<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1997
REGISTRATION NO. 33-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
-------------------
DEAN WITTER BALANCED GROWTH FUND
(Exact Name of Registrant as Specified in Charter)
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(Address of Principal Executive Offices)
212-392-2550
(Registrant's Telephone Number)
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(Name and Address of Agent for Service)
-------------------
COPY TO:
STUART M. STRAUSS, ESQ.
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON THE THIRTIETH DAY
AFTER THE DATE OF FILING, PURSUANT TO RULE 488.
The Exhibit Index is located on page [ ]
No filing fee is due because the Registrant has previously registered an
indefinite number of shares pursuant to Section (a)(1) of Rule 24f-2 (as
in effect at the time of such Registration) under the Investment Company Act
of 1940, as amended. The Registrant filed the Rule 24f-2 Notice, for its
fiscal year ended January 31, 1997, with the Securities and Exchange
Commission on March 5, 1997.
Pursuant to Rule 429, this Registration Statement relates to shares
previously registered by the Registrant on Form N-1A (Registration Nos.
33-56853; 811-7245).
===============================================================================
<PAGE>
FORM N-14
DEAN WITTER BALANCED GROWTH FUND
Cross Reference Sheet
Pursuant to Rule 481(a) under the Securities Act of 1933
<TABLE>
<CAPTION>
PART A OF FORM N-14
ITEM NO. PROXY STATEMENT AND PROSPECTUS HEADING
- ----------------------- ------------------------------------------------------
<S> <C>
1(a) Cross Reference Sheet
(b) Front Cover Page
(c) *
2(a) *
(b) Table of Contents
3(a) Fee Table
(b) Synopsis
(c) Principal Risk Factors
4(a) The Reorganization
(b) The Reorganization--Capitalization Table (Unaudited)
5(a) Registrant's Prospectus
(b) *
(c) *
(d) *
(e) Available Information
(f) Available Information
6(a) Prospectus of TCW/DW Balanced Fund
(b) Available Information
(c) *
(d) *
7(a) Introduction--Proxies
(b) *
(c) Introduction; The Reorganization--Appraisal Rights
8(a) The Reorganization
(b) *
9 *
<PAGE>
PART B OF FORM N-14
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ----------------------- -----------------------------------------------------------------------------------
10(a) Cover Page
(b) *
11 Table of Contents
12(a) Additional Information about Dean Witter Balanced Growth Fund
(b) *
(c) *
13(a) Additional Information about TCW/DW Balanced Fund
(b) *
(c) *
14 Registrant's Annual Report for the fiscal year ended January 31, 1997 and
Registrant's Semi-Annual Report for the six month period ended July 31, 1997;
TCW/DW Balanced Fund's Annual Report for the fiscal year ended September 30, 1997;
and Pro Forma financial statements for Registrant for the period ended on September
30, 1997.
PART C OF FORM N-14
ITEM NO. OTHER INFORMATION HEADING
- ----------------------- -----------------------------
15 Indemnification
16 Exhibits
17 Undertakings
</TABLE>
- ------------
* Not Applicable or negative answer
<PAGE>
TCW/DW BALANCED FUND
Two World Trade Center
New York, New York 10048
(212) 392-2550
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 26, 1998
TO THE SHAREHOLDERS OF TCW/DW BALANCED FUND:
Notice is hereby given of a Special Meeting of the Shareholders of TCW/DW
Balanced Fund ("TCW/DW Balanced") to be held [at the Career Development Room,
61st Floor, Two World Trade Center, New York, New York 10048, at 9:00 A.M.],
New York time, on February 26, 1998, and any adjournments thereof (the
"Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization,
dated November 6, 1997 (the "Reorganization Agreement"), between TCW/DW
Balanced and Dean Witter Balanced Growth Fund ("Dean Witter Balanced
Growth"), pursuant to which substantially all of the assets of TCW/DW
Balanced would be combined with those of Dean Witter Balanced Growth and
shareholders of TCW/DW Balanced would become shareholders of Dean Witter
Balanced Growth receiving shares of Dean Witter Balanced Growth with a
value equal to the value of their holdings in TCW/DW Balanced (the
"Reorganization"); and
2. To act upon such other matters as may properly come before the
Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is
attached as Exhibit A thereto. Shareholders of record at the close of
business on December 12, 1997 are entitled to notice of, and to vote at, the
Meeting. Please read the Proxy Statement and Prospectus carefully before
telling us, through your proxy or in person, how you wish your shares to be
voted. The Board of Trustees of TCW/DW Balanced recommends you vote in favor
of the Reorganization. WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY
PROMPTLY.
By Order of the Board of Trustees,
BARRY FINK,
Secretary
December , 1997
- -------------------------------------------------------------------------------
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS
TO ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE
UNABLE TO BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED
PROXY IN ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE
ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
- -------------------------------------------------------------------------------
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
Two World Trade Center, New York, New York 10048
(212) 392-2550
ACQUISITION OF THE ASSETS OF
TCW/DW BALANCED FUND
BY AND IN EXCHANGE FOR SHARES OF
DEAN WITTER BALANCED GROWTH FUND
This Proxy Statement and Prospectus is being furnished to shareholders of
TCW/DW Balanced Fund ("TCW/DW Balanced") in connection with an Agreement and
Plan of Reorganization, dated November 6, 1997 (the "Reorganization
Agreement"), pursuant to which substantially all the assets of TCW/DW
Balanced will be combined with those of Dean Witter Balanced Growth Fund
("Dean Witter Balanced Growth") in exchange for shares of Dean Witter
Balanced Growth. As a result of this transaction, shareholders of TCW/DW
Balanced will become shareholders of Dean Witter Balanced Growth and will
receive shares of Dean Witter Balanced Growth with a value equal to the value
of their holdings in TCW/DW Balanced. The terms and conditions of this
transaction are more fully described in this Proxy Statement and Prospectus
and in the Reorganization Agreement between TCW/DW Balanced and Dean Witter
Balanced Growth, attached hereto as Exhibit A. The address of TCW/DW Balanced
is that of Dean Witter Balanced Growth set forth above. This Proxy Statement
also constitutes a Prospectus of Dean Witter Balanced Growth, which is dated
December , 1997, filed by Dean Witter Balanced Growth with the Securities
and Exchange Commission (the "Commission") as part of its Registration
Statement on Form N-14 (the "Registration Statement").
Dean Witter Balanced Growth is an open-end diversified management
investment company whose investment objective is to provide capital growth
with reasonable current income. The Fund seeks to achieve its objective by
investing, under normal market conditions, at least 60% of its total assets
in common stock and in securities convertible into common stock, and at least
25% of its total assets in investment grade fixed income securities.
This Proxy Statement and Prospectus sets forth concisely information about
Dean Witter Balanced Growth that shareholders of TCW/DW Balanced should know
before voting on the Reorganization Agreement. A copy of the Prospectus for
Dean Witter Balanced Growth dated July 28, 1997, is attached and incorporated
herein by reference. Also enclosed and incorporated herein by reference is
Dean Witter Balanced Growth's Annual Report for the fiscal year ended January
31, 1997 and the succeeding unaudited Semi-Annual Report for the six months
ended July 31, 1997. A Statement of Additional Information relating to the
Reorganization, described in this Proxy Statement and Prospectus (the
"Additional Statement"), dated December , 1997, has been filed with the
Commission and is also incorporated herein by reference. Also incorporated
herein by reference are TCW/DW Balanced's Prospectus, dated November 17,
1997, and Annual Report for its fiscal year ended September 30, 1997. Such
documents are available without charge by calling (212) 392-2550 or (800)
526-3143 (TOLL FREE).
Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.
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
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement and Prospectus is dated December , 1997.
i
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INTRODUCTION.............................................................................. 2
General ................................................................................ 2
Record Date; Share Information ......................................................... 2
Proxies ................................................................................ 3
Expenses of Solicitation ............................................................... 3
Vote Required .......................................................................... 4
SYNOPSIS.................................................................................. 5
The Reorganization ..................................................................... 5
Fee Table .............................................................................. 5
Tax Consequences of the Reorganization ................................................. 9
Comparison of TCW/DW Balanced and Dean Witter Balanced Growth .......................... 9
PRINCIPAL RISK FACTORS.................................................................... 11
THE REORGANIZATION........................................................................ 12
The Proposal ........................................................................... 12
The Board's Consideration .............................................................. 12
The Reorganization Agreement ........................................................... 13
Tax Aspects of the Reorganization ...................................................... 15
Description of Shares .................................................................. 16
Capitalization Table (unaudited) ....................................................... 17
Appraisal Rights ....................................................................... 17
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS............................ 17
Investment Objectives and Policies ..................................................... 17
Investment Restrictions ................................................................ 18
ADDITIONAL INFORMATION ABOUT TCW/DW BALANCED
AND DEAN WITTER BALANCED GROWTH.......................................................... 19
General ................................................................................ 19
Financial Information .................................................................. 19
Management ............................................................................. 19
Description of Securities and Shareholder Inquiries .................................... 19
Dividends, Distributions and Taxes ..................................................... 19
Purchases, Repurchases and Redemptions ................................................. 20
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE............................................... 20
FINANCIAL STATEMENTS AND EXPERTS.......................................................... 20
LEGAL MATTERS............................................................................. 20
AVAILABLE INFORMATION..................................................................... 20
OTHER BUSINESS............................................................................ 21
Exhibit A--Agreement and Plan of Reorganization, dated November 6, 1997, by and between
TCW/DW Balanced Fund and Dean Witter Balanced Growth Fund .............................. A-1
</TABLE>
<PAGE>
TCW/DW BALANCED FUND
Two World Trade Center
New York, New York 10048
(212) 392-2550
PROXY STATEMENT AND PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 26, 1998
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of TCW/DW Balanced Fund ("TCW/DW Balanced"), an open-end diversified
management investment company, in connection with the solicitation by the
Board of Trustees of TCW/DW Balanced (the "Board") of proxies to be used at
the Special Meeting of Shareholders of TCW/DW Balanced to be held [at the
Career Development Room, 61st Floor, Two World Trade Center, New York, New
York 10048 at 9:00 A.M.,] New York time, on February 26, 1998, and any
adjournments thereof (the "Meeting"). It is expected that the mailing of this
Proxy Statement and Prospectus will be made on or about December , 1997.
At the Meeting, TCW/DW Balanced shareholders ("Shareholders") will
consider and vote upon an Agreement and Plan of Reorganization, dated
November 6, 1997 (the "Reorganization Agreement"), between TCW/DW Balanced
and Dean Witter Balanced Growth Fund ("Dean Witter Balanced Growth") pursuant
to which substantially all of the assets of TCW/DW Balanced will be combined
with those of Dean Witter Balanced Growth in exchange for shares of Dean
Witter Balanced Growth. As a result of this transaction, Shareholders will
become shareholders of Dean Witter Balanced Growth and will receive shares of
Dean Witter Balanced Growth equal to the value of their holdings in TCW/DW
Balanced on the date of such transaction (the "Reorganization"). Pursuant to
the Reorganization, each Shareholder will receive the class of shares of Dean
Witter Balanced Growth that corresponds to the class of shares of TCW/DW
Balanced currently held by that Shareholder. Accordingly, as a result of the
Reorganization, each Class A, Class B, Class C and Class D Shareholder of
TCW/DW Balanced will receive Class A, Class B, Class C and Class D shares of
Dean Witter Balanced Growth, respectively. The shares to be issued by Dean
Witter Balanced Growth pursuant to the Reorganization (the "Dean Witter
Balanced Growth Shares") will be issued at net asset value without an initial
sales charge. Further information relating to Dean Witter Balanced Growth is
set forth herein and in Dean Witter Balanced Growth's current Prospectus,
dated July 28, 1997 ("Dean Witter Balanced Growth's Prospectus"), attached to
this Proxy Statement and Prospectus and incorporated herein by reference.
The information concerning TCW/DW Balanced contained herein has been
supplied by TCW/DW Balanced and the information concerning Dean Witter
Balanced Growth contained herein has been supplied by Dean Witter Balanced
Growth.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on December 12, 1997 as the
record date (the "Record Date") for the determination of the Shareholders
entitled to notice of, and to vote at, the Meeting. As of the
2
<PAGE>
Record Date, there were shares of TCW/DW Balanced issued and
outstanding. Shareholders on the Record Date are entitled to one vote per
share on each matter submitted to a vote at the Meeting. A majority of the
outstanding shares entitled to vote, represented in person or by proxy, will
constitute a quorum at the Meeting.
[To the knowledge of the Board, as of the Record Date, no person owned of
record or beneficially 5% or more of the outstanding shares of TCW/DW
Balanced.] [As of the Record Date, the trustees and officers of TCW/DW
Balanced, as a group, owned less than 1% of the outstanding shares of TCW/DW
Balanced.]
[To the knowledge of Dean Witter Balanced Growth's Board of Trustees, as
of the Record Date, no person owned of record or beneficially 5% or more of
the outstanding shares of Dean Witter Balanced Growth. As of the Record Date,
the trustees and officers of Dean Witter Balanced Growth, as a group, owned
less than 1% of the outstanding shares of Dean Witter Balanced Growth.]
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be
voted in favor of the Reorganization Agreement unless a choice is indicated
to vote against or to abstain from voting on the Reorganization Agreement.
The Board knows of no business, other than that set forth in the Notice of
Special Meeting of Shareholders, to be presented for consideration at the
Meeting. However, the proxy confers discretionary authority upon the persons
named therein to vote as they determine on other business, not currently
contemplated, which may come before the Meeting. Abstentions and, if
applicable, broker "non-votes" will not count as votes in favor of the
Reorganization Agreement, and broker "non-votes" will not be deemed to be
present at the meeting for purposes of determining whether the Reorganization
Agreement has been approved. Broker "non-votes" are shares held in street
name for which the broker indicates that instructions have not been received
from the beneficial owners or other persons entitled to vote and for which
the broker does not have discretionary voting authority. If a Shareholder
executes and returns a proxy but fails to indicate how the votes should be
cast, the proxy will be voted in favor of the Reorganization Agreement. The
proxy may be revoked at any time prior to the voting thereof by: (i)
delivering written notice of revocation to the Secretary of TCW/DW Balanced
at Two World Trade Center, New York, New York 10048; (ii) attending the
Meeting and voting in person; or (iii) signing and returning a new proxy (if
returned and received in time to be voted). Attendance at the Meeting will
not in and of itself revoke a proxy.
In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of the holders of a
majority of shares of TCW/DW Balanced present in person or by proxy at the
Meeting. The persons named as proxies will vote in favor of such adjournment
those proxies which they are entitled to vote in favor of the Reorganization
Agreement and will vote against any such adjournment those proxies required
to be voted against the Reorganization Agreement.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by TCW/DW
Balanced, which expenses are not expected to exceed $148,500. TCW/DW Balanced
and Dean Witter Balanced Growth will bear all of their respective other
expenses associated with the Reorganization. In addition to the solicitation
of proxies by mail, proxies may be solicited by officers of TCW/DW Balanced,
and officers and regular employees of Dean Witter InterCapital Inc.
("InterCapital" or the "Investment Manager") and Dean Witter Trust FSB
("DWT"), personally or by mail, telephone, telegraph or otherwise, without
3
<PAGE>
compensation therefor. Brokerage houses, banks and other fiduciaries may be
requested to forward soliciting material to the beneficial owners of shares
and to obtain authorization for the execution of proxies.
DWT, an affiliate of InterCapital, may call Shareholders to ask if they
would be willing to have their votes recorded by telephone. The telephone
voting procedure is designed to authenticate Shareholders' identities, to
allow Shareholders to authorize the voting of their shares in accordance with
their instructions and to confirm that their instructions have been recorded
properly. No recommendation will be made as to how a Shareholder should vote
on the Reorganization Agreement other than to refer to the recommendation of
the Board. TCW/DW Balanced has been advised by counsel that these procedures
are consistent with the requirements of applicable law. Shareholders voting
by telephone will be asked for their social security number or other
identifying information and will be given an opportunity to authorize proxies
to vote their shares in accordance with their instructions. To ensure that
the Shareholders' instructions have been recorded correctly they will receive
a confirmation of their instructions in the mail. A special toll-free number
will be available in case the information contained in the confirmation is
incorrect. Although a Shareholder's vote may be taken by telephone, each
Shareholder will receive a copy of this Proxy Statement and Prospectus and
may vote by mail using the enclosed proxy card. With respect to the
solicitation of a telephonic vote by DWT, additional expenses would include
$7.00 per telephone vote transacted, $3.00 per outbound telephone contact and
costs relating to obtaining Shareholders' telephone numbers, all of which
would be borne by TCW/DW Balanced.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (i.e., more than 50%) of the outstanding
shares of TCW/DW Balanced represented in person or by proxy and entitled to
vote at the Meeting, provided a quorum is present at the Meeting. If the
Reorganization Agreement is not approved by Shareholders, TCW/DW Balanced
will continue in existence and the Board will consider alternative actions.
4
<PAGE>
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. This
synopsis is only a summary and is qualified in its entirety by the more
detailed information contained or incorporated by reference in this Proxy
Statement and Prospectus and the Reorganization Agreement. Shareholders
should carefully review this Proxy Statement and Prospectus and the
Reorganization Agreement in their entirety and, in particular, Dean Witter
Balanced Growth's Prospectus, which is attached to this Proxy Statement and
incorporated herein by reference.
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially
all the assets of TCW/DW Balanced, subject to stated liabilities, to Dean
Witter Balanced Growth in exchange for the Dean Witter Balanced Growth
Shares. The aggregate net asset value of the Dean Witter Balanced Growth
Shares issued in the exchange will equal the aggregate value of the net
assets of TCW/DW Balanced received by Dean Witter Balanced Growth. On or
after the closing date scheduled for the Reorganization (the "Closing Date"),
TCW/DW Balanced will distribute the Dean Witter Balanced Growth Shares
received by TCW/DW Balanced to Shareholders as of the Valuation Date (as
defined below under "The Reorganization Agreement") in complete liquidation
of TCW/DW Balanced and TCW/DW Balanced will thereafter be dissolved and
deregistered under the Investment Company Act of 1940, as amended (the "1940
Act"). As a result of the Reorganization, each Shareholder will receive that
number of full and fractional Dean Witter Balanced Growth Shares equal in
value to such Shareholder's pro rata interest in the net assets of TCW/DW
Balanced transferred to Dean Witter Balanced Growth. Pursuant to the
Reorganization, each Shareholder will receive the class of shares of Dean
Witter Balanced Growth that corresponds to the class of shares of TCW/DW
Balanced currently held by that Shareholder. Accordingly, as a result of the
Reorganization, each Class A, Class B, Class C and Class D Shareholder of
TCW/DW Balanced will become holders of Class A, Class B, Class C and Class D
shares in certificate form of Dean Witter Balanced Growth, respectively.
Shareholders holding their shares in certificate form will be asked to
surrender their certificates in connection with the Reorganization.
Shareholders who do not surrender their certificates prior to the Closing
Date will still receive their shares of Dean Witter Balanced Growth; however,
such Shareholders will not be able to redeem, transfer or exchange the Dean
Witter Balanced Growth Shares received until the old certificates have been
surrendered. The Board has determined that the interests of Shareholders will
not be diluted as a result of the Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION--THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED
PERSONS" OF TCW/DW BALANCED ("INDEPENDENT TRUSTEES"), AS THAT TERM IS DEFINED
IN THE 1940 ACT, HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST
INTERESTS OF TCW/DW BALANCED AND ITS SHAREHOLDERS AND RECOMMENDS APPROVAL OF
THE REORGANIZATION AGREEMENT.
FEE TABLE
TCW/DW Balanced and Dean Witter Balanced Growth each pay expenses for
management of their assets, distribution of their shares and other services,
and those expenses are reflected in the net asset value per share of each
fund. On July 28, 1997, each of TCW/DW Balanced and Dean Witter Balanced
Growth began offering its shares in multiple classes, each with a different
combination of sales charges, ongoing fees and other features. The following
table illustrates expenses and fees that each class of shares of TCW/DW
Balanced incurred during the fund's fiscal year ended September 30, 1997.
With respect to Dean Witter Balanced Growth, the table sets forth expenses
and fees based on the fund's January 31, 1997 fiscal year end, adjusted, with
respect to Class A, Class B and Class D shares of the fund, for the
shareholder transaction expenses and 12b-1 fees in effect for such classes as
of July 28, 1997. The table also sets forth pro forma fees for the surviving
combined
5
<PAGE>
fund (Dean Witter Balanced Growth) reflecting what the fee schedule would
have been on September 30, 1997, if the Reorganization had been consummated
twelve (12) months prior to that date.
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
TCW/DW DEAN WITTER PRO FORMA
BALANCED BALANCED GROWTH COMBINED
------------ ------------------- -------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering
price)
Class A................................... 5.25%(1) 5.25%(1) 5.25%(1)
Class B .................................. none none none
Class C .................................. none none none
Class D .................................. none none none
Maximum Sales Charge Imposed on
Reinvested Dividends
Class A .................................. none none none
Class B .................................. none none none
Class C .................................. none none none
Class D .................................. none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of the lesser
of original purchase price or
redemption proceeds)
Class A .................................. none(2) none(2) none(2)
Class B .................................. 5.00%(3) 5.00%(3) 5.00%(3)
Class C .................................. 1.00%(4) 1.00%(4) 1.00%(4)
Class D .................................. none none none
Redemption Fees
Class A .................................. none none none
Class B .................................. none none none
Class C .................................. none none none
Class D .................................. none none none
Exchange Fee
Class A .................................. none none none
Class B .................................. none none none
Class C .................................. none none none
Class D................................... none none none
</TABLE>
- ------------
(footnotes appear on following page)
6
<PAGE>
Annual Fund Operating Expenses As a Percentage of Average Net Assets
<TABLE>
<CAPTION>
TCW/DW DEAN WITTER PRO FORMA
BALANCED BALANCED GROWTH COMBINED
------------ ------------------- -------------
<S> <C> <C> <C>
Management and Advisory Fees*
Class A ......................... 0.75% 0.60% 0.60%
Class B ......................... 0.75% 0.60% 0.60%
Class C ......................... 0.75% 0.60% 0.60%
Class D ......................... 0.75% 0.60% 0.60%
12b-1 Fees(5)(6)*
Class A ......................... 0.25% 0.25% 0.25%
Class B ......................... 1.00% 1.00% 1.00%
Class C ......................... 0.99% 1.00% 1.00%
Class D.......................... none none none
Other Expenses*
Class A ......................... 0.34% 0.35% 0.23%
Class B ......................... 0.34% 0.35% 0.23%
Class C ......................... 0.34% 0.35% 0.23%
Class D.......................... 0.34% 0.35% 0.23%
Total Fund Operating Expenses*
Class A ......................... 1.34% 1.20% 1.08%
Class B ......................... 2.09% 1.95% 1.83%
Class C ......................... 2.08% 1.95% 1.83%
Class D ......................... 1.09% 0.95% 0.83%
</TABLE>
- ------------
* With respect to Dean Witter Balanced Growth, the Investment Manager
assumed all expenses (except brokerage fees) and waived the
compensation provided for in its investment management agreement until
February 9, 1996. The fund's "Management Fees," "12b-1 Fees" and "Other
Expenses" in the table have been restated to reflect the fees and
expenses in effect on January 31, 1997.
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares" in each
fund's Prospectus).
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a Contingent Deferred Sales Charge ("CDSC") of
1.00% that will be imposed on redemptions made within one year after
purchase, except for certain specific circumstances (see "Purchases,
Exchanges and Redemptions" below and "Purchase of Fund Shares--Initial
Sales Charge Alternative--Class A Shares" in each fund's Prospectus).
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchases, Exchanges and Redemptions" below and "Purchase of Fund
Shares--Level Load Alternative--Class C Shares" in each fund's
Prospectus). Shares of Dean Witter Balanced Growth held prior to July
28, 1997 that have been designated Class C shares are not subject to
the 1.00% CDSC.
(5) The 12b-1 fee is accrued daily and payable monthly. With respect to
each fund, the entire 12b-1 fee payable by Class A and a portion of the
12b-1 fee payable by each of Class B and Class C equal to 0.25% of the
average daily net assets of the class are currently characterized as a
service fee within the meaning of National Association of Securities
Dealers, Inc. ("NASD") guidelines and are payments made for personal
service and/or maintenance of shareholder accounts. The remainder of
the 12b-1 fee, if any, is an asset-based sales charge, and is a
distribution fee paid to Dean Witter Distributors Inc. (the
"Distributor") to compensate it for the services provided and the
expenses borne by the Distributor and others in the distribution of
each fund's shares (see "Description of Shares" below and "Purchase of
Fund Shares--Plan of Distribution" in each fund's Prospectus).
(6) Upon conversion of Class B shares to Class A shares, such shares will
be subject to the lower 12b-1 fee applicable to Class A shares. No
sales charge is imposed at the time of conversion of Class B shares to
Class A shares. Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing 1.00% 12b-1 fee (see "Description
of Shares" below and "Purchase of Fund Shares--Alternative Purchase
Arrangements" in each fund's Prospectus).
7
<PAGE>
Hypothetical Expenses
To attempt to show the effect of these expenses on an investment over
time, the hypotheticals shown below have been created. Assuming that an
investor makes a $1,000 investment in either TCW/DW Balanced or Dean Witter
Balanced Growth or the new combined fund (Dean Witter Balanced Growth), that
the annual return is 5% and that the operating expenses for each fund are the
ones shown in the chart above; if the investment was redeemed at the end of
each period shown below, the investor would incur the following expenses by
the end of each period shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
TCW/DW Balanced
Class A.................... $65 $93 $122 $205
Class B.................... $71 $95 $132 $242
Class C.................... $31 $65 $112 $241
Class D.................... $11 $35 $ 60 $133
Dean Witter Balanced Growth
Class A ................... $64 $89 $115 $190
Class B ................... $70 $91 $125 $227
Class C ................... $30 $61 $105 $227
Class D.................... $10 $30 $ 53 $117
Pro Forma Combined
Class A.................... $63 $85 $109 $177
Class B.................... $69 $88 $119 $215
Class C.................... $29 $58 $ 99 $215
Class D.................... $ 8 $26 $ 46 $103
</TABLE>
If such investment was not redeemed, the investor would incur the
following expenses:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
TCW/DW Balanced
Class A.................... $65 $93 $122 $205
Class B.................... $21 $65 $112 $242
Class C.................... $21 $65 $112 $241
Class D.................... $11 $35 $ 60 $133
Dean Witter Balanced Growth
Class A ................... $64 $89 $115 $190
Class B ................... $20 $61 $105 $227
Class C ................... $20 $61 $105 $227
Class D.................... $10 $30 $ 53 $117
Pro Forma Combined
Class A.................... $63 $85 $109 $177
Class B.................... $19 $58 $ 99 $215
Class C.................... $19 $58 $ 99 $215
Class D.................... $ 8 $26 $ 46 $103
</TABLE>
The above example should not be considered a representation of past or
future expenses or performance. Actual operating expenses may be greater or
less than those shown. Long-term shareholders of Class A,
8
<PAGE>
Class B and Class C shares of TCW/DW Balanced and Dean Witter Balanced Growth
may pay more in sales charges including distribution fees than the economic
equivalent of the maximum front-end sales charges permitted by the NASD.
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, TCW/DW Balanced will receive an
opinion of Gordon Altman Butowsky Weitzen Shalov & Wein to the effect that
the Reorganization will constitute a tax-free reorganization for Federal
income tax purposes, and that no gain or loss will be recognized by TCW/DW
Balanced or the shareholders of TCW/DW Balanced for Federal income tax
purposes as a result of the transactions included in the Reorganization. For
further information about the tax consequences of the Reorganization, see
"The Reorganization--Tax Aspects of the Reorganization" below.
COMPARISON OF TCW/DW BALANCED AND DEAN WITTER BALANCED GROWTH
INVESTMENT OBJECTIVES AND POLICIES. TCW/DW Balanced and Dean Witter
Balanced Growth have similar investment objectives. The investment objective
of TCW/DW Balanced is to achieve high total return through a combination of
income and capital appreciation. Similarly, the investment objective of Dean
Witter Balanced Growth is to achieve capital growth with reasonable current
income. Both funds seek to achieve their objective by investing in a
diversified portfolio of common stocks and investment grade fixed income
securities. TCW/DW Balanced may vary the allocation between common stocks and
fixed income securities; however, it is expected that, under normal market
conditions, common stocks will represent approximately 60-70% of the fund's
total assets. Dean Witter Balanced Growth has a stated policy of investing,
under normal market conditions, at least 60% of its total assets in common
stocks (which also include securities convertible into common stock). The
processes by which each fund selects common stocks differ and are fully
described under "Comparison of Investment Objectives, Policies and
Restrictions" below. Both funds invest at least 25% of their respective
assets in investment grade fixed income securities, such as corporate bonds
and notes and obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities (including, fixed and adjustable rate mortgage
and asset backed securities).
The investment policies of both funds are similar; the principal
differences between them are more fully described under "Comparison of
Investment Objectives, Policies and Restrictions" below.
The investment policies of both TCW/DW Balanced and Dean Witter Balanced
Growth are not fundamental and may be changed by their respective Boards of
Trustees.
INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. TCW/DW Balanced obtains
management services from Dean Witter Services Company Inc. ("DWSC"), a
wholly-owned subsidiary of InterCapital, and investment advisory services
from TCW Funds Management, Inc. ("TCW"). As compensation for such services,
TCW/DW Balanced pays (i) DWSC a fee at an annual rate of 0.45% of the fund's
average daily net assets and (ii) TCW a fee at an annual rate of 0.30% of the
fund's average daily net assets. The fee is paid monthly and calculated
daily. Dean Witter Balanced Growth obtains investment management services
from InterCapital. As compensation for such services, Dean Witter Balanced
Growth pays InterCapital monthly compensation calculated daily by applying
the annual rate of 0.60% to the fund's average daily net assets. Each class
of both funds' shares is subject to the same management and advisory fee
rates applicable to the respective fund.
Both TCW/DW Balanced and Dean Witter Balanced Growth have adopted
identical distribution plans ("Plans") pursuant to Rule 12b-1 under the 1940
Act. In the case of Class A and Class C shares, each fund's Plan provides
that the fund will reimburse the Distributor and others for the expenses of
certain activities and
9
<PAGE>
services incurred by them in connection with the distribution of the Class A
and Class C Shares of each fund. Reimbursement for these expenses is made in
monthly payments by each fund to the Distributor which will in no event
exceed amounts equal to payments at the annual rates of 0.25% and 1.0% of the
average daily net assets of Class A and Class C shares, respectively. In the
case of Class B shares, each fund's Plan provides that the fund will pay the
Distributor a fee, which is accrued daily and paid monthly, at the annual
rate of 1.0% of the average daily net assets of Class B. The fee is paid for
the services provided and the expenses borne by the Distributor and others in
connection with the distribution of each fund's Class B shares. There are no
12b-1 fees applicable to both funds' Class D shares. For further information
relating to the 12b-1 fees applicable to each class of Dean Witter Balanced
Growth's shares, see the section entitled "Purchase of Fund Shares" in Dean
Witter Balanced Growth's Prospectus, attached hereto. The Distributor also
receives the proceeds of any contingent deferred sales charge ("CDSC") paid
by the funds' shareholders at the time of redemption. The CDSC schedules
applicable to each of TCW/DW Balanced and Dean Witter Balanced Growth are set
forth below under "Purchases, Exchanges and Redemptions."
OTHER SIGNIFICANT FEES. Both TCW/DW Balanced and Dean Witter Balanced
Growth pay additional fees in connection with their operations, including
legal, auditing, transfer agent, trustees fees and custodial fees. See
"Synopsis--Fee Table" above for the percentage of average net assets
represented by such "Other Expenses."
PURCHASES, EXCHANGES AND REDEMPTIONS. Class A shares of each fund are sold
at net asset value plus an initial sales charge of up to 5.25%. The initial
sales charge is reduced for certain purchases. Investments of $1 million or
more (and investment by certain other limited categories of investors) are
not subject to any sales charges at the time of purchase, but are subject to
a CDSC of 1.0% on redemptions made within one year after purchase (except for
certain specific circumstances fully described in each fund's Prospectus).
Class B shares of each fund are offered at net asset value with no initial
sales charge, but are subject to the same CDSC schedule set forth below
(Class B shares of each fund purchased by certain qualified employer
sponsored benefit plans are subject to a reduced CDSC schedule):
<TABLE>
<CAPTION>
CLASS B SHARES OF TCW/DW BALANCED AND
YEAR SINCE PURCHASE PAYMENT MADE DEAN WITTER BALANCED GROWTH
- ----------------------------------- -----------------------------------------
<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>
Class C shares of each fund are sold at net asset value with no initial
sales charge, but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase. The CDSC may be waived for certain redemptions
(which are fully described in each fund's Prospectus).
Class D shares of each fund are available only to limited categories of
investors and are sold at net asset value with no initial sales charge or
CDSC.
The CDSC charge is paid to the Distributor. Shares of Dean Witter Balanced
Growth and TCW/DW Balanced are distributed by the Distributor and offered by
Dean Witter Reynolds Inc. and other dealers who have entered into selected
dealer agreements with the Distributor. For further information relating to
the CDSC schedules applicable to each of the classes of Dean Witter Balanced
Growth's shares, see the section entitled "Purchase of Fund Shares" in Dean
Witter Balanced Growth's Prospectus.
10
<PAGE>
Shares of each class of Dean Witter Balanced Growth may be exchanged for
shares of the same class of any other Dean Witter Fund that offers its shares
in more than one class, without the imposition of an exchange fee.
Additionally, shares of each class of Dean Witter Balanced Growth may be
exchanged 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 and the five Dean Witter Funds
that are money market funds (the foregoing nine funds are collectively
referred to as the "Dean Witter Balanced Growth Exchange Funds"), without the
imposition of an exchange fee. Class A shares of Dean Witter Balanced Growth
may also be exchanged for shares of Dean Witter Multi-State Municipal Series
Trust and Dean Witter Hawaii Municipal Trust, and Class B shares of Dean
Witter Balanced Growth may also be exchanged for shares of Dean Witter Global
Short-Term Income Fund Inc., all without the imposition of an exchange fee.
Upon consummation of the Reorganization, the foregoing exchange privileges
will be applicable to Shareholders.
Shares of each class of TCW/DW Balanced may be exchanged for shares of the
same class of any other TCW/DW Fund that offers its shares in more than one
class, without the imposition of an exchange fee. TCW/DW Balanced shares may
also be exchanged for shares of TCW/DW North American Government Income Trust
or for any of the five Dean Witter Funds that are money market funds (the
foregoing six funds are collectively referred to as the "TCW/DW Balanced
Exchange Funds"), without the imposition of an exchange fee. With respect to
both funds, no CDSC is imposed at the time of any exchange, although any
applicable CDSC will be imposed upon ultimate redemption. During the period
of time a Dean Witter Balanced Growth and TCW/DW Balanced shareholder remains
in a Dean Witter Balanced Growth Exchange Fund or a TCW/DW Balanced Exchange
Fund, respectively, the holding period (for purposes of determining the CDSC
rate) is frozen. Upon consummation of the Reorganization, Shareholders will
no longer be able to exchange their shares for shares of a TCW/DW Fund. Both
TCW/DW Balanced and Dean Witter Balanced Growth provide telephone exchange
privileges to their shareholders. For greater details relating to exchange
privileges applicable to Dean Witter Balanced Growth, see the section
entitled "Shareholder Services" in Dean Witter Balanced Growth's Prospectus.
Shareholders of TCW/DW Balanced and Dean Witter Balanced Growth may redeem
their shares 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 CDSC. Both TCW/DW Balanced and Dean Witter Balanced Growth
offer a reinstatement privilege whereby a shareholder who has not previously
exercised such privilege whose shares have been redeemed or repurchased may,
within thirty-five days after the date of redemption or repurchase, reinstate
any portion or all of the proceeds thereof in shares of the same class from
which such shares were redeemed or repurchased and receive a pro rata credit
for any CDSC paid in connection with such redemption or repurchase. TCW/DW
Balanced and Dean Witter Balanced Growth may redeem involuntarily, at net
asset value, most accounts valued at less than $100.
DIVIDENDS. Each fund declares dividends separately for each of its classes
and pays quarterly dividends from the anticipated net investment income of
the fund. Both funds distribute net short-term and long-term capital gains,
if any, at least annually. Each fund, however, may determine either to
distribute or to retain all or part of any net long-term capital gains in any
year for reinvestment. With respect to each fund, dividends and capital gains
distributions are automatically reinvested in additional shares of the same
class of shares of the fund at net asset value unless the shareholder elects
to receive cash.
PRINCIPAL RISK FACTORS
The net asset value of Dean Witter Balanced Growth and TCW/DW Balanced
will fluctuate with changes in the market value of their respective portfolio
securities. The market value of the funds' portfolio securities will increase
or decrease due to a variety of economic, market and political factors,
including movements in
11
<PAGE>
interest rates, which cannot be predicted. Dean Witter Balanced Growth may
invest at least 25% of its total assets in securities rated BBB by Standard &
Poor's Corporation ("S&P") or Baa by Moody's Investors Service, Inc.
("Moody's"), although the fund currently does not hold securities with these
ratings. TCW/DW Balanced may invest up to 10% of its total assets in
securities rated BBB by S&P or Baa by Moody's. Securities with such ratings
may be considered to have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than in the case of
securities with higher ratings. In addition, both funds may invest in
mortgage backed securities which are subject to special risks including
prepayments or refinancings of the assets underlying such securities, which
may have an impact on the dividends paid and the net asset value of the
funds' shares. Dividends payable by the funds will also vary in relation to
the amounts of dividends earned on common stocks and interest earned on fixed
income securities.
Additionally, TCW/DW Balanced invests in non-dollar denominated foreign
securities which entail special risks not applicable to Dean Witter Balanced
Growth (which invests only in American Depository Receipts ("ADRs")). Both
funds may enter into repurchase agreements, may purchase securities on a
when-issued and delayed delivery basis, and, in the case of Dean Witter
Balanced Growth only, enter into options and futures transactions for hedging
purposes, all of which involve certain special risks. In addition, only
TCW/DW Balanced may enter into reverse repurchase agreements and dollar rolls
which also involve certain special risks.
The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each fund, see "Investment
Objectives and Policies--Risk Considerations" in the Prospectus of TCW/DW
Balanced and "Investment Objectives and Policies--Special Risk
Considerations" in Dean Witter Balanced Growth's Prospectus attached hereto
and incorporated herein by reference.
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of TCW/DW Balanced, including the Independent
Trustees, having reviewed the financial position of TCW/DW Balanced and the
prospects for achieving economies of scale through the Reorganization and
having determined that the Reorganization is in the best interests of TCW/DW
Balanced and its Shareholders and that the interests of Shareholders will not
be diluted as a result thereof, recommends approval of the Reorganization by
Shareholders of TCW/DW Balanced.
THE BOARD'S CONSIDERATION
TCW has indicated its intent to resign as TCW/DW Balanced's investment
adviser. Under these circumstances, InterCapital recommended that it would be
in the best interests of Shareholders to combine TCW/DW Balanced with a
larger fund, managed by InterCapital, that has similar investment objectives
and policies to those of TCW/DW Balanced. At a meeting held on November 6,
1997, the Board, including all of the Independent Trustees, unanimously
approved the Reorganization Agreement and determined to recommend that
Shareholders approve the Reorganization Agreement. In reaching this decision,
the Board made an extensive inquiry into a number of factors, particularly
the comparative expenses currently incurred in the operations of TCW/DW
Balanced and Dean Witter Balanced Growth. The Board also considered other
factors, including, but not limited to: the comparative investment
performance and past growth in assets of TCW/DW Balanced and Dean Witter
Balanced Growth; the compatibility of the investment objectives, policies,
restrictions and portfolios of TCW/DW Balanced and Dean Witter Balanced
Growth; the terms and conditions of the Reorganization which would affect the
price of shares to be issued in the Reorganization; the tax-free nature of
the Reorganization; and any direct or indirect costs to be incurred by TCW/DW
Balanced and Dean Witter Balanced Growth in connection with the
Reorganization.
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<PAGE>
In recommending the Reorganization to Shareholders, the Board of TCW/DW
Balanced considered that the Reorganization would have the following benefits
to Shareholders:
1. Once the Reorganization is consummated, the expenses which would be
borne by shareholders of each class of the "combined fund" should be lower on
a percentage basis than the actual expenses per share of each corresponding
class of TCW/DW Balanced. In part, this is because the rate of the investment
management and advisory fee payable by the surviving Dean Witter Balanced
Growth fund (0.60% of average daily net assets) is lower than the rate
currently paid by TCW/DW Balanced (0.75% of average daily net assets).
Furthermore, to the extent that the Reorganization would result in
Shareholders becoming shareholders of a combined larger fund, further
economies of scale could be achieved since various fixed expenses (e.g.,
auditing and legal) can be spread over a larger number of shares. The Board
noted that the expense ratio for each class of TCW/DW Balanced was higher
(for its fiscal year ended September 30, 1997) than the expense ratio for
each class of Dean Witter Balanced Growth (for the fiscal year ended January
31, 1997). The Board further noted that the combined fund is expected to have
a lower expense ratio than the current ratio of each fund.
2. Shareholders would have a continued participation in a portfolio
balanced with equity and fixed income securities through investment in Dean
Witter Balanced Growth, which has similar investment objectives, investment
policies and restrictions to those of TCW/DW Balanced.
3. The Reorganization will constitute a tax-free reorganization for
Federal income tax purposes, and no gain or loss will be recognized by TCW/DW
Balanced or its Shareholders for Federal income tax purposes as a result of
transactions included in the Reorganization.
4. The Board also took into consideration that absent the Reorganization,
Dean Witter Balanced Growth will continue to compete for investor funds
directly with TCW/DW Balanced. The Reorganization should allow for more
concentrated selling efforts to the benefit of both TCW/DW Balanced and Dean
Witter Balanced Growth shareholders and avoid the inefficiencies associated
with the operation and distribution of two substantially similar funds.
The Board of Trustees of Dean Witter Balanced Growth, including a majority
of the Independent Trustees of Dean Witter Balanced Growth, also have
determined that the Reorganization is in the best interests of Dean Witter
Balanced Growth and its shareholders and that the interests of existing
shareholders of Dean Witter Balanced Growth will not be diluted as a result
thereof. The transaction will enable Dean Witter Balanced Growth to acquire
investment securities which are consistent with Dean Witter Balanced Growth's
investment objective, without the brokerage costs attendant to the purchase
of such securities in the market. Furthermore, the addition of assets to Dean
Witter Balanced Growth's portfolio may result in some of the economies of
scale described above.
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization
Agreement. This summary is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached as Exhibit A to this
Proxy Statement and Prospectus.
The Reorganization Agreement provides that (i) TCW/DW Balanced will
transfer all of its assets, including portfolio securities, cash (other than
cash amounts retained by TCW/DW Balanced as a "Cash Reserve" in the amount
sufficient to discharge its liabilities not discharged prior to the Valuation
Date (as defined below) and for expenses of the dissolution), cash
equivalents and receivables to Dean Witter Balanced Growth on the Closing
Date in exchange for the assumption by Dean Witter Balanced Growth of stated
liabilities of TCW/DW Balanced, including all expenses, costs, charges and
reserves, as reflected on an unaudited statement of assets and liabilities of
TCW/DW Balanced prepared by the Treasurer of TCW/DW
13
<PAGE>
Balanced as of the Valuation Date (as defined below) in accordance with
generally accepted accounting principles consistently applied from the prior
audited period, and the delivery of Dean Witter Balanced Growth Shares; (ii)
such Dean Witter Balanced Growth Shares would be distributed to Shareholders
on the Closing Date or as soon as practicable thereafter; (iii) TCW/DW
Balanced would be dissolved; and (iv) the outstanding shares of TCW/DW
Balanced would be canceled.
The number of Dean Witter Balanced Growth Shares to be delivered to TCW/DW
Balanced will be determined by dividing the aggregate net asset value of each
class of shares of TCW/DW Balanced acquired by Dean Witter Balanced Growth by
the net asset value per share of the corresponding class of shares of Dean
Witter Balanced Growth; these values will be calculated as of the close of
business of the New York Stock Exchange on the third business day following
the receipt of the requisite approval by Shareholders of the Reorganization
Agreement or at such other time as TCW/DW Balanced and Dean Witter Balanced
Growth may agree (the "Valuation Date"). As an illustration, assume that on
the Valuation Date, Class B shares of TCW/DW Balanced had an aggregate net
asset value (not including any Cash Reserve of TCW/DW Balanced) of $100,000.
If the net asset value per Class B share of Dean Witter Balanced Growth were
$10 per share at the close of business on the Valuation Date, the number of
Class B shares to be issued would be 10,000 ($100,000 (divided by) $10).
These 10,000 Class B shares of Dean Witter Balanced Growth would be
distributed to the former Class B shareholders of TCW/DW Balanced. This
example is given for illustration purposes only and does not bear any
relationship to the dollar amounts or shares expected to be involved in the
Reorganization.
On the Closing Date or as soon as practicable thereafter, TCW/DW Balanced
will distribute pro rata to its Shareholders of record as of the close of
business on the Valuation Date, the Dean Witter Balanced Growth Shares it
receives. Each Shareholder will receive the class of shares of Dean Witter
Balanced Growth that corresponds to the class of shares of TCW/DW Balanced
currently held by that Shareholder. Accordingly, the Dean Witter Balanced
Growth Shares will be distributed as follows: each of the Class A, Class B,
Class C and Class D shares of Dean Witter Balanced Growth will be distributed
to holders of Class A, Class B, Class C and Class D shares of TCW/DW
Balanced, respectively. Dean Witter Balanced Growth will cause its transfer
agent to credit and confirm an appropriate number of Dean Witter Balanced
Growth Shares to each Shareholder. Certificates for Dean Witter Balanced
Growth Shares will be issued upon written request of a Shareholder but only
for whole shares, with fractional shares credited to the name of the
Shareholder on the books of Dean Witter Balanced Growth. Shareholders who
wish to receive certificates representing their Dean Witter Balanced Growth
Shares must, after receipt of their confirmations, make a written request to
Dean Witter Balanced Growth's transfer agent, Dean Witter Trust Company,
Harborside Financial Center, Jersey City, New Jersey 07311. Shareholders
holding their shares in certificate form will be asked to surrender such
certificates in connection with the Reorganization. Shareholders who do not
surrender their certificates prior to the Closing Date will still receive
their shares of Dean Witter Balanced Growth; however, such Shareholders will
not be able to redeem, transfer or exchange the Dean Witter Balanced Growth
Shares received until the old certificates have been surrendered.
The Closing Date will be the next business day following the Valuation
Date. The consummation of the Reorganization is contingent upon the approval
of the Reorganization by the Shareholders and the receipt of the other
opinions and certificates set forth in Sections 6, 7 and 8 of the
Reorganization Agreement and the occurrence of the events described in those
Sections, certain of which may be waived by TCW/DW Balanced or Dean Witter
Balanced Growth. The Reorganization Agreement may be amended in any mutually
agreeable manner, except that no amendment may be made subsequent to the
Meeting which would detrimentally affect the value of the shares of Dean
Witter Balanced Growth to be distributed. All expenses of this solicitation,
including the cost of preparing and mailing this Proxy Statement and
Prospectus, will be borne by TCW/DW Balanced, which expenses are not expected
to exceed $148,500. TCW/DW Balanced and Dean Witter Balanced Growth will
bear all of their respective other expenses associated with the
Reorganization.
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<PAGE>
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Shareholders or by mutual
consent of TCW/DW Balanced and Dean Witter Balanced Growth. In addition,
either party may terminate the Reorganization Agreement upon the occurrence
of a material breach of the Reorganization Agreement by the other party or
if, by April 30, 1998, any condition set forth in the Reorganization
Agreement has not been fulfilled or waived by the party entitled to its
benefits.
Under the Reorganization Agreement, within one year after the Closing
Date, TCW/DW Balanced shall: either pay or make provision for all of its
liabilities and distribute any remaining amount of the Cash Reserve (after
paying or making provision for such liabilities and the estimated cost of
making the distribution) to former shareholders of TCW/DW Balanced that
received Dean Witter Balanced Growth Shares. TCW/DW Balanced shall be
dissolved and deregistered as an investment company promptly following the
distributions of shares of Dean Witter Balanced Growth to Shareholders of
record of TCW/DW Balanced.
The effect of the Reorganization is that Shareholders who vote their
shares in favor of the Reorganization Agreement are electing to sell their
shares of TCW/DW Balanced (at net asset value on the Valuation Date
calculated after subtracting any Cash Reserve) and reinvest the proceeds in
Dean Witter Balanced Growth Shares at net asset value and without recognition
of taxable gain or loss for Federal income tax purposes. See "Tax Aspects of
the Reorganization" below. As noted in "Tax Aspects of the Reorganization"
below, if TCW/DW Balanced recognizes net gain from the sale of securities
prior to the Closing Date, such gain, to the extent not offset by capital
loss carryforwards, will be distributed to Shareholders prior to the Closing
Date and will be taxable to Shareholders as capital gain.
Shareholders will continue to be able to redeem their shares of TCW/DW
Balanced at net asset value next determined after receipt of the redemption
request (subject to any applicable CDSC) until the close of business on the
business day next preceding the Closing Date. Redemption requests received by
TCW/DW Balanced thereafter will be treated as requests for redemption of
shares of Dean Witter Balanced Growth.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation
Date, TCW/DW Balanced will declare and pay a dividend or dividends which,
together with all previous such dividends, will have the effect of
distributing to Shareholders all of TCW/DW Balanced's investment company
taxable income for all periods since the inception of TCW/DW Balanced through
and including the Valuation Date (computed without regard to any dividends
paid deduction), and all of TCW/DW Balanced's net capital gain, if any,
realized in such periods (after reduction for any capital loss carryforward).
The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). TCW/DW Balanced and Dean Witter
Balanced Growth have represented that, to their best knowledge, there is no
plan or intention by Shareholders to redeem, sell, exchange or otherwise
dispose of a number of Dean Witter Balanced Growth Shares received in the
transaction that would reduce Shareholders' ownership of Dean Witter Balanced
Growth Shares to a number of shares having a value, as of the Closing Date,
of less than 50% of the value of all of the formerly outstanding TCW/DW
Balanced shares as of the same date. TCW/DW Balanced and Dean Witter Balanced
Growth have each further represented that, as of the Closing Date, TCW/DW
Balanced and Dean Witter Balanced Growth will qualify as regulated investment
companies.
As a condition to the Reorganization, TCW/DW Balanced and Dean Witter
Balanced Growth will receive an opinion of Gordon Altman Butowsky Weitzen
Shalov & Wein that, based on certain assumptions, facts, the terms of the
Reorganization Agreement and additional representations set forth in the
Reorganization Agreement or provided by TCW/DW Balanced and Dean Witter
Balanced Growth:
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<PAGE>
1. The transfer of substantially all of TCW/DW Balanced's assets in
exchange for the Dean Witter Balanced Growth Shares and the assumption by
Dean Witter Balanced Growth of certain stated liabilities of TCW/DW Balanced
followed by the distribution by TCW/DW Balanced of the Dean Witter Balanced
Growth Shares to Shareholders in exchange for their TCW/DW Balanced shares
will constitute a "reorganization" within the meaning of Section 368(a)(1) of
the Code, and TCW/DW Balanced and Dean Witter Balanced Growth will each be a
"party to a reorganization" within the meaning of Section 368 (b) of the
Code;
2. No gain or loss will be recognized by Dean Witter Balanced Growth upon
the receipt of the assets of TCW/DW Balanced solely in exchange for the Dean
Witter Balanced Growth Shares and the assumption by Dean Witter Balanced
Growth of the stated liabilities of TCW/DW Balanced;
3. No gain or loss will be recognized by TCW/DW Balanced upon the transfer
of the assets of TCW/DW Balanced to Dean Witter Balanced Growth in exchange
for the Dean Witter Balanced Growth Shares and the assumption by Dean Witter
Balanced Growth of the stated liabilities or upon the distribution of Dean
Witter Balanced Growth Shares to Shareholders in exchange for their TCW/DW
Balanced shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of TCW/DW Balanced for the Dean Witter Balanced Growth Shares;
5. The aggregate tax basis for the Dean Witter Balanced Growth Shares
received by each of the Shareholders pursuant to the Reorganization will be
the same as the aggregate tax basis of the shares in TCW/DW Balanced held by
each such Shareholder immediately prior to the Reorganization;
6. The holding period of the Dean Witter Balanced Growth Shares to be
received by each Shareholder will include the period during which the shares
in TCW/DW Balanced surrendered in exchange therefor were held (provided such
shares in TCW/DW Balanced were held as capital assets on the date of the
Reorganization);
7. The tax basis of the assets of TCW/DW Balanced acquired by Dean Witter
Balanced Growth will be the same as the tax basis of such assets to TCW/DW
Balanced immediately prior to the Reorganization; and
8. The holding period of the assets of TCW/DW Balanced in the hands of
Dean Witter Balanced Growth will include the period during which those assets
were held by TCW/DW Balanced.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF
ANY, OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
BECAUSE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT
THEIR TAX ADVISORS AS TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE
PROPOSED TRANSACTION.
DESCRIPTION OF SHARES
Dean Witter Balanced Growth shares to be issued pursuant to the
Reorganization Agreement will, when issued, be fully paid and non-assessable
by Dean Witter Balanced Growth and transferable without restrictions and will
have no preemptive rights. Class B shares of Dean Witter Balanced Growth,
like Class B shares of TCW/DW Balanced, have a conversion feature pursuant to
which approximately ten (10) years after the date of the original purchase of
such shares, the shares will convert automatically to Class A shares, based
on the relative net asset values of the two classes. For greater details
regarding the conversion feature, including the method by which the 10 year
period is calculated and the treatment of reinvested dividends, see "Purchase
of Fund Shares" in each fund's Prospectus.
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CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of Dean Witter Balanced
Growth and TCW/DW Balanced as of January 31, 1997 and on a pro forma combined
basis as if the Reorganization had occurred on that date:
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
-------------- ------------- -----------
<S> <C> <C> <C>
TCW/DW Balanced ............. $ 95,392,759 7,733,975 $12.33
Dean Witter Balanced Growth $119,415,987 9,179,945 $13.01
Combined Fund (pro forma) .. $214,808,746 16,512,209 $13.01
</TABLE>
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
TCW/DW Balanced and Dean Witter Balanced Growth have substantially similar
investment objectives. The investment objective of TCW/DW Balanced is to
achieve high total return through a combination of income and capital
appreciation. Similarly, the investment objective of Dean Witter Balanced
Growth is to achieve capital growth with reasonable current income. Both
funds seek to achieve their objective by investing in a diversified portfolio
of common stocks and investment grade fixed income securities. TCW/DW
Balanced may vary the allocation between common stocks and fixed income
securities; however, it is expected that, under normal market circumstances,
common stocks will represent approximately 60-70% of the fund's total assets.
Common stocks for TCW/DW Balanced's portfolio are selected pursuant to a "top
down" investment process ranging from the overall economic outlook, to the
development of industry/sector preferences, and, lastly, to specific stock
selections. At least 95% of the issuers in whose common stock TCW/DW Balanced
invests will have minimum market capitalizations at the time of purchase in
excess of $1 billion. Dean Witter Balanced Growth has a stated policy of
investing at least 60% of its total assets in common stocks or securities
convertible into common stocks, which stocks have a record of paying
dividends and, in the opinion of InterCapital, have the potential for
increasing dividends.
Both funds invest at least 25% of their respective assets in investment
grade fixed income securities, such as corporate bonds and notes and
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities (including fixed and adjustable rate mortgage and asset
backed securities). Additionally, TCW/DW Balanced, under normal
circumstances, may invest up to 10% of its fixed income portfolio in
securities rated BBB by S&P or Baa by Moody's. Dean Witter Balanced Growth
may invest at least 25% of its total assets in securities with such ratings,
although the fund currently does not hold any securities with these ratings.
TCW/DW Balanced also may invest up to 5% of its net assets in collateralized
mortgage obligations; whereas, Dean Witter Balanced Growth does not invest in
collateralized mortgage obligations.
TCW/DW Balanced invests up to 25% of its total assets in foreign
securities; whereas Dean Witter Balanced Growth is not authorized to invest
in foreign securities other than in the form of ADRs. TCW/DW Balanced also
enters into forward foreign currency exchange contracts in connection with
its foreign securities investments as a hedge against fluctuations in future
foreign exchange rates; whereas, Dean Witter Balanced Growth is not
authorized to enter into such transactions.
Although TCW/DW Balanced is authorized to engage in futures and options
transactions, the fund does not do so. Dean Witter Balanced Growth may
purchase and sell (write) options on debt and equity securities
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<PAGE>
which are listed on exchanges or are written in over-the-counter
transactions. Additionally, Dean Witter Balanced Growth may invest up to 5%
of its total assets in the purchase of put and call options in securities and
stock indexes. Put options may be purchased on securities which Dean Witter
Balanced Growth holds (or has the right to acquire) or to close out a written
put position. The fund may also write covered options on portfolio securities
not exceeding in the aggregate 5% of the fund's total assets. In addition,
Dean Witter Balanced Growth may purchase and sell interest rate and stock
index futures contracts that are traded on U.S. commodities exchanges for
hedging purposes. The fund also may purchase and sell options on eligible
futures contracts for hedging purposes or to close out an opposite position.
Both Dean Witter Balanced Growth and TCW/DW Balanced may (i) purchase
securities on a when-issued or delayed delivery basis, (ii) purchase or sell
securities on a forward commitment basis and (iii) purchase securities on a
"when, as and if issued" basis. However, only TCW/DW Balanced is authorized
to enter into reverse repurchase agreements and dollar rolls (up to 5% of its
total assets). Both funds may enter into repurchase agreements subject to
certain procedures designed to minimize risks associated with such
agreements. TCW/DW Balanced may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended, or which are
otherwise not readily marketable; whereas, Dean Witter Balanced Growth has a
10% limit respecting investments in such securities.
Both Dean Witter Balanced Growth and TCW/DW Balanced may invest part or
all of their respective assets in money market instruments to maintain
temporarily a "defensive" posture when, in the opinion of the funds'
respective investment advisers, it is advisable to do so because of market
conditions.
The investment policies of both TCW/DW Balanced and Dean Witter Balanced
Growth are not fundamental and may be changed by their respective Boards. The
foregoing discussion is a summary of the principal differences and
similarities between the investment policies of the funds. For a more
complete discussion of each fund's policies, see "Investment Objective and
Policies" in each fund's Prospectus and "Investment Practices and Policies"
in each fund's Statement of Additional Information.
INVESTMENT RESTRICTIONS
The investment restrictions adopted by TCW/DW Balanced and Dean Witter
Balanced Growth as fundamental policies are substantially similar and are
summarized under the caption "Investment Restrictions" in their respective
Prospectuses and Statements of Additional Information. A fundamental
investment restriction cannot be changed without the vote of the majority of
the outstanding voting securities of a fund, as defined in the 1940 Act. The
material differences are as follows: (a) Dean Witter Balanced Growth has a
fundamental restriction that it may not, as to 100% 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), whereas TCW/DW Balanced is
subject to a similar fundamental limitation with respect to 75% of its total
assets; (b) Dean Witter Balanced Growth has a fundamental restriction that it
may not, as to 100% of its total assets, purchase more than 10% of all
outstanding voting securities or any class of securities of any one issuer,
whereas TCW/DW Balanced is subject to a similar fundamental limitation with
respect to 75% of its total assets; (c) both funds are prohibited from
lending money or securities except by the purchase of portfolio securities in
which the funds may invest consistent with their investment objectives and
policies; however, TCW/DW Balanced carves out an additional exception for
lending its portfolio securities; (d) both funds are prohibited from
borrowing money except from a bank for temporary or emergency purposes in
amounts not exceeding 5% of their respective total assets; however, TCW/DW
Balanced carves out an additional exception for reverse repurchase agreements
and dollar rolls; (e) both funds are prohibited from issuing senior
securities as defined in the 1940 Act; however, TCW/DW Balanced carves
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<PAGE>
out an exception for lending portfolio securities; and (f) Dean Witter
Balanced Growth has a fundamental restriction that it may not purchase
securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets, whereas TCW/DW
Balanced is subject to a similar non-fundamental policy and carves out an
additional exception for purchases of shares of closed-end investment
companies under certain circumstances.
In addition, Dean Witter Balanced Growth has a fundamental restriction
that it may not invest in securities of any issuer if, in the exercise of
reasonable diligence, the fund has determined that any officer or trustee of
the fund or of the fund's investment manager owns more than 1/2 of 1% of the
outstanding securities of such issuer, and such officers and trustees who own
more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer. TCW/DW Balanced has no such limitation.
Finally, as a matter of non-fundamental policy, Dean Witter Balanced
Growth may not invest more than 5% of the value of its net assets in
warrants, including not more than 2% of such assets in warrants not listed on
the New York or American Stock Exchange. TCW/DW Balanced has no such
limitation.
ADDITIONAL INFORMATION ABOUT TCW/DW BALANCED
AND DEAN WITTER BALANCED GROWTH
GENERAL
For a discussion of the organization and operation of Dean Witter Balanced
Growth and TCW/DW Balanced, see "The Fund and its Management," "Investment
Objective and Policies," "Investment Restrictions" and "Prospectus Summary"
in, and the cover page of, their respective Prospectuses.
FINANCIAL INFORMATION
For certain financial information about Dean Witter Balanced Growth and
TCW/DW Balanced, see "Financial Highlights" and "Performance Information" in
their respective Prospectuses.
MANAGEMENT
For information about the respective Board of Trustees, investment adviser
and/or investment manager and the Distributor of Dean Witter Balanced Growth
and TCW/DW Balanced, see "The Fund and its Management" and "Investment
Objective and Policies" in, and on the back cover of, their respective
Prospectuses.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares
of TCW/DW Balanced and Dean Witter Balanced Growth, and information regarding
shareholder inquiries, see "Additional Information" in their respective
Prospectuses.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Dean Witter Balanced Growth's and TCW/DW Balanced's
policies with respect to dividends, distributions and taxes, see "Dividends,
Distributions and Taxes" in their respective Prospectuses as well as the
discussion herein under "Synopsis--Purchases, Exchanges and Redemptions."
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<PAGE>
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how Dean Witter Balanced Growth's and TCW/DW
Balanced's shares may be purchased, repurchased and redeemed, see "Purchase
of Fund Shares", "Shareholder Services" and "Redemptions and Repurchases" in
their respective Prospectuses.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For a discussion of Dean Witter Balanced Growth's performance, see
management's letter to shareholders in its Annual Report for its fiscal year
ended January 31, 1997 accompanying this Proxy Statement and Prospectus. For
a discussion of the performance of TCW/DW Balanced, see its Annual Report for
its fiscal year ended September 30, 1997 previously sent to Shareholders
accompanying the mailing of this Proxy Statement and Prospectus.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Dean Witter Balanced Growth, for the year
ended January 31, 1997, and TCW/DW Balanced, for the year ended September 30,
1997 that are incorporated by reference in the Statement of Additional
Information relating to the Registration Statement on Form N-14 of which this
Proxy Statement and Prospectus forms a part have been audited by Price
Waterhouse LLP, independent accountants. The financial statements have been
incorporated by reference in reliance upon such reports given upon the
authority of Price Waterhouse LLP as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Dean Witter
Balanced Growth will be passed upon by Gordon Altman Butowsky Weitzen Shalov
& Wein, New York, New York. Such firm will rely on Lane Altman & Owens as to
matters of Massachusetts law.
AVAILABLE INFORMATION
Additional information about TCW/DW Balanced and Dean Witter Balanced
Growth is available, as applicable, in the following documents which are
incorporated herein by reference: (i) Dean Witter Balanced Growth's
Prospectus dated July 28, 1997, accompanying this Proxy Statement and
Prospectus, which Prospectus forms a part of Post-Effective Amendment No. 4
to Dean Witter Balanced Growth's Registration Statement on Form N-1A (File
Nos. 33-56853; 811-7245); (ii) Dean Witter Balanced Growth's Annual Report
for its fiscal year ended January 31, 1997 and its unaudited Semi-Annual
Report for the six months ended July 31, 1997, accompanying this Proxy
Statement and Prospectus; (iii) TCW/DW Balanced's Prospectus dated November
17, 1997, which Prospectus forms a part of Post-Effective Amendment No. 6
to Balanced's Registration Statement on Form N-1A (File Nos. 33-59188;
811-7558); and (iv) TCW/DW Balanced's Annual Report for the fiscal year ended
September 30, 1997. The foregoing documents may be obtained without charge by
calling (212) 293-2550 or (800) 526-3143.
TCW/DW Balanced and Dean Witter Balanced Growth are subject to the
informational requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith, file reports and other information with
the Commission. Proxy material, reports and other information about TCW/DW
Balanced and Dean Witter Balanced Growth which are of public record can be
inspected and copied at public reference facilities maintained by the
Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, NW, Washington,
D.C. 20549 and certain of its regional offices, and copies of such materials
can be obtained at prescribed rates from the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549.
20
<PAGE>
OTHER BUSINESS
Management of TCW/DW Balanced knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not
known at the time of the solicitation may come before the Meeting, the proxy
as solicited confers discretionary authority with respect to such matters as
properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such
matters.
By Order of the Board of Trustees
BARRY FINK,
Secretary
December , 1997
21
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
6th day of November 1997, by and between DEAN WITTER BALANCED GROWTH FUND, a
Massachusetts business trust ("Dean Witter Balanced Growth") and TCW/DW
BALANCED FUND, a Massachusetts business trust ("TCW/DW Balanced").
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986,
as amended (the "Code"). The reorganization ("Reorganization") will consist
of the transfer to Dean Witter Balanced Growth of substantially all of the
assets of TCW/DW Balanced in exchange for the assumption by Dean Witter
Balanced Growth of all stated liabilities of TCW/DW Balanced and the issuance
by Dean Witter Balanced Growth of shares of beneficial interest, par value
$0.01 per share (the "Dean Witter Balanced Growth Shares"), to be
distributed, after the Closing Date hereinafter referred to, to the
shareholders of TCW/DW Balanced in liquidation of TCW/DW Balanced as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF TCW/DW BALANCED
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, TCW/DW Balanced
agrees to assign, deliver and otherwise transfer the TCW/DW Balanced Assets
(as defined in paragraph 1.2) to Dean Witter Balanced Growth and Dean Witter
Balanced Growth agrees in exchange therefor to assume all of TCW/DW
Balanced's stated liabilities on the Closing Date as set forth in paragraph
1.3(a) and to deliver to TCW/DW Balanced the number of Dean Witter Balanced
Growth Shares, including fractional Dean Witter Balanced Growth Shares,
determined in the manner set forth in paragraph 2.3. Such transactions shall
take place at the closing provided for in paragraph 3.1 ("Closing").
1.2 (a) The "TCW/DW Balanced Assets" shall consist of all property,
including without limitation, all cash (other than the "Cash Reserve" (as
defined in paragraph 1.3(b)), cash equivalents, securities and dividend and
interest receivables owned by TCW/DW Balanced, and any deferred or prepaid
expenses shown as an asset on TCW/DW Balanced's books on the Valuation Date.
(b) On or prior to the Valuation Date, TCW/DW Balanced will provide Dean
Witter Balanced Growth with a list of all of TCW/DW Balanced's assets to be
assigned, delivered and otherwise transferred to Dean Witter Balanced Growth
and of the stated liabilities to be assumed by Dean Witter Balanced Growth
pursuant to this Agreement. TCW/DW Balanced reserves the right to sell any of
the securities on such list but will not, without the prior approval of Dean
Witter Balanced Growth, acquire any additional securities other than
securities of the type in which Dean Witter Balanced Growth is permitted to
invest and in amounts agreed to in writing by Dean Witter Balanced Growth.
Dean Witter Balanced Growth will, within a reasonable time prior to the
Valuation Date, furnish TCW/DW Balanced with a statement of Dean Witter
Balanced Growth's investment objectives, policies and restrictions and a list
of the securities, if any, on the list referred to in the first sentence of
this paragraph that do not conform to Dean Witter Balanced Growth's
investment objective, policies and restrictions. In the event that TCW/DW
Balanced holds any investments that Dean Witter Balanced Growth is not
permitted to hold, TCW/DW Balanced will dispose of such securities on or
prior to the Valuation Date. In addition, if it is determined that the
portfolios of TCW/DW Balanced and Dean Witter
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Balanced Growth, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon Dean Witter Balanced Growth with respect
to such investments, TCW/DW Balanced if requested by Dean Witter Balanced
Growth will, on or prior to the Valuation Date, dispose of and/or reinvest a
sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date (as defined in paragraph 3.1).
1.3 (a) TCW/DW Balanced will endeavor to discharge all of its liabilities
and obligations on or prior to the Valuation Date. Dean Witter Balanced
Growth will assume all stated liabilities, which includes, without
limitation, all expenses, costs, charges and reserves reflected on an
unaudited Statement of Assets and Liabilities of TCW/DW Balanced prepared by
the Treasurer of TCW/DW Balanced as of the Valuation Date in accordance with
generally accepted accounting principles consistently applied from the prior
audited period.
(b) On the Valuation Date, TCW/DW Balanced may establish a cash reserve,
which shall not exceed 5% of TCW/DW Balanced's net assets as of the close of
business on the Valuation Date ("Cash Reserve") to be retained by TCW/DW
Balanced and used for the payment of its liabilities not discharged prior to
the Valuation Date and for the expenses of dissolution.
1.4 In order for TCW/DW Balanced to comply with Section 852(a)(1) of the
Code and to avoid having any investment company taxable income or net capital
gain (as defined in Sections 852(b)(2) and 1222(11) of the Code,
respectively) in the short taxable year ending with its dissolution, TCW/DW
Balanced will on or before the Valuation Date (a) declare a dividend in an
amount large enough so that it will have declared dividends of all of its
investment company taxable income and net capital gain, if any, for such
taxable year (determined without regard to any deduction for dividends paid)
and (b) distribute such dividend.
1.5 On the Closing Date or as soon as practicable thereafter, TCW/DW
Balanced will distribute Dean Witter Balanced Growth Shares received by
TCW/DW Balanced pursuant to paragraph 1.1 pro rata to its shareholders of
record determined as of the close of business on the Valuation Date
("Balanced Shareholders"). Each TCW/DW Balanced Shareholder will receive the
class of shares of Dean Witter Balanced Growth that corresponds to the class
of shares of TCW/DW Balanced currently held by that TCW/DW Balanced
Shareholder. Accordingly, the Dean Witter Balanced Growth Shares will be
distributed as follows: each of the Class A, Class B, Class C and Class D
shares of Dean Witter Balanced Growth will be distributed to holders of Class
A, Class B, Class C and Class D shares of TCW/DW Balanced, respectively. Such
distribution will be accomplished by an instruction, signed by TCW/DW
Balanced's Secretary, to transfer Dean Witter Balanced Growth Shares then
credited to TCW/DW Balanced's account on the books of Dean Witter Balanced
Growth to open accounts on the books of Dean Witter Balanced Growth in the
names of the TCW/DW Balanced Shareholders and representing the respective pro
rata number of Dean Witter Balanced Growth Shares due such TCW/DW Balanced
Shareholders. All issued and outstanding shares of TCW/DW Balanced
simultaneously will be canceled on TCW/DW Balanced's books; however, share
certificates representing interests in TCW/DW Balanced will represent a
number of Dean Witter Balanced Growth Shares after the Closing Date as
determined in accordance with paragraph 2.3. Dean Witter Balanced Growth will
issue certificates representing Dean Witter Balanced Growth Shares in
connection with such exchange only upon the written request of a TCW/DW
Balanced Shareholder.
1.6 Ownership of Dean Witter Balanced Growth Shares will be shown on the
books of Dean Witter Balanced Growth's transfer agent. Dean Witter Balanced
Growth Shares will be issued in the manner described in Dean Witter Balanced
Growth's current Prospectus and Statement of Additional Information.
1.7 Any transfer taxes payable upon issuance of Dean Witter Balanced
Growth Shares in a name other than the registered holder of Dean Witter
Balanced Growth Shares on TCW/DW Balanced's books as of the close of business
on the Valuation Date shall, as a condition of such issuance and transfer, be
paid by the person to whom Dean Witter Balanced Growth Shares are to be
issued and transferred.
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1.8 Any reporting responsibility of TCW/DW Balanced is and shall remain
the responsibility of TCW/DW Balanced up to and including the date on which
TCW/DW Balanced is dissolved and deregistered pursuant to paragraph 1.9.
1.9 Within one year after the Closing Date, TCW/DW Balanced shall pay or
make provision for the payment of all its liabilities and taxes, and
distribute to the shareholders of TCW/DW Balanced as of the close of business
on the Valuation Date any remaining amount of the Cash Reserve (as reduced by
the estimated cost of distributing it to shareholders). TCW/DW Balanced shall
be dissolved as a Massachusetts business trust and deregistered as an
investment company under the Investment Company Act of 1940, as amended
("1940 Act"), promptly following the making of all distributions pursuant to
paragraph 1.5.
1.10 Copies of all books and records maintained on behalf of TCW/DW
Balanced in connection with its obligations under the 1940 Act, the Code,
state blue sky laws or otherwise in connection with this Agreement will
promptly after the Closing be delivered to officers of Dean Witter Balanced
Growth or their designee and Dean Witter Balanced Growth or its designee
shall comply with applicable record retention requirements to which TCW/DW
Balanced is subject under the 1940 Act.
2. VALUATION
2.1 The value of the TCW/DW Balanced Assets shall be the value of such
assets computed as of 4:00 p.m. on the New York Stock Exchange on the third
business day following the receipt of the requisite approval by shareholders
of TCW/DW Balanced of this Agreement or at such time on such earlier or later
date after such approval as may be mutually agreed upon in writing (such time
and date being hereinafter called the "Valuation Date"), using the valuation
procedures set forth in Dean Witter Balanced Growth's then current Prospectus
and Statement of Additional Information.
2.2 The net asset value of a Dean Witter Balanced Growth Share shall be
the net asset value per share computed on the Valuation Date, using the
valuation procedures set forth in Dean Witter Balanced Growth's then current
Prospectus and Statement of Additional Information.
2.3 The number of Dean Witter Balanced Growth Shares (including fractional
shares, if any) to be issued hereunder shall be determined, with respect to
each class, by dividing the aggregate net asset value of each class of TCW/DW
Balanced shares (determined in accordance with paragraph 2.1) by the net
asset value per share of the corresponding class of shares of Dean Witter
Balanced Growth (determined in accordance with paragraph 2.2). For purposes
of this paragraph, the aggregate net asset value of each class of shares of
TCW/DW Balanced shall not include the amount of the Cash Reserve.
2.4 All computations of value shall be made by Dean Witter Services
Company Inc. ("Services") in accordance with its regular practice in pricing
Dean Witter Balanced Growth. Dean Witter Balanced Growth shall cause Services
to deliver a copy of its valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the next business day following the
Valuation Date (the "Closing Date"). The Closing shall be held as of 9:00
a.m. Eastern time, or at such other time as the parties may agree. The
Closing shall be held in a location mutually agreeable to the parties hereto.
All acts taking place at the Closing shall be deemed to take place
simultaneously as of 9:00 a.m. Eastern time on the Closing Date unless
otherwise provided.
3.2 Portfolio securities held by TCW/DW Balanced and represented by a
certificate or other written instrument shall be presented by it or on its
behalf to The Bank of New York (the "Custodian"), as custodian
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for Dean Witter Balanced Growth, for examination no later than five business
days preceding the Valuation Date. Such portfolio securities (together with
any cash or other assets) shall be delivered by TCW/DW Balanced to the
Custodian for the account of Dean Witter Balanced Growth on or before the
Closing Date in conformity with applicable custody provisions under the 1940
Act and duly endorsed in proper form for transfer in such condition as to
constitute good delivery thereof in accordance with the custom of brokers.
The portfolio securities shall be accompanied by all necessary Federal and
state stock transfer stamps or a check for the appropriate purchase price of
such stamps. Portfolio securities and instruments deposited with a securities
depository (as defined in Rule 17f-4 under the 1940 Act) shall be delivered
on or before the Closing Date by book-entry in accordance with customary
practices of such depository and the Custodian. The cash delivered shall be
in the form of a Federal Funds wire, payable to the order of "The Bank of New
York, Custodian for Dean Witter Balanced Growth Fund."
3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall
be disrupted so that, in the judgment of both Dean Witter Balanced Growth and
TCW/DW Balanced, accurate appraisal of the value of the net assets of Dean
Witter Balanced Growth or the TCW/DW Balanced Assets is impracticable, the
Valuation Date shall be postponed until the first business day after the day
when trading shall have been fully resumed without restriction or disruption
and reporting shall have been restored.
3.4 If requested, TCW/DW Balanced shall deliver to Dean Witter Balanced
Growth or its designee (a) at the Closing, a list, certified by its
Secretary, of the names, addresses and taxpayer identification numbers of the
TCW/DW Balanced Shareholders and the number and percentage ownership of
outstanding TCW/DW Balanced shares owned by each such TCW/DW Balanced
Shareholder, all as of the Valuation Date, and (b) as soon as practicable
after the Closing, all original documentation (including Internal Revenue
Service forms, certificates, certifications and correspondence) relating to
the TCW/DW Balanced Shareholders' taxpayer identification numbers and their
liability for or exemption from back-up withholding. Dean Witter Balanced
Growth shall issue and deliver to such Secretary a confirmation evidencing
delivery of Dean Witter Balanced Growth Shares to be credited on the Closing
Date to TCW/DW Balanced or provide evidence satisfactory to TCW/DW Balanced
that such Dean Witter Balanced Growth Shares have been credited to TCW/DW
Balanced's account on the books of Dean Witter Balanced Growth. At the
Closing, each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
4. COVENANTS OF DEAN WITTER BALANCED GROWTH AND TCW/DW BALANCED
4.1 Except as otherwise expressly provided herein with respect to TCW/DW
Balanced, Dean Witter Balanced Growth and TCW/DW Balanced each will operate
its business in the ordinary course between the date hereof and the Closing
Date, it being understood that such ordinary course of business will include
customary dividends and other distributions.
4.2 Dean Witter Balanced Growth will prepare and file with the Securities
and Exchange Commission ("Commission") a registration statement on Form N-14
under the Securities Act of 1933, as amended ("1933 Act"), relating to Dean
Witter Balanced Growth Shares ("Registration Statement"). TCW/DW Balanced
will provide Dean Witter Balanced Growth with the Proxy Materials as
described in paragraph 4.3 below, for inclusion in the Registration
Statement. Balanced will further provide Dean Witter Balanced Growth with
such other information and documents relating to Dean Witter Balanced Growth
as are reasonably necessary for the preparation of the Registration
Statement.
4.3 TCW/DW Balanced will call a meeting of its shareholders to consider
and act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein. TCW/DW
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Balanced will prepare the notice of meeting, form of proxy and proxy
statement (collectively, "Proxy Materials") to be used in connection with
such meeting; provided that Dean Witter Balanced Growth will furnish TCW/DW
Balanced with its currently effective prospectus for inclusion in the Proxy
Materials and with such other information relating to Dean Witter Balanced
Growth as is reasonably necessary for the preparation of the Proxy Materials.
4.4 TCW/DW Balanced will assist Dean Witter Balanced Growth in obtaining
such information as Dean Witter Balanced Growth reasonably requests
concerning the beneficial ownership of TCW/DW Balanced shares.
4.5 Subject to the provisions of this Agreement, Dean Witter Balanced
Growth and TCW/DW Balanced will each take, or cause to be taken, all action,
and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by
this Agreement.
4.6 TCW/DW Balanced shall furnish or cause to be furnished to Dean Witter
Balanced Growth within 30 days after the Closing Date a statement of TCW/DW
Balanced's assets and liabilities as of the Closing Date, which statement
shall be certified by TCW/DW Balanced's Treasurer and shall be in accordance
with generally accepted accounting principles consistently applied. As
promptly as practicable, but in any case within 60 days after the Closing
Date, TCW/DW Balanced shall furnish Dean Witter Balanced Growth, in such form
as is reasonably satisfactory to Dean Witter Balanced Growth, a statement
certified by TCW/DW Balanced's Treasurer of TCW/DW Balanced's earnings and
profits for Federal income tax purposes that will be carried over to Dean
Witter Balanced Growth pursuant to Section 381 of the Code.
4.7 As soon after the Closing Date as is reasonably practicable, TCW/DW
Balanced (a) shall prepare and file all Federal and other tax returns and
reports of TCW/DW Balanced required by law to be filed with respect to all
periods ending on or before the Closing Date but not theretofore filed and
(b) shall pay all Federal and other taxes shown as due thereon and/or all
Federal and other taxes that were unpaid as of the Closing Date, including
without limitation, all taxes for which the provision for payment was made as
of the Closing Date (as represented in paragraph 5.2(k)).
4.8 Dean Witter Balanced Growth agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act and the 1940
Act and to make such filings required by the state Blue Sky and securities
laws as it may deem appropriate in order to continue its operations after the
Closing Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 Dean Witter Balanced Growth represents and warrants to TCW/DW Balanced
as follows:
(a) Dean Witter Balanced Growth is a validly existing Massachusetts
business trust with full power to carry on its business as presently
conducted;
(b) Dean Witter Balanced Growth is a duly registered, open-end,
management investment company, and its registration with the Commission as
an investment company under the 1940 Act and the registration of its
shares under the 1933 Act are in full force and effect;
(c) All of the issued and outstanding shares of Dean Witter Balanced
Growth have been offered and sold in compliance in all material respects
with applicable registration requirements of the 1933 Act and state
securities laws. Shares of Dean Witter Balanced Growth are registered in
all jurisdictions in which they are required to be registered under state
securities laws and other laws, and said registrations, including any
periodic reports or supplemental filings, are complete and current, all
fees required to be paid have been paid, and Dean Witter Balanced Growth
is not subject to any stop order and is fully qualified to sell its shares
in each state in which its shares have been registered;
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(d) The current Prospectus and Statement of Additional Information of
Dean Witter Balanced Growth conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the
regulations thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(e) Dean Witter Balanced Growth is not in, and the execution, delivery
and performance of this Agreement will not result in a, material violation
of any provision of Dean Witter Balanced Growth's Declaration of Trust or
By-Laws or of any agreement, indenture, instrument, contract, lease or
other undertaking to which Dean Witter Balanced Growth is a party or by
which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against Dean Witter Balanced Growth or any of its
properties or assets which, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its business;
and Dean Witter Balanced Growth knows of no facts that might form the
basis for the institution of such proceedings and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects, or is reasonably
likely to materially and adversely effect, its business or its ability to
consummate the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights as of January
31, 1997, and for the year then ended, of Dean Witter Balanced Growth
certified by Price Waterhouse LLP (copies of which have been furnished to
TCW/DW Balanced), fairly present, in all materials respects, Dean Witter
Balanced Growth's financial condition as of such date in accordance with
generally accepted accounting principles, and its results of such
operations, changes in its net assets and financial highlights for such
period, and as of such date there were no known liabilities of Dean Witter
Balanced Growth (contingent or otherwise) not disclosed therein that would
be required in accordance with generally accepted accounting principles to
be disclosed therein;
(h) All issued and outstanding Dean Witter Balanced Growth Shares are,
and at the Closing Date will be, duly and validly issued and outstanding,
fully paid and nonassessable with no personal liability attaching to the
ownership thereof, except as set forth under the caption "Additional
Information" in Dean Witter Balanced Growth's current Prospectus
incorporated by reference in the Registration Statement. Dean Witter
Balanced Growth does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of its shares;
(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of Dean Witter
Balanced Growth, and this Agreement constitutes a valid and binding
obligation of Dean Witter Balanced Growth enforceable in accordance with
its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors rights and to general equity principles. No other consents,
authorizations or approvals are necessary in connection with Dean Witter
Balanced Growth's performance of this Agreement;
(j) Dean Witter Balanced Growth Shares to be issued and delivered to
TCW/DW Balanced, for the account of the TCW/DW Balanced Shareholders,
pursuant to the terms of this Agreement will at the Closing Date have been
duly authorized and, when so issued and delivered, will be duly and
validly issued Dean Witter Balanced Growth Shares, and will be fully paid
and non-assessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
Dean Witter Balanced Growth's current Prospectus incorporated by reference
in the Registration Statement;
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(k) All material Federal and other tax returns and reports of Dean
Witter Balanced Growth required by law to be filed on or before the
Closing Date have been filed and are correct, and all Federal and other
taxes shown as due or required to be shown as due on said returns and
reports have been paid or provision has been made for the payment thereof,
and to the best of Dean Witter Balanced Growth's knowledge, no such return
is currently under audit and no assessment has been asserted with respect
to any such return;
(l) For each taxable year since its inception, Dean Witter Balanced
Growth has met the requirements of Subchapter M of the Code for
qualification and treatment as a "regulated investment company" and
neither the execution or delivery of nor the performance of its
obligations under this Agreement will adversely affect, and no other
events are reasonably likely to occur which will adversely affect the
ability of Dean Witter Balanced Growth to continue to meet the
requirements of Subchapter M of the Code;
(m) Since January 31, 1997 there has been no change by Dean Witter
Balanced Growth in accounting methods, principles, or practices, including
those required by generally accepted accounting principles;
(n) The information furnished or to be furnished by Dean Witter Balanced
Growth for use in registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete in all material
respects and shall comply in all material respects with Federal securities
and other laws and regulations applicable thereto; and
(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to Dean Witter Balanced Growth) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not materially misleading.
5.2 TCW/DW Balanced represents and warrants to Dean Witter Balanced Growth
as follows:
(a) TCW/DW Balanced is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) TCW/DW Balanced is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
TCW/DW Balanced have been offered and sold in compliance in all material
respects with applicable requirements of the 1933 Act and state securities
laws. Shares of TCW/DW Balanced are registered in all jurisdictions in
which they are required to be registered and said registrations, including
any periodic reports or supplemental filings, are complete and current,
all fees required to be paid have been paid, and TCW/DW Balanced is not
subject to any stop order and is fully qualified to sell its shares in
each state in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
TCW/DW Balanced conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
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(e) TCW/DW Balanced is not, and the execution, delivery and performance
of this Agreement will not result, in a material violation of any
provision of Balanced's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to
which TCW/DW Balanced is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against TCW/DW Balanced or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and TCW/DW
Balanced knows of no facts that might form the basis for the institution
of such proceedings and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially
and adversely effect, its business or its ability to consummate the
transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of TCW/DW
Balanced as of September 30, 1997 and for the year then ended, certified
by Price Waterhouse LLP (copies of which have been or will be furnished to
Dean Witter Balanced Growth) fairly present, in all material respects,
TCW/DW Balanced's financial condition as of such date, and its results of
operations, changes in its net assets and financial highlights for such
period in accordance with generally accepted accounting principles, and as
of such date there were no known liabilities of TCW/DW Balanced
(contingent or otherwise) not disclosed therein that would be required in
accordance with generally accepted accounting principles to be disclosed
therein;
(h) TCW/DW Balanced has no material contracts or other commitments (other
than this Agreement) that will be terminated with liability to it prior to
the Closing Date;
(i) All issued and outstanding shares of TCW/DW Balanced are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
TCW/DW Balanced's current Prospectus incorporated by reference in the
Registration Statement. TCW/DW Balanced does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares, nor is there outstanding any security convertible to any of its
shares. All such shares will, at the time of Closing, be held by the
persons and in the amounts set forth in the list of shareholders submitted
to Dean Witter Balanced Growth pursuant to paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of TCW/DW Balanced, and subject to the approval of TCW/DW
Balanced's shareholders, this Agreement constitutes a valid and binding
obligation of TCW/DW Balanced, enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors rights and to
general equity principles. No other consents, authorizations or approvals
are necessary in connection with TCW/DW Balanced's performance of this
Agreement;
(k) All material Federal and other tax returns and reports of TCW/DW
Balanced required by law to be filed on or before the Closing Date shall
have been filed and are correct and all Federal and other taxes shown as
due or required to be shown as due on said returns and reports have been
paid or provision has been made for the payment thereof, and to the best
of TCW/DW Balanced's knowledge, no such return is currently under audit
and no assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, TCW/DW Balanced has met
all the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and
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neither the execution or delivery of nor the performance of its
obligations under this Agreement will adversely affect, and no other
events are reasonably likely to occur which will adversely affect the
ability of TCW/DW Balanced to continue to meet the requirements of
Subchapter M of the Code;
(m) At the Closing Date, TCW/DW Balanced will have good and valid title
to the TCW/DW Balanced Assets, subject to no liens (other than the
obligation, if any, to pay the purchase price of portfolio securities
purchased by TCW/DW Balanced which have not settled prior to the Closing
Date), security interests or other encumbrances, and full right, power and
authority to assign, deliver and otherwise transfer such assets hereunder,
and upon delivery and payment for such assets, Dean Witter Balanced Growth
will acquire good and marketable title thereto, subject to no restrictions
on the full transfer thereof, including any restrictions as might arise
under the 1933 Act;
(n) On the effective date of the Registration Statement, at the time of
the meeting of TCW/DW Balanced's shareholders and on the Closing Date, the
Proxy Materials (exclusive of the currently effective Dean Witter Balanced
Growth Prospectus contained therein) will (i) comply in all material
respects with the provisions of the 1933 Act, the Securities Exchange Act
of 1934, as amended ("1934 Act") and the 1940 Act and the regulations
thereunder and (ii) not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading. Any other information
furnished by TCW/DW Balanced for use in the Registration Statement or in
any other manner that may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply in all
material respects with applicable Federal securities and other laws and
regulations thereunder;
(o) TCW/DW Balanced will, on or prior to the Valuation Date, declare one
or more dividends or other distributions to shareholders that, together
with all previous dividends and other distributions to shareholders, shall
have the effect of distributing to the shareholders all of its investment
company taxable income and net capital gain, if any, through the Valuation
Date (computed without regard to any deduction for dividends paid);
(p) TCW/DW Balanced has maintained or has caused to be maintained on its
behalf all books and accounts as required of a registered investment
company in compliance with the requirements of Section 31 of the 1940 Act
and the Rules thereunder; and
(q) TCW/DW Balanced is not acquiring Dean Witter Balanced Growth Shares
to be issued hereunder for the purpose of making any distribution thereof
other than in accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCW/DW BALANCED
The obligations of TCW/DW Balanced to consummate the transactions provided
for herein shall be subject, at its election, to the performance by Dean
Witter Balanced Growth of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
6.1 All representations and warranties of Dean Witter Balanced Growth
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date;
6.2 Dean Witter Balanced Growth shall have delivered to TCW/DW Balanced a
certificate of its President and Treasurer, in a form reasonably satisfactory
to TCW/DW Balanced and dated as of the Closing Date, to the effect that the
representations and warranties of Dean Witter Balanced Growth made in this
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Agreement are true and correct at and as of the Closing Date, except as they
may be affected by the transactions contemplated by this Agreement, and as to
such other matters as TCW/DW Balanced shall reasonably request;
6.3 TCW/DW Balanced shall have received a favorable opinion from Gordon
Altman Butowsky Weitzen Shalov & Wein, counsel to Dean Witter Balanced
Growth, dated as of the Closing Date, to the effect that:
(a) Dean Witter Balanced Growth is a validly existing Massachusetts
business trust, and has the power to own all of its properties and assets
and to carry on its business as presently conducted (Massachusetts counsel
may be relied upon in delivering such opinion); (b) Dean Witter Balanced
Growth is a duly registered, open-end, management investment company, and
its registration with the Commission as an investment company under the
1940 Act is in full force and effect; (c) this Agreement has been duly
authorized, executed and delivered by Dean Witter Balanced Growth and,
assuming that the Registration Statement complies with the 1933 Act, the
1934 Act and the 1940 Act and regulations thereunder and assuming due
authorization, execution and delivery of this Agreement by TCW/DW
Balanced, is a valid and binding obligation of Dean Witter Balanced Growth
enforceable against Dean Witter Balanced Growth in accordance with its
terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors rights and to general equity principles; (d) Dean Witter
Balanced Growth Shares to be issued to TCW/DW Balanced Shareholders as
provided by this Agreement are duly authorized and upon such delivery will
be validly issued, fully paid and non-assessable (except as set forth
under the caption "Additional Information" in Dean Witter Balanced
Growth's Prospectus), and no shareholder of Dean Witter Balanced Growth
has any preemptive rights to subscription or purchase in respect thereof
(Massachusetts counsel may be relied upon in delivering such opinion); (e)
the execution and delivery of this Agreement did not, and the consummation
of the transactions contemplated hereby will not, violate Dean Witter
Balanced Growth's Declaration of Trust or By-Laws; and (f) to the
knowledge of such counsel, no consent, approval, authorization or order of
any court or governmental authority of the United States or any state is
required for the consummation by Dean Witter Balanced Growth of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required
under state securities laws; and
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any increase in the
investment management fees or annual fees payable pursuant to Dean Witter
Balanced Growth's 12b-1 plan of distribution from those described in Dean
Witter Balanced Growth's Prospectus and Statement of Additional Information
dated July 28, 1997.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF DEAN WITTER BALANCED GROWTH
The obligations of Dean Witter Balanced Growth to complete the
transactions provided for herein shall be subject, at its election, to the
performance by TCW/DW Balanced of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the
following conditions:
7.1 All representations and warranties of TCW/DW Balanced contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date;
7.2 TCW/DW Balanced shall have delivered to Dean Witter Balanced Growth at
the Closing a certificate of its President and its Treasurer, in form and
substance satisfactory to Dean Witter Balanced Growth and dated as of the
Closing Date, to the effect that the representations and warranties of TCW/DW
Balanced made
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in this Agreement are true and correct at and as of the Closing Date, except
as they may be affected by the transactions contemplated by this Agreement,
and as to such other matters as Dean Witter Balanced Growth shall reasonably
request;
7.3 TCW/DW Balanced shall have delivered to Dean Witter Balanced Growth a
statement of the TCW/DW Balanced Assets and its liabilities, together with a
list of TCW/DW Balanced's portfolio securities and other assets showing the
respective adjusted bases and holding periods thereof for income tax
purposes, as of the Closing Date, certified by the Treasurer of TCW/DW
Balanced;
7.4 TCW/DW Balanced shall have delivered to Dean Witter Balanced Growth
within three business days after the Closing a letter from Price Waterhouse
LLP dated as of the Closing Date stating that (a) such firm has performed a
limited review of the Federal and state income tax returns of TCW/DW Balanced
for each of the last three taxable years and, based on such limited review,
nothing came to their attention that caused them to believe that such returns
did not properly reflect, in all material respects, the Federal and state
income tax liabilities of TCW/DW Balanced for the periods covered thereby,
(b) for the period from September 30, 1997 to and including the Closing Date,
such firm has performed a limited review (based on unaudited financial data)
to ascertain the amount of applicable Federal, state and local taxes and has
determined that same either have been paid or reserves have been established
for payment of such taxes, and, based on such limited review, nothing came to
their attention that caused them to believe that the taxes paid or reserves
set aside for payment of such taxes were not adequate in all materials
respects for the satisfaction of all Federal, state and local tax liabilities
for the period from September 30, 1997 to and including the Closing Date and
(c) based on such limited reviews, nothing came to their attention that
caused them to believe that TCW/DW Balanced would not qualify as a regulated
investment company for Federal income tax purposes for any such year or
period;
7.5 Dean Witter Balanced Growth shall have received at the Closing a
favorable opinion from Gordon Altman Butowsky Weitzen Shalov & Wein, counsel
to TCW/DW Balanced, dated as of the Closing Date to the effect that:
(a) TCW/DW Balanced is a validly existing Massachusetts business trust
and has the power to own all of its properties and assets and to carry on
its business as presently conducted (Massachusetts counsel may be relied
upon in delivering such opinion); (b) TCW/DW Balanced is a duly
registered, open-end, management investment company under the 1940 Act,
and its registration with the Commission as an investment company under
the 1940 Act is in full force and effect; (c) this Agreement has been duly
authorized, executed and delivered by TCW/DW Balanced and, assuming that
the Registration Statement complies with the 1933 Act, the 1934 Act and
the 1940 Act and the regulations thereunder and assuming due
authorization, execution and delivery of this Agreement by Dean Witter
Balanced Growth, is a valid and binding obligation of TCW/DW Balanced
enforceable against TCW/DW Balanced in accordance with its terms, subject
as to enforcement, to bankruptcy, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors rights and to general
equity principles; (d) the execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated hereby will
not, violate TCW/DW Balanced's Declaration of Trust or By-Laws; and (e) to
the knowledge of such counsel, no consent, approval, authorization or
order of any court or governmental authority of the United States or any
state is required for the consummation by TCW/DW Balanced of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required
under state securities laws; and
7.6 On the Closing Date, the TCW/DW Balanced Assets shall include no
assets that Dean Witter Balanced Growth, by reason of limitations of the
fund's Declaration of Trust or otherwise, may not properly acquire.
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8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF DEAN WITTER BALANCED
GROWTH AND TCW/DW BALANCED
The obligations of TCW/DW Balanced and Dean Witter Balanced Growth
hereunder are each subject to the further conditions that on or before the
Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares
of TCW/DW Balanced in accordance with the provisions of TCW/DW Balanced's
Declaration of Trust, and certified copies of the resolutions evidencing such
approval shall have been delivered to Dean Witter Balanced Growth;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such Federal and state
authorities) deemed necessary by Dean Witter Balanced Growth or TCW/DW
Balanced to permit consummation, in all material respects, of the
transactions contemplated herein shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve risk of
a material adverse effect on the assets or properties of Dean Witter Balanced
Growth or TCW/DW Balanced;
8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5 TCW/DW Balanced shall have declared and paid a dividend or dividends
and/or other distribution or distributions that, together with all previous
such dividends or distributions, shall have the effect of distributing to the
TCW/DW Balanced Shareholders all of Balanced's investment company taxable
income (computed without regard to any deduction for dividends paid) and all
of its net capital gain (after reduction for any capital loss carry-forward
and computed without regard to any deduction for dividends paid) for all
taxable years ending on or before the Closing Date; and
8.6 The parties shall have received a favorable opinion of the law firm of
Gordon Altman Butowsky Weitzen Shalov & Wein (based on such representations
as such law firm shall reasonably request), addressed to Dean Witter Balanced
Growth and TCW/DW Balanced, which opinion may be relied upon by the
shareholders of TCW/DW Balanced, substantially to the effect that, for
Federal income tax purposes:
(a) The transfer of substantially all of TCW/DW Balanced's assets in
exchange for Dean Witter Balanced Growth Shares and the assumption by Dean
Witter Balanced Growth of certain stated liabilities of TCW/DW Balanced
followed by the distribution by TCW/DW Balanced of Dean Witter Balanced
Growth Shares to the TCW/DW Balanced Shareholders in exchange for their
TCW/DW Balanced shares will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code, and TCW/DW Balanced and Dean
Witter Balanced Growth will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by Dean Witter Balanced Growth
upon the receipt of the assets of TCW/DW Balanced solely in exchange for
Dean Witter Balanced Growth Shares and the assumption by Dean Witter
Balanced Growth of the stated liabilities of TCW/DW Balanced;
A-12
<PAGE>
(c) No gain or loss will be recognized by TCW/DW Balanced upon the
transfer of the assets of TCW/DW Balanced to Dean Witter Balanced Growth
in exchange for Dean Witter Balanced Growth Shares and the assumption by
Dean Witter Balanced Growth of the stated liabilities or upon the
distribution of Dean Witter Balanced Growth Shares to the TCW/DW Balanced
Shareholders in exchange for their TCW/DW Balanced shares;
(d) No gain or loss will be recognized by the TCW/DW Balanced
Shareholders upon the exchange of the TCW/DW Balanced shares for Dean
Witter Balanced Growth Shares;
(e) The aggregate tax basis for Dean Witter Balanced Growth Shares
received by each TCW/DW Balanced Shareholder pursuant to the
reorganization will be the same as the aggregate tax basis of the TCW/DW
Balanced Shares held by each such TCW/DW Balanced Shareholder immediately
prior to the Reorganization;
(f) The holding period of Dean Witter Balanced Growth Shares to be
received by each TCW/DW Balanced Shareholder will include the period
during which the TCW/DW Balanced Shares surrendered in exchange therefor
were held (provided such TCW/DW Balanced Shares were held as capital
assets on the date of the Reorganization);
(g) The tax basis of the assets of TCW/DW Balanced acquired by Dean
Witter Balanced Growth will be the same as the tax basis of such assets to
TCW/DW Balanced immediately prior to the Reorganization; and
(h) The holding period of the assets of TCW/DW Balanced in the hands of
Dean Witter Balanced Growth will include the period during which those
assets were held by TCW/DW Balanced.
Notwithstanding anything herein to the contrary, neither Dean Witter
Balanced Growth nor TCW/DW Balanced may waive the conditions set forth in
this paragraph 8.6.
9. FEES AND EXPENSES
9.1 (a) Dean Witter Balanced Growth shall bear its expenses incurred in
connection with the entering into, and carrying out of, the provisions of
this Agreement, including legal, accounting, Commission registration fees and
Blue Sky expenses. TCW/DW Balanced shall bear its expenses in connection with
the entering into, and carrying out of, the provisions of this Agreement,
including legal and accounting fees, printing, filing and proxy solicitation
expenses and portfolio transfer taxes (if any) incurred in connection with
the consummation of the transactions contemplated herein.
(b) In the event the transactions contemplated herein are not consummated
by reason of TCW/DW Balanced being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
TCW/DW Balanced's obligations specified in this Agreement), TCW/DW Balanced's
only obligation hereunder shall be to reimburse Dean Witter Balanced Growth
for all reasonable out-of-pocket fees and expenses incurred by Dean Witter
Balanced Growth in connection with those transactions.
(c) In the event the transactions contemplated herein are not consummated
by reason of Dean Witter Balanced Growth being either unwilling or unable to
go forward (other than by reason of the nonfulfillment or failure of any
condition to Dean Witter Balanced Growth's obligations specified in this
Agreement), Dean Witter Balanced Growth's only obligation hereunder shall be
to reimburse TCW/DW Balanced for all reasonable out-of-pocket fees and
expenses incurred by TCW/DW Balanced in connection with those transactions.
A-13
<PAGE>
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein, except that the representations, warranties and covenants of TCW/DW
Balanced hereunder shall not survive the dissolution and complete liquidation
of TCW/DW Balanced in accordance with Section 1.9.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of TCW/DW Balanced and Dean Witter
Balanced Growth;
(b) by either Dean Witter Balanced Growth or TCW/DW Balanced by notice to
the other, without liability to the terminating party on account of such
termination (providing the termination party is not otherwise in material
default or breach of this Agreement) if the Closing shall not have
occurred on or before April 30, 1998; or
(c) by either Dean Witter Balanced Growth or TCW/DW Balanced, in writing
without liability to the terminating party on account of such termination
(provided the terminating party is not otherwise in material default or
breach of this Agreement), if (i) the other party shall fail to perform in
any material respect its agreements contained herein required to be
performed on or prior to the Closing Date, (ii) the other party materially
breaches any of its representations, warranties or covenants contained
herein, (iii) the TCW/DW Balanced shareholders fail to approve this
Agreement at any meeting called for such purpose at which a quorum was
present or (iv) any other condition herein expressed to be precedent to
the obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall
be no liability for damages on the part of Dean Witter Balanced Growth or
TCW/DW Balanced, or the trustees or officers of Dean Witter Balanced Growth
or TCW/DW Balanced, to any other party or its trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of Dean Witter Balanced Growth or TCW/DW
Balanced, or the trustees or officers of Dean Witter Balanced Growth or
TCW/DW Balanced, except that any party in breach of this Agreement shall,
upon demand, reimburse the non-breaching party for all reasonable
out-of-pocket fees and expenses incurred in connection with the transactions
contemplated by this Agreement, including legal, accounting and filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties; provided, however,
that following the meeting of TCW/DW Balanced's shareholders called by
Balanced pursuant to paragraph 4.3, no such amendment may have the effect of
changing the provisions for determining the number of Dean Witter Balanced
Growth Shares to be issued to the TCW/DW Balanced Shareholders under this
Agreement to the detriment of such TCW/DW Balanced Shareholders without their
further approval.
A-14
<PAGE>
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason
of this Agreement.
13.5 The obligations and liabilities of Dean Witter Balanced Growth
hereunder are solely those of Dean Witter Balanced Growth. It is expressly
agreed that no shareholder, nominee, trustee, officer, agent, or employee of
Dean Witter Balanced Growth shall be personally liable hereunder. The
execution and delivery of this Agreement have been authorized by the
directors of Dean Witter Balanced Growth and signed by authorized officers of
Dean Witter Balanced Growth acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be
deemed to have been made by any of them individually or to impose any
liability on any of them personally.
13.6 The obligations and liabilities of TCW/DW Balanced hereunder are
solely those of Balanced. lt is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of TCW/DW Balanced shall be
personally liable hereunder. The execution and delivery of this Agreement
have been authorized by the trustees of TCW/DW Balanced and signed by
authorized officers of TCW/DW Balanced acting as such, and neither such
authorization by such trustees nor such execution and delivery by such
officers shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer.
TCW/DW BALANCED FUND
By: /s/ Charles A. Fiumefreddo
..............................
Name: Charles A. Fiumefreddo
Title: Chairman
DEAN WITTER BALANCED GROWTH FUND
By: /s/ Barry Fink
..............................
Name: Barry Fink
Title: Vice President
A-15
<PAGE>
DEAN WITTER
PROSPECTUS -- JULY 28, 1997
Dean Witter Balanced Growth Fund (the "Fund") is an open-end, diversified
management investment company whose investment objective is to provide
capital growth with reasonable current income. The Fund seeks to achieve its
objective by investing, under normal market conditions, at least 60% of its
total assets in a diversified portfolio of common stocks of companies which
have a record of paying dividends and, in the opinion of the Investment
Manager, have the potential for increasing dividends and in securities
convertible into common stock; and at least 25% of its total assets in
investment grade fixed income (fixed-rate and adjustable-rate) securities
such as corporate notes and bonds and obligations issued or guaranteed by the
U.S. Government, its agencies and its instrumentalities. See "Investment
Objective and Policies."
The Fund offers four classes of shares (each, a "Class"), each with a
different combination of sales charges, ongoing fees and other features. The
different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Except as discussed herein, shares
of the Fund held prior to July 28, 1997 have been designated Class C shares.
See "Purchase of Fund Shares--Alternative Purchase Arrangements."
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated July 28, 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.
DEAN WITTER
BALANCED GROWTH FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 OR
(800) 869-NEWS (TOLL-FREE)
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 5
Financial Highlights .................................................. 7
The Fund and its Management ........................................... 8
Investment Objective and Policies ..................................... 8
Risk Considerations .................................................. 13
Investment Restrictions ............................................... 16
Purchase of Fund Shares ............................................... 17
Shareholder Services .................................................. 27
Redemptions and Repurchases ........................................... 30
Dividends, Distributions and Taxes .................................... 31
Performance Information ............................................... 32
Additional Information ................................................ 33
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN 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 DISTRIBUTORS INC.
DISTRIBUTOR
<PAGE>
PROSPECTUS SUMMARY
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
------------------- ------------------------------------------------------------------
THE FUND The Fund is organized as a Trust, commonly known as a
Massachusetts business trust, and is an open-end, diversified
management investment company. Under normal market conditions the
Fund will invest at least 60% of its total assets in common stock
of companies which have a record of paying dividends and, in the
opinion of the Investment Manager, have the potential for
increasing dividends and in securities convertible into common
stock; and at least 25% of its total assets in investment grade
fixed income securities such as corporate notes and bonds and
obligations issued or guaranteed by the U.S. Government, its
agencies and its instrumentalities.
- ------------------- ------------------------------------------------------------------
SHARES OFFERED Shares of beneficial interest with $.01 par value (see page
33).The Fund offers four Classes of shares, each with a different
combination of sales charges, ongoing fees and other features (see
pages 17-27).
- ------------------- ------------------------------------------------------------------
MINIMUM PURCHASE The minimum initial investment for each Class is $1,000 ($100 if
the account is opened through EasyInvest (Service Mark) ). Class D
shares are only available to persons investing $5 million or more
and to certain other limited categories of investors. For the
purpose of meeting the minimum $5 million investment for Class D
shares, and subject to the $1,000 minimum initial investment for
each Class of the Fund, an investor's existing holdings of Class A
shares and shares of funds for which Dean Witter InterCapital Inc.
serves as investment manager ("Dean Witter Funds") that are sold
with a front-end sales charge, and concurrent investments in Class
D shares of the Fund and other Dean Witter Funds that are multiple
class funds, will be aggregated. The minimum subsequent investment
is $100 (see page 17).
- ------------------- ------------------------------------------------------------------
INVESTMENT The investment objective of the Fund is to provide capital growth
OBJECTIVE with reasonable current income.
- ------------------- ------------------------------------------------------------------
INVESTMENT MANAGER Dean Witter InterCapital Inc., the Investment Manager of the Fund,
and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management
and administrative capacities to 100 investment companies and
other portfolios with net assets under management of approximately
$96.6 billion at June 30, 1997 (see page 8).
- ------------------- ------------------------------------------------------------------
MANAGEMENT FEE The Investment Manager receives a monthly fee at the annual rate
of 0.60% of the Fund's average daily net assets (see page 8).
- ------------------- ------------------------------------------------------------------
DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor"). The Fund has
DISTRIBUTION FEE adopted a distribution plan pursuant to Rule 12b-1 under the
Investment Company Act (the "12b-1 Plan") with respect to the
distribution fees paid by the Class A, Class B and Class C shares
of the Fund to the Distributor. The entire 12b-1 fee payable by
Class A and a portion of the 12b-1 fee payable by each of Class B
and Class C equal to 0.25% of the average daily net assets of the
Class are currently each characterized as a service fee within the
meaning of the National Association of Securities Dealers, Inc.
guidelines. The remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge (see pages 17 and
25).
- ---------------------------------------------------------------------------------------
2
<PAGE>
- ---------------------------------------------------------------------------------------
ALTERNATIVE Four classes of shares are offered:
PURCHASE
ARRANGEMENTS o Class A shares are offered with a front-end sales charge,
starting at 5.25% and reduced for larger purchases.
Investments of $1 million or more (and investments by
certain other limited categories of investors) are not
subject to any sales charge at the time of purchase but
a contingent deferred sales charge ("CDSC") of 1.0% may
be imposed on redemptions within one year of purchase.
The Fund is authorized to reimburse the Distributor for
specific expenses incurred in promoting the distribution
of the Fund's Class A shares and servicing shareholder
accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to
payments at an annual rate of 0.25% of average daily net
assets of the Class (see pages 17, 20 and 25). Shares of
the Fund held prior to July 28, 1997 which were acquired
in exchange for shares of Dean Witter Funds sold with a
front-end sales charge, including shares acquired
through reinvestment of dividends and distributions
thereon, have been designated Class A shares.
o Class B shares are offered without a front-end sales
charge, but will in most cases be subject to a CDSC
(scaled down from 5.0% to 1.0%) if redeemed within six
years after purchase. The CDSC will be imposed on any
redemption of shares if after such redemption the
aggregate current value of a Class B account with the
Fund falls below the aggregate amount of the investor's
purchase payments made during the six years preceding
the redemption. A different CDSC schedule applies to
investments by certain qualified plans. Class B shares
are also subject to a 12b-1 fee assessed at the annual
rate of 1.0% of the average daily net assets of Class B.
Shares of the Fund held prior to July 28, 1997 which
were acquired in exchange for shares of Dean Witter
Funds sold with a CDSC, including shares acquired
through reinvestment of dividends and distributions
thereon, have been designated Class B shares. Shares
held before May 1, 1997 that have been designated Class
B shares will convert to Class A shares in May, 2007. In
all other instances, Class B shares convert to Class A
shares approximately ten years after the date of the
original purchase (see pages 17, 22 and 25).
o Class C shares are offered without a front-end sales
charge, but will in most cases be subject to a CDSC of
1.0% if redeemed within one year after purchase. The
Fund is authorized to reimburse the Distributor for
specific expenses incurred in promoting the distribution
of the Fund's Class C shares and servicing shareholder
accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to
payments at an annual rate of 1.0% of average daily net
assets of the Class (see pages 17 and 25). All shares of
the Fund held prior to July 28, 1997 (other than shares
which were acquired in exchange for shares of Dean
Witter Funds offered with either a front-end sales
charge or a CDSC and shares acquired through
reinvestment of dividends and distributions thereon)
have been designated Class C shares. Shares held before
July 28, 1997 that have been designated Class C shares
are not subject to the 1.0% CDSC.
o Class D shares are offered only to investors meeting
an initial investment minimum of $5 million and to
certain other limited categories of investors. Class D
shares are offered without a front-end sales charge or
CDSC and are not subject to any 12b-1 fee (see pages 17
and 25).
- ---------------------------------------------------------------------------------------
3
<PAGE>
- ---------------------------------------------------------------------------------------
DIVIDENDS AND Dividends from net investment income are paid quarterly and
CAPITAL GAINS distributions from net capital gains, if any, are paid at least
DISTRIBUTIONS once per year. The Fund may, however, determine to retain all or
part of any net long-term capital gains in any year for
reinvestment. Dividends and capital gains distributions paid on
shares of a Class are automatically reinvested in additional
shares of the same Class at net asset value unless the shareholder
elects to receive cash. Shares acquired by dividend and
distribution reinvestment will not be subject to any sales charge
or CDSC (see pages 27 and 31).
- ------------------- ------------------------------------------------------------------
REDEMPTION Shares are redeemable by the shareholder at net asset value less
any applicable CDSC on Class A, Class B or Class C shares. An
account may be involuntarily redeemed if the total value of the
account is less than $100 or, if the account was opened through
EasyInvest (Service Mark), if after twelve months the shareholder
has invested less than $1,000 in the account (see page 30).
- ------------------- ------------------------------------------------------------------
RISK The net asset value of the Fund's shares will fluctuate with
CONSIDERATIONS changes in market value of portfolio securities. The value of the
Fund's fixed-income portfolio securities, and therefore the Fund's
net asset value per share, may increase or decrease due to various
factors, principally changes in prevailing interest rates.
Generally, a rise in interest rates will result in a decrease in
the Fund's net asset value per share, while a drop in interest
rates will result in an increase in the Fund's net asset value per
share. In addition, the average life of certain of the securities
held in the Fund's portfolio (e.g., GNMA Certificates) may be
shortened by prepayments or refinancings of the mortgage pools
underlying such securities or lengthened by slower than expected
prepayments (see page 10). Such prepayments may have an impact on
dividends paid by the Fund and on the volatility of the Fund's net
asset value per share. Dividends payable by the Fund will also
vary in relation to the amounts of dividends earned on common
stock and interest earned on fixed income securities. The Fund may
enter into repurchase agreements, may purchase securities on a
when-issued and delayed delivery basis and may utilize certain
investment techniques including options and futures for hedging
purposes all of which involve certain special risks (see pages
10-15).
</TABLE>
- -----------------------------------------------------------------------------
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
4
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. The expenses and fees set forth in the table are
based on the expenses and fees for the fiscal year ended January 31, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
- ---------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ..................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments .... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds)............................... None(2) 5.00%(3) 1.00%(4) None
Redemption Fees..................................... None None None None
Exchange Fee........................................ None None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
- ----------------------------------------------------------------------
Management Fees* ................................... 0.60% 0.60% 0.60% 0.60%
12b-1 Fees (5)(6)*.................................. 0.25% 1.00% 1.00% None
Other Expenses* .................................... 0.35% 0.35% 0.35% 0.35%
Total Fund Operating Expenses (7)*.................. 1.20% 1.95% 1.95% 0.95%
</TABLE>
- ------------
* "Management Fees," "12b-1 Fees" and "Other Expenses" have been restated
to reflect current fees and expenses. InterCapital assumed all expenses
(except brokerage fees) and waived the compensation provided for in its
investment management agreement until February 9, 1996.
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
Shares of the Fund held prior to July 28, 1997 that have been
designated Class C shares are not subject to the 1.00% CDSC.
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1
fee payable by Class A and a portion of the 12b-1 fee payable by each
of Class B and Class C equal to 0.25% of the average daily net assets
of the Class are currently each characterized as a service fee within
the meaning of National Association of Securities Dealers, Inc.
("NASD") guidelines and are payments made for personal service and/or
maintenance of shareholder accounts. The remainder of the 12b-1 fee, if
any, is an asset-based sales charge, and is a distribution fee paid to
the Distributor to compensate it for the services provided and the
expenses borne by the Distributor and others in the distribution of the
Fund's shares (see "Purchase of Fund Shares--Plan of Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will
be subject to the lower 12b-1 fee applicable to Class A shares. No
sales charge is imposed at the time of conversion of Class B shares to
Class A shares. Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing 1.00% distribution fee (see
"Purchase of Fund Shares--Alternative Purchase Arrangements").
(7) There were no outstanding shares of Class A, Class B or Class D prior
to the date of this Prospectus. Accordingly, "Total Fund Operating
Expenses," as shown above with respect to those Classes, are based upon
the sum of 12b-1 Fees, Management Fees and estimated "Other Expenses."
5
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------- -------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
Class A ...................................................... $64 $89 $115 $190
Class B ...................................................... $70 $91 $125 $227
Class C....................................................... $30 $61 $105 $227
Class D ...................................................... $10 $30 $ 53 $117
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ...................................................... $64 $89 $115 $190
Class B ...................................................... $20 $61 $105 $227
Class C ...................................................... $20 $61 $105 $227
Class D ...................................................... $10 $30 $ 53 $117
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER
OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares -- Plan of
Distribution" and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of the
maximum front-end sales charge permitted by the NASD.
6
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in
conjunction with the financial statements, the 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.
All shares of the Fund held prior to July 28, 1997 (other than shares which
were acquired in exchange for shares of Dean Witter Funds offered with either
a front-end sales charge or a CDSC and shares acquired through reinvestment
of dividends and distributions thereon) have been designated Class C shares.
Shares held prior to July 28, 1997 which were acquired in exchange for shares
of a Dean Witter Fund sold with a front-end sales charge, including shares
acquired through reinvestment of dividends and distributions thereon, have
been designated Class A shares, and shares held prior to July 28, 1997 which
were acquired in exchange for shares of a Dean Witter Fund sold with a CDSC,
including shares acquired through reinvestment of dividends and distributions
thereon, have been designated Class B shares.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR MARCH 28, 1995*
ENDED THROUGH
JANUARY 31, 1997 JANUARY 31, 1996
- --------------------------------------- ---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 11.92 $10.00
---------------- ----------------
Net investment income................... 0.25 0.31
Net realized and unrealized gain ...... 1.33 1.88
---------------- ----------------
Total from investment operations ....... 1.58 2.19
---------------- ----------------
Less dividends and distributions from:
Net investment income.................. (0.27) (0.27)**
Net realized gain...................... (0.22) --
---------------- ----------------
Total dividends and distributions ...... (0.49) (0.27)
---------------- ----------------
Net asset value, end of period.......... $ 13.01 $11.92
================ ================
TOTAL INVESTMENT RETURN+ ............... 13.44% 22.13%(1)
RATIOS TO AVERAGE NET ASSETS:
--
Expenses ............................... 1.92%(3) %(2)(3)
Net investment income................... 2.31%(3) 4.25%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $119,416 $47,596
Portfolio turnover rate................. 16% 2%(1)
--
Average commission rate paid............ $0.0516
</TABLE>
------------
* Commencement of operations.
** Includes a capital gain distribution of $0.004.
+ 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 and waived the
management fee, the annualized expense and net investment income ratios
would have been 2.42% and 1.83%, respectively, for the period ended
January 31, 1996, and 1.95% and 2.28%, respectively, for the year ended
January 31, 1997.
7
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter Balanced Growth Fund (the "Fund") is an open-end diversified
management investment company. The Fund is a trust of the type commonly known
as a "Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on November 23, 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 Morgan Stanley,
Dean Witter, Discover & Co., a preeminent global financial services firm that
maintains leading market positions in each of its three primary
businesses--securities, asset management and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 100 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$93.1 billion at June 30, 1997. The Investment Manager also manages
portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.5 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of
portfolio securities. InterCapital has retained Dean Witter Services Company
Inc. to perform the aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by the Investment
Manager to ensure that the Fund's general investment policies and programs
are being properly carried out and that administrative services are being
provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund incurred by the Investment Manager, the Fund
pays the Investment Manager monthly compensation calculated daily by applying
the annual rate of 0.60% to the Fund's net assets. The Investment Manager had
undertaken to assume all operating expenses (except for any brokerage fees)
and waive the compensation provided for in its Investment Management
Agreement until such time as the Fund attained $50 million in net assets or
until March 31, 1996, whichever occurred first. The Fund began paying fees on
February 9, 1996, at which time the Fund attained $50 million in net assets.
If the waiver had not been in effect, the Fund would have accrued total
compensation to the Investment Manager amounting to 0.60% of the Fund's
average daily net assets and the Fund's total expenses would have amounted to
1.95% of the Fund's average daily net assets for the fiscal year ended
January 31, 1997.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the Fund is to provide capital growth with a
reasonable current income. The objective is a fundamental policy of the Fund
and may not be changed without a vote of a majority of the outstanding voting
securities of the Fund. There is no assurance that the objective will be
achieved.
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 60% of its total assets in common stock of companies
which have a record of paying dividends and, in the opinion of the Investment
Manager, have the potential for increasing dividends and in securities
convertible into common stock; and at least 25% of its total assets in
investment grade fixed-income (fixed-rate and adjustable-rate) securities
such as corporate notes and bonds and obligations issued or guaranteed by the
U.S. Government, its agencies and its instrumentalities ("U.S. Government
securities").
Subject to the above percentage limitations, the Fund may hold equity,
fixed-income securities, cash and money market instruments in whatever
proportion deemed desirable at any given time depending upon the Investment
Manager's assessment of business, economic and investment conditions. Money
8
<PAGE>
market instruments in which the Fund may invest include securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities
(Treasury bills, notes and bonds, including zero coupon securities); bank
obligations; Eurodollar certificates of deposit; obligations of savings
institutions; fully insured certificates of deposit; and commercial paper
rated within the four highest grades by Moody's or Standard & Poor's or, if
not rated, issued by a company having an outstanding debt issue rated at
least AA by Standard & Poor's or Aa by Moody's. Such securities may be used
to invest uncommitted cash balances.
The Fund may enter into futures contracts provided that not more than 5%
of its total assets are required as a futures contract deposit. In addition,
the Fund may enter into futures contracts and options transactions only to
the extent that obligations under such contracts or transactions represent
not more than 30% of the Fund's total assets.
When market conditions dictate a "defensive" investment strategy, the Fund
may invest without limit in money market instruments, including commercial
paper, certificates of deposit, bankers' acceptances and other obligations of
domestic banks or domestic branches of foreign banks, or foreign branches of
domestic banks, in each case having total assets of at least $500 million,
and obligations issued or guaranteed by the United States Government, or
foreign governments or their respective instrumentalities or agencies.
Common Stocks and Securities Convertible into Common Stocks. As stated
above, the Fund will invest, under normal market conditions, at least 60% of
its total assets in common stocks of companies which have a record of paying
dividends and, in the opinion of the Investment Manager, have the potential
for increasing dividends and in securities convertible into common stocks. 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 based on a specified 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).
Part of the portion of the Fund invested in equity securities may include
securities of foreign issuers in the form of American Depository Receipts
(ADRs). ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying securities. Generally, ADRs,
in registered form, are designed for use in the United States securities
markets.
Corporate Notes and Bonds and U.S. Government Securities. As stated above,
under normal market conditions, at least 25% of the Fund's assets will be
invested in investment grade fixed income (fixed-rate or adjustable-rate
securities such as corporate notes and bonds and obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
The non-governmental debt securities in which the Fund will invest will
include: (a) corporate debt securities, including bonds, notes and commercial
paper, rated in the four highest categories by a nationally recognized
statistical rating organization ("NRSRO") including Moody's Investors
Service, Inc., Standard & Poor's Corporation, Duff and Phelps, Inc. and Fitch
Investors Service, Inc.; (b) bank obligations, including CDs, banker's accep
tances and time deposits, issued by banks with a long-term CD rating in one
of the four highest categories by a NRSRO; and (c) investment grade
fixed-rate and adjustable rate Mortgage-Backed and Asset-Backed securities
(see below) of corporate issuers. Investments in securities rated within the
four highest rating categories by a NRSRO are considered "investment grade."
However, such securities rated within the fourth highest rating category by a
NRSRO have speculative characteristics and, therefore, changes in economic
conditions or other circumstances are more likely to weaken their
9
<PAGE>
capacity to make principal and interest payments than would be the case with
investments in securities with higher credit ratings. Where a fixed-income
security is not rated by a NRSRO, the Investment Manager will make a
determination of its creditworthiness and may deem it to be investment grade.
The U.S. Government Securities in which the Fund may invest include
securities which are direct obligations of the United States Government, such
as United States treasury bills, notes and bonds, and which are backed by the
full faith and credit of the United States; securities which are backed by
the full faith and credit of the United States but which are obligations of a
United States agency or instrumentality (e.g., obligations of the Government
National Mortgage Association); securities issued by a United States agency
or instrumentality which has the right to borrow, to meet its obligations,
from an existing line of credit with the United States Treasury (e.g.,
obligations of the Federal National Mortgage Association); securities issued
by a United States agency or instrumentality which is backed by the credit of
the issuing agency or instrumentality (e.g., obligations of the Federal Farm
Credit System); and governmentally issued mortgage-backed securities.
PORTFOLIO CHARACTERISTICS
In addition to the securities noted above, the Fund may also invest in the
following:
Mortgage-Backed Securities. As stated above, a portion of the Fund's
investments may be in Mortgage-Backed securities. Mortgage-Backed securities
are securities that directly or indirectly represent a participation in, or
are secured by and payable from, mortgage loans secured by real property. The
term Mortgage-Backed Securities as used herein includes mortgage pass-through
securities and adjustable rate mortgage securities.
The basic type of Mortgage-Backed securities in which the Fund will invest
will be those issued or guaranteed by the United States Government or one of
its agencies or instrumentalities, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC") (securities issued by
GNMA, but not those issued by FNMA or FHLMC, are backed by the "full faith
and credit" of the United States). FNMA and FHLMC certificates are not backed
by the full faith and credit of the United States but the issuing agency or
instrumentality has the right to borrow, to meet its obligations, from an
existing line of credit with the U.S. Treasury. The U.S. Treasury has no
legal obligation to provide such line of credit and may choose not to do so.
Mortgage Pass-Through Securities. The Fund will invest in mortgage
pass-through securities representing participation interests in pools of
residential mortgage loans originated by United States governmental or
private lenders and guaranteed, to the extent provided in such securities, by
the United States Government or one of its agencies or instrumentalities.
Such securities, which are ownership interests in the underlying mortgage
loans, differ from conventional debt securities, which provide for periodic
payment of interest in fixed amounts (usually semiannually) and principal
payments at maturity or on specified call dates. Mortgage pass-through
securities provide for monthly payments that are a "pass-through" of the
monthly interest and principal payments (including any prepayments) made by
the individual borrowers on the pooled mortgage loans, net of any fees paid
to the guarantor of such securities and the servicer of the underlying
mortgage loans.
Certificates for Mortgage-Backed securities evidence an interest in a
specific pool of mortgages. These certificates are, in most cases, "modified
pass-through" instruments, wherein the issuing agency guarantees the payment
of principal and interest on mortgages underlying the certificates, whether
or not such amounts are collected by the issuer on the underlying mortgages.
Each of GNMA, FNMA and FHLMC guarantee timely distributions of interest to
certificateholders. GNMA and FNMA also guarantee timely distribution of
scheduled principal payments. FHLMC generally guarantees only the ultimate
collection of principal of the underlying mortgage loans.
10
<PAGE>
Adjustable Rate Mortgage Securities. Adjustable rate mortgage securities
("ARMs"), 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 in 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.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of the commitment.
An increase in the percentage of the Fund's assets committed to the purchase
of securities on a when-issued, delayed delivery or forward commitment basis
may increase the volatility of the Fund's net asset value. (See the Statement
of Additional Information for additional risk disclosure.)
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value. (See
the Statement of Additional Information for additional risk disclosure.)
Lending of Portfolio Securities. The Fund will not lend its portfolio
securities.
Rule 144A Securities. The Fund may invest up to 10% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible
for resale pursuant to Rule 144A under the Securities Act, and determined to
be liquid pursuant to the procedures discussed in the following paragraph,
are not subject to the foregoing restriction.) These securities are generally
referred to as private placements or restricted securities. Limitations on
the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to buy securities restricted as to
resale 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. If a restricted security is determined to be "liquid,"
such security will not be included within the category
11
<PAGE>
"illiquid securities," which under current policy may not exceed 10% of the
Fund's net assets. However, investing in Rule 144A securities could have the
effect of increasing the level of Fund illiquidity to the extent the Fund, at
a particular point in time, may be unable to find qualified institutional
buyers interested in purchasing such securities.
Options. The Fund also may purchase and sell (write) call and put options
on debt and equity securities which are listed on Exchanges or are written in
over-the-counter transactions ("OTC Options"). Listed options, which are
currently listed on several different Exchanges, are issued by the Options
Clearing Corporation ("OCC"). Ownership of a listed call option gives the
Fund the right to buy from the OCC the underlying security covered by the
option at the stated exercise price (the price per unit of the underlying
security) by filing an exercise notice prior to the expiration date of the
option. The writer (seller) of the option would then have the obligation to
sell to the OCC the underlying security at that exercise price prior to the
expiration date of the option, regardless of its then current market price.
Ownership of a listed put option would give the Fund the right to sell the
underlying security to the OCC at the stated exercise price. The Fund will
not write covered options on portfolio securities exceeding in the aggregate
5.0% of the value of its total assets.
OTC Options. OTC options are purchased from or sold (written) to dealers
or financial institutions which have entered into direct agreements with the
Fund. With OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between the Fund and the transacting dealer,
without the intermediation of a third party such as the OCC. The Fund will
engage in OTC option transactions only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities in order to aid it in achieving its investment
objective. As a writer of a call option, the Fund has the obligation, upon
notice of exercise of the option, to deliver the security underlying the
option (certain listed call options written by the Fund will be exercisable
by the purchaser only on a specific date).
Covered Put Writing. As a writer of covered put options, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put at the option's exercise price at any time during the option period.
The Fund will write put options for two purposes: (1) to receive the premiums
paid by purchasers; and (2) when the Investment Manager wishes to purchase
the security underlying the option at a price lower than its current market
price, in which case it will write the covered put at an exercise price
reflecting the lower purchase price sought.
Purchasing Call and Put Options. The Fund may invest up to 5% of its total
assets in the purchase of put and call options on securities and stock
indexes. The Fund may purchase put options on securities which it holds (or
has the right to acquire) in its portfolio only to protect itself against a
decline in the value of the security. The Fund may also purchase put options
to close out written put positions in a manner similar to call option closing
purchase transactions.
Futures Contracts. The Fund may purchase and sell interest rate and stock
index futures contracts ("futures contracts") that are traded on U.S.
commodity exchanges on such underlying securities as U.S. Treasury bonds,
notes, and bills and GNMA Certificates ("interest rate" futures) and such
indexes as the S&P 500 Index and the New York Stock Exchange Composite Index
("stock index" futures) and the Moody's Investment-Grade Corporate Bond Index
("bond index" futures). As a futures contract purchaser, the Fund incurs an
obligation to take delivery of a specified amount of the obligation
underlying the contract at a specified time in the future for a specified
price. As a seller of a futures contract, the Fund incurs an obligation to
deliver the specified amount of the underlying obligation at a specified time
in return for an agreed upon price. The Fund will purchase or sell interest
rate futures
12
<PAGE>
contracts and bond index futures contracts for the purpose of hedging its
fixed-income portfolio (or anticipated portfolio) securities against changes
in prevailing interest rates. The Fund will purchase or sell stock index
futures contracts for the purpose of hedging its equity portfolio (or
anticipated portfolio) securities against changes in their prices.
The Fund also may purchase and write call and put options on futures
contracts and enter into closing transactions with respect to such options to
terminate an existing position.
Zero Coupon Securities. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payments in cash
on the security during the year.
Investment in Real Estate Investment Trusts. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in a real estate investment trust,
the Fund would bear its ratable share of the real estate investment trust's
expenses, including its advisory and administration fees. At the same time
the Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will
be absorbing duplicate levels of fees with respect to investments in real
estate investment trusts.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Fund, and which
typically involve the acquisition by the Fund of debt securities from a
selling financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying
security at a specified price and at a fixed time in the future, usually not
more than seven days from the date of purchase. While repurchase agreements
involve certain risks not associated with direct investments in debt
securities, including the risks of default or bankruptcy of the selling
financial institution, the Fund follows procedures designed to minimize those
risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions and
maintaining adequate collateralization.
RISK CONSIDERATIONS
Common Stocks and Securities Convertible into Common Stocks. The net asset
value of the Fund's shares will fluctuate with changes in market values of
portfolio securities. To the extent that a convertible security's investment
value is greater than its conversion value, its price will be primarily a
reflection of such investment value and its price will be likely to increase
when interest rates fall and decrease when interest rates rise, as with a
fixed-income security (the credit standing of the issuer and other factors
may also have an effect on the
13
<PAGE>
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, may sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
Corporate Notes and Bonds and U.S. Government Securities. Payments of
interest and principal of U.S. Government securities are guaranteed by the
U.S. Government, however, neither the value nor the yield of corporate notes
and bonds and U.S. Government securities which may be invested in by the Fund
are guaranteed by the U.S. Government. Values and yield of corporate and
government bonds will fluctuate with changes in prevailing interest rates and
other factors. Generally, as prevailing interest rates rise, the value of
corporate notes and bonds and government bonds held by the Fund will fall.
Securities with longer maturities generally tend to produce higher yields and
are subject to greater market fluctuation as a result of changes in interest
rates than debt securities with shorter maturities. The Fund is not limited
as to the maturities of the U.S. Government securities in which it may
invest.
Mortgage-Backed Securities. Mortgage-Backed Securities have certain
different characteristics than traditional debt securities. Among the major
differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if the Fund purchases such a security at a
premium, a prepayment rate that is faster than expected may reduce yield to
maturity, while a prepayment rate that is slower than expected may have the
opposite effect of increasing yield to maturity. Alternatively, if the Fund
purchases these securities at a discount, faster than expected prepayments
will increase, while slower than expected prepayments may reduce, yield to
maturity.
Mortgage-Backed Securities, like all fixed-income securities, generally
decrease in value as a result of increases in interest rates. In addition,
although generally the value of fixed-income securities increases during
periods of falling interest rates and, as stated above, decreases during
periods of rising interest rates, as a result of prepayments and other
factors, this is not always the case with respect to Mortgage-Backed
Securities.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed
rate mortgage loans will increase during a period of falling interest rates
and decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Fund are likely to be greater during a
period of declining interest rates and, as a result, likely to be reinvested
at lower interest rates than during a period of rising interest rates.
Mortgage-Backed Securities generally decrease in value as a result of
increases in interest rates and may benefit less than other fixed-income
securities from declining interest rates because of the risk of prepayment.
Options and Futures Transactions. The Fund may close out its position as
writer of an option, or as a buyer or seller of a futures contract only if a
liquid secondary market exists for options or futures contracts of that
series. There is no assurance that such a market will exist. Also, exchanges
may limit the amount by which the price of many futures contracts may move on
any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit
moves have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the
Fund's intention to qualify as such. See "Dividends, Distributions and
Taxes."
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities
14
<PAGE>
are not speculative in nature, there are risks inherent in the use of such
instruments. One such risk is that the Investment Manager could be incorrect
in its expectations as to the direction or extent of various interest rate or
price movements or the time span within which the movements take place. For
example, if the Fund sold futures contracts for the sale of securities in
anticipation of an increase in interest rates, and then interest rates went
down, causing bond prices to rise, the Fund would incur a loss on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash
prices of the Fund's portfolio securities.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any
such futures, options or products as may be developed, to the extent
consistent with its investment objective and applicable regulatory
requirements.
Repurchase Agreements. 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 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 10% of its net assets.
For additional risk disclosure, please refer to the "Investment Objective
and Policies" and "Portfolio Characteristics" sections of the Prospectus and
to the "Investment Practices and Policies" section of the Statement of
Additional Information.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean
Witter Reynolds Inc. ("DWR") and other broker-dealer affiliates of
InterCapital, the views of others regarding economic developments and
interest rate trends, and the Investment Manager's own analysis of factors it
deems relevant.
Portfolio Managers. The assets of the Fund invested in equity securities
are managed within InterCapital's Growth and Income Group, which manages
twenty-two funds and fund portfolios with approximately $27.3 billion in
assets as of June 30, 1997. Paul D. Vance, Senior Vice President of
InterCapital and a member of InterCapital's Growth and Income Group, has been
a portfolio manager at InterCapital for over five years. The assets of the
Fund invested in fixed-income securities are managed within InterCapital's
Taxable Fixed-Income Group, which manages twenty-four funds and fund
portfolios, with approximately $12.8 billion in assets at June 30, 1997.
Rajesh K. Gupta, Senior Vice President of InterCapital and a member of
InterCapital's Taxable Fixed-Income Group, has been managing portfolios at
InterCapital for over five years. Mr. Vance and Mr. Gupta are portfolio
managers with primary responsibility for the day-to-day man-
15
<PAGE>
agement of the Fund's portfolio and have managed the Fund since its
inception.
Although the Fund does not intend to engage in short-term trading of
portfolio securities as a means of achieving its investment objective, it may
sell portfolio securities without regard to the length of time they have been
held whenever such sale will in the Investment Manager's opinion strengthen
the Fund's position and contribute to its investment objective. Brokerage
commissions are not normally charged on the purchase or sale of U.S.
Government obligations, but such transactions may involve costs in the form
of spreads between bid and asked prices. Pursuant to an order of the
Securities and Exchange Commission, the Fund may effect principal
transactions in certain money market instruments with DWR. In addition, the
Fund may incur brokerage commissions on transactions conducted through DWR
and other brokers and dealers that are affiliates of InterCapital.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the Act. For purposes of the following
limitations: (i) all percentage limitations apply immediately after a
purchase or initial investment; and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund may not:
1. Invest more than 5% of the value of its total assets in the securities
of any one issuer (other than obligations issued, or guaranteed by, the
United States Government, its agencies or instrumentalities).
2. Purchase more than 10% of all outstanding voting securities or any
class of securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years
of continuous operation. This restriction shall not apply to any obligation
of the United States Government, its agencies or instrumentalities.
See the Statement of Additional Information for additional investment
restrictions.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially
all of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
16
<PAGE>
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and
Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the
Investment Manager, shares of the Fund are distributed by the Distributor and
offered by DWR and other dealers who have entered into selected dealer
agreements with the Distributor ("Selected Broker-Dealers"). The principal
executive office of the Distributor is located at Two World Trade Center, New
York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares
are sold to investors with an initial sales charge that declines to zero for
larger purchases; however, Class A shares sold without an initial sales
charge are subject to a contingent deferred sales charge ("CDSC") of 1.0% if
redeemed within one year of purchase, except for certain specific
circumstances. Class B shares are sold without an initial sales charge but
are subject to a CDSC (scaled down from 5.0% to 1.0%) payable upon most
redemptions within six years after purchase. (Class B shares purchased by
certain qualified employer-sponsored benefit plans are subject to a CDSC
scaled down from 2.0% to 1.0% if redeemed within three years after purchase.)
Class C shares are sold without an initial sales charge but are subject to a
CDSC of 1.0% on most redemptions made within one year after purchase. Class D
shares are sold without an initial sales charge or CDSC and are available
only to investors meeting an initial investment minimum of $5 million, and to
certain other limited categories of investors. At the discretion of the Board
of Trustees of the Fund, Class A shares may be sold to categories of
investors in addition to those set forth in this prospectus at net asset
value without a front-end sales charge, and Class D shares may be sold to
certain other categories of investors, in each case as may be described in
the then current prospectus of the Fund. See "Alternative Purchase Arrange
ments--Selecting a Particular Class" for a discussion of factors to consider
in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million or more and
to certain other limited categories of investors. For the purpose of meeting
the minimum $5 million initial investment for Class D shares, and subject to
the $1,000 minimum initial investment for each Class of the Fund, an
investor's existing holdings of Class A shares of the Fund and other Dean
Witter Funds that are multiple class funds ("Dean Witter Multi-Class Funds")
and shares of Dean Witter Funds sold with a front-end sales charge ("FSC
Funds") and concurrent investments in Class D shares of the Fund and other
Dean Witter Multi-Class Funds will be aggregated. Subsequent purchases of
$100 or more may be made by sending a check, payable to Dean Witter Balanced
Growth Fund, directly to Dean Witter Trust Company (the "Transfer Agent") at
P.O. Box 1040, Jersey City, NJ 07303 or by contacting an account executive of
DWR or other Selected Broker-Dealer. When purchasing shares of the Fund,
investors must specify whether the purchase is for Class A, Class B, Class C
or Class D shares. If no Class is specified, the Transfer Agent will not
process the transaction until the proper Class is identified. The minimum
initial purchase in the case of investments through EasyInvest (Service
Mark), an automatic purchase plan (see "Shareholder Services") is $100,
provided that the schedule of automatic investments will result in
investments totalling at least $1,000 within the first twelve months. In the
case of investments pursuant to Systematic Payroll Deduction Plans (including
Individual Retirement Plans), the Fund, at its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required, if the Fund has reason to believe that additional investments will
increase the investment in all accounts under such Plans to at least $1,000.
17
<PAGE>
Certificates for shares purchased will not be issued unless a request is made
by the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is
made prior thereto. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment. Investors will be entitled to receive
income dividends and capital gains distributions if their order is received
by the close of business on the day prior to the record date for such
dividends and distributions. Sales personnel of a Selected Broker-Dealer are
compensated for selling shares of the Fund by the Distributor or any of its
affiliates and/or the Selected Broker-Dealer. In addition, some sales
personnel of the Selected Broker-Dealer will receive various types of
non-cash compensation as special sales incentives, including trips,
educational and/or business seminars and merchandise. The Fund and the
Distributor reserve the right to reject any purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their
needs. The general public is offered three Classes of shares: Class A shares,
Class B shares and Class C shares, which differ principally in terms of sales
charges and rate of expenses to which they are subject. A fourth Class of
shares, Class D shares, is offered only to limited categories of investors
(see "No Load Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class
A, Class B and Class C shares bear the expenses of the ongoing shareholder
service fees, Class B and Class C shares bear the expenses of the ongoing
distribution fees and Class A, Class B and Class C shares which are redeemed
subject to a CDSC bear the expense of the additional incremental distribution
costs resulting from the CDSC applicable to shares of those Classes. The
ongoing distribution fees that are imposed on Class A, Class B and Class C
shares will be imposed directly against those Classes and not against all
assets of the Fund and, accordingly, such charges against one Class will not
affect the net asset value of any other Class or have any impact on investors
choosing another sales charge option. See "Plan of Distribution" and
"Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and
the factors an investor should consider when selecting a particular Class.
This summary is qualified in its entirety by detailed discussion of each
Class that follows this summary.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain
other limited categories of investors) are not subject to any sales charges
at the time of purchase but are subject to a CDSC of 1.0% on redemptions made
within one year after purchase, except for certain specific circumstances.
Class A shares are also subject to a 12b-1 fee of up to 0.25% of the average
daily net assets of the Class. See "Initial Sales Charge Alternative--Class A
Shares."
Class B Shares. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to
1.0%) if redeemed within six years of purchase. (Class B shares purchased by
certain qualified employer-sponsored benefit plans are subject to a CDSC
scaled down from 2.0% to 1.0% if redeemed within three years after purchase.)
This CDSC may be waived for certain redemptions. Class B shares are also
subject to an annual 12b-1 fee of 1.0% of the average daily net assets of
Class B. The Class B shares' distribution fee will cause that Class to have
higher expenses and pay lower dividends than Class A or Class D shares.
18
<PAGE>
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition,
a certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time.
See "Contingent Deferred Sales Charge Alternative--Class B Shares."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They
are subject to an annual 12b-1 fee of up to 1.0% of the average daily net
assets of the Class C shares. The Class C shares' distribution fee may cause
that Class to have higher expenses and pay lower dividends than Class A or
Class D shares. See "Level Load Alternative--Class C Shares."
Class D Shares. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are
not subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
Selecting a Particular Class. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any
other relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are
not available with respect to Class B or Class C shares. Moreover, Class A
shares are subject to lower ongoing expenses than are Class B or Class C
shares over the term of the investment. As an alternative, Class B and Class
C shares are sold without any initial sales charge so the entire purchase
price is immediately invested in the Fund. Any investment return on these
additional investment amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to
an ongoing 12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A
shares) for an indefinite period of time. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks. Other investors, however, may elect to purchase Class C shares if,
for example, they determine that they do not wish to be subject to a
front-end sales charge and they are uncertain as to the length of time they
intend to hold their shares.
For the purpose of meeting the $5 million minimum investment amount for
Class D shares, holdings of Class A shares in all Dean Witter Multi-Class
Funds, shares of FSC Funds and shares of Dean Witter Funds for which such
shares have been exchanged will be included together with the current
investment amount.
Sales personnel may receive different compensation for selling each Class
of shares. Investors should understand that the purpose of a CDSC is the same
as that of the initial sales charge in that the sales charges applicable to
each Class provide for the financing of the distribution of shares of that
Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
19
<PAGE>
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- --------- ------------------------- ------------- --------------------
<S> <C> <C> <C>
A MAXIMUM 5.25% 0.25% No
INITIAL SALES CHARGE
REDUCED FOR
PURCHASES OF
$25,000 AND OVER;
SHARES SOLD WITHOUT
AN INITIAL SALES
CHARGE GENERALLY
SUBJECT TO A 1.0%
CDSC DURING FIRST
year.
- --------- ------------------------- ------------- --------------------
B Maximum 5.0% 1.0% B shares convert
CDSC during the first to A shares
year decreasing automatically
to 0 after six years after
approximately
ten years
- --------- ------------------------- ------------- --------------------
C 1.0% CDSC during 1.0% No
first year
- --------- ------------------------- ------------- --------------------
D None None No
- --------- ------------------------- ------------- --------------------
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees
for each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge.
In some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase (calculated from the last day of the month in which the
shares were purchased), except for certain specific circumstances. The CDSC
will be assessed on an amount equal to the lesser of the current market value
or the cost of the shares being redeemed. The CDSC will not be imposed (i) in
the circumstances set forth below in the section "Contingent Deferred Sales
Charge Alternative--Class B Shares--CDSC Waivers," except that the references
to six years in the first paragraph of that section shall mean one year in
the case of Class A shares, and (ii) in the circumstances identified in the
section "Additional Net Asset Value Purchase Options" below. Class A shares
are also subject to an annual 12b-1 fee of up to 0.25% of the average daily
net assets of the Class. Shares of the Fund held prior to July 28, 1997 which
were acquired in exchange for shares of FSC Funds, including shares acquired
through reinvestment of dividends and distributions thereon, have been
designated Class A shares.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
--------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- -------------------- --------------- ---------------
<S> <C> <C>
Less than $25,000 .. 5.25% 5.54%
$25,000 but less
than $50,000 ...... 4.75% 4.99%
$50,000 but less
than $100,000 ..... 4.00% 4.17%
$100,000 but less
than $250,000 ..... 3.00% 3.09%
$250,000 but less
than $1 million .. 2.00% 2.04%
$1 million and over 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the
sales charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or
her spouse and their children under the age of 21
20
<PAGE>
purchasing shares for his, her or their own accounts; (c) a trustee or other
fiduciary purchasing shares for a single trust estate or a single fiduciary
account; (d) a pension, profit-sharing or other employee benefit plan
qualified or non-qualified under Section 401 of the Internal Revenue Code;
(e) tax-exempt organizations enumerated in Section 501(c)(3) or (13) of the
Internal Revenue Code; (f) employee benefit plans qualified under Section 401
of the Internal Revenue Code of a single employer or of employers who are
"affiliated persons" of each other within the meaning of Section 2(a)(3)(c)
of the Act; and for investments in Individual Retirement Accounts of
employees of a single employer through Systematic Payroll Deduction plans; or
(g) any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months and
has some purpose other than the purchase of redeemable securities of a
registered investment company at a discount.
Combined Purchase Privilege. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class
A shares of other Dean Witter Multi-Class Funds and shares of FSC Funds. The
sales charge payable on the purchase of the Class A shares of the Fund, the
Class A shares of the other Dean Witter Multi-Class Funds and the shares of
the FSC Funds will be at their respective rates applicable to the total
amount of the combined concurrent purchases of such shares.
Right of Accumulation. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single
transaction, together with shares of the Fund and other Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Dean Witter Funds acquired in exchange for those
shares, and including in each case shares acquired through reinvestment of
dividends and distributions), which are held at the time of such transaction,
amounts to $25,000 or more. If such investor has a cumulative net asset value
of shares of FSC Funds and Class A and Class D shares equal to at least $5
million, such investor is eligible to purchase Class D shares subject to the
$1,000 minimum initial investment requirement of that Class of the Fund. See
"No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Selected Broker-Dealer or the Transfer Agent
fails to confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from DWR or other Selected Broker-Dealers. The cost of Class A
shares of the Fund or shares of other Dean Witter Funds which were previously
purchased at a price including a front-end sales charge during the 90-day
period prior to the date of receipt by the Distributor of the Letter of
Intent, or of Class A shares of the Fund or shares of other Dean Witter Funds
acquired in exchange for shares of such funds purchased during such period at
a price including a front-end sales charge, which are still owned by the
shareholder, may also be included in determining the applicable reduction.
Additional Net Asset Value Purchase Options. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value
by the following:
(1) trusts for which Dean Witter Trust Company ("DWTC") or Dean Witter
Trust FSB ("DWTFSB") (each of which is an affiliate of the Investment
Manager) provides discretionary trustee services;
21
<PAGE>
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for
services in the nature of investment advisory or administrative services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees and restrictions on
transferability of Fund shares);
(3) retirement plans qualified under Section 401(k) of the Internal
Revenue Code ("401(k) plans") and other employer-sponsored plans qualified
under Section 401(a) of the Internal Revenue Code with at least 200 eligible
employees and for which DWTC or DWTFSB serves as Trustee or the 401(k)
Support Services Group of DWR serves as recordkeeper;
(4) 401(k) plans and other employer-sponsored plans qualified under
Section 401(a) of the Internal Revenue Code for which DWTC or DWTFSB serves
as Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper
whose Class B shares have converted to Class A shares, regardless of the
plan's asset size or number of eligible employees;
(5) investors who are clients of a Dean Witter account executive who
joined Dean Witter from another investment firm within six months prior to
the date of purchase of Fund shares by such investors, if the shares are
being purchased with the proceeds from a redemption of shares of an open-end
proprietary mutual fund of the account executive's previous firm which
imposed either a front-end or deferred sales charge, provided such purchase
was made within sixty days after the redemption and the proceeds of the
redemption had been maintained in the interim in cash or a money market fund;
and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Se-lected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase
payment may be immediately invested in the Fund. A CDSC, however, will be
imposed on most Class B shares redeemed within six years after purchase. The
CDSC will be imposed on any redemption of shares if after such redemption the
aggregate current value of a Class B account with the Fund falls below the
aggregate amount of the investor's purchase payments for Class B shares made
during the six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) preceding the redemption. In
addition, Class B shares are subject to an annual 12b-1 fee of 1.0% of the
the average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may,
however, be subject to a CDSC which will be a percentage of the dollar amount
of shares redeemed and will be assessed on an amount equal to the lesser of
the current market value or the cost of the shares being redeemed. The size
of this percentage will depend upon how long the shares have been held, as
set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First...................... 5.0%
Second..................... 4.0%
Third...................... 3.0%
Fourth..................... 2.0%
Fifth...................... 2.0%
Sixth...................... 1.0%
Seventh and thereafter .... None
</TABLE>
In the case of Class B shares of the Fund held by 401 (k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which DWTC or DWTFSB serves as Trustee or the 401(k) Support
Services Group of
22
<PAGE>
DWR serves as recordkeeper and whose accounts are opened on or after July 28,
1997, shares held for three years or more after purchase (calculated as
described in the paragraph above) will not be subject to any CDSC upon
redemption. However, shares redeemed earlier than three years after purchase
may be subject to a CDSC (calculated as described in the paragraph above),
the percentage of which will depend on how long the shares have been held, as
set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First ..................... 2.0%
Second .................... 2.0%
Third ..................... 1.0%
Fourth and thereafter .... None
</TABLE>
Shares of the Fund held prior to July 28, 1997 that were acquired in
exchange for shares of Dean Witter Global Short-Term Income Fund Inc., Dean
Witter National Municipal Trust or Dean Witter High Income Securities and
have accordingly been designated Class B shares shall be subject to the lower
CDSC schedule applicable to that fund unless (i) such shares are subsequently
exchanged for shares of a fund with a higher CDSC schedule or (ii) having
been exchanged for shares of an Exchange Fund (as defined below in
"Shareholder Services -- Exchange Privilege") are re-exchanged back into the
Fund. Under such circumstances, the CDSC schedule applicable to shares of the
fund with the higher CDSC schedule acquired in the exchange will apply to
redemptions of such fund's shares or, in the case of shares of any of the
Exchange Funds acquired in an exchange and then subsequently re-exchanged
back into the Fund, the CDSC schedule set forth in the above tables will
apply to redemptions of any of such shares.
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or,
in the case of shares held by certain employer-sponsored benefit plans, three
years) preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption; and
(iii) the current net asset value of shares purchased through reinvestment of
dividends or distributions and/or shares acquired in exchange for shares of
FSC Funds or of other Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (b) held
in a qualified corporate or self-employed retirement plan, Individual
Retirement Account ("IRA") or Custodial Account under Section 403(b)(7) of
the Internal Revenue Code ("403(b) Custodial Account"), provided in either
case that the redemption is requested within one year of the death or initial
determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified
corporate or self-employed retirement plan following retirement (or, in the
case of a "key employee" of a "top heavy" plan, following attainment of age
59 1/2); (b) distributions from an IRA or 403(b) Custodial Account following
attainment of age 59 1/2; or (c) a tax-free return of an excess contribution
to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
401(k) plan or other employer-sponsored plan qualified under Section 401(a)
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 DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper
("Eligible Plan"), provided that either: (a) the
23
<PAGE>
plan continues to be an Eligible Plan after the redemption; or (b) the
redemption is in connection with the complete termination of the plan
involving the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to
engage in gainful employment. With reference to (2) above, the term
"distribution" does not encompass a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee. All
waivers will be granted only following receipt by the Distributor of
confirmation of the shareholder's entitlement.
Conversion to Class A Shares. Shares of the Fund held prior to July 28,
1997 which were acquired in exchange for shares of Dean Witter Funds sold
with a CDSC, including shares acquired through reinvestment of dividends and
distributions thereon, have been designated Class B shares. Shares held
before May 1, 1997 that have been designated Class B shares will convert to
Class A shares in May, 2007. In all other instances Class B shares will
convert automatically to Class A shares, based on the relative net asset
values of the shares of the two Classes on the conversion date, which will be
approximately ten (10) years after the date of the original purchase. The ten
year period is calculated from the last day of the month in which the shares
were purchased or, in the case of Class B shares acquired through an exchange
or a series of exchanges, from the last day of the month in which the
original Class B shares were purchased, provided that shares originally
purchased before May 1, 1997 will convert to Class A shares in May, 2007. The
conversion of shares purchased on or after May 1, 1997 will take place in the
month following the tenth anniversary of the purchase. There will also be
converted at that time such proportion of Class B shares acquired through
automatic reinvestment of dividends and distributions owned by the
shareholder as the total number of his or her Class B shares converting at
the time bears to the total number of outstanding Class B shares purchased
and owned by the shareholder. In the case of Class B shares held by a 401(k)
plan or other employer-sponsored plan qualified under Section 401(a) of the
Internal Revenue Code and for which DWTC or DWTFSB serves as Trustee or the
401(k) Support Services Group of DWR serves as recordkeeper, the plan is
treated as a single investor and all Class B shares will convert to Class A
shares on the conversion date of the first shares of a Dean Witter
Multi-Class Fund purchased by that plan. In the case of Class B shares
previously exchanged for shares of an "Exchange Fund" (see "Shareholder
Services--Exchange Privilege"), the period of time the shares were held in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired) is excluded from the holding period for
conversion. If those shares are subsequently re-exchanged for Class B shares
of a Dean Witter Multi-Class Fund, the holding period resumes on the last day
of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior
to the date for conversion. Class B shares evidenced by share certificates
that are not received by the Transfer Agent at least one week prior to any
conversion date will be converted into Class A shares on the next scheduled
conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
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<PAGE>
Class B shares purchased before July 28, 1997 by trusts for which DWTC or
DWTFSB provides discretionary trustee services will convert to Class A shares
on or about August 29, 1997. The CDSC will not be applicable to such shares.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions
made within one year after purchase (calculated from the last day of the
month in which the shares were purchased). The CDSC will be assessed on an
amount equal to the lesser of the current market value or the cost of the
shares being redeemed. The CDSC will not be imposed in the circumstances set
forth above in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case
of Class C shares. Class C shares are subject to an annual 12b-1 fee of up to
1.0% of the average daily net assets of the Class. Unlike Class B shares,
Class C shares have no conversion feature and, accordingly, an investor that
purchases Class C shares will be subject to 12b-1 fees applicable to Class C
shares for an indefinite period subject to annual approval by the Fund's
Board of Trustees and regulatory limitations. All shares of the Fund held
prior to July 28, 1997 (other than shares which were acquired in exchange for
shares of FSC Funds or Dean Witter Funds sold with a CDSC and shares acquired
through reinvestment of dividends and distributions thereon) have been
designated Class C shares. Shares held before July 28, 1997 that have been
designated Class C shares are not subject to the 1.0% CDSC.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million and the
following categories of investors: (i) investors participating in the
InterCapital mutual fund asset allocation program pursuant to which such
persons pay an asset based fee; (ii) persons participating in a fee-based
program approved by the Distributor, pursuant to which such persons pay an
asset based fee for services in the nature of investment advisory or
administrative services (subject to all of the terms and conditions of such
programs, which may include termination fees and restrictions on
transferability of Fund shares); (iii) 401(k) plans established by DWR and
SPS Transaction Services, Inc. (an affiliate of DWR) for their employees;
(iv) certain Unit Investment Trusts sponsored by DWR; (v) certain other
open-end investment companies whose shares are distributed by the
Distributor; and (vi) other categories of investors, at the discretion of the
Board, as disclosed in the then current prospectus of the Fund. Investors who
require a $5 million minimum initial investment to qualify to purchase Class
D shares may satisfy that requirement by investing that amount in a single
transaction in Class D shares of the Fund and other Dean Witter Multi-Class
Funds, subject to the $1,000 minimum initial investment required for that
Class of the Fund. In addition, for the purpose of meeting the $5 million
minimum investment amount, holdings of Class A shares in all Dean Witter
Multi-Class Funds, shares of FSC Funds and shares of Dean Witter Funds for
which such shares have been exchanged will be included together with the
current investment amount. If a shareholder redeems Class A shares and
purchases Class D shares, such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act with respect to the distribution of Class A, Class B and Class C
shares of the Fund. In the case of Class A and Class C shares, the Plan
provides that the Fund will reimburse the Distributor and others for the
expenses of certain activities and services incurred by them specifically on
behalf of those shares. Reimbursements for these expenses will be made in
monthly payments by the Fund to the Distributor, which will in no event
exceed amounts equal to payments at the annual rates of 0.25% and 1.0% of the
average daily net assets of Class A and Class C, respectively. In the case of
Class B shares, the Plan provides that the Fund will pay the Distributor a
fee, which is accrued daily and paid monthly, at the annual rate of 1.0% of
the average daily net assets
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<PAGE>
of Class B. The fee is treated by the Fund as an expense in the year it is
accrued. In the case of Class A shares, the entire amount of the fee
currently represents a service fee within the meaning of the NASD guidelines.
In the case of Class B and Class C shares, a portion of the fee payable
pursuant to the Plan, equal to 0.25% of the average daily net assets of each
of these Classes, is currently characterized as a service fee. A service fee
is a payment made for personal service and/or the maintenance of shareholder
accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses
borne by the Distributor and others in the distribution of the shares of
those Classes, including the payment of commissions for sales of the shares
of those Classes and incentive compensation to and expenses of DWR's account
executives and others who engage in or support distribution of shares or who
service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan in the case of Class B shares to compensate DWR and other Selected
Broker-Dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
The Investment Manager had undertaken to assume all operating expenses
(except for any brokerage fees) and waive the compensation provided for in
its Investment Management Agreement until such time as the Fund attained $50
million in net assets or until March 31, 1996, whichever occurred first. The
Fund began paying fees on February 9, 1996, at which time the Fund attained
$50 million in net assets. During the fiscal year ended January 31, 1997, the
Fund accrued to the Distributor under the Plan $812,219, of which the fee
payable after the waiver that had been in effect from February 1, 1996
through February 8, 1996 was $801,731. All shares of the Fund held prior to
July 28, 1997 (other than shares which were acquired in exchange for shares
of FSC Funds or Dean Witter Funds sold with a CDSC and shares acquired
through reinvestment of dividends and distributions thereon) have been
designated Class C shares.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i)
the payments made by the Fund pursuant to the Plan, and (ii) the proceeds of
CDSCs paid by investors upon the redemption of Class B shares. For example,
if $1 million in expenses in distributing Class B shares of the Fund had been
incurred and $750,000 had been received as described in (i) and (ii) above,
the excess expense would amount to $250,000. Because there is no requirement
under the Plan that the Distributor be reimbursed for all distribution
expenses or any requirement that the Plan be continued from year to year,
such excess amount does not constitute a liability of the Fund. Although
there is no legal obligation for the Fund to pay expenses incurred in excess
of payments made to the Distributor under the Plan, and the proceeds of CDSCs
paid by investors upon redemption of shares, if for any reason the Plan is
terminated the Trustees will consider at that time the manner in which to
treat such expenses. Any cumulative expenses incurred, but not yet recovered
through distribution fees or CDSCs, may or may not be recovered through
future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses
representing a gross sales commission credited to account executives at the
time of sale may be reimbursed in the subsequent calendar year. No interest
or other financing charges will be incurred on any Class A or Class C
distribution
26
<PAGE>
expenses incurred by the Distributor under the Plan or on any unreimbursed
expenses due to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time, on each day that the New York Stock Exchange is open (or, on days
when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier
time), by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the
Class A, Class B, Class C and Class D shares will be invested together in a
single portfolio. The net asset value of each Class, however, will be
determined separately by subtracting each Class's accrued expenses and
liabilities. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by
the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time assets are valued; if there were no sales that
day, the security is valued at the latest bid price (in cases where a
security is traded on more than one exchange, the security is valued on the
exchange designated as the primary market pursuant to procedures adopted by
the Trustees); (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 Trustees determine
that such price does not reflect its market value, in which case it will be
valued at its fair value as determined by the Board of Trustees; (4) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest bid price; (5) when market
quotations are not readily available, including circumstances under which it
is determined by the Investment Manager that sale or bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by
and under the general supervision of the Fund's Trustees (valuation of debt
securities for 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. Dividends receivable
are accrued as of the ex-dividend date. Interest income is accrued daily.
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
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Automatic Investment of Dividends and Distributions. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the
shareholder, in shares of any other open-end Dean Witter Fund), unless the
shareholder requests that they be paid in cash. Shares so acquired are
acquired at net asset value and are not subject to the imposition of a
front-end sales charge or a CDSC (see "Redemptions and Repurchases").
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<PAGE>
Investment of Dividends or Distributions Received in Cash. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value next determined after receipt by the
Transfer Agent, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. Shares so acquired are acquired at
net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "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 or following redemption of shares of
a Dean Witter money market fund, 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 CDSC will be imposed on shares redeemed under the Withdrawal Plan
(see "Purchase of Fund Shares"). Therefore, any shareholder participating in
the Withdrawal Plan will have sufficient shares redeemed from his or her
account so that the proceeds (net of any applicable CDSC) to the shareholder
will be the designated monthly or quarterly amount. Withdrawal plan payments
should not be considered as dividends, yields or income. If periodic
withdrawal plan payments continuously exceed net investment income and net
capital gains, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted. Each withdrawal constitutes a redemption of
shares and any gain or loss realized must be recognized for federal income
tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of
the above services.
Tax-Sheltered Retirement Plans. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of
such plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the
Transfer Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Dean Witter Multi-Class Fund without the imposition of any exchange
fee. Shares may also be exchanged for shares of the following funds: Dean
Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S.
Treasury Trust and five Dean Witter funds which are money market funds (the
"Exchange Funds"). Class A shares may also be exchanged for shares of Dean
Witter Multi-State Municipal Series Trust and Dean Witter Hawaii Municipal
Trust, which are Dean Witter Funds sold with a front-end sales charge ("FSC
Funds"). Class B shares may also be exchanged for shares of Dean Witter
Global Short-Term Income Fund Inc., Dean Witter High Income Securities and
Dean Witter National Municipal Trust, which are Dean Witter Funds offered
with a CDSC ("CDSC 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.
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<PAGE>
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, any
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 Dean Witter Multi-Class Funds, FSC Funds or CDSC
Funds or any Exchange Fund that is not a money market fund can be effected on
the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period
of time the shareholder remains in an Exchange Fund (calculated from the last
day of the month in which the Exchange Fund shares were acquired), the
holding period (for the purpose of determining the rate of the CDSC) is
frozen. If those shares are subsequently re-exchanged for shares of a Dean
Witter Multi-Class Fund or 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 Dean Witter Multi-Class Fund or 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 Dean Witter
Multi-Class Fund or in shares of a CDSC Fund (see "Purchase of Fund Shares").
In the case of exchanges of Class A shares which are subject to a CDSC, the
holding period also includes the time (calculated as described above) the
shareholder was invested in shares of a FSC Fund. However, in the case of
shares exchanged into an Exchange Fund on or after April 23, 1990, upon a
redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the
Exchange Fund 12b-1 distribution fees 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.) Class B shares of the Fund
acquired in exchange for Class B shares of another Dean Witter Multi-Class
Fund or shares of a CDSC Fund having a different CDSC schedule than that of
this Fund will be subject to the higher CDSC schedule, even if such shares
are subsequently re-exchanged for shares of the fund with the lower CDSC
schedule. However, shares of the Fund held prior to July 28, 1997 that were
acquired in exchange for shares of Dean Witter Global Short-Term Income Fund
Inc., Dean Witter National Municipal Trust or Dean Witter High Income
Securities shall be subject to the lower CDSC schedule applicable to that
fund unless (i) such shares are subsequently exchanged for shares of a fund
with a higher CDSC schedule or (ii) having been exchanged for shares of an
Exchange Fund are re-exchanged back into the Fund. Under such circumstances,
the CDSC schedule applicable to the shares of the fund with the higher CDSC
schedule acquired in the exchange will apply to redemptions of such fund's
shares or, in the case of shares of any of the Exchange Funds acquired in an
exchange and then subsequently re-exchanged back into the Fund, the Fund's
CDSC schedule will apply to redemptions of any of such shares.
Additional Information Regarding Exchanges. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional
purchases and/or exchanges from the investor. Although the Fund does not have
any specific definition of what constitutes a pattern of frequent exchanges,
and will consider all relevant factors in determining whether a particular
situation is abusive and contrary to the best interests of the Fund and its
other shareholders, investors should be aware that the Fund and each of the
other Dean Witter Funds may at their discretion limit or otherwise restrict
the number of times this Exchange Privilege may be exercised by any investor.
Any such restriction will be made by the Fund on a prospective basis only,
upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Dean Witter
Funds for which shares of the Fund have
29
<PAGE>
been exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another
Selected Broker-Dealer are referred to their account executive regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and read it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. In the case of a shareholder
holding a share certificate or certificates, no exchanges may be made until
all applicable share certificates have been received by the Transfer Agent
and deposited in the shareholder's account. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares
on which the shareholder has realized a capital gain or loss. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an
exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean
Witter Funds (for which the Exchange Privilege is available) pursuant to this
Exchange Privilege by contacting their account executive (no Exchange
Privilege Authorization Form is required). Other shareholders (and those who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must
complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent,
to initiate an exchange. If the Authorization Form is used, exchanges may be
made in writing or by contacting the Transfer Agent at (800) 869-NEWS
(toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name,
mailing address, social security or other tax identification number and DWR
or other Selected Broker-Dealer account number (if any). Telephone
instructions may also be recorded. If such procedures are not employed, the
Fund may be liable for any losses due to unauthorized or fraudulent
instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her DWR or other
Selected Broker-Dealer account executive, if appropriate, or make a written
exchange request. Shareholders are advised that during periods of drastic
economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the
experience of the other Dean Witter Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
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Redemption. Shares of each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of
any applicable CDSC in the case of Class A, Class B or Class C shares (see
"Purchase of Fund Shares"). If shares are held in a shareholder's account
without a share certificate, a written request for redemption to the Fund's
Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along
with any additional documentation required by the Transfer Agent.
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<PAGE>
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 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 by the Fund, the
Distributor or DWR. 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 Broker-Dealer are referred to their
account executive regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase
in shares of the Fund in the same Class from which such shares were redeemed
or repurchased, at their net asset value next determined after a
reinstatement request, together with the proceeds, is received by the
Transfer Agent and receive a pro rata credit for any CDSC paid in connection
with such redemption or repurchase.
Involuntary Redemption. The Fund reserves the right, upon sixty days'
notice, to redeem, at their net asset value, the shares of any shareholder
(other than shares held in an Individual Retire ment Account or Custodial
Account under Section 403(b)(7) of the Internal Revenue Code) whose shares
due to redemptions by the shareholder have a value of less than $100, or such
lesser amount as may be fixed by the 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 sixty days to make an additional
investment in an amount which will increase the value of the account to at
least the applicable amount before the redemption is processed. No CDSC will
be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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Dividends and Distributions. The Fund declares dividends separately for
each Class of shares and intends to pay quarterly income dividends and to
distribute net short-term and 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 net long-term capital gains in any year for
reinvestment.
All dividends and any capital gains distributions will be paid in
additional shares of the same Class
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<PAGE>
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. Shares acquired by dividend and distribution
reinvestments will not be subject to any front-end sales charge or CDSC.
Class B shares acquired through dividend and distribution reinvestments will
become eligible for conversion to Class A shares on a pro rata basis.
Distributions paid on Class A and Class D shares will be higher than for
Class B and Class C shares because distribution fees paid by Class B and
Class C shares are higher. (See "Shareholder Services--Automatic Investment
of Dividends and Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and net 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. Any dividends
declared in the last quarter of any calendar year which are paid in the
following year prior to February 1 will be deemed, for tax purposes, to have
been received by the shareholder in the prior year.
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. To avoid being subject to a 31% federal backup withholding tax on
taxable dividends, capital gains distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers
must be furnished and certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. These figures are computed separately
for Class A, Class B, Class C and Class D shares. Both the yield and the
total return of the Fund are based on historical earnings and are not
intended to indicate future performance. The yield of each Class of the Fund
is computed by dividing the Class's net investment income over a 30-day
period by an average value (using the average number of
32
<PAGE>
shares entitled to receive dividends and the maximum offering price per share
at the end of the period), all in accordance with applicable regulatory
requirements. Such amount is compounded for six months and then annualized
for a twelve-month period to derive the Fund's yield for each Class.
The "average annual total return" of the Fund refers to a figure
reflecting the average annualized percentage increase (or decrease) in the
value of an initial investment in a Class of the Fund of $1,000 over periods
of one, five and ten years, or over the life of the Fund, if less than any of
the foregoing. Average annual total return reflects all income earned by the
Fund, any appreciation or depreciation of the Fund's assets, all expenses
incurred by the applicable Class and all sales charges which would be
incurred by shareholders, for the stated periods. It also assumes
reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc. and the S&P 500 Index).
Prior to July 28, 1997, the Fund offered only one Class of shares. Because
all shares of the Fund held prior to such time (other than shares which were
acquired in exchange for shares of Dean Witter Funds offered with a front-end
sales charge or a CDSC and shares acquired through reinvestment of dividends
and distributions thereon) have been designated Class C shares, the Fund's
historical performance may be restated to reflect the current maximum sales
charge applicable to Class C.
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges except
that each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other
matter in which the interests of one Class differ from the interests of any
other Class. In addition, Class B shareholders will have the right to vote on
any proposed material increase in Class A's expenses, if such proposal is
submitted separately to Class A shareholders. Also, as discussed herein,
Class A, Class B and Class C bear the expenses related to the distribution of
their respective shares.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by
the Shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain 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, the
possibility of the Fund being unable to meet its obligations is remote
33
<PAGE>
and thus, in the opinion of Massachusetts counsel to the Fund, the risk to
Fund shareholders of personal liability is remote.
Code of Ethics. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to
ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from a
person's employment activities and that actual and potential conflicts of
interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an
advance clearance process to monitor that no Dean Witter Fund is engaged at
the same time in a purchase or sale of the same security. The Code of Ethics
bans the purchase of securities in an initial public offering and 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 require ments and the recommendations in the
1994 report by the Investment Company Institute Advisory Group on Personal
Investing.
Master/Feeder Conversion. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Fund.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover
of this Prospectus.
34
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS
Dean Witter Liquid Asset Fund Inc.
Dean Witter Tax-Free Daily Income Trust
Dean Witter U.S. Government Money Market 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 Pacific Growth Fund Inc.
Dean Witter Precious Metals and Minerals Trust
Dean Witter Health Sciences Trust
Dean Witter Global Dividend Growth Securities
Dean Witter Global Utilities Fund
Dean Witter International SmallCap 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 Income Builder Fund
Dean Witter Special Value Fund
Dean Witter Financial Services Trust
Dean Witter Market Leader Trust
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
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 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
Stategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
<PAGE>
Dean Witter
Balanced Growth Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
Paul D. Vance
Vice President
Rajesh K. Gupta
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
DEAN WITTER
BALANCED
GROWTH FUND
PROSPECTUS--JULY 28, 1997
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS January 31, 1997
DEAR SHAREHOLDER:
Despite two minor stock market corrections, the first in June/July and the
second in October, the twelve-month period ended January 31, 1997 was another
impressive year for the stock market, with the Dow Jones Industrial Average
(DJIA) ending the year over 6800. The Standard & Poor's 500 Composite Stock
Index (S&P 500) was also strong, advancing 29.34 percent for the year, with
large-capitalization stocks outperforming small-cap stocks by a wide margin.
During the same period, interest rates on intermediate-term U.S. Treasury
securities were highly volatile. In early 1996, interest rates rose as
economic data supported the perception that the economy had begun to
accelerate. Fueled by consumer demand and reinvigorated by low mortgage
rates, rebates and various incentives by the auto dealers, retail sales and
housing starts soared. Declining inventories, combined with strong employment
data, caused considerable consternation about a quickly rebounding economy
and a possible inflation surge. By September, however, evidence of a
moderating economy and the perception that the Federal Reserve Board would
not take any immediate action to slow the economy enabled interest rates to
decline rather sharply and quickly. This sentiment was short-lived as the
economy again displayed signs of strength in December, resulting in rising
interest rates.
PERFORMANCE AND PORTFOLIO STRATEGY
Against this backdrop, Dean Witter Balanced Growth Fund produced a total
return of 13.44 percent for the twelve-month period ended January 31, 1997.
During the same period, the Lipper Balanced Funds Index produced a return of
14.40 percent, while the S&P 500 Index and Lehman Brothers
Government/Corporate Bond Index returned 29.34 percent and 2.39 percent,
respectively. The accompanying chart illustrates the growth of a hypothetical
$10,000 investment in the Fund from inception (March 28, 1995) through
January 31, 1997, versus a similar investment in the issues that comprise the
S&P 500 Index, Lehman Brothers Government/Corporate Bond Index and the Lipper
Balanced Funds Index.
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
LETTER TO THE SHAREHOLDERS January 31, 1997, continued
On January 31, 1997, the Fund's net assets totaled more than $119 million,
with approximately 63 percent invested in equities and 37 percent in
fixed-income securities. At the end of the period under review, the Fund's
equity component was well diversified among twenty-five stocks representing
twenty-one different industry groups. Six new common stock positions were
added to the equity portfolio during the year: General Motors Corp.
(automotive), Banc One Corp. (banking), May Department Stores Co. (retail),
Timken (manufacturing), American Brands Inc. (tobacco) and General Public
Utilities (utilities).
Over the course of the past twelve months, and as cash flows permitted, the
Fund purchased current-coupon mortgage-backed securities at attractive
levels, enhancing the Fund's potential for higher total returns. At the end
of the fiscal year, approximately 65 percent of the Fund's fixed income
component was invested in mortgage-backed securities, 19 percent in U.S.
Treasury securities, 7 percent in U.S. agency obligations and 9 percent in
money market instruments.
LOOKING AHEAD
We expect the U.S. economy to maintain a slow-to-moderate pace for 1997, with
inflation remaining at a level similar to 1996. Before taking action to slow
the economy, the Federal Reserve Board is likely to look for sustained
confirmation of rising inflation and a strong economy.
[GRAPHIC DATA TO COME]
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
LETTER TO THE SHAREHOLDERS January 31, 1997, continued
We appreciate your support of Dean Witter Balanced Growth Fund and look
forward to continuing to serve your investment needs and objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PORTFOLIO OF INVESTMENTS January 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (63.1%)
Aerospace & Defense (2.6%)
67,500 Raytheon Co. .................................................... $ 3,096,562
--------------
Aluminum (2.5%)
43,000 Aluminum Co. of America ......................................... 2,967,000
--------------
Automotive (4.9%)
91,000 Ford Motor Co. .................................................. 2,923,375
50,000 General Motors Corp. ........................................... 2,950,000
--------------
5,873,375
--------------
Banking (5.3%)
70,000 Banc One Corp. ................................................. 3,176,250
28,300 BankAmerica Corp. ............................................... 3,158,987
--------------
6,335,237
--------------
Beverages -Soft Drinks (2.7%)
91,000 PepsiCo Inc. .................................................... 3,173,625
--------------
Chemicals (2.6%)
28,500 Du Pont (E.I.) de Nemours & Co., Inc. ........................... 3,124,313
--------------
Computer Equipment (2.6%)
19,800 International Business Machines Corp. ........................... 3,113,550
--------------
Conglomerates (2.5%)
75,000 Tenneco, Inc. ................................................... 3,000,000
--------------
Drugs & Healthcare (2.6%)
24,500 Bristol-Myers Squibb Co. ....................................... 3,111,500
--------------
Electric -Major (2.5%)
29,500 General Electric Co. ............................................ 3,038,500
--------------
Foods (2.6%)
60,500 ConAgra, Inc. ................................................... 3,055,250
--------------
Machinery -Agricultural (2.6%)
73,000 Deere & Co. ..................................................... 3,120,750
--------------
Manufacturing -Diversified (2.7%)
62,000 Timken Co. ...................................................... 3,193,000
--------------
Natural Gas (2.6%)
74,000 Enron Corp. ..................................................... 3,052,500
--------------
Oil -Domestic (2.5%)
23,000 Atlantic Richfield Co. .......................................... 3,041,750
--------------
Paper & Forest Products (2.5%)
64,400 Weyerhaeuser Co. ................................................ 2,930,200
--------------
Railroads (2.7%)
66,000 CSX Corp. ....................................................... 3,201,000
--------------
Retail (5.1%)
82,500 Dayton-Hudson Corp. ............................................. 3,104,063
68,000 May Department Stores Co. ...................................... 3,026,000
--------------
6,130,063
--------------
Telecommunications (2.6%)
76,000 Sprint Corp. .................................................... $ 3,097,000
--------------
Tobacco (2.6%)
60,000 American Brands, Inc. ........................................... 3,060,000
--------------
Utilities -Electric (3.8%)
88,500 General Public Utilities Corp. ................................. 2,964,750
71,600 PG & E Corp. ................................................... 1,628,900
--------------
4,593,650
--------------
TOTAL COMMON STOCKS
(Identified Cost $64,612,705) ................................... 75,308,825
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
U.S. GOVERNMENT & AGENCY
<S> <C> <C>
OBLIGATIONS (33.7%)
Federal National Mortgage Assoc.
$1,931 6.00% due 01/01/11-03/01/11 .................................... 1,859,196
966 6.50% due 08/01/10-03/01/11 .................................... 949,473
3,906 7.00% due 07/01/25-01/01/26 .................................... 3,822,762
4,820 7.50% due 06/01/25-01/01/27 .................................... 4,824,391
1,000 7.50%* ......................................................... 1,000,937
881 8.00% due 05/01/24-05/01/25 .................................... 898,248
Government National
Mortgage Assoc.
3,844 7.00% due 07/15/23-01/15/27 .................................... 3,761,514
7,952 7.50% due 06/15/24-10/15/26 .................................... 7,969,266
3,921 8.00% due 04/15/26-08/15/26 .................................... 4,007,670
5,500 Resolution Funding Corp.
Coupon Strips
0.00% due 04/15/04-01/15/08 .................................... 2,995,010
U.S. Treasury Notes
1,000 5.875% due 06/30/00 ........................................... 991,770
1,000 6.25% due 01/31/02 ............................................. 999,570
1,000 6.375% due 03/31/01 ............................................ 1,005,190
500 6.50% due 04/30/97 ............................................. 501,406
400 6.625% due 03/31/97 ............................................ 400,804
500 6.875% due 03/31/00 ............................................ 510,670
400 7.125% due 02/29/00 ............................................ 411,244
U.S. Treasury Principal Strips
1,000 0.00% due 11/15/97 ............................................. 958,560
4,500 0.00% due 11/15/04-02/15/07 .................................... 2,477,215
--------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Identified Cost $40,456,732) ................................. 40,344,896
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PORTFOLIO OF INVESTMENTS January 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (3.4%)
REPURCHASE AGREEMENT
$4,027 The Bank of New York
5.25% due 02/03/97
(dated 01/31/97; proceeds
$4,028,755; collateralized by
$5,883,705 U.S. Treasury
Strip 0.00% due 11/15/02
valued at $4,107,533)
(Identified Cost $4,026,993) .................................. $4,026,993
-------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $109,096,430) (a) 100.2% 119,680,714
LIABILITIES IN EXCESS OF
OTHER ASSETS ..................... (0.2) (264,727)
-------- -------------
NET ASSETS........................ 100.0% $119,415,987
======== =============
</TABLE>
- ------------
* Security was purchased on a forward commitment basis with an
approximate principal amount and no definite maturity date; the actual
principal amount and maturity date will be determined upon settlement.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$11,539,807 and the aggregate gross unrealized depreciation is
$955,523, resulting in net unrealized appreciation of $10,584,284.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $109,096,430)...................................... $119,680,714
Receivable for:
Shares of beneficial interest sold.................................. 1,104,633
Interest............................................................ 243,312
Dividends........................................................... 153,764
Investments sold.................................................... 89,397
Deferred organizational expenses .................................... 107,119
Receivable from affiliate ........................................... 6,830
Prepaid expenses and other assets ................................... 27,803
--------------
TOTAL ASSETS ...................................................... 121,413,572
--------------
LIABILITIES:
Payable for:
Investments purchased............................................... 1,615,290
Shares of beneficial interest repurchased........................... 158,327
Plan of distribution fee............................................ 96,964
Investment management fee .......................................... 58,178
Accrued expenses and other payables ................................. 68,826
--------------
TOTAL LIABILITIES.................................................. 1,997,585
--------------
NET ASSETS:
Paid-in-capital...................................................... 107,501,766
Net unrealized appreciation ......................................... 10,584,284
Accumulated undistributed net investment income...................... 258,337
Accumulated undistributed net realized gain.......................... 1,071,600
--------------
NET ASSETS ........................................................ $119,415,987
==============
NET ASSET VALUE PER SHARE,
9,179,945 shares outstanding (unlimited shares authorized of $.01
par value).......................................................... $13.01
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended January 31, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.............................. $ 1,962,778
Dividends............................. 1,471,924
------------
TOTAL INCOME ....................... 3,434,702
------------
EXPENSES
Plan of distribution fee.............. 812,219
Investment management fee............. 487,331
Transfer agent fees and expenses ..... 63,006
Shareholder reports and notices ..... 54,615
Professional fees .................... 53,262
Registration fees .................... 46,419
Organizational expenses .............. 34,064
Custodian fees........................ 19,243
Trustees' fees and expenses........... 11,791
Other................................. 4,910
------------
TOTAL EXPENSES ..................... 1,586,860
LESS: AMOUNTS WAIVED/REIMBURSED ... (25,549)
------------
NET EXPENSES ....................... 1,561,311
------------
NET INVESTMENT INCOME............... 1,873,391
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain..................... 2,814,299
Net change in unrealized
appreciation......................... 6,423,885
------------
NET GAIN............................ 9,238,184
------------
NET INCREASE.......................... $11,111,575
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR MARCH 28, 1995*
ENDED THROUGH
JANUARY 31, 1997 JANUARY 31, 1996
- ------------------------------------------------------ ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 1,873,391 $ 866,831
Net realized gain...................................... 2,814,299 65,170
Net change in unrealized appreciation ................. 6,423,885 4,160,399
---------------- ----------------
NET INCREASE......................................... 11,111,575 5,092,400
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ................................. (1,821,421) (694,528)
Net realized gain...................................... (1,797,082) (10,787)
---------------- ----------------
TOTAL................................................ (3,618,503) (705,315)
---------------- ----------------
Net increase from transactions in shares of beneficial
interest.............................................. 64,326,927 43,108,903
---------------- ----------------
NET INCREASE......................................... 71,819,999 47,495,988
NET ASSETS:
Beginning of period.................................... 47,595,988 100,000
---------------- ----------------
END OF PERIOD
(Including undistributed net investment income of
$258,337 and $172,303, respectively)................. $119,415,987 $47,595,988
================ ================
</TABLE>
- ------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Balanced Growth Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is
capital growth with reasonable current income. The Fund seeks to achieve its
objective by investing in common stock of companies which have a record of
paying dividends and have the potential for increasing dividends, securities
convertible into common stock and in investment grade fixed income
securities. The Fund was organized as a Massachusetts business trust on
November 23, 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 March 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 that sale or bid
prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees (valuation
of debt securities for which market quotations are not readily available may
be based upon current market prices of securities which are comparable in
coupon, rating and maturity or an appropriate matrix utilizing similar
factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and 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 securities valued
by such pricing service; and (5) short-term debt securities having a maturity
date of more than sixty days at time of purchase are valued on a
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997, continued
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Discounts are accreted over the life of the respective securities.
Dividend income and other distributions are recorded on the ex-dividend date.
Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund of approximately $171,000 of which approximately
$141,000 have been reimbursed. Such expenses have been deferred and are being
amortized on the straight-line method over a period not to exceed five years
from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.60% to the net assets of the Fund determined as of the close
of each business day.
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997, continued
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.
The Investment Manager assumed all operating expenses and waived the
compensation provided for in its Investment Management Agreement until the
Fund had $50 million of net assets which occurred on February 9, 1996 . At
January 31, 1997, included in the Statement of Assets and Liabilities is a
receivable from an affiliate which represents expense reimbursements due to
the Fund.
3. PLAN OF DISTRIBUTION
Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the
Investment Manager, is the distributor of the Fund's shares and, in
accordance with a Plan of Distribution (the "Plan"), pursuant to Rule 12b-1
under the Act, finances certain expenses in connection therewith.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Fund, except for expenses
that the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor, account
executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, its affiliates and other selected
broker-dealers under the Plan: (1) compensation to, and expenses of, account
executives of DWR and other employees, including overhead and telephone
expenses; (2) sales incentives and bonuses to sales representatives and to
marketing personnel in connection with promoting sales of the Fund's shares;
(3) expenses incurred in connection with promoting sales of the Fund's
shares; (4) preparing and distributing sales literature; and (5) providing
advertising and promotional activities, including direct mail solicitation
and television, radio, newspaper, magazine and other media advertisements.
The Fund is authorized to reimburse the Distributor for specific expenses the
Distributor incurs or plans to incur in promoting the distribution of the
Fund's shares. The amount of each monthly reimbursement payment may in no
event exceed an amount equal to a payment at the annual rate of 1.0% of the
Fund's average daily net assets during the month. Expenses incurred by the
Distributor pursuant to the Plan in any fiscal year in excess of 1.0% will
not be reimbursed by the Fund through payments accrued in any subsequent
fiscal year. For the year ended January 31, 1997, the distribution fee was
accrued at the annual rate of 1.0%.
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997, continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended January 31, 1997
aggregated $73,510,936 and $12,486,714, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$26,501,321 and $701,577, respectively.
For the year ended January 31, 1997, the Fund incurred brokerage commissions
of $44,062 with DWR for portfolio transactions executed on behalf of the
Fund. At January 31, 1997, the Fund's receivable for investments sold and
payable for investments purchased included unsettled trades with DWR of
$89,397 and $322,813, respectively.
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 $2,400.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR MARCH 28, 1995*
ENDED THROUGH
JANUARY 31, 1997 JANUARY 31, 1996
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Sold ........................................ 8,783,556 $108,772,818 4,686,686 $50,974,046
Reinvestment of dividends and distributions . 258,244 3,243,279 58,982 654,591
------------- -------------- ------------- --------------
............................................ 9,041,800 112,016,097 4,745,668 51,628,637
Repurchased ................................. (3,853,609) (47,689,170) (763,914) (8,519,734)
------------- -------------- ------------- --------------
Net increase ................................ 5,188,191 $ 64,326,927 3,981,754 $43,108,903
============= ============== ============= ==============
</TABLE>
- ------------
* Commencement of operations.
6. FEDERAL INCOME TAX STATUS
As of January 31, 1997, the Fund had permanent book/tax differences
attributable to nondeductible organizational expenses. To reflect
reclassifications arising from permanent book/tax differences for the year
ended January 31, 1997, paid-in-capital was charged and accumulated
undistributed net investment income was credited $34,064.
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR MARCH 28, 1995*
ENDED THROUGH
JANUARY 31, 1997 JANUARY 31, 1996
- --------------------------------------- ---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 11.92 $10.00
---------------- ----------------
Net investment income................... 0.25 0.31
Net realized and unrealized gain ...... 1.33 1.88
---------------- ----------------
Total from investment operations ....... 1.58 2.19
---------------- ----------------
Less dividends and distributions from:
Net investment income.................. (0.27) (0.27)**
Net realized gain...................... (0.22) --
---------------- ----------------
Total dividends and distributions ...... (0.49) (0.27)
---------------- ----------------
Net asset value, end of period.......... $ 13.01 $11.92
================ ================
TOTAL INVESTMENT RETURN+................ 13.44% 22.13%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................... 1.92%(3) --%(2)(3)
Net investment income................... 2.31%(3) 4.25%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $119,416 $47,596
Portfolio turnover rate................. 16% 2%(1)
Average commission rate paid............ $0.0516 --
</TABLE>
- ------------
* Commencement of operations.
** Includes a capital gain distribution of $0.004.
+ 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 and waived the
management fee, the annualized expense and net investment income ratios
would have been 2.42% and 1.83%, respectively, for the period ended
January 31, 1996, and 1.95% and 2.28%, respectively, for the year ended
January 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER BALANCED GROWTH FUND
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Dean Witter
Balanced Growth 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 March 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 confirmation 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 10, 1997
- -------------------------------------------------------------------------------
1997 FEDERAL TAX NOTICE (unaudited)
During the year ended January 31, 1997, the Fund paid to its shareholders
$0.10 per share from long-term capital gains. For such period, 50.2% of the
income paid qualified for the dividends received deduction available to
corporations.
- -------------------------------------------------------------------------------
<PAGE>
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
Paul D. Vance
Vice President
Rajesh K. Gupta
Vice President
Thomas F. Caloia
Treasurer
TRANSFER 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.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER
BALANCED
GROWTH FUND
ANNUAL REPORT--JANUARY 31, 1997
<PAGE>
DEAN WITTER BALANCED GROWTH FUND Two World Trade Center, New York, New York
10048
LETTER TO THE SHAREHOLDERS July 31, 1997
DEAR SHAREHOLDER:
The economy started 1997 off nicely with employment expanding, income climbing
and consumer confidence rising. Concern over inflation, however, was heightened
when the Federal Reserve Board chairman hinted that a preemptive move against
rising pressure on prices might be necessary. This concern permeated the bond
markets during January and February, resulting in lackluster performance.
As anticipated, the central bank voted to raise the federal-funds rate by 25
basis points, at its March 25, 1997, meeting. Although this move initially sent
stocks and bonds lower, many economists applauded the Fed's action, which was
viewed as a strike against any increase in inflation before it could occur, thus
prolonging the current economic expansion. By the end of March, the 30-year U.S.
Treasury bond rose above the important 7 percent level for the first time since
September 1996.
While it first appeared as if the Federal Reserve was poised for a number of
further rate increases, a slight cooling of economic data and subdued inflation
during the second quarter, as well as progress toward a balanced budget
agreement, have argued against a quick succession of tightening moves. As a
result, interest rates actually declined during the second quarter of 1997.
Although the current inflation environment remains favorable, members of the
Federal Open Market Committee have voiced concerns regarding the continuing
strength in employment and the probable rise of inflationary pressures in the
near future.
PERFORMANCE AND PORTFOLIO
As of July 28, 1997, the Fund began offering four classes of shares: A, B, C and
D, each with its own sales charge and distribution fee structure. Fund shares
held prior to July 28 (other than shares which were acquired in exchange for
shares of Dean Witter Funds offered with a front-end sales charge or a
contingent deferred sales charge (CDSC) and shares acquired through the
reinvestment of dividends and distributions) have
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
been designated Class C shares. Shares held prior to July 28, 1997, which were
acquired in exchange for shares of a Dean Witter Fund sold with a front-end
sales charge, including shares acquired through the reinvestment of dividends
and distributions, have been designated Class A shares, and shares held prior to
July 28, 1997, which were acquired in exchange for shares of Dean Witter Funds
sold with a CDSC, including shares acquired through the reinvestment of
dividends and distributions, have been designated Class B shares. A revised
prospectus, which includes complete details regarding the Fund's conversion to
multiple classes of shares, was mailed to shareholders in mid-summer.
For the six-month period ended July 31, 1997, the Fund's Class C shares produced
a total return of 16.68 percent compared to 22.50 percent for the Standard &
Poor's 500 Composite Stock Price Index (S&P 500), 5.76 percent for the Lehman
Brothers Government/Corporate Bond Index and 14.03 percent for the Lipper
Balanced Funds Index. The Fund has performed particularly well when compared to
its Lipper peer group: For the one-year period ended July 31, 1997, the Fund is
in the top 32 percent of the Lipper Balanced Funds category and since inception
(March 28, 1995), it is in the top 21 percent. During the period under review,
the Fund's net assets grew from $119.4 million to $172.3 million.
The Fund's asset mix during the period was 65 percent equities and 35 percent
fixed income. In the equity portion of the portfolio, two positions were
initiated -- Unicom Corp and Gallaher Group PLC -- and one -- Pacific Gas &
Electric -- eliminated.
The fixed-income portion of the Fund was invested as follows: 72 percent
mortgage-backed securities, 19 percent U.S. Treasuries, 6 percent U.S. agency
obligations and 3 percent money market instruments. During the period under
review, as cash flows permitted we purchased current coupon mortgages at
attractive prices, enhancing the Fund's prospects for higher total returns.
During this time, mortgage-backed securities continued to outperform
comparable-maturity treasuries.
LOOKING AHEAD
We believe that the current environment of low inflation combined with strong
corporate profits should continue for the foreseeable future and will provide a
favorable environment for the Fund. We appreciate your ongoing support of Dean
Witter Balanced Growth Fund and look forward to continuing to serve your
investment needs and objectives.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
RESULTS OF SPECIAL MEETING (unaudited)
* * *
On May 21, 1997, a special meeting of shareholders of Dean Witter Balanced
Growth Fund was held for the purpose of voting on four separate matters, the
results of which are as follows:
(1) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND AND DEAN
WITTER INTERCAPITAL INC., IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<S> <C>
For..................................................................... 4,703,012
Against................................................................. 183,166
Abstain................................................................. 626,957
</TABLE>
(2) ELECTION OF TRUSTEES:
<TABLE>
<S> <C> <C> <C> <C> <C>
Michael Bozic John R. Haire Michael E. Nugent
For................... 5,081,682 For................... 5,083,609 For................... 5,112,974
Withheld.............. 431,453 Withheld.............. 429,526 Withheld.............. 400,161
Charles A. Fiumefreddo Wayne E. Hedien Philip J. Purcell
For................... 5,080,981 For................... 5,111,693 For................... 5,087,321
Withheld.............. 432,154 Withheld.............. 401,442 Withheld.............. 425,814
Edwin J. Garn Dr. Manuel H. Johnson John L. Schroeder
For................... 5,111,136 For................... 5,112,742 For................... 5,110,102
Withheld.............. 401,999 Withheld.............. 400,393 Withheld.............. 403,033
</TABLE>
(3) APPROVAL OF A NEW INVESTMENT POLICY WITH RESPECT TO INVESTMENTS IN CERTAIN
OTHER INVESTMENT COMPANIES:
<TABLE>
<S> <C>
For..................................................................... 4,585,824
Against................................................................. 198,642
Abstain................................................................. 728,669
</TABLE>
(4) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE FUND'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For..................................................................... 4,878,597
Against................................................................. 64,780
Abstain................................................................. 569,758
</TABLE>
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PORTFOLIO OF INVESTMENTS July 31, 1997 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (65.0%)
Aerospace & Defense (2.5%)
77,000 Raytheon Co. ................ $ 4,302,375
------------
Aluminum (2.6%)
51,000 Aluminum Co. of America...... 4,513,500
------------
Automotive (5.1%)
103,500 Ford Motor Co. .............. 4,230,563
74,800 General Motors Corp. ........ 4,628,249
------------
8,858,812
------------
Banking (5.3%)
82,000 Banc One Corp. .............. 4,602,250
60,400 BankAmerica Corp. ........... 4,560,200
------------
9,162,450
------------
Beverages - Soft Drinks
(2.7%)
118,000 PepsiCo Inc. ................ 4,520,875
------------
Chemicals (2.6%)
67,400 Du Pont (E.I.) de Nemours &
Co., Inc. .................. 4,511,588
------------
Computer Equipment (2.5%)
41,000 International Business
Machines Corp. ............. 4,335,750
------------
Conglomerates (2.5%)
92,000 Tenneco, Inc. ............... 4,289,500
------------
Drugs & Healthcare (2.5%)
55,000 Bristol-Myers Squibb Co. .... 4,314,063
------------
Electric - Major (2.5%)
60,500 General Electric Co. ........ 4,246,344
------------
Foods (2.6%)
64,000 ConAgra, Inc. ............... 4,500,000
------------
Machinery - Agricultural
(2.5%)
77,000 Deere & Co. ................. 4,379,375
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------
<C> <S> <C>
Natural Gas (2.6%)
117,000 Enron Corp. ................. $ 4,438,688
------------
Oil - Domestic (2.7%)
62,500 Atlantic Richfield Co. ...... 4,675,781
------------
Paper & Forest Products
(2.7%)
74,000 Weyerhaeuser Co. ............ 4,606,500
------------
Railroads (2.8%)
77,000 CSX Corp. ................... 4,754,750
------------
Retail (2.7%)
72,000 Dayton-Hudson Corp. ......... 4,653,000
------------
Retail - Department Stores (2.7%)
82,000 May Department Stores Co. ... 4,581,750
------------
Steel (2.6%)
127,000 Timken Co. .................. 4,468,812
------------
Telecommunications (2.6%)
91,500 Sprint Corp. ................ 4,529,250
------------
Tobacco (2.4%)
77,500 Fortune Brands, Inc. ........ 2,746,406
77,500 Gallaher Group PLC (ADR)
(United Kingdom)*........... 1,390,156
------------
4,136,562
------------
Utilities - Electric (5.3%)
130,000 General Public Utilities
Corp. ...................... 4,509,375
206,000 Unicom Corp. ................ 4,673,625
------------
9,183,000
------------
TOTAL COMMON STOCKS
(Identified Cost $83,487,775)... 111,962,725
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PORTFOLIO OF INVESTMENTS July 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (37.5%)
$ 3,000 Federal Home Loan Banks
0.00% due 07/02/12........... $ 958,230
Federal National Mortgage
Assoc.
1,839 6.00% due
01/01/11 - 03/01/11......... 1,800,475
933 6.50% due
08/01/10 - 03/01/11......... 928,100
3,000 6.50%**..................... 2,984,064
11,744 7.00% due
03/01/12 - 06/01/27......... 11,792,149
1,000 7.00%**..................... 998,125
7,736 7.50% due
06/01/25 - 05/01/27......... 7,861,581
2,000 7.50%**..................... 2,032,500
839 8.00% due
05/01/24 - 05/01/25......... 864,868
Government National Mortgage
Assoc.
3,748 7.00% due
07/15/23 - 01/15/27......... 3,748,668
1,000 7.00%**..................... 997,500
9,775 7.50% due
06/15/24 - 06/15/27......... 9,946,426
3,817 8.00% due
04/15/26 - 08/15/26......... 3,941,413
5,500 Resolution Funding Corp.
Coupon Strips
0.00% due
04/15/04 - 01/15/08......... 3,235,885
1,500 U.S. Treasury Coupon Strip
0.00% due 11/15/04.......... 970,170
4,000 U.S. Treasury Strip
0.00% due
11/15/06 - 02/15/07......... 2,681,010
U.S. Treasury Notes
1,000 5.875% due 06/30/00......... 1,002,650
5,000 6.00% due 08/31/97.......... 5,000,200
1,000 6.25% due 01/31/02.......... 1,014,000
1,000 6.375% due 03/31/01......... 1,017,140
500 6.875% due 03/31/00......... 513,425
400 7.125% due 02/29/00......... 412,840
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Identified Cost
$63,785,995)................ 64,701,419
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (1.0%)
REPURCHASE AGREEMENT
$ 1,667 The Bank of New York 5.75%
due 08/01/97 (dated
07/31/97; proceeds
$1,667,216) (a)
(Identified Cost
$1,666,950)................. $ 1,666,950
------------
178,331,094
TOTAL INVESTMENTS
(Identified Cost $148,940,721)
(b)................................ 103.5%
LIABILITIES IN EXCESS OF
OTHER ASSETS...................... (3.5) (6,008,630)
----- ------------
NET ASSETS......................... 100.0% $172,322,464
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
ADR American Depository Receipt.
* Non-income producing security.
** Security was purchased on a forward commitment
basis with an approximate principal amount and no
definite maturity date; the actual principal
amount and maturity date will be determined upon
settlement.
(a) Collateralized by $391,631 Federal Home Loan
Banks 6.685% due 08/05/97 valued at $399,136,
$176,793 U.S. Treasury Bill 0.00% due 06/25/98
valued at $168,521, $500,000 U.S. Treasury Note
7.875% due 11/15/04 valued at $562,067 and
$550,000 U.S. Treasury Note 6.25% due 08/31/00
valued at $570,565.
(b) The aggregate cost for federal income tax
purposes approximates identified cost. The
aggregate gross unrealized appreciation is
$29,521,298 and the aggregate gross unrealized
depreciation is $130,925, resulting in net
unrealized appreciation of $29,390,373.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1997 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $148,940,721).......... $178,331,094
Receivable for:
Investments sold...................... 882,039
Shares of beneficial interest sold.... 658,260
Interest.............................. 440,497
Dividends............................. 258,750
Deferred organizational expenses......... 90,273
Prepaid expenses and other assets........ 63,058
------------
TOTAL ASSETS.......................... 180,723,971
------------
LIABILITIES:
Payable for:
Investments purchased................. 7,990,483
Shares of beneficial interest
repurchased.......................... 144,967
Plan of distribution fee.............. 140,115
Investment management fee............. 84,074
Accrued expenses and other payables...... 41,868
------------
TOTAL LIABILITIES..................... 8,401,507
------------
NET ASSETS............................ $172,322,464
============
COMPOSITION OF NET ASSETS:
Paid-in-capital.......................... $139,897,958
Net unrealized appreciation.............. 29,390,373
Accumulated undistributed net investment
income.................................. 424,929
Accumulated undistributed net realized
gain.................................... 2,609,204
------------
NET ASSETS............................ $172,322,464
============
CLASS A SHARES:
Net Assets............................... $195,923
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 13,122
$14.93
NET ASSET VALUE PER SHARE............. ============
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus 5.54% of net
asset value)......................... $15.76
CLASS B SHARES:
Net Assets............................... $64,147,486
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 4,296,460
$14.93
NET ASSET VALUE PER SHARE............. ============
CLASS C SHARES:
Net Assets............................... $107,968,874
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 7,234,358
$14.92
NET ASSET VALUE PER SHARE............. ============
CLASS D SHARES:
Net Assets............................... $10,181
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 682
$14.93
NET ASSET VALUE PER SHARE............. ============
STATEMENT OF OPERATIONS
For the six months ended July 31, 1997*
(unaudited)
NET INVESTMENT INCOME:
INCOME
Interest................................. $ 1,697,905
Dividends................................ 1,183,848
------------
TOTAL INCOME.......................... 2,881,753
------------
EXPENSES
Plan of distribution fee (Class B
shares)................................. 3,507
Plan of distribution fee (Class C
shares)................................. 672,941
Investment management fee................ 410,981
Transfer agent fees and expenses......... 60,554
Registration fees........................ 52,723
Professional fees........................ 33,108
Shareholder reports and notices.......... 21,178
Organizational expenses.................. 16,846
Custodian fees........................... 8,787
Trustees' fees and expenses.............. 6,697
Other.................................... 1,992
------------
TOTAL EXPENSES........................ 1,289,314
------------
NET INVESTMENT INCOME................. 1,592,439
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................ 2,627,502
Net change in unrealized appreciation.... 18,806,089
------------
NET GAIN.............................. 21,433,591
------------
NET INCREASE............................. $ 23,026,030
============
</TABLE>
- ---------------------
* Class A, Class B and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JULY 31, ENDED
1997* JANUARY 31, 1997
- -------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................. $ 1,592,439 $ 1,873,391
Net realized gain..................................... 2,627,502 2,814,299
Net change in unrealized appreciation................. 18,806,089 6,423,885
------------ ------------
NET INCREASE...................................... 23,026,030 11,111,575
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class C shares...................................... (1,425,847) (1,821,421)
Net realized gain
Class C shares...................................... (1,089,898) (1,797,082)
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS................. (2,515,745) (3,618,503)
------------ ------------
Net increase from transactions in shares of beneficial
interest.............................................. 32,396,192 64,326,927
------------ ------------
NET INCREASE...................................... 52,906,477 71,819,999
NET ASSETS:
Beginning of period................................... 119,415,987 47,595,988
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$424,929 and $258,337, respectively).............. $172,322,464 $119,415,987
============ ============
</TABLE>
- ---------------------
* Class A, Class B and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Balanced Growth Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The Fund's investment objective is capital growth
with reasonable current income. The Fund seeks to achieve its objective by
investing in common stock of companies which have a record of paying dividends
and have the potential for increasing dividends, securities convertible into
common stock and in investment grade fixed income securities. The Fund was
organized as a Massachusetts business trust on November 23, 1994 and the Fund
commenced operations on March 28, 1995. On July 28, 1997, the Fund commenced
offering three additional classes of shares, with the then current shares, other
than shares which were acquired in exchange for shares of Funds for which Dean
Witter InterCapital Inc. serves as Investment Manager ("Dean Witter Funds")
offered with either a front-end sales charge or a contingent deferred sales
charge ("CDSC") and shares acquired through reinvestment of dividends and
distributions thereon, have been designated as Class C shares. Shares held prior
to July 28, 1997 which were acquired in exchange for shares of a Dean Witter
Fund sold with a front-end sales charge, including shares acquired through
reinvestment of dividends and distributions thereon, have been designated Class
A shares and shares held prior to July 28, 1997 which were acquired in exchange
for shares of a Dean Witter Fund sold with a CDSC, including shares acquired
through reinvestment of dividends and distributions thereon, have been
designated Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997 (unaudited) continued
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 Dean Witter
InterCapital, Inc. (the "Investment Manager") that sale or bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Trustees (valuation of debt securities for
which market quotations are not readily available may be based upon current
market prices of securities which are comparable in coupon, rating and maturity
or an appropriate matrix utilizing similar factors); (4) certain portfolio
securities may be valued by an outside pricing service approved by the Trustees.
The pricing service may utilize a matrix system incorporating security quality,
maturity and coupon as the evaluation model parameters, and/or research and
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 securities valued by such pricing service; and (5) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Dividend
income and other distributions are recorded on the ex-dividend date. Interest
income is accrued daily.
Investment income, expenses (other than distribution fees), and realized and
unrealized gains and losses are allocated to each class of shares based upon the
relative net asset value on the date the income is earned or expenses and
realized and unrealized gains and losses are incurred. Distribution fees are
charged directly to the respective class.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997 (unaudited) continued
which may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $171,000 of which
approximately $141,000 have been reimbursed. Such expenses have been deferred
and are being amortized on the straight-line method over a period not to exceed
five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.60% 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.
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. The plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- 0.25% of the average
daily net assets of Class A; (ii) Class B -- 1.0% of the average daily net
assets of Class B; and (iii) Class C -- 1.0% of the average daily net assets of
Class C. In the case of Class A shares, amounts paid under the Plan are paid to
the Distributor for services provided. In the case of Class B and Class C
shares,
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997 (unaudited) continued
amounts paid under the Plan are paid to the Distributor for services provided
and the expenses borne by it and others in the distribution of the shares of
these Classes, including the payment of commissions for sales of these Classes
and incentive compensation to, and expenses of, the account executives of Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and others who engage in or support distribution of the shares or
who service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of these shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan, in the case of Class B shares, to compensate DWR and other selected
broker-dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended July 31, 1997, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
0.99%, respectively.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended July 31, 1997 aggregated
$51,938,659 and $12,571,569 respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities in the amount of $19,716,065
and $3,602,290, respectively.
For the six months ended July 31, 1997, the Fund incurred brokerage commissions
of $18,310 with DWR for portfolio transactions executed on behalf of the Fund.
At July 31, 1997, the Fund's receivable
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997 (unaudited) continued
for investments sold and payable for investments purchased included unsettled
trades with DWR of $325,278 and $758,652, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At July 31, 1997 the Fund had
transfer agent fees and expenses payable of approximately $675.
5. SHARES OF BENEFICIAL INTEREST +
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JULY 31, 1997 FOR THE YEAR
--------------------------- ENDED
JANUARY 31, 1997
(unaudited) ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold.......................................................... 760 $ 11,154 -- --
---------- ------------ ---------- ------------
CLASS B SHARES*
Sold.......................................................... 12,112 179,703 -- --
Redeemed...................................................... (46,268) (684,916) -- --
---------- ------------ ---------- ------------
Net decrease - Class B........................................ (34,156) (505,213) -- --
---------- ------------ ---------- ------------
CLASS C SHARES
Sold.......................................................... 3,645,059 48,887,333 8,783,556 $108,772,818
Reinvestment of dividends and distributions................... 161,267 2,224,442 258,244 3,243,279
Redeemed...................................................... (1,408,935) (18,231,540) (3,853,609) (47,689,170)
---------- ------------ ---------- ------------
Net increase - Class C........................................ 2,397,391 32,880,235 5,188,191 64,326,927
---------- ------------ ---------- ------------
CLASS D SHARES*
Sold.......................................................... 682 10,016 -- --
---------- ------------ ---------- ------------
Net increase in Fund.......................................... 2,364,677 $ 32,396,192 5,188,191 $ 64,326,927
========== ============ ========== ============
</TABLE>
- ---------------------
+ On July 28, 1997, 12,362 shares representing $181,608 were transferred to
Class A and 4,330,616 shares representing $63,616,743 were transferred to
Class B.
* For the period July 28, 1997 (issue date) through July 31, 1997.
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEAR MARCH 28, 1995*
JULY 31, ENDED THROUGH
1997*** JANUARY 31, 1997 JANUARY 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................... $ 13.01 $ 11.92 $ 10.00
-------- -------- --------
Net investment income.................................................. 0.15 0.25 0.31
Net realized and unrealized gain....................................... 2.00 1.33 1.88
-------- -------- --------
Total from investment operations....................................... 2.15 1.58 2.19
-------- -------- --------
Less dividends and distributions from:
Net investment income............................................... (0.14) (0.27) (0.27)**
Net realized gain................................................... (0.10) (0.22) --
-------- -------- --------
Total dividends and distributions...................................... (0.24) (0.49) (0.27)
-------- -------- --------
Net asset value, end of period......................................... $ 14.92 $ 13.01 $ 11.92
======== ======== ========
TOTAL INVESTMENT RETURN+............................................... 16.68%(1) 13.44% 22.13%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................................... 1.88%(2) 1.92%(3) --%(2)(3)
Net investment income.................................................. 2.28%(2) 2.31%(3) 4.25%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................................ $107,969 $119,416 $47,596
Portfolio turnover rate................................................ 9%(1) 16% 2%(1)
Average commission rate paid........................................... $0.0548 $0.0516 --
</TABLE>
- ---------------------
* Commencement of operations.
** Includes a capital gain distribution of $0.004.
***Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date, other than shares which were acquired in
exchange for shares of Funds for which Dean Witter InterCapital Inc. serves
as Investment Manager ("Dean Witter Funds") offered with either a front-end
sales charge or a contingent deferred sales charge ("CDSC") and shares
acquired through reinvestment of dividends and distributions thereon, have
been designated Class C shares. Shares held prior to July 28, 1997 which were
acquired in exchange for shares of a Dean Witter Fund sold with a front-end
sales charge, including shares acquired through reinvestment of dividends and
distributions thereon, have been designated Class A shares and shares held
prior to July 28, 1997 which were acquired in exchange for shares of a Dean
Witter Fund sold with a CDSC, including shares acquired through reinvestment
of dividends and distributions thereon, have been designated Class B shares.
+ 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 and waived the
management fee, the annualized expense and net investment income ratios would
have been 2.42% and 1.83%, respectively, for the period ended January 31,
1996, and 1.95% and 2.28%, respectively, for the year ended January 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JULY 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................................................... $ 14.69
--------
Net investment income.......................................................................................... 0.01
Net realized and unrealized gain............................................................................... 0.23
--------
Total from investment operations............................................................................... 0.24
--------
Net asset value, end of period................................................................................. $ 14.93
========
TOTAL INVESTMENT RETURN+....................................................................................... 1.63%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................................................................................... 1.03%(2)
Net investment income.......................................................................................... 7.70%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........................................................................ $196
Portfolio turnover rate........................................................................................ 9%(1)
Average commission rate paid................................................................................... $0.0548
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................................................... $ 14.69
--------
Net investment income.......................................................................................... 0.01
Net realized and unrealized gain............................................................................... 0.23
--------
Total from investment operations............................................................................... 0.24
--------
Net asset value, end of period................................................................................. $ 14.93
========
TOTAL INVESTMENT RETURN+....................................................................................... 1.63%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................................................................................... 1.78%(2)
Net investment income.......................................................................................... 6.93%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........................................................................ $64,147
Portfolio turnover rate........................................................................................ 9%(1)
Average commission rate paid................................................................................... $0.0548
</TABLE>
- ---------------------
* The date the shares were first issued. Shareholders who held shares of the
Fund prior to July 28, 1997 (the date the Fund converted to a multiple class
share structure) should refer to the Financial Highlights of Class C to
obtain the historical per share data and ratio information of their shares.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1)Not annualized.
(2)Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JULY 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................................................... $ 14.69
--------
Net investment income.......................................................................................... 0.01
Net realized and unrealized gain............................................................................... 0.23
--------
Total from investment operations............................................................................... 0.24
--------
Net asset value, end of period................................................................................. $ 14.93
========
TOTAL INVESTMENT RETURN+....................................................................................... 1.63%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................................................................................... 0.78%(2)
Net investment income.......................................................................................... 7.94%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........................................................................ $10
Portfolio turnover rate........................................................................................ 9%(1)
Average commission rate paid................................................................................... $0.0548
</TABLE>
- ---------------------
* The date the shares were first issued.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Paul D. Vance
Vice President
Rajesh K. Gupta
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER
BALANCED
GROWTH FUND
[PHOTO]
Semiannual Report
July 31, 1997
<PAGE>
PROSPECTUS
NOVEMBER 17, 1997
TCW/DW Balanced Fund (the "Fund") is an open-end, diversified management
investment company, whose investment objective is to achieve high total return
through a combination of income and capital appreciation. The Fund seeks to
achieve its investment objective by investing in a diversified portfolio of
common stocks and investment grade fixed-income securities. See "Investment
Objective and Policies."
The Fund offers four classes of shares (each, a "Class"), each with a different
combination of sales charges, ongoing fees and other features. The different
distribution arrangements permit an investor to choose the method of purchasing
shares that the investor believes is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and other
relevant circumstances. See "Purchase of Fund Shares -- Alternative Purchase
Arrangements."
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated November 17, 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.
On November 6, 1997, the Board of Trustees of the Fund approved an Agreement and
Plan of Reorganization by and between the Fund and Dean Witter Balanced Growth
Fund ("Balanced Growth"), pursuant to which the assets of the Fund would be
combined with those of Balanced Growth and shareholders of the Fund would become
shareholders of Balanced Growth receiving shares of Balanced Growth equal to the
value of their holdings in the Fund (the "Reorganization"). The Reorganization
is subject to the approval of shareholders of the Fund. See "The Fund and its
Management."
TABLE OF CONTENTS
Prospectus Summary /2
Summary of Fund Expenses /5
Financial Highlights /7
The Fund and its Management /10
Investment Objective and Policies /11
Special Risk Considerations /12
Investment Restrictions /17
Purchase of Fund Shares /18
Shareholder Services /28
Repurchases and Redemptions /30
Dividends, Distributions and Taxes /31
Performance Information /32
Additional Information /33
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TCW/DW BALANCED 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
FUND trust, and is an open-end, diversified management investment company investing
in a diversified portfolio of common stocks and investment grade fixed-income
securities.
- ------------------------------------------------------------------------------------------------
SHARES Shares of beneficial interest with $0.01 par value (see page 32). The Fund
OFFERED offers four Classes of Shares, each with a different combination of sales
charges, ongoing fees and other features (see pages 17-25).
- ------------------------------------------------------------------------------------------------
MINIMUM The minimum initial investment for each Class is $1,000 ($100 if the account
PURCHASE is opened through EasyInvest-SM-) Class D shares are only available to persons
investing $5 million or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million investment for
Class D shares, and subject to the $1,000 minimum initial investment for each
Class of the Fund, an investor's existing holdings of Class A shares and
concurrent investments in Class D shares of the Fund and other multiple class
funds for which Dean Witter Services Company Inc. serves as manager and TCW
Funds Management, Inc. serves as investment adviser will be aggregated. The
minimum subsequent investment is $100 (see page 17).
- ------------------------------------------------------------------------------------------------
INVESTMENT The investment objective of the Fund is to achieve high total return through a
OBJECTIVE combination of income and capital appreciation. (see page 10)
- ------------------------------------------------------------------------------------------------
MANAGER Dean Witter Services Company Inc. (the "Manager"), a wholly-owned subsidiary
of Dean Witter InterCapital Inc. ("InterCapital"), is the Fund's Manager. The
Manager also serves as Manager to thirteen other investment companies which
are advised by TCW Funds Management, Inc. (the "TCW/DW Funds"). The Manager
and InterCapital serve in various investment management, advisory, management
and administrative capacities to a total of 100 investment companies and other
portfolios with assets of approximately $100.7 billion at October 31, 1997
(see page 10).
- ------------------------------------------------------------------------------------------------
ADVISER TCW Funds Management, Inc. (the "Adviser") is the Fund's investment adviser.
In addition to the Fund, the Adviser serves as investment adviser to thirteen
other TCW/DW Funds. As of October 31, 1997, the Adviser and its affiliates had
approximately $50 billion under management or committed to management in
various fiduciary or advisory capacities, primarily from institutional
investors (see page 10).
- ------------------------------------------------------------------------------------------------
MANAGEMENT The Manager receives a monthly fee at the annual rate of 0.45% of daily net
AND ADVISORY assets. The Adviser receives a monthly fee at an annual rate of 0.30% of daily
FEES net assets (see page 10).
- ------------------------------------------------------------------------------------------------
DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a
DISTRIBUTION FEE distribution plan pursuant to Rule 12b-1 under the Investment Company Act (the
"12b-1 Plan") with respect to the distribution fees paid by the Class A, Class
B and Class C shares of the Fund to the Distributor. The entire 12b-1 fee
payable by Class A and a portion of the 12b-1 fee payable by each of Class B
and Class C equal to 0.25% of the average daily net assets of the Class are
currently each characterized as a service fee within the meaning of the
National Association of Securities Dealers, Inc. guidelines. The remaining
portion of the 12b-1 fee, if any, is characterized as an asset-based sales
charge (see pages 17 and 25).
- ------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ALTERNATIVE Four classes of shares are offered:
PURCHASE - Class A shares are offered with a front-end sales charge, starting at 5.25%
ARRANGEMENTS and reduced for larger purchases. Investments of $1 million or more (and
investments by certain other limited categories of investors) are not subject
to any sales charge at the time of purchase but a contingent deferred sales
charge ("CDSC") of 1.0% may be imposed on redemptions within one year of
purchase. The Fund is authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the Fund's Class A shares
and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to payments at an annual
rate of 0.25% of average daily net assets of the Class (see pages 17, 20 and
25).
- Class B shares are offered without a front-end sales charge, but will in
most cases be subject to a CDSC (scaled down from 5.0% to 1.0%) if redeemed
within six years after purchase. The CDSC will be imposed on any redemption of
shares if after such redemption the aggregate current value of a Class B
account with the Fund falls below the aggregate amount of the investor's
purchase payments made during the six years preceding the redemption. A
different CDSC schedule applies to investments by certain qualified plans.
Class B shares are also subject to a 12b-1 fee assessed at the annual rate of
1.0% of the average daily net assets of Class B. Shares of the Fund held prior
to July 28, 1997 which were acquired in exchange for shares of TCW/DW Funds
sold with a CDSC, including shares acquired through reinvestment of dividends
and distributions thereon, have been designated Class B shares. Shares held
before May 1, 1997 that have been designated Class B shares will convert to
Class A shares in May, 2007. In all other instances, Class B shares convert to
Class A shares approximately ten years after the date of the original purchase
(see pages 17, 23 and 25).
- Class C shares are offered without a front-end sales charge, but will in
most cases be subject to a CDSC of 1.0% if redeemed within one year after
purchase. The Fund is authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the Fund's Class C shares
and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to payments at an annual
rate of 1.0% of average daily net assets of the Class. All shares of the Fund
held prior to July 28, 1997 (other than shares which were acquired in exchange
for shares of TCW/DW Funds offered with a CDSC and shares acquired through
reinvestment of dividends and distributions thereon) have been designated
Class C shares. Shares held before July 28, 1997 that have been designated
Class C shares are not subject to the 1.0% CDSC (see pages 17 and 25).
- Class D shares are offered only to investors meeting an initial investment
minimum of $5 million and to certain other limited categories of investors.
Class D shares are offered without a front-end sales charge or CDSC and are
not subject to any 12b-1 fee (see pages 17 and 25).
- ------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
DIVIDENDS Income dividends are intended to be paid quarterly. Capital gains
AND distributions, if any, will be paid at least annually. The Fund may, however,
CAPITAL GAINS determine to retain all or part of any net long- term capital gains in any
DISTRIBUTIONS year for reinvestment. Dividends and capital gains distributions paid on
shares of a Class are automatically reinvested in additional shares of the
same Class at net asset value unless the shareholder elects to receive cash.
Shares acquired by dividend and distribution reinvestment will not be subject
to any sales charge or CDSC (see pages 27 and 31).
- ------------------------------------------------------------------------------------------------
REDEMPTION Shares are redeemable by the shareholder at net asset value less any
applicable CDSC on Class A, Class B or Class C shares. An account may be
involuntarily redeemed if the total value of the account is less than $100 or,
if the account was opened through EasyInvest-SM-, if after twelve months the
shareholder has invested less than $1,000 in the account (see page 30).
- ------------------------------------------------------------------------------------------------
RISK The net asset value of the Fund's shares will fluctuate with changes in the
CONSIDERATIONS market value of the Fund's portfolio securities. The Fund may invest a portion
of its assets in mortgage-backed and asset-backed securities, including up to
5% of its net assets in collateralized mortgage obligations. Mortgage-backed
securities are subject to special risks including prepayments or refinancings
of the assets underlying such securities which may have an impact on the yield
and the net asset value of the Fund's shares (see pages 13-14). The Fund may
invest up to 25% of its total assets in non-dollar denominated foreign
securities, which may entail special risks (see pages 12-13). The Fund also
may enter into reverse repurchase agreements and dollar rolls, may purchase
securities on a when-issued, delayed delivery or "when, as and if issued"
basis and may enter into forward foreign currency exchange contracts, which
involve certain additional risks (see pages 14-16).
</TABLE>
- --------------------------------------------------------------------------------
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE
IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
4
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of the
Fund will incur. The expenses and fees set forth in the table are based on the
expenses and fees for the fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ----------------------------------------
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering
price)................................ 5.25%(1) None None None
Sales Charge Imposed on Dividend
Reinvestments......................... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase
price or redemption proceeds)......... None(2) 5.00%(3) 1.00%(4) None
Redemption Fees......................... None None None None
Exchange Fee............................ None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
- ---------------------------------------------------
Management and Advisory Fees............ 0.75% 0.75% 0.75% 0.75%
12b-1 Fees (5) (6)...................... 0.25% 1.00% 0.99% None
Other Expenses.......................... 0.34% 0.34% 0.34% 0.34%
Total Fund Operating Expenses (7)....... 1.34% 2.09% 2.08% 1.09%
<FN>
- ------------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund Shares --
Initial Sales Charge Alternative -- Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on redemptions
made within one year after purchase, except for certain specific
circumstances (see "Purchase of Fund Shares -- Initial Sales Charge
Alternative -- Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares -- Level Load Alternative -- Class C Shares").
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1 fee
payable by Class A and a portion of the 12b-1 fee payable by each of Class
B and Class C equal to 0.25% of the average daily net assets of the Class
are currently each characterized as a service fee within the meaning of
National Association of Securities Dealers, Inc. ("NASD") guidelines and
are payments made for personal service and/or maintenance of shareholder
accounts. The remainder of the 12b-1 fee, if any, is an asset-based sales
charge, and is a distribution fee paid to the Distributor to compensate it
for the services provided and the expenses borne by the Distributor and
others in the distribution of the Fund's shares (see "Purchase of Fund
Shares -- Plan of Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will be
subject to the lower 12b-1 fee applicable to Class A shares. No sales
charge is imposed at the time of conversion of Class B shares to Class A
shares. Class C shares do not have a conversion feature and, therefore, are
subject to an ongoing 1.00% distribution fee (see "Purchase of Fund Shares
-- Alternative Purchase Arrangements").
(7) There were no outstanding shares of Class A, Class B or Class D prior to
July 28, 1997. Accordingly, "Total Fund Operating Expenses," as shown above
with respect to those Classes, are estimates based upon the sum of 12b-1
Fees, Management Fees and estimated "Other Expenses."
</FN>
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------ ------ ------- ------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the
end of each time period:
Class A................................................. $65 $93 $122 $205
Class B................................................. $71 $95 $132 $242
Class C................................................. $31 $65 $112 $241
Class D................................................. $11 $35 $ 60 $133
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the
period:
Class A................................................. $65 $93 $122 $205
Class B................................................. $21 $65 $112 $242
Class C................................................. $21 $65 $112 $241
Class D................................................. $11 $35 $ 60 $133
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management" and "Purchase of Fund Shares -- Plan of
Distribution" and "Repurchases and Redemptions."
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
6
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, notes thereto, and the unqualified report of
independent accountants, which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 29, 1993*
FOR THE YEAR ENDED SEPTEMBER 30, THROUGH
---------------------------------- SEPTEMBER 30,
1997**++ 1996 1995 1994
------- ------- -------- -----------------
<S> <C> <C> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.63 $ 10.46 $ 9.43 $ 10.00
------- ------- -------- ------
Net investment income.............. 0.11 0.15 0.20 0.10
Net realized and unrealized gain
(loss)............................ 2.04 1.12 0.93 (0.58)
------- ------- -------- ------
Total from investment operations... 2.15 1.27 1.13 (0.48)
------- ------- -------- ------
Less dividends:
From net investment income....... (0.10) -- (0.10) (0.09)
In excess of net investment
income.......................... -- (0.10) -- --
------- ------- -------- ------
Total dividends.................... (0.10) (0.10) (0.10) (0.09)
------- ------- -------- ------
Net asset value, end of period..... $ 13.68 $ 11.63 $ 10.46 $ 9.43
======= ======= ======== ======
TOTAL INVESTMENT RETURN+........... 18.67% 12.20% 11.97% (4.80)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 2.08% 2.14% 2.11% 2.06%(2)
Net investment income.............. 0.86% 1.12% 1.88% 1.22%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $88,212 $92,491 $106,716 $149,357
Portfolio turnover rate............ 80% 117% 123% 113%(1)
Average commission rate paid....... $0.0584 $0.0583 -- --
</TABLE>
- ------------
* COMMENCEMENT OF OPERATIONS.
** PRIOR TO JULY 28, 1997, THE FUND ISSUED ONE CLASS OF SHARES. ALL SHARES OF
THE FUND HELD PRIOR TO THAT TIME, OTHER THAN SHARES WHICH WERE ACQUIRED IN
EXCHANGE FOR SHARES OF FUNDS FOR WHICH DEAN WITTER SERVICES COMPANY INC.
SERVES AS MANAGER AND TCW FUND'S MANAGEMENT, INC. SERVES AS ADVISER ("TCW/DW
FUNDS") OFFERED WITH A CONTINGENT DEFERRED SALES CHARGE ("CDSC") AND SHARES
ACQUIRED THROUGH REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS THEREON, HAVE
BEEN DESIGNATED CLASS C SHARES. SHARES HELD PRIOR TO JULY 28, 1997 WHICH
WERE ACQUIRED IN EXCHANGE FOR SHARES OF A TCW/DW FUND SOLD WITH A CDSC,
INCLUDING SHARES ACQUIRED THROUGH REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS THEREON, HAVE BEEN DESIGNATED CLASS B SHARES.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
7
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
-----------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 13.64
------
Net investment income........................ 0.03
Net realized and unrealized gain............. 0.06
------
Total from investment operations............. 0.09
------
Less dividends from net investment income.... (0.05)
------
Net asset value, end of period............... $ 13.68
======
TOTAL INVESTMENT RETURN+..................... 0.62%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... 1.40%(2)
Net investment income........................ 1.53%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...... $46
Portfolio turnover rate...................... 80%
Average commission rate paid................. $0.0584
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 13.64
------
Net investment income........................ 0.02
Net realized and unrealized gain............. 0.05
------
Total from investment operations............. 0.07
------
Less dividends from net investment income.... (0.03)
------
Net asset value, end of period............... $ 13.68
======
TOTAL INVESTMENT RETURN+..................... 0.48%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... 2.09%(2)
Net investment income........................ 0.75%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...... $5,479
Portfolio turnover rate...................... 80%
Average commission rate paid................. $0.0584
</TABLE>
- ------------
* THE DATE SHARES WERE FIRST ISSUED. SHAREHOLDERS WHO HELD SHARES PRIOR TO
JULY 28, 1997 (THE DATE THE FUND CONVERTED TO A MULTIPLE CLASS SHARE
STRUCTURE) SHOULD REFER TO THE FINANCIAL HIGHLIGHTS OF CLASS C TO OBTAIN THE
HISTORICAL PER SHARE AND RATIO INFORMATION OF THEIR SHARES.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
-----------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 13.64
------
Net investment income........................ 0.04
Net realized and unrealized gain............. 0.05
------
Total from investment operations............. 0.09
------
Less dividends from net investment income.... (0.05)
------
Net asset value, end of period............... $ 13.68
======
TOTAL INVESTMENT RETURN+..................... 0.65%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... 1.09%(2)
Net investment income........................ 1.75%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...... $10
Portfolio turnover rate...................... 80%
Average commission rate paid................. $0.0584
</TABLE>
- ------------
* THE DATE SHARES WERE FIRST ISSUED.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
9
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
TCW/DW Balanced 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 Massachusetts
on March 2, 1993.
Dean Witter Services Company Inc. (the "Manager"), whose address is Two
World Trade Center, New York, New York 10048, is the Fund's Manager. The Manager
is a wholly-owned subsidiary of Dean Witter InterCapital Inc. ("InterCapital").
InterCapital is a wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co., a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses -- securities,
asset management and credit services.
The Manager acts as manager to thirteen other TCW/DW Funds. The Manager and
InterCapital act in various investment management, advisory, management and
administrative capacities to a total of 100 investment companies, thirty of
which are listed on the New York Stock Exchange, with combined assets of
approximately $97.0 billion as of October 31, 1997. InterCapital also manages
and advises portfolios of pension plans, other institutions and individuals
which aggregated approximately $3.7 billion at such date.
The Fund has retained the Manager to manage its business affairs, supervise
its overall day-to-day operations (other than providing investment advice) and
provide all administrative services.
TCW Funds Management, Inc. (the "Adviser"), whose address is 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017, is the Fund's
investment adviser. The Adviser was organized in 1987 as a wholly-owned
subsidiary of The TCW Group, Inc. ("TCW"), whose subsidiaries, including Trust
Company of the West and TCW Asset Management Company, provide a variety of
trust, investment management and investment advisory services. Robert A. Day,
who is Chairman of the Board of Directors of TCW, may be deemed to be a control
person of the Adviser by virtue of the aggregate ownership by Mr. Day and his
family of more than 25% of the outstanding voting stock of TCW. The Adviser
serves as investment adviser to thirteen other TCW/DW Funds in addition to the
Fund. As of October 31, 1997, the Adviser and its affiliated companies had
approximately $50 billion under management or committed to management, primarily
from institutional investors.
The Fund has retained the Adviser to invest the Fund's assets.
The Fund's Trustees review the various services provided by the Manager and
the Adviser to ensure that the Fund's general investment policies and programs
are being properly carried out and that administrative services are being
provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the annual rate of 0.45% to
the Fund's net assets. As compensation for its investment advisory services, the
Fund pays the Adviser monthly compensation calculated daily by applying an
annual rate of 0.30% to the Fund's net assets. The total of the management and
advisory fees paid by the Fund is higher than the advisory fees paid by most
other investment companies.
For the fiscal year ended September 30, 1997, the Fund accrued to the
Manager and the Adviser total compensation amounting to 0.45% and 0.30%,
respectively, of the Fund's average daily net assets and total expenses of Class
C amounted to 2.08% of the average daily net assets of Class C. Shares of Class
A, Class B and Class D were first issued on July 28, 1997. The expenses of the
Fund include: the fees of the Manager and the Adviser; the fee pursuant to the
Plan of Distribution (see "Purchase of Fund Shares"); taxes; transfer agent,
custodian and auditing fees; certain legal fees; and printing and other expenses
relating to the Fund's operations which are not expressly assumed by the Manager
or the Adviser under their respective Agreements with the Fund.
On November 6, 1997, the Board of Trustees of the Fund approved an Agreement
and Plan of
10
<PAGE>
Reorganization by and between the Fund and Dean Witter Balanced Growth Fund
("Balanced Growth"), pursuant to which the assets of the Fund would be combined
with those of Balanced Growth and shareholders of the Fund would become
shareholders of Balanced Growth receiving shares of Balanced Growth equal to the
value of their holdings in the Fund (the "Reorganization"). The Reorganization
is subject to the approval of shareholders of the Fund. A proxy statement
formally detailing the proposal and the reasons for the Trustees' action, as
well as information concerning Balanced Growth, will be distributed to
shareholders of the Fund who hold shares of the Fund as of the record date for
the shareholder meeting.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to achieve high total return through
a combination of income and capital appreciation. This objective is fundamental
and may not be changed without shareholder approval. There is no assurance that
the objective will be achieved.
The Fund seeks to obtain its objective by investing in a diversified
portfolio of common stocks and investment grade fixed-income securities. The
percentage of assets allocated between equity and fixed-income securities will
vary from time to time depending on the judgment of the Adviser as to general
economic and market conditions, changes in fiscal or monetary policies and
trends in yields and interest rates. However, under normal circumstances, it is
expected that common stocks will represent approximately 60-70% of the Fund's
total assets. In addition, the Fund under normal circumstances will maintain at
least 25% of its total assets in fixed-income securities.
The investments in the equity portion of the Fund's portfolio are determined
pursuant to a "top down" investment process ranging from the overall economic
outlook, to the development of industry/sector preferences, and, last, to
specific stock selections. The following disciplines generally apply with regard
to stock selection of the equity component of the Fund's portfolio: (i) no
single issuer's equity securities will represent at the time of purchase more
than 5% of the Fund's total assets; and (ii) at least 95% of the companies
represented will have minimum market capitalizations at the time of purchase in
excess of $1 billion. Subject to the Fund's investment objective, the Adviser
may modify the foregoing disciplines without notice.
The fixed-income portion of the Fund's portfolio may consist of securities
issued or guaranteed by the U.S. Government (Treasury bills, notes and bonds),
investment grade corporate debt securities (including convertible securities),
mortgage-backed and asset-backed securities and money market securities (as
described below). All fixed-income securities in which the Fund invests will be
either issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or rated at least BBB by Standard & Poor's Corporation ("S&P")
or Baa by Moody's Investors Service, Inc. ("Moody's") or, if not rated,
determined by the Adviser to be of comparable quality.
Under normal circumstances, no more than 10% of the fixed-income portion of
the Fund's portfolio will be rated BBB by S&P or Baa by Moody's. Fixed-income
securities rated BBB by S&P or Baa by Moody's, which generally are regarded as
having an adequate capacity to pay interest and repay principal, have
speculative characteristics. Thus, changes in economic conditions are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case with respect to higher rated securities. 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
Adviser determines that it is practicable to sell the security without undue
market or tax consequences to the Fund. In the event that such downgraded
securities constitute 5% or more of the Fund's net assets, the Adviser will seek
to sell immediately sufficient securities to reduce the total to below 5%. A
description of fixed-income securities ratings is contained in the Appendix to
the Statement of Additional Information.
11
<PAGE>
PORTFOLIO CHARACTERISTICS
Although the Fund will invest primarily in equity securities and
fixed-income corporate debt securities, it may engage to a limited extent in
certain specialized investments and investment techniques which are described
below.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. As stated above, the Fund may
invest in fixed-rate and adjustable-rate mortgage-backed securities
("Mortgage-Backed Securities").
There are currently three basic types of Mortgage-Backed Securities: (i)
those issued or guaranteed by the United States Government or one of its
agencies or instrumentalities, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC") (securities issued by GNMA, but
not those issued by FNMA or FHLMC, are backed by the "full faith and credit" of
the United States); (ii) those issued by private issuers that represent an
interest in or are collateralized by Mortgage-Backed Securities issued or
guaranteed by the United States Government or one of its agencies or
instrumentalities; and (iii) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or Mortgage-Backed
Securities without a government guarantee but usually having some form of
private credit enhancement. The Fund may also invest in adjustable-rate mortgage
securities, which are pass-through mortgage securities collateralized by
mortgages with adjustable rather than fixed rates.
The Fund may also invest up to 5% of its net assets in collateralized
mortgage obligations ("CMOs"), which are debt obligations collateralized by
mortgage loans or mortgage pass-through securities. Typically, CMOs are
collateralized by GNMA, FNMA or FHLMC Certificates, but also may be
collateralized by whole loans or private mortgage pass-through securities. Types
of CMOs in which the Fund may invest may be issued either by the U.S. Government
or by private issuers.
The Fund may also invest in other asset-backed securities ("Asset-Backed
Securities"), which involve use of the securitization techniques utilized in
connection with Mortgage-Backed Securities in connection with other assets,
primarily automobile and credit card receivables and home equity loans.
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 based on a specified formula.
Convertible securities rank senior to common stocks in a corporation's capital
structure and, therefore, entail less risk than the corporation's common stock.
The value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion privilege), and its "conversion value"
(the security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, may sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
SPECIAL RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of the Fund's portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market and political factors, including movements in interest rates, which
cannot be predicted. The Fund's yield will also vary based on the yield of the
Fund's portfolio securities.
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FOREIGN SECURITIES. The Fund may invest in securities of foreign companies.
The Fund will not invest more than 25% of the value of its total assets, at the
time of purchase, in non-dollar denominated foreign securities (other than
securities of Canadian issuers registered under the Securities Exchange Act of
1934 or American Depository Receipts, on which there is no such limit). The
Fund's investments in unlisted foreign securities are subject to the Fund's
overall policy limiting its investment in illiquid securities to 15% or less of
its net assets. The Fund currently does not intend to invest more than 25% of
its total assets in the securities of issuers in any one country outside the
United States.
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.
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.
The Fund may also invest up to 5% of its net assets in a type of Mexican
government money market securities known as Cetes, which are peso-denominated
discount debt securities having maturities of one year or less that are sold
through auctions regulated by Banco de Mexico. The Fund will invest in Cetes
only if they meet the rating standards for the fixed-income portion of the
Fund's portfolio.
MORTGAGE-BACKED AND ASSET-BACKED 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. Generally, higher yielding
fixed-income securities are subject to a credit risk to a greater extent than
lower yielding fixed-income securities. 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.
Mortgage-Backed and Asset-Backed Securities have certain different
characteristics than traditional debt securities. Among the major differences
are that interest and principal payments are made more frequently, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other assets generally may be prepaid at any time. As a
result, if the Fund purchases such a security at a premium, a prepayment rate
that is faster than expected may reduce yield to maturity, while a prepayment
rate that is slower than expected may have the
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opposite effect of increasing yield to maturity. Alternatively, if the Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments may reduce, yield to maturity.
Mortgage-Backed and Asset-Backed Securities, like all fixed income
securities, generally decrease in value as a result of increases in interest
rates. In addition, although generally the value of fixed-income securities
increases during periods of falling interest rates and, as stated above,
decreases during periods of rising interest rates, as a result of prepayments
and other factors, this is not always the case with respect to Mortgage-Backed
and Asset-Backed Securities.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Fund are likely to be greater during a period
of declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Mortgage-Backed
Securities generally decrease in value as a result of increases in interest
rates and may benefit less than other fixed-income securities from declining
interest rates because of the risk of prepayment.
Asset-Backed Securities involve certain risks that are not posed by
Mortgage-Backed Securities, resulting mainly from the fact that Asset-Backed
Securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities.
There are certain risks associated specifically with CMOs, in which the Fund
may invest up to 5% of its net assets. CMOs issued by private entities are not
U.S. Government securities and are not guaranteed by any government agency,
although the securities underlying a CMO may be subject to a guarantee.
Therefore, if the collateral securing the CMO, as well as any third party credit
support or guarantees, is insufficient to make payment, the holder could sustain
a loss. Also, a number of different factors, including the extent of prepayment
of principal of the collateralized mortgage obligations, affect the availability
of cash for principal payments by the CMO issuer on any payment date and,
accordingly, affect the timing of principal payments on each CMO class. In
addition, CMO classes with higher yields tend to be more volatile with respect
to cash flow of the underlying mortgages; as a result, the market prices of
those classes tend to be more volatile.
The risks of other investment techniques which may be utilized by the Fund
are described under "Other Investment Policies" below.
OTHER INVESTMENT POLICIES
As stated above, the Fund may invest in money market instruments, which are
short-term (maturities of up to thirteen months) fixed-income securities issued
by private and governmental institutions. Money market instruments in which the
Fund may invest are securities issued or guaranteed by the U.S. Government or
its agencies (Treasury bills, notes and bonds); obligations of banks subject to
regulation by the U.S. Government and having total assets of $1 billion or more;
Eurodollar certificates of deposit; obligations of savings banks and savings and
loan associations having total assets of $1 billion or more; fully insured
certificates of deposit; and commercial paper rated within the two highest
grades by Moody's or S&P or, if not rated, issued by a company having an
outstanding debt issue rated AAA by S&P or Aaa by Moody's.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in
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the future, usually not more than seven days from the date of purchase. While
repurchase agreements involve certain risks not associated with direct
investments in debt securities, including the risks of default or bankruptcy of
the selling financial institution, the Fund follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
and maintaining adequate collateralization.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may also use
reverse repurchase agreements and dollar rolls with respect to up to 5% of its
total assets 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 also may enter into dollar rolls in which the Fund sells securities for
delivery in the current month 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 the 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.
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. 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.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis.
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<PAGE>
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.
PRIVATE PLACEMENTS. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Adviser, pursuant to
procedures adopted by the Trustees of the Fund, will make a determination as to
the liquidity of each restricted security purchased by the Fund. If a restricted
security is determined to be "liquid," such security will not be included within
the category "illiquid securities," which under current policy may not exceed
15% of the Fund's net assets. However, investing in Rule 144A Securities could
have the effect of increasing the level of Fund illiquidity to the extent the
Fund, at a particular point in time, may be unable to find qualified
institutional buyers interested in purchasing such securities.
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.
At other times, when, for example, the Adviser believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar or some other foreign currency, the Fund may enter into a forward
contract to sell, for a fixed amount of dollars or other currency, the amount of
foreign currency approximating the value of some or all of the Fund's 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 by the Adviser when it is determined that the
foreign currency in which the portfolio securities are denominated has
insufficient liquidity or is trading at a discount as compared with some other
foreign currency with which it tends to move in tandem.
If the Fund enters into forward contract transactions and 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
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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 by
the Adviser.
FUTURES AND OPTIONS TRANSACTIONS. The Fund is authorized to engage in
futures and options transactions, although it has no current intention to do so
during the coming year.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Adviser with a view to
achieving the Fund's investment objective. James A. Tilton, Managing Director of
the Adviser, is the primary portfolio manager of the equity portion of the
Fund's portfolio, and James M. Goldberg, Managing Director of the Adviser, is
the primary portfolio manager of the fixed-income portion of the Fund's
portfolio. Messrs. Tilton and Goldberg, who have been the primary portfolio
managers of the Fund since its inception, have been portfolio managers with
affiliates of The TCW Group, Inc. since 1980 and 1984, respectively.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Adviser will rely on information from various sources,
including research, analysis and appraisals of brokers and dealers, including
Dean Witter Reynolds Inc. ("DWR"), and other brokers and dealers that are
affiliates of the Manager, and others regarding economic developments and
interest rate trends, and the Adviser's own analysis of factors it deems
relevant.
Orders for transactions in portfolio securities are placed for the Fund with
a number of brokers anddealers, including DWR and other brokers and dealers that
are affiliates of the Manager or Adviser. The Fund may incur brokerage
commissions on transactions conducted through such affiliates. Under normal
circumstances it is not anticipated that the portfolio trading will result in
the Fund's portfolio turnover rate exceeding 150% in any one year. The Fund will
incur brokerage costs commensurate with its portfolio turnover rate, and thus a
higher level (over 100%) of portfolio transactions will increase the Fund's
overall brokerage expenses. Short term gains and losses may result from such
portfolio transactions.
Except as specifically noted, all investment policies and practices
discussed above are not fundamental policies of the Fund and, as such, may be
changed without shareholder approval.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act. For purposes of the following limitations: (i)
all percentage limitations apply immediately after a purchase or initial
investment, and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund may not:
1. 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. As to 75% of its total assets, purchase more than 10% of the voting
securities of any issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
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issued or guaranteed by the United States Government, its agencies or
instrumentalities.
4. Invest more than 5% of the value of its total assets in securities
of issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction does not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each Class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and Dean
Witter Distributors Inc. (the "Distributor"), an affiliate of the Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
others (which may include TCW Brokerage Services, an affiliate of the Adviser)
which have entered into selected dealer agreements with the Distributor
("Selected Broker-Dealers"). The principal executive office of the Distributor
is located at Two World Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an initial sales charge are
subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a CDSC scaled down from 2.0% to
1.0% if redeemed within three years after purchase.) Class C shares are sold
without an initial sales charge but are subject to a CDSC of 1.0% on most
redemptions made within one year after purchase. Class D shares are sold without
an initial sales charge or CDSC and are available only to investors meeting an
initial investment minimum of $5 million, and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the Fund,
Class A shares may be sold to categories of investors in addition to those set
forth in this prospectus at net asset value without a front-end sales charge,
and Class D shares may be sold to certain other categories of investors, in each
case as may be described in the then current prospectus of the Fund. See
"Alternative Purchase Arrangements -- Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million or more and to
certain other limited categories of investors. For the purpose of meeting the
minimum $5 million initial investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of the Fund, an investor's
existing holdings of Class A shares and concurrent investments in Class D shares
of the Fund and other TCW/DW Funds which are multiple class funds ("TCW/DW
Multi-Class Funds") will be aggregated. Subsequent purchases of $100 or more may
be made by sending a check, payable to TCW/DW Balanced Fund, directly to Dean
Witter Trust FSB (the "Transfer Agent" or "DWT") at P.O. Box 1040, Jersey City,
NJ 07303 or by contacting an account executive of DWR or other Selected
Broker-Dealer. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A, Class B, Class C or Class D shares. If no
Class is specified, the Transfer Agent will not process the transaction until
the proper Class is identified. The minimum initial purchase in the case of
investments through EasyInvest-SM-, an automatic purchase plan (see "Shareholder
Services"), is $100, provided that the schedule of automatic investments will
result in investments totalling at least $1,000 within the first twelve months.
The minimum initial investment in the case of an "Education IRA" is $500, if the
Distributor has reason to believe that additional investments will increase the
investment in the account to $1,000 within three years. In the case of
investments
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pursuant to (i) Systematic Payroll Deduction Plans (including Individual
Retirement Plans), (ii) the InterCapital mutual fund asset allocation program
and (iii) fee based programs approved by the Distributor, pursuant to which
participants pay an asset based fee for services in the nature of investment
advisory or administrative services, the Fund, in its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required if the Fund has reason to believe that additional investments will
increase the investment in all accounts under such Plans to at least $1,000.
Certificates for shares purchased will not be issued unless a request is made by
the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gains distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions.
Sales personnel of a Selected Broker-Dealer are compensated for selling
shares of the Fund by the Distributor or any of its affiliates and/or the
Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive various types of non-cash compensation as special
sales incentives, including trips, educational and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase order.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their needs.
The general public is offered three Classes of shares: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales charges
and rate of expenses to which they are subject. A fourth Class of shares, Class
D shares, is offered only to limited categories of investors (see "No Load
Alternative -- Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class A,
Class B and Class C shares bear the expenses of the ongoing shareholder service
fees, Class B and Class C shares bear the expenses of the ongoing distribution
fees and Class A, Class B and Class C shares which are redeemed subject to a
CDSC bear the expense of the additional incremental distribution costs resulting
from the CDSC applicable to shares of those Classes. The ongoing distribution
fees that are imposed on Class A, Class B and Class C shares will be imposed
directly against those Classes and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Repurchases and Redemptions."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative -- Class A Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified employer-sponsored benefit plans are subject to a CDSC scaled down
from 2.0% to 1.0% if
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redeemed within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 1.0% of
the average daily net assets of Class B. The Class B shares' distribution fee
will cause that Class to have higher expenses and pay lower dividends than Class
A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative -- Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative -- Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative -- Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative -- Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million minimum investment amount for
Class D shares, holdings of Class A shares in all TCW/DW Multi-Class Funds, and
holdings of shares of "Exchange Funds" (see "Shareholder Services -- Exchange
Privilege") for which Class A shares have been exchanged, will be included
together with the current investment amount.
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
20
<PAGE>
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
<C> <S> <C> <C>
A Maximum 5.25% 0.25% No
initial sales
charge reduced
for purchases of
$25,000 and over;
shares sold
without an
initial sales
charge generally
subject to a 1.0%
CDSC during first
year.
B Maximum 5.0% CDSC 1.0% B shares
during the first convert to A
year decreasing shares
to 0 after six automatically
years after
approximately
ten years
C 1.0% CDSC during 1.0% No
first year
D None None No
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services -- Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative -- Class B Shares -- CDSC Waivers," except that the references to
six years in the first paragraph of that section shall mean one year in the case
of Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
-----------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- ------------------------- ---------------- -----------------
<S> <C> <C>
Less than $25,000........ 5.25% 5.54%
$25,000 but less
than $50,000............ 4.75% 4.99%
$50,000 but less
than $100,000........... 4.00% 4.17%
$100,000 but less
than $250,000........... 3.00% 3.09%
$250,000 but less
than $1 million......... 2.00% 2.04%
$1 million and over...... 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code;
21
<PAGE>
(f) employee benefit plans qualified under Section 401 of the Internal Revenue
Code of a single employer or of employers who are "affiliated persons" of each
other within the meaning of Section 2(a)(3)(c) of the Act; and for investments
in Individual Retirement Accounts of employees of a single employer through
Systematic Payroll Deduction plans; or (g) any other organized group of persons,
whether incorporated or not, provided the organization has been in existence for
at least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other TCW/DW Multi-Class Funds. The sales charge payable on the
purchase of the Class A shares of the Fund and the Class A shares of the other
TCW/DW Multi-Class Funds will be at their respective rates applicable to the
total amount of the combined concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other TCW/DW Multi-Class Funds previously
purchased at a price including a front-end sales charge (including shares of the
Fund, other TCW/DW Multi-Class Funds or "Exchange Funds" (see "Shareholder
Services -- Exchange Privilege") acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions), which are held at the time of such transaction, amounts to
$25,000 or more. If such investor has a cumulative net asset value of Class A
and Class D shares equal to at least $5 million, such investor is eligible to
purchase Class D shares subject to the $1,000 minimum initial investment
requirement of that Class of the Fund. See "No Load Alternative -- Class D
Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from DWR or other Selected Broker-Dealers. The cost of Class A shares of the
Fund or Class A shares of other TCW/DW Multi-Class Funds which were previously
purchased at a price including a front-end sales charge during the 90-day period
prior to the date of receipt by the Distributor of the Letter of Intent, or of
Class A shares of the Fund or other TCW/DW Multi-Class Funds or shares of
"Exchange Funds" (see "Shareholder Services -- Exchange Privilege") acquired in
exchange for Class A shares of such funds purchased during such period at a
price including a front-end sales charge, which are still owned by the
shareholder, may also be included in determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1) trusts for which DWT (an affiliate of the Investment Manager) provides
discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory or administrative services (such
investments are subject to all of the terms and conditions of such programs,
which may include termination fees, mandatory redemption upon termination and
such other circumstances as specified in the programs' agreements, and
restrictions on transferability of Fund shares);
22
<PAGE>
(3) retirement plans qualified under Section 401(k) of the Internal Revenue
Code ("401(k) plans") and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code with at least 200 eligible employees and for
which DWT serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper;
(4) 401(k) plans and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code for which DWT serves as Trustee or the
401(k) Support Services Group of DWR serves as recordkeeper whose Class B shares
have converted to Class A shares, regardless of the plan's asset size or number
of eligible employees;
(5) investors who are clients of a Dean Witter account executive who joined
Dean Witter from another investment firm within six months prior to the date of
purchase of Fund shares by such investors, if the shares are being purchased
with the proceeds from a redemption of shares of an open-end proprietary mutual
fund of the account executive's previous firm which imposed either a front-end
or deferred sales charge, provided such purchase was made within sixty days
after the redemption and the proceeds of the redemption had been maintained in
the interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain employer-sponsored benefit
plans, three years) preceding the redemption. In addition, Class B shares are
subject to an annual 12b-1 fee of 1.0% of the average daily net assets of Class
B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any CDSC upon redemption.
Shares redeemed earlier than six years after purchase may, however, be subject
to a CDSC which will be a percentage of the dollar amount of shares redeemed and
will be assessed on an amount equal to the lesser of the current market value or
the cost of the shares being redeemed. The size of this percentage will depend
upon how long the shares have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------------- ---------------------
<S> <C>
First.......................... 5.0%
Second......................... 4.0%
Third.......................... 3.0%
Fourth......................... 2.0%
Fifth.......................... 2.0%
Sixth.......................... 1.0%
Seventh and thereafter......... None
</TABLE>
In the case of Class B shares of the Fund held by 401 (k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code for which DWT serves as Trustee or the 401(k) Support Services Group of DWR
serves as recordkeeper and whose accounts are opened on or after July 28, 1997,
shares held for three years or more after purchase (calculated as described in
the paragraph above) will not be subject to any CDSC upon redemption. However,
shares redeemed earlier than three years after purchase may be subject to a CDSC
(calculated as described in the paragraph above), the percentage of
23
<PAGE>
which will depend on how long the shares have been held, as set forth in the
following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------------- ---------------------
<S> <C>
First.......................... 2.0%
Second......................... 2.0%
Third.......................... 1.0%
Fourth and thereafter.......... None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain employer-sponsored benefit plans, three
years) preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption; and
(iii) the current net asset value of shares purchased through reinvestment of
dividends or distributions. Moreover, in determining whether a CDSC is
applicable it will be assumed that amounts described in (i), (ii) and (iii)
above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (b) held in a
qualified 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
401(k) plan or other employer-sponsored plan qualified under Section 401(a) of
the Internal Revenue Code which offers investment companies managed by the
Manager or its parent, Dean Witter InterCapital Inc., as self-directed
investment alternatives and for which DWT serves as Trustee or the 401(k)
Support Services Group of DWR serves as recordkeeper ("Eligible Plan"), provided
that either: (a) the plan continues to be an Eligible Plan after the redemption;
or (b) the redemption is in connection with the complete termination of the
plan involving the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
CONVERSION TO CLASS A SHARES. Shares of the Fund held prior to July 28,
1997 which were acquired in exchange for shares of TCW/DW Funds sold with a
CDSC, including shares acquired through reinvestment of dividends and
distributions thereon, have been designated Class B shares. Shares held before
May 1, 1997 will convert to Class A shares in May, 2007. In all other instances
Class B shares will convert automatically to Class A shares, based on the
relative net asset values of the shares of the two Classes on the conversion
date, which will be approximately ten (10) years after the date of the original
purchase. The ten year period is calculated from the last day of the month in
which the shares were purchased or, in the case of Class B shares acquired
through an exchange or a series of exchanges, from the last day of the month in
which the original Class B shares were purchased, provided that shares
originally purchased before May 1, 1997 will convert to Class A shares in May,
2007. The con-
24
<PAGE>
version of shares purchased on or after May 1, 1997 will take place in the month
following the tenth anniversary of the purchase. There will also be converted at
that time such proportion of Class B shares acquired through automatic
reinvestment of dividends and distributions owned by the shareholder as the
total number of his or her Class B shares converting at the time bears to the
total number of outstanding Class B shares purchased and owned by the
shareholder. In the case of Class B shares held by a 401(k) plan or other
employer-sponsored plan qualified under Section 401(a) of the Internal Revenue
Code and for which DWT serves as Trustee or the 401(k) Support Services Group of
DWR serves as recordkeeper, the plan is treated as a single investor and all
Class B shares will convert to Class A shares on the conversion date of the
first shares of a TCW/DW Multi-Class Fund purchased by that plan. In the case of
Class B shares previously exchanged for shares of an "Exchange Fund" (see
"Shareholder Services -- Exchange Privilege"), the period of time the shares
were held in the Exchange Fund (calculated from the last day of the month in
which the Exchange Fund shares were acquired) is excluded from the holding
period for conversion. If those shares are subsequently re-exchanged for Class B
shares of a TCW/DW Multi-Class Fund, the holding period resumes on the last day
of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE -- CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative -- Class B Shares --
CDSC Waivers," except that the references to six years in the first paragraph of
that section shall mean one year in the case of Class C shares. Class C shares
are subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets
of the Class. Unlike Class B shares, Class C shares have no conversion feature
and, accordingly, an investor that purchases Class C shares will be subject to
12b-1 fees applicable to Class C shares for an indefinite period subject to
annual approval by the Fund's Board of Trustees and regulatory limitations. All
shares of the Fund held prior to July 28, 1997 (other than shares which were
acquired in exchange for shares of TCW/ DW Funds sold with a CDSC and shares
acquired through reinvestment of dividends and distributions thereon) have been
designated Class C shares. Shares held before July 28, 1997 that have been
designated Class C shares are not subject to the 1.0% CDSC.
NO LOAD ALTERNATIVE -- CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million and the following
categories of investors: (i) investors participating in the InterCapital mutual
fund asset allocation program pursuant to which such persons pay an asset based
fee; (ii) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature
25
<PAGE>
of investment advisory or administrative services (subject to all of the terms
and conditions of such programs referred to in (i) and (ii) above, which may
include termination fees, mandatory redemption upon termination and such other
circumstances as specified in the programs' agreements, and restrictions on
transferability of Fund shares); (iii) certain Unit Investment Trusts sponsored
by DWR; (iv) certain other open-end investment companies whose shares are
distributed by the Distributor; and (v) other categories of investors, at the
discretion of the Board, as disclosed in the then current prospectus of the
Fund. Investors who require a $5 million minimum initial investment to qualify
to purchase Class D shares may satisfy that requirement by investing that amount
in a single transaction in Class D shares of the Fund and other TCW/DW
Multi-Class Funds, subject to the $1,000 minimum initial investment required for
that Class of the Fund. In addition, for the purpose of meeting the $5 million
minimum investment amount, holdings of Class A shares in all TCW/DW Multi-Class
Funds, and holdings of shares of "Exchange Funds" (see "Shareholder Services --
Exchange Privilege") for which Class A shares have been exchanged, will be
included together with the current investment amount. If a shareholder redeems
Class A shares and purchases Class D shares, such redemption may be a taxable
event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act with respect to the distribution of Class A, Class B and Class C shares of
the Fund. In the case of Class A and Class C shares, the Plan provides that the
Fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them specifically on behalf of those shares.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed amounts equal to payments at
the annual rates of 0.25% and 1.0% of the average daily net assets of Class A
and Class C, respectively. In the case of Class B shares, the Plan provides that
the Fund will pay the Distributor a fee, which is accrued daily and paid
monthly, at the annual rate of 1.0% of the average daily net assets of Class B.
The fee is treated by the Fund as an expense in the year it is accrued. In the
case of Class A shares, the entire amount of the fee currently represents a
service fee within the meaning of the NASD guidelines. In the case of Class B
and Class C shares, a portion of the fee payable pursuant to the Plan, equal to
0.25% of the average daily net assets of each of these Classes, is currently
characterized as a service fee. A service fee is a payment made for personal
service and/or the maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses borne
by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of DWR's account executives
and others who engage in or support distribution of shares or who service
shareholder accounts, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's shares to other than current shareholders; and preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan in the case of Class B
shares to compensate DWR and other Selected Broker-Dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses.
For the fiscal year ended September 30, 1997, Class C shares of the Fund
accrued payments under the Plan amounting to $908,897, which amount is equal to
0.99% of the average daily net assets of Class C for the fiscal year. All shares
held prior to July 28, 1997 have been designated Class C shares. For the fiscal
period July 28 through September 30, 1997, Class A and Class B shares of the
Fund accrued payments under the Plan amounting to $13 and $9,461, respectively,
which amounts on an annualized basis are equal to 0.25% and 1.00% of the average
daily net assets of Class A and Class B, respectively, for such period.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i) the
payments made by the Fund pursuant to the Plan, and (ii) the proceeds of CDSCs
paid by investors upon the redemption of
26
<PAGE>
Class B shares. For example, if $1 million in expenses in distributing Class B
shares of the Fund had been incurred and $750,000 had been received as described
in (i) and (ii) above, the excess expense would amount to $250,000. The
Distributor has advised the Fund that there were no such excess amounts,
including the carrying charge described above, for Class B at September 30,
1997. Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses or any requirement that the Plan be
continued from year to year, such excess amount does not constitute a liability
of the Fund. Although there is no legal obligation for the Fund to pay expenses
incurred in excess of payments made to the Distributor under the Plan, and the
proceeds of CDSCs paid by investors upon redemption of shares, if for any reason
the Plan is terminated the Trustees will consider at that time the manner in
which to treat such expenses. Any cumulative expenses incurred, but not yet
recovered through distribution fees or CDSCs, may or may not be recovered
through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to account executives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the Fund
that there were no such expenses which may be reimbursed in the subsequent year
in the case of Class A and Class C on such date. No interest or other financing
charges will be incurred on any Class A or Class C distribution expenses
incurred by the Distributor under the Plan or on any unreimbursed expenses due
to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day that the New York Stock Exchange is
open by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the Class
A, Class B, Class C and Class D shares will be invested together in a single
portfolio. The net asset value of each Class, however, will be determined
separately by subtracting each Class's accrued expenses and liabilities. The net
asset value per share will not be determined on Good Friday and on such other
federal and non-federal holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
stock exchange is valued at its latest sale price on that exchange 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); and (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. When market quotations are not readily available, including
circumstances under which it is determined by the Adviser that sale or bid
prices are not reflective of a security's market value, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Trustees. For
valuation purposes, quotations of foreign portfolio securities are translated
into U.S. dollar equivalents at the prevailing market rates prior to the close
of the New York Stock Exchange as of the morning of valuation. Dividends
receivable are accrued as of the ex-dividend date or as of the time that the
relevant ex-dividend date and amounts become known.
Short-term debt securities with remaining maturities of 60 days or less at
the time of purchase are valued at amortized cost, unless the Trustees determine
such does not reflect the securities' market value, in which case these
securities will be valued at their fair value as determined by the Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity
27
<PAGE>
and coupon as the evaluation model parameters, and/or research and evaluations
by its staff, including review of broker-dealer market price quotations, in
determining what it believes is the fair valuation of the portfolio securities
valued by such pricing service.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the shareholder,
in shares of any other open-end TCW/DW Fund), unless the shareholder requests
that they be paid in cash. Shares so acquired are acquired at net asset value
and are not subject to the imposition of a front-end sales charge or a CDSC (see
"Repurchases and Redemptions").
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the proceeds to the Transfer
Agent within 30 days after the payment date. Shares so acquired are acquired at
net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Repurchases and Redemptions").
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. (See "Purchase of Fund Shares" and "Repurchases and Redemptions --
Involuntary Redemption").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable CDSC
will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase of
Fund Shares"). Therefore, any shareholder participating in the Withdrawal Plan
will have sufficient shares redeemed from his or her account so that the
proceeds (net of any applicable CDSC) to the shareholder will be the designated
monthly or quarterly amount. Withdrawal plan payments should not be considered
as dividends, yields or income. If periodic withdrawal plan payments
continuously exceed net investment income and net capital gains, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Each withdrawal constitutes a redemption of shares and any gain or
loss realized must be recognized for federal income tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other Selected Broker-
Dealer account executive or the Fund.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other TCW/DW Multi-Class Fund without the imposition of any exchange fee. Shares
may also be exchanged for shares of TCW/DW North American Government Income
Trust and for shares of five money market funds for which InterCapital serves as
investment manager: Dean Witter Liquid Asset Fund Inc., Dean Witter U.S.
Government
28
<PAGE>
Money Market Trust, Dean Witter Tax-Free Daily Income Trust, Dean Witter
California Tax-Free Daily Income Trust and Dean Witter New York Municipal Money
Market Trust (the foregoing six funds are hereinafter collectively referred to
as "Exchange Funds"). Exchanges may be made after the shares of the Fund
acquired by purchase (not by exchange or dividend reinvestment) have been held
for thirty days. There is no waiting period for exchanges of shares acquired by
exchange or dividend reinvestment.
An exchange to another TCW/DW Multi-Class Fund or any Exchange Fund that is
not a money market fund is on the basis of the next calculated net asset value
per share of each fund after the exchange order is received. When exchanging
into a money market fund from the Fund, shares of the Fund are redeemed out of
the Fund at their next calculated net asset value and the proceeds of the
redemption are used to purchase shares of the money market fund at their net
asset value determined the following business day. Subsequent exchanges between
any of the money market funds and any of the TCW/DW Multi-Class Funds or any
Exchange Fund that is not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a TCW/DW Multi-Class Fund,
the holding period previously frozen when the first exchange was made resumes on
the last day of the month in which shares of a TCW/DW Multi-Class Fund are
reacquired. Thus, the CDSC is based upon the time (calculated as described
above) the shareholder was invested in shares of a TCW/DW Multi-Class Fund (see
"Purchase of Fund Shares"). In the case of shares exchanged into an Exchange
Fund, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount equal
to the Exchange Fund 12b-1 distribution fees which are attributable to those
shares. (Exchange Fund 12b-1 distribution fees are described in the prospectuses
for those funds.)
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Manager to be abusive and contrary to the best interests of the
Fund's other shareholders and, at the Manager's discretion, may be limited by
the Fund's refusal to accept additional purchases and/or exchanges from the
investor. Although the Fund does not have any specific definition of what
constitutes a pattern of frequent exchanges, and will consider all relevant
factors in determining whether a particular situation is abusive and contrary to
the best interests of the Fund and its other shareholders, investors should be
aware that the Fund, each of the other TCW/DW Funds and each of the money market
funds may in their discretion limit or otherwise restrict the number of times
this Exchange Privilege may be exercised by any investor. Any such restriction
will be made by the Fund on a prospective basis only, upon notice to the
shareholder not later than ten days following such shareholder's most recent
exchange. Also, the Exchange Privilege may be terminated or revised at any time
by the Fund and/or any of such TCW/DW Funds or money market funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies. Shareholders maintaining margin accounts with
DWR or another Selected Broker-Dealer are referred to their account executive
regarding restrictions on exchange of shares pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. An exchange will be
treated for federal income tax pur-
29
<PAGE>
poses the same as a repurchase or redemption of shares, on which the shareholder
may realize a capital gain or loss. However, the ability to deduct capital
losses on an exchange may be limited in situations where there is an exchange of
shares within ninety days after the shares are purchased. The Exchange Privilege
is only available in states where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the funds for
which the Exchange Privilege is available pursuant to this Exchange Privilege by
contacting their DWR or other Selected Broker-Dealer account executive (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those shareholders who are clients of DWR or another Selected Broker-Dealer but
who wish to make exchanges directly by writing or telephoning the Transfer
Agent) must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent, to
initiate an exchange. If the Authorization Form is used, exchanges may be made
in writing or by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange instructions
communicated over the telephone are genuine. The procedures include requiring
various forms of personal identification such as name, mailing address, social
security or other tax identification number and DWR or other Selected Broker-
Dealer account number (if any). Telephone instructions will also be recorded. If
such procedures are not employed, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case in the past with
other funds managed by the Manager.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
REPURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
REPURCHASES. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value next determined (see "Purchase of Fund Shares") after such
repurchase order is received by DWR or other Selected Broker-Dealer reduced by
any applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The offer by DWR and other Selected Broker-Dealers to repurchase
shares may be suspended without notice by them at any time. In that event,
shareholders may redeem their shares through the Fund's Transfer Agent as set
forth below under "Redemptions."
REDEMPTIONS. Shares of each Class of the Fund can be redeemed for cash at
any time at net asset value per share next determined less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see "Purchase
of Fund Shares"). If shares are held in a shareholder's account without a share
certificate, a written request for redemption to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by the
shareholder, the shares may be redeemed by surrendering the certif-
30
<PAGE>
icates with a written request for redemption, along with any additional
information required by the Transfer Agent.
PAYMENT FOR SHARES REPURCHASED OR REDEEMED. 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. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
repurchased or redeemed and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the repurchase or redemption,
reinstate any portion or all of the proceeds of such repurchase or redemption in
shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at net asset value next determined after a reinstatement request,
together with the proceeds, is received by the Transfer Agent and receive a pro
rata credit for any CDSC paid in connection with such redemption or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right, on 60 days' notice, to
redeem, at their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100 or such lesser amount as may
be fixed by the Trustees or, in the case of an account opened through
EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account. However, before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares is less than the applicable amount and allow him or her 60 days to
make an additional investment in an amount which will increase the value of his
or her account to at least the applicable amount or more before the redemption
is processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends separately for
each Class of shares and intends to pay quarterly income dividends and to
distribute net short-term and 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 net long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends and/or distributions be paid in cash. Shares acquired
by dividend and distribution reinvestments will not be subject to any front-end
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. Distributions paid on Class A and Class D shares will be higher than
for Class B and Class C shares because distribution fees paid by Class B and
Class C shares are higher. (See "Shareholder Services -- Automatic Investment of
Dividends and Distributions.")
TAXES. Because the Fund intends to distribute all of its net investment
income and capital gains to shareholders and otherwise continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code, it
is not expected that the Fund will be required to pay any federal income tax.
Shareholders who are required to pay taxes on their income will normally have to
pay federal income taxes, and any
31
<PAGE>
state income taxes, on the dividends and distributions they receive from the
Fund. Such dividends and distributions to the extent that they are derived from
net investment income or short-term capital gains, are taxable to the
shareholder as ordinary income regardless of whether the shareholder receives
such payments in additional shares or in cash. Any dividends declared in the
last quarter of any calendar year which are paid in the following year prior to
February 1 will be deemed to have been received by the shareholder in the prior
year. Dividend payments will be eligible for the federal dividends received
deduction available to the Fund's corporate shareholders only to the extent the
aggregate dividends received by the Fund would be eligible for the deduction if
the Fund were the shareholder claiming the dividends received deduction. In this
regard, a 46-day holding period within a 90 day period beginning 45 days before
the ex-dividend date of each qualifying dividend generally must be met by the
Fund and the shareholder.
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 would, in effect, represent a return
of a portion of each shareholder's investment. All, or a portion, of such
payments would not be taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and on the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. These figures are computed separately
for Class A, Class B, Class C and Class D shares. Both the yield and the total
return of the Fund are based on historical earnings and are not intended to
indicate future performance. The yield of each Class of the Fund is computed by
dividing the Class's net investment income over a 30-day period by an average
value (using the average number of shares entitled to receive dividends and the
net asset value per share at the end of the period), all in accordance with
applicable regulatory requirements. Such amount is compounded for six months and
then annualized for a twelve-month period to derive the yield of the Fund for
each Class.
The "average annual total return" of the Fund refers to a figure reflecting
the average annualized percentage increase (or decrease) in the value of an
initial investment in a Class of the Fund of $1,000 over a period of one, five
and ten years or over the life of the Fund, if less than any of the foregoing.
Average annual total return reflects all income earned by the Fund, any
appreciation or depreciation of the Fund's assets, all expenses incurred by the
applicable Class and all sales charges which would be incurred by shareholders,
for the stated periods. It also assumes reinvestment of all dividends and
distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average, and
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc.).
32
<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges except that
each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other matter
in which the interests of one Class differ from the interests of any other
Class. In addition, Class B shareholders will have the right to vote on any
proposed material increase in Class A's expenses, if such proposal is submitted
separately to Class A shareholders. Also, as discussed herein, Class A, Class B
and Class C bear the expenses related to the distribution of their respective
shares.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for obligations of
the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above 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 shareholders of personal liability is remote.
CODE OF ETHICS. The Adviser is subject to a Code of Ethics with respect to
investment transactions in which the Adviser's officers, directors and certain
other persons have a beneficial interest to avoid any actual or potential
conflict or abuse of their fiduciary position. The Code of Ethics, as it
pertains to the TCW/DW Funds, contains several restrictions and procedures
designed to eliminate conflicts of interest including: (a) pre-clearance of
personal investment transactions to ensure that personal transactions by
employees are not being conducted at the same time as the Adviser's clients; (b)
quarterly reporting of personal securities transactions; (c) a prohibition
against personally acquiring securities in an initial public offering, entering
into uncovered short sales and writing uncovered options; (d) a seven day
"black-out period" prior or subsequent to a TCW/DW Fund transaction during which
portfolio managers are prohibited from making certain transactions in securities
which are being purchased or sold by a TCW/DW Fund; (e) a prohibition, with
respect to certain investment personnel, from profiting in the purchase and
sale, or sale and purchase, of the same (or equivalent) securities within 60
calendar days; and (f) a prohibition against acquiring any security which is
subject to firm wide or, if applicable, a department restriction of the Adviser.
The Code of Ethics provides that exemptive relief may be given from certain of
its requirements, upon application. The Adviser's Code of Ethics complies with
regulatory requirements and, insofar as it relates to persons associated with
registered investment companies, the 1994 Report of the Advisory Group on
Personal Investing of the Investment Company Institute.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
33
<PAGE>
TCW/DW Balanced Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
TCW/DW
John C. Argue BALANCED FUND
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
James A. Tilton
Vice President
James M. Goldberg
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
PROSPECTUS
NOVEMBER 17, 1997
<PAGE>
TCW/DW BALANCED FUND TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1997
DEAR SHAREHOLDER:
During the 12-month period ended September 30, 1997, both the U.S. stock market
and bond markets continued to reward investors. Stocks, as measured by the
Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), returned
40.44 percent, while bonds, as measured by the Lehman Brothers Aggregate Bond
Index (Lehman Index), returned 9.71 percent.
VOLATILITY IN THE STOCK MARKET
The fiscal year began with stronger than expected economic growth. Rapid job
creation, high consumer confidence and strong real income growth all pointed to
more strength in the months immediately ahead. These factors prompted numerous
warnings from the Federal Reserve Board of a potential rise in inflation. On
March 25, 1997, the central bank chose to increase the federal-funds rate by 25
basis points (0.25 percent), resulting in the S&P 500 losing most of the gains
it had achieved in early 1997.
The stock market rebounded significantly during the second quarter of 1997 as
fears of further interest-rate hikes by the Fed abated. A marked slowing in the
rate of economic growth and favorable inflation numbers lessened those fears and
triggered a rally in the bond market, which carried through into the equity
market. Corporate profits continued to surprise investors on the upside,
providing more underlying strength to this extended business cycle.
The third quarter was punctuated by a significant correction in August, caused
primarily by multinational consumer nondurable companies pre-announcing earnings
disappointments. This movement had the effect of placing pressure on many
large-cap companies. During this correction, a pronounced divergence between
large-cap and small-cap stocks took shape as the Nasdaq Index returned 16.9
percent for the quarter, compared to 7.5 percent for the S&P 500. The stock
market rebounded in September as favorable economic data confirmed the view that
the U.S. economy could sustain its current level of growth while keeping
inflation in check.
<PAGE>
TCW/DW BALANCED FUND
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1997, CONTINUED
STRENGTH IN THE BOND MARKETS
Despite the March 25 rate tightening by the Federal Reserve, interest rates
declined during the 12-month period under review. The yield on 30-year U.S.
Treasury bonds declined 52 basis points,
from 6.92 percent on September 30,
1996, to 6.40 percent on September 30,
1997. In a similar fashion, the yield
on 10-year U.S. Treasuries fell 59
basis points, to 6.10 percent.
[GRAPHIC]
Looking ahead, it appears that the
Federal Reserve may be having second
thoughts about an additional increase
in short-term interest rates following
the increase implemented on March 25,
1997. If enhanced productivity trends
can continue to contain core inflation
while a strong dollar and excess
supplies in Asia keep a lid on
commodity prices, the need for further
Fed tightening may remain reduced.
PERFORMANCE AND PORTFOLIO
On July 28, 1997, TCW/DW Balanced Fund
began offering four classes of shares
- -- A, B, C and D -- each with its own
sales charge and distribution fee
structure. A revised prospectus, which
includes complete details regarding the
Fund's conversion to multiple classes
of shares, was mailed to shareholders
in midsummer.
[GRAPHIC]
The Fund's Class C shares produced a
total return of 18.67 percent for the
12-month period ended September 30,
1997. This return compares to a return
of 24.92 percent for the Lipper
Balanced Funds Index (Lipper Index).
The accompanying chart illustrates the
growth of a $10,000 investment in the
Fund's Class C shares from inception
<PAGE>
TCW/DW BALANCED FUND
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1997, CONTINUED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000-Class C
<S> <C> <C> <C> <C>
($ in Thousands)
Average Annual Total Return (Fund)
1 Year Life of Fund
18.67%(1) 9.34%(1)
17.67%(2) 9.34%(1)
Fund S&P 500(4) Lehman(5) Lipper(6)
October 1993 $10,000 $10,000 $10,000 $10,000
September 1994 $9,520 $10,149 $9,642 $9,908
September 1995 $10,660 $13,164 $10,997 $11,716
September 1996 $11,950 $15,840 $11,538 $13,102
September 1997 $14,193(3) $22,245 $12,657 $16,367
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
Prior to July 28, 1997 the Fund offered only one Class of shares. Because all
shares of the Fund held prior to such time (other than shares which were
acquired in exchange for shares of TCW/DW Funds offered with a CDSC and shares
acquired through reinvestment of dividends and distributions thereon) have been
designated Class C, historical performance data has been restated to reflect the
1.0% CDSC imposed on most Class C shares redeemed within one year after
purchase.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable contingent deferred sales charge (CDSC) (1 year-1%,
since inception-0%). See the Fund's current prospectus for complete details
on fees and sales charges.
(3) Closing value assuming a complete redemption on September 30, 1997.
(4) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the index
does not include any expenses, fees or charges. The index is unmanaged and
should not be considered an investment.
(5) The Lehman Brothers Aggregate Bond Index tracks the performance of U.S.
Government agency and Treasury securities, investment-grade corporate debt
securities, agency mortgage-backed securities and asset-backed securities.
The performance of the index does not include any expenses, fees or charges.
The index is unmanaged and should not be considered an investment.
(6) The Lipper Balanced Fund Index is an equally-weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Balanced
Funds objective. The index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in this
index.
<PAGE>
TCW/DW BALANCED FUND
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1997, CONTINUED
(October 29, 1993) through September 30, 1997, versus a similar investment in
the issues that comprise the S&P 500 Index, Lehman Index and Lipper Index.
PORTFOLIO STRATEGY
On September 30, 1997, the Fund had 65 percent of its assets invested in
equities, with the remaining 30 percent invested in high-grade, fixed-income
securities. Among the largest industry weightings are aircraft and aerospace,
electronics -- semiconductors and components, computer software, auto parts and
telecommunications.
Technology companies held in the portfolio include Cisco Systems, Inc., Intel
Corp., Microsoft Corp. and Oracle Corp. These companies should continue to
benefit from the extremely rapid growth of online and Internet services, the
impact of telecommunications deregulation in the United States and continuing
privatization abroad. Aerospace and defense companies owned in the Fund include
Boeing Co., which continues to integrate its purchase of McDonnell Douglas, as
well as Honeywell, Inc. and United Technologies Corp. Orders for commercial
aircraft continue to increase, due to the need to replace aging aircraft with
more fuel efficient, safer models. Demand for new aircraft is also strong in the
emerging economies in Latin America and Asia.
Financial service companies in the Fund include Associates First Capital Corp.,
Citicorp, Federal National Mortgage Association and Merrill Lynch & Co., Inc.
The increasing savings rate in the United States is stimulating demand for
insurance and investment products. Technology is lowering the cost of managing
and distributing consumer financial products such as credit cards and home
mortgage loans. As a result, consumers are benefiting from better services at
lower cost, which is contributing to more rapid industry growth.
In addition to its positions in U.S. Treasury and agency securities, the
fixed-income portion of the Fund holds the corporate bonds of such industrial
issuers as Coca-Cola Enterprises, Inc., Raytheon Co., Caterpillar, Inc. and
Wal-Mart Stores, Inc. The Fund's financial fixed-income holdings include
Associates Corp. of North America, Bear Stearns Companies, Inc., Ford Motor
Credit Corp. and General Electric Capital Corp. The duration of this component,
at 4.8 years, was neutral to its index as of September 30, 1997.
LOOKING AHEAD
On November 6, 1997, the Board of Trustees of TCW/DW Balanced Fund voted to
recommend to shareholders a reorganization plan whereby the Fund would be merged
into Dean Witter Balanced Growth Fund. This plan is subject to the consent of
TCW/DW Balanced Fund's shareholders. If
<PAGE>
TCW/DW BALANCED FUND
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1997, CONTINUED
approved, the Fund's assets would be combined with the assets of Dean Witter
Balanced Growth Fund, and TCW/DW Balanced Fund shareholders would become
shareholders of Dean Witter Balanced Growth Fund, receiving shares of that fund
equal to the value of their holdings in TCW/DW Balanced Fund. A shareholder
letter and supplement to the Fund's July 28, 1997 prospectus was mailed to
shareholders in early November.
A proxy statement formally detailing this proposal, including reasons for the
Trustees' action, and information concerning Dean Witter Balanced Growth Fund
will be distributed to shareholders. We ask that you review the proxy statements
carefully upon receipt and vote on the proposals set forth therein.
We look forward to continuing to serve your investment needs and objectives.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (64.9%)
AIR TRANSPORT (4.1%)
5,100 AMR Corp.*.............................................................................. $ 564,506
19,900 Delta Air Lines, Inc.................................................................... 1,874,331
16,300 UAL Corp.*.............................................................................. 1,379,387
-----------
3,818,224
-----------
AIRCRAFT & AEROSPACE (4.7%)
38,800 Boeing Co............................................................................... 2,112,175
28,300 United Technologies Corp................................................................ 2,292,300
-----------
4,404,475
-----------
AUTO PARTS - ORIGINAL EQUIPMENT (3.3%)
34,900 Lear Corp.*............................................................................. 1,718,825
20,400 Magna International, Inc. (Class A) (Canada)............................................ 1,410,150
-----------
3,128,975
-----------
AUTOMOTIVE (2.6%)
53,700 Ford Motor Co........................................................................... 2,429,925
-----------
BANKS (2.1%)
14,900 Citicorp................................................................................ 1,995,669
-----------
BEVERAGES - SOFT DRINKS (1.6%)
36,200 PepsiCo, Inc............................................................................ 1,468,362
-----------
BROADCAST MEDIA (1.7%)
59,832 Westinghouse Electric Corp.............................................................. 1,619,203
-----------
BROKERAGE (1.9%)
24,100 Merrill Lynch & Co., Inc................................................................ 1,787,919
-----------
COMMERCIAL SERVICES (1.6%)
33,400 Corrections Corp. of America*........................................................... 1,452,900
-----------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (2.8%)
36,000 Cisco Systems, Inc.*.................................................................... 2,630,250
-----------
COMPUTER SOFTWARE (3.6%)
21,100 Microsoft Corp.*........................................................................ 2,791,794
17,000 Oracle Corp.*........................................................................... 619,438
-----------
3,411,232
-----------
COMPUTERS - SYSTEMS (0.9%)
24,000 Tandy Corp.............................................................................. 807,000
-----------
ELECTRICAL EQUIPMENT (1.2%)
16,000 Honeywell, Inc.......................................................................... 1,075,000
-----------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (4.5%)
46,100 Intel Corp.............................................................................. 4,258,488
-----------
ENTERTAINMENT (1.3%)
41,200 Mirage Resorts, Inc.*................................................................... 1,241,150
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL (1.6%)
32,200 Fannie Mae.............................................................................. $ 1,513,400
-----------
FINANCIAL SERVICES (1.6%)
24,300 Associates First Capital Corp........................................................... 1,512,675
-----------
FOODS (1.1%)
23,600 Kellogg Co.............................................................................. 994,150
-----------
HEALTHCARE - DIVERSIFIED (2.1%)
14,700 Warner-Lambert Co....................................................................... 1,983,581
-----------
HEALTHCARE - DRUGS (3.0%)
15,100 Johnson & Johnson....................................................................... 870,138
15,900 Lilly (Eli) & Co........................................................................ 1,918,931
-----------
2,789,069
-----------
INDUSTRIALS (2.0%)
35,200 Caterpillar, Inc........................................................................ 1,898,600
-----------
INSURANCE BROKERS (1.6%)
19,400 Marsh & McLennan Companies, Inc......................................................... 1,486,525
-----------
OFFICE EQUIPMENT & SUPPLIES (1.1%)
12,000 Xerox Corp.............................................................................. 1,010,250
-----------
OIL & GAS EXPLORATION (0.8%)
26,000 Canadian Natural Resources Ltd. (Canada)*............................................... 767,253
-----------
OIL - DOMESTIC (0.7%)
6,800 Amoco Corp.............................................................................. 655,350
-----------
PUBLISHING (2.0%)
33,900 Time Warner, Inc........................................................................ 1,836,956
-----------
RAILROADS (1.8%)
17,800 Burlington Northern Santa Fe Corp....................................................... 1,719,925
-----------
RETAIL - SPECIALTY (2.5%)
45,800 Home Depot, Inc......................................................................... 2,387,325
-----------
SOAP & HOUSEHOLD PRODUCTS (2.3%)
30,800 Procter & Gamble Co..................................................................... 2,127,125
-----------
TELECOMMUNICATIONS (1.0%)
11,700 Lucent Technologies, Inc................................................................ 952,088
-----------
TOBACCO (1.8%)
40,000 Philip Morris Companies, Inc............................................................ 1,662,500
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $41,432,833)........................................................... 60,825,544
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (4.6%)
AIRCRAFT & AEROSPACE (0.1%)
$ 100 Lockheed Martin Corp............................................................ 7.25% 05/15/06 $ 103,870
-----------
AUTOMOTIVE (0.2%)
200 General Motors Corp............................................................. 8.10 06/15/24 213,230
-----------
BANKS (0.2%)
200 Citicorp........................................................................ 7.125 03/15/04 205,306
-----------
BEVERAGES - SOFT DRINKS (0.1%)
100 Coca-Cola Enterprises, Inc...................................................... 7.88 02/01/02 105,951
-----------
CABLE & TELECOMMUNICATIONS (0.3%)
200 News America Holdings, Inc...................................................... 8.50 02/15/05 216,324
-----------
FINANCIAL (1.1%)
200 Abbey National PLC (United Kingdom)............................................. 6.69 10/17/05 200,378
150 Associates Corp. of North America............................................... 6.25 03/15/99 150,685
100 Associates Corp. of North America............................................... 5.25 03/30/00 97,878
200 Bear Stearns Companies, Inc..................................................... 5.75 02/15/01 196,472
200 Comdisco, Inc................................................................... 6.50 04/30/99 201,398
150 General Electric Capital Corp................................................... 8.85 04/01/05 170,292
-----------
1,017,103
-----------
FINANCIAL SERVICES (0.2%)
150 Ford Motor Credit Corp.......................................................... 8.20 02/15/02 160,176
-----------
INDUSTRIALS (0.7%)
200 Caterpillar, Inc................................................................ 9.375 03/15/21 252,122
100 Praxair, Inc.................................................................... 6.75 03/01/03 101,070
250 Raytheon Co..................................................................... 6.45 08/15/02 249,573
-----------
602,765
-----------
OIL & GAS PRODUCTS (0.2%)
200 BP America, Inc................................................................. 9.375 11/01/00 217,898
-----------
RETAIL (0.5%)
200 Federated Department Stores, Inc................................................ 8.125 10/15/02 212,628
200 Wal-Mart Stores, Inc............................................................ 7.50 05/15/04 211,566
-----------
424,194
-----------
TELEPHONES (0.2%)
200 MCI Communications Corp......................................................... 6.95 08/15/06 204,742
-----------
TRANSPORTATION (0.2%)
100 Norfolk Southern Corp........................................................... 7.35 05/15/07 104,105
100 Union Pacific Corp.............................................................. 7.875 02/15/02 105,485
-----------
209,590
-----------
UTILITIES (0.6%)
200 Florida Power & Light Co........................................................ 7.05 12/01/26 195,136
200 Texas Utilities Electric Co..................................................... 7.875 04/01/24 206,222
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 200 Union Electric Co............................................................... 6.75% 05/01/08 $ 201,624
-----------
602,982
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $4,224,945)....................................................................... 4,284,131
-----------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS (15.8%)
575 Federal National Mortgage Assoc. ............................................... 7.40 07/01/04 609,592
880 Federal National Mortgage Assoc. ............................................... 6.40 09/27/05 883,890
1,730 U.S. Treasury Bond.............................................................. 12.00 08/15/13 2,493,120
1,595 U.S. Treasury Bond.............................................................. 7.50 11/15/24 1,801,935
290 U.S. Treasury Bond.............................................................. 6.50 11/15/26 291,917
350 U.S. Treasury Note.............................................................. 5.50 11/15/98 349,202
155 U.S. Treasury Note.............................................................. 5.875 01/31/99 155,268
4,380 U.S. Treasury Note.............................................................. 6.375 04/30/99 4,420,296
965 U.S. Treasury Note.............................................................. 6.00 08/15/99 967,992
850 U.S. Treasury Note.............................................................. 6.25 02/15/03 858,271
820 U.S. Treasury Note.............................................................. 7.875 11/15/04 901,475
1,120 U.S. Treasury Note.............................................................. 5.875 11/15/05 1,099,179
-----------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(IDENTIFIED COST $14,611,600)...................................................................... 14,832,137
-----------
CANADIAN GOVERNMENT AGENCIES (0.5%)
200 Hydro-Quebec.................................................................... 9.40 02/01/21 247,734
150 Province of Manitoba............................................................ 6.875 09/15/02 153,527
100 Province of Ontario............................................................. 6.00 02/21/06 96,819
-----------
TOTAL CANADIAN GOVERNMENT AGENCIES
(IDENTIFIED COST $485,647)......................................................................... 498,080
-----------
ASSET-BACKED SECURITY (0.8%)
782 Federal Housing Administration Burbank Gardens Retirement Center**
(IDENTIFIED COST $759,597).................................................... 7.50 02/01/32 784,048
-----------
MORTGAGE-BACKED SECURITIES (6.2%)
1,424 Federal Home Loan Mortgage Corp................................................. 7.50 06/01/11 1,457,342
642 Federal Home Loan Mortgage Corp................................................. 7.50 08/01/11 656,829
995 Federal Home Loan Mortgage Corp................................................. 7.00 03/01/17 997,446
1,802 Federal Home Loan Mortgage Corp................................................. 7.00 08/01/25 1,797,198
458 Federal Home Loan Mortgage Corp................................................. 8.00 06/01/26 472,725
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 378 Federal National Mortgage Assoc. (ARM)+......................................... 6.109% 05/01/27 $ 391,444
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $5,651,018)....................................................................... 5,772,984
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS (2.4%)
600 Bear Stearns Mortgage Securities, Inc.
1997-2 A2..................................................................... 6.50 04/28/24 582,885
1,000 Federal National Mortgage Assoc.
1996-53 M..................................................................... 6.50 12/18/11 946,666
697 Residential Funding Mortgage Securities, Inc. 1993-S23 A8....................... 6.50 06/25/08 693,550
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $2,169,430)....................................................................... 2,223,101
-----------
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT
591 The Bank of New York (dated 09/30/97; proceeds $590,667) (a)
(IDENTIFIED COST $590,581).................................................... 5.25 10/01/97 590,581
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $69,925,651) (B).......................................................... 95.8 % 89,810,606
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 4.2 3,935,534
------ ------------
NET ASSETS................................................................................. 100.0 % $ 93,746,140
------ ------------
------ ------------
</TABLE>
- ---------------------
* Non-income producing security.
** Resale is restricted.
+ ARM -- Adjustable Rate Mortgage
(a) Collateralized by $455,065 U.S. Treasury Bond 9.00% due 11/15/18 valued at
$602,392.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $19,926,461 and the
aggregate gross unrealized depreciation is $41,506, resulting in net
unrealized appreciation of $19,884,955.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $69,925,651)................................................................ $89,810,606
Cash........................................................................................... 36,023
Receivable for:
Investments sold........................................................................... 3,689,310
Interest................................................................................... 416,358
Dividends.................................................................................. 41,417
Shares of beneficial interest sold......................................................... 40,424
Deferred organizational expenses............................................................... 38,484
Prepaid expenses and other assets.............................................................. 99,358
-----------
TOTAL ASSETS.............................................................................. 94,171,980
-----------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased.................................................. 227,470
Plan of distribution fee................................................................... 82,622
Management fee............................................................................. 37,196
Investment advisory fee.................................................................... 24,798
Dividends and distributions to shareholders................................................ 2,534
Accrued expenses and other payables............................................................ 51,220
-----------
TOTAL LIABILITIES......................................................................... 425,840
-----------
NET ASSETS................................................................................ $93,746,140
-----------
-----------
COMPOSITION OF NET ASSETS:
Paid-in-capital................................................................................ $66,491,685
Net unrealized appreciation.................................................................... 19,884,955
Accumulated undistributed net investment income................................................ 65,565
Accumulated undistributed net realized gain.................................................... 7,303,935
-----------
NET ASSETS................................................................................ $93,746,140
-----------
-----------
CLASS A SHARES:
Net Assets..................................................................................... $45,619
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 3,335
NET ASSET VALUE PER SHARE.................................................................
$13.68
-----------
-----------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE).........................................
$14.44
-----------
-----------
CLASS B SHARES:
Net Assets..................................................................................... $5,478,596
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 400,498
NET ASSET VALUE PER SHARE.................................................................
$13.68
-----------
-----------
CLASS C SHARES:
Net Assets..................................................................................... $88,211,844
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 6,448,320
NET ASSET VALUE PER SHARE.................................................................
$13.68
-----------
-----------
CLASS D SHARES:
Net Assets..................................................................................... $10,081
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 737
NET ASSET VALUE PER SHARE.................................................................
$13.68
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest....................................................................................... $ 2,074,386
Dividends (net of $2,786 foreign withholding tax).............................................. 650,808
-----------
TOTAL INCOME.............................................................................. 2,725,194
-----------
EXPENSES
Plan of distribution fee (Class B shares)...................................................... 9,461
Plan of distribution fee (Class C shares)...................................................... 908,897
Management fee................................................................................. 417,405
Investment advisory fee........................................................................ 278,270
Transfer agent fees and expenses............................................................... 92,831
Professional fees.............................................................................. 53,942
Shareholder reports and notices................................................................ 48,833
Organizational expenses........................................................................ 35,648
Trustees' fees and expenses.................................................................... 32,966
Registration fees.............................................................................. 19,989
Custodian fees................................................................................. 17,593
Other.......................................................................................... 8,614
-----------
TOTAL EXPENSES............................................................................ 1,924,449
-----------
NET INVESTMENT INCOME..................................................................... 800,745
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain.............................................................................. 7,860,641
Net change in unrealized appreciation.......................................................... 7,052,433
-----------
NET GAIN.................................................................................. 14,913,074
-----------
NET INCREASE................................................................................... $15,713,819
-----------
-----------
<FN>
- ---------------------
* Class A, Class B and Class D shares were issued July 28, 1997.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1997* SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................................. $ 800,745 $ 1,102,597
Net realized gain.................................................. 7,860,641 7,206,334
Net change in unrealized appreciation.............................. 7,052,433 2,886,118
------------------- ------------------
NET INCREASE.................................................. 15,713,819 11,195,049
------------------- ------------------
DIVIDENDS TO SHAREHOLDERS:
From net investment income
Class A shares................................................. (151) --
Class B shares................................................. (10,275) --
Class C shares................................................. (721,547) (36,468)
Class D shares................................................. (36) --
In excess of net investment income
Class C shares................................................. -- (838,389)
------------------- ------------------
TOTAL DIVIDENDS............................................... (732,009) (874,857)
------------------- ------------------
Net decrease from transactions in shares of beneficial interest.... (13,726,947) (24,545,353)
------------------- ------------------
NET INCREASE (DECREASE)....................................... 1,254,863 (14,225,161)
NET ASSETS:
Beginning of period................................................ 92,491,277 106,716,438
------------------- ------------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $65,565 AND
DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME OF $3,171,
RESPECTIVELY).................................................. $ 93,746,140 $ 92,491,277
------------------- ------------------
------------------- ------------------
<FN>
- ---------------------
* Class A, Class B, and Class D shares were issued July 28, 1997.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
TCW/DW Balanced 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 achieve a high total
return through a combination of income and capital appreciation. The Fund seeks
to achieve its objective by investing in a diversified portfolio of common
stocks and investment grade fixed-income securities. The Fund was organized as a
Massachusetts business trust on March 2, 1993 and commenced operations on
October 29, 1993. On July 28, 1997, the Fund commenced offering three additional
classes of shares, with the then current shares, other than shares which were
acquired in exchange for shares of Funds for which Dean Witter Services Company
Inc. serves as Manager and TCW Funds Management, Inc. serves as Adviser ("TCW/DW
Funds") offered with a contingent deferred sale charge ("CDSC") and shares
acquired through reinvestment of dividends and distributions thereon, have been
designated Class C shares. Shares held prior to July 28, 1997 which were
acquired in exchange for shares of a TCW/DW Fund sold with a CDSC, including
shares acquired through reinvestment of dividends and distributions thereon,
have been designated Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American, 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
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
not readily available, including circumstances under which it is determined by
TCW Funds Management, Inc. (the "Adviser") that sale and bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the 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 portfolio
securities may be valued by an outside pricing service approved by the Trustees.
The pricing service may utilize a matrix system incorporating security quality,
maturity and coupon as the evaluation model parameters, and/or research and
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 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 on foreign securities which are recorded as soon as
the Fund is informed after the ex-dividend date. Discounts are accreted over the
life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the 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"
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc., an affiliate of
Dean Witter Services Company, Inc. (the "Manager"), paid the organizational
expenses of the Fund in the amount of $180,493 which have been reimbursed for
the full amount thereof. Such expenses have been deferred and are being
amortized on the straight-line method over a period not to exceed five years
from the commencement of operations.
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Manager a management fee,
accrued daily and payable monthly, by applying the annual rate of 0.45% to the
net assets of the Fund determined as of the close of each business day.
Under the terms of the Agreement, the Manager maintains certain of the Fund's
books and records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees of
the Manager. The Manager also bears the cost of telephone services, heat, light,
power and other utilities provided to the Fund.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays the Adviser an
advisory fee, accrued daily and payable monthly, by applying the annual rate of
0.30% to the net assets of the Fund determined as of the close of each business
day.
Under the terms of the Agreement, the Fund has retained the Adviser to invest
the Fund's assets, including placing orders for the purchase and sale of
portfolio securities. The Adviser obtains and evaluates such information and
advice relating to the economy, securities markets, and specific
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
securities as it considers necessary or useful to continuously manage the assets
of the Fund in a manner consistent with its investment objective. In addition,
the Adviser pays the salaries of all personnel, including officers of the Fund,
who are employees of the Adviser.
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Manager. The Fund has adopted a Plan of
Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A--0.25% of the average
daily net assets of Class A; (ii) Class B--1.0% of the average daily net assets
of Class B; and (iii) Class C--1.0% of the average daily net assets of Class C.
In the case of Class A shares, amounts paid under the Plan are paid to the
Distributor for services provided. In the case of Class B and Class C shares,
amounts paid under the Plan are paid to the Distributor for services provided
and the expenses borne by it and others in the distribution of the shares of
these Classes, including the payment of commissions for sales of these Classes
and incentive compensation to, and expenses of, the account executives of Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Manager and Distributor, and
others who engage in or support distribution of the shares or who service
shareholder accounts, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering of
these shares to other than current shareholders; and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan, in the case of Class B
shares, to compensate DWR and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that there were no such excess amounts at
September 30, 1997.
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended September 30, 1997, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the period ended September 30,
1997, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $1,110 and $216, respectively,
and received $524 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended September 30, 1997 aggregated
$72,283,760 and $89,079,914, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $27,928,133 and
$29,024,333, respectively.
For the year ended September 30, 1997, the Fund incurred $10,895 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
For the period May 31, 1997 through September 30, 1997, the Fund incurred
brokerage commissions of $1,140 with Morgan Stanley & Co., Inc., an affiliate of
the Manager since May 31, 1997, for portfolio transactions executed on behalf of
the Fund. At September 30, 1997 the Fund's receivable for investments sold
included unsettled trades with Morgan Stanley & Co., Inc., of $902,934.
Dean Witter Trust FSB, an affiliate of the Manager and Distributor, is the
Fund's transfer agent. At September 30, 1997, the Fund had transfer agent fees
and expenses payable of approximately $1,700.
6. FEDERAL INCOME TAX STATUS
During the year ended September 30, 1997, the Fund utilized its net capital loss
carryover of approximately $461,000.
At September 30, 1997, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
7. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1997+ SEPTEMBER 30, 1996
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold.............................................. 3,330 $ 45,072 -- --
Reinvestment of dividends......................... 5 64 -- --
------------ ------------ ------------ ------------
Net increase--Class A............................. 3,335 45,136 -- --
------------ ------------ ------------ ------------
CLASS B SHARES*
Sold.............................................. 17,715 242,841 -- --
Reinvestment of dividends......................... 466 6,427 -- --
Redeemed.......................................... (16,038) (219,934) -- --
------------ ------------ ------------ ------------
Net increase--Class B............................. 2,143 29,334 -- --
------------ ------------ ------------ ------------
CLASS C SHARES
Sold.............................................. 1,137,529 13,933,845 1,434,033 $ 15,701,592
Reinvestment of dividends......................... 51,366 643,934 71,704 794,910
Redeemed.......................................... (2,298,398) (28,389,248) (3,751,703) (41,041,855)
------------ ------------ ------------ ------------
Net decrease--Class C............................. (1,109,503) (13,811,469) (2,245,966) (24,545,353)
------------ ------------ ------------ ------------
CLASS D SHARES*
Sold.............................................. 734 10,016 -- --
Reinvestment of dividends......................... 3 36 -- --
------------ ------------ ------------ ------------
Net increase--Class D............................. 737 10,052 -- --
------------ ------------ ------------ ------------
Net decrease in Fund.............................. (1,103,288) $(13,726,947) (2,245,966) $(24,545,353)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<C> <S>
<FN>
- ---------------------
+ On July 28, 1997, 398,355 shares representing $5,433,568 were transferred
to Class B.
* For the period July 28, 1997 (issue date) through September 30, 1997.
</FN>
</TABLE>
8. SUBSEQUENT EVENT
On November 6, 1997, the Board of Trustees of the Fund and of Dean Witter
Balanced Growth Fund ("Balanced Growth") approved a reorganization plan whereby
the Fund would be merged into Balanced Growth. This plan is subject to the
consent of the Fund's shareholders. If approved, the assets of the Fund would be
combined with the assets of Balanced Growth and shareholders of the Fund would
become shareholders of Balanced Growth, receiving shares of the corresponding
class of Balanced Growth equal to the value of their holdings in the Fund.
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD
OCTOBER 29,
1993*
FOR THE YEAR ENDED SEPTEMBER 30, THROUGH
--------------------------------- SEPTEMBER
1997**++ 1996 1995 30, 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.63 $ 10.46 $ 9.43 $ 10.00
---------- ---------- --------- ------
Net investment income.............. 0.11 0.15 0.20 0.10
Net realized and unrealized gain
(loss)............................ 2.04 1.12 0.93 (0.58)
---------- ---------- --------- ------
Total from investment operations... 2.15 1.27 1.13 (0.48)
---------- ---------- --------- ------
Less dividends:
From net investment income...... (0.10) -- (0.10) (0.09)
In excess of net investment
income.......................... -- (0.10) -- --
---------- ---------- --------- ------
Total dividends.................... (0.10) (0.10) (0.10) (0.09)
---------- ---------- --------- ------
Net asset value, end of period..... $ 13.68 $ 11.63 $ 10.46 $ 9.43
---------- ---------- --------- ------
---------- ---------- --------- ------
TOTAL INVESTMENT RETURN+........... 18.67% 12.20% 11.97% (4.80)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 2.08% 2.14% 2.11% 2.06%(2)
Net investment income.............. 0.86% 1.12% 1.88% 1.22%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $ 88,212 $ 92,491 $ 106,716 $ 149,357
Portfolio turnover rate............ 80% 117% 123% 113%(1)
Average commission rate paid....... $ 0.0584 $ 0.0583 -- --
<FN>
- ---------------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that time, other than shares which were acquired in
exchange for shares of Funds for which Dean Witter Services Company Inc.
serves as Manager and TCW Fund's Management, Inc. serves as Adviser
("TCW/DW Funds") offered with a contingent deferred sales charge ("CDSC")
and shares acquired through reinvestment of dividends and distributions
thereon, have been designated Class C shares. Shares held prior to July 28,
1997 which were acquired in exchange for shares of a TCW/DW Fund sold with
a CDSC, including shares acquired through reinvestment of dividends and
distributions thereon, have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
- -----------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 13.64
------
Net investment income.............. 0.03
Net realized and unrealized gain... 0.06
------
Total from investment operations... 0.09
------
Less dividends from net investment
income............................ (0.05)
------
Net asset value, end of period..... $ 13.68
------
------
TOTAL INVESTMENT RETURN+........... 0.62%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.40%(2)
Net investment income.............. 1.53%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $46
Portfolio turnover rate............ 80%
Average commission rate paid....... $ 0.0584
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 13.64
------
Net investment income.............. 0.02
Net realized and unrealized gain... 0.05
------
Total from investment operations... 0.07
------
Less dividends from net investment
income............................ (0.03)
------
Net asset value, end of period..... $ 13.68
------
------
TOTAL INVESTMENT RETURN+........... 0.48%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 2.09%(2)
Net investment income.............. 0.75%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $5,479
Portfolio turnover rate............ 80%
Average commission rate paid....... $ 0.0584
<FN>
- ---------------------
* The date shares were first issued. Shareholders who held shares prior to
July 28, 1997 (the date the fund converted to a multiple class share
structure) should refer to the Financial Highlights of Class C to obtain
the historical per share and ratio information of their shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
- -----------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 13.64
------
Net investment income.............. 0.04
Net realized and unrealized gain... 0.05
------
Total from investment operations... 0.09
------
Less dividends from net investment
income............................ (0.05)
------
Net asset value, end of period..... $ 13.68
------
------
TOTAL INVESTMENT RETURN+........... 0.65%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.09%(2)
Net investment income.............. 1.75%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $10
Portfolio turnover rate............ 80%
Average commission rate paid....... $ 0.0584
<FN>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF TCW/DW BALANCED 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 TCW/DW Balanced Fund (the "Fund")
at September 30, 1997, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods presented, 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 September 30, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
As described in Note 8 to the financial statements, the Fund's Board of Trustees
has approved, subject to the consent of the Fund's shareholders, a
reorganization plan whereby the Fund would be merged into Dean Witter Balanced
Growth Fund.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
NOVEMBER 6, 1997
1997 FEDERAL TAX NOTICE
During the period ended September 30, 1997, 79.29% of the income
paid qualified for the dividends received deduction available to
corporations.
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
James A. Tilton
Vice President
James M. Goldberg
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
This report is submitted for the general information of shareholders
of the Fund. For more detailed information about the Fund, its officers
and trustees, fees, expenses and other pertinent information, please see
the prospectus of the Fund.
This report is not authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an effective prospectus.
TCW/DW
BALANCED FUND
ANNUAL REPORT
SEPTEMBER 30, 1997
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of Dean
Witter Balanced Growth Fund ("Dean Witter Balanced Growth") to be issued
pursuant to an Agreement and Plan of Reorganization, dated November 6, 1997,
between Dean Witter Balanced Growth and TCW/DW Balanced Fund ("TCW/DW
Balanced") in connection with the acquisition by Dean Witter Balanced Growth
of substantially all of the assets, subject to stated liabilities, of TCW/DW
Balanced. This Statement of Additional Information does not constitute a
prospectus. This Statement of Additional Information does not include all
information that a shareholder should consider before voting on the proposals
contained in the Proxy Statement and Prospectus, and, therefore, should be
read in conjunction with the related Proxy Statement and Prospectus, dated
December , 1997. A copy of the Proxy Statement and Prospectus may be
obtained without charge by mailing a written request to Dean Witter Balanced
Growth at Two World Trade Center, New York, New York 10048 or by calling
(212) 392-2550 or (800) 526-3143 (TOLL FREE). Please retain this document for
future reference.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS DECEMBER , 1997.
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION................................................ B-3
ADDITIONAL INFORMATION ABOUT DEAN WITTER BALANCED GROWTH ... B-3
FINANCIAL STATEMENTS........................................ B-4
</TABLE>
B-2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated December ,
1997 (the "Proxy Statement and Prospectus"). The Proxy Statement and
Prospectus has been sent to TCW/DW Balanced shareholders in connection with
the solicitation of proxies by the Board of Trustees of TCW/DW Balanced to be
voted at the Special Meeting of shareholders of TCW/DW Balanced to be held on
February 26, 1998. This Statement of Additional Information incorporates by
reference the Statement of Additional Information of Dean Witter Balanced
Growth dated July 28, 1997 and the Statement of Additional Information of
TCW/DW Balanced dated November 17, 1997.
ADDITIONAL INFORMATION ABOUT DEAN WITTER BALANCED GROWTH
INVESTMENT OBJECTIVES AND POLICIES
For additional information about Dean Witter Balanced Growth's investment
objectives and policies, see "Investment Practices and Policies" and
"Investment Restrictions" in Dean Witter Balanced Growth's Statement of
Additional Information.
MANAGEMENT
For additional information about the Board of Trustees, officers and
management personnel of Dean Witter Balanced Growth, see "The Fund and its
Management" and "Trustees and Officers" in Dean Witter Balanced Growth's
Statement of Additional Information.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about Dean Witter Balanced Growth's investment
manager, see "The Fund and its Management" in Dean Witter Balanced Growth's
Statement of Additional Information. For additional information about Dean
Witter Balanced Growth's independent auditors, see "Independent Accountants"
in Dean Witter Balanced Growth's Statement of Additional Information. For
additional information about other services provided to Dean Witter Balanced
Growth, see "Custodian and Transfer Agent" and "Shareholder Services" in Dean
Witter Balanced Growth's Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For additional information about brokerage allocation practices, see
"Portfolio Transactions and Brokerage" in Dean Witter Balanced Growth's
Statement of Additional Information.
DESCRIPTION OF FUND SHARES
For additional information about the voting rights and other
characteristics of the shares of Dean Witter Balanced Growth, see
"Description of Shares of the Fund" in Dean Witter Balanced Growth's
Statement of Additional Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of Dean
Witter Balanced Growth's shares and the determination of net asset value, see
"Purchase of Fund Shares," "Redemptions and Repurchases," "Financial
Statements--January 31, 1997" and "Shareholder Services" in Dean Witter
Balanced Growth's Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
For additional information about Dean Witter Balanced Growth's policies
regarding dividends and distributions and tax matters affecting Dean Witter
Balanced Growth and its shareholders, see "Dividends, Distributions and
Taxes," and "Financial Statements--January 31, 1997" in Dean Witter Balanced
Growth's Statement of Additional Information.
B-3
<PAGE>
DISTRIBUTION OF SHARES
For additional information about Dean Witter Balanced Growth's distributor
and the distribution agreement between Dean Witter Balanced Growth and its
distributor, see "Purchase of Fund Shares" in Dean Witter Balanced Growth's
Statement of Additional Information.
PERFORMANCE DATA
For additional information about Dean Witter Balanced Growth's
performance, see "Performance Information" in Dean Witter Balanced Growth's
Statement of Additional Information.
FINANCIAL STATEMENTS
Dean Witter Balanced Growth's most recent audited financial statements are
set forth in Dean Witter Balanced Growth's Annual Report for the fiscal year
ended January 31, 1997 and Dean Witter Balanced Growth's updated, unaudited
financial statements are set forth in its Semi-Annual Report for the six
month period ended July 31, 1997. Copies of both Reports accompany, and are
incorporated by reference in, the Proxy Statement and Prospectus. TCW/DW
Balanced's most recent audited financial statements are set forth in TCW/DW
Balanced's Annual Report for the fiscal year ended September 30, 1997, which
is incorporated by reference in the Proxy Statement and Prospectus.
B-4
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER TCW/DW PRO FORMA
BALANCED GROWTH FUND BALANCED FUND ADJUSTMENTS COMBINED
-------------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (identified cost
$147,723,284, $69,925,651 and $217,648,935, respectively) $176,549,681 $89,810,606 -- $266,360,287
Cash ...................................................... 291,171 36,023 -- 327,194
Receivable for:
Shares of beneficial interest sold ...................... 703,514 40,424 -- 743,938
Interest ................................................ 325,620 416,358 -- 741,978
Investments sold ........................................ 286,678 3,689,310 -- 3,975,988
Dividends ............................................... 122,760 41,417 -- 164,177
Deferred organizational expenses .......................... 84,596 38,484 $ (38,484)(1) 84,596
Prepaid expenses and other assets ......................... 102,783 99,358 -- 202,141
Receivable from affiliate ................................. 48 -- 38,484 (1) 38,532
-------------------- --------------- -------------- --------------
TOTAL ASSETS............................................. 178,466,851 94,171,980 -- 272,638,831
-------------------- --------------- -------------- --------------
LIABILITIES:
Payable for:
Investments purchased ................................... 957,573 -- -- 957,573
Shares of beneficial interest repurchased ............... 382,015 227,470 -- 609,485
Plan of distribution fee ................................ 152,849 82,622 -- 235,471
Investment management/advisory fee ...................... 91,956 24,798 -- 116,754
Management fee .......................................... -- 37,196 -- 37,196
Dividends and distributions to shareholders ............. 7,916 2,534 -- 10,450
Accrued expenses and other payables ....................... 39,276 51,230 -- 90,496
-------------------- --------------- -------------- --------------
TOTAL LIABILITIES........................................ 1,631,585 425,840 -- 2,057,425
-------------------- --------------- -------------- --------------
NET ASSETS............................................... $176,835,266 $93,746,140 -- $270,581,406
==================== =============== ============== ==============
COMPOSITION OF NET ASSETS:
Paid-in-capital ........................................... $143,602,048 $66,491,685 -- $210,093,733
Net unrealized appreciation ............................... 28,826,397 19,884,955 -- 48,711,352
Accumulated undistributed net investment income .......... 225,007 65,565 -- 290,572
Accumulated undistributed net realized gain ............... 4,181,814 7,303,935 -- 11,485,749
-------------------- --------------- -------------- --------------
NET ASSETS............................................... $176,835,266 $93,746,140 -- $270,581,406
==================== =============== ============== ==============
CLASS A SHARES:
Net Assets ................................................ $ 490,119 $ 45,619 -- $ 535,738
Shares Outstanding (unlimited authorized, $.01 par value) 32,677 3,335 (294)(2) 35,718
NET ASSET VALUE PER SHARE................................ $15.00 $13.68 -- $15.00
==================== =============== ============== ==============
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus 5.54% of net asset value) ........ $15.83 $14.44 -- $15.83
==================== =============== ============== ==============
CLASS B SHARES:
Net Assets ................................................ $67,341,969 $5,478,596 -- $72,820,565
Shares Outstanding (unlimited authorized, $.01 par value) 4,490,470 400,498 (35,258)(2) 4,855,710
NET ASSET VALUE PER SHARE................................ $15.00 $13.68 -- $15.00
==================== =============== ============== ==============
CLASS C SHARES:
Net Assets ................................................ $108,987,159 $88,211,844 -- $197,199,003
Shares Outstanding (unlimited authorized, $.01 par value) 7,269,750 6,448,320 (563,607)(2) 13,154,463
NET ASSET VALUE PER SHARE................................ $14.99 $13.68 -- $14.99
==================== =============== ============== ==============
CLASS D SHARES:
Net Assets ................................................ $16,019 $10,081 -- $26,100
Shares Outstanding (unlimited authorized, $.01 par value) 1,068 737 (65)(2) 1,740
NET ASSET VALUE PER SHARE................................ $15.00 $13.68 -- $15.00
==================== =============== ============== ==============
</TABLE>
- ------------
(1) Reflects reclassification of unamortized organizational expenses which
will be reimbursed by Dean Witter InterCapital Inc., an affiliate of
the Fund's Manager.
(2) Represents the difference between total additional shares to be issued
(see Note 2) and current TCW/DW Balanced Fund shares outstanding.
See Notes to Pro Forma Financial Statements
1
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997* (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
DEAN WITTER TCW/DW ADJUSTMENTS
BALANCED GROWTH FUND BALANCED FUND (NOTE 3) COMBINED
-------------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INCOME
Interest .................................................. $ 3,248,659 $ 2,074,386 -- $ 5,323,045
Dividends (net of $0, $2,786 and $2,786 foreign
withholding tax, respectively) ........................... 2,246,018 650,808 -- 2,896,826
-------------------- --------------- -------------- ------------
TOTAL INCOME............................................. 5,494,677 2,725,194 -- 8,219,871
-------------------- --------------- -------------- ------------
EXPENSES
Plan of distribution fee (Class A Shares) ................. 1,152 13 -- 1,165
Plan of distribution fee (Class B Shares) ................. 245,923 9,461 -- 255,384
Plan of distribution fee (Class C Shares) ................. 1,069,225 908,897 -- 1,978,122
Investment management/advisory fee ........................ 795,220 278,270 $ 278,270 (1) 1,351,760
Management fee ............................................ -- 417,405 (417,405)(1) --
Transfer agent fees and expenses .......................... 106,747 92,831 -- 199,578
Registration fees ......................................... 85,750 19,989 (4,160)(2) 101,579
Professional fees ......................................... 61,674 53,942 (53,942)(2) 61,674
Shareholder reports and notices ........................... 47,766 48,833 (37,442)(2) 59,157
Organizational expenses ................................... 33,971 35,648 (35,648)(3) 33,971
Custodian fees ............................................ 19,543 17,593 -- 37,136
Trustees' fees and expenses ............................... 12,805 32,966 (32,966)(2) 12,805
Other ..................................................... 4,578 8,601 (1,376)(2) 11,803
-------------------- --------------- -------------- ------------
TOTAL EXPENSES........................................... 2,484,354 1,924,449 (302,469) 4,104,134
Less: amounts waived/reimbursed ........................... (2,200) -- 2,200 (4) --
-------------------- --------------- -------------- ------------
NET EXPENSES............................................. 2,482,154 1,924,449 (302,469) 4,104,134
-------------------- --------------- -------------- ------------
NET INVESTMENT INCOME.................................... 3,012,523 800,745 304,469 4,115,737
-------------------- --------------- -------------- ------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ......................................... 5,369,111 7,860,641 -- 13,229,752
Net change in unrealized appreciation ..................... 23,338,430 7,052,433 -- 30,390,863
-------------------- --------------- -------------- ------------
NET GAIN................................................. 28,707,541 14,913,074 -- 43,620,615
-------------------- --------------- -------------- ------------
NET INCREASE............................................... $31,720,064 $15,713,819 $ 302,469 $47,736,352
==================== =============== ============== ============
</TABLE>
- ------------
* Class A, Class B and Class D shares were issued July 28, 1997.
(1) Reflects the elimination of the management fee of TCW/DW Balanced Fund
and adjustment to the investment management/advisory fees of both Funds
based on the surviving Fund's investment management fee schedule.
(2) Reflects elimination of duplicate services or fees.
(3) Prepaid organizational expenses of the acquired Fund will not be
assumed by the surviving Fund.
(4) Fee waivers and expense reimbursements would be eliminated due to the
combined net asset level of the surviving Fund.
See Notes to Pro Forma Financial Statements
2
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION -- The Pro Forma Statement of Assets and Liabilities,
including the Portfolio of Investments, at September 30, 1997 and the related
Statement of Operations ("Pro Forma Statements") for the twelve months ended
September 30, 1997, reflect the accounts of Dean Witter Balanced Growth Fund,
("Balanced Growth") and TCW/DW Balanced Fund ("Balanced").
The Pro Forma Statements give effect to the proposed transfer of all assets
and liabilities of Balanced in exchange for shares in Balanced Growth. The
Pro Forma Statements should be read in conjunction with the historical
financial statements of each Fund included in its Statement of Additional
Information.
2. SHARES OF BENEFICIAL INTEREST -- The pro forma net asset value per share
assumes the issuance of additional shares of Balanced Growth which would have
been issued on September 30, 1997 in connection with the proposed
reorganization. Shareholders of Balanced would become shareholders of
Balanced Growth, receiving shares of the corresponding class of Balanced
Growth equal to the value of their holdings in Balanced. The amount of
additional shares assumed to be issued was calculated based on the
September 30, 1997 net assets of Balanced and the net asset value per share
of Balanced Growth as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CLASS A B C D
- ------------------------- --------- ------------ ------------- ---------
Additional
Shares Issued 3,041 365,240 5,884,713 672
- ------------------------- --------- ------------ ------------- ---------
Balanced
Net Assets 9/30/97 $45,619 $5,478,596 $88,211,844 $10,081
- ------------------------- --------- ------------ ------------- ---------
Net Asset Value Per Share
Balanced Growth $ 15.00 $ 15.00 $ 14.99 $ 15.00
- ------------------------- --------- ------------ ------------- ---------
</TABLE>
3. PRO FORMA OPERATIONS -- The Pro Forma Statement of Operations assumes
similar rates of gross investment income for the investments of each Fund.
Accordingly, the combined gross investment income is equal to the sum of each
Fund's gross investment income. Certain expenses have been adjusted to
reflect the expected expenses of the combined entity. The pro forma
investment management fees of the combined Fund are based on the fee schedule
in effect for Balanced Growth at the combined level of average net assets for
the twelve months ended September 30, 1997. Pro forma operating expenses do
not include the impact of estimated solicitation costs in connection with the
reorganization, which will be borne by Balanced, of approximately $148,500,
nor do they include other expenses associated with the reorganization, which
will be borne by both Balanced Growth and Balanced, of approximately $7,500
and $7,500, respectively.
3
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER TCW/DW
BALANCED GROWTH FUND BALANCED FUND COMBINED
-------------------------- ------------------------- -------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS (64.6%)
AIR TRANSPORT (1.4%)
AMR Corp.*..................................... -- -- 5,100 $ 564,506 5,100 $ 564,506
Delta Air Lines, Inc........................... -- -- 19,900 1,874,331 19,900 1,874,331
UAL Corp.*..................................... -- -- 16,300 1,379,387 16,300 1,379,387
------------- ------------ ------------
-- 3,818,224 3,818,224
------------- ------------ ------------
AIRCRAFT & AEROSPACE (3.3%)
Boeing Co. .................................... -- -- 38,800 2,112,175 38,800 2,112,175
Raytheon Co. .................................. 77,000 $4,552,625 -- -- 77,000 4,552,625
United Technologies Corp....................... -- -- 28,300 2,292,300 28,300 2,292,300
------------- ------------ ------------
4,552,625 4,404,475 8,957,100
------------- ------------ ------------
ALUMINUM (1.7%)
Aluminum Co. of America........................ 57,000 4,674,000 -- -- 57,000 4,674,000
------------- ------------ ------------
AUTO PARTS -ORIGINAL EQUIPMENT (1.2%)
Lear Corp.*.................................... -- -- 34,900 1,718,825 34,900 1,718,825
Magna International, Inc. (Class A)(Canada) ... -- -- 20,400 1,410,150 20,400 1,410,150
------------- ------------ ------------
-- 3,128,975 3,128,975
------------- ------------ ------------
AUTOMOTIVE (4.3%)
Ford Motor Co.................................. 100,500 4,547,625 53,700 2,429,925 154,200 6,977,550
General Motors Corp. .......................... 69,000 4,618,688 -- -- 69,000 4,618,688
------------- ------------ ------------
9,166,313 2,429,925 11,596,238
------------- ------------ ------------
BANKING (3.4%)
Banc One Corp.................................. 82,000 4,576,625 -- -- 82,000 4,576,625
BankAmerica Corp............................... 61,700 4,523,381 -- -- 61,700 4,523,381
------------- ------------ ------------
9,100,006 -- 9,100,006
------------- ------------ ------------
BANKS (0.7%)
Citicorp....................................... -- -- 14,900 1,995,669 14,900 1,995,669
------------- ------------ ------------
BEVERAGES -SOFT DRINKS (2.3%)
PepsiCo, Inc................................... 117,000 4,745,812 36,200 1,468,362 153,200 6,214,174
------------- ------------ ------------
BROADCAST MEDIA (0.6%)
Westinghouse Electric Corp..................... -- -- 59,832 1,619,203 59,832 1,619,203
------------- ------------ ------------
BROKERAGE (0.7%)
Merrill Lynch & Co., Inc....................... -- -- 24,100 1,787,919 24,100 1,787,919
------------- ------------ ------------
CHEMICALS (1.6%)
Du Pont (E.I.) de Nemours & Co., Inc. ........ 71,000 4,370,937 -- -- 71,000 4,370,937
------------- ------------ ------------
COMMERCIAL SERVICES (0.5%)
Corrections Corp. of America*.................. -- -- 33,400 1,452,900 33,400 1,452,900
------------- ------------ ------------
COMPUTER EQUIPMENT (1.8%)
International Business Machines Corp. ......... 46,000 4,873,125 -- -- 46,000 4,873,125
------------- ------------ ------------
COMMUNICATIONS -
EQUIPMENT & SOFTWARE (1.0%)
Cisco Systems, Inc.*........................... -- -- 36,000 2,630,250 36,000 2,630,250
------------- ------------ ------------
COMPUTER SOFTWARE (1.3%)
Microsoft Corp.*............................... -- -- 21,100 2,791,794 21,100 2,791,794
Oracle Corp.*.................................. -- -- 17,000 619,438 17,000 619,438
------------- ------------ ------------
-- 3,411,232 3,411,232
------------- ------------ ------------
4
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1997
(UNAUDITED)
DEAN WITTER TCW/DW
BALANCED GROWTH FUND BALANCED FUND COMBINED
-------------------------- ------------------------- -------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------ ----------- ------------
COMPUTERS -SYSTEMS (0.3%)
Tandy Corp. ................................... -- -- 24,000 $ 807,000 24,000 $ 807,000
------------- ------------ ------------
DRUGS & HEALTHCARE (1.8%)
Bristol-Myers Squibb Co. ...................... 56,000 $4,634,000 -- -- 56,000 4,634,000
------------- ------------ ------------
ELECTRICAL EQUIPMENT (0.4%)
Honeywell, Inc................................. -- -- 16,000 1,075,000 16,000 1,075,000
------------- ------------ ------------
ELECTRIC -MAJOR (1.7%)
General Electric Co............................ 66,000 4,492,125 -- -- 66,000 4,492,125
------------- ------------ ------------
ELECTRONICS -
SEMICONDUCTORS/COMPONENTS (1.5%)
Intel Corp. ................................... -- -- 46,100 4,258,488 46,100 4,258,488
------------- ------------ ------------
ENTERTAINMENT (0.5%)
Mirage Resorts, Inc.*.......................... -- -- 41,200 1,241,150 41,200 1,241,150
------------- ------------ ------------
FINANCIAL (0.5%)
Fannie Mae..................................... -- -- 32,200 1,513,400 32,200 1,513,400
------------- ------------ ------------
FINANCIAL SERVICES (0.6%)
Associates First Capital Corp.................. -- -- 24,300 1,512,675 24,300 1,512,675
------------- ------------ ------------
FOODS (2.0%)
ConAgra, Inc................................... 65,000 4,290,000 -- -- 65,000 4,290,000
Kellogg Co..................................... -- -- 23,600 994,150 23,600 994,150
------------- ------------ ------------
4,290,000 5,284,150
------------- ------------
HEALTHCARE -DIVERSIFIED (0.7%)
Warner-Lambert Co.............................. -- -- 14,700 1,983,581 14,700 1,983,581
------------- ------------ ------------
HEALTHCARE -DRUGS (1.0%)
Johnson & Johnson.............................. -- -- 15,100 870,138 15,100 870,138
Lilly (Eli) & Co. ............................. -- -- 15,900 1,918,931 15,900 1,918,931
------------- ------------ ------------
-- 2,789,069 2,789,069
------------- ------------ ------------
INDUSTRIALS (0.7%)
Caterpillar, Inc. ............................. -- -- 35,200 1,898,600 35,200 1,898,600
------------- ------------ ------------
INSURANCE BROKERS (0.5%)
Marsh & McLennan Companies, Inc................ -- -- 19,400 1,486,525 19,400 1,486,525
------------- ------------ ------------
MACHINERY -AGRICULTURE (1.7%)
Deere & Co..................................... 85,000 4,568,750 -- -- 85,000 4,568,750
------------- ------------ ------------
MANUFACTURING -DIVERSIFIED (1.7%)
Timken Co...................................... 115,000 4,607,188 -- -- 115,000 4,607,188
------------- ------------ ------------
NATURAL GAS (3.3%)
Enron Corp. ................................... 117,000 4,504,500 -- -- 117,000 4,504,500
Tenneco, Inc................................... 96,000 4,596,000 -- -- 96,000 4,596,000
------------- ------------ ------------
9,100,500 -- 9,100,500
------------- ------------ ------------
OFFICE EQUIPMENT & SUPPLIES (0.4%)
Xerox Corp. ................................... -- -- 12,000 1,010,250 12,000 1,010,250
------------- ------------ ------------
OIL & GAS EXPLORATION (0.2%)
Canadian Natural Resources Ltd. (Canada)* ..... -- -- 26,000 767,253 26,000 767,253
------------- ------------ ------------
5
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1997
(UNAUDITED)
DEAN WITTER TCW/DW
BALANCED GROWTH FUND BALANCED FUND COMBINED
-------------------------- ------------------------- -------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------ ----------- ------------
OIL -DOMESTIC (2.0%)
Amoco Corp..................................... -- -- 6,800 $ 655,350 6,800 $ 655,350
Atlantic Richfield Co.......................... 55,000 $ 4,699,063 -- -- 55,000 4,699,063
------------- ------------ ------------
4,699,063 655,350 5,354,413
------------- ------------ ------------
PAPER & FOREST PRODUCTS (1.6%)
Weyerhaeuser Co. .............................. 75,000 4,453,125 -- -- 75,000 4,453,125
------------- ------------ ------------
PUBLISHING (0.7%)
Time Warner, Inc. ............................. -- -- 33,900 1,836,956 33,900 1,836,956
------------- ------------ ------------
RAILROADS (2.3%)
Burlington Northern Santa Fe Corp. ............ -- -- 17,800 1,719,925 17,800 1,719,925
CSX Corp. ..................................... 77,000 4,504,500 -- -- 77,000 4,504,500
------------- ------------ ------------
4,504,500 1,719,925 6,224,425
------------- ------------ ------------
RETAIL (3.3%)
Dayton-Hudson Corp. ........................... 72,000 4,315,500 -- -- 72,000 4,315,500
May Department Stores Co....................... 84,000 4,578,000 -- -- 84,000 4,578,000
------------- ------------ ------------
8,893,500 -- 8,893,500
------------- ------------ ------------
RETAIL -SPECIALTY (0.9%)
Home Depot, Inc. .............................. -- -- 45,800 2,387,325 45,800 2,387,325
------------- ------------ ------------
SOAP & HOUSEHOLD PRODUCTS (0.8%)
Procter & Gamble Co............................ -- -- 30,800 2,127,125 30,800 2,127,125
------------- ------------ ------------
TELECOMMUNICATIONS (2.2%)
Lucent Technologies, Inc....................... -- -- 11,700 952,088 11,700 952,088
Sprint Corp. .................................. 97,500 4,875,000 -- -- 97,500 4,875,000
------------- ------------ ------------
4,875,000 952,088 5,827,088
------------- ------------ ------------
TOBACCO (2.1%)
Fortune Brands, Inc............................ 77,500 2,610,781 -- -- 77,500 2,610,781
Gallaher Group PLC (ADR)(United Kingdom) ...... 77,500 1,487,031 -- -- 77,500 1,487,031
Philip Morris Companies, Inc................... -- -- 40,000 1,662,500 40,000 1,662,500
------------- ------------ ------------
4,097,812 1,662,500 5,760,312
------------- ------------ ------------
UTILITIES -ELECTRIC (3.4%)
General Public Utilities Corp.................. 130,000 4,663,750 -- -- 130,000 4,663,750
Unicom Corp.................................... 197,000 4,604,875 -- -- 197,000 4,604,875
------------- ------------ ------------
9,268,625 -- 9,268,625
------------- ------------ ------------
TOTAL COMMON STOCKS
(Identified Cost $85,919,535, $41,432,833,
and $127,352,368, respectively) .............. 113,967,006 60,825,544 174,792,550
------------- ------------ ------------
</TABLE>
6
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
DEAN WITTER TCW/DW
BALANCED GROWTH FUND BALANCED FUND COMBINED
---------------------- ------------------------ ------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
COUPON MATURITY AMOUNT AMOUNT AMOUNT
RATE DATE IN THOUSANDS VALUE IN THOUSANDS VALUE IN THOUSANDS VALUE
------ --------- ------------ -------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CORPORATE BONDS (1.6%)
AIRCRAFT & AEROSPACE (0.0%)
Lockheed Martin Corp. ................. 7.25% 05/15/06 -- -- $100 $ 103,870 $100 $ 103,870
----------- ---------
AUTOMOTIVE (0.1%)
General Motors Corp. .................. 8.10 06/15/24 -- -- 200 213,230 200 213,230
----------- ---------
BANKS (0.1%)
Citicorp............................... 7.125 03/15/04 -- -- 200 205,306 200 205,306
----------- ---------
BEVERAGES -SOFT DRINKS (0.0%)
Coca-Cola Enterprises, Inc. ........... 7.88 02/01/02 -- -- 100 105,951 100 105,951
----------- ---------
CABLE &
TELECOMMUNICATIONS (0.1%)
News America Holdings, Inc. ........... 8.50 02/15/05 -- -- 200 216,324 200 216,324
----------- ---------
FINANCIAL (0.4%)
Abbey National PLC (United Kingdom) ... 6.69 10/17/05 -- -- 200 200,378 200 200,378
Associates Corp. of North America ..... 6.25 03/15/99 -- -- 150 150,685 150 150,685
Associates Corp. of North America .... 5.25 03/30/00 -- -- 100 97,878 100 97,878
Bear Stearns Companies, Inc. .......... 5.75 02/15/01 -- -- 200 196,472 200 196,472
Comdisco, Inc.......................... 6.50 04/30/99 -- -- 200 201,398 200 201,398
General Electric Capital Corp.......... 8.85 04/01/05 -- -- 150 170,292 150 170,292
----------- ---------
-- 1,017,103 1,017,103
----------- ---------
FINANCIAL SERVICES (0.1%)
Ford Motor Credit Corp. ............... 8.20 02/15/02 -- 150 160,176 150 160,176
----------- ---------
INDUSTRIALS (0.2%)
Caterpillar, Inc....................... 9.375 03/15/21 -- -- 200 252,122 200 252,122
Praxair, Inc........................... 6.75 03/01/03 -- -- 100 101,070 100 101,070
Raytheon Co............................ 6.45 08/15/02 -- -- 250 249,573 250 249,573
----------- ---------
-- 602,765 602,765
----------- ---------
OIL & GAS PRODUCTS (0.1%)
BP America, Inc........................ 9.375 11/01/00 -- -- 200 217,898 200 217,898
----------- ---------
RETAIL (0.1%)
Federated Department Stores, Inc. .... 8.125 10/15/02 -- -- 200 212,628 200 212,628
Wal-Mart Stores, Inc. ................. 7.50 05/15/04 -- -- 200 211,566 200 211,566
----------- ---------
-- 424,194 424,194
----------- ---------
TELEPHONES (0.1%)
MCI Communications Corp. .............. 6.95 08/15/06 -- -- 200 204,742 200 204,742
----------- ---------
TRANSPORTATION (0.1%)
Norfolk Southern Corp. ................ 7.35 05/15/07 -- -- 100 104,105 100 104,105
Union Pacific Corp..................... 7.875 02/15/02 -- -- 100 105,485 100 105,485
----------- ---------
-- 209,590 209,590
----------- ---------
UTILITIES (0.2%)
Florida Power & Light Co. ............. 7.05 12/01/26 -- -- 200 195,136 200 195,136
Texas Utilities Electric Co. .......... 7.875 04/01/24 -- -- 200 206,222 200 206,222
Union Electric Co. .................... 6.75 05/01/08 -- -- 200 201,624 200 201,624
----------- ---------
-- 602,982 602,982
----------- ---------
TOTAL CORPORATE BONDS
(Identified Cost $0, $4,224,945 and
$4,224,945, respectively)............. -- 4,284,131 4,284,131
----------- ---------
7
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1997
(UNAUDITED)
DEAN WITTER TCW/DW
BALANCED GROWTH FUND BALANCED FUND COMBINED
------------------------ ------------------------ -------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
COUPON MATURITY AMOUNT AMOUNT AMOUNT
RATE DATE IN THOUSANDS VALUE IN THOUSANDS VALUE IN THOUSANDS VALUE
------ -------- ------------ ----------- ------------ ----------- ------------ -----------
U.S. GOVERNMENT AGENCY & OBLIGATIONS (30.1%)
Federal Home Loan Banks ............... 0.00% 07/02/12 $ 3,000 $ 964,050 -- -- $ 3,000 $ 964,050
Federal Home Loan Mortgage Corp. ..... 7.50 06/01/11 -- -- $1,424 $ 1,457,342 1,424 1,457,342
Federal Home Loan Mortgage Corp. ..... 7.50 08/01/11 -- -- 642 656,829 642 656,829
Federal Home Loan Mortgage Corp. ..... 7.00 03/01/17 -- -- 995 997,446 995 997,446
Federal Home Loan Mortgage Corp. ..... 7.00 08/01/25 -- -- 1,802 1,797,198 1,802 1,797,198
Federal Home Loan Mortgage Corp. ..... 8.00 06/01/26 -- -- 458 472,725 458 472,725
Federal National Mortgage Assoc. ..... 7.40 07/01/04 -- -- 575 609,592 575 609,592
Federal National Mortgage Assoc. ..... 6.40 09/27/05 -- -- 880 883,890 880 883,890
Federal National Mortgage Assoc. ..... 6.00 10/01/00-
03/01/11 4,756 4,663,256 -- -- 4,756 4,663,256
Federal National Mortgage Assoc.
(ARM)................................. 6.109 05/01/27 -- -- 378 391,444 378 391,444
Federal National Mortgage Assoc. ..... 6.50 08/01/10-
07/01/12 3,907 3,879,211 -- -- 3,907 3,879,211
Federal National Mortgage Assoc. ..... 7.00 03/01/12-
08/01/27 12,644 12,670,931 -- -- 12,644 12,670,931
Federal National Mortgage Assoc. ..... 7.50 06/01/25-
09/01/27 9,649 9,808,686 -- -- 9,649 9,808,686
Federal National Mortgage Assoc. ..... 8.00 05/01/24-
05/01/25 833 859,616 -- -- 833 859,616
Government National Mortgage Assoc. ... 7.00 07/15/23-
07/20/27 4,630 4,620,402 -- -- 4,630 4,620,402
Government National Mortgage Assoc. ... 7.50 06/15/24-
06/15/27 9,683 9,846,263 -- -- 9,683 9,846,263
Government National Mortgage Assoc. ... 8.00 04/15/26-
08/15/26 3,784 3,911,339 -- -- 3,784 3,911,339
Resolution Funding Corp. Coupon 0.00 04/15/04-
Strips................................ 01/15/08 5,500 3,241,730 -- -- 5,500 3,241,730
U.S. Treasury Coupon Strip............. 0.00 11/15/04-
02/15/07 4,500 2,666,830 -- -- 4,500 2,666,830
U.S. Treasury Bond..................... 12.00 08/15/13 -- -- 1,730 2,493,120 1,730 2,493,120
U.S. Treasury Bond..................... 7.50 11/15/24 -- -- 1,595 1,801,935 1,595 1,801,935
U.S. Treasury Bond..................... 6.50 11/15/26 -- -- 290 291,917 290 291,917
U.S. Treasury Note..................... 5.50 11/15/98 -- -- 350 349,202 350 349,202
U.S. Treasury Note..................... 5.875 01/31/99 -- -- 155 155,268 155 155,268
U.S. Treasury Note..................... 6.375 04/30/99 -- -- 4,380 4,420,296 4,380 4,420,296
U.S. Treasury Note..................... 6.00 08/15/99 -- -- 965 967,992 965 967,992
U.S. Treasury Note..................... 7.125 02/29/00 400 411,216 -- -- 400 411,216
U.S. Treasury Note..................... 6.875 03/31/00 500 511,660 -- -- 500 511,660
U.S. Treasury Note..................... 5.875 06/30/00 1,000 1,000,420 -- -- 1,000 1,000,420
U.S. Treasury Note..................... 6.375 03/31/01 1,000 1,013,130 -- -- 1,000 1,013,130
U.S. Treasury Note..................... 6.25 01/31/02 1,000 1,009,460 -- -- 1,000 1,009,460
U.S. Treasury Note..................... 6.25 02/15/03 -- -- 850 858,271 850 858,271
U.S. Treasury Note..................... 7.875 11/15/04 -- -- 820 901,475 820 901,475
U.S. Treasury Note..................... 5.875 11/15/05 -- -- 1,120 1,099,179 1,120 1,099,179
----------- ----------- ----------
TOTAL U.S. GOVERNMENT AGENCY & OBLIGATIONS
(Identified Cost $60,299,274,
$20,262,618 and $80,561,892,
respectively) ........................ 61,078,200 20,605,121 81,683,321
----------- ----------- ----------
8
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1997
(UNAUDITED)
DEAN WITTER TCW/DW
BALANCED GROWTH FUND BALANCED FUND COMBINED
------------------------- ----------------------- ------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
COUPON MATURITY AMOUNT AMOUNT AMOUNT
RATE DATE IN THOUSANDS VALUE IN THOUSANDS VALUE IN THOUSANDS VALUE
------ --------- ------------ ------------ ------------ ---------- ------------ -----------
CANADIAN GOVERNMENT AGENCIES+ (0.2%)
Hydro-Quebec .......................... 9.40% 02/01/21 -- -- $ 200 $ 247,734 $ 200 $ 247,734
Province of Manitoba .................. 6.875 09/15/02 -- -- 150 153,527 150 153,527
Province of Ontario.................... 6.00 02/21/06 -- -- 100 96,819 100 96,819
------------ ----------- ------------
TOTAL CANADIAN GOVERNMENT AGENCIES
(Identified Cost $0, $485,647 and
$485,647, respectively)............... -- 498,080 498,080
------------ ----------- ------------
ASSET-BACKED SECURITY (0.3%)
Federal Housing Administration Burbank
Garden Retirement Center**
(Identified Cost $0, $759,597 and
$759,597, respectively)............... 7.50 02/01/32 -- -- 782 784,048 782 784,048
------------ ----------- ------------
COLLATERALIZED MORTGAGE OBLIGATIONS+ (0.8%)
Bear Stearns Mortgage Securities, Inc.
1997-2 A2............................. 6.50 04/28/24 -- -- 600 582,885 600 582,885
Federal National Mortgage Assoc.
1996-53 M............................. 6.50 12/18/11 -- -- 1,000 946,666 1,000 946,666
Residential Funding Mortgage
Securities, Inc.
1993-S23 A8........................... 6.50 06/25/08 -- -- 697 693,550 697 693,550
------------ ----------- ------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Identified Cost $0, $2,169,430 and
$2,169,430, respectively)............. -- 2,223,101 2,223,101
------------ ----------- ------------
SHORT-TERM INVESTMENTS (0.8%)
REPURCHASE AGREEMENTS
The Bank of New York
(dated 09/30/97; proceeds $1,504,694
and $590,667, respectively)(a)
(Identified Cost $1,504,475, $590,581
and $2,095,056, respectively) ........ 5.25 10/01/97 $1,504 $ 1,504,475 591 590,581 2,095 2,095,056
------------ ----------- ------------
TOTAL INVESTMENTS
(Identified Cost $147,723,284,
$69,925,651 and $217,648,935)(b) .... 98.4% 176,549,681 89,810,606 266,360,287
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES .......................... 1.6 285,585 3,935,534 4,221,119
------ ------------ ----------- ------------
NET ASSETS ............................ 100.0% $176,835,266 $93,746,140 $270,581,406
====== ============ =========== ============
</TABLE>
- ------------
Note: Percentages indicated parenthetically represent the percentage of
net assets of the combined Fund.
ADR American Depository Receipt.
ARM Adjustable Rate Mortgage.
* Non-income producing security.
** Resale is restricted.
+ Securities are not within the scope of Balanced Growth's investment
policies and will be sold prior to the merger.
(a) Collateralized by $1,147,500 U.S. Treasury Note 4.75% due 08/31/98
valued at $1,143,052 and $387,576 U.S. Treasury Note 5.625% due
11/30/00 valued at $391,512; and by $455,065 U.S. Treasury Bond
9.00% due 11/15/18 valued at $602,392, respectively.
(b) The aggregate cost for federal income tax purposes approximates
identified cost.
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
-------------- -------------- --------------
<S> <C> <C> <C>
Dean Witter Balanced Growth
Fund............................ $28,969,248 $142,851 $28,826,397
============== ============== ==============
TCW/DW Balanced Fund............. $19,926,461 $ 41,506 $19,884,955
============== ============== ==============
Combined......................... $48,895,709 $184,357 $48,711,352
============== ============== ==============
</TABLE>
See Notes to Pro Forma Financial Statements
9
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JULY 28, 1997
DEAN WITTER
BALANCED GROWTH
FUND
- -----------------------------------------------------------------------------
Dean Witter Balanced Growth Fund (the "Fund") is an open-end diversified
management investment company whose investment objective is to provide
capital growth with a reasonable income return. The Fund seeks to achieve its
objective by investing, under normal market conditions, at least 60% of its
total assets in a diversified portfolio of common stocks of companies with a
record of paying dividends and, in the opinion of the Investment Manager,
have the potential for increasing dividends and in securities convertible
into common stock; and at least 25% of its total assets in investment grade
fixed income securities such as corporate notes and bonds and in obligations
issued or guaranteed by the U.S. Government, its agencies and its
instrumentalities. (See "Investment Practices and Policies.")
A Prospectus for the Fund dated July 28, 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 Balanced Growth Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund and its Management............. 3
Trustees and Officers................... 6
Investment Practices and Policies ...... 12
Investment Restrictions................. 21
Portfolio Transactions and Brokerage ... 22
The Distributor......................... 24
Determination of Net Asset Value ....... 27
Purchase of Fund Shares................. 28
Shareholder Services.................... 30
Redemptions and Repurchases............. 35
Dividends, Distributions and Taxes ..... 36
Performance Information................. 38
Description of Shares of the Fund ...... 39
Custodian and Transfer Agent ........... 39
Independent Accountants................. 40
Reports to Shareholders................. 40
Legal Counsel........................... 40
Experts ................................ 40
Registration Statement.................. 40
Financial Statements--January 31, 1997 . 41
Report of Independent Accountants ..... 51
</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 November 23, 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 Morgan Stanley, Dean Witter,
Discover & Co. ("MSDWD"), a Delaware corporation. In an internal
reorganization which took place in January, 1993, InterCapital assumed the
investment advisory, administrative and management activities previously
performed by the InterCapital Division of Dean Witter Reynolds Inc. ("DWR"),
a broker-dealer affiliate of InterCapital. (As hereinafter used in this
Statement of Additional Information, the terms "InterCapital" and "Investment
Manager" refer to DWR's InterCapital Division prior to the internal
reorganization and to Dean Witter InterCapital Inc. thereafter.) The daily
management of the Fund and research relating to the Fund's portfolio are
conducted by or under the direction of officers of the Fund and of the
Investment Manager, subject to review 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 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
Natural Resource Development Securities Inc., Dean Witter Dividend Growth
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, High Income
Advantage Trust II, High Income Advantage Trust III, Dean Witter Government
Income Trust, Dean Witter Utilities Fund, Dean Witter California Tax-Free
Daily Income Trust, Dean Witter Strategist Fund, Dean Witter World Wide
Income Trust, Dean Witter Intermediate Income Securities, Dean Witter New
York Municipal Money Market Trust, Dean Witter Capital Growth Securities,
Dean Witter European Growth Fund Inc., Dean Witter Precious Metals and
Minerals Trust, Dean Witter Global Short-Term Income Fund Inc., Dean Witter
Pacific Growth Fund Inc., Dean Witter Multi-State Municipal Series Trust,
Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Diversified Income
Trust, Dean Witter Health Sciences Trust, Dean Witter Retirement Series, Dean
Witter Global Dividend Growth Securities, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, Dean Witter Global Utilities Fund,
Dean Witter High Income Securities Trust, Dean Witter International SmallCap
Fund, Dean Witter Select Dimensions Investment Series, Dean Witter Mid-Cap
Growth Fund, Dean Witter Global Asset Allocation Fund, Dean Witter National
Municipal Trust, Dean Witter Hawaii Municipal Trust, Dean Witter Capital
Appreciation Fund, Dean Witter Balanced Income Fund, Dean Witter Intermediate
Term U.S. Treasury Trust, Dean Witter Information Fund, Dean Witter Japan
Fund, Dean Witter Income Builder Fund, Dean Witter Financial Services Trust,
Dean Witter Market Leader Trust, Dean Witter Special Value Fund, InterCapital
Quality Municipal Income Trust, 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 and Municipal Premium
Income Trust. The foregoing investment companies, together with the Fund, are
collectively referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc.
3
<PAGE>
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
Emerging Markets Opportunities Trust, TCW/DW Mid-Cap Equity Trust, TCW/DW
Total Return Trust, TCW/DW Global Telecom Trust, TCW/DW Strategic Income
Trust, TCW/DW Term Trust 2000, TCW/DW Term Trust 2002 and TCW/DW Term Trust
2003 (the "TCW/DW Funds"). InterCapital also serves as: (i) administrator of
The BlackRock Strategic Term Trust Inc., a closed-end investment company; and
(ii) sub-administrator of MassMutual Participation Investors and Templeton
Global Governments Income Trust, closed-end investment companies.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage
the investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and certain legal services as the
Fund may reasonably require in the conduct of its business, including the
preparation of prospectuses, statements of additional information, proxy
statements and reports required to be filed with federal and state securities
commissions (except insofar as the participation or assistance of independent
accountants and attorneys is, in the opinion of the Investment Manager,
necessary or desirable). In addition, the Investment Manager pays the
salaries of all personnel, including officers of the Fund, who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone service, heat, light, power and other utilities provided to the
Fund.
Pursuant to a Services Agreement between InterCapital and DWSC, a
wholly-owned subsidiary of InterCapital, dated December 31, 1993, DWSC
provides administrative services to the Dean Witter Funds. On April 17, 1995,
DWSC was reorganized in the State of Delaware, necessitating the entry into a
new Services Agreement by InterCapital and DWSC on such date. The foregoing
internal reorganizations did not result in any change in the nature or scope
of the administrative services being provided to the Fund or any of the fees
being paid by the Fund for the overall services being performed under the
terms of the existing Agreement.
Expenses not expressly assumed by the Investment Manager under the
Agreement or by Dean Witter Distributors Inc., the Distributor of the Fund's
shares ("Distributors" or "the Distributor") (see "The Distributor"), will be
paid by the Fund. These expenses will be allocated among the four classes of
shares of the Fund (each, a "Class") pro rata based on the net assets of the
Fund attributable to each Class, except as described below. The expenses
borne by the Fund include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1 (the "12b-1 fee") (see "The
Distributor"); charges and expenses of any registrar; custodian, stock
transfer and dividend disbursing agent; brokerage commissions; taxes;
engraving and printing of share certificates; registration costs of the Fund
and its shares under federal and state securities laws; the cost and expense
of printing, including typesetting, and distributing Prospectuses and
Statements of Additional Information of the Fund and supplements thereto to
the Fund's shareholders; all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Trustees or members of any advisory
board or committee who are not employees of the Investment Manager or any
corporate affiliate of the Investment Manager; all expenses incident to any
dividend, withdrawal or redemption options; charges and expenses of any
outside service used for pricing of the Fund's shares; fees and expenses of
legal counsel, including counsel to the Trustees who are not interested
persons of the Fund or of the Investment Manager (not including compensation
or expenses of attorneys who are employees of the Investment Manager) and
independent accountants; membership dues of industry associations; interest
on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Trustees) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and
4
<PAGE>
any indemnification relating thereto); and all other costs of the Fund's
operation. The 12b-1 fees relating to a particular Class will be allocated
directly to that Class. In addition, other expenses associated with a
particular Class (except advisory or custodial fees) may be allocated
directly to that Class, provided that such expenses are reasonably identified
as specifically attributable to that Class and the direct allocation to that
Class is approved by the Trustees.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.60% to the Fund's daily net assets. During the period March
28, 1995 (commencement of operations) through January 31, 1996 and during a
portion of the fiscal year ended January 31, 1997 (February 1, 1996-February
8, 1996), the Investment Manager had undertaken to assume all operating
expenses (except for any brokerage fees) and waive the compensation provided
for in its Agreement until such time as the Fund attained $50 million in net
assets or until March 31, 1996, whichever occurred first. The Fund began
paying fees on February 9, 1996 at which time the Fund attained $50 million
in net assets. During the period ended January 31, 1996 and the fiscal year
ended January 31, 1997, the Fund accrued to the Investment Manager total
compensation in the amounts of $122,520 and $487,331, respectively, of which
actual amounts payable after the waiver were $0 and $480,228, respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Investment Manager paid the organizational expenses of the Fund of
approximately $171,000 of which approximately $141,000 have been reimbursed.
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.
The Agreement was initially approved by the Board of Trustees on February
21, 1997 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on May 21, 1997. The Agreement is substantially identical
to a prior investment management agreement which was initially approved by
the Board of Trustees on January 25, 1995 and by InterCapital as the then
sole shareholder on February 16, 1995. The Agreement took effect on May 31,
1997 upon the consummation of the merger of Dean Witter, Discover & Co. with
Morgan Stanley Group Inc. The Agreement may be terminated at any time,
without penalty, on thirty days' notice by the Board of Trustees of the Fund,
by the holders of a majority of the outstanding shares of the Fund, as
defined in the Investment Company Act of 1940, as amended (the "Act"), or by
the Investment Manager. The Agreement will automatically terminate in the
event of its assignment (as defined in the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999,
and will remain in effect from year to year thereafter, provided continuance
of the Agreement is approved at least annually by the vote of the holders of
a majority of the outstanding shares of the Fund, as defined in the Act, or
by the Trustees of the Fund; provided that in either event such continuance
is approved annually by the vote of a majority of the Trustees of the Fund
who are not parties to the Agreement or "interested persons" (as defined in
the Act) of any such party (the "Independent Trustees"), which vote must be
cast in person at a meeting called for the purpose of voting on such
approval.
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 investment management contract between the Investment
Manager and the Fund is terminated, or if the affiliation between
InterCapital and its parent is terminated, the Fund will eliminate the name
"Dean Witter" from its name if DWR or its parent company shall so request.
5
<PAGE>
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital, and with the 83 Dean Witter Funds and the 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); Director or Trustee
c/o Levitz Furniture Corporation of the Dean Witter Funds; formerly President and Chief
6111 Broken Sound Parkway, N.W. Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial
Services, Inc., the United Negro College Fund and
Weirton Steel Corporation.
Charles A. Fiumefreddo* (64)................ Chairman, Chief Executive Officer and Director of
Chairman, President, InterCapital, Distributors and DWSC; Executive Vice
Chief Executive Officer and Trustee President and Director of DWR; Chairman, Director or
Two World Trade Center Trustee, President and Chief Executive Officer of the
New York, New York Dean Witter Funds; Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Chairman and Director of
Dean Witter Trust Company ("DWTC"); Director and/or
officer of various MSDWD subsidiaries; formerly
Executive Vice President and Director of Dean Witter,
Discover & Co. (until February, 1993).
Edwin J. Garn (64).......................... Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah)(1974-1992) and Chairman,
c/o Huntsman Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way Salt Lake City, Utah (1972-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle 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
Trustee Committee of the Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Chairman
New York, New York of the Audit Committee and Chairman of the Committee of
the Independent Trustees and Trustee of the TCW/DW
Funds; formerly President, Council for Aid to Education
(1978-1989) and Chairman and Chief Executive Officer of
Anchor Corporation, an Investment Adviser (1964-1978);
Director of Washington National Corporation (insurance).
6
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Wayne E. Hedien** (63) Retired; Director or Trustee of the Dean Witter Funds
Trustee (commencing on September 1, 1997); Direc-tor of The PMI
c/o Gordon Altman Butowsky Group, Inc. (private mortgage insurance); Trustee and
Weitzen Shalov & Wein Vice Chairman of The Field Museum of Natural History;
Counsel to the Independent Trustees formerly associated with the Allstate Companies
114 West 47th Street (1966-1994), most recently as Chairman of The Allstate
New York, New York Corporation (March, 1993-December, 1994) and Chairman
and Chief Executive Officer of its wholly-owned
subsidiary, Allstate Insurance Company (July,
1989-December, 1994); director of various other business
and charitable organizations.
Dr. Manuel H. Johnson (48).................. Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group
c/o Johnson Smick International, Inc. of Seven Council (G7C), an international economic
1133 Connecticut Avenue, N.W. commission; Director or Trustee of the Dean Witter
Washington, DC Funds; Trustee of the TCW/DW Funds; Director of NASDAQ
(since June, 1995) Director of Greenwich Capital
Markets, Inc. (broker-dealer); Trustee of the Financial
Accounting Foundation (oversight organization for the
Financial Accounting Standards Board); formerly Vice
Chairman of the Board of Governors of the Federal
Reserve System (1986-1990) and Assistant Secretary of
the U.S. Treasury (1982-1986).
Michael E. Nugent (61)...................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Director or Trustee of the Dean
c/o Triumph Capital, L.P. Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital
New York, New York Corporation (1984-1988); Director of various business
organizations.
Philip J. Purcell* (53)..................... Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDWD, DWR and Novus Credit Services Inc.;
1585 Broadway Director of InterCapital, DWSC and Distributors;
New York, New York Director or Trustee of the Dean Witter Funds; Director
and/or officer of various MSDWD subsidiaries.
John L. Schroeder (66)...................... Retired; Director or Trustee of the Dean Witter Funds;
Trustee Trustee of the TCW/DW Funds; Director of Citizens
c/o Gordon Altman Butowsky Utilities Company; formerly Executive Vice President and
Weitzen Shalov & Wein Chief Investment Officer of the Home Insurance Company
Counsel to the Independent Trustees (August, 1991-September, 1995).
114 West 47th Street
New York, New York
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------
Barry Fink (42)............................. Senior Vice President (since March, 1997) and Secretary
Vice President, and General Counsel (since February, 1997) of
Secretary and General Counsel InterCapital and DWSC; Senior Vice President (since
Two World Trade Center March, 1997) and Assistant Secretary and Assistant
New York, New York General Counsel (since February, 1997) 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.
Paul D. Vance (61).......................... Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Rajesh K. Gupta (37) ....................... Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (51) ...................... First Vice President and Assistant Treasurer of
Treasurer InterCapital and DWSC; Treasurer of the Dean Witter
Two World Trade Center Funds and the TCW/DW Funds.
New York, New York
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
** Mr. Hedien's term as Trustee will commence on September 1, 1997.
</TABLE>
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, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Executive Vice President and Director of DWR, and Director
of SPS Transaction Services, Inc. and various other MSDWD subsidiaries,
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 Peter
M. Avelar, Kenton J. Hinchliffe, Mark Bavoso and Jonathan R. Page, 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, Carsten Otto and Ruth Rossi, Vice
Presidents and Assistant General Counsels of InterCapital and DWSC, and Frank
Bruttomesso, a staff attorney with InterCapital, are Assistant Secretaries of
the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees currently consists of eight (8) trustees; as noted
above, Mr. Hedien's term will commence on September 1, 1997. 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 83 Dean Witter
Funds, comprised of 126 portfolios. As of June 30, 1997, the Dean Witter
Funds had total net assets of approximately $87.9 billion and more than six
million shareholders.
8
<PAGE>
Six Trustees and Mr. Hedien (77% of the total number) have no affiliation
or business connection with InterCapital or any of its affiliated persons and
do not own any stock or other securities issued by InterCapital's parent
company, MSDWD. These are the "disinterested" or "independent" Trustees. The
other two Trustees (the "management Trustees") are affiliated with
InterCapital. Four of the 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 current 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.
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.
9
<PAGE>
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 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.
At such time as the Fund has been in operation, and has paid fees to the
Independent Trustees, for a full fiscal year, and assuming that during such
fiscal year the Fund holds the same number of Board and committee meetings as
were held by the other Dean Witter Funds during the calendar year ended
December 31, 1996, it is estimated that the compensation paid to each
Independent Trustee during such fiscal year will be the amount shown in the
following table:
FUND COMPENSATION (ESTIMATED)
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- ---------------
<S> <C>
Michael Bozic .............. $1,900
Edwin J. Garn .............. 1,900
John R. Haire .............. 3,850
Dr. Manuel H. Johnson ..... 1,900
Michael E. Nugent........... 1,900
John L. Schroeder........... 1,900
</TABLE>
10
<PAGE>
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
COMMITTEES OF FOR SERVICE AS
INDEPENDENT CHAIRMAN OF
FOR SERVICE DIRECTORS/ COMMITTEES OF TOTAL CASH
AS DIRECTOR OR FOR SERVICE AS TRUSTEES AND INDEPENDENT COMPENSATION
TRUSTEE AND TRUSTEE AND AUDIT TRUSTEES FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER COMMITTEES OF 82 AND AUDIT 82 DEAN WITTER
NAME OF OF 82 DEAN WITTER OF 14 TCW/DW DEAN WITTER COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS TCW/DW FUNDS TCW/DW FUNDS
- ---------------------- ----------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael Bozic ......... $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 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
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT 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.
11
<PAGE>
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
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers investors an opportunity
to participate in a diversified portfolio of securities, consisting, under
normal market conditions of at least 60% of its total assets in common stocks
of companies which have a record of paying dividends and, in the opinion of
the Investment Manager, have the potential for increasing dividends and
securities convertible into common stocks; and at least 25% of its total
assets in investment grade fixed-income securities such as corporate notes
and bonds and obligations issued or guaranteed by the U.S. Government, its
agencies and its instrumentalities. The portfolio reflects an investment
decision-making process developed by the Fund's Investment Manager.
Zero Coupon Securities. 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. "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 of certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account).
OPTIONS AND FUTURES TRANSACTIONS
The Fund may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and stock
indexes and purchase options of the same securities to effect closing
transactions, and may hedge against potential changes in the market value of
investments (or anticipated investments) by purchasing put and call options
on portfolio (or eligible portfolio) securities and engaging in transactions
involving futures contracts and options on such contracts. Call and put
options on U.S. Treasury notes, bonds and bills and equity securities are
listed on Exchanges and are written in over-the-counter transactions ("OTC
options"). Listed options are issued by the Options Clearing Corporation
("OCC"). Ownership of a listed call option gives the Fund the right to buy
from the OCC the underlying security covered by the option at the stated
exercise price (the price per unit of the underlying security) by filing an
exercise notice prior to the expiration date of the option. The writer
(seller) of the option would then have the obligation to sell to the OCC the
underlying security at that exercise price prior to the expiration date of
the option, regardless of its then current market price. Ownership of a
listed put option would give the Fund the right to sell the underlying
security to the OCC at the stated exercise price. Upon notice of exercise of
the put option, the writer of the put would have the obligation to purchase
the underlying security from the OCC at the exercise price.
12
<PAGE>
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.
OTC Options. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which
have entered into direct agreements with the Fund. With OTC options, such
variables as expiration date, exercise price and premium will be agreed upon
between the Fund and the transacting dealer, without the intermediation of a
third party such as the OCC. If the transacting dealer fails to make or take
delivery of the securities underlying an option it has written, in accordance
with the terms of that option, the Fund would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Fund will
engage in OTC option transactions only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities in order to aid in achieving its investment
objective. Generally, a call option is "covered" if the Fund owns, or has the
right to acquire, without additional cash consideration (or for additional
cash consideration held for the Fund by its Custodian in a segregated
account) the underlying security subject to the option except that in the
case of call options on U.S. Treasury Bills, the Fund might own U.S. Treasury
Bills of a different series from those underlying the call option, but with a
principal amount and value corresponding to the exercise price and a maturity
date not later than that of the securities deliverable under the call option.
A call option is also covered if the Fund holds a call on the same security
as the underlying security of the written option, where the exercise price of
the call used for coverage is equal to or less than the exercise price of the
call written or greater than the exercise price of the call written if the
mark to market difference is maintained by the Fund in cash, U.S. Government
securities or other 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 alone. Moreover, the
premium received will offset a portion of the potential loss incurred by the
Fund if the securities underlying the option are ultimately sold by the Fund
at a loss. The premium received will fluctuate with varying economic market
conditions. If the market value of the portfolio securities upon which call
options have been written increases, the Fund may receive less total return
from the portion of its portfolio upon which calls have been written than it
would have had such call not been written.
During the option period, the Fund may be required, at any time, to
deliver the underlying security against payment of the exercise price on any
calls it has written (exercise of certain listed options may be limited to
specific expiration dates). This obligation is terminated upon the expiration
of the option period or at such earlier time when the writer effects a
closing purchase transaction. A closing purchase transaction is accomplished
by purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.
13
<PAGE>
Closing purchase transactions are ordinarily effected to realize a profit
on an outstanding call option to prevent an underlying security from being
called, to permit the sale of an underlying security or to enable the Fund to
write another call option on the underlying security with either a different
exercise price or expiration date or both. Also, effecting a closing purchase
transaction will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments by the
Fund. The Fund may realize a net gain or loss from a closing purchase
transaction depending upon whether the amount of the premium received on the
call option is more or less than the cost of effecting the closing purchase
transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of
the underlying security. Conversely, a gain resulting from a closing purchase
transaction could be offset in whole or in part or exceeded by a decline in
the market value of the underlying security.
If a written call option expires unexercised, the Fund realizes a gain in
the amount of the premium on the option less the commission paid. Such a
gain, however, may be offset by depreciation in the market value of the
underlying security during the option period. If a written call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security equal to the difference between the purchase price of the underlying
security and the proceeds of the sale of the security plus the premium
received on the option less the commission paid.
Options written by a Fund normally have expiration dates of from up to
nine months (equity securities) to eighteen months (fixed-income securities)
from the date written. The exercise price of a call option may be below,
equal to or above the current market value of the underlying security at the
time the option is written. See "Risks of Options and Futures Transactions,"
below.
Covered Put Writing. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period,
at the purchaser's election (certain listed put options written by the Fund
will be exercisable by the purchaser only on a specific date). A put is
"covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other 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, 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). During the option period, the Fund may be required, at any
time, to make payment of the exercise price against delivery of the
underlying security. The operation of and limitations on covered put options
in other respects are substantially identical to those of call options.
The Fund will write put options for two purposes: (1) to receive the
income derived from the premiums paid by purchasers; and (2) when the
Investment Manager wishes to purchase the security underlying the option at a
price lower than its current market price, in which case it will write the
covered put at an exercise price reflecting the lower purchase price sought.
The potential gain on a covered put option is limited to the premium received
on the option (less the commissions paid on the transaction) while the
potential loss equals the difference between the exercise price of the option
and the current market price of the underlying securities when the put is
exercised, offset by the premium received (less the commissions paid on the
transaction).
Purchasing Call and Put Options. As stated in the Prospectus, the Fund
may purchase listed and OTC call and put options on securities and stock
indexes in amounts equalling up to 5% of its total assets. The Fund may
purchase call options only in order to close out a covered call position (see
"Covered Call Writing" above). The purchase of a call option to effect a
closing transaction on a call
14
<PAGE>
written over-the-counter may be a listed or OTC option. In either case, the
call purchased is likely to be on the same securities and have the same terms
as the written option. If purchased over-the-counter, the option would
generally be acquired from the dealer or financial institution which
purchased the call written by the Fund.
The Fund may purchase put options on securities which it holds (or has the
right to acquire) in its portfolio only to protect itself against a decline
in the value of the security. If the value of the underlying security were to
fall below the exercise price of the put purchased in an amount greater than
the premium paid for the option, the Fund would incur no additional loss. The
Fund may also purchase put options to close out written put positions in a
manner similar to call options closing purchase transactions. In addi-tion,
the Fund may sell a put option which it has previously purchased prior to the
sale of the securities underlying such option. Such a sale would result in a
net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid on the put option
which is sold. And such gain or loss could be offset in whole or in part by a
change in the market value of the underlying security. If a put option
purchased by the Fund expired without being sold or exercised, the premium
would be lost.
Risks of Options Transactions. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security increase, but has retained the risk of loss should
the price of the underlying security decline. The secured put writer also
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option less the premium received on
the sale of the option. In both cases, the writer has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver or receive the underlying securities at the
exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction, it cannot
sell the underlying security until the option expires or the option is
exercised. Accordingly, a covered call option writer may not be able to sell
an underlying security at a time when it might otherwise be advantageous to
do so. A secured put option writer who is unable to effect a closing purchase
transaction would continue to bear the risk of decline in the market price of
the underlying security until the option expires or is exercised. In
addition, a secured put writer would be unable to utilize the amount held in
cash or U.S. government or other 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. However, the Fund may be able to purchase an
offsetting option which does not close out its position as a writer but
constitutes an asset of equal value to the obligation under the option
written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to
maintain the securities subject to the call, or the collateral underlying the
put, even though it might not be advantageous to do so, until a closing
transaction can be entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes
or series of options or underlying securities; (iv) interruption of the
normal operations on an Exchange; (v) inadequacy of the facilities of an
Exchange or the OCC to handle current trading volume; or (vi) a decision by
one or more Exchanges to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market on that
Exchange (or in that class or series of options) would cease to exist,
although outstanding options on that Exchange that had been issued by the OCC
as a result of trades on that Exchange would generally continue to be
exercisable in accordance with their terms.
15
<PAGE>
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur
a loss of all or part of its margin deposits with the broker. Similarly, in
the event of the bankruptcy of the writer of an OTC option purchased by the
Fund, the Fund could experience a loss of all or part of the value of the
option. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Investment Manager.
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written
on one or more accounts or through one or more brokers). An Exchange may
order the liquidation of positions found to be in violation of these limits
and it may impose other sanctions or restrictions. These position limits may
restrict the number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
Futures Contracts. As stated in the Prospectus, the Fund may purchase and
sell interest rate and stock index futures contracts ("futures contracts")
that are traded on U.S. commodity exchanges on such underlying securities as
U.S. Treasury bonds, notes, bills and GNMA Certificates ("interest rate"
futures) and such indexes as the S&P 500 Index, the Moody's Investment-Grade
Corporate Bond Index and the New York Stock Exchange Composite Index ("index"
futures).
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of
the underlying obligation at a specified time in return for an agreed upon
price.
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) securities against changes in prevailing interest
rates. If the Investment Manager anticipates that interest rates may rise
and, concomitantly, the price of fixed-income securities falls, the Fund may
sell an interest rate futures contract or a bond index futures contract. If
declining interest rates are anticipated, the Fund may purchase an interest
rate futures contract to protect against a potential increase in the price of
U.S. Government securities the Fund intends to purchase. Subsequently,
appropriate fixed-income securities may be purchased by the Fund in an
orderly fashion; as securities are purchased, corresponding futures positions
would be terminated by offsetting sales of contracts.
The Fund will purchase or sell stock index futures contracts for the
purpose of hedging its equity portfolio (or anticipated portfolio) securities
against changes in their prices. If the Investment Manager anticipates that
the prices of stock held by the Fund may fall, the Fund may sell a stock
index futures contract. Conversely, if the Investment Manager wishes to hedge
against anticipated price rises in those stocks which the Fund intends to
purchase, the Fund may purchase stock index futures contracts. In addition,
interest rate and stock index futures contracts will be bought or sold in
order to close out a short or long position in a corresponding futures
contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Stock index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open
or close of the last trading day of the contract and the futures contract
price. A futures contract sale is closed out by effecting a futures contract
purchase for the same aggregate amount of the specific type of equity
security and the same delivery date. If the sales price exceeds the
offsetting purchase price, the seller would be paid the difference and would
realize a gain. If the offsetting purchase price exceeds the sale price, the
seller would pay the
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<PAGE>
difference and would realize a loss. Similarly, a futures contract purchase
is closed out by effecting a futures contract sale for the same aggregate
amount of the specific type of security and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize
a gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss. There is no assurance that the Fund will be
able to enter into a closing transaction.
Interest Rate Futures Contracts. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or
other 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 of cash or U.S. Government securities called "variation margin,"
with the Fund's futures contract clearing broker, which are reflective of
price fluctuations in the futures contract. Currently, interest rate futures
contracts can be purchased on debt securities such as U.S. Treasury Bills and
Bonds, U.S. Treasury Notes with Maturities between 6 1/2 and 10 years, GNMA
Certificates and Bank Certificates of Deposit.
Index Futures Contracts. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future
time. An index futures contract purchase would create an obligation by the
Fund, as purchaser, to take delivery of cash at a specified future time.
Futures contracts on indexes do not require the physical delivery of
securities, but provide for a final cash settlement on the expiration date
which reflects accumulated profits and losses credited or debited to each
party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in
the form of variation margin payments. The Fund may be required to make
additional margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required
to be paid by or released to the Fund and the Fund realizes a loss or a gain.
Currently, index futures contracts can be purchased or sold with respect
to, among others, the Standard & Poor's 500 Stock Price Index and the
Standard & Poor's 100 Stock Price Index on the Chicago Mercantile Exchange,
the New York Stock Exchange Composite Index on the New York Futures Exchange,
the Major Market Index on the American Stock Exchange, the Value Line Stock
Index on the Kansas City Board of Trade and the Moody's Investment-Grade
Corporate Bond Index on the Chicago Board of Trade.
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
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to the holder of the option is accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount
by which the market price of the futures contract at the time of exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of
a futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, the
Investment Manager wished to protect against an increase in interest rates
and the resulting negative impact on the value of a portion of its
fixed-income portfolio, it might write a call option on an interest rate
futures contract, the underlying security of which correlates with the
portion of the portfolio the Investment Manager seeks to hedge. Any premiums
received in the writing of options on futures contracts may, of course,
augment the total return of the Fund and thereby provide a further hedge
against losses resulting from price declines in portions of the Fund's
portfolio.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in initial margin deposits.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid
for premiums for unexpired options on futures contracts exceeds 5% of the
value of the Fund's total assets, after taking into account unrealized gains
and unrealized losses on such contracts it has entered into, provided,
however, that in the case of an option that is in-the-money (the exercise
price of the call (put) option is less (more) than the market price of the
underlying security) at the time of purchase, the in-the-money amount may be
excluded in calculating the 5%. However, there is no overall limitation on
the percentage of the Fund's assets which may be subject to a hedge position.
Except as described above, there are no other limitations on the use of
futures and options thereon by the Fund. With respect to futures and options
on futures contracts, segregated accounts will be maintained consisting of
cash or liquid portfolio securities with a value (marked-to-market daily)
equal to the dollar amount of the Fund's purchase or sale obligation under
such contracts.
Risks of Transactions in Futures Contracts and Related Options. The Fund
may sell a futures contract to protect against the decline in the value of
securities held by the Fund. However, it is possible that the futures market
may advance and the value of securities held in the portfolio of the Fund may
decline. If this occurred, the Fund would lose money on the futures contract
and also experience a decline in value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree,
over time the value of a diversified portfolio will tend to move in the same
direction as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Investment Manager may determine not to invest in the
securities as planned and will realize a loss on the futures contract that is
not offset by a reduction in the price of the securities.
If the Fund maintains a short position in a futures contract or has sold a
call option in a futures contract, it will cover this position by holding, in
a segregated account maintained at its Custodian, cash, 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.
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
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purchase price of the contract or the exercise price of the put option (less
the amount of initial or variation margin on deposit) in a segregated account
maintained for the Fund by its Custodian. Alternatively, the Fund could cover
its long position by purchasing a put option on the same futures contract
with an exercise price as high or higher than the price of the contract held
by the Fund.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments
underlying interest rate futures contracts it holds at a time when it is
disadvantageous to do so. The inability to close out options and futures
positions could also have an adverse impact on the Fund's ability to
effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through
the broker and/or incur a loss of all or part of its margin deposits with the
broker. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Investment Manager.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of
the securities which are the subject of the hedge. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the securities and futures markets could result.
Price distortions could also result if investors in futures contracts opt to
make or take delivery of underlying securities rather than engage in closing
transactions due to the resultant reduction in the liquidity of the futures
market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions.
Due to the possibility of price distortions in the futures market and because
of the imperfect correlation between movements in the prices of securities
and movements in the prices of futures contracts, a correct forecast of stock
price or interest rate trends by the Investment Manager may still not result
in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for
futures contracts and related options in which the Fund may invest. In the
event a liquid market does not exist, it may not be possible to close out a
futures position and, in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin. In
addition, limitations imposed by an exchange or board of trade on which
futures contracts are traded may compel or prevent the Fund from closing out
a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to
make or take delivery of the underlying securities at a time when it may be
disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the
purchase 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.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested
or used for payments of obligations of the Fund. These agreements, which may
be viewed as a type of secured lending by the Fund, typically involve the
acquisition by the Fund of debt securities from a selling financial
institution such as a bank,
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<PAGE>
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 the
collateral are not subject to any limits.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time the Fund may purchase securities on a when-issued or
delayed delivery basis or may purchase or sell securities on a forward
commitment basis. When such transactions are negotiated, the price is fixed
at the time of the commitment, but delivery and payment can take place a
month or more after the date of commitment. While the Fund will only purchase
securities on a when-issued, delayed delivery or forward commitment basis
with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date, if it is deemed advisable. The
securities so purchased or sold are subject to market fluctuation and no
interest or dividends accrue to the purchaser prior to the settlement date.
At the time the Fund makes the commitment to purchase or sell securities on a
when-issued, delayed delivery or forward commitment basis, it will record the
transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be
more or less than the purchase or sale price. The Fund will also establish a
segregated account with its custodian bank in which it will continually
maintain cash or cash equivalents or other liquid portfolio securities equal
in value to commitments to purchase securities on a when-issued, delayed
delivery or forward commitment basis.
WHEN, AS AND IF ISSUED SECURITIES
The Fund may purchase securities on a "when, as and if issued" basis under
which the issuance of the security depends upon the occurrence of a
subsequent event, such as approval of a merger, corporate reorganization or
debt restructuring. The commitment for the purchase of any such security will
not be recognized in the portfolio of the Fund until the Investment Manager
determines that issuance of the security is probable. At such time, the Fund
will record the transaction and, in determining its net asset value, will
reflect the value of the security daily. At such time, the Fund will also
establish a segregated account with its custodian bank in which it will
maintain cash or cash equivalents or other liquid portfolio securities equal
in value to recognized commitments for such securities. The value of the
Fund's commitments to purchase the securities of any one issuer, together
with the value of all securities of such issuer owned by the Fund, may not
exceed 5% of the value of the Fund's total assets at the time the initial
commitment to purchase such securities is made (see "Investment
Restrictions"). An increase in the percentage of the Fund's assets committed
to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value. The Investment Manager and
the Trustees do not believe that the net asset value of the Fund will be
adversely affected by its purchase of securities on such basis. The Fund may
also sell securities on a "when, as and if issued" basis provided that the
issuance of the security will result automatically from the exchange or
conversion of a security owned by the Fund at the time of sale.
RULE 144A SECURITIES
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by
the Fund. The procedures require that the following factors be taken into
account in making a liquidity determination: (1) the
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frequency of trades and price quotes for the security; (2) the number of
dealers and other potential purchasers who have issued quotes on the
security; (3) any dealer undertakings to make a market in the security; and
(4) the nature of the security and the nature of the marketplace trades (the
time needed to dispose of the security, the method of soliciting offers, and
the mechanics of transfer). If a restricted security is determined to be
"liquid," such security will not be included within the category "illiquid
securities," which under current policy may not exceed 10% of the Fund's net
assets.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate will not exceed
100%. A 100% turnover rate would occur, for example, if 100% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced
within one year. During the period ended January 31, 1996 and the fiscal year
ended January 31, 1997, the portfolio turnover rates for the Fund were 2% and
16%, respectively.
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. Invest in securities of any issuer if, in the exercise of reasonable
diligence, the Fund has determined that any officer or trustee/director of
the Fund or of the Investment Manager owns more than 1/2 of 1% of the
outstanding securities of such issuer, and such officers and
trustees/directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
2. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.
3. Purchase or sell commodities except that the Fund may purchase or sell
(write) futures contracts and related options.
4. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in
the securities of companies which operate, invest in, or sponsor such
programs.
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
6. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
7. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(6). For the purpose of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect
to initial or variation margin for futures are not deemed to be pledges of
assets.
8. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement; (b) borrowing money in accordance
with restrictions described above.
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9. Make loans of money or securities, except: (a) by the purchase of debt
obligations in which the Fund may invest consistent with its investment
objective and policies; (b) by investment in repurchase agreements.
10. Make short sales of securities.
11. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the
purchase of a security on margin.
12. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
13. Invest for the purpose of exercising control or management of any
other issuer.
In addition, the Fund, as a non-fundamental policy, will not invest more
than 5% of the value of its net assets in warrants, including not more than
2% of such assets in warrants not listed on the New York or American Stock
Exchange. However, the acquisition of warrants attached to other securities
is not subject to this restriction.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially
all of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- -----------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the
Investment Manager is responsible for decisions to buy and sell securities
for the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. The Fund also
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation, generally referred
to as the underwriter's concession or discount. Options and futures
transactions will usually be effected through a broker and a commission will
be charged. On occasion, the Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or
discounts are paid.
Many of the Fund's portfolio transactions will occur primarily with
issuers, underwriters or major dealers in U.S. Government Securities acting
as principals. Such transactions are normally on a net basis which do not
involve payment of brokerage commissions. The cost of securities purchased
from an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between
bid and asked prices.
The Investment Manager currently serves as investment manager to a number
of clients, including other investment companies, and may in the future act
as investment manager or adviser to others. It is the practice of the
Investment Manager to cause purchase and sale transactions to be allocated
among the Fund and others whose assets it manages in such manner as it deems
equitable. In making such allocations among the Fund and other client
accounts, various factors may be considered, including the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client
accounts. In the case of certain initial and secondary public offerings, the
Investment Manager may utilize a pro rata allocation process based on the
size of the Dean Witter Funds involved and the number of shares available
from the public offering.
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.
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<PAGE>
Consistent with this policy, when securities transactions are effected on a
stock exchange, the Fund's policy is to pay commissions which are considered
fair and reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the Fund and the Investment
Manager from obtaining a high quality of brokerage and research services. In
seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Investment Manager relies upon its experience and knowledge
regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for those
services is not ascertainable.
In seeking to implement the Fund's policies, the Investment Manager
effects transactions with those brokers and dealers who the Investment
Manager believes provide the most favorable prices and are capable of
providing efficient executions. If the Investment Manager believes such
prices and executions are obtainable from more than one broker or dealer, it
may give consideration to placing portfolio transactions with those brokers
and dealers who also furnish research and other services to the Fund or the
Investment Manager. Such services may include, but are not limited to, any
one or more of the following: information as to the availability of
securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or
evaluations of portfolio securities. During the period March 28, 1995
(commencement of operations) through January 31, 1996 and the fiscal year
ended January 31, 1997, the Fund paid a total of $27,484 and $63,397,
respectively, in brokerage commissions.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager in the
management of accounts of some of its other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of
research or services otherwise performed by the Investment Manager and
thereby reduce its expenses, it is of indeterminable value and the management
fee paid to the Investment Manager is not reduced by any amount that may be
attributable to the value of such services. During the fiscal year ended
January 31, 1997, the Fund directed the payment of $18,745 in brokerage
commissions in connection with transactions in the aggregate amount of
$14,225,681 to brokers in connection with 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. During the period ended January 31,
1996 and the fiscal year ended January 31, 1997, the Fund did not effect any
principal transactions with DWR.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR and other affiliated brokers and dealers. In order
for an affiliated broker or dealer to effect any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on an exchange during a comparable period of time. This standard would
allow the affiliated broker or dealer to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker
in a commensurate arm's-length transaction. Furthermore, the Board of
Trustees of the Fund, including a majority of the Trustees who are not
"interested" persons of the Fund, as defined in the Act, have adopted
procedures which are reasonably designed to provide that any commissions,
fees or other remuneration paid to an affiliated broker or dealer are
consistent with the foregoing standard. The Fund renumeration paid to an
affiliated broker or dealer are consistent with the foregoing standard. The
Fund does not reduce the management fee it pays to the Investment Manager by
the amount of the brokerage
23
<PAGE>
commissions it may pay to an affiliated broker or dealer. During the period
ended January 31, 1996 and the fiscal year ended January 31, 1997, the Fund
paid a total of $26,380 and $44,062, respectively, in brokerage commissions
to DWR. During the fiscal year ended January 31, 1997, the brokerage
commissions paid to DWR represented approximately 69.50% of the total
brokerage commissions paid by the Fund during the year and were paid on
account of transactions having an aggregate dollar value equal to
approximately 74.40% of the aggregate dollar value of all portfolio
transactions of the Fund during the year for which commissions were paid.
THE DISTRIBUTOR
- -----------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered
into a selected dealer agreement with DWR, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into selected dealer agreements with other selected broker-dealers. The
Distributor, a Delaware corporation, is a wholly-owned subsidiary of MSDWD.
The Trustees 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 June 30, 1997, the current Distribution Agreement appointing the
Distributor as exclusive distributor of the Fund's shares and providing for
the Distributor to bear distribution expenses not borne by the Fund. By its
terms, the Distribution Agreement has an initial term ending April 30, 1998
and will remain in effect from year to year thereafter if approved by the
Board.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
account executives. The Distributor also pays certain expenses in connection
with the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears
the costs of initial typesetting, printing and distribution of prospectuses
and supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal securities laws and pays
filing fees in accordance with state securities laws. The Fund and the
Distributor have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment
or mistake of law or for any act or omission or for any losses sustained by
the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan") pursuant to which each Class, other than Class D, pays
the Distributor compensation accrued daily and payable monthly at the
following annual rates: 0.25%, 1.0% and 1.0% of the average daily net assets
of Class A, Class B and Class C, respectively. The Distributor also receives
the proceeds of front-end sales charges and of contingent deferred sales
charges imposed on certain redemptions of shares, which are separate and
apart from payments made pursuant to the Plan (see "Purchase of Fund Shares"
in the Prospectus).
The Distributor has informed the Fund that the entire fee payable by Class
A and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class's average daily net assets
are currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers, Inc. (of which
the Distributor is a member). The "service fee" is a payment made for
personal service and/or the maintenance of shareholder accounts. The
remaining portion of the Plan fees payable by a Class, if any, is
characterized as an "asset-based sales charge" as such is defined by the
aforementioned Rules of the Association.
24
<PAGE>
The Plan was adopted by a majority vote of the Board of Trustees,
including all of the Trustees of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan (the "Independent 12b-1 Trustees"),
cast in person at a meeting called for the purpose of voting on the Plan, on
January 25, 1995, and by InterCapital as the then sole shareholder of the
Fund, on February 16, 1995. At their meeting held on June 30, 1997, the
Trustees, including a majority of the Independent 12b-1 Trustees, approved
amendments to the Plan to reflect the multiple-class structure for the Fund,
which took effect on July 28, 1997.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report
provided by the Distributor of the amounts expended under the Plan and the
purpose for which such expenditures were made. The Investment Manager had
undertaken to assume all operating expenses (except for any brokerage fees)
and waive the compensation provided for in its Investment Management
Agreement until such time as the Fund attained $50 million in net assets or
until March 31, 1996, whichever occurred first. The Fund began paying fees on
February 9, 1996 at which time the Fund attained $50 million in net assets.
During the fiscal year ended January 31, 1997, the Fund accrued to the
Distributor under the Plan $812,219, of which the fee payable after the
waiver that had been in effect prior to February 9, 1996 was $801,731. This
amount represents amounts payable by Class C only; there were no Class A or
Class B shares outstanding on such date.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set
forth in the Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the account executives or
dealers of record in all cases. On orders of $1 million or more (for which no
sales charge was paid) or net asset value purchases by 401(k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which Dean Witter Trust Company ("DWTC") or Dean Witter
Trust FSB ("DWTFSB") serves as Trustee or the 401(k) Support Services Group
of DWR serves as recordkeeper, the Investment Manager compensates DWR's
account executives by paying them, from its own funds, a gross sales credit
of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission,
currently a residual of up to 0.25% of the current value of the respective
accounts for which they are the account executives of record in all cases. In
the case of retirement plans qualified under Section 401(k) of the Internal
Revenue Code and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code for which DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper,
and which plans are opened on or after July 28, 1997, DWR compensates its
account executives by paying them, from its own funds, a gross sales credit
of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value
of the respective accounts for which they are the account executives of
record.
With respect to Class D shares other than shares held by participants in
the InterCapital mutual fund asset allocation program, the Investment Manager
compensates DWR's account executives by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of
up to 1.0% of the amount sold. There is a chargeback of 100% of the amount
paid if the Class D shares are redeemed in the first year and a chargeback of
50% of the amount paid if the Class D shares are
25
<PAGE>
redeemed in the second year after purchase. The Investment Manager also
compensates DWR's account executives by paying them, from its own funds, an
annual residual commission, currently a residual of up to 0.10% of the
current value of the respective accounts for which they are the account
executives of record (not including accounts of participants in the
InterCapital mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR
to its account executives and DWR's Fund-associated distribution-related
expenses, including sales compensation, and overhead and other branch office
distribution-related expenses including (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery
and supplies, (b) the costs of client sales seminars, (c) travel expenses of
mutual fund sales coordinators to promote the sale of Fund shares and (d)
other expenses relating to branch promotion of Fund sales. The distribution
fee that the Distributor receives from the Fund under the Plan, in effect,
offsets distribution expenses incurred under the Plan on behalf of the Fund
and, in the case of Class B shares, opportunity costs, such as the gross
sales credit and an assumed interest charge thereon ("carrying charge"). In
the Distributor's reporting of the distribution expenses to the Fund, in the
case of Class B shares, such assumed interest (computed at the "broker's call
rate") has been calculated on the gross credit as it is reduced by amounts
received by the Distributor under the Plan and any contingent deferred sales
charges received by the Distributor upon redemption of shares of the Fund. No
other interest charge is included as a distribution expense in the
Distributor's calculation of its distribution costs for this purpose. The
broker's call rate is the interest rate charged to securities brokers on
loans secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments
at the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case
of Class A, and 1.0%, in the case of Class C, of the average net assets of
the respective Class during the month. No interest or other financing
charges, if any, incurred on any distribution expenses on behalf of Class A
and Class C will be reimbursable under the Plan. With respect to Class A, in
the case of all expenses other than expenses representing the service fee,
and, with respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to account executives, such
amounts shall be determined at the beginning of each calendar quarter by the
Trustees, including a majority of the Independent 12b-1 Trustees. Expenses
representing the service fee (for Class A) or a gross sales credit or a
residual to account executives (for Class C) may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall
be reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Trustees will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund,
together with a report explaining the purposes and anticipated benefits of
incurring such expenses. The Trustees will determine which particular
expenses, and the portions thereof, that may be borne by the Fund, and in
making such a determination shall consider the scope of the Distributor's
commitment to promoting the distribution of the Fund's Class A and Class C
shares.
The Fund accrued $812,219 to the Distributor pursuant to the Plan, of
which the fee payable after the waiver was $801,731, for its fiscal year
ended January 31, 1997. Based upon the total amounts spent by the Distributor
during the period, it is estimated that the amount paid by the Fund for
distribution was spent in approximately the following ways: (i)
advertising--$-0-; (ii) printing and mailing prospectuses to other than
current shareholders--$-0-; (iii) compensation to underwriters--$-0-; (iv)
compensation to dealers--$-0-; (v) compensation to sales personnel--$-0-; and
(vi) other, which includes payments to DWR for expenses substantially all of
which relate to compensation of sales personnel--$801,731. These amounts
represent amounts paid by Class C only; there were no Class A or Class B
shares outstanding on such date.
26
<PAGE>
At any given time, the expenses of distributing shares of the Fund may be
more or less than the total of (i) the payments made by the Fund pursuant to
the Plan and (ii) the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares. Because there is no requirement under
the Plan that the Distributor be reimbursed for all distribution expenses
with respect to Class B shares or any requirement that the Plan be continued
from year to year, this excess amount does not constitute a liability of the
Fund. Although there is no legal obligation for the Fund to pay expenses
incurred in excess of payments made to the Distributor under the Plan and the
proceeds of contingent deferred sales charges paid by investors upon
redemption of shares, if for any reason the Plan is terminated, the Trustees
will consider at that time the manner in which to treat such expenses. Any
cumulative expenses incurred, but not yet recovered through distribution fees
or contingent deferred sales charges, may or may not be recovered through
future distribution fees or contingent deferred sales charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that the Distributor, InterCapital, DWSC, DWR or certain of their employees
may be deemed to have such an interest as a result of benefits derived from
the successful operation of the Plan or as a result of receiving a portion of
the amounts expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1995 and
will continue from year to year thereafter, provided such continuance is
approved annually by a vote of the Trustees in the manner described above.
Prior to the Board's approval of amendments to the Plan to reflect the
multiple-class structure for the Fund, the most recent continuance of the
Plan for one year, until April 30, 1998, was approved by the Board of
Trustees of the Fund, including a majority of the Independent 12b-1 Trustees,
at a Board meeting held on April 24, 1997. Prior to approving the
continuation of the Plan, the 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 to the Fund and its
shareholders. Based upon their review, the Trustees of the Fund, including
each of the Independent 12b-1 Trustees, determined that continuation of the
Plan would be in the best interest of the Fund and would have a reasonable
likelihood of continuing to benefit the Fund and its shareholders. In the
Trustees' quarterly review of the Plan, they will consider its continued
appropriateness and the level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of
the affected Class or Classes of the Fund, and all material amendments of the
Plan must also be approved by the Trustees in the manner described above. The
Plan may be terminated at any time, without payment of any penalty, by vote
of a majority of the Independent 12b-1 Trustees or by a vote of a majority of
the outstanding voting securities of the Fund (as defined in the Act) on not
more than thirty days' written notice to any other party to the Plan. So long
as the Plan is in effect, the election and nomination of Independent Trustees
shall be committed to the discretion of the Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
- -----------------------------------------------------------------------------
As stated in the Prospectus, short-term securities with remaining
maturities of sixty days or less at the time of purchase are valued at
amortized cost, unless the Trustees determine such does not reflect the
securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty days, whereupon they will be valued at
amortized cost using their value on the 61st day unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. 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
27
<PAGE>
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 for each Class of shares of the Fund is
determined once daily at 4:00 p.m. New York time (or, on days when the New
York Stock Exchange closes prior to 4:00 p.m., at such earlier time) on each
day that the New York Stock Exchange. 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.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without
an initial sales charge are subject to a contingent deferred sales charge
("CDSC") of 1.0% if redeemed within one year of purchase, except in the
circumstances discussed in the Prospectus.
Right of Accumulation. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for
purchases of shares of the Fund totalling at least $25,000 in net asset
value. For example, if any person or entity who qualifies for this privilege
holds Class A shares of the Fund and/or other Dean Witter Funds that are
multiple class funds ("Dean Witter Multi-Class Funds") or shares of other
Dean Witter Funds sold with a front-end sales charge purchased at a price
including a front-end sales charge having a current value of $5,000, and
purchases $20,000 of additional shares of the Fund, the sales charge
applicable to the $20,000 purchase would be 4.75% of the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the selected broker-dealer or
shareholder when such an order is placed by mail. The reduced sales charge
will not be granted if: (a) such notification is not furnished at the time of
the order; or (b) a review of the records of the Distributor or Dean Witter
Trust Company (the "Transfer Agent") fails to confirm the investor's
represented holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges
are available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase of Class A shares made during the period will receive the
reduced sales commission applicable to the amount represented by the goal, as
if it were a single purchase. A number of shares equal in value to 5% of the
dollar amount of the Letter of Intent will be held in escrow by the Transfer
Agent, in the name of the shareholder. The initial purchase under a Letter of
Intent must be equal to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to
pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the
Distributor is authorized by the shareholder to liquidate a sufficient number
of his or her escrowed shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced
sales charges in the same manner as set forth above under "Right of
Accumulation," but there will be no retroactive reduction of sales charges on
previous purchases. For the
28
<PAGE>
purpose of determining whether the investor is entitled to a further reduced
sales charge applicable to purchases at or above a sales charge level which
exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other Dean Witter
Funds held by the shareholder which were previously purchased at a price
including a front-end sales charge (including shares of the Fund and other
Dean Witter Funds acquired in exchange for those shares, and including in
each case shares acquired through reinvestment of dividends and
distributions) will be added to the cost or net asset value of shares of the
Fund owned by the investor. However, shares of "Exchange Funds" (see
"Shareholder Services--Exchange Privilege") and the purchase of shares of
other Dean Witter Funds will not be included in determining whether the
stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As
stated in the Prospectus, a CDSC will be imposed on any redemption by an
investor if after such redemption the current value of the investor's Class B
shares of the Fund is less than the dollar amount of all payments by the
shareholder for the purchase of Class B shares during the preceding six years
(or, in the case of shares held by certain employer-sponsored benefit plans,
three years). However, no CDSC will be imposed to the extent that the net
asset value of the shares redeemed does not exceed: (a) the current net asset
value of shares purchased more than six years (or, in the case of shares held
by certain employer-sponsored benefit plans, three years) prior to the
redemption, plus (b) the current net asset value of shares purchased through
reinvestment of dividends or distributions of the Fund or another Dean Witter
Fund (see "Shareholder Services--Targeted Dividends"), plus (c) the current
net asset value of shares acquired in exchange for (i) shares of Dean Witter
front-end sales charge funds, or (ii) shares of other Dean Witter Funds for
which shares of front-end sales charge funds have been exchanged (see
"Shareholder Services--Exchange Privilege"), plus (d) increases in the net
asset value of the investor's shares above the total amount of payments for
the purchase of Fund shares made during the preceding six (three) years. The
CDSC will be paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the
amount which represents an increase in the net asset value of the investor's
shares above the amount of the total payments for the purchase of shares
within the last six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) will be redeemed first. In the
event the redemption amount exceeds such increase in value, the next portion
of the amount redeemed will be the amount which represents the net asset
value of the investor's shares purchased more than six (three) years prior to
the redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of Dean Witter
front-end sales charge funds, or for shares of other Dean Witter funds for
which shares of front-end sales charge funds have been exchanged. A portion
of the amount redeemed which exceeds an amount which represents both such
increase in value and the value of shares purchased more than six years (or,
in the case of shares held by certain employer-sponsored benefit plans, three
years) prior to the redemption and/or shares purchased through reinvestment
of dividends or distributions and/or shares acquired in the above-described
exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number
of years from the time of any payment for the purchase of shares, all
payments made during a month will be aggregated and deemed to have been made
on the last day of the month. The following table sets forth the rates of the
CDSC applicable to most Class B shares of the Fund:
29
<PAGE>
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- --------------------------- ------------------------
<S> <C>
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund held by 401(k) plans or other employer-sponsored plans
qualified under Section 401(a) of the Internal Revenue Code for which DWTC or
DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper and whose accounts are opened on or after July 28, 1997:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------- ------------------------
<S> <C>
First .................... 2.0%
Second ................... 2.0%
Third .................... 1.0%
Fourth and thereafter .... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year or three-year period. This will result in any such
CDSC being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years
(or, in the case of shares held by certain employer-sponsored benefit plans,
three years) of purchase which are in excess of these amounts and which
redemptions do not qualify for waiver of the CDSC, as described in the
Prospectus.
Shares of the Fund held prior to July 28, 1997 that were acquired in
exchange for shares of Dean Witter Global Short-Term Income Fund Inc., Dean
Witter National Municipal Trust or Dean Witter High Income Securities and
have accordingly been designated Class B shares shall be subject to the lower
CDSC schedule applicable to that fund unless (i) such shares are subsequently
exchanged for shares of a fund with a higher CDSC schedule or (ii) having
been exchanged for shares of an Exchange Fund (as defined below in
"Shareholder Services -- Exchange Privilege") are re-exchanged back into the
Fund. Under such circumstances, the CDSC schedule applicable to shares of the
fund with the higher CDSC schedule acquired in the exchange will apply to
redemptions of such fund's shares or, in the case of shares of any of the
Exchange Funds acquired in an exchange and then subsequently re-exchanged
back into the Fund, the CDSC schedule set forth in the above tables will
apply to redemptions of any of such shares.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC
of 1.0% on most redemptions made within one year after purchase, except in
the circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund and maintained by the
Transfer Agent. This is an open account in which shares owned by the investor
are credited by the Transfer Agent in lieu of issuance of a share
30
<PAGE>
certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares
and may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder instituted
transaction takes place in the Shareholder Investment Account, the
shareholder will be mailed a confirmation of the transaction from the Fund or
from DWR or other selected broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of
the Fund, unless the shareholder requests that they be paid in cash. Each
purchase of shares of the Fund is made upon the condition that the Transfer
Agent is thereby automatically appointed as agent of the investor to receive
all dividends and capital gains distributions on shares owned by the
investor. Such dividends and distributions will be paid, at the net asset
value per share, in shares of the applicable Class of the Fund (or in cash if
the shareholder so requests) as of the close of business on the record date.
At any time an investor may request the Transfer Agent, in writing, to have
subsequent dividends and/or capital gains distributions paid to him or her in
cash rather than shares. To assure sufficient time to process the change,
such request should be received by the Transfer Agent at least five business
days prior to the record date of the dividend or distribution. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payments will be made to DWR or other
selected broker-dealer, and will be forwarded to the shareholder, upon the
receipt of proper instructions.
Targeted Dividends. (Service Mark) In states where it is legally
permissible, shareholders may also have all income dividends and capital
gains distributions automatically invested in shares of any Class of an
open-end Dean Witter Fund other than Dean Witter Balanced Growth Fund or in
another Class of Dean Witter Balanced Growth Fund. Such investment will be
made as described above for automatic investment in shares of the applicable
Class of the Fund, at the net asset value per share of the selected Dean
Witter Fund as of the close of business on the payment date of the dividend
or distribution and will begin to earn dividends, if any, in the selected
Dean Witter Fund the next business day. To participate in the Targeted
Dividends program, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent. Shareholders of the
Fund must be shareholders of the selected Class of the Dean Witter Fund
targeted to receive investments from dividends at the time they enter the
Targeted Dividends program. Investors should review the prospectus of the
targeted Dean Witter Fund before entering the program.
EasyInvest. (Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated the same
business day the transfer of funds is effected. For further information or to
subscribe to EasyInvest, shareholders should contact their DWR or other
selected broker-dealer account executive or the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares
of the applicable Class at net asset value, without the imposition of a CDSC
upon redemption, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset
value per share next determined after receipt of the check or the 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
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then $25, or in any whole percentage of the account balance, on an annualized
basis. Any applicable CDSC will be imposed on shares redeemed under the
Withdrawal Plan (see "Purchase of Fund Shares"). Therefore, any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed
from his or her account so that the proceeds (net of any applicable CDSC) to
the shareholder will be the designated monthly or quarterly amount.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment designated in the application. The
shares will be redeemed at their net asset value determined, at the
shareholder's option, on the tenth or twenty-fifth day (or next following
business day) of the relevant month or quarter and normally a check for the
proceeds will be mailed by the Transfer Agent, or amounts credited to a
shareholder's DWR 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 sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the
account must send complete written instructions to the Transfer Agent to
enroll in the Withdrawal Plan. The shareholder's signature on such
instructions must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). A shareholder may, at any time, change the amount and interval of
withdrawal payments through his or her 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 any Class of shares of the
Fund for which they qualify at any time by sending a check in any amount, not
less than $100, payable to Dean Witter Balanced Growth Fund, and indicating
the selected Class, directly to the Fund's Transfer Agent. In the case of
Class A shares, after deduction of any applicable sales charge, the balance
will be applied to the purchase of Fund shares, and, in the case of shares of
the other Classes, the entire amount will be applied to the purchase of Fund
shares, at the net asset value per share next computed after receipt of the
check or purchase payment by the Transfer Agent. The shares so purchased will
be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of each Class of
shares of the Fund may exchange their shares for shares of the same Class of
shares of any other Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be exchanged for shares of any of the
following funds: Dean Witter Short-Term U.S. Treasury Trust, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter
Intermediate Term U.S. Treasury Trust and five Dean Witter Funds which are
money market funds (the foregoing nine funds are hereinafter referred to as
the "Exchange Funds"). Class A shares may also be exchanged for shares of
Dean Witter Multi-State Municipal Series Trust and Dean
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Witter Hawaii Municipal Trust, which are Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"). Class B shares may also be exchanged
for shares of Dean Witter Global Short-Term Income Fund Inc., Dean Witter
High Income Securities and Dean Witter National Municipal Trust, which are
Dean Witter Funds offered with a CDSC ("CDSC 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 caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number
of factors, including the number of years from the time of purchase until the
time of redemption or exchange ("holding period"). When shares of a Dean
Witter Multi-Class Fund or any CDSC Fund are exchanged for shares of an
Exchange Fund, the exchange is executed at no charge to the shareholder,
without the imposition of the CDSC at the time of the exchange. During the
period of time the shareholder remains in the Exchange Fund (calculated from
the last day of the month in which the Exchange Fund shares were acquired),
the holding period or "year since purchase payment made" is frozen. When
shares are redeemed out of the Exchange Fund, they will be subject to a CDSC
which would be based upon the period of time the shareholder held shares in a
Dean Witter Multi-Class Fund or in a CDSC Fund. However, in the case of
shares exchanged into an Exchange Fund on or after April 23, 1990, upon a
redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the
Exchange Fund 12b-1 distribution fees 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 Dean Witter Multi-Class Fund or a CDSC Fund from the Exchange
Fund, with no CDSC being imposed on such exchange. The holding period
previously frozen when shares were first exchanged for shares of the Exchange
Fund resumes on the last day of the month in which shares of a Dean Witter
Multi-Class Fund or 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 Dean Witter Multi-Class Fund or in a
CDSC Fund. In the case of exchanges of Class A shares which are subject to a
CDSC, the holding period also includes the time (calculated as described
above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or in a
CDSC Fund are exchanged for shares of a Dean Witter Multi-Class Fund, shares
of a CDSC Fund, shares of a FSC Fund, or shares of an Exchange Fund, the date
of purchase of the shares of the fund exchanged into, for purposes of the
CDSC upon redemption, will be the last day of the month in which the shares
being exchanged were originally purchased. In allocating the purchase
payments between funds for purposes of the CDSC, the amount which represents
the current net asset value of shares at the time of the exchange which were
(i) purchased more than one, three or six years (depending on the CDSC
schedule applicable to the shares) prior to the exchange, (ii) originally
acquired through reinvestment of dividends or distributions and (iii)
acquired in exchange for shares of FSC Funds, or for shares of other Dean
Witter Funds for which shares of FSC Funds have been exchanged (all such
shares called "Free Shares"), will be exchanged first. After an exchange, all
dividends earned on shares in an Exchange Fund will be considered Free
Shares. If the exchanged amount exceeds the value of such Free Shares, an
exchange is made, on a block-by-block basis, of non-Free Shares held for the
longest period of time (except that, with respect to Class B shares, if
shares held for identical periods of time but subject to different CDSC
schedules are held in the same Exchange Privilege account, the shares of that
block that are subject to
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a lower CDSC rate will be exchanged prior to the shares of that block that
are subject to a higher CDSC rate). Shares equal to any appreciation in the
value of non-Free Shares exchanged will be treated as Free Shares, and the
amount of the purchase payments for the non-Free Shares of the fund exchanged
into will be equal to the lesser of (a) the purchase payments for, or (b) the
current net asset value of, the exchanged non-Free Shares. If an exchange
between funds would result in exchange of only part of a particular block of
non-Free Shares, then shares equal to any appreciation in the value of the
block (up to the amount of the exchange) will be treated as Free Shares and
exchanged first, and the purchase payment for that block will be allocated on
a pro rata basis between the non-Free Shares of that block to be retained and
the non-Free Shares to be exchanged. The prorated amount of such purchase
payment attributable to the retained non-Free Shares will remain as the
purchase payment for such shares, and the amount of purchase payment for the
exchanged non-Free Shares will be equal to the lesser of (a) the prorated
amount of the purchase payment for, or (b) the current net asset value of,
those exchanged non-Free Shares. Based upon the procedures described in the
Prospectus under the caption "Purchase of Fund Shares," any applicable CDSC
will be imposed upon the ultimate redemption of shares of any fund,
regardless of the number of exchanges since those shares were originally
purchased. Shares of the Fund held prior to July 28, 1997 that were acquired
in exchange for shares of Dean Witter Global Short-Term Income Fund Inc.,
Dean Witter National Municipal Trust or Dean Witter High Income Securities
shall be subject to the lower CDSC schedule applicable to that fund unless
(i) such shares are subsequently exchanged for shares of a fund with a higher
CDSC schedule or (ii) having been exchanged for shares of an Exchange Fund
are re-exchanged back into the Fund. Under such circumstances, the CDSC
schedule applicable to the shares of the fund with the higher CDSC schedule
acquired in the exchange will apply to redemptions of such fund's shares or,
in the case of shares of any of the Exchange Funds acquired in an exchange
and then subsequently re-exchanged back into the Fund, the Fund's CDSC
schedule will apply to redemptions of any of such shares.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any
other of the funds and the general administration of the Exchange Privilege,
the Transfer Agent acts as agent for the Distributor and for the
shareholder's selected broker-dealer, if any, in the performance of such
functions. With respect to exchanges, redemptions or repurchases, the
Transfer Agent shall be liable for its own negligence and not for the default
or negligence of its correspondents or for losses in transit. The Fund shall
not be liable for any default or negligence of the Transfer Agent, the
Distributor or any selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Dean Witter Liquid
Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter New
York Municipal Money Market Trust and Dean Witter California Tax-Free Daily
Income Trust, although those funds may, at their discretion, accept initial
investments of as low as $1,000. The minimum initial investment for the
Exchange Privilege account of each Class is $10,000 for Dean Witter
Short-Term U.S. Treasury Trust, although that fund, in its discretion, may
accept initial investments of as low as $5,000. The minimum initial
investment for the Exchange Privilege account of each Class is $5,000 for
Dean Witter Special Value Fund. The minimum initial investment for the
Exchange Privilege account of each Class of all other Dean Witter Funds for
which the Exchange Privilege is available is $1,000.) Upon exchange into an
Exchange Fund, the shares of that fund will be held in a special Exchange
Privilege Account separately from accounts of those shareholders who have
acquired their shares directly from that fund. As a result, certain services
normally available to shareholders of those 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
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may be terminated or revised at any time by the fund and/or any of the Dean
Witter Funds for which shares of the Fund have been exchanged, upon such
notice as may be required by applicable regulatory agencies (presently sixty
days' prior written notice for termination or material revision), provided
that six months' prior written notice of termination will be given to the
shareholders who hold shares of an Exchange Fund, pursuant to this Exchange
Privilege and provided further that the Exchange Privilege may be terminated
or materially revised without notice at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, (d) during any other period
when the Securities and Exchange Commission by order so permits (provided
that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective, policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount
of any applicable CDSC. If shares are held in a shareholder's account without
a share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption. The share certificate, or
an accompanying stock power, and the request for redemption, must be signed
by the shareholder or shareholders exactly as the shares are registered. Each
request for redemption, whether or not accompanied by a share certificate,
must be sent to the Fund's Transfer Agent, which will redeem the shares at
their net asset value next computed (see "Purchase of Fund Shares" in the
Prospectus) 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.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other
than the record owner, or if the proceeds are to be paid to a corporation
(other than the Distributor or a selected broker-dealer for the account of
the shareholder), partnership, trust or fiduciary, or sent to the shareholder
at an address other than the registered address, signatures must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A stock
power may be obtained from any dealer or commercial bank. The Fund may change
the signature guarantee requirements from time to time upon notice to
shareholders, which may be by means of a new prospectus.
Repurchase. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by
DWR and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer
reduced by any applicable CDSC.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares of any Class presented for repurchase or
redemption will be made by check within seven days after receipt by the
Transfer Agent of the certificate and/or written request in good order. 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
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redemption suspended at times (a) when the New York Stock Exchange is closed
for other than customary weekends and holidays, (b) when trading on that
Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable
or it is not reasonably practicable for the Fund fairly to determine the
value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules
and regulations of the Securities and Exchange Commission shall govern as to
whether the conditions prescribed in (b) or (c) exist. If the shares to be
redeemed have recently been purchased by check, payment of the redemption
proceeds may be delayed for the minimum time needed to verify that the check
used for investment has been honored (not more than fifteen days from the
time of receipt of the check by the Transfer Agent). Shareholders maintaining
margin accounts with DWR or another selected broker-dealer are referred to
their account executive regarding restrictions on redemption of shares of the
Fund pledged in the margin account.
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the
length of time shares subject to the charge have been held), any transfer
involving less than all the shares in an account will be made on a pro rata
basis (that is, by transferring shares in the same proportion that the
transferred shares bear to the total shares in the account immediately prior
to the transfer). The transferred shares will continue to be subject to any
applicable CDSC as if they had not been so transferred.
Reinstatement Privilege. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 35 days after the date of
the redemption or repurchase, reinstate any portion or all of the proceeds of
such redemption or repurchase in shares of the Fund in the same Class at the
net asset value next determined after a reinstatement request, together with
such proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and
reinstatement is made in shares of the Fund, some or all of the loss,
depending on the amount reinstated, will not be allowed as a deduction for
federal income tax purposes but will be applied to adjust the cost basis of
the shares acquired upon reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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As discussed in the Prospectus under "Dividends, Distributions and Taxes,"
the Fund will determine either to distribute or to retain all or part of any
net long-term capital gains in any year for reinvestment. If any such gains
are retained, the Fund will pay federal income tax thereon, and shareholders
at year-end will be able to claim their share of the tax paid by the Fund as
a credit against their individual federal income tax. Shareholders will
increase their tax basis of Fund shares owned by an amount equal, under
current law, to 65% of the amount of undistributed capital gains.
The Fund, however, intends to distribute substantially all of its net
investment income and net capital gains to shareholders and otherwise qualify
as a regulated investment company under Subchapter M of the Internal Revenue
Code. It is not expected that the Fund will be required to pay any federal
income tax. Shareholders will normally have to pay federal income taxes, and
any state income taxes, on the dividends and distributions they receive from
the Fund. Such dividends and distributions, to the extent that they are
derived from the net investment income or short-term capital gains, are
taxable to the shareholder as ordinary income regardless of whether the
shareholder receives such payments in additional shares or in cash. Any
dividends declared in the last quarter of any calendar year which are paid in
the following year prior to February 1 will be deemed received by the
shareholder in the prior year. Dividend payments will be eligible for the
federal dividends received deduction available to the Fund's corporate
shareholders only to the extent the aggregate dividends received by the Fund
would be eligible for the deduction if the Fund were the shareholder claiming
the dividends received deduction. In this regard, a 46-day holding period
generally must be met by the Fund and the shareholder.
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Gains or losses on the Fund's transactions in listed non-equity options,
futures and options on futures generally are treated as 60% long-term and 40%
short-term. When the Fund engages in options and futures transactions,
various tax regulations applicable to the Fund may have the effect of causing
the Fund to recognize a gain or loss for tax purposes before the gain or loss
is realized, or to defer recognition of a realized loss for tax purposes.
Recognition, for taxes purposes, of an unrealized loss may result in a lesser
amount of the Fund's realized gains being available for annual distribution.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have a tax holding period of more
than twelve months. Gains or losses on the sale of securities with a tax
holding period of twelve months or less will be short-term gains or losses.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income,
the portion taxable as long-term capital gains, and the amount of dividends
eligible for the Federal dividends received deduction available to
corporations. To avoid being subject to a 31% Federal backup withholding tax
on taxable dividends, capital gains distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers
must be furnished and certified as to their accuracy.
One of the requirements for the Fund to remain qualified as a regulated
investment company is that less than 30% of its gross income be derived from
gains from the sale or other disposition of securities held for less than
three months. Accordingly, the Fund may be restricted in the writing of
options on securities held for less than three months, in the writing of
options which expire in less than three months, 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.
Under current federal tax law, the Fund will receive net investment income
in the form of interest by virtue of holding Treasury bills, notes and bonds,
and will recognize income attributable to it from holding zero coupon
Treasury securities. Current federal tax law requires that a holder (such as
the Fund) of a zero coupon security accrue a portion of the discount at which
the security was purchased as income each year even though the Fund receives
no interest payment in cash on the security during the year. As an investment
company, the Fund must pay out substantially all of its net investment income
each year. Accordingly, the Fund, to the extent it invests in zero coupon
Treasury securities, may be required to pay out as an income distribution
each year an amount which is greater than the total amount of cash receipts
of interest the Fund actually received. Such distributions will be made from
the available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution of cash necessitates the liquidation of
portfolio securities, the Investment Manager will select which securities to
sell. The Fund may realize a gain or loss from such sales. In the event the
Fund realizes net capital gains from such transactions, its shareholders may
receive a larger capital gain distribution, if any, than they would in the
absence of such transactions.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value
of the shareholder's stock in that company by the exact amount of the
dividend or capital gains distribution. Furthermore, capital gains
distributions and some portion of the dividends are subject to federal income
taxes. If the net asset value of the shares should be reduced below a
shareholder's cost as a result of the payment of dividends or the
distribution of realized long-term capital gains, such payment or
distribution would be in part a return of capital but nonetheless would be
taxable to the shareholder. Therefore, an investor should consider the tax
implications of purchasing Fund shares immediately prior to a distribution
record date.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
37
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PERFORMANCE INFORMATION
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As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature.
These figures are computed separately for Class A, Class B, Class C and Class
D shares. Prior to July 28, 1997, the Fund offered only one Class of shares.
Because all shares of the Fund held prior to such time (other than shares
which were acquired in exchange for shares of Dean Witter Funds offered with
either a front-end sales charge or a CDSC and shares acquired through
reinvestment of dividends and distributions thereon) have been designated
Class C shares, certain historical performance data may be restated to
reflect the 1.0% CDSC imposed on most Class C shares redeemed within one year
after purchase.
Yield is calculated for any 30-day period as follows: the amount of
interest and/or dividend income for each security in the Fund's portfolio is
determined in accordance with regulatory requirements; the total for the
entire portfolio constitutes the Fund's gross income for the period. Expenses
accrued during the period are subtracted to arrive at "net investment income"
of each Class. The resulting amount is divided by the product of the maximum
offering price per share on the last day of the period multiplied by the
average number of shares of the applicable Class outstanding during the
period that were entitled to dividends. This amount is added to 1 and raised
to the sixth power. 1 is then subtracted from the result and the difference
is multiplied by 2 to arrive at the annualized yield.
The Fund's "average annual total return" represents an annualization of
the Fund's total return over a particular period and is computed by finding
the annual percentage rate which will result in the ending redeemable value
of a hypothetical $1,000 investment made at the beginning of a one, five or
ten year period, or for the period from the date of commencement of
operations, if shorter than any of the foregoing. The ending redeemable value
is reduced by any CDSC at the end of the one, five or ten year or other
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing the average
annual total return involves a percentage obtained by dividing the ending
redeemable value by the amount of the initial investment, taking a root of
the quotient (where the root is equivalent to the number of years in the
period) and subtracting 1 from the result. The restated average annual total
return for Class C shares of the Fund for the fiscal year ended January 31,
1997 was 12.44%. The actual average annual total return for the Fund for the
same period was 13.44%. The actual average annual total return for the period
March 28, 1995 (commencement of operations) through January 31, 1997 was
19.29%. Without the waiver of fees and assumption of expenses by the
Investment Manager, the actual average annual total return for Class C shares
since inception would have been 18.99%. The actual return figures are for
Class C only; there were no other Classes of shares outstanding on such date.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for
Class A or the deduction of the CDSC for each of Class B and Class C which,
if reflected, would reduce the performance quoted. For example, the average
annual total return of the Fund may be calculated in the manner described in
the preceding paragraph, but without deduction for any applicable sales
charge.
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without
reduction for any sales charge) by the initial $1,000 investment and
subtracting 1 from the result. Based on the foregoing calculation, the Fund's
aggregate total return for the fiscal year ended January 31, 1997 and the
fiscal period March 28, 1995 (commencement of operations) through January 31,
1997 were 13.44% and 38.54%, respectively. Without the waiver of fees and
assumption of expenses by the Investment Manager, the aggregate total return
since inception would have been 37.90%. These returns are for Class C only;
there were no other Classes of shares outstanding on such date.
38
<PAGE>
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1
to the Fund's aggregate total return to date (expressed as a decimal and
without taking into account the effect of any applicable CDSC) and
multiplying by $9,475, $48,000 and $97,000 in the case of Class A
(investments of $10,000, $50,000 and $100,000 adjusted for the initial sales
charge) or by $10,000, $50,000 and $100,000 in the case of each of Class B,
Class C and Class D, as the case may be. Investments of $10,000, $50,000 and
$100,000 in the Class C shares of the Fund at inception would have grown to
$13,854, $69,270 and $138,540, 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.
DESCRIPTION OF SHARES OF THE FUND
- -----------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share of beneficial interest held. All of the Trustees have been elected by
the shareholders of the Fund, most recently at a Special Meeting of
Shareholders held on May 21, 1997. On that date, Wayne E. Hedien was also
elected as a Trustee of the Fund, with his term to commence on September 1,
1997. 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
authorized any such additional series or classes of shares other than as set
forth in the Prospectus.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor
is any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise
from his/her or its own bad faith, willful misfeasance, gross negligence or
reckless disregard of his/her or its duties. It also provides that all third
persons shall look solely to the Fund property for satisfaction of claims
arising in connection with the affairs of the Fund. With the exceptions
stated, the Declaration of Trust provides that a Trustee, officer, employee
or agent is entitled to be indemnified against all liability in connection
with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of
beneficial interest. The Fund shall be of unlimited duration subject to the
provisions in the Declaration of Trust concerning termination by action of
the shareholders or the Trustees.
CUSTODIAN AND TRANSFER AGENT
- -----------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is
the Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
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
39
<PAGE>
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 annual financial statements of the Fund for the year ended January 31,
1997, which are included in this Statement of Additional Information and
incorporated by reference in the Prospectus, have been so included and
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
40
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PORTFOLIO OF INVESTMENTS January 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (63.1%)
Aerospace & Defense (2.6%)
67,500 Raytheon Co. .................................................... $ 3,096,562
--------------
Aluminum (2.5%)
43,000 Aluminum Co. of America ......................................... 2,967,000
--------------
Automotive (4.9%)
91,000 Ford Motor Co. .................................................. 2,923,375
50,000 General Motors Corp. ........................................... 2,950,000
--------------
5,873,375
--------------
Banking (5.3%)
70,000 Banc One Corp. ................................................. 3,176,250
28,300 BankAmerica Corp. ............................................... 3,158,987
--------------
6,335,237
--------------
Beverages -Soft Drinks (2.7%)
91,000 PepsiCo Inc. .................................................... 3,173,625
--------------
Chemicals (2.6%)
28,500 Du Pont (E.I.) de Nemours & Co., Inc. ........................... 3,124,313
--------------
Computer Equipment (2.6%)
19,800 International Business Machines Corp. ........................... 3,113,550
--------------
Conglomerates (2.5%)
75,000 Tenneco, Inc. ................................................... 3,000,000
--------------
Drugs & Healthcare (2.6%)
24,500 Bristol-Myers Squibb Co. ....................................... 3,111,500
--------------
Electric -Major (2.5%)
29,500 General Electric Co. ............................................ 3,038,500
--------------
Foods (2.6%)
60,500 ConAgra, Inc. ................................................... 3,055,250
--------------
Machinery -Agricultural (2.6%)
73,000 Deere & Co. ..................................................... 3,120,750
--------------
Manufacturing -Diversified (2.7%)
62,000 Timken Co. ...................................................... 3,193,000
--------------
Natural Gas (2.6%)
74,000 Enron Corp. ..................................................... 3,052,500
--------------
Oil -Domestic (2.5%)
23,000 Atlantic Richfield Co. .......................................... 3,041,750
--------------
Paper & Forest Products (2.5%)
64,400 Weyerhaeuser Co. ................................................ 2,930,200
--------------
Railroads (2.7%)
66,000 CSX Corp. ....................................................... 3,201,000
--------------
Retail (5.1%)
82,500 Dayton-Hudson Corp. ............................................. 3,104,063
68,000 May Department Stores Co. ...................................... 3,026,000
--------------
6,130,063
--------------
Telecommunications (2.6%)
76,000 Sprint Corp. .................................................... $ 3,097,000
--------------
Tobacco (2.6%)
60,000 American Brands, Inc. ........................................... 3,060,000
--------------
Utilities -Electric (3.8%)
88,500 General Public Utilities Corp. ................................. 2,964,750
71,600 PG & E Corp. ................................................... 1,628,900
--------------
4,593,650
--------------
TOTAL COMMON STOCKS
(Identified Cost $64,612,705) ................................... 75,308,825
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (33.7%)
Federal National Mortgage Assoc.
$1,931 6.00% due 01/01/11-03/01/11 .................................... 1,859,196
966 6.50% due 08/01/10-03/01/11 .................................... 949,473
3,906 7.00% due 07/01/25-01/01/26 .................................... 3,822,762
4,820 7.50% due 06/01/25-01/01/27 .................................... 4,824,391
1,000 7.50%* ......................................................... 1,000,937
881 8.00% due 05/01/24-05/01/25 .................................... 898,248
Government National
Mortgage Assoc.
3,844 7.00% due 07/15/23-01/15/27 .................................... 3,761,514
7,952 7.50% due 06/15/24-10/15/26 .................................... 7,969,266
3,921 8.00% due 04/15/26-08/15/26 .................................... 4,007,670
5,500 Resolution Funding Corp.
Coupon Strips
0.00% due 04/15/04-01/15/08 .................................... 2,995,010
U.S. Treasury Notes
1,000 5.875% due 06/30/00 ........................................... 991,770
1,000 6.25% due 01/31/02 ............................................. 999,570
1,000 6.375% due 03/31/01 ............................................ 1,005,190
500 6.50% due 04/30/97 ............................................. 501,406
400 6.625% due 03/31/97 ............................................ 400,804
500 6.875% due 03/31/00 ............................................ 510,670
400 7.125% due 02/29/00 ............................................ 411,244
U.S. Treasury Principal Strips
1,000 0.00% due 11/15/97 ............................................. 958,560
4,500 0.00% due 11/15/04-02/15/07 .................................... 2,477,215
--------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Identified Cost $40,456,732) ................................. 40,344,896
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PORTFOLIO OF INVESTMENTS January 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (3.4%)
REPURCHASE AGREEMENT
$4,027 The Bank of New York
5.25% due 02/03/97
(dated 01/31/97; proceeds
$4,028,755; collateralized by
$5,883,705 U.S. Treasury
Strip 0.00% due 11/15/02
valued at $4,107,533)
(Identified Cost $4,026,993) .................................. $4,026,993
-------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $109,096,430)
(a)............................... 100.2% 119,680,714
LIABILITIES IN EXCESS OF
OTHER ASSETS ..................... (0.2) (264,727)
-------- -------------
NET ASSETS........................ 100.0% $119,415,987
======== =============
</TABLE>
- ------------
* Security was purchased on a forward commitment basis with an
approximate principal amount and no definite maturity date; the actual
principal amount and maturity date will be determined upon settlement.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$11,539,807 and the aggregate gross unrealized depreciation is
$955,523, resulting in net unrealized appreciation of $10,584,284.
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $109,096,430)...................................... $119,680,714
Receivable for:
Shares of beneficial interest sold.................................. 1,104,633
Interest............................................................ 243,312
Dividends........................................................... 153,764
Investments sold.................................................... 89,397
Deferred organizational expenses .................................... 107,119
Receivable from affiliate ........................................... 6,830
Prepaid expenses and other assets ................................... 27,803
--------------
TOTAL ASSETS ...................................................... 121,413,572
--------------
LIABILITIES:
Payable for:
Investments purchased............................................... 1,615,290
Shares of beneficial interest repurchased........................... 158,327
Plan of distribution fee............................................ 96,964
Investment management fee .......................................... 58,178
Accrued expenses and other payables ................................. 68,826
--------------
TOTAL LIABILITIES.................................................. 1,997,585
--------------
NET ASSETS:
Paid-in-capital...................................................... 107,501,766
Net unrealized appreciation ......................................... 10,584,284
Accumulated undistributed net investment income...................... 258,337
Accumulated undistributed net realized gain.......................... 1,071,600
--------------
NET ASSETS ........................................................ $119,415,987
==============
NET ASSET VALUE PER SHARE,
9,179,945 shares outstanding (unlimited shares authorized of $.01
par value).......................................................... $13.01
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended January 31, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.............................. $ 1,962,778
Dividends............................. 1,471,924
------------
TOTAL INCOME ....................... 3,434,702
------------
EXPENSES
Plan of distribution fee.............. 812,219
Investment management fee............. 487,331
Transfer agent fees and expenses ..... 63,006
Shareholder reports and notices ..... 54,615
Professional fees .................... 53,262
Registration fees .................... 46,419
Organizational expenses .............. 34,064
Custodian fees........................ 19,243
Trustees' fees and expenses........... 11,791
Other................................. 4,910
------------
TOTAL EXPENSES ..................... 1,586,860
LESS: AMOUNTS WAIVED/REIMBURSED ... (25,549)
------------
NET EXPENSES ....................... 1,561,311
------------
NET INVESTMENT INCOME............... 1,873,391
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain..................... 2,814,299
Net change in unrealized
appreciation......................... 6,423,885
------------
NET GAIN............................ 9,238,184
------------
NET INCREASE.......................... $11,111,575
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR MARCH 28, 1995*
ENDED THROUGH
JANUARY 31, 1997 JANUARY 31, 1996
- ------------------------------------------------------ ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 1,873,391 $ 866,831
Net realized gain...................................... 2,814,299 65,170
Net change in unrealized appreciation ................. 6,423,885 4,160,399
---------------- ----------------
NET INCREASE......................................... 11,111,575 5,092,400
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ................................. (1,821,421) (694,528)
Net realized gain...................................... (1,797,082) (10,787)
---------------- ----------------
TOTAL................................................ (3,618,503) (705,315)
---------------- ----------------
Net increase from transactions in shares of beneficial
interest.............................................. 64,326,927 43,108,903
---------------- ----------------
NET INCREASE......................................... 71,819,999 47,495,988
NET ASSETS:
Beginning of period.................................... 47,595,988 100,000
---------------- ----------------
END OF PERIOD
(Including undistributed net investment income of
$258,337 and $172,303, respectively)................. $119,415,987 $47,595,988
================ ================
</TABLE>
- ------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Balanced Growth Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is
capital growth with reasonable current income. The Fund seeks to achieve its
objective by investing in common stock of companies which have a record of
paying dividends and have the potential for increasing dividends, securities
convertible into common stock and in investment grade fixed income
securities. The Fund was organized as a Massachusetts business trust on
November 23, 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 March 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 that sale or bid
prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees (valuation
of debt securities for which market quotations are not readily available may
be based upon current market prices of securities which are comparable in
coupon, rating and maturity or an appropriate matrix utilizing similar
factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and 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 securities valued
by such pricing service; and (5) short-term debt securities having a maturity
date of more than sixty days at time of purchase are valued on a
46
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997, continued
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Discounts are accreted over the life of the respective securities.
Dividend income and other distributions are recorded on the ex-dividend date.
Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund of approximately $171,000 of which approximately
$141,000 have been reimbursed. Such expenses have been deferred and are being
amortized on the straight-line method over a period not to exceed five years
from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.60% to the net assets of the Fund determined as of the close
of each business day.
47
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997, continued
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.
The Investment Manager assumed all operating expenses and waived the
compensation provided for in its Investment Management Agreement until the
Fund had $50 million of net assets which occurred on February 9, 1996 . At
January 31, 1997, included in the Statement of Assets and Liabilities is a
receivable from an affiliate which represents expense reimbursements due to
the Fund.
3. PLAN OF DISTRIBUTION
Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the
Investment Manager, is the distributor of the Fund's shares and, in
accordance with a Plan of Distribution (the "Plan"), pursuant to Rule 12b-1
under the Act, finances certain expenses in connection therewith.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Fund, except for expenses
that the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor, account
executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, its affiliates and other selected
broker-dealers under the Plan: (1) compensation to, and expenses of, account
executives of DWR and other employees, including overhead and telephone
expenses; (2) sales incentives and bonuses to sales representatives and to
marketing personnel in connection with promoting sales of the Fund's shares;
(3) expenses incurred in connection with promoting sales of the Fund's
shares; (4) preparing and distributing sales literature; and (5) providing
advertising and promotional activities, including direct mail solicitation
and television, radio, newspaper, magazine and other media advertisements.
The Fund is authorized to reimburse the Distributor for specific expenses the
Distributor incurs or plans to incur in promoting the distribution of the
Fund's shares. The amount of each monthly reimbursement payment may in no
event exceed an amount equal to a payment at the annual rate of 1.0% of the
Fund's average daily net assets during the month. Expenses incurred by the
Distributor pursuant to the Plan in any fiscal year in excess of 1.0% will
not be reimbursed by the Fund through payments accrued in any subsequent
fiscal year. For the year ended January 31, 1997, the distribution fee was
accrued at the annual rate of 1.0%.
48
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1997, continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended January 31, 1997
aggregated $73,510,936 and $12,486,714, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$26,501,321 and $701,577, respectively.
For the year ended January 31, 1997, the Fund incurred brokerage commissions
of $44,062 with DWR for portfolio transactions executed on behalf of the
Fund. At January 31, 1997, the Fund's receivable for investments sold and
payable for investments purchased included unsettled trades with DWR of
$89,397 and $322,813, respectively.
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 $2,400.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR MARCH 28, 1995*
ENDED THROUGH
JANUARY 31, 1997 JANUARY 31, 1996
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Sold ......................................... 8,783,556 $108,772,818 4,686,686 $50,974,046
Reinvestment of dividends and distributions .. 258,244 3,243,279 58,982 654,591
------------- -------------- ------------- --------------
9,041,800 112,016,097 4,745,668 51,628,637
Repurchased .................................. (3,853,609) (47,689,170) (763,914) (8,519,734)
------------- -------------- ------------- --------------
Net increase ................................. 5,188,191 $ 64,326,927 3,981,754 $43,108,903
============= ============== ============= ==============
</TABLE>
- ------------
* Commencement of operations.
6. FEDERAL INCOME TAX STATUS
As of January 31, 1997, the Fund had permanent book/tax differences
attributable to nondeductible organizational expenses. To reflect
reclassifications arising from permanent book/tax differences for the year
ended January 31, 1997, paid-in-capital was charged and accumulated
undistributed net investment income was credited $34,064.
49
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR MARCH 28, 1995*
ENDED THROUGH
JANUARY 31, 1997 JANUARY 31, 1996
- --------------------------------------- ---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 11.92 $10.00
---------------- ----------------
Net investment income................... 0.25 0.31
Net realized and unrealized gain ...... 1.33 1.88
---------------- ----------------
Total from investment operations ....... 1.58 2.19
---------------- ----------------
Less dividends and distributions from:
Net investment income.................. (0.27) (0.27)**
Net realized gain...................... (0.22) --
---------------- ----------------
Total dividends and distributions ...... (0.49) (0.27)
---------------- ----------------
Net asset value, end of period.......... $ 13.01 $11.92
================ ================
TOTAL INVESTMENT RETURN+................ 13.44% 22.13%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................... 1.92%(3) -- %(2)(3)
Net investment income................... 2.31%(3) 4.25%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $119,416 $47,596
Portfolio turnover rate................. 16% 2%(1)
Average commission rate paid............ $0.0516 --
</TABLE>
- ------------
* Commencement of operations.
** Includes a capital gain distribution of $0.004.
+ 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 and waived the
management fee, the annualized expense and net investment income ratios
would have been 2.42% and 1.83%, respectively, for the period ended
January 31, 1996, and 1.95% and 2.28%, respectively, for the year ended
January 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER BALANCED GROWTH FUND
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Dean Witter
Balanced Growth 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 March 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 10, 1997
- -------------------------------------------------------------------------------
1997 FEDERAL TAX NOTICE (unaudited)
During the year ended January 31, 1997, the Fund paid to its shareholders
$0.10 per share from long-term capital gains. For such period, 50.2% of the
income paid qualified for the dividends received deduction available to
corporations.
- -------------------------------------------------------------------------------
<PAGE>
[LOGO]
BALANCED
FUND
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 17, 1997
- --------------------------------------------------------------------------------
TCW/DW Balanced Fund (the "Fund") is an open-end, diversified management
investment company, whose investment objective is to achieve high total return
through a combination of income and capital appreciation. The Fund seeks to
achieve its investment objective by investing in a diversified portfolio of
common stocks and investment grade fixed-income securities. See "Investment
Practices and Policies."
A Prospectus for the Fund dated November 17, 1997, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc. at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
TCW/DW BALANCED FUND
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund and its Management.......................................................... 3
Trustees and Officers................................................................ 6
Investment Practices and Policies.................................................... 13
Investment Restrictions.............................................................. 31
Portfolio Transactions and Brokerage................................................. 33
The Distributor...................................................................... 34
Determination of Net Asset Value..................................................... 38
Purchase of Fund Shares.............................................................. 39
Shareholder Services................................................................. 41
Repurchases and Redemptions.......................................................... 45
Dividends, Distributions and Taxes................................................... 46
Performance Information.............................................................. 47
Description of Shares................................................................ 48
Custodian and Transfer Agent......................................................... 49
Independent Accountants.............................................................. 49
Reports to Shareholders.............................................................. 49
Legal Counsel........................................................................ 49
Experts.............................................................................. 49
Registration Statement............................................................... 49
Report of Independent Accountants.................................................... 50
Financial Statements -- September 30, 1997........................................... 51
Appendix............................................................................. 68
</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
March 2, 1993. The Fund is one of the TCW/DW Funds, which currently consist, in
addition to the Fund, of 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 Term Trust 2000, TCW/DW Term
Trust 2002, TCW/DW Term Trust 2003, TCW/DW Emerging Markets Opportunities Trust,
TCW/DW Total Return Trust, TCW/ DW Mid-Cap Equity Trust, TCW/DW Global Telecom
Trust and TCW/DW Strategic Income Trust.
THE MANAGER
Dean Witter Services Company Inc. (the "Manager"), a Delaware corporation,
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Manager. The Manager is a wholly-owned subsidiary of Dean Witter InterCapital
Inc. ("InterCapital"), a Delaware corporation. InterCapital is a wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"), a Delaware
corporation. In an internal reorganization which took place in January, 1993,
InterCapital assumed the investment advisory, administrative and management
activities previously performed by the InterCapital Division of Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of the Manager. (As hereinafter
used in this Statement of Additional Information, the term "InterCapital" refers
to DWR's InterCapital Division prior to the internal reorganization and to Dean
Witter InterCapital Inc. thereafter.) The daily management of the Fund is
conducted by or under the direction of officers of the Fund and of the Manager
and Adviser (see below), subject to review by the Fund's Board of Trustees.
Information as to these Trustees and officers is contained under the caption
"Trustees and Officers."
Pursuant to a management agreement (the "Management Agreement") with the
Manager, the Fund has retained the Manager to manage the Fund's business
affairs, supervise the overall day-to-day operations of the Fund (other than
rendering investment advice) and provide all administrative services to the
Fund. Under the terms of the Management Agreement, the Manager also maintains
certain of the Fund's books and furnishes, at its own expense, such office
space, facilities, equipment, supplies, 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 the federal and state
securities commissions (except insofar as the participation or assistance of
independent accountants and attorneys is, in the opinion of the Manager,
necessary or desirable). In addition, the Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the Manager. The
Manager also bears the cost of the Fund's telephone service, heat, light, power
and other utilities.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the annual rate of 0.45% to
the Fund's daily net assets. While the total fees payable under the Management
Agreement and the Advisory Agreement (described below) are higher than that paid
by most other investment companies for similar services, the Board of Trustees
determined that the total fees payable under the Management Agreement and the
Advisory Agreement are reasonable in relation to the scope and quality of
services to be provided thereunder. In this regard, in evaluating the Management
Agreement and the Advisory Agreement, the Board of Trustees recognized that the
Manager and the Adviser had, pursuant to an agreement described under the
section entitled "The Adviser," agreed to a division as between themselves of
the total fees necessary for the management of the business affairs of and the
furnishing of investment advice to the Fund. Accordingly, in reviewing the
Management Agreement and Advisory Agreement, the Board viewed as most
significant the question as to whether the total fees payable under the
Management and Advisory Agreements were in the aggregate reasonable in relation
to the services to be provided thereunder. For the fiscal years ended September
30, 1995, September 30, 1996 and September 30, 1997, the Fund accrued to the
Manager total compensation under the Management Agreement of $541,070, $442,975
and $417,405, respectively. The management fee is allocated among the Classes
pro rata based on the net assets of the Fund attributable to each Class.
3
<PAGE>
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Manager is not liable to the Fund or any of its
investors for any act or omission by the Manager or for any losses sustained by
the Fund or its investors. The Management Agreement in no way restricts the
Manager from acting as manager to others.
InterCapital paid the organizational expenses of the Fund incurred prior to
the offering of the Fund's shares. The Fund has reimbursed InterCapital for such
expenses of approximately $180,493. These expenses have been deferred and are
being amortized by the Fund on the straight line method over a period not to
exceed five years from the date of commencement of the Fund's operations.
The Management Agreement was initially approved by the Trustees on June 4,
1994 and became effective on April 17, 1995. The Management Agreement replaced a
prior management agreement in effect between the Fund and Dean Witter Services
Company, Inc. which in turn replaced a prior management agreement in effect
between the Fund and InterCapital, the parent company of the Manager. The nature
and scope of services provided to the Fund, and the formula to determine fees
paid by the Fund under the Management Agreement, are identical to those of the
previous agreements. The Management Agreement may be terminated at any time,
without penalty, on thirty days' notice by the Trustees of the Fund or by the
Manager.
Under its terms, the Management Agreement had an initial term ending April
30, 1995, and will continue in effect from year to year thereafter, provided
continuance of the Agreement is approved at least annually by the Trustees of
the Fund, including the vote of a majority of the Trustees of the Fund who are
not parties to the Management or Advisory Agreement or "interested persons" (as
defined in the Investment Company Act of 1940, as amended (the "Act")), of any
such party (the "Independent Trustees"). Most recent continuation of the
Management Agreement for one year, until April 30, 1998, was approved by the
Trustees, including a majority of the Independent Trustees, at their meeting on
April 24, 1997.
THE ADVISER
TCW Funds Management, Inc. (the "Adviser") is a wholly-owned subsidiary of The
TCW Group, Inc. ("TCW"), whose direct and indirect 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 September
30, 1997, the Adviser and its affiliates had approximately $50 billion under
management or committed to management. The Adviser is headquartered at 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017 and is registered as
an investment adviser under the Investment Advisers Act of 1940. In addition to
the Fund, the Adviser serves as investment adviser to thirteen other TCW/DW
Funds: TCW/DW 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 Term Trust 2000, TCW/DW Term Trust 2002, TCW/DW Term
Trust 2003, TCW/DW Emerging Markets Opportunities Trust, TCW/DW Total Return
Trust, TCW/DW Mid-Cap Equity Trust, TCW/DW Global Telecom Trust and TCW/DW
Strategic Income Trust. The Adviser also serves as investment adviser to TCW
Convertible Securities Fund, Inc., a closed-end investment company listed on the
New York Stock Exchange, and to TCW Galileo Funds, Inc., an open-end investment
company, and acts as adviser or sub-adviser to other investment companies.
Robert A. Day, who is Chairman of the Board of Directors of TCW, may be
deemed to be a control person of the Adviser by virtue of the aggregate
ownership of Mr. Day and his family of more than 25% of the outstanding voting
stock of TCW.
Pursuant to an investment advisory agreement (the "Advisory Agreement") with
the Adviser, the Fund has retained the Adviser to invest the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. The Adviser obtains and evaluates such information and advice
relating to the economy, securities markets, and specific securities as it
considers necessary or useful to continuously manage the assets of the Fund in a
manner consistent with its investment objective. In addition, the Adviser pays
the salaries of all personnel, including officers of the Fund, who are employees
of the Adviser.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Adviser, the Fund pays the Adviser
monthly compensation calculated daily by applying the
4
<PAGE>
annual rate of 0.30% to the Fund's daily net assets. For the fiscal years ended
September 30, 1995, 1996 and 1997, the Fund accrued to the Adviser total
compensation under the Advisory Agreement of $360,714, $295,317 and $278,270,
respectively. The advisory fee is allocated among the Classes pro rata based on
the net assets of the Fund attributable to each Class.
The Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations thereunder,
the Adviser is not liable to the Fund or any of its investors for any act or
omission by the Adviser or for any losses sustained by the Fund or its
Investors. The Advisory Agreement in no way restricts the Adviser from acting as
investment adviser to others.
The Advisory Agreement was initially approved by the Trustees on April 28,
1993 and by InterCapital as then sole shareholder on July 22, 1993. The Advisory
Agreement may be terminated at any time, without penalty, on thirty days' notice
by the Trustees of the Fund, by the holders of a majority, as defined in the
Act, of the outstanding shares of the Fund, or by the Adviser. The Agreement
will automatically terminate in the event of its assignment (as defined in the
Act).
Under its terms, the Advisory Agreement had an initial term ending April 30,
1995, and will continue from year to year thereafter, provided continuance of
the Agreement is approved at least annually by the vote of the holders of a
majority, as defined in the Act, of the outstanding shares of the Fund, or by
the Trustees of the Fund; provided that in either event such continuance is
approved annually by the vote of a majority of the Independent Trustees of the
Fund, which vote must be cast in person at a meeting called for the purpose of
voting on such approval. At their meeting held on April 24, 1997, the Board of
Trustees, including all of the Independent Trustees, approved the most recent
continuation of the Advisory Agreement until April 30, 1998.
Expenses not expressly assumed by the Manager under the Management
Agreement, by the Adviser under the Advisory Agreement or by the Distributor of
the Fund's shares, Dean Witter Distributors Inc. ("Distributors" or the
"Distributor") (see "The Distributor"), will be paid by the Fund. These expenses
will be allocated among the four classes of shares of the Fund (each, a Class)
pro rata based on the net assets of the Fund attributable to each Class, except
as described below. Such expenses include, but are not limited to: expenses of
the Plan of Distribution pursuant to Rule 12b-1 (the "12b-1 fee") (see "The
Distributor"); charges and expenses of any registrar; custodian, stock transfer
and dividend disbursing agent; brokerage commissions and securities transaction
costs; taxes; engraving and printing of share certificates; registration costs
of the Fund and its shares under federal and state securities laws; the cost and
expense of printing, including typesetting, and distributing Prospectuses and
Statements of Additional Information of the Fund and supplements thereto to the
Fund's shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Trustees or members of any advisory board or
committee who are not employees of the Manager or Adviser or any corporate
affiliate of either; all expenses incident to any dividend, withdrawal or
redemption options; charges and expenses of any outside service used for pricing
of the Fund's shares; fees and expenses of legal counsel, including counsel to
the Trustees who are not interested persons of the Fund or of the Manager or the
Adviser (not including compensation or expenses of attorneys who are employees
of the Manager or the Adviser) and independent accountants; membership dues of
industry associations; interest on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Trustees) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
relating thereto); and all other costs of the Fund's operation. The 12b-1 fees
relating to a particular Class will be allocated directly to that Class. In
addition, other expenses associated with a particular Class (except advisory or
custodial fees) may be allocated directly to that Class, provided that such
expenses are reasonably identified as specifically attributable to that Class
and the direct allocation to that Class is approved by the Trustees.
DWR and TCW have entered into an Agreement for the purpose of creating,
managing, administering and distributing a family of investment companies and
other managed pooled investment vehicles offered on a retail basis within the
United States. The Agreement contemplates that, subject to approval of the board
of trustees or directors of a particular investment entity, DWR or its
affiliates will provide management and distribution services and TCW or its
affiliates will provide investment advisory services for each such investment
entity.
5
<PAGE>
The Agreement sets forth the terms and conditions of the relationship between
TCW and its affiliates and DWR and its affiliates and the manner in which the
parties will implement the creation and maintenance of the investment entities,
including the parties' expectations as to respective allocation of fees to be
paid by an investment entity to each party for the services to be provided to it
by such party.
The Fund has acknowledged that each of DWR and TCW owns its own name,
initials and logo. The Fund has agreed to change its name at the request of
either the Manager or the Adviser, or if the Management Agreement between the
Manager and the Fund or the Advisory Agreement between the Adviser and the Fund
is terminated.
The following owned more than 5% of the outstanding Class A shares of the
Fund on November 4, 1997: Dean Witter InterCapital Inc., Attn: Frank DeVito, Two
World Trade Center, 71st Fl., New York, NY 10048-0203--51.8% and Dean Witter
Reynolds, Inc., Custodian for Lorraine G. Levasseur, IRA Rollover, dated June 6,
1984, 17050 Traverse Circle, Jupiter, FL 33477-1212--48%.
The following owned more than 5% of the outstanding Class D shares of the
Fund on November 4, 1997: Dean Witter InterCapital Inc., Attn: Frank DeVito, Two
World Trade Center, 71st Fl., New York, NY 10048-0203--99.8%.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Manager or the Adviser, and the affiliated companies of either, and with the 14
TCW/DW Funds and with the 83 investment companies of which InterCapital serves
as investment manager or investment adviser (the "Dean Witter Funds"), are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
John C. Argue (65) Of Counsel, Argue Pearson Harbison & Myers (law firm);
Trustee Director, Avery Dennison Corporation (manufacturer of
c/o Argue Pearson Harbison & Myers self-adhesive products and office supplies) and CalMat
801 South Flower Street Company (producer of aggregates, asphalt and ready mixed
Los Angeles, California concrete); Chairman, The Rose Hills Foundation
(charitable foundation); advisory director, LAACO Ltd.
(owner and operator of private clubs and real estate);
director or trustee of various business and
not-for-profit corporations; Director, Coast Savings
Financial Inc. and Coast Federal Bank (a subsidiary of
Coast Savings Financial Inc.); Director, TCW Galileo
Funds, Inc.; Trustee of the TCW/DW Funds.
Richard M. DeMartini* (45) President and Chief Operating Officer of Dean Witter
Trustee Capital, a division of DWR; Director of DWR, the
Two World Trade Center Manager, InterCapital, Distributors and Dean Witter
New York, New York Trust FSB ("DWT"); Trustee of the TCW/DW Funds; formerly
Vice Chairman of the Board of the National Association
of Securities Dealers, Inc. and formerly Chairman of the
Board of Directors of the NASDAQ Market, Inc.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and Director of the
Chairman of the Board, Chief Manager, InterCapital and Distributors; Executive Vice
Executive Officer and Trustee President and Director of DWR; Chairman of the Board,
Two World Trade Center Chief Executive Officer and Trustee of the TCW/DW Funds;
New York, New York Chairman of the Board, Director or Trustee, President
and Chief Executive Officer of the Dean Witter Funds;
Chairman and Director of DWT; Director of various MSDWD
subsidiaries; formerly Executive Vice President and
Director of Dean Witter, Discover & Co. (until February,
1993).
John R. Haire (72) Chairman of the Audit Committee and Chairman of the
Trustee Committee of Independent Trustees and Trustee of the
Two World Trade Center TCW/DW Funds; Chairman of the Audit Committee and
New York, New York Chairman of the Committee of Independent Directors or
Trustees of each of the Dean Witter Funds; formerly
President, Council for Aid to Education (1978-1989) and
Chairman and Chief Executive Officer of Anchor
Corporation, an Investment Adviser (1964-1978); Director
of Washington National Corporation (insurance).
Dr. Manuel H. Johnson (48) Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group
c/o Johnson Smick International, Inc. of Seven Council (G7C), an international economic
1133 Connecticut Avenue, N.W. commission; Director of NASDAQ (since June, 1995);
Washington, D.C. Director of Greenwich Capital Markets, Inc.
(broker-dealer); Trustee of the Financial Accounting
Foundation (oversight organization of the Financial
Accounting Standards Board); formerly Vice Chairman of
the Board of Governors of the Federal Reserve System
(1986-1990) and Assistant Secretary of the U.S. Treasury
(1982-1986); Director or Trustee of the Dean Witter
Funds; Trustee of the TCW/DW Funds.
Thomas E. Larkin, Jr.* (58) Executive Vice President and Director, The TCW Group,
President and Trustee Inc.; President and Director of Trust Company of the
865 South Figueroa Street West; Vice Chairman and Director of TCW Asset Management
Los Angeles, California Company; Chairman of the Adviser; President and Director
of TCW Galileo Funds, Inc.; Senior Vice President of TCW
Convertible Securities Fund, Inc.; Member of the Board
of Trustees of the University of Notre Dame; Director of
Orthopaedic Hospital of Los Angeles; President and
Trustee of the TCW/DW Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; formerly Vice President, Bankers
c/o Triumph Capital, L.P. Trust Company and BT Capital Corporation (1984-1988);
237 Park Avenue Director of various business organizations; Director or
New York, New York Trustee of the Dean Witter Funds; Trustee of the TCW/DW
Funds.
John L. Schroeder (67) Retired; Director or Trustee of the Dean Witter Funds;
Trustee Trustee of the TCW/DW Funds; formerly Executive Vice
c/o Gordon Altman Butowsky Weitzen President and Chief Investment Officer of the Home
Shalov & Wein Insurance Company (August, 1991-September, 1995).
Counsel to the Independent Trustees
114 West 47th Street
New York, New York
Marc I. Stern* (53) President and Director, The TCW Group, Inc.; President
Trustee and Director of the Adviser; Vice Chairman and Director
865 South Figueroa Street of TCW Asset Management Company; Executive Vice
Los Angeles, California President and Director of Trust Company of the West;
Chairman and Director of the TCW Galileo Funds, Inc.;
Trustee of the TCW/DW Funds; Chairman of TCW Americas
Development, Inc.; Chairman of TCW Asia, Limited (since
January 1993); Chairman of TCW London International,
Limited (since March, 1993); formerly President of
SunAmerica, Inc. (financial services company); Director
of Qualcomm, Incorporated (wireless communications);
Director or Trustee of various not-for-profit
organizations.
Barry Fink (42) Senior Vice President (since March, 1997) and Secretary
Vice President, Secretary and General Counsel (since February, 1997) of the
and General Counsel Manager and InterCapital; Senior Vice President (since
Two World Trade Center March, 1997) and Assistant Secretary and Assistant
New York, New York General Counsel (since February, 1997) 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
the Manager and InterCapital and Assistant Secretary of
the Dean Witter Funds and the TCW/DW Funds.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
James A. Tilton (57) Managing Director of the Adviser; Managing Director and
Vice President member of the Equity Policy Committee of Trust Company
865 South Figueroa Street of the West and TCW Asset Management Company; Chairman
Los Angeles, California of the Board of Verdugo Hills Hospital and Chairman of
the Board of Councilors of the University of Southern
California School of Public Administration; director of
various other business organizations; Vice President of
TCW/ DW Core Equity Trust and TCW/DW Total Return Trust.
James M. Goldberg (52) Managing Director of the Adviser; Managing Director and
Vice President Chairman of the Fixed Income Policy Committee of Trust
865 South Figueroa Street Company of the West and TCW Asset Management Company;
Los Angeles, California Vice President of TCW/DW North American Government
Income Trust.
Thomas F. Caloia (51) First Vice President and Assistant Treasurer of the
Treasurer Manager and InterCapital and Treasurer of the TCW/ DW
Two World Trade Center Funds and the Dean Witter 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 the
Manager and InterCapital, Executive Vice President of Distributors and DWT and
Director of DWT, Mitchell M. Merin, President and Chief Strategic Officer of the
Manager and InterCapital, Executive Vice President of Distributors and DWT and
Director of DWT, Executive Vice President, Chief Administrative Officer and
Director of DWR and Director of SPS Transaction Services, Inc. and various other
MSDWD subsidiaries, and Robert S. Giambrone, Senior Vice President of
InterCapital, DWSC, Distributors and DWT and Director of DWT, are Vice
Presidents of the Fund. Marilyn K. Cranney, First Vice President and Assistant
General Counsel of the Manager and InterCapital, and Lou Anne D. McInnis,
Carsten Otto and Ruth Rossi, Vice Presidents and Assistant General Counsels of
the Manager and InterCapital, and Frank Bruttomesso and Todd Lebo, Staff
Attorneys with InterCapital, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same individuals
also serve as trustees for all of the TCW/DW Funds. As of the date of this
Statement of Additional Information, there are a total of 14 TCW/ DW Funds. As
of October 31, 1997, the TCW/DW Funds had total net assets of approximately $4.4
billion and approximately a quarter of a million shareholders.
Five Trustees (56% of the total number) have no affiliation or business
connection with TCW Funds Management, Inc. or Dean Witter Services Company Inc.
or any of their affiliated persons and do not own any stock or other securities
issued by MSDWD or TCW, the parent companies of Dean Witter Services Company
Inc. and TCW Funds Management, Inc., respectively. These are the "disinterested"
or "independent" Trustees. The other four Trustees (the "management Trustees")
are affiliated with either Dean Witter Services Company Inc. or TCW. Four of the
five independent Trustees are also Independent Trustees of the Dean Witter
Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The TCW/DW Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on
9
<PAGE>
the Funds' Boards, certain Trustees who would otherwise be qualified and in
demand to serve on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee and
the Committee of the Independent Trustees. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1996,
the three Committees held a combined total of fifteen meetings. The Committees
hold some meetings at the offices of the Manager or Adviser and some outside
those offices. Management Trustees or officers do not attend these meetings
unless they are invited for purposes of furnishing information or making a
report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Each of the open-end TCW/DW Funds has such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
On July 1, 1996, Mr. Haire became Chairman of the Committee of the
Independent Trustees and the Audit Committee of the TCW/DW Funds. The Chairman
of the Committees maintains an office at the Funds' headquarters in New York. He
is responsible for keeping abreast of regulatory and industry developments and
the Funds' operations and management. He screens and/or prepares written
materials and identifies critical issues for the Independent Trustees to
consider, develops agendas for Committee meetings, determines the type and
amount of information that the Committees will need to form a judgment on
various issues, and arranges to have that information furnished to Committee
members. He also arranges for the services of independent experts and consults
with them in advance of meetings to help refine reports and to focus on critical
issues. Members of the Committees believe that the person who serves as Chairman
of both Committees and guides their efforts is pivotal to the effective
functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment advisory, management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Adviser and the Manager and other service
providers. In effect, the Chairman of the Committees serves as a combination of
chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the TCW/DW Funds and as Chairman of the Committee of the Independent
Trustees and the Audit Committee and Independent Director or Trustee of the Dean
Witter Funds. The current Committee Chairman has had more than 35 years
experience as a senior executive in the investment company industry.
10
<PAGE>
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL TCW/DW
FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the TCW/DW Funds avoids the duplication of
effort that would arise from having different groups of individuals serving as
Independent Trustees for each of the Funds or even of sub-groups of Funds. They
believe that having the same individuals serve as Independent Trustees of all
the Funds tends to increase their knowledge and expertise regarding matters
which affect the Fund complex generally and enhances their ability to negotiate
on behalf of each Fund with the Fund's service providers. This arrangement also
precludes the possibility of separate groups of Independent Trustees arriving at
conflicting decisions regarding operations and management of the Funds and
avoids the cost and confusion that would likely ensue. Finally, having the same
Independent Trustees serve on all Fund Boards enhances the ability of each Fund
to obtain, at modest cost to each separate Fund, the services of Independent
Trustees, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
TCW/DW Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $2,225 plus a per
meeting fee of $200 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee of
the Independent Trustees an additional annual fee of $1,200). If a Board meeting
and a Committee meeting, or more than one Committee meeting, take place on a
single day, the Trustees are paid a single meeting fee by the Fund. The Fund
also reimburses such Trustees for travel and other out-of-pocket expenses
incurred by them in connection with attending such meetings. Trustees and
officers of the Fund who are or have been employed by the Manager or the Adviser
or an affiliated company of either receive no compensation or expense
reimbursement from the Fund. The Trustees of the TCW/DW Funds do not have
retirement or deferred compensation plans.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended September 30, 1997.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- ------------------------------------------------------------ -------------
<S> <C>
John C. Argue............................................... $5,025
John R. Haire............................................... 7,375
Dr. Manuel H. Johnson....................................... 5,225
Michael E. Nugent........................................... 5,425
John L. Schroeder........................................... 5,425
</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 14 TCW/DW Funds and, in the case of Messrs. Haire, Johnson, Nugent and
Schroeder, the 82 Dean Witter Funds that were in operation at December 31, 1996,
and, in the case of Mr. Argue, TCW Galileo Funds, Inc. With respect to Messrs.
Haire, Johnson, Nugent and Schroeder, the Dean Witter Funds are included solely
because of a limited exchange privilege between various TCW/DW Funds and five
Dean Witter Money Market Funds. With respect to Mr. Argue, TCW Galileo
11
<PAGE>
Funds, Inc. is included solely because the Fund's Adviser, TCW Funds Management,
Inc., also serves as Adviser to that investment company.
CASH COMPENSATION FROM FUND GROUPS
<TABLE>
<CAPTION>
FOR SERVICE
AS CHAIRMAN
OF COMMITTEES
FOR SERVICES AS OF
FOR SERVICE AS CHAIRMAN OF INDEPENDENT TOTAL CASH
DIRECTOR OR COMMITTEES OF DIRECTORS/ COMPENSATION FOR
FOR SERVICE AS TRUSTEE AND INDEPENDENT TRUSTEES SERVICES TO 82 DEAN
TRUSTEE AND COMMITTEE FOR SERVICE AS TRUSTEES AND AUDIT WITTER FUNDS, 14
COMMITTEE MEMBER OF 82 DIRECTOR OF AND AUDIT COMMITTEES OF TCW/ DW FUNDS AND
NAME OF INDEPENDENT MEMBER OF 14 DEAN WITTER TCW GALILEO COMMITTEES OF 82 DEAN TCW GALILEO FUNDS,
TRUSTEE TCW/DW FUNDS FUNDS FUNDS, INC. 14 TCW/DW FUNDS WITTER FUNDS INC.
- ------------------------ -------------- -------------- -------------- --------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
John C. Argue........... $66,483 -- $39,000 -- -- $105,483
John R. Haire........... 64,283 $106,400 -- $12,187 $195,450 378,320
Dr. Manuel H. Johnson... 66,483 137,100 -- -- -- 203,583
Michael E. Nugent....... 64,283 138,850 -- -- -- 203,133
John L. Schroeder....... 69,083 137,150 -- -- -- 206,233
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds have adopted a retirement program under which an Independent
Trustee who retires after serving for at least five years (or such lesser period
as may be determined by the Board) as an Independent Director or Trustee of any
Dean Witter Fund that has adopted the retirement program (each such Fund
referred to as an "Adopting Fund" and each such Trustee referred to as an
"Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Trustee
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing for the remainder of his or her life, an annual
retirement benefit (the "Regular Benefit") equal to 25.0% of his or her Eligible
Compensation plus 0.4166666% of such Eligible Compensation for each full month
of service as an Independent Director or Trustee of any Adopting Fund in excess
of five years up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the Board.(1) "Eligible Compensation" is one-fifth
of the total compensation earned by such Eligible Trustee for service to the
Adopting Fund in the five year period prior to the date of the Eligible
Trustee's retirement. Benefits under the retirement program are not secured or
funded by the Adopting Funds.
- ---------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
12
<PAGE>
The following table illustrates the retirement benefits accrued to Messrs.
Haire, Johnson, Nugent and Schroeder by the 57 Dean Witter Funds for the year
ended December 31, 1996, and the estimated retirement benefits for Messrs.
Haire, Johnson, Nugent and Schroeder, to commence upon their retirement, from
the 57 Dean Witter Funds as of December 31, 1996.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
BENEFITS BENEFITS
ESTIMATED ACCRUED AS UPON
CREDITED YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE BY ALL FROM ALL
RETIREMENT OF ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- ------------------------------------------------------------ -------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
John R. Haire............................................... 10 50.0% $46,952 $ 129,550
Dr. Manuel H. Johnson....................................... 10 50.0 10,926 51,325
Michael E. Nugent........................................... 10 50.0 19,217 51,325
John L. Schroeder........................................... 8 41.7 38,700 42,771
</TABLE>
- ---------------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) above.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
As discussed in the Prospectus, the Fund may invest in, among other
securities, securities issued by the U.S. Government, its agencies or
instrumentalities. Such securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from three months
to 30 years.
(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but whose issuing
agency or instrumentality has the right to borrow, to meet its obligations,
from an existing line of credit with the U.S. Treasury. Among the agencies
and instrumentalities issuing such obligations are the Tennessee Valley
Authority, the Federal National Mortgage Association ("FNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") and the U.S. Postal Service.
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal Farm
Credit System and the Federal Home Loan Banks.
Neither the value nor the yield of the U.S. Government securities which may
be invested in by the Fund are guaranteed by the U.S. Government. Such values
and yield will fluctuate with changes in prevailing
13
<PAGE>
interest rates and other factors. Generally, as prevailing interest rates rise,
the value of any U.S. Government securities held by the Fund will fall. Such
securities with longer maturities generally tend to produce higher yields and
are subject to greater market fluctuation as a result of changes in interest
rates than debt securities with shorter maturities. The Fund is not limited as
to the maturities of the U.S. Government securities in which it may invest.
MORTGAGE-BACKED SECURITIES
As discussed in the Prospectus, the Fund may invest in, among other
securities, fixed-rate and adjustable rate mortgage-backed securities
("Mortgage-Backed Securities").
There are currently three basic types of Mortgage-Backed Securities: (i)
those issued or guaranteed by the United States Government or one of its
agencies or instrumentalities, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC") (securities issued by GNMA, but
not those issued by FNMA or FHLMC, are backed by the "full faith and credit" of
the United States); (ii) those issued by private issuers that represent an
interest in or are collateralized by Mortgage-Backed Securities issued or
guaranteed by the United States Government or one of its agencies or
instrumentalities; and (iii) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or Mortgage-Backed
Securities without a government guarantee but usually having some form of
private credit enhancement.
The Fund may invest in mortgage pass-through securities representing
participation interests in pools of residential mortgage loans originated by
United States governmental or private lenders such as banks, broker-dealers and
financing corporations and guaranteed, to the extent provided in such
securities, by the United States Government or one of its agencies or
instrumentalities. Such securities, which are ownership interests in the
underlying mortgage loans, differ from conventional debt securities, which
provide for periodic payment of interest in fixed amounts (usually
semi-annually) and principal payments at maturity or on specified call dates.
Mortgage pass-through securities provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans.
The guaranteed mortgage pass-through securities in which the Fund may invest
include those issued or guaranteed by GNMA, FNMA and FHLMC. GNMA certificates
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. FNMA is a federally chartered,
privately owned corporation and FHLMC is a corporate instrumentality of the
United States. FNMA and FHLMC certificates are not backed by the full faith and
credit of the United States, but the issuing agency or instrumentality has the
right to borrow, to meet its obligations, from an existing line of credit with
the U.S. Treasury. The U.S. Treasury has no legal obligation to provide such
line of credit and may choose not to do so.
Certificates for Mortgage-Backed Securities evidence an interest in a
specific pool of mortgages. These certificates are, in most cases, "modified
pass-through" instruments, wherein the issuing agency guarantees the payment of
principal and interest on mortgages underlying the certificates, whether or not
such amounts are collected by the issuer on the underlying mortgages.
ADJUSTABLE RATE MORTGAGE SECURITIES. As stated in the Prospectus, 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
14
<PAGE>
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.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES. Private mortgage pass-through
securities are structured similarly to the GNMA, FNMA and FHLMC mortgage
pass-through securities and are issued by originators of and investors in
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. These securities usually are backed by a pool of conventional fixed
rate or adjustable rate mortgage loans. Since private mortgage pass-through
securities typically are not guaranteed by an entity having the credit status of
GNMA, FNMA and FHLMC, such securities generally are structured with one or more
types of credit enhancement.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
SECURITIES. As stated in the Prospectus, the Fund may invest up to 5% of its
net assets in collateralized mortgage obligations or "CMOs." CMOs are debt
obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC
Certificates, but also may be collateralized by whole loans or private mortgage
pass-through securities (such collateral collectively hereinafter referred to as
"Mortgage Assets"). Multiclass pass-through securities are equity interests in a
trust composed of Mortgage Assets. Payments of principal of and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the United States government, or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. The issuer of a series of CMOs may elect to be treated as a Real
Estate Mortgage Investment Conduit ("REMIC"). REMICs include governmental and/or
private entities that issue a fixed pool of mortgages secured by an interest in
real property. REMICs are similar to CMOs in that they issue multiple classes of
securities, but unlike CMOs, which are required to be structured as debt
securities, REMICs may be structured as indirect ownership interests in the
underlying assets of the REMICs themselves. However, there are no effects on the
Fund from investing in CMOs issued by entities that have elected to be treated
as REMICs, and all future references to CMOs shall also be deemed to include
REMICs.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semi-annual basis. Certain CMOs may have variable or floating
interest rates and others may be stripped (securities which provide only the
principal or interest feature of the underlying security).
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of a CMO series in a number of different ways. Generally,
the purpose of the allocation of the cash flow of a CMO to the various classes
is to obtain a more predictable cash flow to the individual tranches than exists
with the underlying collateral of the CMO. As a general rule, the more
predictable the cash flow is on a CMO tranche, the lower the anticipated yield
will be on that tranche at the time of issuance relative to prevailing market
yields on Mortgage-Backed Securities. As part of the process of creating more
predictable cash flows on most of the tranches in a series of CMOs, one or more
tranches generally must be created that absorb most of the volatility in the
cash flows on the underlying mortgage loans. The yields on these tranches are
generally higher than prevailing market yields on Mortgage-Backed Securities
with similar maturities. As a result of the uncertainty of the cash flows of
these tranches, the market prices of and yield on these tranches generally are
more volatile.
The Fund also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by
15
<PAGE>
its stated maturity date or final distribution date but may be retired earlier.
PAC Bonds generally require payments of a specified amount of principal on each
payment date. PAC Bonds always are parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
RISKS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-Backed and
Asset-Backed Securities have certain different characteristics than traditional
debt securities. Among the major differences are that interest and principal
payments are made more frequently, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, if the Fund purchases such a
security at a premium, a prepayment rate that is faster than expected may reduce
yield to maturity, while a prepayment rate that is slower than expected may have
the opposite effect of increasing yield to maturity. Alternatively, if the Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments may reduce, yield to maturity.
The Fund may invest a portion of its assets in derivative Mortgage-Backed
Securities such as Stripped Mortgage-Backed Securities which are highly
sensitive to changes in prepayment and interest rates. The Adviser will seek to
manage these risks (and potential benefits) by investing in a variety of such
securities and through hedging techniques.
Mortgage-Backed and Asset-Backed Securities, like all fixed income
securities, generally decrease in value as a result of increases in interest
rates. In addition, although generally the value of fixed-income securities
increases during periods of falling interest rates and, as stated above,
decreases during periods of rising interest rates, as a result of prepayments
and other factors, this is not always the case with respect to Mortgage-Backed
and Asset-Backed Securities.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Fund are likely to be greater during a period
of declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Asset-Backed
Securities, although less likely to experience the same prepayment rates as
Mortgage-Backed Securities, may respond to certain of the same factors
influencing prepayments, while at other times different factors, such as changes
in credit use and payment patterns resulting from social, legal and economic
factors, will predominate. Mortgage-Backed and Asset-Backed Securities generally
decrease in value as a result of increases in interest rates and may benefit
less than other fixed income securities from declining interest rates because of
the risk of prepayment.
There are certain risks associated specifically with CMOs. CMOs issued by
private entities are not U.S. Government securities and are not guaranteed by
any government agency, although the securities underlying a CMO may be subject
to a guarantee. Therefore, if the collateral securing the CMO, as well as any
third party credit support or guarantees, is insufficient to make payment, the
holder could sustain a loss. However, as stated above, the Fund will invest only
in CMOs which are of investment grade or, if unrated, are determined to be of
comparable quality. Also, a number of different factors, including the extent of
prepayment of principal of the Mortgage Assets, affect the availability of cash
for principal payments by the CMO issuer on any payment date and, accordingly,
affect the timing of principal payments on each CMO class.
Asset-Backed Securities involve certain risks that are not posed by
Mortgage-Backed Securities, resulting mainly from the fact that Asset-Backed
Securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities.
RISKS OF INTERNATIONAL INVESTING
As stated in the Prospectus, the Fund may invest up to 25% of its total
assets in foreign securities. Investments in foreign securities will occasion
risks relating to political and economic developments abroad,
16
<PAGE>
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 securities are not subject to
the regulatory requirements of U.S. securities and, as such, there may be less
publicly available information about such securities. Moreover, foreign
securities are not subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to U.S. securities.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Fund trades effected in such markets. Inability to dispose of
portfolio securities due to settlement delays could result in losses to the Fund
due to subsequent declines in value of such securities and the inability of the
Fund to make intended security purchases due to settlement problems could result
in a failure of the Fund to make potentially advantageous investments.
Investments in foreign securities also involve currency risks. Fluctuations
in the relative rates of exchange among the currencies involved will affect the
value of the Fund's investments. Changes in foreign currency exchange rates
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and thereby impact upon the Fund's total
return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade.
As stated in the Prospectus, the Fund may invest up to 5% of its total
assets in Cetes, a type of Mexican government peso denominated debt securities.
Certain special considerations are associated with investing in debt obligations
of the Mexican government. The Mexican government has exercised and continues to
exercise a significant influence over many aspects of the private sector in
Mexico. Mexican government actions concerning the economy could have a
significant effect on market conditions and prices and yields of Mexican debt
obligations, including those in which the Fund invests. Mexico is currently the
second largest debtor nation (among developing countries) to commercial banks
and foreign governments. The value of the Fund's portfolio investments may be
affected by changes in oil prices, interest rates, taxation and other political
or economic developments in Mexico, including recent rates of inflation which
have exceeded the rates of inflation in the United States.
MONEY MARKET SECURITIES
As stated in the Prospectus, the U.S. money market instruments which the
Fund may purchase include U.S. Government securities, bank obligations,
Eurodollar certificates of deposit, obligations of savings institutions, fully
insured certificates of deposit and commercial paper. Such securities are
limited to:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government and
having total assets of $1 billion or more, and instruments secured by such
obligations, not including obligations of foreign branches of domestic banks
except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more (investments in Eurodollar certificates may be affected by changes in
currency rates or exchange control regulations, or changes in governmental
administration or economic or monetary policy in the United States and abroad);
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OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more (investments in savings institutions above $100,000 in principal amount are
not protected by Federal deposit insurance);
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is insured by the Bank Insurance Fund or the
Savings Association Insurance Fund (each of which is administered by the Federal
Deposit Insurance Corporation), limited to $100,000 principal amount per
certificate and to 15% or less of the Fund's net assets in all such obligations
and in all illiquid assets, in the aggregate; and
COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation or the highest grade by Moody's Investors Service,
Inc. or, if not rated, issued by a company having an outstanding debt issue
rated at least AAA by Standard & Poor's or Aaa by Moody's.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested or
used for payments of obligations of the Fund. These agreements, which may be
viewed as a type of secured lending by the Fund, typically involve the
acquisition by the Fund of debt securities from a selling financial institution
such as a bank, savings and loan association or broker-dealer. The agreement
provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral") at a
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The collateral will be maintained in a
segregated account and will be marked-to-market daily to determine that the
value of the collateral, as specified in the agreement, does not decrease below
the purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to the account to
maintain full collateralization. The Fund will accrue interest from the
institution until the time when the repurchase is to occur. Although such date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to any
limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Adviser subject to
procedures established by the Board of Trustees of the Fund. In addition, as
described above, the value of the collateral underlying the repurchase agreement
will be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss. It is the current policy of the Fund not to
invest in repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Fund, amounts to
more than 15% of its net assets.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
The Fund may also use reverse repurchase agreements and dollar rolls with
respect to up to 5% of its total assets 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. During the reverse repurchase agreement period, the
Fund continues to receive principal and interest payments on these securities.
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 month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a
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specified future date. During the roll period, the Fund foregoes 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 the
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.
WARRANTS
The Fund may invest up to 5% of the value of its net assets in warrants,
including not more than 2% in warrants not listed on either the New York or
American Stock Exchange. Warrants are, in effect, an option to purchase equity
securities at a specific price, generally valid for a specific period of time,
and have no voting rights, pay no dividends and have no rights with respect to
the corporations issuing them. The Fund may acquire warrants attached to other
securities without reference to the foregoing limitations.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis and may purchase or sell
securities on a forward commitment basis. When such transactions are negotiated,
the price is fixed at the time of the commitment, but delivery and payment can
take place a month or more after the date of the commitment. The securities so
purchased or sold are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date. While the Fund will only
purchase securities on a when-issued, delayed delivery or forward commitment
basis with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date, if it is deemed advisable. At the time
the Fund makes the commitment to purchase or sell securities on a when-issued,
delayed delivery or forward commitment basis, the Fund will record the
transaction and thereafter reflect the value, each day, of such security
purchased or, if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, the value may be more or
less than the purchase or sale price. The Fund will also establish a segregated
account with the Fund's custodian bank in which it will continuously maintain
cash or U.S. Government securities or other liquid portfolio securities equal in
value to commitments to purchase securities on a when-issued, delayed delivery
or forward commitment basis; subject to this requirement, the Fund may purchase
securities on such basis without limit. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a when-issued or
delayed delivery basis may increase the volatility of the Fund's net asset
value.
WHEN, AS AND IF ISSUED 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. The commitment for the purchase of any such security will
not be recognized in the portfolio of the Fund until the Adviser determines that
issuance of the security is probable. At such time, the Fund will record the
transaction and, in determining its net asset value, will reflect the value of
the security daily. At such time, the Fund will also establish a segregated
account with its custodian bank in which it will continuously maintain cash or
U.S. Government securities or other liquid portfolio securities equal in value
to recognized commitments for such securities. Settlement of the trade will
occur within five business days of the occurrence of the subsequent event. Once
a segregated account has been established, if the anticipated event does not
occur and the securities are not issued the Fund will have lost an investment
opportunity. The Fund may purchase securities on such basis without limit. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a "when, as and if issued" basis may increase the
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volatility of its net asset value. The Fund may also sell securities on a "when,
as and if issued" basis provided that the issuance of the security will result
automatically from the exchange or conversion of a security owned by the Fund at
the time of the sale.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS.
As discussed in the Prospectus, the Fund may enter into forward foreign
currency exchange contracts ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large, commercial and investment banks) and their customers.
Such forward contracts will only be entered into with United States banks and
their foreign branches or foreign banks whose assets total $1 billion or more. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of 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 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 Adviser believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar or some other foreign currency, the Fund may enter into a forward
contract to sell, for a fixed amount of dollars or other currency, the amount of
foreign currency approximating the value of some or all of the Fund's 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 by the Adviser when it is determined that the
foreign currency in which the portfolio securities are denominated has
insufficient liquidity or is trading at a discount as compared with some other
foreign currency with which it tends to move in tandem.
In addition, when the Adviser 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. The Fund may,
however, close out the forward contract without purchasing the security which
was the subject of the "anticipatory" hedge.
The Fund will not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's portfolio securities or other assets denominated in that
currency. Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the longer term investment decisions made
with regard to overall diversification strategies. However, the management of
the Fund believes that it is important to have the flexibility to enter into
such forward contracts when it determines that the best interests of the Fund
will be served. The Fund's custodian bank will place cash, U.S. Government
securities or other appropriate liquid portfolio securities in a segregated
account of the Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of forward contracts entered into under
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the circumstances set forth above. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of the Fund's commitments with respect to such contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the
forward contract for delivery by the Fund of a foreign currency, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency (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 or put option on a fixed-income
security or the currency in which it is denominated, it may wish to enter into a
forward contract to purchase or sell the foreign currency in which the security
is denominated. A forward contract 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, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at which they are buying and selling various currencies. Thus
a dealer may offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
The Fund generally will not enter into a forward contract with a term of
greater than one year, although it may enter into forward contracts for periods
of up to five years. The Fund may be limited in its ability to enter into
hedging transactions involving forward contracts by the Internal Revenue Code
requirements relating to qualifications as a regulated investment company.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and stock
indexes and purchase options of the same series to effect closing
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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.
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.
OTC OPTIONS. Exchange-listed options are issued by the OCC (in the U.S.) or
other clearing entity or exchange which assures that all transactions in such
options are properly executed. OTC options are purchased from or sold (written)
to dealers or financial institutions which have entered into direct agreements
with the Fund. With OTC options, such variables as expiration date, exercise
price and premium will be agreed upon between the Fund and the transacting
dealer, without the intermediation of a third party such as the OCC. If the
transacting dealer fails to make or take delivery of the securities 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, without limit, in order to aid in achieving its
investment objective. Generally, a call option is "covered" if the Fund owns, or
has the right to acquire, without additional cash consideration (or for
additional cash consideration held for the Fund by its Custodian in a segregated
account) the underlying security subject to the option except that in the case
of call options on U.S. Treasury Bills, the Fund might own U.S. Treasury Bills
of a different series from those underlying the call option, but with a
principal amount and value corresponding to the exercise price and a maturity
date no later than that of the securities deliverable under the call option. A
call option is also covered if the Fund holds a call on the same security as the
underlying security of the written option, where the exercise price of the call
used for coverage is equal to or less than the exercise price of the call
written or greater than the exercise price of the call written if the mark to
market difference is maintained by the Fund in cash, U.S. Government securities
or other liquid portfolio securities which the Fund holds in a segregated
account maintained with its Custodian.
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The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to achieve a greater total return than would be
realized from holding the underlying securities alone. Moreover, the income
received from the premium will offset a portion of the potential loss incurred
by the Fund if the securities underlying the option are ultimately sold by the
Fund at a loss. The income received from premiums will fluctuate with varying
economic market conditions. If the market value of the portfolio securities upon
which call options have been written increases, the Fund may receive less total
return from the portion of its portfolio upon which calls have been written than
it would have had such 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
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 from being called,
to permit the sale of an underlying security or to enable the Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. Also, effecting a closing purchase transaction
will permit the cash or proceeds from the concurrent sale of any securities
subject to the option to be used for other investments by the Fund. The Fund may
realize a net gain or loss from a closing purchase transaction depending upon
whether the amount of the premium received on the call option is more or less
than the cost of effecting the closing purchase transaction. Any loss incurred
in a closing purchase transaction may be wholly or partially offset by
unrealized appreciation in the market value of the underlying security.
Conversely, a gain resulting from a closing purchase transaction could be offset
in whole or in part or exceeded by a decline in the market value of the
underlying security.
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security during
the option period. If a call option is exercised, the Fund realizes a gain or
loss from the sale of the underlying security equal to the difference between
the purchase price of the underlying security and the proceeds of the sale of
the security plus the premium received for on the option less the commission
paid.
Options written by a Fund normally have expiration dates of from up to nine
months (equity securities) to eighteen months (fixed-income securities) from the
date written. The exercise price of a call option may be below, equal to or
above the current market value of the underlying security at the time the option
is written. See "Risks of Options and Futures Transactions," below.
COVERED PUT WRITING. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period, at
the purchaser's election (certain listed 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, 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
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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 Adviser 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 equaling up to 5% of its total assets. The Fund may
purchase call options only in order to close out a covered call position (see
"Covered Call Writing" above) and to protect against an increase in price of a
security it anticipates purchasing. The purchase of the call option to effect a
closing transaction on a call written over-the-counter may be a listed or an OTC
option. In either case, the call purchased is likely to be on the same
securities and have the same terms as the written option. If purchased
over-the-counter, the option would generally be acquired from the dealer or
financial institution which purchased the call written by the Fund.
The Fund may purchase put options on securities which it holds (or has the
right to acquire) in its portfolio only to protect itself against a decline in
the value of the security. If the value of the underlying security were to fall
below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Fund would incur no additional loss. In
addition, the Fund may sell a put option which it has previously purchased prior
to the sale of the securities underlying such option. Such a sale would result
in a net gain or loss depending on whether the amount received on the sale is
more or less than the premium and other transaction costs paid on the put option
which is sold. Any such gain or loss could be offset in whole or in part by a
change in the market value of the underlying security. If a put option purchased
by the Fund expired without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. 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 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 increase, but has retained the risk of loss
should the price of the underlying security decline. The covered put writer also
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option less the premium received on the
sale of the option. In both cases, the writer has no control over the time when
it may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction 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 an underlying security 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 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
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transaction with the purchasing dealer. However, the Fund may be able to
purchase an offsetting option which does not close out its position as a writer
but constitutes an asset of equal value to the obligation under the option
written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the OCC to handle current trading volume; or (vi) a decision by one or more
Exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that Exchange (or in that
class or series of options) would cease to exist, although outstanding options
on that Exchange that had been issued by the OCC as a result of trades on that
Exchange would generally continue to be exercisable in accordance with their
terms.
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 Adviser.
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.
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
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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 Adviser 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 Adviser 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 Adviser 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 liquid portfolio securities
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 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 of a covered call on a specific
underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
stocks that exactly match the composition of the underlying index, it
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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. commodity
exchanges on such underlying securities as U.S. Treasury bonds, notes and bills
("interest rate" futures) and such indexes as the S&P 500 Index, the Moody's
Investment-Grade Corporate Bond Index and the New York Stock Exchange Composite
Index ("index" futures).
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
securities (or anticipated portfolio securities) against changes in prevailing
interest rates. If the Adviser anticipates that interest rates may rise and,
concomitantly, the price of 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 stock index futures contracts for the purpose
of hedging its equity portfolio securities (or anticipated portfolio securities)
against changes in their prices. If the 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 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 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.
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INTEREST RATE FUTURES CONTRACTS. When the Fund enters into an interest rate
futures contract, it is initially required to deposit with the Fund's Custodian,
in a segregated account in the name of the broker performing the transaction, an
"initial margin" of cash or U.S. Government securities or other liquid portfolio
securities equal to approximately 2% of the contract amount. Initial margin
requirements are established by the Exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits 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 requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in the
form of variation margin payments. The Fund may be required to make additional
margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
Currently, index futures contracts can be purchased or sold with respect to,
among others, the Standard & Poor's 500 Stock Price Index and the Standard &
Poor's 100 Stock Price Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Index on the New York Futures Exchange, the Major
Market Index on the American Stock Exchange, the 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 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
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an interest rate futures contract, the underlying security of which correlates
with the portion of the portfolio the Adviser seeks to hedge. Any premiums
received in the writing of options on futures contracts may, of course, 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
successful use of futures and related options depends on the ability of the
Adviser to accurately predict market, interest rate and currency movements. The
Fund may sell a futures contract to protect against the decline in the value of
securities held by the Fund. However, it is possible that the futures market may
advance and the value of securities held in the portfolio of the Fund may
decline. If this occurred, the Fund would lose money on the futures contract and
also experience a decline in value of its portfolio securities. However, while
this could occur for a very brief period or to a very small degree, over time
the value of a diversified portfolio will tend to move in the same direction as
the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the 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 order to assure that the Fund is entering into transactions in futures
contracts for hedging purposes as such is defined by the CFTC either: 1) a
substantial majority (i.e., approximately 75%) of all anticipatory hedge
transactions (transactions in which the Fund does not own at the time of the
transaction, but expects to acquire, the securities underlying the relevant
futures contract) involving the purchase of futures contracts will be completed
by the purchase of securities which are the subject of the hedge or 2) the
underlying value of all long positions in futures contracts will not exceed the
total value of a) all short-term debt obligations held by the Fund; b) cash held
by the Fund; c) cash proceeds due to the Fund on investments within thirty days;
d) the margin deposited on the contracts; and e) any unrealized appreciation in
the value of the contracts.
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 obligations equal to the
purchase price of the contract or the exercise price of the put option (less the
amount of initial or variation margin on deposit) in a segregated account
maintained for the Fund by its Custodian. Alternatively, the Fund could cover
its long position by purchasing a put option on the same futures contract with
an exercise price as high or higher than the price of the contract held by the
Fund.
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
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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. In the event of adverse price movements, the Fund would
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 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.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit the Fund's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in clearance
and delivery requirements on foreign exchanges may occasion delays in the
settlement of the Fund's transactions effected on foreign exchanges.
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.
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
(a) temporarily, by short-term traders seeking to profit from the difference
between a contract or security price objective and their cost of borrowed funds;
(b) by investors in futures contracts electing to close out their contracts
through offsetting transactions rather than meet margin deposit requirements;
(c) by investors in futures contracts opting to make or take delivery of
underlying securities rather than engage in closing transactions, thereby
reducing liquidity of the futures market; and (d) temporarily, by speculators
who view the deposit requirements in the futures markets as less onerous than
margin requirements in the cash market. Due to the possibility of price
distortion in the futures market and because of the imperfect correlation
between movements in the prices of securities and movements in the prices of
futures contracts, a correct forecast of interest rate trends may still not
result in a successful hedging transaction.
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.
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Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities.
The Adviser has substantial experience in the use of the investment
techniques described above under the heading "Options and Futures Transactions,"
which techniques require skills different from those needed to select the
portfolio securities underlying various options and futures contracts.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund (subject to notice
provisions described below), and are at all times secured by cash or money
market instruments, which are maintained in a segregated account pursuant to
applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive the income on the loaned securities while at the
same time earning interest on the cash amounts deposited as collateral, which
will be invested in short-term obligations. The Fund will not lend its portfolio
securities if such loans are not permitted by the laws or regulations of any
state in which its shares are qualified for sale and will not lend more than 25%
of the value of its total assets. A loan may be terminated by the borrower on
one business day's notice, or by the Fund on two business days' notice. If the
borrower fails to deliver the loaned securities within two days after receipt of
notice, the Fund could use the collateral to replace the securities while
holding the borrower liable for any excess of replacement cost over collateral.
As with any extensions of credit, there are risks of delay in recovery and in
some cases even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities will
only be made to firms deemed by the 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
Adviser pursuant to procedures adopted and reviewed, on an ongoing basis, by the
Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate generally will not
exceed 150%. A 150% turnover rate would occur, for example, if 150% 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. For the fiscal years ended September 30, 1996 and September 30, 1997,
the Fund's portfolio turnover rate was approximately 117% and 80%, respectively.
INVESTMENT RESTRICTIONS
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In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.
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The Fund may not:
1. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.
2. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Fund may invest in the securities of companies which operate, invest in, or
sponsor such programs.
3. Borrow money, except that the Fund (i) 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 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 agreement; (b) purchasing any securities on a
when-issued or delayed delivery basis; (c) purchasing or selling any
financial futures contracts or options thereon; (d) borrowing money in
accordance with restrictions described above; or (e) lending portfolio
securities.
6. Make loans of money or securities, except: (a) by the purchase of
portfolio securities in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; or (c) by lending its portfolio securities.
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 is not considered the purchase of a security on margin.
9. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or sell futures contracts or options on futures.
10. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security. (The Fund may invest in restricted
securities subject to the non-fundamental limitations contained in the
Prospectus.)
11. Invest for the purpose of exercising control or management of any
other issuer.
In addition, as a nonfundamental policy, the Fund may not purchase
securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets or by purchase in the
open market of securities of closed-end investment companies where no
underwriter's or dealer's commission or profit, other than customary broker's
commissions, is involved and only if immediately thereafter not more than (a) 5%
of the Fund's total assets, taken at market value, would be invested in any one
such company, (b) 10% of the Fund's total assets, taken at market value, would
be invested in such securities and (c) 3% of any one such company's voting
securities would be owned by the Fund.
As a non-fundamental policy, the Fund may not invest in other investment
companies in reliance on Sections 12(d)(1)(F), 12(d)(1)(G) or 12(d)(1)(J) of the
Act.
If (except with respect to Restriction 3) a percentage restriction is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from a change in values of portfolio securities or amount of total or
net assets will not be considered a violation of any of the foregoing
restrictions.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
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Subject to the general supervision of the Trustees, the Adviser is
responsible for decisions to buy and sell securities for the Fund, the selection
of brokers and dealers to effect the transactions, and the negotiation of
brokerage commissions, if any. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In addition, securities may be purchased at times in underwritten
offerings where the price includes a fixed amount of compensation, generally
referred to as the underwriter's concession or discount. Futures transactions
will usually be effected through a broker and a commission will be charged. On
occasion, the Fund may also purchase certain money market instruments directly
from an issuer, in which case no commissions or discounts are paid. During the
fiscal years ended September 30, 1995, 1996 and 1997 the Fund paid $223,076,
$130,941 and $96,388, respectively, in brokerage commissions.
The Adviser currently serves as investment adviser to a number of clients,
including other investment companies, and may in the future act as investment
adviser to others. It is the practice of the Adviser to cause purchase and sale
transactions to be allocated among the Fund and others whose assets it manages
in such manner as it deems equitable. In making such allocations among the Fund
and other client accounts, the main factors considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Adviser from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Adviser relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
In seeking to implement the Fund's policies, the Adviser effects
transactions with those brokers and dealers who the Adviser believes provide the
most favorable prices and are capable of providing efficient executions. If the
Adviser believes such prices and executions are obtainable from more than one
broker or dealer, it may give consideration to placing portfolio transactions
with those brokers and dealers who also furnish research and other services to
the Fund or the Adviser. Such services may include, but are not limited to, any
one or more of the following: reports on industries and companies, economic
analyses and review of business conditions, portfolio strategy, analytic
computer software, account performance services, computer terminals and various
trading and/or quotation equipment. They also include advice from broker-dealers
as to the value of securities, availability of securities, availability of
buyers, and availability of sellers. In addition, they include recommendations
as to purchase and sale of individual securities and timing of such
transactions. The Fund will not purchase at a higher price or sell at a lower
price in connection with transactions affected with a dealer, acting as
principal, who furnishes research services to the Fund than would be the case if
no weight were given by the Fund to the dealer's furnishing of such services.
During the fiscal year ended September 30, 1997, the Fund directed the payment
of $72,639 in brokerage commissions in connection with transactions in the
aggregate amount of $58,756,856 to brokers because of research services
provided.
The information and services received by the Adviser from brokers and
dealers may be of benefit to the Adviser in the management of accounts of some
of its other clients and may not in all cases benefit the Fund
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<PAGE>
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Adviser and thereby reduce its expenses, it is of
indeterminable value and the advisory fee paid to the Adviser is not reduced by
any amount that may be attributable to the value of such services.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions for the Fund,
the commissions, fees or other remuneration received by the affiliated broker or
dealer must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on an exchange during a
comparable period of time. This standard would allow an affiliated broker or
dealer to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker in a commensurate arm's-length transaction.
Furthermore, the Board of Trustees of the Fund, including a majority of the
Trustees who are not "interested" persons of the Fund, as defined in the Act,
have adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to the affiliated broker or dealer
are consistent with the foregoing standard. During the fiscal years ended
September 30, 1995, 1996 and 1997, the Fund paid a total of $49,753, $9,886 and
$10,895, respectively, in commissions to DWR. During the fiscal year ended
September 30, 1997, the brokerage commissions paid to DWR represented
approximately 11.30% of the total brokerage commissions paid by the Fund during
the period and were paid on account of transactions having an aggregate dollar
value equal to approximately 17.38% of the aggregate dollar value of all
portfolio transactions of the Fund during the period for which commissions were
paid.
During the period June 1 through September 30, 1997, the Fund paid a total
of $1,140 in brokerage commissions to Morgan Stanley & Co., Inc., which
broker-dealer became an affiliate of the Distributor on May 31, 1997 upon
consummation of the merger of Dean Witter, Discover & Co. with Morgan Stanley
Group Inc. The brokerage commissions paid to Morgan Stanley & Co., Inc.
represented approximately 1.18% of the total brokerage commissions paid by the
Fund for this period and were paid on account of transactions having an
aggregate dollar value equal to approximately 1.32% of the aggregate dollar
value of all portfolio transactions of the Fund during the period for which
commissions were paid.
During the fiscal year ended September 30, 1997, the Fund purchased a
collateralized mortgage obligation, 6.50%, 6/28/24 issued by Bear Stearns
Mortgage Securities Inc. and common stock issued by Merrill Lynch & Co. At
September 30, 1997, the Fund held the aforementioned securities with market
values of $582,885 and $1,787,919, respectively. These issuers were among the
ten brokers or the ten dealers which executed transactions for or with the Fund
in the largest dollar amounts during the fiscal year ended September 30, 1997.
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, and may enter into selected broker-dealer agreements
with others. The Distributor, a Delaware corporation, is a wholly-owned
subsidiary of MSDWD. As part of an internal reorganization that took place in
December, 1992, the Distributor assumed the investment company share
distribution activities previously performed by DWR. The Trustees of the Fund,
including a majority of the Independent Trustees, approved, at their meeting on
June 30, 1997, the current Distribution Agreement appointing the Distributor
exclusive distributor of the Fund's shares and providing for the Distributor to
bear distribution expenses not borne by the Fund. By its terms, the Distribution
Agreement has an initial term ending April 30, 1998, and provides that it will
remain in effect from year to year thereafter if approved by the Board.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the
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<PAGE>
Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal securities laws and pays filing fees in accordance with
state securities laws. The Fund and Distributor have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act of 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
PLAN OF DISTRIBUTION. The Fund has adopted a Plan of Distribution pursuant
to Rule 12b-1 under the Act (the "Plan") pursuant to which each Class, other
than Class D, pays the Distributor compensation accrued daily and payable
monthly at the following annual rates: 0.25%, 1.0% and 1.0% of the average daily
net assets of Class A, Class B and Class C, respectively. The Distributor also
receives the proceeds of front-end sales charges and of contingent deferred
sales charges imposed on certain redemptions of shares, which are separate and
apart from payments made pursuant to the Plan (see "Purchase of Fund Shares" in
the Prospectus). The Distributor has informed the Fund that it and/or DWR
received (a) approximately $0, $1,110 and $216 in contingent deferred sales
charges from Class A, Class B and Class C, respectively, for the fiscal year
ended September 30, 1997, and (b) approximately $524 in front-end sales charges
from Class A for the fiscal year ended September 30, 1997, none of which was
retained by the Distributor.
The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year under
the Plan equal to 0.25% of such Class's average daily net assets are currently
each characterized as a "service fee" under the Rules of the Association of the
National Association of Securities Dealers (of which the Distributor is a
member). The service fee is a payment made for personal service and/or the
maintenance of shareholder accounts. The remaining portion of the Plan fees
payable by a Class, if any, is characterized an "asset-based sales charge" as
such is defined by the aforementioned Rules of the Association.
The Plan was adopted by a majority vote of the Board of Trustees, including
all of the Trustees of the Fund who are not "interested persons" of the Fund (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of the Plan (the "Independent 12b-1 Trustees"), cast in person at a
meeting called for the purpose of voting on the Plan, on July 21, 1993, and by
InterCapital as the then sole shareholder of the Fund on July 22, 1993.
At their meeting held on October 26, 1995, the Trustees of the Fund,
including all the Independent 12b-1 Trustees, approved an amendment to the Plan
to permit payments to be made under the Plan with respect to certain
distribution expenses incurred in connection with the distribution of shares,
including personal services to shareholders with respect to holdings of such
shares, of an investment company whose assets are acquired by the Fund in a
tax-free reorganization. At their meeting held on June 30, 1997, the Trustees,
including a majority of the Independent 12b-1 Trustees, approved amendments to
the Plan to reflect the multiple-class structure for the Fund, which took effect
on July 28, 1997.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each fiscal quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. In the Trustees' quarterly reviews of the
Plan, they will consider its continued appropriateness and the level of
compensation provided therein. Class C shares of the Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended
September 30, 1997, of $908,897. This amount is equal to payments required to be
paid monthly by the Fund which were computed at the annual rate of 0.99% of the
average daily net assets of Class C. The 12b-1 fee is treated by the Fund as an
expense in the year it is accrued. For the fiscal period July 28, 1997 through
September 30, 1997,
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<PAGE>
Class A and Class B shares of the Fund accrued payments under the Plan amounting
to $13 and $9,461, respectively, which amounts are equal to 0.25% and 1.00% of
the average daily net assets of Class A and Class B, respectively, for such
period.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a distribution arrangement as set forth in the
Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value of
the respective accounts for which they are the account executives or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by 401(k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code for which Dean Witter Trust FSB ("DWT") serves as Trustee or the 401(k)
Support Services Group of DWR serves as recordkeeper, InterCapital compensates
DWR's account executives by paying them, from its own funds, a gross sales
credit of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission, currently
a residual of up to 0.25% of the current value of the respective accounts for
which they are the account executives of record in all cases. In the case of
retirement plans qualified under Section 401(k) of the Internal Revenue Code and
other employer-sponsored plans qualified under Section 401(a) of the Internal
Revenue Code for which DWT serves as Trustee or the 401(k) Support Services
Group of DWR serves as recordkeeper, and which plans are opened on or after July
28, 1997, DWR compensates its account executives by paying them, from its own
funds, a gross sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value of
the respective accounts for which they are the account executives of record.
With respect to Class D shares other than shares held by participants in the
InterCapital mutual fund asset allocation program, InterCapital compensates
DWR's account executives by paying them, from its own funds, commissions for the
sale of Class D shares, currently a gross sales credit of up to 1.0% of the
amount sold. There is a chargeback of 100% of the amount paid if the Class D
shares are redeemed in the first year and a chargeback of 50% of the amount paid
if the Class D shares are redeemed in the second year after purchase.
InterCapital also compensates DWR's account executives by paying them, from its
own funds, an annual residual commission, currently a residual of up to 0.10% of
the current value of the respective accounts for which they are the account
executives of record (not including accounts of participants in the InterCapital
mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR to
its account executives and DWR's Fund-associated distribution-related expenses,
including sales compensation, and overhead and other branch office
distribution-related expenses including (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares and (d) other
expenses relating to branch promotion of Fund sales. The distribution fee that
the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred under the Plan on behalf of the Fund and, in the
case of Class B shares, opportunity costs, such as the gross sales credit and an
assumed interest charge thereon ("carrying charge"). In the Distributor's
reporting of the distribution expenses to the Fund, in the case of Class B
shares, such assumed interest (computed at the "broker's call rate") has been
calculated on the gross credit as it is reduced by amounts received by the
Distributor under the Plan and any contingent deferred sales charges received by
the Distributor upon redemption of shares of the Fund.
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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.
Each Class paid 100% of the amounts accrued under the Plan with respect to
the Class for the fiscal year ended September 30, 1997 to the Distributor. The
Distributor estimates it has spent, pursuant to the Plan, $8,052 on behalf of
Class B since the inception of the Plan. It is estimated that this amount was
spent in approximately the following ways: (i) 1.22% ($98)--advertising and
promotional expenses; (ii) 0% ($0)-- printing of prospectuses for distribution
to other than current shareholders; and (iii) 98.78% ($7,954)--other expenses,
including the gross sales credit and the carrying charges of which 0% ($0)
represents carrying charges, 40.39% ($3,213) represents commission credits to
DWR branch offices for payments of commissions to account executives and 59.61%
($4,741) 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 the Fund shares, including lease costs, the salaries
and employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies; (b) the costs of
client sales seminars; (c) travel expenses of Mutual Fund sales coordinators to
promote the sale of Fund shares; and (d) other expenses relating to branch
promotion of Fund share sales. The amounts accrued by Class A for distribution
during the fiscal period July 28, 1997 through September 30, 1997 were for
expenses which relate to compensation of sales personnel and associated overhead
expenses.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of Class
A, and 1.0%, in the case of Class C, of the average net assets of the respective
Class during the month. No interest or other financing charges, if any, incurred
on any distribution expenses on behalf of Class A and Class C will be
reimbursable under the Plan. With respect to Class A, in the case of all
expenses other than expenses representing the service fee, and, with respect to
Class C, in the case of all expenses other than expenses representing a gross
sales credit or a residual to account executives, such amounts shall be
determined at the beginning of each calendar quarter by the Trustees, including,
a majority of the Independent 12b-1 Trustees. Expenses representing the service
fee (for Class A) or a gross sales credit or a residual to account executives
(for Class C) may be reimbursed without prior determination. In the event that
the Distributor proposes that monies shall be reimbursed for other than such
expenses, then in making quarterly determinations of the amounts that may be
reimbursed by the Fund, the Distributor will provide and the Trustees will
review a quarterly budget of projected distribution expenses to be incurred on
behalf of the Fund, together with a report explaining the purposes and
anticipated benefits of incurring such expenses. The Trustees will determine
which particular expenses, and the portions thereof, that may be borne by the
Fund, and in making such a determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the Fund's Class A and
Class C shares.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses with respect to Class B shares or any
requirement that the Plan be continued from year to year, this excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made to
the Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the Plan
is terminated, the Trustees will consider at that time the manner in which to
treat such expenses. Any cumulative expenses incurred, but not yet recovered
through distribution fees or contingent deferred sales charges, may or may not
be recovered through future distribution fees or contingent deferred sales
charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial interest in the operation of the Plan except to the extent that DWR,
InterCapital, the Distributor or the Manager, or certain of their employees, may
be deemed to have
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<PAGE>
such an interest as a result of benefits derived from the successful operation
of the Plan or as a result of receiving a portion of the amounts expended
thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1994, and
provides that it will continue from year to year thereafter, provided such
continuance is approved annually by a vote of the Trustees in the manner
described above. Prior to the Board's approval of amendments to the Plan to
reflect the multiple class structure for the Fund, the most recent continuance
of the Plan for one year, until April 30, 1998, was approved by the Board of
Trustees of the Fund, including a majority of the Independent 12b-1 Trustees, at
a Board meeting held on April 24, 1997. Prior to approving the continuation of
the Plan, the Board requested and received from the Distributor and reviewed all
the information which it deemed necessary to arrive at an informed
determination. In making their determination to continue the Plan, the Trustees
considered: (1) the Fund's experience under the Plan and whether such experience
indicates that the Plan is operating as anticipated; (2) the benefits the Fund
had obtained, was obtaining and would be likely to obtain under the Plan; and
(3) what services had been provided and were continuing to be provided under the
Plan by the Distributor, DWR and other selected broker-dealers to the Fund and
its shareholders. Based upon their review, the Trustees of the Fund, including
each of the Independent 12b-1 Trustees, determined that continuation of the Plan
would be in the best interest of the Fund and would have a reasonable likelihood
of continuing to benefit the Fund and its shareholders. This determination was
based upon the conclusion of the Trustees that the Plan provides an effective
means of stimulating sales of shares of the Fund and of reducing or avoiding net
redemptions and the potentially adverse effects that may occur therefrom. In the
Trustees' quarterly review of the Plan, they will consider its continued
appropriateness and the level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
affected Class or Classes of the Fund, and all material amendments of the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) on not more
than thirty days' written notice to any other party to the Plan. So long as the
Plan is in effect, the election and nomination of Independent 12b-1 Trustees
shall be committed to the discretion of the Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
As stated in the Prospectus, short-term securities with remaining maturities
of sixty days or less at the time of purchase are valued at amortized cost,
unless the Trustees determine such does not reflect the securities' market
value, in which case these securities will be valued at their fair value as
determined by the Trustees. Other short-term debt securities will be valued on a
mark-to-market basis until such time as they reach a remaining maturity of sixty
days, whereupon they will be valued at amortized cost using their value on the
61st day unless the Trustees determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. Listed options on debt securities are valued at
the latest sale price on the exchange on which they are listed unless no sales
of such options have taken place that day, in which case they will be valued at
the mean between their latest bid and asked prices. Unlisted options on debt
securities and all options on equity securities are valued at the mean between
their latest bid and asked prices. Futures are valued at the latest sale price
on the commodities exchange on which they trade unless the Trustees determine
that 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 for each Class of shares of the Fund is
determined once daily at 4:00 p.m., New York time (or, on days when the New York
Stock Exchange closes prior to 4:00 p.m., at such earlier time), on each day
that the New York Stock Exchange is open. The New York Stock Exchange currently
observes the following holidays: New Year's Day, Reverend Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
38
<PAGE>
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
RIGHT OF ACCUMULATION. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other TCW/DW Funds which are multiple class funds
("TCW/DW Multi-Class Funds") purchased at a price including a front-end sales
charge having a current value of $5,000, and purchases $20,000 of additional
shares of the Fund, the sales charge applicable to the $20,000 purchase would be
4.75% of the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Distributor or Dean Witter Trust FSB (the "Transfer Agent")
fails to confirm the investor's represented holdings.
LETTER OF INTENT. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund from
the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation," but
there will be no retroactive reduction of sales charges on previous purchases.
For the purpose of determining whether the investor is entitled to a further
reduced sales charge applicable to purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other TCW/DW Multi-Class
Funds held by the shareholder which were previously purchased at a price
including a front-end sales charge (including shares of the Fund, other TCW/DW
Multi-Class Funds or "Exchange Funds" (see "Shareholder Services--Exchange
Privilege") acquired in exchange for those shares, and including in each case
shares acquired through reinvestment of dividends and distributions) will be
added to the cost or net asset value of shares of the Fund owned by the
investor. However, shares of "Exchange Funds" and the purchase of shares of
other TCW/DW Funds will not be included in determining whether the stated goal
of a Letter of Intent has been reached.
39
<PAGE>
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction. The
5% escrow and minimum purchase requirements will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to a Letter of
Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to a
CDSC payable upon most redemptions within six years after purchase. As stated in
the Prospectus, a CDSC will be imposed on any redemption by an investor if after
such redemption the current value of the investor's Class B shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain employer-sponsored benefit plans, three years). However,
no CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption, plus (b)
the current net asset value of shares purchased through reinvestment of
dividends or distributions of the Fund or another TCW/DW Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) increases in the net asset value of the
investor's shares above the total amount of payments for the purchase of Fund
shares made during the preceding six (three) years. The CDSC will be paid to the
Distributor.
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years (or, in the case of shares held by certain employer-sponsored
benefit plans, three years) will be redeemed first. In the event the redemption
amount exceeds such increase in value, the next portion of the amount redeemed
will be the amount which represents the net asset value of the investor's shares
purchased more than six (three) years prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions. A portion of the
amount redeemed which exceeds an amount which represents both such increase in
value and the value of shares purchased more than six years (or, in the case of
shares held by certain employer-sponsored benefit plans, three years) prior to
the redemption and/or shares purchased through reinvestment of dividends or
distributions will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last day
of the month. The following table sets forth the rates of the CDSC applicable to
most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------------------------------------------ --------------------
<S> <C>
First....................................................... 5.0%
Second...................................................... 4.0%
Third....................................................... 3.0%
Fourth...................................................... 2.0%
Fifth....................................................... 2.0%
Sixth....................................................... 1.0%
Seventh and thereafter...................................... None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund held by 401(k) plans or other employer-sponsored plans
qualified under Section 401(a) of the Internal Revenue Code
40
<PAGE>
for which DWT serves as Trustee or the 401(k) Support Services Group of DWR
serves as recordkeeper and whose accounts are opened on or after July 28, 1997:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------------------------------------------ --------------------
<S> <C>
First....................................................... 2.0%
Second...................................................... 2.0%
Third....................................................... 1.0%
Fourth and thereafter....................................... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain employer-sponsored benefit plans, three
years) of purchase which are in excess of these amounts and which redemptions do
not qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
SHAREHOLDER INVESTMENT ACCOUNT. Upon purchase of shares of the Fund, a
Shareholder Investment Account is opened for the investor on the books of the
Fund, maintained by the Transfer Agent. This is an open account in which shares
owned by the investor are credited by the Transfer Agent in lieu of issuance of
a share certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares and
may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. No certificates will be issued for
fractional shares or to shareholders who have elected the Systematic Withdrawal
Plan for withdrawing cash from their accounts. 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. All dividends and
capital gains distributions are automatically paid in full and fractional shares
of the applicable Class of the Fund, unless the shareholder requests that they
be paid in cash. Each purchase of shares of the Fund is made upon the condition
that the Transfer Agent is thereby automatically appointed as agent of the
investor to receive all dividends and capital gains distributions on shares
owned by the investor. Such dividends and distributions will be paid in shares
of the applicable Class of the Fund (or in cash if the shareholder so requests)
at the net asset value per share as of the close of business on the record date.
At any time an investor may request the Transfer Agent, in writing, to have
subsequent dividends and/or capital gains distributions paid to him or her in
cash rather than shares. To assure sufficient time to process the change, such
request should be received by the Transfer Agent at least five business days
prior to the record date of the dividend or distribution. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payments will be made to DWR or the other
selected broker-dealer, and which will be forwarded to the shareholder, upon the
receipt of proper instructions. It has been and remains the Fund's policy and
practice that, if checks for dividends or distributions paid in cash remain
uncashed, no interest will accrue on amounts represented by such uncashed
checks.
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, or
41
<PAGE>
following redemption of shares of a Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated the same
business day the transfer of funds is effected (subject to any applicable sales
charges). 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 DISTRIBUTIONS RECEIVED IN CASH. As discussed in the
Prospectus, any shareholder who receives a cash payment representing a dividend
or capital gains distribution may invest such dividend or distribution in shares
of the applicable Class at the net asset value per share, without the imposition
of a CDSC upon redemption, by returning the check or the proceeds to the
Transfer Agent within 30 days after the payment date. If the shareholder returns
the proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset value
per share next determined after receipt of the check or the proceeds by the
Transfer Agent.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to TCW/DW Balanced Fund, and indicating the selected Class,
directly to the Transfer Agent. In the case of Class A shares, after deduction
of any applicable sales charge, the balance will be applied to the purchase of
Fund shares, and, in the case of shares of the other Classes, the entire amount
will be applied to the purchase of Fund shares, at the net asset value per share
next computed after receipt of the check of purchase payment by the Transfer
Agent. The shares so purchased will be credited to the investor's account.
TARGETED DIVIDENDS-SM-. In states where it is legally permissible to do so,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end TCW/DW Fund other
than TCW/DW Balanced Fund or in another Class of TCW/DW Balanced Fund. Such
investment will be made as described above for automatic investment in shares of
the applicable Class of the Fund, at the net asset value per share of the
selected TCW/DW Fund as of the close of business of the payment date of the
dividend or distribution, and will begin to earn dividends, if any, in the
selected TCW/DW Fund the next business day. To participate in the Targeted
Dividends program, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent. Shareholders of the Fund
must be shareholders of the selected Class of the TCW/DW Fund targeted to
receive investments from dividends at the time they enter the Targeted Dividends
program. Investors should review the prospectus of the targeted TCW/ DW Fund
before entering the program.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
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 plan provides for monthly or quarterly (March, June, September and
December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable CDSC
will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase of
Fund Shares"). Therefore, any shareholder participating in the Withdrawal Plan
will have sufficient shares redeemed from his or her account so that the
proceeds (net of any applicable CDSC) to the shareholder will be the designated
monthly or quarterly amount.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").
42
<PAGE>
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent within five business days after the date of redemption.
The Withdrawal Plan may be terminated at any time by the Fund.
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her DWR or other selected broker-dealer account executive or by written
notification to the Transfer Agent. In addition, the party and/or the address to
which checks are mailed may be changed by written notification to the Transfer
Agent, with signature guarantees required in the manner described above. The
shareholder may also terminate the Withdrawal Plan at any time by written notice
to the Transfer Agent. In the event of such termination, the account will be
continued as a regular shareholder investment account. The shareholder may also
redeem all or part of the shares held in the Withdrawal Plan account (see
"Repurchases and Redemptions" in the Prospectus) at any time. Shareholders
wishing to enroll in the Withdrawal Plan should contact their account executive
or the Transfer Agent.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of each Class of shares of the Fund
may exchange their shares for shares of the same Class of shares of any other
TCW/DW Multi-Class Fund without the imposition of any exchange fee. Shares may
also be exchanged for TCW/DW North American Government Income Trust and five
money market funds for which InterCapital serves as investment manager (the
foregoing six funds are hereinafter collectively referred to as the "Exchange
Funds"). Exchanges may be made after the shares of the fund acquired by purchase
(not by exchange or dividend reinvestment) have been held for thirty days. There
is no waiting period for exchanges of shares acquired by exchange or dividend
reinvestment. An exchange will be treated for federal income tax purposes the
same as a repurchase or redemption of shares, on which the shareholder may
realize a capital gain or loss.
Shareholders utilizing the Fund's Exchange Privilege may subsequently
re-exchange such shares back to the Fund. However, no exchange privilege is
available between the Fund and any other fund managed by the Manager or
InterCapital, except for other TCW/DW Funds and the five money market funds
listed in the Prospectus.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a TCW/DW Multi-
Class Fund are exchanged for shares of an Exchange Fund, the exchange is
executed at no charge to the shareholder, without the imposition of the CDSC at
the time of the exchange. During the period of time the shareholder remains in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired), the holding period or "year since purchase
payment made" is frozen. When shares
43
<PAGE>
are redeemed out of the Exchange Fund, they will be subject to a CDSC which
would be based upon the period of time the shareholder held shares in a TCW/DW
Multi-Class Fund. However, in the case of shares exchanged into an Exchange
Fund, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount equal
to the Exchange Fund 12b-1 distribution fees which are attributable to those
shares. Shareholders acquiring shares of an Exchange Fund pursuant to this
exchange privilege may exchange those shares back into a TCW/DW Multi-Class Fund
from the Exchange Fund, with no charge being imposed on such exchange. The
holding period previously frozen when shares were first exchanged for shares of
an Exchange Fund resumes on the last day of the month in which shares of a TCW/
DW Multi-Class Fund are reacquired. A CDSC is imposed only upon an ultimate
redemption, based upon the time (calculated as described above) the shareholder
was invested in a TCW/DW Multi-Class Fund.
When shares initially purchased in a TCW/DW Multi-Class Fund are exchanged
for shares of a TCW/DW Multi-Class Fund or shares of an Exchange Fund, the date
of purchase of the shares of the fund exchanged into, for purposes of the CDSC
upon redemption, will be the last day of the month in which the shares being
exchanged were originally purchased. In allocating the purchase payments between
funds for purposes of the CDSC, the amount which represents the current net
asset value of shares at the time of the exchange which were (i) purchased more
than one, three or six years (depending on the CDSC schedule applicable to the
shares) prior to the exchange and (ii) originally acquired through reinvestment
of dividends or distributions (all such shares called "Free Shares"), will be
exchanged first. After an exchange, all dividends earned on shares in the
Exchange Fund will be considered Free Shares. If the exchanged amount exceeds
the value of such Free Shares, an exchange is made, on a block-by-block basis,
of non-Free Shares held for the longest period of time. Shares equal to any
appreciation in the value of non-Free Shares exchanged will be treated as Free
Shares, and the amount of the purchase payments for the non-Free Shares of the
fund exchanged into will be equal to the lesser of (a) the purchase payments
for, or (b) the current net asset value of, the exchanged non-Free Shares. If an
exchange between funds would result in exchange of only part of a particular
block of non-Free Shares, then shares equal to any appreciation in the value of
the block (up to the amount of the exchange) will be treated as Free Shares and
exchanged first, and the purchase payment for that block will be allocated on a
pro rata basis between the non-Free Shares of that block to be retained and the
non-Free Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount of purchase payment for the exchanged non-Free
Shares will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the CDSC Fund Prospectus under
the caption "Purchase of Fund Shares," any applicable CDSC will be imposed upon
the ultimate redemption of shares of any fund, regardless of the number of
exchanges since those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions.
With respect to exchanges, redemptions or repurchases, the Transfer Agent
shall be liable for its own negligence and not for the default or negligence of
its correspondents or for losses in transit. The Fund shall not be liable for
any default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Dean Witter Liquid Asset
Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter New York
Municipal Money Market Trust and Dean Witter California Tax-Free Daily Income
Trust, although those funds may, at
44
<PAGE>
their discretion, accept initial investments of as low as $1,000. The minimum
initial investment for the Exchange Privilege account of each Class for Dean
Witter U.S. Government Money Market Trust and all TCW/DW Funds is $1,000.) Upon
exchange into an Exchange Fund, the shares of the fund will be held in a special
Exchange Privilege Account separately from accounts of those shareholders who
have acquired their shares directly from that fund. As a result, certain
services normally available to shareholders of money market funds, including the
check writing feature, will not be available for funds held in that account.
The Fund, each of the other TCW/DW Funds and and each of the money market
funds may limit the number of times this Exchange Privilege may be exercised by
any investor within a specified period of time. Also, the Exchange Privilege may
be terminated or revised at any time by the Fund and/or any of the funds for
which shares of the Fund have been exchanged, upon such notice as may be
required by applicable regulatory agencies (presently sixty days for termination
or material revision), provided that six months prior written notice of
termination will be given to the shareholders who hold shares of the Exchange
Funds, pursuant to this Exchange Privilege, and provided further that the
Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, (d) during any
other period when the Securities and Exchange Commission by order so permits
(provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective, policies and restrictions.
Shareholders maintaining margin accounts with DWR or another selected
broker-dealer are referred to their account executives regarding restrictions on
exchange of shares of the Fund pledged in the margin account.
For further information regarding the Fund's Exchange Privilege,
shareholders should contact their DWR or other selected broker-dealer account
executive or the Transfer Agent.
REPURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption. The share certificate, or an accompanying
stock power, and the request for redemption, must be signed by the shareholder
or shareholders exactly as the shares are registered. Each request for
redemption, whether or not accompanied by a share certificate, must be sent to
the Fund's Transfer Agent, which will redeem the shares at their net asset value
next computed (see "Purchase of Fund Shares") after it receives the request, and
certificate, if any, in good order. Any redemption request received after such
computation will be redeemed at the next determined net asset value. The term
"good order" means that the share certificate, if any, and request for
redemption are properly signed, accompanied by any documentation required by the
Transfer Agent, and bear signature guarantees when required by the Fund or the
Transfer Agent. If redemption is requested by a corporation, partnership, trust
or fiduciary, the Transfer Agent may require that written evidence of authority
acceptable to the Transfer Agent be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular institution is
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a revised
prospectus.
45
<PAGE>
REPURCHASE. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by DWR
and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
PAYMENT FOR SHARES REPURCHASED OR REDEEMED. As discussed in the Prospectus,
payment for shares of any Class presented for repurchase or redemption will be
ordinarily made by check within seven days after receipt by the Transfer Agent
of the certificate and/or written request in good order. Such payment may be
postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on that Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check and the check has not yet cleared, payment of
redemption proceeds may be delayed until the check has cleared (not more than
fifteen days from the time of receipt of the check by the Transfer Agent). It
has been and remains the Fund's policy and practice that, if checks for
redemption proceeds remain uncashed, no interest will accrue on amounts
represented by such uncashed checks. Shareholders maintaining margin accounts
with DWR or another selected broker-dealer are referred to their account
executive regarding restrictions on redemption of shares of the Fund pledged in
the margin account.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all of the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may within 35 days after the date of
redemption or repurchase reinstate any portion or all of the proceeds of such
redemption or repurchase in shares of the Fund in the same Class at the net
asset value next determined after a reinstatement request, together with such
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes,
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and shareholders will be required to include such undistributed
gains in their taxable income and will be able to claim their share of the tax
paid by the Fund as a credit against their individual federal income tax.
Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have been held by the Fund for more than
twelve months. Gains or losses on the sale of securities held for twelve months
or less will be short-term gains or losses.
The Fund's transactions, if any, in options and futures contracts may be
subject to special provisions of the Internal Revenue Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
46
<PAGE>
shareholders. These rules also (a) could require the Fund to mark-to-market
certain types of the positions in its portfolio (i.e., treat them as if they
were closed out) and (b) may cause the Fund to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding income and
excise taxes.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable at either ordinary or capital gain rates.
Therefore, an investor should consider the tax implications of purchasing Fund
shares immediately prior to a dividend or distribution record date.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature. These
figures are computed separately for Class A, Class B, Class C and Class D
shares. Prior to July 28, 1997 the Fund offered only one Class of shares.
Because all shares of the Fund held prior to such time (other than shares which
were acquired in exchange for shares of TCW/DW Funds offered with a CDSC and
shares acquired through reinvestment of dividends and distributions thereon)
have been designated Class C, certain historical performance data may be
restated to reflect the 1.0% CDSC imposed on most Class C shares redeemed within
one year after purchase.
Yield is calculated for any 30-day period as follows: the amount of interest
and/or dividend income for each security in the Fund's portfolio is determined
in accordance with regulatory requirements; the total for the entire portfolio
constitutes the Fund's gross income for the period. Expenses accrued during the
period are subtracted to arrive at "net investment income." The resulting amount
is divided by the product of the maximum offering price per share on the last
day of the period multiplied by the average number of Fund shares outstanding
during the period that were entitled to dividends. This amount is added to 1 and
raised to the sixth power. 1 is then subtracted from the result and the
difference is multiplied by 2 to arrive at the annualized yield. The Fund's
yield for the 30-day period ended September 30, 1997 was 1.35% for Class A,
0.67% for Class B, 0.67% for Class C and 1.68% for Class D.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. The ending redeemable value is
reduced by any CDSC at the end of the one, five or ten year or other period. For
the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing the average annual total
return involves a percentage obtained by dividing the ending redeemable value by
the amount of the initial investment, taking a root of the quotient (where the
root is equivalent to the number of years in the period) and subtracting 1 from
the result. The actual average annual total returns for Class C shares of the
Fund for the fiscal year ended September 30, 1997 and for the period October 29,
1993 (commencement of operations) through September 30, 1997 were 17.67% and
9.34%, respectively.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class B and Class D 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 by the initial $1,000
investment and subtracting 1 from the result. The ending redeemable value for
Class A reflects the imposition of the maximum front-end sales charge for Class
A. The ending redeemable value for Class B is reduced by any CDSC at the end of
the period. Based on the foregoing calculations, the total returns for the
period July 28, 1997 through September 30, 1997 were -4.66%, -4.52% and 0.65%
for Class A, Class B and Class D, respectively.
47
<PAGE>
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, year-by-year or
other types of total return figures. Such calculations may or may not reflect
the imposition of the maximum front-end sales charge for Class A or the
deduction of the CDSC for each of Class B and Class C which, if reflected, would
reduce the performance quoted. For example, the average annual total return of
the Fund may be calculated in the manner described above, but without deduction
for any applicable sales charge. Based upon the foregoing, the actual average
annual total returns of Class C for the fiscal year ended September 30, 1997 and
for the period October 29, 1993 through September 30, 1997 were 18.67% and
9.34%, respectively. In addition, the Fund may compute its aggregate total
return for specified periods by determining the aggregate percentage rate which
will result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without the reduction for any sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing calculation
the actual total returns for Class C for the fiscal year ended September 30,
1997 and the period October 29, 1993 through September 30, 1997 were 18.67% and
41.93%, respectively. Based on the foregoing calculations, the total returns for
Class A, Class B, and Class D for the period July 28, 1997 through September 30,
1997 were 0.62%, 0.48% and 0.65%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 or $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 or $100,000 adjusted for the initial sales charge), or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as the
case may be. Investments of $10,000, $50,000 and $100,000 in the Fund at
inception would have grown or declined to the following amounts at September 30,
1997.
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION
OF:
INCEPTION --------------------------
CLASS DATE $10,000 $50,000 $100,000
- ------------------------------------------------------------ --------- ------- ------- --------
<S> <C> <C> <C> <C>
Class A..................................................... 7/28/97 $ 9,534 $48,298 $ 97,601
Class B..................................................... 7/28/97 10,048 50,240 100,480
Class C..................................................... 10/29/93 14,193 70,965 141,930
Class D..................................................... 7/28/97 10,065 50,325 100,650
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. The Trustees have been elected by InterCapital as the sole shareholder of
the Fund or, in the case of Messrs. Schroeder and Stern, by the other Trustees
on April 20, 1995. The Trustees themselves have the power to alter the number
and the terms of office of the Trustees, and they may at any time lengthen their
own terms or make their terms of unlimited duration and appoint their own
successors, provided that always at least a majority of the Trustees has been
elected by the shareholders of the Fund. Under certain circumstances the
Trustees may be removed by action of the Trustees. The shareholders also have
the right to remove the Trustees following a meeting called for that purpose
requested in writing by the record holders of not less than ten percent of the
Fund's outstanding shares. The voting rights of shareholders are not cumulative,
so that holders of more than 50 percent of the shares voting can, if they
choose, elect all Trustees being selected, while the holders of the remaining
shares would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. The Trustees have not presently authorized any such
additional series or classes of shares other than as set forth in the
Prospectus.
The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, nor is any Trustee,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, except as such liability may arise from his own bad faith,
willful misfeasance, gross negligence, or reckless disregard of his duties. It
also provides that all third persons shall look solely to the Fund's property
for satisfaction of claims arising in connection with the affairs of the Fund.
With the exceptions stated, the Declaration of
48
<PAGE>
Trust provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liabilities in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust FSB ("DWT"), 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. DWT is an affiliate of Dean Witter Services Company Inc., the Fund's
Manager, and of Dean Witter Distributors Inc., the Fund's Distributor. As
Transfer Agent and Dividend Disbursing Agent, DWT'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 DWT receives a per shareholder
account fee.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on September 30. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the Manager,
is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The Financial Statements of the Fund for the fiscal year ended September 30,
1997 included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
49
<PAGE>
TCW/DW BALANCED FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF TCW/DW BALANCED 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 TCW/DW Balanced Fund (the "Fund")
at September 30, 1997, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods presented, 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 September 30, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
As described in Note 8 to the financial statements, the Fund's Board of Trustees
has approved, subject to the consent of the Fund's shareholders, a
reorganization plan whereby the Fund would be merged into Dean Witter Balanced
Growth Fund.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
NOVEMBER 6, 1997
1997 FEDERAL TAX NOTICE
During the period ended September 30, 1997, 79.29% of the income
paid qualified for the dividends received deduction available to
corporations.
50
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (64.9%)
AIR TRANSPORT (4.1%)
5,100 AMR Corp.*.............................................................................. $ 564,506
19,900 Delta Air Lines, Inc.................................................................... 1,874,331
16,300 UAL Corp.*.............................................................................. 1,379,387
-----------
3,818,224
-----------
AIRCRAFT & AEROSPACE (4.7%)
38,800 Boeing Co............................................................................... 2,112,175
28,300 United Technologies Corp................................................................ 2,292,300
-----------
4,404,475
-----------
AUTO PARTS - ORIGINAL EQUIPMENT (3.3%)
34,900 Lear Corp.*............................................................................. 1,718,825
20,400 Magna International, Inc. (Class A) (Canada)............................................ 1,410,150
-----------
3,128,975
-----------
AUTOMOTIVE (2.6%)
53,700 Ford Motor Co........................................................................... 2,429,925
-----------
BANKS (2.1%)
14,900 Citicorp................................................................................ 1,995,669
-----------
BEVERAGES - SOFT DRINKS (1.6%)
36,200 PepsiCo, Inc............................................................................ 1,468,362
-----------
BROADCAST MEDIA (1.7%)
59,832 Westinghouse Electric Corp.............................................................. 1,619,203
-----------
BROKERAGE (1.9%)
24,100 Merrill Lynch & Co., Inc................................................................ 1,787,919
-----------
COMMERCIAL SERVICES (1.6%)
33,400 Corrections Corp. of America*........................................................... 1,452,900
-----------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (2.8%)
36,000 Cisco Systems, Inc.*.................................................................... 2,630,250
-----------
COMPUTER SOFTWARE (3.6%)
21,100 Microsoft Corp.*........................................................................ 2,791,794
17,000 Oracle Corp.*........................................................................... 619,438
-----------
3,411,232
-----------
COMPUTERS - SYSTEMS (0.9%)
24,000 Tandy Corp.............................................................................. 807,000
-----------
ELECTRICAL EQUIPMENT (1.2%)
16,000 Honeywell, Inc.......................................................................... 1,075,000
-----------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (4.5%)
46,100 Intel Corp.............................................................................. 4,258,488
-----------
ENTERTAINMENT (1.3%)
41,200 Mirage Resorts, Inc.*................................................................... 1,241,150
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL (1.6%)
32,200 Fannie Mae.............................................................................. $ 1,513,400
-----------
FINANCIAL SERVICES (1.6%)
24,300 Associates First Capital Corp........................................................... 1,512,675
-----------
FOODS (1.1%)
23,600 Kellogg Co.............................................................................. 994,150
-----------
HEALTHCARE - DIVERSIFIED (2.1%)
14,700 Warner-Lambert Co....................................................................... 1,983,581
-----------
HEALTHCARE - DRUGS (3.0%)
15,100 Johnson & Johnson....................................................................... 870,138
15,900 Lilly (Eli) & Co........................................................................ 1,918,931
-----------
2,789,069
-----------
INDUSTRIALS (2.0%)
35,200 Caterpillar, Inc........................................................................ 1,898,600
-----------
INSURANCE BROKERS (1.6%)
19,400 Marsh & McLennan Companies, Inc......................................................... 1,486,525
-----------
OFFICE EQUIPMENT & SUPPLIES (1.1%)
12,000 Xerox Corp.............................................................................. 1,010,250
-----------
OIL & GAS EXPLORATION (0.8%)
26,000 Canadian Natural Resources Ltd. (Canada)*............................................... 767,253
-----------
OIL - DOMESTIC (0.7%)
6,800 Amoco Corp.............................................................................. 655,350
-----------
PUBLISHING (2.0%)
33,900 Time Warner, Inc........................................................................ 1,836,956
-----------
RAILROADS (1.8%)
17,800 Burlington Northern Santa Fe Corp....................................................... 1,719,925
-----------
RETAIL - SPECIALTY (2.5%)
45,800 Home Depot, Inc......................................................................... 2,387,325
-----------
SOAP & HOUSEHOLD PRODUCTS (2.3%)
30,800 Procter & Gamble Co..................................................................... 2,127,125
-----------
TELECOMMUNICATIONS (1.0%)
11,700 Lucent Technologies, Inc................................................................ 952,088
-----------
TOBACCO (1.8%)
40,000 Philip Morris Companies, Inc............................................................ 1,662,500
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $41,432,833)........................................................... 60,825,544
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (4.6%)
AIRCRAFT & AEROSPACE (0.1%)
$ 100 Lockheed Martin Corp............................................................ 7.25% 05/15/06 $ 103,870
-----------
AUTOMOTIVE (0.2%)
200 General Motors Corp............................................................. 8.10 06/15/24 213,230
-----------
BANKS (0.2%)
200 Citicorp........................................................................ 7.125 03/15/04 205,306
-----------
BEVERAGES - SOFT DRINKS (0.1%)
100 Coca-Cola Enterprises, Inc...................................................... 7.88 02/01/02 105,951
-----------
CABLE & TELECOMMUNICATIONS (0.3%)
200 News America Holdings, Inc...................................................... 8.50 02/15/05 216,324
-----------
FINANCIAL (1.1%)
200 Abbey National PLC (United Kingdom)............................................. 6.69 10/17/05 200,378
150 Associates Corp. of North America............................................... 6.25 03/15/99 150,685
100 Associates Corp. of North America............................................... 5.25 03/30/00 97,878
200 Bear Stearns Companies, Inc..................................................... 5.75 02/15/01 196,472
200 Comdisco, Inc................................................................... 6.50 04/30/99 201,398
150 General Electric Capital Corp................................................... 8.85 04/01/05 170,292
-----------
1,017,103
-----------
FINANCIAL SERVICES (0.2%)
150 Ford Motor Credit Corp.......................................................... 8.20 02/15/02 160,176
-----------
INDUSTRIALS (0.7%)
200 Caterpillar, Inc................................................................ 9.375 03/15/21 252,122
100 Praxair, Inc.................................................................... 6.75 03/01/03 101,070
250 Raytheon Co..................................................................... 6.45 08/15/02 249,573
-----------
602,765
-----------
OIL & GAS PRODUCTS (0.2%)
200 BP America, Inc................................................................. 9.375 11/01/00 217,898
-----------
RETAIL (0.5%)
200 Federated Department Stores, Inc................................................ 8.125 10/15/02 212,628
200 Wal-Mart Stores, Inc............................................................ 7.50 05/15/04 211,566
-----------
424,194
-----------
TELEPHONES (0.2%)
200 MCI Communications Corp......................................................... 6.95 08/15/06 204,742
-----------
TRANSPORTATION (0.2%)
100 Norfolk Southern Corp........................................................... 7.35 05/15/07 104,105
100 Union Pacific Corp.............................................................. 7.875 02/15/02 105,485
-----------
209,590
-----------
UTILITIES (0.6%)
200 Florida Power & Light Co........................................................ 7.05 12/01/26 195,136
200 Texas Utilities Electric Co..................................................... 7.875 04/01/24 206,222
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 200 Union Electric Co............................................................... 6.75% 05/01/08 $ 201,624
-----------
602,982
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $4,224,945)....................................................................... 4,284,131
-----------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS (15.8%)
575 Federal National Mortgage Assoc. ............................................... 7.40 07/01/04 609,592
880 Federal National Mortgage Assoc. ............................................... 6.40 09/27/05 883,890
1,730 U.S. Treasury Bond.............................................................. 12.00 08/15/13 2,493,120
1,595 U.S. Treasury Bond.............................................................. 7.50 11/15/24 1,801,935
290 U.S. Treasury Bond.............................................................. 6.50 11/15/26 291,917
350 U.S. Treasury Note.............................................................. 5.50 11/15/98 349,202
155 U.S. Treasury Note.............................................................. 5.875 01/31/99 155,268
4,380 U.S. Treasury Note.............................................................. 6.375 04/30/99 4,420,296
965 U.S. Treasury Note.............................................................. 6.00 08/15/99 967,992
850 U.S. Treasury Note.............................................................. 6.25 02/15/03 858,271
820 U.S. Treasury Note.............................................................. 7.875 11/15/04 901,475
1,120 U.S. Treasury Note.............................................................. 5.875 11/15/05 1,099,179
-----------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(IDENTIFIED COST $14,611,600)...................................................................... 14,832,137
-----------
CANADIAN GOVERNMENT AGENCIES (0.5%)
200 Hydro-Quebec.................................................................... 9.40 02/01/21 247,734
150 Province of Manitoba............................................................ 6.875 09/15/02 153,527
100 Province of Ontario............................................................. 6.00 02/21/06 96,819
-----------
TOTAL CANADIAN GOVERNMENT AGENCIES
(IDENTIFIED COST $485,647)......................................................................... 498,080
-----------
ASSET-BACKED SECURITY (0.8%)
782 Federal Housing Administration Burbank Gardens Retirement Center**
(IDENTIFIED COST $759,597).................................................... 7.50 02/01/32 784,048
-----------
MORTGAGE-BACKED SECURITIES (6.2%)
1,424 Federal Home Loan Mortgage Corp................................................. 7.50 06/01/11 1,457,342
642 Federal Home Loan Mortgage Corp................................................. 7.50 08/01/11 656,829
995 Federal Home Loan Mortgage Corp................................................. 7.00 03/01/17 997,446
1,802 Federal Home Loan Mortgage Corp................................................. 7.00 08/01/25 1,797,198
458 Federal Home Loan Mortgage Corp................................................. 8.00 06/01/26 472,725
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 378 Federal National Mortgage Assoc. (ARM)+......................................... 6.109% 05/01/27 $ 391,444
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $5,651,018)....................................................................... 5,772,984
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS (2.4%)
600 Bear Stearns Mortgage Securities, Inc.
1997-2 A2..................................................................... 6.50 04/28/24 582,885
1,000 Federal National Mortgage Assoc.
1996-53 M..................................................................... 6.50 12/18/11 946,666
697 Residential Funding Mortgage Securities, Inc. 1993-S23 A8....................... 6.50 06/25/08 693,550
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $2,169,430)....................................................................... 2,223,101
-----------
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT
591 The Bank of New York (dated 09/30/97; proceeds $590,667) (a)
(IDENTIFIED COST $590,581).................................................... 5.25 10/01/97 590,581
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $69,925,651) (B)........................................................ 95.8 % 89,810,606
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................................... 4.2 3,935,534
------ ------------
NET ASSETS............................................................................... 100.0 % $ 93,746,140
------ ------------
------ ------------
</TABLE>
- ---------------------
* Non-income producing security.
** Resale is restricted.
+ ARM -- Adjustable Rate Mortgage
(a) Collateralized by $455,065 U.S. Treasury Bond 9.00% due 11/15/18 valued at
$602,392.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $19,926,461 and the
aggregate gross unrealized depreciation is $41,506, resulting in net
unrealized appreciation of $19,884,955.
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $69,925,651)................................................................ $89,810,606
Cash........................................................................................... 36,023
Receivable for:
Investments sold........................................................................... 3,689,310
Interest................................................................................... 416,358
Dividends.................................................................................. 41,417
Shares of beneficial interest sold......................................................... 40,424
Deferred organizational expenses............................................................... 38,484
Prepaid expenses and other assets.............................................................. 99,358
-----------
TOTAL ASSETS.............................................................................. 94,171,980
-----------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased.................................................. 227,470
Plan of distribution fee................................................................... 82,622
Management fee............................................................................. 37,196
Investment advisory fee.................................................................... 24,798
Dividends and distributions to shareholders................................................ 2,534
Accrued expenses and other payables............................................................ 51,220
-----------
TOTAL LIABILITIES......................................................................... 425,840
-----------
NET ASSETS................................................................................ $93,746,140
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital................................................................................ $66,491,685
Net unrealized appreciation.................................................................... 19,884,955
Accumulated undistributed net investment income................................................ 65,565
Accumulated undistributed net realized gain.................................................... 7,303,935
-----------
NET ASSETS................................................................................ $93,746,140
===========
CLASS A SHARES:
Net Assets..................................................................................... $45,619
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 3,335
NET ASSET VALUE PER SHARE................................................................. $13.68
===========
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)......................................... $14.44
===========
CLASS B SHARES:
Net Assets..................................................................................... $5,478,596
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 400,498
NET ASSET VALUE PER SHARE................................................................. $13.68
===========
CLASS C SHARES:
Net Assets..................................................................................... $88,211,844
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 6,448,320
NET ASSET VALUE PER SHARE................................................................. $13.68
===========
CLASS D SHARES:
Net Assets..................................................................................... $10,081
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 737
NET ASSET VALUE PER SHARE................................................................. $13.68
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997*
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest....................................................................................... $ 2,074,386
Dividends (net of $2,786 foreign withholding tax).............................................. 650,808
-----------
TOTAL INCOME.............................................................................. 2,725,194
-----------
EXPENSES
Plan of distribution fee (Class B shares)...................................................... 9,461
Plan of distribution fee (Class C shares)...................................................... 908,897
Management fee................................................................................. 417,405
Investment advisory fee........................................................................ 278,270
Transfer agent fees and expenses............................................................... 92,831
Professional fees.............................................................................. 53,942
Shareholder reports and notices................................................................ 48,833
Organizational expenses........................................................................ 35,648
Trustees' fees and expenses.................................................................... 32,966
Registration fees.............................................................................. 19,989
Custodian fees................................................................................. 17,593
Other.......................................................................................... 8,614
-----------
TOTAL EXPENSES............................................................................ 1,924,449
-----------
NET INVESTMENT INCOME..................................................................... 800,745
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain.............................................................................. 7,860,641
Net change in unrealized appreciation.......................................................... 7,052,433
-----------
NET GAIN.................................................................................. 14,913,074
-----------
NET INCREASE................................................................................... $15,713,819
===========
<FN>
- ---------------------
* Class A, Class B and Class D shares were issued July 28, 1997.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1997* SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................................. $ 800,745 $ 1,102,597
Net realized gain.................................................. 7,860,641 7,206,334
Net change in unrealized appreciation.............................. 7,052,433 2,886,118
------------------- ------------------
NET INCREASE.................................................. 15,713,819 11,195,049
------------------- ------------------
DIVIDENDS TO SHAREHOLDERS:
From net investment income
Class A shares................................................. (151) --
Class B shares................................................. (10,275) --
Class C shares................................................. (721,547) (36,468)
Class D shares................................................. (36) --
In excess of net investment income
Class C shares................................................. -- (838,389)
------------------- ------------------
TOTAL DIVIDENDS............................................... (732,009) (874,857)
------------------- ------------------
Net decrease from transactions in shares of beneficial interest.... (13,726,947) (24,545,353)
------------------- ------------------
NET INCREASE (DECREASE)....................................... 1,254,863 (14,225,161)
NET ASSETS:
Beginning of period................................................ 92,491,277 106,716,438
------------------- ------------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $65,565 AND
DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME OF $3,171,
RESPECTIVELY).................................................. $ 93,746,140 $ 92,491,277
=================== ==================
<FN>
- ---------------------
* Class A, Class B, and Class D shares were issued July 28, 1997.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
TCW/DW Balanced 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 achieve a high total
return through a combination of income and capital appreciation. The Fund seeks
to achieve its objective by investing in a diversified portfolio of common
stocks and investment grade fixed-income securities. The Fund was organized as a
Massachusetts business trust on March 2, 1993 and commenced operations on
October 29, 1993. On July 28, 1997, the Fund commenced offering three additional
classes of shares, with the then current shares, other than shares which were
acquired in exchange for shares of Funds for which Dean Witter Services Company
Inc. serves as Manager and TCW Funds Management, Inc. serves as Adviser ("TCW/DW
Funds") offered with a contingent deferred sale charge ("CDSC") and shares
acquired through reinvestment of dividends and distributions thereon, have been
designated Class C shares. Shares held prior to July 28, 1997 which were
acquired in exchange for shares of a TCW/DW Fund sold with a CDSC, including
shares acquired through reinvestment of dividends and distributions thereon,
have been designated Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American, 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
59
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
not readily available, including circumstances under which it is determined by
TCW Funds Management, Inc. (the "Adviser") that sale and bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the 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 portfolio
securities may be valued by an outside pricing service approved by the Trustees.
The pricing service may utilize a matrix system incorporating security quality,
maturity and coupon as the evaluation model parameters, and/or research and
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 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 on foreign securities which are recorded as soon as
the Fund is informed after the ex-dividend date. Discounts are accreted over the
life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the 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"
60
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc., an affiliate of
Dean Witter Services Company, Inc. (the "Manager"), paid the organizational
expenses of the Fund in the amount of $180,493 which have been reimbursed for
the full amount thereof. Such expenses have been deferred and are being
amortized on the straight-line method over a period not to exceed five years
from the commencement of operations.
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Manager a management fee,
accrued daily and payable monthly, by applying the annual rate of 0.45% to the
net assets of the Fund determined as of the close of each business day.
Under the terms of the Agreement, the Manager maintains certain of the Fund's
books and records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees of
the Manager. The Manager also bears the cost of telephone services, heat, light,
power and other utilities provided to the Fund.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays the Adviser an
advisory fee, accrued daily and payable monthly, by applying the annual rate of
0.30% to the net assets of the Fund determined as of the close of each business
day.
Under the terms of the Agreement, the Fund has retained the Adviser to invest
the Fund's assets, including placing orders for the purchase and sale of
portfolio securities. The Adviser obtains and evaluates such information and
advice relating to the economy, securities markets, and specific
61
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
securities as it considers necessary or useful to continuously manage the assets
of the Fund in a manner consistent with its investment objective. In addition,
the Adviser pays the salaries of all personnel, including officers of the Fund,
who are employees of the Adviser.
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Manager. The Fund has adopted a Plan of
Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A--0.25% of the average
daily net assets of Class A; (ii) Class B--1.0% of the average daily net assets
of Class B; and (iii) Class C--1.0% of the average daily net assets of Class C.
In the case of Class A shares, amounts paid under the Plan are paid to the
Distributor for services provided. In the case of Class B and Class C shares,
amounts paid under the Plan are paid to the Distributor for services provided
and the expenses borne by it and others in the distribution of the shares of
these Classes, including the payment of commissions for sales of these Classes
and incentive compensation to, and expenses of, the account executives of Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Manager and Distributor, and
others who engage in or support distribution of the shares or who service
shareholder accounts, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering of
these shares to other than current shareholders; and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan, in the case of Class B
shares, to compensate DWR and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that there were no such excess amounts at
September 30, 1997.
62
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended September 30, 1997, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the period ended September 30,
1997, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $1,110 and $216, respectively,
and received $524 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended September 30, 1997 aggregated
$72,283,760 and $89,079,914, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $27,928,133 and
$29,024,333, respectively.
For the year ended September 30, 1997, the Fund incurred $10,895 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
For the period May 31, 1997 through September 30, 1997, the Fund incurred
brokerage commissions of $1,140 with Morgan Stanley & Co., Inc., an affiliate of
the Manager since May 31, 1997, for portfolio transactions executed on behalf of
the Fund. At September 30, 1997 the Fund's receivable for investments sold
included unsettled trades with Morgan Stanley & Co., Inc., of $902,934.
Dean Witter Trust FSB, an affiliate of the Manager and Distributor, is the
Fund's transfer agent. At September 30, 1997, the Fund had transfer agent fees
and expenses payable of approximately $1,700.
6. FEDERAL INCOME TAX STATUS
During the year ended September 30, 1997, the Fund utilized its net capital loss
carryover of approximately $461,000.
At September 30, 1997, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
63
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
7. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1997+ SEPTEMBER 30, 1996
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold.............................................. 3,330 $ 45,072 -- --
Reinvestment of dividends......................... 5 64 -- --
------------ ------------ ------------ ------------
Net increase--Class A............................. 3,335 45,136 -- --
------------ ------------ ------------ ------------
CLASS B SHARES*
Sold.............................................. 17,715 242,841 -- --
Reinvestment of dividends......................... 466 6,427 -- --
Redeemed.......................................... (16,038) (219,934) -- --
------------ ------------ ------------ ------------
Net increase--Class B............................. 2,143 29,334 -- --
------------ ------------ ------------ ------------
CLASS C SHARES
Sold.............................................. 1,137,529 13,933,845 1,434,033 $ 15,701,592
Reinvestment of dividends......................... 51,366 643,934 71,704 794,910
Redeemed.......................................... (2,298,398) (28,389,248) (3,751,703) (41,041,855)
------------ ------------ ------------ ------------
Net decrease--Class C............................. (1,109,503) (13,811,469) (2,245,966) (24,545,353)
------------ ------------ ------------ ------------
CLASS D SHARES*
Sold.............................................. 734 10,016 -- --
Reinvestment of dividends......................... 3 36 -- --
------------ ------------ ------------ ------------
Net increase--Class D............................. 737 10,052 -- --
------------ ------------ ------------ ------------
Net decrease in Fund.............................. (1,103,288) $(13,726,947) (2,245,966) $(24,545,353)
============ ============ ============ ============
</TABLE>
- ---------------------
On July 28, 1997, 398,355 shares representing $5,433,568 were transferred to
Class B.
For the period July 28, 1997 (issue date) through September 30, 1997.
8. SUBSEQUENT EVENT
On November 6, 1997, the Board of Trustees of the Fund and of Dean Witter
Balanced Growth Fund ("Balanced Growth") approved a reorganization plan whereby
the Fund would be merged into Balanced Growth. This plan is subject to the
consent of the Fund's shareholders. If approved, the assets of the Fund would be
combined with the assets of Balanced Growth and shareholders of the Fund would
become shareholders of Balanced Growth, receiving shares of the corresponding
class of Balanced Growth equal to the value of their holdings in the Fund.
64
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD
OCTOBER 29,
FOR THE YEAR ENDED SEPTEMBER 1993*
30, THROUGH
----------------------------- SEPTEMBER
1997**++ 1996 1995 30, 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.63 $ 10.46 $ 9.43 $ 10.00
-------- -------- --------- ------
Net investment income.............. 0.11 0.15 0.20 0.10
Net realized and unrealized gain
(loss)............................ 2.04 1.12 0.93 (0.58)
-------- -------- --------- ------
Total from investment operations... 2.15 1.27 1.13 (0.48)
-------- -------- --------- ------
Less dividends:
From net investment income...... (0.10) -- (0.10) (0.09)
In excess of net investment
income.......................... -- (0.10) -- --
-------- -------- --------- ------
Total dividends.................... (0.10) (0.10) (0.10) (0.09)
-------- -------- --------- ------
Net asset value, end of period..... $ 13.68 $ 11.63 $ 10.46 $ 9.43
======== ======== ========= ======
TOTAL INVESTMENT RETURN+........... 18.67% 12.20% 11.97% (4.80)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 2.08% 2.14% 2.11% 2.06%(2)
Net investment income.............. 0.86% 1.12% 1.88% 1.22%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $ 88,212 $ 92,491 $ 106,716 $ 149,357
Portfolio turnover rate............ 80% 117% 123% 113%(1)
Average commission rate paid....... $ 0.0584 $ 0.0583 -- --
<FN>
- ---------------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that time, other than shares which were acquired in
exchange for shares of Funds for which Dean Witter Services Company Inc.
serves as Manager and TCW Fund's Management, Inc. serves as Adviser
("TCW/DW Funds") offered with a contingent deferred sales charge ("CDSC")
and shares acquired through reinvestment of dividends and distributions
thereon, have been designated Class C shares. Shares held prior to July 28,
1997 which were acquired in exchange for shares of a TCW/DW Fund sold with
a CDSC, including shares acquired through reinvestment of dividends and
distributions thereon, have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
- -----------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 13.64
------
Net investment income.............. 0.03
Net realized and unrealized gain... 0.06
------
Total from investment operations... 0.09
------
Less dividends from net investment
income............................ (0.05)
------
Net asset value, end of period..... $ 13.68
======
TOTAL INVESTMENT RETURN+........... 0.62%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.40%(2)
Net investment income.............. 1.53%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $46
Portfolio turnover rate............ 80%
Average commission rate paid....... $ 0.0584
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 13.64
------
Net investment income.............. 0.02
Net realized and unrealized gain... 0.05
------
Total from investment operations... 0.07
------
Less dividends from net investment
income............................ (0.03)
------
Net asset value, end of period..... $ 13.68
======
TOTAL INVESTMENT RETURN+........... 0.48%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 2.09%(2)
Net investment income.............. 0.75%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $5,479
Portfolio turnover rate............ 80%
Average commission rate paid....... $ 0.0584
<FN>
- ---------------------
* The date shares were first issued. Shareholders who held shares prior to
July 28, 1997 (the date the fund converted to a multiple class share
structure) should refer to the Financial Highlights of Class C to obtain
the historical per share and ratio information of their shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
SEPTEMBER 30,
1997++
- -----------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 13.64
------
Net investment income.............. 0.04
Net realized and unrealized gain... 0.05
------
Total from investment operations... 0.09
------
Less dividends from net investment
income............................ (0.05)
------
Net asset value, end of period..... $ 13.68
======
TOTAL INVESTMENT RETURN+........... 0.65%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.09%(2)
Net investment income.............. 1.75%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $10
Portfolio turnover rate............ 80%
Average commission rate paid....... $ 0.0584
<FN>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
67
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
<TABLE>
<S> <C>
Aaa Fixed-income securities which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Fixed-income securities which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade fixed-income securities. They are rated lower than the best fixed-income
securities because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in Aaa
securities.
A Fixed-income securities which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the future.
Baa Fixed-income securities which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over any
great length of time. Such fixed-income securities lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Fixed-income securities rated Aaa, Aa, A and Baa are considered investment grade.
</TABLE>
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification in its fixed-income security rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and a
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the
68
<PAGE>
obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
<TABLE>
<S> <C>
AAA Fixed-income securities rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA Fixed-income securities rated "AA" have a very strong capacity to pay interest and
repay principal and differs from the highest-rated issues only in small degree.
A Fixed-income securities rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than fixed-income securities in
higher-rated categories.
BBB Fixed-income securities rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay principal for fixed-income
securities in this category than for fixed-income securities in higher-rated
categories.
Fixed-income securities rated AAA, AA, A and BBB are considered investment grade.
Plus (+) or minus (-): The rating may be modified by the addition of a plus or
minus sign to show relative standing with the major ratings categories.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by Standard and 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>
<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>
69
<PAGE>
DEAN WITTER BALANCED GROWTH FUND
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated herein by reference to Item 27
of, and Exhibits 1 and 2 to, Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A, dated July 28, 1997, which was filed
electronically pursuant to Regulation S-T on July 16, 1997 ("Post-Effective
Amendment No. 4") as an amendment to Registrant's Registration Statement on
Form N-1A (File Nos. 811-7245 and 33-56853) filed on July 16, 1997 (the
"Registration Statement").
ITEM 16. EXHIBITS
(1) Declaration of Trust dated November 22, 1994 ("Declaration of Trust")
(incorporated herein by reference to Exhibit 1 of Registrant's
initial Registration Statement); Amendment Establishing and
Designating Additional Classes of Shares to Declaration of Trust
(incorporated herein by reference to Exhibit 1 to Post-Effective
Amendment No. 4)
(2) Amended and Restated By-Laws of Registrant dated as of October 25,
1996 (incorporated herein by reference to Exhibit 1 of Post-Effective
Amendment No. 3 to Registrant's Registration Statement
("Post-Effective Amendment No. 3"))
(3) Not Applicable
(4) Copy of Agreement and Plan of Reorganization (filed herewith as
Exhibit A to the Proxy Statement and Prospectus)
(5) Not Applicable
(6) Investment Management Agreement (incorporated herein by reference to
Exhibit 5 to Post-Effective Amendment No. 4)
(7) (a) Distribution Agreement between Registrant and Dean Witter
Distributors Inc. (incorporated herein by reference to Exhibit
6(a) to Post-Effective Amendment No. 4)
(b) Multiple Class Distribution Agreement between Registrant and Dean
Witter Distributors, Inc. (incorporated herein by reference to
Exhibit 6(b) of Post-Effective Amendment No. 4)
(c) Form of Selected Dealer's Agreement (incorporated herein by
reference to Exhibit 6(b) to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement ("Pre-Effective Amendment No.
1"))
(8) Not Applicable
(9) (a) Custody Agreement dated February 15, 1995 (incorporated herein by
reference to Exhibit 8 to Pre-Effective Amendment No. 1)
(b) Amendment to the Custodian Agreement dated April 17, 1996
(incorporated herein by reference to Exhibit 8 to Post-Effective
Amendment No. 3)
(c) Amended and Restated Transfer Agency and Services Agreement
between Registrant and Dean Witter Trust Company (incorporated
herein by reference to Exhibit 8 to Pre-Effective Amendment No. 1)
(10) (a) Amended and Restated Plan of Distribution pursuant to Rule 12b-1,
dated July 28, 1997 (incorporated herein by reference to Exhibit
15 to Post-Effective Amendment No. 4)
(b) Dean Witter Funds Multiple Class Plan pursuant to Rule 18f-3
(incorporated herein by reference to Exhibit 18 to Post-Effective
Amendment No. 4)
C-1
<PAGE>
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov &
Wein
(b) Opinion and consent of Lane Altman & Owens
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov &
Wein regarding tax matters
(13) Form of Services Agreement between Dean Witter InterCapital Inc. and
Dean Witter Services Company Inc. (incorporated herein by reference
to Exhibit 9 to Post-Effective Amendment No. 1)
(14) Consent of Independent Accountants
(15) Not Applicable
(16) Powers of Attorney
(17) (a) Registrant's Rule 24f-2 Notice pursuant to Rule 24f-2 under the
Investment Company Act of 1940, for its fiscal year ended January
31, 1997 (incorporated herein by reference to Form 24f-2 filed
with the Securities and Exchange Commission on March 5, 1997)
(b) Form of Proxy
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of the prospectus which is a
part of this registration statement on Form N-14 by any person or party who
is deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, the reoffering prospectus will contain the
information called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to this
registration statement on Form N-14 and will not be used until the amendment
is effective, and that, in determining any liability under the Securities Act
of 1933, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the offering
of the securities at that time shall be deemed to be the initial bona fide
offering of them.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York and State of
New York, on the 6th day of November 1997.
DEAN WITTER BALANCED GROWTH FUND
By: /s/ Barry Fink
.................................
Vice President and Secretary
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- --------------------------------------- --------------------
<S> <C> <C>
1. Principal Executive Officer
/s/ Charles A. Fiumefreddo President, Chief Executive Officer, November 6, 1997
............................... Trustee and Chairman
2. Principal Financial Officer
/s/ Thomas F. Caloia Treasurer and Principal Accounting November 6, 1997
............................... Officer
3. Majority of Trustees
/s/ Michael Bozic Trustee November 6, 1997
...............................
/s/ Edwin J. Garn Trustee November 6, 1997
...............................
/s/ John R. Haire Trustee November 6, 1997
...............................
/s/ Manuel H. Johnson Trustee November 6, 1997
...............................
/s/ Michael E. Nugent Trustee November 6, 1997
...............................
/s/ John L. Schroeder Trustee November 6, 1997
...............................
/s/ Wayne E. Hedien Trustee November 6, 1997
...............................
/s/ Philip J. Purcell Trustee November 6, 1997
...............................
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ----------- -------------------------------------------------------------------------- ----------
<S> <C> <C>
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
regarding tax matters
(14) Consent of Independent Accountants
(16) Powers of Attorney
(17) (b) Form of Proxy
</TABLE>
I-1
<PAGE>
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
November 18, 1997
Dean Witter Balanced Growth Fund
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This opinion is being furnished to Dean Witter Balanced Growth Fund, a
Massachusetts business trust (the "Trust"), in connection with the
Registration Statement on Form N-14 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "1933 Act"), to be filed by the Trust
in connection with the acquisition by the Trust of substantially all the
assets of TCW/DW Balanced Fund ("Balanced") in exchange for shares of
beneficial interest, par value $.01, of the Trust ("Shares") and the
assumption by the Trust of certain stated liabilities of Balanced pursuant to
an Agreement and Plan of Reorganization dated as of November 6, 1997, between
the Trust and Balanced (the "Reorganization Agreement"). We have examined
such statutes, regulations, corporate records and other documents and
reviewed such questions of law that we deemed necessary or appropriate for
the purposes of this opinion.
As to matters of Massachusetts law contained in this opinion, we have
relied upon the opinion of Lane Altman & Owens LLP, dated November 18, 1997.
Based upon the foregoing, we are of the opinion that the Shares when
issued, as described in the Reorganization Agreement, will be duly authorized
and, assuming receipt of the consideration to be paid therefor, upon delivery
as provided in the Reorganization Agreement, will be legally issued, fully
paid and non-assessable (except for the potential liability of shareholders
described in the Trust's Prospectus dated July 28, 1997 under the caption
"Additional Information").
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. We
do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the 1933 Act or the rules and regulations of
the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Gordon Altman Butowsky Weitzen
Shalov & Wein
-------------------------------
<PAGE>
November 18, 1997
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, NY 10036
Re: ACQUISITION OF ASSETS OF TCW/DW BALANCED FUND
BY DEAN WITTER BALANCED GROWTH FUND
-----------------------------------
Dear Sirs:
We understand that the trustees of Dean Witter Balanced Growth Fund, a
Massachusetts business trust (the "Trust"), intend, on or about November,
1997, to cause to be filed on behalf of the Trust a Registration Statement on
Form N-14 (the "Registration Statement") in connection with the acquisition
(the "Acquisition") by the Trust of substantially all the assets of TCW/DW
Balanced Fund ("Balanced"), in exchange for shares of beneficial interest of
the Trust (the "Shares"), and the assumption by the Trust of certain stated
liabilities of Balanced pursuant to an Agreement and Plan of Reorganization
dated as of November 6, 1997 between the Trust and Balanced (the
"Agreement"). We further understand that the Shares will be issued pursuant
to the Agreement.
You have requested that we act as special counsel to the Trust with
respect to the laws of the Commonwealth of Massachusetts on certain specified
matters, and in such capacity we are furnishing you with this opinion. You
have not asked for, and we do not offer, an opinion on any other matter or
transaction related to the Trust, Balanced, the Acquisition, the Agreement or
any matter related thereto, except as specifically set forth below.
The Trust is a business trust created under an Agreement and Declaration
of Trust finally executed and delivered in Boston, Massachusetts on November
23, 1994, and amended by Instrument Establishing and Designating Additional
Classes of Shares dated July 28, 1997, (as amended, the "Trust Agreement").
The Board of Trustees of the Trust (as defined in the Trust Agreement) (the
"Trustees") have the powers set forth in the Trust Agreement, subject to the
terms, provisions and conditions provided therein.
In connection with our opinions delivered herein, we have examined the
following items some of which have been provided to us by, or on behalf of,
you: (i) a copy of the Agreement in the form to be executed by the Trust and
Balanced; (ii) a copy of the Trust Agreement; (iii) a copy of the Amended and
Restated By-laws of the Trust effective as of October 25, 1996; (iv) a
Certificate of Legal Existence for the Trust provided by the Secretary of
State of the Commonwealth of Massachusetts dated October 27, 1997; (v) a
certificate of the Secretary of the Trust attesting to, among other matters,
the due adoption on October 30, 1997 by the Trustees of resolutions approving
certain actions and regarding certain factual matters regarding the
Acquisition; and (vi) copies of the Registration Statement on Form N-14 to be
filed by the Trust and the Trust's current Prospectus and Statement of
Additional Information each dated July 28, 1997.
In rendering this opinion we have assumed, without independent
verification, (i) the due authority of all individuals signing in
representative capacities and the genuineness of signatures, (ii) the
authenticity, completeness and continued effectiveness of all documents or
copies furnished to us, (iii) that the resolutions provided have been duly
adopted by the Trustees, (iv) that no amendments, agreements, resolutions or
actions have been approved, executed or adopted which would limit, supersede
or modify the items described above, and (v) that the by-laws filed as an
exhibit to the Registration Statement have been duly adopted by the Trustees.
We have also examined such questions of law as we have concluded necessary or
appropriate for purposes of the opinions expressed below. Where documents are
referred to in resolutions approved by the Trustees, or in the Registration
Statement, we assume such documents are the same as in the most recent form
provided to us, whether as an exhibit to the Registration Statement, or
otherwise. When any opinion set forth below relates to the existence or
standing of the Trust, such opinion is based entirely upon and is limited by
the items referred to above, and we understand that the foregoing
assumptions, limitations and qualifications are acceptable to you.
<PAGE>
Based upon the foregoing, and with respect to Massachusetts law only
(except that no opinion is herein expressed with respect to compliance with
the Massachusetts Uniform Securities Act), to the extent that Massachusetts
law may be applicable, and without reference to the laws of any of the other
several states or of the United States of America, including State and
Federal securities laws, we are of the opinion that:
1. The Trust is a business trust with transferable shares, organized in
compliance with the requirements of The Commonwealth of Massachusetts, and
the Trust Agreement is legal and valid.
2. The Shares to be issued as described in the Registration Statement,
including any Exhibits thereto, have been duly authorized and, assuming
receipt of the consideration to be paid therefor, upon delivery as provided
in the Agreement, will be validly issued, fully paid and nonassessable
(except for the potential liability of shareholders described in the Trust's
Prospectus dated July 28, 1997, under the caption "Additional Information").
We understand that you will rely on this opinion solely in connection with
your opinion to be filed with the Securities and Exchange Commission as an
Exhibit to the Registration Statement. We hereby consent to such use of this
opinion and we also consent to the filing of said opinion with the Securities
and Exchange Commission. In so consenting, we do not thereby admit to be
within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ LANE ALTMAN & OWENS LLP
2
<PAGE>
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
November 18, 1997
Dean Witter Balanced Growth Fund
Two World Trade Center
New York, New York 10048
TCW/DW Balanced Fund
Two World Trade Center
New York, New York 10048
Gentlemen:
You have requested our opinion as to the Federal income tax consequences
of the transaction (the "Reorganization") described below pursuant to which
(i) substantially all assets of TCW/DW Balanced Fund, a Massachusetts
business trust ("TCW/DW Balanced"), will be combined with those of Dean
Witter Balanced Growth Fund, a Massachusetts business trust ("Dean Witter
Balanced Growth"), in exchange for shares of Dean Witter Balanced Growth
("Dean Witter Balanced Growth Shares"), and the assumption by Dean Witter
Balanced Growth of certain liabilities of TCW/DW Balanced (the
"Liabilities"); (ii) TCW/DW Balanced will be liquidated; and (iii) the Dean
Witter Balanced Growth Shares will be distributed to the holders ("TCW/DW
Balanced Shareholders") of shares in TCW/DW Balanced ("TCW/DW Balanced
Shares") pursuant to such liquidation.
We have examined and are familiar with such documents, records and other
instruments as we have deemed appropriate for purposes of this opinion
letter, including the Registration Statement filed with the Securities and
Exchange Commission under the Securities Act of 1933 on Form N-14, relating
to the Dean Witter Balanced Growth Shares (the "Registration Statement")
which includes, as a part thereof, the proxy statement of TCW/DW Balanced
(the "TCW/DW Balanced Proxy") which will be used to solicit proxies of TCW/DW
Balanced Shareholders in connection with the Special Meeting of TCW/DW
Balanced Shareholders and the Agreement and Plan of Reorganization by and
between TCW/DW Balanced and Dean Witter Balanced Growth (the "Plan").
In rendering this opinion, we have assumed that such documents as yet
unexecuted will, when executed, conform to the proposed forms of such
documents that we have examined. We have further assumed that the
Reorganization will be carried out pursuant to the terms of the Plan, that
factual statements and information contained in the Registration Statement,
the TCW/DW Balanced Proxy and other documents, records and instruments
supplied to us are correct and that there will be no material change with
respect to such facts or information prior to the time of the Reorganization.
In rendering our opinion, we have also relied on the representations and
facts discussed below which have been provided to us by Dean Witter
InterCapital Inc. ("InterCapital"), Dean Witter Balanced Growth and TCW/DW
Balanced, and we have assumed that such representations and facts will remain
correct at the time of the Reorganization.
FACTS
Dean Witter Balanced Growth is an open-end diversified management
investment company engaged in the continuous offering of its shares to the
public. Since its inception, Dean Witter Balanced Growth has conducted its
affairs so as to qualify, and has elected to be taxed, as a regulated
investment company under Section 851 of the Internal Revenue Code of 1986, as
amended (the "Code").
TCW/DW Balanced is an open-end diversified management investment company
engaged in the continuous offering of its shares to the public. Since its
inception, TCW/DW Balanced has conducted its affairs so as to qualify, and
has elected to be taxed, as a regulated investment company under Section 851
of the Code.
<PAGE>
The Board of Trustees of each of Dean Witter Balanced Growth and TCW/DW
Balanced have determined, for valid business reasons, that it is advisable to
combine the assets of Dean Witter Balanced Growth and TCW/DW Balanced into
one fund.
In view of the above, the Board of Trustees of TCW/DW Balanced adopted the
Plan, subject to, among other things, approval by TCW/DW Balanced
Shareholders.
Pursuant to the Plan, TCW/DW Balanced will transfer all of its assets to
Dean Witter Balanced Growth in exchange for the Dean Witter Balanced Growth
Shares (including fractional Dean Witter Balanced Growth Shares) and the
assumption by TCW/DW Balanced Growth of the Liabilities. Immediately
thereafter, TCW/DW Balanced will distribute the Dean Witter Balanced Growth
Shares to TCW/DW Balanced Shareholders in exchange for and in cancellation of
their TCW/DW Balanced Shares and in complete liquidation of TCW/DW Balanced.
Each of the following representations, among other representations, has
been made to us in connection with the Reorganization by InterCapital, TCW/DW
Balanced and by Dean Witter Balanced Growth.
(1) To the best of the knowledge of the management of InterCapital, TCW/DW
Balanced, Dean Witter Balanced Growth, and their affiliates, there is no plan
or intention on the part of TCW/DW Balanced Shareholders, to redeem, sell,
exchange or otherwise dispose of a number of Dean Witter Balanced Growth
Shares that would reduce TCW/DW Balanced Shareholders' ownership of Dean
Witter Balanced Growth Shares to a number of Dean Witter Balanced Growth
Shares having a value, as of the date of the Reorganization, of less than
fifty percent of the value of all of the formerly outstanding TCW/DW Balanced
Shares as of such date;
(2) Dean Witter Balanced Growth has no plan or intention to reacquire any
of the Dean Witter Balanced Growth Shares to be issued pursuant to the
Reorganization except to the extent necessary to comply with its legal
obligation to redeem its own shares;
(3) The Liabilities to be assumed by or transferred to Dean Witter
Balanced Growth were incurred by TCW/DW Balanced in the ordinary course of
business and are associated with the assets being transferred to Dean Witter
Balanced Growth;
(4) The amount of the Liabilities will not exceed the aggregate adjusted
basis of TCW/DW Balanced for its assets transferred to Dean Witter Balanced
Growth;
(5) Dean Witter Balanced Growth has no plan or intention to sell or
otherwise dispose of more than fifty percent of the assets of TCW/DW Balanced
acquired in the Reorganization, except for dispositions made in the ordinary
course of business;
(6) There is no indebtedness between TCW/DW Balanced and Dean Witter
Balanced Growth that was issued, acquired or will be settled at a discount;
(7) TCW/DW Balanced has been a regulated investment company within the
meaning of Section 851 of the Code since the date of its organization through
the end of its last complete taxable year and will qualify as a regulated
investment company for its taxable year ending on the date of the
Reorganization;
(8) Dean Witter Balanced Growth has been a regulated investment company
within the meaning of Section 851 of the Code since the date of its
organization through the date hereof and will qualify as a regulated
investment company for its taxable year ending on January 31, 1997;
(9) TCW/DW Balanced will have no accumulated earnings and profits as of
the close of its taxable year ending on the date of the Reorganization.
<PAGE>
OPINION
Based on the Code, Treasury Regulations issued thereunder, Internal
Revenue Service Rulings and the relevant case law, as of the date hereof, and
on the facts, representations and assumptions set forth above, and the
documents, records and other instruments we have reviewed, it is our opinion
that the Federal income tax consequences of the Reorganization to Dean Witter
Balanced Growth, TCW/DW Balanced, and the TCW/DW Balanced Shareholders will
be as follows:
(1) The transfer of substantially all of TCW/DW Balanced's assets in
exchange for Dean Witter Balanced Growth Shares and the assumption by Dean
Witter Balanced Growth of certain stated Liabilities of TCW/DW Balanced,
followed by the distribution by TCW/DW Balanced of the Dean Witter Balanced
Growth Shares to the TCW/DW Balanced Shareholders in exchange for their
TCW/DW Balanced Shares, will constitute a "reorganization" within the meaning
of Section 368(a)(1) of the Code, and TCW/DW Balanced and Dean Witter
Balanced Growth will each be a "party to a reorganization" within the meaning
of Section 368(b) of the Code;
(2) No gain or loss will be recognized by Dean Witter Balanced Growth upon
the receipt of the assets of TCW/DW Balanced solely in exchange for Dean
Witter Balanced Growth Shares and the assumption of the Liabilities by Dean
Witter Balanced Growth;
(3) No gain or loss will be recognized by TCW/DW Balanced upon the
transfer of the assets of TCW/DW Balanced to Dean Witter Balanced Growth, in
exchange for Dean Witter Balanced Growth Shares and the assumption of the
Liabilities by Dean Witter Balanced Growth, or upon the distribution of the
Dean Witter Balanced Growth Shares to TCW/DW Balanced Shareholders in
exchange for their TCW/DW Balanced Shares as provided in the Plan;
(4) No gain or loss will be recognized by TCW/DW Balanced Shareholders
upon the exchange of their TCW/DW Balanced Shares for Dean Witter Balanced
Growth Shares;
(5) The aggregate tax basis for the Dean Witter Balanced Growth Shares
received by each TCW/DW Balanced Shareholder pursuant to the Reorganization
will be the same as the aggregate tax basis of the TCW/DW Balanced Shares
held by each such TCW/DW Balanced Shareholder immediately prior to the
Reorganization;
(6) The holding period of the Dean Witter Balanced Growth Shares to be
received by each TCW/DW Balanced Shareholder will include the period during
which the TCW/DW Balanced Shares surrendered in exchange therefor were held
(provided such TCW/DW Balanced Shares were held as capital assets on the date
of the Reorganization);
(7) The tax basis of the assets of TCW/DW Balanced acquired by Dean Witter
Balanced Growth will be the same as the tax basis of such assets to TCW/DW
Balanced immediately prior to the Reorganization; and
(8) The holding period of the assets of TCW/DW Balanced in the hands of
Dean Witter Balanced Growth will include the period during which those assets
were held by TCW/DW Balanced.
We are not expressing an opinion as to any aspect of the Reorganization
other than those opinions expressly stated above.
As noted above, this opinion is based upon our analysis of the Code,
Treasury Regulations issued thereunder, Internal Revenue Service Rulings and
case law which we deem relevant as of the date hereof. No assurances can be
given that there will not be a change in the existing law or that the
Internal Revenue Service will not alter its present views, either
prospectively or retroactively, or adopt new views with regard to any of the
matters upon which we are rendering this opinion, nor can any assurances be
given that the Internal Revenue Service will not audit or question the
treatment accorded to the Reorganization on the Federal income tax returns of
Dean Witter Balanced Growth, TCW/DW Balanced, or the TCW/DW Balanced
Shareholders.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our
firm in the Registration Statement and the TCW/DW Balanced Proxy constituting
a part thereof.
Very truly yours,
/s/ Gordon Altman Butowsky Weitzen
Shalov & Wein
-------------------------------
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement and
Prospectus and the Statement of Additional Information constituting parts of
this registration statement on Form N-14 (the "Registration Statement") of our
report dated March 10, 1997, relating to the January 31, 1997 financial
highlights of Dean Witter Balanced Growth Fund (the "Fund"), which appears in
the Fund's Statement of Additional Information dated July 28, 1997, and to the
reference to us under the heading "Financial Statements and Experts" in such
Proxy Statement and Prospectus. We also consent to: (a) the references to us
under the headings "Independent Accountants" and "Experts" in the Fund's
Statement of Additional Information dated July 28, 1997 and to the reference
to us under the heading "Financial Highlights" in the Fund's Prospectus dated
July 28, 1997, which Statement of Additional Information and Prospectus have
been incorporated by reference into the Registration Statement, (b) the
incorporation by reference into the Proxy Statement and Prospectus and the
Statement of Additional Information of our report dated November 6, 1997,
relating to the September 30, 1997 financial statements and financial
highlights of TCW/DW Balanced Fund ("Balanced Fund"), which appears in Balanced
Fund's Statement of Additional Information dated November 17, 1997, and (c) the
references to us under the headings "Independent Accountants" and "Experts" in
Balanced Fund's Statement of Additional Information dated November 17, 1997 and
to the reference to us under the heading "Financial Highlights" in Balanced
Fund's Prospectus dated November 17, 1997, which Statement of Additional
Information and Prospectus have been incorporated by reference into the
Registration Statement.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
November 17, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David M. Butowsky, Stuart M. Strauss and
Ronald M. Feiman and each and any one of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective
amendments) to the Registration Statement on Form N-14 of Dean Witter
Balanced Growth Fund, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitutes, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ----------- --------------------
<S> <C> <C>
/s/ Michael Bozic Trustee November 6, 1997
/s/ Edwin J. Garn Trustee November 6, 1997
/s/ John R. Haire Trustee November 6, 1997
/s/ Manuel H. Johnson Trustee November 6, 1997
/s/ Michael E. Nugent Trustee November 6, 1997
/s/ John L. Schroeder Trustee November 6, 1997
/s/ Wayne E. Hedien Trustee November 6, 1997
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry Fink and Marilyn K. Cranney and each and
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to the Registration Statement on Form N-14 of Dean
Witter Balanced Growth Fund, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitutes, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ----------- --------------------
<S> <C> <C>
/s/ Charles A. Fiumefreddo Trustee November 6, 1997
/s/ Philip J. Purcell Trustee November 6, 1997
</TABLE>
<PAGE>
TCW/DW BALANCED FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 26, 1998
The undersigned shareholder of TCW/DW Balanced Fund does hereby appoint BARRY
FINK, ROBERT M. SCANLAN and ROBERT GIAMBRONE and each of them, as
attorneys-in-fact and proxies of the undersigned, each with the full power of
substitution, to attend the Special Meeting of Shareholders of TCW/DW
Balanced Fund to be held on February 26, 1998, [at the Conference Room, 44th
Floor, Two World Trade Center, New York, New York at 9:00 A.M., New York
time], and at all adjournments thereof and to vote the shares held in the
name of the undersigned on the record date for said meeting for the Proposal
specified on the reverse side hereof. Said attorneys-in-fact shall vote in
accordance with their best judgment as to any other matter.
(Continued on reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL SET FORTH ON THE REVERSE HEREOF AND AS RECOMMENDED
BY THE BOARD OF TRUSTEES.
IMPORTANT--This Proxy must be signed and dated on the reverse side.
<PAGE>
[X] PLEASE MARK BOXES
IN BLACK OR BLUE INK
The Proposal:
Approval of the Agreement and Plan of Reorganization, dated as of November 6,
1997, pursuant to which substantially all of the assets of TCW/DW Balanced
Fund would be combined with those of Dean Witter Balanced Growth Fund and
shareholders of TCW/DW Balanced Fund would become shareholders of Dean Witter
Balanced Growth Fund receiving shares in Dean Witter Balanced Growth Fund with
a value equal to the value of their holdings in TCW/DW Balanced Fund.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Please sign personally. If the shares are registered in more than one name,
each joint owner or each fiduciary should sign personally. Only authorized
officers should sign for corporations.
Date
--------------------------------
Please make sure to sign and date this Proxy using black or blue ink.
----------------------------------
Shareholder sign in the box above
----------------------------------
Co-Owner (if any) sign in the box above
TCW/DW BALANCED FUND
- -------------------------------------------------------------------------------
IMPORTANT
PLEASE SEND IN YOUR PROXY.........TODAY!
YOU ARE URGED TO DATE AND SIGN THE ATTACHED PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE. THIS WILL HELP SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO
SHAREHOLDERS WHO HAVE NOT RESPONDED.
- -------------------------------------------------------------------------------
