55
Notes to Financial Statements......................... 56
Financial highlights for the fiscal period
February 28, 1995 through January 31, 1996 and
for the fiscal year ended January 31, 1997............ 62
(3) Financial statements included in Part C:
None
(b) Exhibits:
2. -- By-Laws of the Registrant, Amended and Restated
as of October 25, 1996
11. -- Consent of Independent Accountants
16. -- Schedule for Computation of Performance Quotations
27. -- Financial Data Schedule
- ----------
All other exhibits previously filed and incorporated by
reference.
<PAGE>
Item 25. Persons Controlled by or Under Common Control With Registrant
None
Item 26. Number of Holders of Securities.
(1) (2)
Number of Record Holders
Title of Class at February 28, 1997
-------------- ------------------------
Shares of Beneficial Interest 6,381
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
2
<PAGE>
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a 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
3
<PAGE>
(6) Municipal Income Trust II
(7) Municipal Income Trust III
(8) Dean Witter Government Income Trust
(9) Municipal Premium Income Trust
(10) Municipal Income Opportunities Trust
(11) Municipal Income Opportunities Trust II
(12) Municipal Income Opportunities Trust III
(13) Prime Income Trust
(14) InterCapital Insured Municipal Bond Trust
(15) InterCapital Quality Municipal Income Trust
(16) InterCapital Quality Municipal Investment Trust
(17) InterCapital Insured Municipal Income Trust
(18) InterCapital California Insured Municipal Income Trust
(19) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
Open-end Investment Companies:
(1) Dean Witter Short-Term Bond Fund
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
(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
4
<PAGE>
(34) Dean Witter U.S. Government Money Market Trust
(35) Dean Witter Global Dividend Growth Securities
(36) Active Assets California Tax-Free Trust
(37) Dean Witter Natural Resource Development Securities Inc.
(38) Active Assets Government Securities Trust
(39) Active Assets Money Trust
(40) Active Assets Tax-Free Trust
(41) Dean Witter Limited Term Municipal Trust
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Balanced Growth Fund
(51) Dean Witter Balanced Income Fund
(52) Dean Witter Hawaii Municipal Trust
(53) Dean Witter Capital Appreciation Fund
(54) Dean Witter Intermediate Term U.S. Treasury Trust
(55) Dean Witter Information Fund
(56) Dean Witter Japan Fund
(57) Dean Witter Income Builder Fund
(58) Dean Witter Special Value Fund
(59) Dean Witter Financial Services Trust
(60) Dean Witter Market Leader Trust
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
(10) TCW/DW Strategic Income Trust
Closed-End Investment Companies
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
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.
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
- ----------------- ------------------------------------------------
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Joseph J. McAlinden
Executive Vice President
and Chief Investment Vice President of the Dean Witter Funds and
Officer Director of DWTC.
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
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
Secretary and General President, Assistant Secretary and Assistant
Counsel General Counsel of Distributors; Vice President,
Secretary and General Counsel of the Dean Witter
Funds and the TCW/DW Funds.
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone
Senior Vice President Senior Vice President of DWSC, Distributors
and DWTC and Director of DWTC; Vice President
of the Dean Witter Funds and the TCW/DW Funds.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
Jenny B. Jones
Senior Vice President Vice President of Dean Witter Special Value Fund.
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
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
- ----------------- ------------------------------------------------
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.
Guy G. Rutherfurd, Jr.
Senior Vice President Vice President of Dean Witter Market Leader Trust.
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.
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
Joan Allman
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
- ----------------- ------------------------------------------------
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Kirk Balzer
Vice President Vice President of various Dean Witter Funds.
Douglas Brown
Vice President
Philip Casparius
Vice President
Thomas Chronert
Vice President
Rosalie Clough
Vice President
Patricia A. Cuddy
Vice President Vice President of various Dean Witter Funds.
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Peter W. Gurman
Vice President
John Hechtlinger
Vice President
Peter Hermann
Vice President Vice President of various Dean Witter Funds.
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
- ----------------- ------------------------------------------------
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
David Myers
Vice President
James Nash
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
- ----------------- ------------------------------------------------
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 of Dean Witter Precious Metals and
Vice President Minerals Trust.
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.
Katherine C. Wickham
Vice President
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
12
<PAGE>
(48) Dean Witter Balanced Growth Fund
(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
(57) Dean Witter Special Value Fund
(58) Dean Witter Financial Services Trust
(60) Dean Witter Market Leader Trust
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
(b) The following information is given regarding directors and officers
of Distributors not listed in Item 28 above. The principal address of
Distributors is Two World Trade Center, New York, New York 10048. None of
the following persons has any position or office with the Registrant.
Positions and
Office with
Name Distributors
- ---- -------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
are maintained by the Investment Manager at its offices, except records
relating to holders of shares issued by the Registrant, which are maintained by
the Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. Management Services
Registrant is not a party to any such management-related service
contract.
13
<PAGE>
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.
14
<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 31st day of March, 1997.
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
By /s/ Barry Fink
------------------------------
Barry Fink
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 03/31/97
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 03/31/97
------------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 03/31/97
------------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
By /s/ David M. Butowsky 03/31/97
------------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2. -- By-Laws of the Registrant, Amended and Restated
as of October 25, 1996
11. -- Consent of Independent Accountants
16. -- Schedule for Computation of Performance Quotations
27. -- Financial Data Schedule
<PAGE>
BY-LAWS
OF
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
AMENDED AND RESTATED AS OF OCTOBER 25, 1996
ARTICLE I
DEFINITIONS
The terms "Commission", "Declaration", "Distributor", "Investment
Adviser", "Majority Shareholder Vote", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property", and "Trustees" have the respective
meanings given them in the Declaration of Trust of Dean Witter Global Asset
Allocation Fund dated October 18, 1994.
ARTICLE II
OFFICES
SECTION 2.1. Principal Office. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
SECTION 2.2. Other Offices. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or the
business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. Place of Meetings. Meetings of Shareholders shall be held
at such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. Meetings. Meetings of Shareholders of the Trust shall be
held whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the provisions
of Section 16(a) of the 1940 Act, for that purpose. Meetings of Shareholders
shall also be called by the Secretary upon the written request of the holders
of Shares entitled to vote as otherwise required by Section 16(c) of the 1940
Act and to the extent required by the corporate or business statute of any
state in which the Shares of the Trust are sold, as made applicable to the
Trust by the provisions of Section 2.3 of the Declaration. Such request shall
state the purpose or purposes of such meeting and the matters proposed to be
acted on thereat. Except to the extent otherwise required by Section 16(c) of
the 1940 Act, as made applicable to the Trust by the provisions of Section 2.3
of the Declaration, the Secretary shall inform such Shareholders of the
reasonable estimated cost of preparing and mailing such notice of the meeting,
and upon payment to the Trust of such costs, the Secretary shall give notice
stating the purpose or purposes of the meeting to all entitled to vote at such
meeting. No meeting need be called upon the request of the holders of Shares
entitled to cast less than a majority of all votes entitled to be cast at such
meeting, to consider any matter which is substantially the same as a matter
voted upon at any meeting of Shareholders held during the preceding twelve
months.
SECTION 3.3. Notice of Meetings. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes thereof,
shall be given by the Secretary not less than ten (10) nor more than ninety
(90) days before such meeting to each Shareholder entitled to vote at such
meeting. Such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, directed to the Shareholder at his address as it
appears on the records of the Trust.
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SECTION 3.4. Quorum and Adjournment of Meetings. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders the holders of a majority of the Shares issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall be
requisite and shall constitute a quorum for the transaction of business. In the
absence of a quorum, the Shareholders present or represented by proxy and
entitled to vote thereat shall have power to adjourn the meeting from time to
time. Any adjourned meeting may be held as adjourned without further notice. At
any adjourned meeting at which a quorum shall be present, any business may be
transacted as if the meeting had been held as originally called.
SECTION 3.5. Voting Rights, Proxies. At each meeting of Shareholders,
each holder of record of Shares entitled to vote thereat shall be entitled to
one vote in person or by proxy, executed in writing by the Shareholder or his
duly authorized attorney-in-fact, for each Share of beneficial interest of the
Trust and for the fractional portion of one vote for each fractional Share
entitled to vote so registered in his name on the records of the Trust on the
date fixed as the record date for the determination of Shareholders entitled to
vote at such meeting. No proxy shall be valid after eleven months from its
date, unless otherwise provided in the proxy. At all meetings of Shareholders,
unless the voting is conducted by inspectors, all questions relating to the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the chairman of the meeting. Pursuant to
a resolution of a majority of the Trustees, proxies may be solicited in the
name of one or more Trustees or Officers of the Trust.
SECTION 3.6. Vote Required. Except as otherwise provided by law, by
the Declaration of Trust, or by these By-Laws, at each meeting of Shareholders
at which a quorum is present, all matters shall be decided by Majority
Shareholder Vote.
SECTION 3.7. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any Shareholder or his proxy shall, appoint Inspectors of Election of the
meeting. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees
in advance of the convening of the meeting or at the meeting by the person
acting as chairman. The Inspectors of Election shall determine the number of
Shares outstanding, the Shares represented at the meeting, the existence of a
quorum, the authenticity, validity and effect of proxies, shall receive votes,
ballots or consents, shall hear and determine all challenges and questions in
any way arising in connection with the right to vote, shall count and tabulate
all votes or consents, determine the results, and do such other acts as may be
proper to conduct the election or vote with fairness to all Shareholders. On
request of the chairman of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
SECTION 3.8. Inspection of Books and Records. Shareholders shall have
such rights and procedures of inspection of the books and records of the Trust
as are granted to Shareholders under Section 32 of the Corporations Law of the
State of Massachusetts.
SECTION 3.9. Action by Shareholders Without Meeting. Except as
otherwise provided by law, the provisions of these By-Laws relating to notices
and meetings to the contrary notwithstanding, any action required or permitted
to be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
SECTION 3.10. Presence at Meetings. Presence at meetings of
shareholders requires physical attendance by the shareholder or his or her
proxy at the meeting site and does not encompass attendance by telephonic or
other electronic means.
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ARTICLE IV
TRUSTEES
SECTION 4.1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the President and shall
be called by the President or the Secretary upon the written request of any two
(2) Trustees.
SECTION 4.2. Notice of Special Meetings. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed to
be given when deposited in the United States mail, postage prepaid, directed to
the Trustee at his address as it appears on the records of the Trust. Subject
to the provisions of the 1940 Act, notice or waiver of notice need not specify
the purpose of any special meeting.
SECTION 4.3. Telephone Meetings. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such committee,
as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. Quorum, Voting and Adjournment of Meetings. At all
meetings of the Trustees, a majority of the Trustees shall be requisite to and
shall constitute a quorum for the transaction of business. If a quorum is
present, the affirmative vote of a majority of the Trustees present shall be
the act of the Trustees, unless the concurrence of a greater proportion is
expressly required for such action by law, the Declaration or these By-Laws. If
at any meeting of the Trustees there be less than a quorum present, the
Trustees present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall have been
obtained.
SECTION 4.5. Action by Trustees Without Meeting. The provisions of
these By-Laws covering notices and meetings to the contrary notwithstanding,
and except as required by law, any action required or permitted to be taken at
any meeting of the Trustees may be taken without a meeting if a consent in
writing setting forth the action shall be signed by all of the Trustees
entitled to vote upon the action and such written consent is filed with the
minutes of proceedings of the Trustees.
SECTION 4.6. Expenses and Fees. Each Trustee may be allowed expenses,
if any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of said
persons shall receive for services rendered as a Trustee of the Trust such
compensation as may be fixed by the Trustees. Nothing herein contained shall be
construed to preclude any Trustee from serving the Trust in any other capacity
and receiving compensation therefor.
SECTION 4.7. Execution of Instruments and Documents and Signing of
Checks and Other Obligations and Transfers. All instruments, documents and
other papers shall be executed in the name and on behalf of the Trust and all
checks, notes, drafts and other obligations for the payment of money by the
Trust shall be signed, and all transfer of securities standing in the name of
the Trust shall be executed, by the Chairman, the President, any Vice President
or the Treasurer or by any one or more officers or agents of the Trust as shall
be designated for that purpose by vote of the Trustees; notwithstanding the
above, nothing in this Section 4.7 shall be deemed to preclude the electronic
authorization, by designated persons, of the Trust's Custodian (as described
herein in Section 9.1) to transfer assets of the Trust, as provided for herein
in Section 9.1.
SECTION 4.8. Indemnification of Trustees, Officers, Employees and
Agents. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
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(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Trustee, officer, employee, or agent of the Trust. The
indemnification shall be against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement, actually and reasonably
incurred by him in connection with the action, suit, or proceeding, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Trust to obtain a judgment or decree in its favor
by reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Trust; except that no indemnification shall be made in respect of any
claim, issue, or matter as to which the person has been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Trust,
except to the extent that the court in which the action or suit was brought, or
a court of equity in the county in which the Trust has its principal office,
determines upon application that, despite the adjudication of liability but in
view of all circumstances of the case, the person is fairly and reasonably
entitled to indemnity for those expenses which the court shall deem proper,
provided such Trustee, officer, employee or agent is not adjudged to be liable
by reason of his willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the
Trust has been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections (a) or
(b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which
consists of Trustees who were not parties to the action, suit or
proceeding; or
(ii) If the required quorum is not obtainable, or if a
quorum of disinterested Trustees so directs, by independent
legal counsel in a written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person
shall be entitled to indemnification for any liability, whether or
not there is an adjudication of liability, arising by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of duties as described in Section 17(h) and (i) of the
Investment Company Act of 1940 ("disabling conduct"). A person shall
be deemed not liable by reason of disabling conduct if, either:
(i) a final decision on the merits is made by a court or
other body before whom the proceeding was brought that the
person to be indemnified ("indemnitee") was not liable by reason
of disabling conduct; or
(ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the
indemnitee was not liable by reason of disabling conduct, is
made by either--
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(A) a majority of a quorum of Trustees who are neither
"interested persons" of the Trust, as defined in Section
2(a)(19) of the Investment Company Act of 1940, nor parties
to the action, suit or proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee,
officer, employee or agent of the Trust in defending a civil or criminal
action, suit or proceeding may be paid by the Trust in advance of the final
disposition thereof if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the
Trustee, officer, employee or agent of the Trust to repay the advance
if it is not ultimately determined that such person is entitled to be
indemnified by the Trust; and
(3) either, (i) such person provides a security for his
undertaking, or
(ii) the Trust is insured against losses by reason of any
lawful advances, or
(iii) a determination, based on a review of readily
available facts, that there is reason to believe that such
person ultimately will be found entitled to indemnification, is
made by either--
(A) a majority of a quorum which consists of Trustees
who are neither "interested persons" of the Trust, as
defined in Section 2(a)(19) of the 1940 Act, nor parties to
the action, suit or proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding the office, and shall continue as to a person who has ceased to
be a Trustee, officer, employee, or agent and inure to the benefit of the
heirs, executors and administrators of such person; provided that no person may
satisfy any right of indemnity or reimbursement granted herein or to which he
may be otherwise entitled except out of the property of the Trust, and no
Shareholder shall be personally liable with respect to any claim for indemnity
or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any
person who is or was a Trustee, officer, employee, or agent of the Trust,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such. However, in no event will the
Trust purchase insurance to indemnify any officer or Trustee against liability
for any act for which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect
any Trustee or officer of the Trust against any liability to the Trust or to
its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. Executive and Other Committees. The Trustees, by
resolution adopted by a majority of the Trustees, may designate an Executive
Committee and/or committees, each committee to consist of two (2) or more of
the Trustees of the Trust and may delegate to such committees, in the intervals
between meetings of the Trustees, any or all of the powers of the Trustees in
the management of the business and affairs of the Trust. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in place
of such absent member. Each such committee shall keep a record of its
proceedings.
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The Executive Committee and any other committee shall fix its own
rules or procedure, but the presence of at least fifty percent (50%) of the
members of the whole committee shall in each case be necessary to constitute a
quorum of the committee and the affirmative vote of the majority of the members
of the committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the
Trustees at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. Advisory Committee. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in any
other capacity and which shall have advisory functions with respect to the
investments of the Trust but which shall have no power to determine that any
security or other investment shall be purchased, sold or otherwise disposed of
by the Trust. The number of persons constituting any such advisory committee
shall be determined from time to time by the Trustees. The members of any such
advisory committee may receive compensation for their services and may be
allowed such fees and expenses for the attendance at meetings as the Trustees
may from time to time determine to be appropriate.
SECTION 5.3. Committee Action Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of any Committee of the Trustees appointed pursuant to Section 5.1 of
these By-Laws may be taken without a meeting if a consent in writing setting
forth the action shall be signed by all members of the Committee entitled to
vote upon the action and such written consent is filed with the records of the
proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. Executive Officers. The executive officers of the Trust
shall be a Chairman, a President, one or more Vice Presidents, a Secretary and
a Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The executive officers of the Trust shall be elected annually by the
Trustees and each executive officer so elected shall hold office until his
successor is elected and has qualified.
SECTION 6.2. Other Officers and Agents. The Trustees may also elect
one or more Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the President the power to
appoint, such other officers and agents as the Trustees shall at any time or
from time to time deem advisable.
SECTION 6.3. Term and Removal and Vacancies. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any officer
or agent of the Trust may be removed by the Trustees whenever, in their
judgment, the best interests of the Trust will be served thereby, but such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
SECTION 6.4. Compensation of Officers. The compensation of officers
and agents of the Trust shall be fixed by the Trustees, or by the President to
the extent provided by the Trustees with respect to officers appointed by the
President.
SECTION 6.5. Power and Duties. All officers and agents of the Trust,
as between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
SECTION 6.6. The Chairman. The Chairman shall preside at all meetings
of the Shareholders and of the Trustees; he shall be a signatory on all Annual
and Semi-Annual Reports as may be sent to shareholders, and he shall perform
such other duties as the Trustees may from time to time prescribe.
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SECTION 6.7. The President. (a) The President shall be the chief
executive officer of the Trust; he shall have general and active management of
the business of the Trust, shall see that all orders and resolutions of the
Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.
(b) In the absence of the Chairman, the President shall preside at all
meetings of the shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time prescribe.
SECTION 6.8. The Vice Presidents. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by the
Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President, and
he or they shall perform such other duties as the Trustees or the President may
from time to time prescribe.
SECTION 6.9. The Assistant Vice Presidents. The Assistant Vice
President, or, if there be more than one, the Assistant Vice Presidents, shall
perform such duties and have such powers as may be assigned them from time to
time by the Trustees or the President.
SECTION 6.10. The Secretary. The Secretary shall attend all meetings
of the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
President, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or by
the signature of an Assistant Secretary.
SECTION 6.11. The Assistant Secretaries. The Assistant Secretary, or,
if there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the President, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
President may from time to time prescribe.
SECTION 6.12. The Treasurer. The Treasurer shall be the chief
financial officer of the Trust. He shall keep or cause to be kept full and
accurate accounts of receipts and disbursements in books belonging to the
Trust, and he shall render to the Trustees and the President, whenever any of
them require it, an account of his transactions as Treasurer and of the
financial condition of the Trust; and he shall perform such other duties as the
Trustees, or the President, may from time to time prescribe.
SECTION 6.13. The Assistant Treasurers. The Assistant Treasurer, or,
if there shall be more than one, the Assistant Treasurers in the order
determined by the Trustees or the President, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Trustees, or the President, may from time to time prescribe.
SECTION 6.14. Delegation of Duties. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration,
dividends and distributions upon the Shares may be declared at such intervals
as the Trustees may determine, in cash, in securities or other property, or in
Shares, from any sources permitted by law, all as the Trustees shall from time
to time determine.
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Inasmuch as the computation of net income and net profits from the
sales of securities or other properties for federal income tax purposes may
vary from the computation thereof on the records of the Trust, the Trustees
shall have power, in their discretion, to distribute as income dividends and as
capital gain distributions, respectively, amounts sufficient to enable the
Trust to avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. Certificates of Shares. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of the
Trust by the President, the President, or a Vice President, and countersigned
by the Secretary or an Assistant Secretary or the Treasurer and an Assistant
Treasurer of the Trust; shall be sealed with the seal; and shall contain such
recitals as may be required by law. Where any certificate is signed by a
Transfer Agent or by a Registrar, the signature of such officers and the seal
may be facsimile, printed or engraved. The Trust may, at its option, determine
not to issue a certificate or certificates to evidence Shares owned of record
by any Shareholder.
In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall appear on, any such certificate or
certificates shall cease to be such officer or officers of the Trust, whether
because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Trust, such certificate or
certificates shall, nevertheless, be adopted by the Trust and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures shall appear therein
had not ceased to be such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. Lost, Stolen, Destroyed and Mutilated Certificates. The
Trustees may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Trust alleged to have
been lost, stolen or destroyed, upon satisfactory proof of such loss, theft, or
destruction; and the Trustees may, in their discretion, require the owner of
the lost, stolen or destroyed certificate, or his legal representative, to give
to the Trust and to such Registrar, Transfer Agent and/or Transfer Clerk as may
be authorized or required to countersign such new certificate or certificates,
a bond in such sum and of such type as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be
against them or any of them on account of or in connection with the alleged
loss, theft or destruction of any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. Appointment and Duties. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at least
five million dollars ($5,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as
may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as the
Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
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all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by it
as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon between
the custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to such notice and filed with the records of the meeting, whether before or
after the holding thereof, or actual attendance at the meeting of shareholders,
Trustees or committee, as the case may be, in person, shall be deemed
equivalent to the giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Location of Books and Records. The books and records of
the Trust may be kept outside the Commonwealth of Massachusetts at such place
or places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2. Record Date. The Trustees may fix in advance a date as
the record date for the purpose of determining Shareholders entitled to notice
of, or to vote at, any meeting of Shareholders, or Shareholders entitled to
receive payment of any dividend or the allotment of any rights, or in order to
make a determination of Shareholders for any other proper purpose. Such date,
in any case, shall be not more than ninety (90) days, and in case of a meeting
of Shareholders not less than ten (10) days, prior to the date on which
particular action requiring such determination of Shareholders is to be taken.
In lieu of fixing a record date the Trustees may provide that the transfer
books shall be closed for a stated period but not to exceed, in any case,
twenty (20) days. If the transfer books are closed for the purpose of
determining Shareholders entitled to notice of a vote at a meeting of
Shareholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting.
SECTION 11.3. Seal. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from time
to time provide. The seal of the Trust may be affixed to any document, and the
seal and its attestation may be lithographed, engraved or otherwise printed on
any document with the same force and effect as if it had been imprinted and
attested manually in the same manner and with the same effect as if done by a
Massachusetts business corporation under Massachusetts law.
SECTION 11.4. Fiscal Year. The fiscal year of the Trust shall end on
such date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
9
<PAGE>
SECTION 11.5. Orders for Payment of Money. All orders or instructions
for the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement between
the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem
to be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may
be adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees;
provided, however, that no By-Law may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration, or these By-Laws, a vote of the Shareholders. The Trustees shall
in no event adopt By-Laws which are in conflict with the Declaration, and any
apparent inconsistency shall be construed in favor of the related provisions in
the Declaration.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Dean Witter Global Asset
Allocation Fund, dated October 18, 1994, a copy of which is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that the
name Dean Witter Global Asset Allocation 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 Global Asset
Allocation 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 Global Asset
Allocation Fund, but the Trust Estate only shall be liable.
10
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 3 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
March 13, 1997, relating to the financial statements and financial highlights
of Dean Witter Global Asset Allocation Fund, which appears in such Statement
of Additional Information, and to the incorporation by reference of our
report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading
"Financial Highlights" in such Prospectus and to the references to us under
the headings "Independent Accountants" and "Experts" in the Statement of
Additional Information.
/s/ Price Waterhouse LLP
- ---------------------------
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New YOrk 10036
March 13, 1997
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
DEAN WITTER GLOBAL ASSET ALLOCATION 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
(A)
$1000 ERV AS OF NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Jan-97 YEARS - n COMPOUND RETURN - T
- ------------ --------- --------- -------------------
31-Jan-96 $995.80 1.00 -0.42%
28-Feb-95 $1,255.60 1.93 12.56%
(B) AVERAGE ANNUAL TOTAL RETURNS (STANDARIZED COMPUTATIONS) WITHOUT WAIVER OF
FEES AND ASSUMPTION OF EXPENSES.
(B)
$1000 EVb AS OF NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Jan-97 YEARS - n COMPOUND RETURN - T
- ------------ --------- --------- -------------------
28-Feb-95 $1,246.90 1.93 12.15%
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
(D) 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)
<PAGE>
(C) (D)
$1000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Jan-97 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
31-Jan-96 $1,045.80 4.58% 1.00 4.58%
28-Feb-95 $1,295.60 29.56% 1.92 14.40%
(D) GROWTH OF $10000
(E) GROWTH OF $50000
(F) GROWTH OF $100000
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 $10000 INVESTMENT - G $50000 INVESTMENT-G $100000 INVESTMENT - G
- ------------ ----------- --------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
28-Feb-95 29.56 $12,956 $64,780 $129,560
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 59,117,064
<INVESTMENTS-AT-VALUE> 63,792,632
<RECEIVABLES> 1,784,655
<ASSETS-OTHER> 1,052,709
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 66,629,996
<PAYABLE-FOR-SECURITIES> 856,965
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 459,241
<TOTAL-LIABILITIES> 1,316,206
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60,746,693
<SHARES-COMMON-STOCK> 5,516,229
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 41,886
<ACCUMULATED-NET-GAINS> (59,225)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,668,208
<NET-ASSETS> 65,313,790
<DIVIDEND-INCOME> 632,390
<INTEREST-INCOME> 923,088
<OTHER-INCOME> 0
<EXPENSES-NET> 1,489,507
<NET-INVESTMENT-INCOME> 65,971
<REALIZED-GAINS-CURRENT> 1,876,766
<APPREC-INCREASE-CURRENT> 584,125
<NET-CHANGE-FROM-OPS> 2,526,862
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 554,313
<DISTRIBUTIONS-OF-GAINS> 2,041,599
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,505,555
<NUMBER-OF-SHARES-REDEEMED> 944,898
<SHARES-REINVESTED> 199,063
<NET-CHANGE-IN-ASSETS> 21,042,619
<ACCUMULATED-NII-PRIOR> 463,448
<ACCUMULATED-GAINS-PRIOR> 56,997
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 353,669
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,489,507
<AVERAGE-NET-ASSETS> 58,944,850
<PER-SHARE-NAV-BEGIN> 11.79
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 0.55
<PER-SHARE-DIVIDEND> 0.11
<PER-SHARE-DISTRIBUTIONS> 0.38
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.84
<EXPENSE-RATIO> 2.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
