1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 4, 1998
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 STRATEGIST 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 JULY 31, 1997, WITH THE SECURITIES AND EXCHANGE COMMISSION ON
SEPTEMBER 10, 1997.
PURSUANT TO RULE 429, THIS REGISTRATION STATEMENT RELATES TO SHARES
PREVIOUSLY REGISTERED BY THE REGISTRANT ON FORM N-1A (REGISTRATION NOS.
33-23669; 811-5634).
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FORM N-14
DEAN WITTER STRATEGIST FUND
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
PART A OF FORM N-14 ITEM NO. PROXY STATEMENT AND PROSPECTUS HEADING
- ------------------------------------------------------------- --------------------------------------------------------
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 Dean Witter Global Asset Allocation Fund
(b) ..................................... Available Information
(c) ..................................... *
(d) ..................................... *
7 (a) ..................................... Introduction -- Proxies
(b) ..................................... *
(c) ..................................... Introduction; The Reorganization -- Appraisal Rights
8 (a) ..................................... The Reorganization
(b) ..................................... *
9 ..................................... *
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 Strategist Fund
(b) ..................................... *
(c) ..................................... *
13 (a) ..................................... Additional Information about Dean Witter Global Asset
Allocation Fund
(b) ..................................... *
(c) ..................................... *
14 ..................................... Registrant's Annual Report for the fiscal year ended
July 31, 1997 and Registrant's Semi-Annual Report for
the six month period ended January 31, 1998; Dean
Witter Global Asset Allocation Fund's Annual Report
for the fiscal year ended January 31, 1998.
PART C OF FORM N-14 ITEM NO. OTHER INFORMATION HEADING
- ------------------------------------------------------------- --------------------------------------------------------
15 ..................................... Indemnification
16 ..................................... Exhibits
17 ..................................... Undertakings
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* Not Applicable or negative answer
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DEAN WITTER GLOBAL ASSET ALLOCATION FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 19, 1998
TO THE SHAREHOLDERS OF DEAN WITTER GLOBAL ASSET ALLOCATION FUND:
Notice is hereby given of a Special Meeting of the Shareholders of Dean
Witter Global Asset Allocation Fund ("Dean Witter Global Asset") to be held in
the Career Development Room, Sixty-First Floor, Two World Trade Center, New
York, New York 10048, at A.M., New York time, on August 19, 1998, and
any adjournments thereof (the "Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization, dated
April 30, 1998 (the "Reorganization Agreement"), between Dean Witter Global
Asset and Dean Witter Strategist Fund ("Dean Witter Strategist"), pursuant
to which substantially all of the assets of Dean Witter Global Asset would
be combined with those of Dean Witter Strategist and shareholders of Dean
Witter Global Asset would become shareholders of Dean Witter Strategist
receiving shares of Dean Witter Strategist with a value equal to the value
of their holdings in Dean Witter Global Asset (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 June 2,
1998 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
DEAN WITTER GLOBAL ASSET 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
June , 1998
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.
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DEAN WITTER STRATEGIST FUND
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(212) 392-2550
ACQUISITION OF THE ASSETS OF
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
BY AND IN EXCHANGE FOR SHARES OF
DEAN WITTER STRATEGIST FUND
This Proxy Statement and Prospectus is being furnished to shareholders of
Dean Witter Global Asset Allocation Fund ("Dean Witter Global Asset") in
connection with an Agreement and Plan of Reorganization, dated April 30, 1998
(the "Reorganization Agreement"), pursuant to which substantially all the assets
of Dean Witter Global Asset will be combined with those of Dean Witter
Strategist Fund ("Dean Witter Strategist") in exchange for shares of Dean Witter
Strategist. As a result of this transaction, shareholders of Dean Witter Global
Asset will become shareholders of Dean Witter Strategist and will receive shares
of Dean Witter Strategist with a value equal to the value of their holdings in
Dean Witter Global Asset. The terms and conditions of this transaction are more
fully described in this Proxy Statement and Prospectus and in the Reorganization
Agreement between Dean Witter Global Asset and Dean Witter Strategist, attached
hereto as Exhibit A. The address of Dean Witter Global Asset is that of Dean
Witter Strategist set forth above. This Proxy Statement also constitutes a
Prospectus of Dean Witter Strategist, which is dated June , 1998, filed by
Dean Witter Strategist with the Securities and Exchange Commission (the
"Commission") as part of its Registration Statement on Form N-14 (the
"Registration Statement").
Dean Witter Strategist is an open-end non-diversified management investment
company whose investment objective is to maximize total return on its
investments. The fund seeks to achieve its objective by actively allocating its
assets among the major asset categories of equity securities, fixed-income
securities and money market instruments.
This Proxy Statement and Prospectus sets forth concisely information about
Dean Witter Strategist that shareholders of Dean Witter Global Asset should know
before voting on the Reorganization Agreement. A copy of the Prospectus for Dean
Witter Strategist dated September 26, 1997, is attached as Exhibit B and
incorporated herein by reference. Also enclosed and incorporated herein by
reference is Dean Witter Strategist's Annual Report for the fiscal year ended
July 31, 1997 and the succeeding unaudited Semi-Annual Report for the six months
ended January 31, 1998. A Statement of Additional Information relating to the
Reorganization, described in this Proxy Statement and Prospectus (the
"Additional Statement"), dated June , 1998, has been filed with the Commission
and is also incorporated herein by reference. Also incorporated herein by
reference are Dean Witter Global Asset's Prospectus, dated March 2, 1998, and
Annual Report for its fiscal year ended January 31, 1998. 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 JUNE , 1998.
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TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
PAGE
----
INTRODUCTION................................................ 1
General................................................ 1
Record Date; Share Information......................... 1
Proxies................................................ 2
Expenses of Solicitation............................... 2
Vote Required.......................................... 3
SYNOPSIS.................................................... 3
The Reorganization..................................... 3
Fee Table.............................................. 4
Tax Consequences of the Reorganization................. 8
Comparison of Dean Witter Global Asset and Dean Witter
Strategist............................................ 8
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................................ 20
ADDITIONAL INFORMATION ABOUT DEAN WITTER GLOBAL ASSET AND
DEAN WITTER STRATEGIST.................................... 20
General................................................ 20
Financial Information.................................. 20
Management............................................. 20
Description of Securities and Shareholder Inquiries.... 20
Dividends, Distributions and Taxes..................... 21
Purchases, Repurchases and Redemptions................. 21
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE................. 21
FINANCIAL STATEMENTS AND EXPERTS............................ 21
LEGAL MATTERS............................................... 21
AVAILABLE INFORMATION....................................... 21
OTHER BUSINESS.............................................. 22
Exhibit A - Agreement and Plan of Reorganization, dated
April 30, 1998, by and between Dean Witter Global Asset
and Dean Witter Strategist................................ A-1
6
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
------------------------------
PROXY STATEMENT AND PROSPECTUS
------------------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 19, 1998
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of Dean Witter Global Asset Allocation Fund ("Dean Witter Global Asset"), an
open-end diversified management investment company, in connection with the
solicitation by the Board of Trustees of Dean Witter Global Asset (the "Board")
of proxies to be used at the Special Meeting of Shareholders of Dean Witter
Global Asset to be held in the Career Development Room, Sixty-First Floor, Two
World Trade Center, New York, New York 10048 at A.M., New York time, on
August 19, 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
June , 1998.
At the Meeting, Dean Witter Global Asset shareholders ("Shareholders") will
consider and vote upon an Agreement and Plan of Reorganization, dated April 30,
1998 (the "Reorganization Agreement"), between Dean Witter Global Asset and Dean
Witter Strategist Fund ("Dean Witter Strategist") pursuant to which
substantially all of the assets of Dean Witter Global Asset will be combined
with those of Dean Witter Strategist in exchange for shares of Dean Witter
Strategist. As a result of this transaction, Shareholders will become
shareholders of Dean Witter Strategist and will receive shares of Dean Witter
Strategist equal to the value of their holdings in Dean Witter Global Asset on
the date of such transaction (the "Reorganization"). Pursuant to the
Reorganization, each Shareholder will receive the class of shares of Dean Witter
Strategist that corresponds to the class of shares of Dean Witter Global Asset
currently held by that Shareholder. Accordingly, as a result of the
Reorganization, each Class A, Class B, Class C and Class D Shareholder of Dean
Witter Global Asset will receive Class A, Class B, Class C and Class D shares of
Dean Witter Strategist, respectively. The shares to be issued by Dean Witter
Strategist pursuant to the Reorganization (the "Dean Witter Strategist Shares")
will be issued at net asset value without an initial sales charge. Further
information relating to Dean Witter Strategist is set forth herein and in Dean
Witter Strategist's current Prospectus, dated September 26, 1997 ("Dean Witter
Strategist's Prospectus"), attached to this Proxy Statement and Prospectus and
incorporated herein by reference.
The information concerning Dean Witter Global Asset contained herein has
been supplied by Dean Witter Global Asset and the information concerning Dean
Witter Strategist contained herein has been supplied by Dean Witter Strategist.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on June 2, 1998 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 Record Date, there
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were shares of Dean Witter Global Asset 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.
[ was known to own 5% or more of the outstanding
shares of Dean Witter Global Asset as of the Record Date ( shares). As
of the Record Date, the trustees and officers of Dean Witter Global Asset, as a
group, owned less than 1% of the outstanding shares of Dean Witter Global
Asset.]
[To the knowledge of Dean Witter Strategist'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 Strategist. As of the Record Date, the
trustees and officers of Dean Witter Strategist, as a group, owned less than 1%
of the outstanding shares of Dean Witter Strategist.]
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 Dean Witter
Global Asset 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 Dean
Witter Global Asset 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 Dean Witter Global
Asset which expenses are expected to approximate $78,000. Dean Witter Global
Asset and Dean Witter Strategist 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 Dean Witter Global
Asset, and officers and regular employees of Dean Witter InterCapital Inc.
("InterCapital" or the "Investment Manager") and Morgan Stanley Dean Witter
Trust FSB ("MSDW Trust"), personally or by mail,
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telephone, telegraph or otherwise, without 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.
MSDW Trust, 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.
Dean Witter Global Asset 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.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (i.e., more than 50%) of the shares of Dean
Witter Global Asset 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, Dean Witter Global Asset will
continue in existence and the Board will consider alternative actions.
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 Strategist'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 Dean Witter Global Asset, subject to stated liabilities, to Dean
Witter Strategist in exchange for the Dean Witter Strategist Shares. The
aggregate net asset value of the Dean Witter Strategist Shares issued in the
exchange will equal the aggregate value of the net assets of Dean Witter Global
Asset received by Dean Witter Strategist . On or after the closing date
scheduled for the Reorganization (the "Closing Date"), Dean Witter Global Asset
will distribute the Dean Witter Strategist Shares received by Dean Witter Global
Asset to Shareholders as of the Valuation Date (as defined below under "The
Reorganization Agreement") in complete liquidation of Dean Witter Global Asset
and Dean Witter Global Asset 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 Strategist Shares equal in value to such Shareholder's
pro rata interest in the net assets of Dean Witter Global Asset transferred to
Dean Witter Strategist. Pursuant to the Reorganization, each Shareholder will
receive the class of shares of Dean Witter Strategist that corresponds to the
class of shares of Dean Witter
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Global Asset currently held by that Shareholder. Accordingly, as a result of the
Reorganization, each Class A, Class B, Class C and Class D Shareholder of Dean
Witter Global Asset will become holders of Class A, Class B, Class C and Class D
shares of Dean Witter Strategist, respectively. Shareholders holding their
shares of Dean Witter Global Asset 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 Strategist; however, such Shareholders will
not be able to redeem, transfer or exchange the Dean Witter Strategist 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 DEAN WITTER GLOBAL ASSET ("INDEPENDENT TRUSTEES"), AS THAT TERM IS
DEFINED IN THE 1940 ACT, HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST
INTERESTS OF DEAN WITTER GLOBAL ASSET AND ITS SHAREHOLDERS AND RECOMMENDS
APPROVAL OF THE REORGANIZATION AGREEMENT.
FEE TABLE
Dean Witter Global Asset and Dean Witter Strategist 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 Dean Witter Global Asset and Dean Witter Strategist 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 Dean Witter Global Asset incurred
during the fund's fiscal year ended January 31, 1998 adjusted, with respect to
Class A, Class C 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. With
respect to Dean Witter Strategist, the table sets forth expenses and fees based
on the fund's July 31, 1997 fiscal year end, adjusted, with respect to Class A,
Class C 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 fund (Dean Witter
Strategist) reflecting what the fee schedule would have been on January 31,
1998, if the Reorganization had been consummated twelve (12) months prior to
that date.
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10
Shareholder Transaction Expenses
DEAN WITTER DEAN WITTER PRO FORMA
GLOBAL ASSET STRATEGIST COMBINED
------------ ----------- ---------
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
Annual Fund Operating Expenses As a Percentage of Average Net Assets
DEAN WITTER DEAN WITTER PRO FORMA
GLOBAL ASSET STRATEGIST COMBINED
------------ ----------- ---------
MANAGEMENT AND ADVISORY FEE
Class A..................................................... 1.00% 0.56% 0.55%(5)
Class B..................................................... 1.00% 0.56% 0.55%(5)
Class C..................................................... 1.00% 0.56% 0.55%(5)
Class D..................................................... 1.00% 0.56% 0.55%(5)
12B-1 FEES(6)(7)(8)
Class A..................................................... 0.25% 0.25% 0.25%
Class B..................................................... 0.94% 0.90%(8) 0.90%
Class C..................................................... 1.00% 1.00% 1.00%
Class D..................................................... none none none
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DEAN WITTER DEAN WITTER PRO FORMA
GLOBAL ASSET STRATEGIST COMBINED
------------ ----------- ---------
OTHER EXPENSES
Class A..................................................... 0.71% 0.11% 0.12%
Class B..................................................... 0.71% 0.11% 0.12%
Class C..................................................... 0.71% 0.11% 0.12%
Class D..................................................... 0.71% 0.11% 0.12%
TOTAL FUND OPERATING EXPENSES
Class A..................................................... 1.96% 0.92% 0.92%
Class B..................................................... 2.65% 1.57% 1.57%
Class C..................................................... 2.71% 1.67% 1.67%
Class D..................................................... 1.71% 0.67% 0.67%
- ---------------
(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).
(5) This rate reflects the anticipated lower advisory fee of Dean Witter
Strategist obtained by the effect of having additional assets at a lower
breakpoint in the advisory fee upon the combination of the two funds based
upon Dean Witter Global Asset's average net assets for the year ended
January 31, 1998 and Dean Witter Strategist's average net assets for the
twelve months ended January 31, 1998, thus, a scaling down of the advisory
fee to the effective advisory fee rate shown.
(6) 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).
(7) 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).
(8) The 12b-1 fee has been restated to reflect what the fee would have been if
the shares that were designated Class D shares on July 28, 1997 had not
been included in Dean Witter Strategist during the fiscal year ended July
31, 1997. The actual 12b-1 fee was 0.89%.
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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 Dean Witter Global Asset or Dean Witter Strategist
or the new combined fund (Dean Witter Strategist), 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Dean Witter Global Asset
Class A............................................... $71 $111 $153 $269
Class B............................................... $77 $112 $161 $298
Class C............................................... $37 $ 84 $143 $304
Class D............................................... $17 $ 54 $ 93 $202
Dean Witter Strategist
Class A............................................... $61 $ 80 $101 $159
Class B............................................... $66 $ 80 $106 $187
Class C............................................... $27 $ 53 $ 91 $197
Class D............................................... $ 7 $ 21 $ 37 $ 83
Pro Forma Combined
Class A............................................... $61 $ 80 $101 $159
Class B............................................... $66 $ 80 $106 $187
Class C............................................... $27 $ 53 $ 91 $197
Class D............................................... $ 7 $ 21 $ 37 $ 83
If such investment was not redeemed, the investor would incur the following
expenses:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Dean Witter Global Asset
Class A............................................... $71 $111 $153 $269
Class B............................................... $27 $ 82 $141 $298
Class C............................................... $27 $ 84 $143 $304
Class D............................................... $17 $ 54 $ 93 $202
Dean Witter Strategist
Class A............................................... $61 $ 80 $101 $159
Class B............................................... $16 $ 50 $ 86 $187
Class C............................................... $17 $ 53 $ 91 $197
Class D............................................... $ 7 $ 21 $ 37 $ 83
Pro Forma Combined
Class A............................................... $61 $ 80 $101 $159
Class B............................................... $16 $ 50 $ 86 $187
Class C............................................... $17 $ 53 $ 91 $197
Class D............................................... $ 7 $ 21 $ 37 $ 83
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, CLASS B
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AND CLASS C SHARES OF DEAN WITTER GLOBAL ASSET AND DEAN WITTER STRATEGIST 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, Dean Witter Global Asset 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 Dean Witter Global
Asset or the shareholders of Dean Witter Global Asset 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 DEAN WITTER GLOBAL ASSET AND DEAN WITTER STRATEGIST
INVESTMENT OBJECTIVES AND POLICIES. Dean Witter Global Asset and Dean
Witter Strategist each are funds which allocate their assets among asset
categories of equity securities, fixed-income securities and money market
instruments. The investment objective of Dean Witter Global Asset is to seek
long-term total return on its investments. The investment objective of Dean
Witter Strategist is to maximize the total return on its investments. Both funds
seek to achieve their objective through an asset allocation investment policy
among asset categories of equity securities, fixed-income securities and money
market instruments. Dean Witter Global Asset may invest its assets in any
combination of U.S. and foreign equity, debt and money market securities and,
under normal market conditions, the fund will have at least 65% of its total
asset invested in securities issued in at least three separate countries
(including the U.S.). Dean Witter Strategist may also invest its assets in any
combination or amount of equity and debt securities and money market instruments
but not more than 20% of its total assets may be invested in securities issued
by foreign issuers and foreign governments and not more than 10% of its total
assets may be invested in securities denominated in foreign currencies. The
processes by which each fund allocates its assets may differ and are fully
described under "Comparison of Investment Objectives, Policies and Restrictions"
below.
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 Dean Witter Global Asset and Dean Witter
Strategist are not fundamental and may be changed by their respective Boards of
Trustees.
INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. Dean Witter Global Asset
obtains management services from InterCapital, and sub-advisory investment
services from Morgan Grenfell Investment Services Limited ("Morgan Grenfell")
pursuant to a sub-advisory agreement (the "Sub-Advisory Agreement"). Morgan
Grenfell, subject to the overall supervision of the Investment Manager and the
Trustees of Dean Witter Global Asset, assists the Investment Manager in
determining the asset allocations of Dean Witter Global Asset, and manages the
portion of Dean Witter Global Asset's portfolio invested in securities issued by
issuers located outside of the Western Hemisphere. Prior to March 1998, TCW
Funds Management, Inc. ("TCW"), a wholly-owned subsidiary of the TCW Group,
Inc., served as a sub-adviser to the Dean Witter Global Asset pursuant to a sub-
advisory agreement between InterCapital and TCW relating to the portion of Dean
Witter Global Asset's portfolio invested in securities of issuers located in
Canada and Latin America. In October 1997, TCW indicated its intention to resign
as sub-adviser. Prior to November 6, 1997, InterCapital informed the Board of
Trustees of its intention to assume the investment management function performed
by TCW. On November 6, 1997, the Board approved the submission to shareholders
for approval at a special meeting of shareholders of a new Investment Management
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Agreement between Dean Witter Global Asset and InterCapital. The new Investment
Management Agreement clarified InterCapital's ability to manage all or part of
Dean Witter Global Asset's portfolio itself, rather than through a sub-adviser.
Dean Witter Global Asset's shareholders approved the new Investment Management
Agreement at a meeting held on February 26, 1998. TCW's resignation and the new
Investment Management Agreement became effective on March 2, 1998.
As compensation for such management services, Dean Witter Global Asset pays
InterCapital monthly compensation calculated daily by applying the annual rate
of 1.0% to the fund's average daily net assets. As compensation for the services
provided pursuant to the Sub-Advisory Agreement between InterCapital and Morgan
Grenfell, InterCapital pays Morgan Grenfell monthly compensation equal to 30% of
the monthly compensation which InterCapital receives from the fund. Dean Witter
Strategist also obtains investment management services from InterCapital. As
compensation for such services, Dean Witter Strategist pays InterCapital monthly
compensation calculated daily by applying the annual rate of 0.60% to the fund's
average daily net assets not exceeding $500 million; 0.55% to the portion of
such daily net assets exceeding $500 million, but not exceeding $1 billion;
0.50% to the portion of such daily net assets exceeding $1 billion, but not
exceeding $1.5 billion; 0.475% to the portion of such daily net assets exceeding
$1.5 billion but not excceding $2 billion; and 0.45% to the portion of such
daily net assets exceeding $2 billion. Each class of both funds' shares is
subject to the same management fee rates applicable to the respective fund.
Both Dean Witter Global Asset and Dean Witter Strategist 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 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, Dean Witter Global Asset'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 lesser of (a) the average daily net sales of the
fund's Class B shares or (b) the average daily net assets of Class B of the
fund. In the case of Dean Witter Strategist's Class B shares, Dean Witter
Strategist's Plan provides that the fund will pay the Distributor a fee, which
is accrued daily and paid monthly, at the annual rate of (i) 1.0% of the lesser
of (a) the average daily net sales of the fund's Class B shares since the
implementation of the Plan on November 8, 1989 or (b) the average daily net
assets of Class B attributable to shares issued, net of related shares redeemed,
since implementation of the 12b-1 Plan, plus (ii) 0.25% of the average daily net
assets of Class B attributable to shares issued, net of related shares redeemed,
prior to implementation of the 12b-1 Plan. 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 Strategist's shares, see
the section entitled "Purchase of Fund Shares" in Dean Witter Strategist'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 Dean Witter Global
Asset and Dean Witter Strategist are set forth below under "Purchases, Exchanges
and Redemptions."
OTHER SIGNIFICANT FEES. Both Dean Witter Global Asset and Dean Witter
Strategist 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
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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):
CLASS B SHARES OF DEAN WITTER GLOBAL ASSET AND
YEAR SINCE PURCHASE PAYMENT MADE DEAN WITTER STRATEGIST
- -------------------------------------------- ----------------------------------------------
First....................................... 5.0%
Second...................................... 4.0%
Third....................................... 3.0%
Fourth...................................... 2.0%
Fifth....................................... 2.0%
Sixth....................................... 1.0%
Seventh and thereafter...................... none
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
Strategist and Dean Witter Global Asset 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
Strategist's shares, see the section entitled "Purchase of Fund Shares" in Dean
Witter Strategist's Prospectus.
Shares of each class of Dean Witter Global Asset and Dean Witter Strategist
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 Global Asset and Dean
Witter Strategist 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 "Exchange Funds"), without the imposition of an
exchange fee. Class A shares of Dean Witter Global Asset and Dean Witter
Strategist 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 Global Asset and Dean Witter Strategist 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 still be applicable to shareholders of the combined fund (Dean
Witter Strategist).
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 Strategist or Dean Witter Global Asset
shareholder remains in an Exchange Fund, the holding period (for purposes of
determining the CDSC rate) is frozen. Both Dean Witter Global Asset and Dean
Witter Strategist provide telephone exchange privileges to
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their shareholders. For greater details relating to exchange privileges
applicable to Dean Witter Strategist, see the section entitled "Shareholder
Services" in Dean Witter Strategist's Prospectus.
Shareholders of Dean Witter Global Asset and Dean Witter Strategist 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 Dean Witter Global Asset and Dean Witter Strategist
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. Dean Witter
Global Asset and Dean Witter Strategist 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. Dean Witter Global Asset pays dividends at least once per year from the
net investment income of the fund and Dean Witter Strategist pays quarterly
dividends from the 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 Strategist and Dean Witter Global Asset
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 interest rates, which cannot be predicted. All fixed-income
securities are subject to two types of risk: credit risk and interest rate risk.
Credit risk relates to the ability of the issuer to meet interest or principal
payments or both as they come due. 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. With respect to fixed-income securities, both funds may invest
their assets in investment grade fixed-income securities rated Baa or higher by
Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard &
Poor's Corporation ("S&P") (or, additionally, in the case of Dean Witter Global
Asset, rated investment grade by a nationally recognized statistical rating
organization ("NRSRO"), or, if not rated, are determined to be of comparable
quality by the Investment Manager and/or Sub-Adviser. However, Dean Witter
Global Asset may invest up to 10% of its total assets in fixed-income securities
(including convertible securities) which are rated below investment grade by a
NRSRO or which are unrated. Fixed-income securities rated Baa by Moody's or BBB
by S&P, while considered investment grade, have speculative characteristics
greater than those of more highly rated bonds and fixed-income securities rated
Ba or BB or lower by Moody's and S&P, respectively, are considered to be
speculative investments 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.
Both funds may invest all or a portion (up to 20% for Dean Witter
Strategist) of their assets in foreign securities and, as such, are subject to
additional risks such as adverse 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
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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. Additionally, 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 and brokerage commissions, dealer concessions
and other transaction costs may be higher on foreign markets than in the U.S.
Fluctuations in the relative rates of exchange between the currencies of
different countries will affect the value of a fund's investments. Changes in
foreign currency exchange rates relative to the U.S. dollar will affect the U.S.
dollar value of a fund's assets denominated in that currency and thereby impact
upon the fund's total return on such assets.
Dean Witter Strategist is a non-diversified investment company and, as
such, is not subject to the diversification requirements of the Investment
Company Act of 1940 (the "Act"). As a non-diversified investment company, the
Fund may invest a greater portion of its assets in the securities of a single
issuer and thus is subject to greater exposure to risks such as a decline in the
credit rating of that issuer. However, the fund has qualified and intends to
continue to qualify as a regulated investment company under the federal income
tax laws and, if so qualified, will be subject to the applicable diversification
requirements of the Internal Revenue Code (the "Code"). As a regulated
investment company under the Code, the Fund may not, as of the end of any of its
fiscal quarters, have invested more than 25% of its total assets in the
securities of any one issuer (including a foreign government), or as to 50% of
its total assets, have invested more than 5% of its total assets in the
securities of a single issuer.
Dean Witter Global Asset may enter into foreign currency exchange contracts
as a hedge against fluctuations in future foreign exchange rates, and both funds
may enter into repurchase agreements, and reverse repurchase agreements, may
purchase securities on a when-issued and delayed delivery basis, or on a when,
as and if issued basis, may lend their portfolio securities, and may enter into
options and futures transactions for hedging purposes, all of which 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 Objective
and Policies -- Risk Considerations" in the Prospectus of Dean Witter Global
Asset and "Investment Objective and Policies" in Dean Witter Strategist's
Prospectus attached hereto and incorporated herein by reference.
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of Dean Witter Global Asset, including the
Independent Trustees, having reviewed the financial position of Dean Witter
Global Asset and the prospects for achieving economies of scale through the
Reorganization and having determined that the Reorganization is in the best
interests of Dean Witter Global Asset 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 Dean Witter Global Asset.
THE BOARD'S CONSIDERATION
At a meeting held on April 30, 1998, 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 Dean Witter Global Asset and Dean Witter Strategist. The Board
also considered other factors, including, but not limited to: the comparative
investment
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performance and past growth in assets of Dean Witter Global Asset and Dean
Witter Strategist; the compatibility of the investment objectives, policies,
restrictions and portfolios of Dean Witter Global Asset and Dean Witter
Strategist; 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 Dean
Witter Global Asset and Dean Witter Strategist in connection with the
Reorganization.
In recommending the Reorganization to Shareholders, the Board of Dean
Witter Global Asset 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 Dean Witter Global Asset. In part, this is because the current rate of the
investment management fee payable by the surviving Dean Witter Strategist fund
(0.55% of average daily net assets) would be lower than the rate of the
investment management fee currently paid by Dean Witter Global Asset (1.0% 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 Dean Witter Global Asset was
higher (for its fiscal year ended January 31, 1998) than the expense ratio for
each class of Dean Witter Strategist (for the fiscal year ended July 31, 1997).
2. Shareholders would have a continued participation in a fund with an
asset allocation strategy through investment in Dean Witter Strategist, which
has a similar investment objective to that of Dean Witter Global Asset.
3. The Board also considered that the assets of Dean Witter Strategist have
continued to increase and grew from approximately $1,259,304,733 at July 31,
1996 to $1,599,011,147 at July 31, 1997, its past fiscal year end. By
comparison, the assets of Dean Witter Global Asset declined during its past
fiscal year from approximately $65,313,790 at January 31, 1997 to $52,471,537 at
January 31, 1998. The Board noted that the assets of Dean Witter Global Asset
may continue to decline and considered the adverse effects that a shrinking
asset base is likely to have on expenses and performance.
4. The Reorganization will constitute a tax-free reorganization for Federal
income tax purposes, and no gain or loss will be recognized by Dean Witter
Global Asset or its Shareholders for Federal income tax purposes as a result of
transactions included in the Reorganization.
The Board of Trustees of Dean Witter Strategist, including a majority of
the Independent Trustees of Dean Witter Strategist, also have determined that
the Reorganization is in the best interests of Dean Witter Strategist and its
shareholders and that the interests of existing shareholders of Dean Witter
Strategist will not be diluted as a result thereof. The transaction will enable
Dean Witter Strategist to acquire investment securities which are consistent
with Dean Witter Strategist's investment objective, without the brokerage costs
attendant to the purchase of such securities in the market and without any cost
to effect the Reorganization itself. Also, the addition of assets to Dean Witter
Strategist's portfolio may result in a further reduction in the investment
management fee resulting from the addition of more assets at a lower breakpoint
rate in the fee schedule. Finally, the Board considered that even if the
benefits enumerated above are not realized, the costs to the Fund are
sufficiently minor to warrant taking the opportunity to realize those benefits.
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.
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The Reorganization Agreement provides that (i) Dean Witter Global Asset
will transfer all of its assets, including portfolio securities, cash (other
than cash amounts retained by Dean Witter Global Asset 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 Strategist on the Closing Date in
exchange for the assumption by Dean Witter Strategist of stated liabilities of
Dean Witter Global Asset, including all expenses, costs, charges and reserves,
as reflected on an unaudited statement of assets and liabilities of Dean Witter
Global Asset prepared by the Treasurer of Dean Witter Global Asset 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 Strategist Shares; (ii) such Dean Witter Strategist
Shares would be distributed to Shareholders on the Closing Date or as soon as
practicable thereafter; (iii) Dean Witter Global Asset would be dissolved; and
(iv) the outstanding shares of Dean Witter Global Asset would be canceled.
The number of Dean Witter Strategist Shares to be delivered to Dean Witter
Global Asset will be determined by dividing the aggregate net asset value of
each class of shares of Dean Witter Global Asset acquired by Dean Witter
Strategist by the net asset value per share of the corresponding class of shares
of Dean Witter Strategist; 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 Dean Witter Global Asset and Dean Witter
Strategist may agree (the "Valuation Date"). As an illustration, assume that on
the Valuation Date, Class B shares of Dean Witter Global Asset had an aggregate
net asset value (not including any Cash Reserve of Dean Witter Global Asset) of
$100,000. If the net asset value per Class B share of Dean Witter Strategist
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 / $10). These 10,000 Class
B shares of Dean Witter Strategist would be distributed to the former Class B
shareholders of Dean Witter Global Asset. 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, Dean Witter
Global Asset will distribute pro rata to its Shareholders of record as of the
close of business on the Valuation Date, the Dean Witter Strategist Shares it
receives. Each Shareholder will receive the class of shares of Dean Witter
Strategist that corresponds to the class of shares of Dean Witter Global Asset
currently held by that Shareholder. Accordingly, the Dean Witter Strategist
Shares will be distributed as follows: each of the Class A, Class B, Class C and
Class D shares of Dean Witter Strategist will be distributed to holders of Class
A, Class B, Class C and Class D shares of Dean Witter Global Asset,
respectively. Dean Witter Strategist will cause its transfer agent to credit and
confirm an appropriate number of Dean Witter Strategist Shares to each
Shareholder. Certificates for Dean Witter Strategist Shares will be issued only
upon written request of a Shareholder and only for whole shares, with fractional
shares credited to the name of the Shareholder on the books of Dean Witter
Strategist. Shareholders who wish to receive certificates representing their
Dean Witter Strategist Shares must, after receipt of their confirmations, make a
written request to Dean Witter Strategist's transfer agent Morgan Stanley Dean
Witter Trust FSB, Harborside Financial Center, Jersey City, New Jersey 07311.
Shareholders of Dean Witter Global Asset 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 Strategist;
however, such Shareholders will not be able to redeem, transfer or exchange the
Dean Witter Strategist 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
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of the events described in those Sections, certain of which may be waived by
Dean Witter Global Asset or Dean Witter Strategist. 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 Strategist to be distributed. All expenses of this
solicitation, including the cost of preparing and mailing this Proxy Statement
and Prospectus, will be borne by Dean Witter Global Asset, which expenses are
expected to approximate $78,000. Dean Witter Global Asset and Dean Witter
Strategist will bear all of their respective other expenses associated with the
Reorganization.
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Shareholders or by mutual
consent of Dean Witter Global Asset and Dean Witter Strategist. 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
November 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,
Dean Witter Global Asset 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 Dean Witter Global Asset that
received Dean Witter Strategist Shares. Dean Witter Global Asset shall be
dissolved and deregistered as an investment company promptly following the
distributions of shares of Dean Witter Strategist to Shareholders of record of
Dean Witter Global Asset.
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
Dean Witter Global Asset (at net asset value on the Valuation Date calculated
after subtracting any Cash Reserve) and reinvest the proceeds in Dean Witter
Strategist 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 Dean Witter
Global Asset 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 Dean Witter
Global Asset 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
Dean Witter Global Asset thereafter will be treated as requests for redemption
of shares of Dean Witter Strategist.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation
Date, Dean Witter Global Asset 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 Dean Witter Global Asset's investment
company taxable income for all periods since the inception of Dean Witter Global
Asset through and including the Valuation Date (computed without regard to any
dividends paid deduction), and all of Dean Witter Global Asset'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)(C) of the Internal Revenue
Code of 1986, as amended (the "Code"). Dean Witter Global Asset and Dean Witter
Strategist 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 Strategist Shares received in the transaction that would
reduce Shareholders' ownership of Dean Witter Strategist Shares to a number of
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shares having a value, as of the Closing Date, of less than 50% of the value of
all of the formerly outstanding Dean Witter Global Asset shares as of the same
date. Dean Witter Global Asset and Dean Witter Strategist have each further
represented that, as of the Closing Date, Dean Witter Global Asset and Dean
Witter Strategist will qualify as regulated investment companies.
As a condition to the Reorganization, Dean Witter Global Asset and Dean
Witter Strategist 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 Dean Witter Global Asset and Dean Witter
Strategist:
1. The transfer of substantially all of Dean Witter Global Asset's assets
in exchange for the Dean Witter Strategist Shares and the assumption by Dean
Witter Strategist of certain stated liabilities of Dean Witter Global Asset
followed by the distribution by Dean Witter Global Asset of the Dean Witter
Strategist Shares to Shareholders in exchange for their Dean Witter Global Asset
shares will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code, and Dean Witter Global Asset and Dean Witter
Strategist 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 Strategist upon the
receipt of the assets of Dean Witter Global Asset solely in exchange for the
Dean Witter Strategist Shares and the assumption by Dean Witter Strategist of
the stated liabilities of Dean Witter Global Asset;
3. No gain or loss will be recognized by Dean Witter Global Asset upon the
transfer of the assets of Dean Witter Global Asset to Dean Witter Strategist in
exchange for the Dean Witter Strategist Shares and the assumption by Dean Witter
Strategist of the stated liabilities or upon the distribution of Dean Witter
Strategist Shares to Shareholders in exchange for their Dean Witter Global Asset
shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of Dean Witter Global Asset for the Dean Witter Strategist Shares;
5. The aggregate tax basis for the Dean Witter Strategist Shares received
by each of the Shareholders pursuant to the Reorganization will be the same as
the aggregate tax basis of the shares in Dean Witter Global Asset held by each
such Shareholder immediately prior to the Reorganization;
6. The holding period of the Dean Witter Strategist Shares to be received
by each Shareholder will include the period during which the shares in Dean
Witter Global Asset surrendered in exchange therefor were held (provided such
shares in Dean Witter Global Asset were held as capital assets on the date of
the Reorganization);
7. The tax basis of the assets of Dean Witter Global Asset acquired by Dean
Witter Strategist will be the same as the tax basis of such assets to Dean
Witter Global Asset immediately prior to the Reorganization; and
8. The holding period of the assets of Dean Witter Global Asset in the
hands of Dean Witter Strategist will include the period during which those
assets were held by Dean Witter Global Asset.
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.
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DESCRIPTION OF SHARES
Dean Witter Strategist shares to be issued pursuant to the Reorganization
Agreement will, when issued, be fully paid and non-assessable by Dean Witter
Strategist and transferable without restrictions and will have no preemptive
rights. Class B shares of Dean Witter Strategist, like Class B shares of Dean
Witter Global Asset, 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.
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of Dean Witter Strategist
and Dean Witter Global Asset as of January 31, 1998 and on a pro forma combined
basis as if the Reorganization had occurred on that date:
NET ASSET
SHARES VALUE
CLASS A NET ASSETS OUTSTANDING PER SHARE
- ----------------------------------------------------- ---------- ----------- ---------
Dean Witter Global Asset............................. $ 26,956 2,344 $11.50
Dean Witter Strategist............................... $ 19,436,107 1,077,245 $18.04
Combined Fund (pro forma)............................ $ 19,463,063 1,078,739 $18.04
CLASS B
- -----------------------------------------------------
Dean Witter Global Asset............................. $ 52,374,341 4,568,443 $11.46
Dean Witter Strategist............................... $1,507,103,949 83,545,891 $18.04
Combined Fund (pro forma)............................ $1,559,478,290 86,449,125 $18.04
NET ASSET
SHARES VALUE
CLASS C NET ASSETS OUTSTANDING PER SHARE
- ----------------------------------------------------- -------------- ---------- ------
Dean Witter Global Asset............................. $ 53,358 4,660 $11.45
Dean Witter Strategist............................... $ 3,006,533 166,851 $18.02
Combined Fund (pro forma)............................ $ 3,059,891 169,812 $18.02
CLASS D
- -----------------------------------------------------
Dean Witter Global Asset............................. $ 16,882 1,467 $11.51
Dean Witter Strategist............................... $ 57,066,917 3,160,930 $18.05
Combined Fund (pro forma)............................ $ 57,083,799 3,161,865 $18.05
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
Dean Witter Global Asset and Dean Witter Strategist each are funds which
allocate their assets among asset categories of equity securities, fixed-income
securities, and money market instruments. The investment objective of Dean
Witter Global Asset is long-term total return on its investments. The investment
objective of Dean Witter
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Strategist is to maximize the total return on its investments. Dean Witter
Global Asset seeks to achieve its objective through a managed investment policy
utilizing a portfolio of U.S. and foreign equity, debt and money market
securities. Dean Witter Strategist seeks to achieve its objective by actively
allocating its assets among major asset categories of equity securities,
fixed-income securities and money market instruments.
Dean Witter Strategist actively allocates its assets to the equity, debt
and money market sectors of the market as opposed to relying solely on just one
market. At times, the equity market may hold a higher potential return than the
debt market and would warrant a higher asset allocation. The reverse would be
true when the bond market potential return is higher. Short duration bonds and
money market instruments can be used to soften market declines when both bonds
and equities are fully priced. Within the equity sector, the fund may purchase
equity securities (including convertible debt obligations and convertible
preferred stock) sold on the New York, American and other stock exchanges and in
the over-the-counter market. Fixed-income securities in which the Fund may
invest are short-term to intermediate (one to five year maturities) and
intermediate to long-term (greater than five year maturities) debt securities
and preferred stocks, including U.S. Government securities (securities issued or
guaranteed as to principal and interest by the United States or its agencies and
instrumentalities) and corporate securities which are rated at the time of
purchase Baa or better by Moody's or BBB or better by S&P, or which, if unrated,
are deemed to be of comparable quality. The money market portion of the Fund's
portfolio may contain short-term (maturities of up to thirteen months)
fixed-income securities, issued by private and governmental institutions. Such
securities may include: U.S. Government securities; bank obligations; Eurodollar
certificates of deposit issued by foreign branches of domestic banks;
obligations of savings institutions; fully insured certificates of deposit; and
commercial paper rated within the two highest grades by S&P or the highest grade
by Moody's or, if not rated, issued by a company having an outstanding debt
issue rated at least AA by S&P or Aa by Moody's.
Dean Witter Global Asset allocates and periodically reallocates the
composition of its assets based upon an overall evaluation by the Investment
Manager and Sub-Adviser of global monetary, economic and financial market trends
and the anticipated relative total return on securities available in different
capital markets around the world. Therefore, at any given time, the Fund's
assets may be invested in any amounts of either U.S. or foreign equity or
fixed-income (including money market) securities, or in any combination thereof.
Under normal circumstances, the Fund will have at least 65% of its total assets
invested in securities issued in at least three separate countries (including
the U.S.). Within the equity sector, the fund may purchase equity securities
(including convertible debt obligations and, except for certain foreign
jurisdictions, convertible preferred stock) sold on the New York, American and
other domestic and foreign stock exchanges and in the over-the-counter market.
The fixed-income securities in which the fund may invest include debt securities
with maturities of greater than one year, which are issued or guaranteed by the
U.S. Government and its agencies or instrumentalities, by foreign governments
(including foreign states, provinces and municipalities) and agencies or
instrumentalities thereof and debt securities and preferred stocks issued by
U.S. and foreign corporations and other similar business entities. The fund may
also invest in fixed-income securities issued or guaranteed by international
organizations designed or supported by multiple governmental entities (which are
not obligations of the U.S. Government or foreign governments) to promote
economic reconstruction or development such as the International Bank for
Reconstruction and Development (the "World Bank"). Generally, the fixed-income
securities (including "convertible" securities, see below) in which the Fund may
invest will be rated at the time of their purchase. BBB or better by S&P or Baa
or better by Moody's, or investment grade by a NRSRO, or which, if unrated, are
deemed to be of comparable quality by the fund's Investment Manager and/or
Sub-Adviser. However, the fund may invest up to 10% of its total assets in
fixed-income securities (including convertible securities) which are rated below
investment grade by a NRSRO or which are unrated. The money market portion of
the fund's portfolio may contain short-term (maturities of up to thirteen
months) fixed-income securities, issued by private and governmental
institutions. Such securities may include: U.S. and foreign government
securities; domestic and foreign bank obligations; certificates of deposit
issued by foreign
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and domestic banks; obligations of savings institutions; fully insured
certificates of deposit; and commercial paper rated within the two highest
grades by S&P or the highest grade by Moody's or, if not rated, issued by a
company having an outstanding debt issue rated at least AA by S&P or Aa by
Moody's. Also included within the money market sector are repurchase agreements
and reverse repurchase agreements with maturities of under thirteen months.
Both funds may invest their assets in foreign securities, including
securities of foreign issuers in the form of American Depository Receipts
("ADRs") or European Depository Receipts ("EDRs") although Dean Witter
Strategist may only invest up to 20% of its total assets in foreign securities
and may not invest more than 10% of its total assets in securities denominated
in foreign currencies; Dean Witter Global Asset has no such limitations and
under normal market conditions, at least 65% of its total assets will be
invested in at least three separate countries (including the U.S.).
Additionally, Dean Witter Global Asset may enter into forward foreign currency
exchange contracts in connection with its foreign securities investments as a
hedge against fluctuations in future foreign exchange rates.
Both Dean Witter Global Asset and Dean Witter Strategist may purchase and
sell (write) options on portfolio securities denominated in U.S. dollars and may
purchase and sell (write) options on the U.S. dollar which are or may be in the
future listed on U.S. and foreign securities exchanges or are written in
over-the-counter transactions ("OTC options"). Additionally, Dean Witter Global
Asset may purchase and sell (write) options on portfolio securities denominated
in foreign currencies in the manner set forth above. Both funds may write
covered call options on such securities without limit, in order to hedge against
the decline in the value of a security or currency (in the case of Dean Witter
Global Asset) in which such security is denominated, to earn additional income
and or to close out long call option positions. Both funds also may purchase
listed and OTC call and put options in amounts equaling up to 5% of their
respective total assets. Both funds may purchase call and put options to close
out covered call or written put positions, as applicable, or to protect the
value of the relevant security. Both funds may purchase and sell futures
contracts that are currently traded, or may in the future be traded, on U.S. and
foreign commodity exchanges on underlying portfolio securities and, in the case
of Dean Witter Global Asset on any currency ("currency" futures), on U.S. and
foreign fixed-income securities ("interest rate" futures) and on such indexes of
U.S. or foreign equity or fixed-income securities as may exist or come into
being ("index" futures).
Both Dean Witter Strategist and Dean Witter Global Asset may (i) purchase
securities on a when-issued or delayed delivery basis, (ii) purchase or sell
securities on a forward commitment basis, (iii) purchase securities on a "when,
as and if issued" basis, (iv) enter into repurchase agreements subject to
certain procedures designed to minimize risks associated with such agreements,
(v) enter into reverse repurchase agreements, (vi) purchase rights and warrants
and (vii) invest in zero coupon securities.
Additionally, Dean Witter Global Asset may invest in adjustable rate
mortgage securities, may utilize dollar rolls as an investment technique and may
invest up to 10% of its total assets in shares of other investment companies.
Dean Witter Strategist's current investment policies do not permit such
investments, however, Dean Witter Strategist may invest in real estate
investment trusts whereas Dean Witter Global Asset may not.
The investment policies of both Dean Witter Global Asset and Dean Witter
Strategist 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.
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INVESTMENT RESTRICTIONS
The investment restrictions adopted by Dean Witter Global Asset and Dean
Witter Strategist 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 Global Asset has a
fundamental restriction that it may not, 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 U.S. Government, its
agencies or instrumentalities) or purchase more than 10% of all outstanding
voting securities or any class of securities of any one issuer, whereas Dean
Witter Strategist is not subject to such percentage limitations due to the fact
that it is a non-diversified fund and (b) Dean Witter Strategist may not
purchase securities of other investment companies except in connection with a
merger, consolidation, reorganization or acquisition of assets. Dean Witter
Global Asset has no such limitation.
In addition, Dean Witter Strategist 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; Dean Witter Global Asset has no such limitation.
ADDITIONAL INFORMATION ABOUT DEAN WITTER GLOBAL ASSET
AND DEAN WITTER STRATEGIST
GENERAL
For a discussion of the organization and operation of Dean Witter
Strategist and Dean Witter Global Asset, 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 Strategist and Dean
Witter Global Asset, see "Financial Highlights" and "Performance Information" in
their respective Prospectuses.
MANAGEMENT
For information about the respective Board of Trustees, investment manager,
sub-adviser (in the case of Dean Witter Global Asset) and the Distributor of
Dean Witter Strategist and Dean Witter Global Asset, 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 Dean Witter Global Asset and Dean Witter Strategist, and information
regarding shareholder inquiries, see "Additional Information" in their
respective Prospectuses.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Dean Witter Strategist's and Dean Witter Global Asset'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."
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how Dean Witter Strategist's and Dean Witter Global
Asset'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 Strategist's performance, see management's
letter to shareholders in its Annual Report for its fiscal year ended July 31,
1997 accompanying this Proxy Statement and Prospectus. For a discussion of the
performance of Dean Witter Global Asset, see its Annual Report for its fiscal
year ended January 31, 1998.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Dean Witter Strategist, for the year ended July
31, 1997, and Dean Witter Global Asset, for the year ended January 31, 1998 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
Strategist 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 Dean Witter Global Asset and Dean Witter
Strategist is available, as applicable, in the following documents which are
incorporated herein by reference: (i) Dean Witter Strategist's Prospectus dated
September 26, 1997, accompanying this Proxy Statement and Prospectus, which
Prospectus forms a part of Post-Effective Amendment No. 11 to Dean Witter
Strategist's Registration Statement on Form N-1A (File Nos. 33-23669;
811-5654); (ii) Dean Witter Strategist's Annual Report for its fiscal year
ended July 31, 1997 and its unaudited Semi-Annual Report for the six months
ended January 31, 1998, accompanying this Proxy Statement and Prospectus; (iii)
Dean Witter Global Asset's Prospectus dated March 2, 1998, which Prospectus
forms a part of Post-Effective Amendment No. 6 to Dean Witter Global Asset's
Registration Statement on Form N-1A (File Nos. 33-56239; 811-07233); and (iv)
Dean Witter Global Asset's Annual Report for the fiscal year January 31, 1998.
The foregoing documents may be obtained without charge by calling (212)
392-2550 or (800) 869-NEWS (toll-free).
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Dean Witter Global Asset and Dean Witter Strategist 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 Dean Witter
Global Asset and Dean Witter Strategist 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.
OTHER BUSINESS
Management of Dean Witter Global Asset 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
June , 1998
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
30th day of April, 1998, by and between DEAN WITTER STRATEGIST FUND, a
Massachusetts business trust ("Dean Witter Strategist") and DEAN WITTER GLOBAL
ASSET ALLOCATION FUND, a Massachusetts business trust ("Dean Witter Global
Asset").
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 Strategist of substantially all of the assets of Dean
Witter Global Asset in exchange for the assumption by Dean Witter Strategist of
all stated liabilities of Dean Witter Global Asset and the issuance by Dean
Witter Strategist of shares of beneficial interest, par value $0.01 per share
(the "Dean Witter Strategist Shares"), to be distributed, after the Closing Date
hereinafter referred to, to the shareholders of Dean Witter Global Asset in
liquidation of Dean Witter Global Asset 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 DEAN WITTER GLOBAL ASSET
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, Dean Witter Global Asset
agrees to assign, deliver and otherwise transfer the Dean Witter Global Asset
Assets (as defined in paragraph 1.2) to Dean Witter Strategist and Dean Witter
Strategist agrees in exchange therefor to assume all of Dean Witter Global
Asset's stated liabilities on the Closing Date as set forth in paragraph 1.3(a)
and to deliver to Dean Witter Global Asset the number of Dean Witter Strategist
Shares, including fractional Dean Witter Strategist 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 "Dean Witter Global Asset 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 Dean Witter Global Asset, and any deferred or
prepaid expenses shown as an asset on Dean Witter Global Asset's books on the
Valuation Date.
(b) On or prior to the Valuation Date, Dean Witter Global Asset will
provide Dean Witter Strategist with a list of all of Dean Witter Global Asset's
assets to be assigned, delivered and otherwise transferred to Dean Witter
Strategist and of the stated liabilities to be assumed by Dean Witter Strategist
pursuant to this Agreement. Dean Witter Global Asset reserves the right to sell
any of the securities on such list but will not, without the prior approval of
Dean Witter Strategist, acquire any additional securities other than securities
of the type in which Dean Witter Strategist is permitted to invest and in
amounts agreed to in writing by Dean Witter Strategist. Dean Witter Strategist
will, within a reasonable time prior to the Valuation Date, furnish Dean Witter
Global Asset with a statement of Dean Witter Strategist'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 Strategist's investment objective, policies and restrictions. In the
event that Dean Witter Global Asset holds any investments that Dean Witter
Strategist is not permitted to hold, Dean Witter Global Asset will dispose of
such securities on or prior to the Valuation Date. In addition, if it is
determined that the portfolios of Dean Witter Global Asset and Dean
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Witter Strategist, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon Dean Witter Strategist with respect to such
investments, Dean Witter Global Asset if requested by Dean Witter Strategist
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) Dean Witter Global Asset will endeavor to discharge all of its
liabilities and obligations on or prior to the Valuation Date. Dean Witter
Strategist 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 Dean Witter Global Asset prepared by the
Treasurer of Dean Witter Global Asset as of the Valuation Date in accordance
with generally accepted accounting principles consistently applied from the
prior audited period.
(b) On the Valuation Date, Dean Witter Global Asset may establish a
cash reserve, which shall not exceed 5% of Dean Witter Global Asset's net assets
as of the close of business on the Valuation Date ("Cash Reserve") to be
retained by Dean Witter Global Asset 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 Dean Witter Global Asset 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, Dean Witter
Global Asset 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, Dean Witter
Global Asset will distribute Dean Witter Strategist Shares received by Dean
Witter Global Asset pursuant to paragraph 1.1 pro rata to its shareholders of
record determined as of the close of business on the Valuation Date ("Dean
Witter Global Asset Shareholders"). Each Dean Witter Global Asset Shareholder
will receive the class of shares of Dean Witter Strategist that corresponds to
the class of shares of Dean Witter Global Asset currently held by that Dean
Witter Global Asset Shareholder. Accordingly, the Dean Witter Strategist Shares
will be distributed as follows: each of the Class A, Class B, Class C and Class
D shares of Dean Witter Strategist will be distributed to holders of Class A,
Class B, Class C and Class D shares of Dean Witter Global Asset, respectively.
Such distribution will be accomplished by an instruction, signed by Dean Witter
Global Asset's Secretary, to transfer Dean Witter Strategist Shares then
credited to Dean Witter Global Asset's account on the books of Dean Witter
Strategist to open accounts on the books of Dean Witter Strategist in the names
of the Dean Witter Global Asset Shareholders and representing the respective pro
rata number of Dean Witter Strategist Shares due such Dean Witter Global Asset
Shareholders. All issued and outstanding shares of Dean Witter Global Asset
simultaneously will be canceled on Dean Witter Global Asset's books; however,
share certificates representing interests in Dean Witter Global Asset will
represent a number of Dean Witter Strategist Shares after the Closing Date as
determined in accordance with paragraph 2.3. Dean Witter Strategist will issue
certificates representing Dean Witter Strategist Shares in connection with such
exchange only upon the written request of a Dean Witter Global Asset
Shareholder.
1.6 Ownership of Dean Witter Strategist Shares will be shown on the books
of Dean Witter Strategist's transfer agent. Dean Witter Strategist Shares will
be issued in the manner described in Dean Witter Strategist's current Prospectus
and Statement of Additional Information.
1.7 Any transfer taxes payable upon issuance of Dean Witter Strategist
Shares in a name other than the registered holder of Dean Witter Strategist
Shares on Dean Witter Global Asset's books as of the close of business
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on the Valuation Date shall, as a condition of such issuance and transfer, be
paid by the person to whom Dean Witter Strategist Shares are to be issued and
transferred.
1.8 Any reporting responsibility of Dean Witter Global Asset is and shall
remain the responsibility of Dean Witter Global Asset up to and including the
date on which Dean Witter Global Asset is dissolved and deregistered pursuant to
paragraph 1.9.
1.9 Within one year after the Closing Date, Dean Witter Global Asset shall
pay or make provision for the payment of all its liabilities and taxes, and
distribute to the shareholders of Dean Witter Global Asset 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). Dean Witter
Global Asset 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 Dean Witter
Global Asset 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 Strategist or their
designee and Dean Witter Strategist or its designee shall comply with applicable
record retention requirements to which Dean Witter Global Asset is subject under
the 1940 Act.
2. VALUATION
2.1 The value of the Dean Witter Global Asset 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
Dean Witter Global Asset 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 Strategist's then current
Prospectus and Statement of Additional Information.
2.2 The net asset value of a Dean Witter Strategist Share shall be the net
asset value per share computed on the Valuation Date, using the valuation
procedures set forth in Dean Witter Strategist's then current Prospectus and
Statement of Additional Information.
2.3 The number of Dean Witter Strategist 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 Dean Witter
Global Asset shares (determined in accordance with paragraph 2.1) by the net
asset value per share of the corresponding class of shares of Dean Witter
Strategist (determined in accordance with paragraph 2.2). For purposes of this
paragraph, the aggregate net asset value of each class of shares of Dean Witter
Global Asset 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
Strategist. Dean Witter Strategist 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.
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3.2 Portfolio securities held by Dean Witter Global Asset 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 for Dean Witter
Strategist, 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 Dean Witter Global Asset to the Custodian for the
account of Dean Witter Strategist 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
Strategist 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 Strategist and Dean
Witter Global Asset, accurate appraisal of the value of the net assets of Dean
Witter Strategist or the Dean Witter Global Asset 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, Dean Witter Global Asset shall deliver to Dean Witter
Strategist or its designee (a) at the Closing, a list, certified by its
Secretary, of the names, addresses and taxpayer identification numbers of the
Dean Witter Global Asset Shareholders and the number and percentage ownership of
outstanding Dean Witter Global Asset shares owned by each such Dean Witter
Global Asset 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 Dean Witter Global Asset Shareholders' taxpayer identification numbers
and their liability for or exemption from back-up withholding. Dean Witter
Strategist shall issue and deliver to such Secretary a confirmation evidencing
delivery of Dean Witter Strategist Shares to be credited on the Closing Date to
Dean Witter Global Asset or provide evidence satisfactory to Dean Witter Global
Asset that such Dean Witter Strategist Shares have been credited to Dean Witter
Global Asset's account on the books of Dean Witter Strategist. 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 STRATEGIST AND DEAN WITTER GLOBAL ASSET
4.1 Except as otherwise expressly provided herein with respect to Dean
Witter Global Asset, Dean Witter Strategist and Dean Witter Global Asset 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 Strategist 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
Strategist Shares ("Registration Statement"). Dean Witter Global Asset will
provide Dean Witter Strategist with the Proxy Materials as described in
paragraph 4.3 below, for inclusion in the Registration Statement. Dean Witter
Global Asset will further provide Dean Witter Strategist with such other
information and documents relating to Dean Witter Strategist as are reasonably
necessary for the preparation of the Registration Statement.
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4.3 Dean Witter Global Asset 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. Dean Witter Global
Asset 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 Strategist will furnish Dean Witter Global Asset with
its currently effective prospectus for inclusion in the Proxy Materials and with
such other information relating to Dean Witter Strategist as is reasonably
necessary for the preparation of the Proxy Materials.
4.4 Dean Witter Global Asset will assist Dean Witter Strategist in
obtaining such information as Dean Witter Strategist reasonably requests
concerning the beneficial ownership of Dean Witter Global Asset shares.
4.5 Subject to the provisions of this Agreement, Dean Witter Strategist and
Dean Witter Global Asset 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 Dean Witter Global Asset shall furnish or cause to be furnished to Dean
Witter Strategist within 30 days after the Closing Date a statement of Dean
Witter Global Asset's assets and liabilities as of the Closing Date, which
statement shall be certified by Dean Witter Global Asset'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, Dean Witter Global Asset shall furnish Dean Witter Strategist, in
such form as is reasonably satisfactory to Dean Witter Strategist, a statement
certified by Dean Witter Global Asset's Treasurer of Dean Witter Global Asset's
earnings and profits for Federal income tax purposes that will be carried over
to Dean Witter Strategist pursuant to Section 381 of the Code.
4.7 As soon after the Closing Date as is reasonably practicable, Dean
Witter Global Asset (a) shall prepare and file all Federal and other tax returns
and reports of Dean Witter Global Asset 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 Strategist 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 Strategist represents and warrants to Dean Witter Global
Asset as follows:
(a) Dean Witter Strategist is a validly existing Massachusetts business
trust with full power to carry on its business as presently conducted;
(b) Dean Witter Strategist 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 Strategist
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 Strategist 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
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filings, are complete and current, all fees required to be paid have been paid,
and Dean Witter Strategist 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
Dean Witter Strategist 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 Strategist 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 Strategist's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
Dean Witter Strategist 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 Strategist 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 Strategist
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 for the year ended
July 31, 1997, of Dean Witter Strategist certified by Price Waterhouse LLP
(copies of which have been furnished to Dean Witter Global Asset), fairly
present, in all material respects, Dean Witter Strategist'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 Strategist (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 Strategist 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
Strategist's current Prospectus incorporated by reference in the Registration
Statement. Dean Witter Strategist 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 Strategist,
and this Agreement constitutes a valid and binding obligation of Dean Witter
Strategist 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 Strategist's performance of this Agreement;
(j) Dean Witter Strategist Shares to be issued and delivered to Dean
Witter Global Asset, for the account of the Dean Witter Global Asset
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 Strategist Shares, and will be fully paid and
non-assessable with no personal liability attaching to the ownership thereof,
except
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as set forth under the caption "Additional Information" in Dean Witter
Strategist's current Prospectus incorporated by reference in the Registration
Statement;
(k) All material Federal and other tax returns and reports of Dean
Witter Strategist 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
Strategist'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 Strategist
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 Strategist to continue to meet the
requirements of Subchapter M of the Code;
(m) Since July 31, 1997 there has been no change by Dean Witter
Strategist 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
Strategist 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 Strategist) 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 Dean Witter Global Asset represents and warrants to Dean Witter
Strategist as follows:
(a) Dean Witter Global Asset is a validly existing Massachusetts
business trust with full power to carry on its business as presently conducted;
(b) Dean Witter Global Asset 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
Dean Witter Global Asset have been offered and sold in compliance in all
material respects with applicable requirements of the 1933 Act and state
securities laws. Shares of Dean Witter Global Asset 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 Dean
Witter Global Asset 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
Dean Witter Global Asset 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) Dean Witter Global Asset is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of any
provision of Dean Witter Global Asset's Declaration of Trust or By-Laws or of
any agreement, indenture, instrument, contract, lease or other undertaking to
which Dean Witter Global Asset 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 Global Asset 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 Global Asset
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 Dean Witter
Global Asset for the year ended January 31, 1998, certified by Price Waterhouse
LLP (copies of which have been or will be furnished to Dean Witter Strategist)
fairly present, in all material respects, Dean Witter Global Asset'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 Dean Witter Global Asset (contingent or otherwise) not disclosed
therein that would be required in accordance with generally accepted accounting
principles to be disclosed therein;
(h) Dean Witter Global Asset 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 Dean Witter Global Asset 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 Global Asset's current Prospectus incorporated by reference in the
Registration Statement. Dean Witter Global Asset 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
Strategist 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 Dean Witter Global Asset, and subject to the approval of Dean Witter
Global Asset's shareholders, this Agreement constitutes a valid and binding
obligation of Dean Witter Global Asset, 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 Global Asset's performance of this
Agreement;
(k) All material Federal and other tax returns and reports of Dean
Witter Global Asset 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 Dean Witter
Global Asset's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
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(l) For each taxable year since its inception, Dean Witter Global Asset
has met all 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 Global Asset to continue to meet the
requirements of Subchapter M of the Code;
(m) At the Closing Date, Dean Witter Global Asset will have good and
valid title to the Dean Witter Global Asset Assets, subject to no liens (other
than the obligation, if any, to pay the purchase price of portfolio securities
purchased by Dean Witter Global Asset 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 Strategist 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 Dean Witter Global Asset's shareholders and on the Closing Date,
the Proxy Materials (exclusive of the currently effective Dean Witter Strategist
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 Dean Witter Global Asset 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) Dean Witter Global Asset 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) Dean Witter Global Asset 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) Dean Witter Global Asset is not acquiring Dean Witter Strategist
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 DEAN WITTER GLOBAL ASSET
The obligations of Dean Witter Global Asset to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Dean Witter Strategist 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 Strategist 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 Strategist shall have delivered to Dean Witter Global Asset
a certificate of its President and Treasurer, in a form reasonably satisfactory
to Dean Witter Global Asset and dated as of the Closing Date, to the effect that
the representations and warranties of Dean Witter Strategist made in this
Agreement are true and correct
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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 Global Asset shall reasonably request;
6.3 Dean Witter Global Asset shall have received a favorable opinion from
Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to Dean Witter Strategist,
dated as of the Closing Date, to the effect that:
(a) Dean Witter Strategist 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 Strategist 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 Strategist 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 Dean
Witter Global Asset, is a valid and binding obligation of Dean Witter Strategist
enforceable against Dean Witter Strategist 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 Strategist Shares to be issued to Dean Witter Global
Asset 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 Strategist's
Prospectus), and no shareholder of Dean Witter Strategist 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 Strategist'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 Strategist
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 pursuant to Dean Witter Strategist's
12b-1 plan of distribution from those described in Dean Witter Strategist's
Prospectus and Statement of Additional Information dated September 26, 1997.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF DEAN WITTER STRATEGIST
The obligations of Dean Witter Strategist to complete the transactions
provided for herein shall be subject, at its election, to the performance by
Dean Witter Global Asset 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 Dean Witter Global Asset
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 Dean Witter Global Asset shall have delivered to Dean Witter Strategist
at the Closing a certificate of its President and its Treasurer, in form and
substance satisfactory to Dean Witter Strategist and dated as of the Closing
Date, to the effect that the representations and warranties of Dean Witter
Global Asset made 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 Strategist shall
reasonably request;
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7.3 Dean Witter Global Asset shall have delivered to Dean Witter Strategist
a statement of the Dean Witter Global Asset Assets and its liabilities, together
with a list of Dean Witter Global Asset'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 Dean Witter
Global Asset;
7.4 Dean Witter Global Asset shall have delivered to Dean Witter Strategist
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 Dean Witter Global Asset
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 Dean Witter Global Asset for the periods covered thereby, (b)
for the period from January 31, 1998 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 material respects for the
satisfaction of all Federal, state and local tax liabilities for the period from
January 31, 1998 to and including the Closing Date and (c) based on such limited
reviews, nothing came to their attention that caused them to believe that Dean
Witter Global Asset would not qualify as a regulated investment company for
Federal income tax purposes for any such year or period;
7.5 Dean Witter Strategist shall have received at the Closing a favorable
opinion from Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to Dean
Witter Global Asset, dated as of the Closing Date to the effect that:
(a) Dean Witter Global Asset 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 Global Asset 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 Dean Witter Global Asset 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 Strategist, is a valid and binding obligation of
Dean Witter Global Asset enforceable against Dean Witter Global Asset 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 Dean Witter Global Asset'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 Dean Witter Global Asset 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 Dean Witter Global Asset Assets shall include
no assets that Dean Witter Strategist, 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 STRATEGIST AND
DEAN WITTER GLOBAL ASSET
The obligations of Dean Witter Global Asset and Dean Witter Strategist
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 Dean
Witter Global Asset in accordance with the provisions of Dean Witter Global
Asset's Declaration of Trust, and certified copies of the resolutions evidencing
such approval shall have been delivered to Dean Witter Strategist;
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 Strategist or Dean Witter Global
Asset 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 Strategist or Dean Witter
Global Asset;
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 Dean Witter Global Asset 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 Dean Witter Global Asset Shareholders all of Dean Witter Global Asset'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 Strategist and
Dean Witter Global Asset, which opinion may be relied upon by the shareholders
of Dean Witter Global Asset, substantially to the effect that, for Federal
income tax purposes:
(a) The transfer of substantially all of Dean Witter Global Asset's
assets in exchange for Dean Witter Strategist Shares and the assumption by Dean
Witter Strategist of certain stated liabilities of Dean Witter Global Asset
followed by the distribution by Dean Witter Global Asset of Dean Witter
Strategist Shares to the Dean Witter Global Asset Shareholders in exchange for
their Dean Witter Global Asset shares will constitute a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Code, and Dean Witter Global Asset
and Dean Witter Strategist 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 Strategist upon
the receipt of the assets of Dean Witter Global Asset solely in exchange for
Dean Witter Strategist Shares and the assumption by Dean Witter Strategist of
the stated liabilities of Dean Witter Global Asset;
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(c) No gain or loss will be recognized by Dean Witter Global Asset upon
the transfer of the assets of Dean Witter Global Asset to Dean Witter Strategist
in exchange for Dean Witter Strategist Shares and the assumption by Dean Witter
Strategist of the stated liabilities or upon the distribution of Dean Witter
Strategist Shares to the Dean Witter Global Asset Shareholders in exchange for
their Dean Witter Global Asset shares;
(d) No gain or loss will be recognized by the Dean Witter Global Asset
Shareholders upon the exchange of the Dean Witter Global Asset shares for Dean
Witter Strategist Shares;
(e) The aggregate tax basis for Dean Witter Strategist Shares received
by each Dean Witter Global Asset Shareholder pursuant to the reorganization will
be the same as the aggregate tax basis of the Dean Witter Global Asset Shares
held by each such Dean Witter Global Asset Shareholder immediately prior to the
Reorganization;
(f) The holding period of Dean Witter Strategist Shares to be received
by each Dean Witter Global Asset Shareholder will include the period during
which the Dean Witter Global Asset Shares surrendered in exchange therefor were
held (provided such Dean Witter Global Asset Shares were held as capital assets
on the date of the Reorganization);
(g) The tax basis of the assets of Dean Witter Global Asset acquired by
Dean Witter Strategist will be the same as the tax basis of such assets to Dean
Witter Global Asset immediately prior to the Reorganization; and
(h) The holding period of the assets of Dean Witter Global Asset in the
hands of Dean Witter Strategist will include the period during which those
assets were held by Dean Witter Global Asset.
Notwithstanding anything herein to the contrary, neither Dean Witter
Strategist nor Dean Witter Global Asset may waive the conditions set forth in
this paragraph 8.6.
9. FEES AND EXPENSES
9.1 (a) Dean Witter Strategist 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. Dean Witter Global Asset shall bear its expenses incurred 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 Dean Witter Global Assets being either unwilling or
unable to go forward (other than by reason of the nonfulfillment or failure of
any condition to Dean Witter's Global Asset's obligations specified in this
Agreement), only obligations hereunder shall be to reimburse Dean Witter
Strategist for all reasonable out-of-pocket fees and expenses incurred by Dean
Witter Strategist in connection with those transactions.
(c) In the event the transactions contemplated herein are not
consummated by reason of Dean Witter Strategist being either unwilling or unable
to go forward (other than by reason of the nonfulfillment or failure of any
condition to Dean Witter Strategist's obligations specified in this Agreement),
Dean Witter Strategist's only obligation hereunder shall be to reimburse Dean
Witter Global Asset for all reasonable out-of-pocket fees and expenses incurred
by Dean Witter Global Asset in connection with those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
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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 Dean Witter Global Asset
hereunder shall not survive the dissolution and complete liquidation of Dean
Witter Global Asset 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 Dean Witter Global Asset and Dean
Witter Strategist;
(b) by either Dean Witter Strategist or Dean Witter Global Asset 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 November 30, 1998; or
(c) by either Dean Witter Strategist or Dean Witter Global Asset, 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 Dean
Witter Global Asset 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 Strategist or Dean Witter
Global Asset, or the trustees or officers of Dean Witter Strategist or Dean
Witter Global Asset, 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 Strategist or Dean Witter
Global Asset, or the trustees or officers of Dean Witter Strategist or Dean
Witter Global Asset, 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 Dean Witter Global Asset's shareholders called by Dean
Witter Global Asset pursuant to paragraph 4.3, no such amendment may have the
effect of changing the provisions for determining the number of Dean Witter
Strategist Shares to be issued to the Dean Witter Global Asset Shareholders
under this Agreement to the detriment of such Dean Witter Global Asset
Shareholders without their further approval.
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.
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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 Strategist hereunder
are solely those of Dean Witter Strategist. It is expressly agreed that no
shareholder, nominee, trustee, officer, agent, or employee of Dean Witter
Strategist shall be personally liable hereunder. The execution and delivery of
this Agreement have been authorized by the trustees of Dean Witter Strategist
and signed by authorized officers of Dean Witter Strategist 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 Dean Witter Global Asset hereunder
are solely those of Dean Witter Global Asset. It is expressly agreed that no
shareholder, nominee, trustee, officer, agent, or employee of Dean Witter Global
Asset shall be personally liable hereunder. The execution and delivery of this
Agreement have been authorized by the trustees of Dean Witter Global Asset and
signed by authorized officers of Dean Witter Global Asset 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.
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
By: /s/ CHARLES A. FIUMEFREDDO
--------------------------------------------
Name: Charles A. Fiumefreddo
Title: President
DEAN WITTER STRATEGIST FUND
By: /s/ BARRY FINK
--------------------------------------------
Name: Barry Fink
Title: Vice President
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PROSPECTUS
SEPTEMBER 26, 1997
Dean Witter Strategist Fund (the "Fund") is an open-end,
non-diversified management investment company, the objective of which is to
maximize the total return on its investments. The Fund seeks to achieve its
investment objective by actively allocating its assets among the major asset
categories of equity securities, fixed-income securities and money market
instruments. 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 September 26, 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 DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/5
Financial Highlights/7
The Fund and its Management/10
Investment Objective and Policies/10
Risk Considerations/14
Investment Restrictions/18
Purchase of Fund Shares/18
Shareholder Services/30
Redemptions and Repurchases/33
Dividends, Distributions and Taxes/34
Performance Information/35
Additional Information/35
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION 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
Strategist Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
44
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is
Fund an open-end, non-diversified management investment company. The Fund invests in equity
securities, fixed-income securities and money market instruments in portions determined by
the Investment Manager to best enable the Fund to maximize the total return on a
shareholder's investment.
- ----------------------------------------------------------------------------------------------------------
Shares Shares of beneficial interest with $0.01 par value (see page 35). The Fund offers four
Offered Classes of shares, each with a different combination of sales charges, ongoing fees and
other features (see pages 18-29).
- ----------------------------------------------------------------------------------------------------------
Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened
Purchase 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 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 18).
- ----------------------------------------------------------------------------------------------------------
Investment The investment objective of the Fund is to maximize the total return on its investments.
Objective
- ----------------------------------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc., the Investment Manager of the Fund, and its wholly-owned
Manager subsidiary, Dean Witter Services Company Inc., serve in various investment management,
advisory, management and administrative capacities to 101 investment companies and other
portfolios with assets of approximately $99.5 billion at August 31, 1997 (see page 10).
- ----------------------------------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual rate of 0.60% of daily net
Fee assets on assets not exceeding $500 million, scaled down at various asset levels to 0.475%
on daily net assets exceeding $1.5 billion (see page 10).
- ----------------------------------------------------------------------------------------------------------
Distributor Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution
and plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with
Distribution respect to the distribution fees paid by the Class A, Class B, and Class C shares of the
Fee 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 18
and 27).
- ----------------------------------------------------------------------------------------------------------
Alternative Four classes of shares are offered:
Purchase
Arrangements - 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 18, 22 and 27).
2
45
- --------------------------------------------------------------------------------
- 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 (i) 1.0% of
the lesser of: (a) the average daily net sales of the Fund's Class B shares since
implementation of the 12b-1 Plan on November 8, 1989 or (b) the average daily net assets
of Class B attributable to shares issued since implementation of the 12b-1 Plan, plus (ii)
0.25% of the average daily net assets of Class B attributable to shares issued prior to
implementation of the 12b-1 Plan. All shares of the Fund held prior to July 28, 1997
(other than shares which were purchased prior to November 8, 1989 (and, with respect to
such shares, certain shares acquired through reinvestment of dividends and capital gains
distributions) and the shares held by certain employee benefit plans established by Dean
Witter Reynolds Inc. and its affiliate, SPS Transaction Services, Inc.) have been
designated Class B shares. Shares which were purchased prior to November 8, 1989 (and,
with respect to such shares, certain shares acquired through reinvestment of dividends and
capital gains distributions) and shares held by those employee benefit plans prior to July
28, 1997 have been designated Class D 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 18, 24 and 27).
- 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 18 and 27).
- 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
18 and 27).
- ----------------------------------------------------------------------------------------------------------
Dividends Dividends from net investment income are paid quarterly and distributions from net capital
and gains, if any, are paid at least once per year. The Fund may, however, determine to retain
Capital Gains all or part of any net long-term capital gains in any year for reinvestment. Dividends and
Distributions capital gains distributions paid on shares of a Class are automatically reinvested in
additional shares of the same Class at net asset value unless the shareholder elects to
receive cash. Shares acquired by dividend and distribution reinvestment will not be
subject to any sales charge or CDSC (see pages 30 and 34).
- ----------------------------------------------------------------------------------------------------------
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46
- --------------------------------------------------------------------------------
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 33).
- ----------------------------------------------------------------------------------------------------------
Special The net asset value of the Fund's shares will fluctuate with changes in the market value
Risk of its portfolio securities. The level of income payable to the investor will vary
Considerations depending upon the market allocation determined by the Fund's Investment Manager and with
various market determinants such as interest rates. The Fund may make various investments
and may engage in various investment strategies including option and futures transactions,
when-issued and delayed delivery securities and forward commitments, when, as and if
issued securities, foreign securities and repurchase agreements (pages 10-18). The Fund is
a non-diversified investment company and, as such, is not subject to the diversification
requirements of the Investment Company Act of 1940, as amended (see page 17).
- ----------------------------------------------------------------------------------------------------------
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
4
47
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 July 31, 1997.
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
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........................................ 0.56% 0.56% 0.56% 0.56%
12b-1 Fees (5) (6)..................................... 0.25% 0.90%(7) 1.00% None
Other Expenses......................................... 0.11% 0.11% 0.11% 0.11%
Total Fund Operating Expenses (8)...................... 0.92% 1.57% 1.67% 0.67%
- ------------
(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) THE 12b-1 FEE HAS BEEN RESTATED TO REFLECT WHAT THE FEE WOULD HAVE BEEN IF
THE SHARES THAT WERE DESIGNATED CLASS D SHARES ON JULY 28, 1997 HAD NOT BEEN
INCLUDED IN THE FUND DURING THE FISCAL YEAR ENDED JULY 31, 1997. THE ACTUAL
12b-1 FEE WAS 0.89%.
(8) THERE WERE NO OUTSTANDING SHARES OF CLASS A, CLASS C OR CLASS D PRIOR TO
JULY 28, 1997. ACCORDINGLY, "TOTAL FUND OPERATING EXPENSES," AS SHOWN ABOVE
WITH RESPECT TO THOSE CLASSES, ARE BASED UPON THE SUM OF 12b-1 FEES,
MANAGEMENT FEES AND ESTIMATED "OTHER EXPENSES."
5
48
- --------------------------------------------------------------------------------
10
EXAMPLES 1 YEAR 3 YEARS 5 YEARS YEARS
- ---------------------------------------------------------------------------------- ------- ------- ------- -------
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....................................................................... $ 61 $ 80 $ 101 $ 159
Class B....................................................................... $ 66 $ 80 $ 106 $ 187
Class C....................................................................... $ 27 $ 53 $ 91 $ 197
Class D....................................................................... $ 7 $ 21 $ 37 $ 83
You would pay the following expenses on the same $1,000 investment assuming no
redemption at the end of the period:
Class A....................................................................... $ 61 $ 80 $ 101 $ 159
Class B....................................................................... $ 16 $ 50 $ 86 $ 187
Class C....................................................................... $ 17 $ 53 $ 91 $ 197
Class D....................................................................... $ 7 $ 21 $ 37 $ 83
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares--Plan of Distribution"
and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
6
49
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.
FOR THE PERIOD
OCTOBER 31,
FOR THE YEAR ENDED JULY 31 1988*
--------------------------------------------------------------------------- THROUGH
CLASS B SHARES 1997** 1996 1995 1994 1993 1992 1991 1990 JULY 31, 1989
------ ------ ------ ------ ------ ------ ------ ------ -------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $16.02 $15.87 $14.43 $14.59 $14.39 $13.09 $11.65 $11.37 $9.45
------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income..... 0.39 0.30 0.34 0.30 0.26 0.27 0.27 0.23 0.38
Net realized and
unrealized gain.......... 4.10 1.43 1.86 0.22 0.81 1.27 1.50 0.55 1.84
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............... 4.49 1.73 2.20 0.52 1.07 1.54 1.77 0.78 2.22
------ ------ ------ ------ ------ ------ ------ ------ ------
Less dividends and
distributions from:
Net investment
income................. (0.36) (0.32) (0.29) (0.26) (0.31) (0.24) (0.26) (0.29) (0.30)
Net realized gain...... (1.40) (1.26) (0.47) (0.42) (0.56) -- (0.07) (0.21) --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions............ (1.76) (1.58) (0.76) (0.68) (0.87) (0.24) (0.33) (0.50) (0.30)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period................... $18.75 $16.02 $15.87 $14.43 $14.59 $14.39 $13.09 $11.65 $11.37
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN+.................. 29.73% 11.47% 16.05% 3.53% 7.59% 11.88% 15.67% 7.21% 23.76%(1)
RATIOS TO AVERAGE NET
ASSETS:
Expenses.................. 1.56% 1.58% 1.63% 1.62% 1.62% 1.63% 1.59% 1.53% 0.97%(2)(3)
Net investment income..... 2.29% 1.88% 2.35% 2.03% 1.90% 2.19% 2.37% 2.39% 6.00%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions.............. $1,541 $1,259 $878 $806 $783 $441 $238 $196 $48
Portfolio turnover rate... 158% 174% 179% 90% 98% 79% 140% 101% 70%(1)
Average commission rate
paid..................... $0.0595 $0.0597 -- -- -- -- -- -- --
- ------------
* COMMENCEMENT OF OPERATIONS.
** PRIOR TO JULY 28, 1997, THE FUND ISSUED ONE CLASS OF SHARES. ALL
SHARES OF THE FUND HELD PRIOR TO THAT DATE, OTHER THAN SHARES WHICH
WERE PURCHASED PRIOR TO NOVEMBER 8, 1989 (AND WITH RESPECT TO SUCH
SHARES, CERTAIN SHARES ACQUIRED THROUGH REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS DISTRIBUTIONS (COLLECTIVELY THE "OLD SHARES")) AND
SHARES HELD BY CERTAIN EMPLOYEE BENEFIT PLANS ESTABLISHED BY DEAN
WITTER REYNOLDS INC., AND ITS AFFILIATE, SPS TRANSACTION SERVICES,
INC., HAVE BEEN DESIGNATED CLASS B SHARES. THE OLD SHARES AND SHARES
HELD BY THOSE EMPLOYEE BENEFIT PLANS PRIOR TO JULY 28, 1997 HAVE BEEN
DESIGNATED CLASS D 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 FUND HAD BORNE ALL ITS EXPENSES THAT WERE ASSUMED OR WAIVED BY
THE INVESTMENT MANAGER, THE ABOVE ANNUALIZED EXPENSE AND NET
INVESTMENT INCOME RATIOS WOULD HAVE BEEN 1.48% AND 5.48%,
RESPECTIVELY.
7
50
- --------------------------------------------------------------------------------
FOR THE PERIOD
JULY 28, 1997*
THROUGH
CLASS A SHARES JULY 31, 1997
-------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.40
-------
Net investment income................................................. 0.01
Net realized and unrealized gain...................................... 0.34
-------
Total from investment operations...................................... 0.35
Net asset value, end of period........................................ $ 18.75
=======
TOTAL INVESTMENT RETURN+.............................................. 1.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.92%(2)
Net investment income................................................. 5.06%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $79
Portfolio turnover rate............................................... 158%
Average commission rate paid.......................................... $0.0595
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.40
-------
Net investment income................................................. 0.01
Net realized and unrealized gain...................................... 0.34
-------
Total from investment operations...................................... 0.35
-------
Net asset value, end of period........................................ $ 18.75
=======
TOTAL INVESTMENT RETURN+.............................................. 1.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.67%(2)
Net investment income................................................. 4.38%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $114
Portfolio turnover rate............................................... 158%
Average commission rate paid.......................................... $0.0595
- ------------
* THE DATE SHARES WERE FIRST ISSUED.
+ 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
51
- --------------------------------------------------------------------------------
FOR THE PERIOD
JULY 28, 1997*
THROUGH
CLASS D SHARES JULY 31, 1997
---------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.40
-------
Net investment income................................................. 0.01
Net realized and unrealized gain...................................... 0.34
-------
Total from investment operations...................................... 0.35
-------
Net asset value, end of period........................................ $ 18.75
=======
TOTAL INVESTMENT RETURN+.............................................. 1.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.67%(2)
Net investment income................................................. 5.40%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $57,938
Portfolio turnover rate............................................... 158%
Average commission rate paid.......................................... $0.0595
- ------------
* THE DATE 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 B TO OBTAIN THE
HISTORICAL PER SHARE DATA AND RATIO INFORMATION OF THEIR SHARES.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
9
52
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Dean Witter Strategist Fund (the "Fund") is an open-end, non-diversified
management investment company. The Fund is a trust of the type commonly known as
a "Massachusetts business trust" and was organized under the laws of
Massachusetts on August 5, 1988.
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 101 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$95.9 billion as of August 31, 1997. The Investment Manager also manages and
advises portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.6 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs, manage the investment of the Fund's
assets and determine the allocations 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 or under the
direction of the Investment Manager to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily at the annual rate
of 0.60% of the portion of the Fund's net assets not exceeding $500 million,
scaled down at various asset levels to 0.475% on the portion of the Fund's net
assets exceeding $1.5 billion. For the fiscal year ended July 31, 1997, the Fund
accrued total compensation to the Investment Manager amounting to 0.56% of the
Fund's average daily net assets and the total expenses of Class B amounted to
1.56% of the average daily net assets of Class B. Shares of Class A, Class C and
Class D were first issued on July 28, 1997. The expenses of the Fund include:
the fee of the Investment Manager; the fee pursuant to the Plan of Distribution
(see "Purchase of Fund Shares"); taxes; transfer agent, custodian and auditing
fees; certain legal fees; and printing and other expenses relating to the Fund's
operations which are not expressly assumed by the Investment Manager under its
Investment Management Agreement with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to maximize the total return on its
investments. This is a fundamental policy and cannot be changed without the
approval of the Fund's shareholders. In seeking to achieve its objective, the
Fund actively allocates assets among the major asset categories of equity
securities, fixed-income securities and money market instruments. Total return
consists of current income (including dividends, interest and, in the case of
discounted instruments, discount accruals) and capital appreciation (including
realized and unrealized capital gains and losses). There can be
10
53
no assurance that the investment objective of the Fund will be achieved.
The achievement of the Fund's investment objective depends upon the ability
of the Investment Manager to correctly assess the effects of economic and market
trends on different sectors of the market. The Investment Manager believes that
superior investment returns at lower risk are achievable by actively allocating
resources to the equity, debt and money market sectors of the market as opposed
to relying solely on just one market. At times, the equity market may hold a
higher potential return than the debt market and would warrant a higher asset
allocation. The reverse would be true when the bond market potential return is
higher. Short duration bonds and money market instruments can be used to soften
market declines when both bonds and equities are fully priced. Conserving
capital during declining markets can contribute to maximizing total return over
a longer period of time. In addition, the securities of companies within various
economic sectors may at times offer higher returns than other sectors and can
thus contribute to superior returns. Finally, the Investment Manager believes
that superior stock selection can also contribute to superior total return.
To facilitate reallocation of the Fund's assets in accordance with the
Investment Manager's views as to shifts in the marketplace, the Investment
Manager employs transactions in futures contracts and options thereon. For
example, if the Investment Manager believes that a ten percent increase in that
portion of the Fund's assets invested in fixed-income securities and a
concomitant decrease in that portion of the Fund's assets invested in equity
securities is timely, the Fund might purchase interest rate futures, such as
Treasury bond futures, and sell stock index futures, such as the Standard &
Poor's Corporation ("S&P") 500 Stock Index futures, in equivalent amounts. The
utilization of futures transactions, rather than the purchase and sale of equity
and fixed-income securities, increases the speed and efficacy of the Fund's
asset reallocations. See below for a discussion of futures transactions.
Within the equity sector, the Investment Manager actively allocates funds to
those economic sectors expected to benefit from major trends and to individual
stocks which are deemed to have superior investment potential. The Fund may
purchase equity securities (including convertible debt obligations and
convertible preferred stock) sold on the New York, American and other stock
exchanges and in the over-the-counter market. In addition, the Fund may purchase
and sell warrants and purchase and write listed and over-the-counter options on
individual stocks and stock indexes to hedge against adverse price movements in
its equity portfolio and to increase its total return through the receipt of
premium income. The Fund may also purchase and sell stock index futures and
options thereon to hedge against adverse price movements in its equity portfolio
and to facilitate asset reallocations into and out of the equity area.
Within the fixed-income sector of the market, the Investment Manager seeks
to maximize the return on its investments by adjusting maturities and coupon
rates as well as by exploiting yield differentials among different types of
investment grade bonds. Fixed-income securities in which the Fund may invest are
short-term to intermediate (one to five year maturities) and intermediate to
long-term (greater than five year maturities) debt securities and preferred
stocks, including U.S. Government securities (securities issued or guaranteed as
to principal and interest by the United States or its agencies and
instrumentalities) and corporate securities which are rated at the time of
purchase Baa or better by Moody's Investors Service, Inc. ("Moody's") (while
bonds rated Baa by Moody's are considered investment grade, they have
speculative characteristics as well) or BBB or better by S&P, or which, if
unrated, are deemed to be of comparable quality by the Fund's Trustees (a
description of corporate bond ratings is contained in the Appendix to the
Statement of Additional Information). U.S. Government securities which may be
purchased
11
54
include zero coupon securities. In addition, the Fund may purchase and write
listed and over-the-counter options on fixed-income securities to hedge against
adverse price movements in its fixed-income portfolio and to increase its total
return through the receipt of premium income. The Fund may also purchase and
sell interest rate futures and options thereon to hedge against adverse price
movements in its fixed-income portfolio and to facilitate asset reallocations
into and out of the fixed-income area.
Within the money market sector of the market, the Investment Manager seeks
to maximize returns by exploiting spreads among short-term instruments. The
money market portion of the Fund's portfolio will contain short-term (maturities
of up to thirteen months) fixed-income securities, issued by private and
governmental institutions. Such securities may include: U.S. Government
securities; bank obligations; Eurodollar certificates of deposit issued by
foreign branches of domestic banks; obligations of savings institutions; fully
insured certificates of deposit; and commercial paper rated within the two
highest grades by S&P or the highest grade by Moody's or, if not rated, issued
by a company having an outstanding debt issue rated at least AA by S&P or Aa by
Moody's. For a discussion of the risks of investing in Eurodollar certificates
of deposit, see "Risk Considerations--Foreign Securities" below.
FOREIGN SECURITIES. The Fund may invest up to 20% of its total assets in
securities issued by foreign governments and other foreign issuers and in
foreign currency issues of domestic issuers, but not more than 10% of its total
assets in such securities, whether issued by a foreign or domestic issuer, which
are denominated in foreign currency. With regard to foreign fixed-income
securities, the Investment Manager believes that in many instances such
securities may provide higher yields than similar securities of domestic
issuers. For a discussion of the risks of investing in foreign securities, see
"Risk Considerations" below.
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. For a discussion of the risks of investing in repurchase agreements,
see "Risk Considerations" below.
PRIVATE PLACEMENTS. The Fund may invest 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. These securities are generally referred to as
private placements or restricted 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. If a restricted security is
determined to be "liquid," such security will not be included within the
category "illiquid securities," which is limited by the Fund's investment
restrictions to 10% of the Fund's total assets. For a discussion of the risks of
investing in private placements, see "Risk Considerations" below.
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
12
55
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.
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.
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, without limit, in order to aid it in achieving its
investment objective. As a writer of a call option, the Fund has the obligation,
upon notice of exercise of the option, to deliver the security underlying the
option (certain listed call options written by the Fund will be exercisable by
the purchaser only on a specific date). See "Options and Futures Transactions--
Covered Call Writing" in the Statement of Additional Information.
COVERED PUT WRITING. As a writer of covered put options, the Fund incurs an
obligation to buy the security underlying the option from the purchaser of the
put at the option's exercise price at any time during the option period. The
Fund will write put options for two purposes: (1) to receive the premiums paid
by purchasers; and (2) when the Investment Manager wishes to purchase the
security underlying the option at a price lower than its current market price,
in which case it will write the covered put at an exercise price reflecting the
lower purchase price sought. See "Options and Futures Transactions--Covered Put
Writing" in the Statement of Additional Information.
PURCHASING CALL AND PUT OPTIONS. The Fund may invest up to 5% of its total
assets in the purchase of put and call options on securities and stock indexes.
The Fund may purchase call options only in order to close out a covered call
position. The Fund may purchase put options on securities which it holds (or has
the right to acquire) in its portfolio only to protect itself against a decline
in the value of the security. The Fund may also purchase put options to close
out written put positions in a manner similar to call option closing purchase
transactions. There are no other limits on the Fund's ability to purchase call
and put options.
STOCK INDEX OPTIONS. The Fund may purchase and write options on stock
indexes. Options on stock indexes are similar to options on stock except that,
rather than the right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. See "Stock Index Options" and
"Risks of Options on Indexes" in the Statement of Additional Information.
13
56
FUTURES CONTRACTS. The Fund may purchase and sell interest rate and stock
index futures contracts ("futures contracts") that are traded on U.S. commodity
exchanges on such underlying securities as U.S. Treasury bonds, notes, and bills
and GNMA Certificates ("interest rate futures") and such indexes as the S&P 500
Index and the New York Stock Exchange Composite Index ("stock index futures")
and the Moody's Investment-Grade Corporate Bond Index ("bond index futures"). As
a futures contract purchaser, the Fund incurs an obligation to take delivery of
a specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. As a seller of a futures contract, the Fund
incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed upon price. The Fund will
purchase or sell interest rate futures contracts and bond index futures
contracts for the purpose of hedging its fixed-income portfolio (or anticipated
portfolio) securities against changes in prevailing interest rates. The Fund
will purchase or sell stock index futures contracts for the purpose of hedging
its equity portfolio (or anticipated portfolio) securities against changes in
their prices. As noted above, the Fund may also engage in futures transactions
to facilitate reallocation of the Fund's assets. 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. See
"Options and Futures Transactions--Futures Contracts" and "Options on Futures
Contracts" in the Statement of Additional Information.
For a discussion of the risks of options and futures transactions, see "Risk
Considerations" below and "Options and Futures Transactions" in the Statement of
Additional Information.
------------------------
The Fund may purchase securities on a when-issued or delayed delivery basis,
may purchase or sell securities on a forward commitment basis, may purchase
securities on a "when, as and if issued" basis, may lend its portfolio
securities, and may enter into reverse repurchase agreements, as discussed under
"Risk Considerations" below.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted. The level of income
payable to the investor will vary depending upon the market allocation
determined by the Investment Manager and with various determinants such as
interest rates.
FOREIGN SECURITIES. Foreign securities investments may be affected by
changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United States
and abroad) or changed circumstances in dealings between nations. Fluctuations
in the relative rates of exchange between the currencies of different nations
will affect the value of the Fund's investments denominated in foreign currency.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in that currency
and thereby impact upon the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The Fund will incur costs in connection
with conversions between various currencies.
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
14
57
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. Finally, in the event of a default of any foreign debt obligations,
it may be more difficult for the Fund to obtain or enforce a judgment against
the issuers of such 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 the Fund's trades effected in such markets. As such, the
inability to dispose of portfolio securities due to settlement delays could
result in losses to the Fund due to subsequent declines in value of such
securities and the inability of the Fund to make intended security purchases due
to settlement problems could result in a failure of the Fund to make potentially
advantageous investments. To the extent the Fund purchases Eurodollar
certificates of deposit issued by foreign branches of domestic United States
banks, consideration will be given to their domestic marketability, the lower
reserve requirements normally mandated for overseas banking operations, the
possible impact of interruptions in the flow of international currency
transactions and future international political and economic developments which
might adversely affect the payment of principal or interest.
REPURCHASE AGREEMENTS. While repurchase agreements involve certain risks
not associated with direct investments in debt securities, the Fund follows
procedures designed to minimize those risks. These procedures include effecting
repurchase transactions only with large, well-capitalized and well-established
financial institutions whose financial condition will be continually monitored
by the Investment Manager subject to procedures established by the Board of
Trustees of the Fund. In addition, 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.
The Fund may not 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 total assets.
PRIVATE PLACEMENTS. Limitations on the resale of private placements 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. In the case of restricted securities
determined to be "liquid" pursuant to Rule 144A under the Securities Act, the
Fund's illiquidity could increase if qualified institutional buyers become
unavailable.
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
15
58
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 the Fund's net asset value.
OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its position as
writer of an option, or as a buyer or seller of a futures contract, only if a
liquid secondary market exists for options or futures contracts of that series.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. Also, exchanges may
limit the amount by which the price of many futures contracts may move on any
day. If the price moves equal the daily limit on successive days, then it may
prove impossible to liquidate a futures position until the daily limit moves
have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Internal Revenue Code's requirements
for qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Dividends, Distributions and Taxes."
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money 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. See the Statement of Additional Information for further
discussion of such risks.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements, which 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.
Reverse repurchase agreements 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 files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the
16
59
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 are considered borrowings by the Fund
and for purposes other than meeting redemptions may not exceed 5% of the Fund's
total assets.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to certain notice provisions described in the Statement of
Additional Information), and are at all times secured by cash or money market
instruments, which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least the market value, determined daily,
of the loaned securities. As with any extensions of credit, there are risks of
delay in recovery and in some cases even loss of rights in the collateral should
the borrower of the securities fail financially. However, loans of portfolio
securities will only be made to firms deemed by the Investment Manager to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks.
NON-DIVERSIFIED STATUS. The Fund is a non-diversified investment company
and, as such, is not subject to the diversification requirements of the
Investment Company Act of 1940 (the "Act"). As a non-diversified investment
company, the Fund may invest a greater portion of its assets in the securities
of a single issuer and thus is subject to greater exposure to risks such as a
decline in the credit rating of that issuer. However, the Fund anticipates that
it will qualify as a regulated investment company under the federal income tax
laws and, if so qualified, will be subject to the applicable diversification
requirements of the Internal Revenue Code (the "Code"). As a regulated
investment company under the Code, the Fund may not, as of the end of any of its
fiscal quarters, have invested more than 25% of its total assets in the
securities of any one issuer (including a foreign government), or as to 50% of
its total assets, have invested more than 5% of its total assets in the
securities of a single issuer.
For additional risk disclosure, please refer to the "Investment Objective
and Policies" section 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 the 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. The Fund's
portfolio is managed within InterCapital's Growth and Income Group, which
manages twenty-three funds and fund portfolios, with approximately $27.8 billion
in assets as of August 31, 1997. Mark Bavoso, Senior Vice President of
InterCapital and a member of InterCapital's Growth and Income Group, has been
the primary portfolio manager of the Fund since January, 1994, and has been a
portfolio manager at InterCapital for over five years.
Orders for transactions in other portfolio securities and commodities are
placed for the Fund with a number of brokers and dealers, including DWR and
other broker-dealer affiliates of InterCapital. 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.
It is not anticipated that the portfolio trading engaged in by the Fund will
result in its portfolio turnover rate exceeding 200% in any one year. The
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60
Fund will incur underwriting discount costs (on underwritten securities) and
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. See "Dividends, Distributions and Taxes" for a discussion of
the tax implications of the Fund's transactions. A more extensive discussion of
the Fund's portfolio brokerage policies is set forth in the Statement of
Additional Information.
Except as specifically noted, all investment objectives, 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 Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. For purposes
of the following limitations: (i) all percentage limitations apply immediately
after a purchase or initial investment, and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund may not:
1. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
3. Purchase or sell commodities or commodities contracts except that the Fund
may purchase or write interest rate and stock and bond index futures contracts
and related options thereon.
4. Pledge its assets or assign or otherwise encumber them except to secure
permitted borrowings. (For the purpose of this restriction, collateral
arrangements with respect to the writing of options and collateral arrangements
with respect to initial or variation margin for futures are not deemed to be
pledges of assets.)
5. Purchase securities on margin (but the Fund may obtain short-term loans as
are necessary for the clearance of transactions). 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.
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.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each class of its 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
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61
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 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 Strategist 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.
In the case of investments pursuant to Systematic Payroll Deduction Plans
(including Individual Retirement Plans), the Fund, in its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required, if the Fund has reason to believe that additional investments will
increase the investment in each account under such Plans to at least $1,000.
Certificates for shares purchased will not be issued unless requested by the
shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer
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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 at the time of their sale 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 (i) 1.0% of the lesser of: (a) the average daily aggregate gross
sales of the Fund's Class B shares since the implementation of the 12b-1 Plan on
November 8, 1989 (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the implementation of the 12b-1 Plan upon which a
CDSC has been imposed or waived, or (b) the average daily net assets of Class B
attributable to shares issued, net of related shares redeemed, since
implementation of the 12b-1 Plan, plus (ii) 0.25% of the average daily net
assets of Class B attributable to shares issued, net
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of related shares redeemed, prior to implementation of the 12b-1 Plan. 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 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
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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:
---------------------------------------------------------------------
CLASS SALES CHARGE 12b-1 FEE CONVERSION FEATURE
- --------------------------------------------------------------------------------------
A Maximum 5.25% initial sales 0.25% No
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 during the 1.0% B shares convert to A shares
first year decreasing to 0 automatically after
after six years approximately ten years
- --------------------------------------------------------------------------------------
C 1.0% CDSC during first year 1.0% No
- --------------------------------------------------------------------------------------
D None None No
- --------------------------------------------------------------------------------------
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:
SALES CHARGE
------------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF AMOUNT
TRANSACTION PRICE INVESTED
- ------------------------- ------------------- ---------------------
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
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.
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The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of a single employer
or of employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act; and for investments in Individual Retirement
Accounts of employees of a single employer through Systematic Payroll Deduction
plans; or (g) any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months and has
some purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other Dean Witter Multi-Class Funds and shares of FSC Funds. The sales
charge payable on the purchase of the Class A shares of the Fund, the Class A
shares of the other Dean Witter Multi-Class Funds and 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.
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ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1) trusts for which DWT (an affiliate of the Investment Manager) provides
discretionary trustee services;
(2) persons participating in a fee-based program approved by the Distributor,
pursuant to which such persons pay an asset based fee for services in the nature
of investment advisory or administrative services (such investments are subject
to all of the terms and conditions of such programs, which may include
termination fees, mandatory redemption upon termination and such other
circumstances as specified in the programs' agreements, and restrictions on
transferability of Fund shares);
(3) 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 (i) 1.0% of the lesser of: (a) the average
daily aggregate gross sales of the Fund's Class B shares since the
implementation of the 12b-1 Plan on November 8, 1989 (not including
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since the
implementation of the 12b-1 Plan upon which a CDSC has been imposed or waived,
or (b) the average daily net assets of Class B attributable to shares issued,
net of related shares redeemed, since implementation of the 12b-1 Plan, plus
(ii) 0.25% of the average daily net assets of Class B attributable to shares
issued, net of related shares redeemed, prior to implementation of the 12b-1
Plan.
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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:
YEAR SINCE CDSC AS A
PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- --------------------------------- -----------------------
First............................ 5.0%
Second........................... 4.0%
Third............................ 3.0%
Fourth........................... 2.0%
Fifth............................ 2.0%
Sixth............................ 1.0%
Seventh and thereafter........... None
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 which will
depend on how long the shares have been held, as set forth in the following
table:
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- --------------------------------- -----------------------
First............................ 2.0%
Second........................... 2.0%
Third............................ 1.0%
Fourth and thereafter............ None
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-
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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 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. All shares of the Fund held prior to July 28,
1997 (other than shares which were purchased prior to November 8, 1989 (and,
with respect to such shares, including such proportion of shares acquired
through reinvestment of dividends and capital gains distributions as the total
number of shares acquired prior to such date bears to the total number of Fund
shares purchased and owned by a shareholder (collectively, the "Old Shares"))
and shares held by certain employee benefit plans established by DWR and its
affiliate, SPS Transaction Services, Inc.) 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 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 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
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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.
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 referred to in (i) and (ii) above,
which may include termination fees, mandatory redemption upon termination and
such other circumstances as specified in the programs' agreements, and
restrictions on transferability of Fund shares); (iii) 401(k) plans established
by DWR and SPS Transaction Services, Inc. (an affiliate of DWR) for their
employees; (iv) certain Unit Investment Trusts sponsored by DWR; (v) certain
other open-end investment companies whose shares are distributed by the
Distributor; and (vi) other categories of investors, at the discretion of the
Board, as disclosed in the then current prospectus of the Fund. The Old Shares
and shares held by the employee benefit plans referred to in clause (iii) above
prior to July 28, 1997 have been designated Class D shares. 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
27
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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 (i) 1.0% of the lesser of: (a) the average daily aggregate gross
sales of the Fund's Class B shares since the implementation of the Plan on
November 8, 1989 (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the implementation of the 12b-1 Plan upon which a
CDSC has been imposed or waived, or (b) the average daily net assets of Class B
attributable to shares issued, net of related shares redeemed, since
implementation of the 12b-1 Plan, plus (ii) 0.25% of the average daily net
assets of Class B attributable to shares issued, net of related shares redeemed,
prior to implementation of the 12b-1 Plan. 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 July 31, 1997, Class B shares of the Fund accrued
payments under the Plan amounting to $12,491,604, which amount is equal to 0.89%
of the average daily net assets of Class B for the fiscal year. These payments
were calculated pursuant to clauses (i)(a) and (ii) of the compensation formula
under the Plan. All shares held prior to July 28, 1997 (other than the Old
Shares and shares held by certain employee benefit plans established by DWR and
its affiliate, SPS Transaction Services, Inc.) have been designated Class B
shares. For the fiscal period July 28 through July 31, 1997, Class A and Class C
shares of the Fund accrued payments under the Plan amounting to $1 and $6,
respectively, which amounts on an annualized basis are equal to 0.25% and 1.0%
of the average daily net assets of Class A and Class C, 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 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
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Distributor has advised the Fund that such excess amounts, including the
carrying charge described above, totalled $37,067,710 at July 31, 1997, which
was equal to 2.38% of the net assets of Class B on such date. Of this amount,
$13,444,602 represents excess distribution expenses of Dean Witter Managed
Assets Trust, the net assets of which were combined with those of the Fund on
December 22, 1995 pursuant to an Agreement and Plan of Reorganization. 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 is valued
at its latest sale price on that exchange prior to the time assets are valued;
if there were no sales that day, the security is valued at the latest bid price
(in cases where a security is traded on more than one exchange, the security is
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees), and (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest bid price (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). 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).
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are
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valued at amortized cost, unless the Trustees determine such does not reflect
the securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what the pricing
service believes is the fair valuation of such portfolio securities.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the shareholder,
in shares of any other open-end Dean Witter Fund), unless the shareholder
requests that they be paid in cash. Shares so acquired are acquired at net asset
value and are not subject to the imposition of a front-end sales charge or a
CDSC (see "Redemptions and Repurchases").
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 "Redemptions and
Repurchases--Involuntary Redemption").
INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the proceeds to the Transfer
Agent within thirty days after the payment date. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
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, eligible 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.
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For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other Selected Broker-
Dealer account executive or the Transfer Agent.
EXCHANGE PRIVILEGE
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.
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. In the case of shares exchanged into an Exchange Fund on or after April
23, 1990, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount equal
to the Exchange Fund 12b-1 distribution fees, if any, incurred on or after that
date which are attributable to those shares. (Exchange Fund 12b-1 distribution
fees are described in the prospectus 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.
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent
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exchanges may be deemed by the Investment Manager to be abusive and contrary to
the best interests of the Fund's other shareholders and, at the Investment
Manager's discretion, may be limited by the Fund's refusal to accept additional
purchases and/ or exchanges from the investor. Although the Fund does not have
any specific definition of what constitutes a pattern of frequent exchanges, and
will consider all relevant factors in determining whether a particular situation
is abusive and contrary to the best interests of the Fund and its other
shareholders, investors should be aware that the Fund and each of the other Dean
Witter Funds may in their discretion limit or otherwise restrict the number of
times this Exchange Privilege may be exercised by any investor. Any such
restriction will be made by the Fund on a prospective basis only, upon notice to
the shareholder not later than ten days following such shareholder's most recent
exchange. Also, the Exchange Privilege may be terminated or revised at any time
by the Fund and/or any of such Dean Witter Funds for which shares of the Fund
have been exchanged, upon such notice as may be required by applicable
regulatory agencies. Shareholders maintaining margin accounts with DWR or
another Selected Broker-Dealer are referred to their account executive regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. An exchange will be
treated for federal income tax purposes the same as a repurchase or redemption
of shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by 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
32
75
appropriate, or make a written exchange request. Shareholders are advised that
during periods of drastic economic or market changes, it is possible that the
telephone exchange procedures may be difficult to implement, although this has
not been the case with the Dean Witter Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see "Purchase
of Fund Shares"). If shares are held in a shareholder's account without a share
certificate, a written request for redemption to the Fund's Transfer Agent at P.
O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by the
shareholder, the shares may be redeemed by surrendering the certificates with a
written request for redemption, along with any additional documentation required
by the Transfer Agent.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value next computed (see "Purchase of Fund Shares") after such repurchase
order is received by DWR or other Selected Broker-Dealer, reduced by any
applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The offer by DWR and other Selected Broker-Dealers to repurchase
shares may be suspended without notice by them at any time. In that event,
shareholders may redeem their 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 investment 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, on sixty days' notice,
to redeem, at their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or custodial account under
Section 403(b)(7) of the
33
76
Internal Revenue Code) whose shares 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-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 the shareholder sixty days to make an additional investment in an amount
which will increase the value of the account to at least the applicable amount
before the redemption is processed. No CDSC will be imposed on any involuntary
redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund 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 long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends and/or distributions be paid in cash. Shares acquired
by dividend and distribution reinvestments will not be subject to any front-end
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. Distributions paid on Class A and Class D shares will be higher than
for Class B and Class C shares because distribution fees paid by Class B and
Class C shares are higher. (See "Shareholder Services--Automatic Investment of
Dividends and Distributions.")
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term 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 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
net short-term capital gains, are taxable to the shareholder as ordinary income
regardless of whether the shareholder receives such payments in additional
shares or in cash. Any dividends declared in the last quarter of any calendar
year which are paid in the following year prior to February 1 will be deemed,
for tax purposes, to have been received by the shareholder in the prior year.
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 capital gains or losses. 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 that
gain or loss is realized, or to defer recognition of a realized loss for tax
purposes. Recognition, for tax purposes, of an unrealized loss may result in a
lesser amount of the Fund's realized gains being available for annual
distribution.
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
34
77
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 corporate 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 the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A, Class
B, Class C and Class D shares. The total return of the Fund is based on
historical earnings and is not intended to indicate future performance. The
"average annual total return" of the Fund refers to a figure reflecting the
average annualized percentage increase (or decrease) in the value of an initial
investment in a Class of the Fund of $1,000 over periods of one, five and ten
years, 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 (e.g., mutual fund performance rankings of Lipper
Analytical Services, Inc.; S&P 500 stock index; Dow Jones and Company, Inc.
Industrial Average).
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
35
78
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, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is engaged at the same time in a purchase or sale of the same
security. The Code of Ethics bans the purchase of securities in an initial
public offering, and also prohibits engaging in futures and options transactions
and profiting on short-term trading (that is, a purchase within sixty days of a
sale or a sale within sixty days of a purchase) of a security. In addition,
investment personnel may not purchase or sell a security for their personal
account within thirty days before or after any transaction in any Dean Witter
Fund managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute Advisory
Group on Personal Investing.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
non-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.
36
79
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS FIXED-INCOME FUNDS
Dean Witter Liquid Asset Fund Inc. Dean Witter High Yield Securities Inc.
Dean Witter Tax-Free Daily Income Trust Dean Witter Tax-Exempt Securities Trust
Dean Witter New York Municipal Money Market Trust Dean Witter U.S. Government Securities Trust
Dean Witter California Tax-Free Daily Income Trust Dean Witter California Tax-Free Income Fund
Dean Witter U.S. Government Money Market Trust Dean Witter New York Tax-Free Income Fund
EQUITY FUNDS Dean Witter Convertible Securities Trust
Dean Witter American Value Fund Dean Witter Federal Securities Trust
Dean Witter Natural Resource Development Dean Witter World Wide Income Trust
Securities Inc. Dean Witter Intermediate Income Securities
Dean Witter Dividend Growth Securities Inc. Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Developing Growth Securities Trust Dean Witter Multi-State Municipal Series Trust
Dean Witter World Wide Investment Trust Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Value-Added Market Series Dean Witter Diversified Income Trust
Dean Witter Utilities Fund Dean Witter Limited Term Municipal Trust
Dean Witter Precious Metals and Minerals Trust Dean Witter Short-Term Bond Fund
Dean Witter Capital Growth Securities Dean Witter High Income Securities
Dean Witter European Growth Fund Inc. Dean Witter National Municipal Trust
Dean Witter Pacific Growth Fund Inc. Dean Witter Balanced Income Fund
Dean Witter Health Sciences Trust Dean Witter Hawaii Municipal Trust
Dean Witter Global Dividend Growth Securities Dean Witter Intermediate Term U.S. Treasury
Dean Witter Global Utilities Fund Trust
Dean Witter International SmallCap Fund DEAN WITTER RETIREMENT SERIES
Dean Witter Mid-Cap Growth Fund Liquid Asset Series
Dean Witter Balanced Growth Fund U.S. Government Money Market Series
Dean Witter Capital Appreciation Fund U.S. Government Securities Series
Dean Witter Information Fund Intermediate Income Securities Series
Dean Witter Special Value Fund American Value Series
Dean Witter Financial Services Trust Capital Growth Series
Dean Witter Market Leader Trust Dividend Growth Series
Dean Witter S&P 500 Index Fund Strategist Series
ASSET ALLOCATION FUNDS Utilities Series
Dean Witter Strategist Fund Value-Added Market Series
Dean Witter Global Asset Allocation Fund Global Equity Series
ACTIVE ASSETS ACCOUNT PROGRAM
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets Government Securities Trust
Active Assets California Tax-Free Trust
80
DEAN WITTER
Dean Witter STRATEGIST
Strategist Fund FUND
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Barry Fink
Vice President, Secretary and
General Counsel
Mark Bavoso
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
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
PROSPECTUS -- SEPTEMBER 26, 1997
81
DEAN WITTER STRATEGIST FUND TWO WORLD TRADE CENTER, NEW YORK, NEW YORK
10048
LETTER TO THE SHAREHOLDERS JULY 31, 1997
DEAR SHAREHOLDER:
During this fiscal year, on 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. Most fund shares held prior to July 28 were 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.
Dean Witter Strategist Fund's Class B shares posted a total return of 29.73
percent for the fiscal year ended July 31, 1997. This compares favorably with
the performance of the Fund's peer group as represented by the Lipper Flexible
Portfolio Funds Index, which returned 29.05 percent. Over the same period, the
Standard & Poor's 500 Composite Index (S&P 500) returned 52.08 percent and the
Lehman Brothers Government/Corporate Bond Index returned 10.79 percent. This
year marks eight full fiscal years for the Fund, and eight full fiscal years of
positive total returns for our shareholders.
The accompanying chart illustrates the growth of a $10,000 investment in Class B
shares of the Fund since inception (October 1988) through the fiscal year ended
July 31, 1997, versus similar hypothetical investments in the S&P 500 Index, the
Lehman Brothers Government/ Corporate Bond Index and the Lipper Flexible
Portfolio Funds Index.
INVESTMENT ANALYSIS
During the fiscal year, both the stock and the bond markets performed well. The
continuation of a multiyear period of economic growth, low inflation, improving
corporate profitability and stable monetary policy provided the markets with a
positive backdrop for record returns.
Energy, agricultural commodities and labor costs experienced price shocks that
unsettled the markets for short periods. However, corrections continued to
provide buying opportunities as pricing pressures in many service-related
sectors offset these price spikes. While we reacted cautiously by raising cash
in response to these spikes, we were eager to reinvest when the scares proved to
be quite temporary.
82
DEAN WITTER STRATEGIST FUND
LETTER TO THE SHAREHOLDERS JULY 31, 1997, CONTINUED
All in all, our decision to stay overweighted in long-dated financial assets
throughout the year benefited our shareholders. The table below summarizes the
asset allocation changes made in Dean Witter Strategist Fund's portfolio during
the fiscal year:
EQUITY FIXED-INCOME
EXPOSURE EXPOSURE CASH
------ ---------- -----
July 31, 1996........................... 50% 40% 10%
April 28, 1997.......................... 50% 20% 30%
May 19, 1997............................ 60% 20% 20%
June 26, 1997........................... 65% 20% 15%
LOOKING AHEAD
As we enter 1998, Dean Witter Strategist Fund is allocated to reflect our
positive stance toward the equity markets and our more cautious view of bonds.
With 70 percent of our assets invested in stocks, we believe that corporate
earnings growth, especially in a few specific industry sectors, will continue to
provide double-digit returns. Our equity portfolio, while well diversified, with
more than 80 holdings, is highly concentrated in industries we feel will provide
above-average earnings growth and profit potential. These include technology
(mainframe and workstation manufacturers, disk drive and software suppliers),
financial services (insurance, banking, savings and loans), energy (domestic and
international oil companies) and retailers (apparel and specialty stores as well
as department store chains). We expect each of these sectors to either continue
their impressive pattern of powerful earnings reports (technology and
financials) or to begin a turnaround from depressed earnings levels (energy and
retailers).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Growth of $10,000-Class B
($ in Thousands)
Average Annual Total Return
(Fund)
Life of
1 Year 5 Years Fund
29.73%(1) 13.33%(1) 14.26%(1)
24.73%(2) 13.09%(2) 14.26%(2)
Fund S&P 500(4) Lehman(5) Lipper(6)
October 1988 $10,000 $10,000 $10,000 $10,000
July 1989 $12,376 $12,736 $11,061 $11,405
July 1990 $13,267 $13,558 $11,750 $11,957
July 1991 $15,346 $15,290 $12,952 $13,550
July 1992 $17,169 $17,243 $14,978 $15,311
July 1993 $18,472 $18,745 $16,630 $16,902
July 1994 $19,125 $19,712 $16,608 $17,458
July 1995 $22,195 $24,844 $18,291 $20,337
July 1996 $24,741 $28,946 $19,262 $22,129
July 1997 $32,097(3) $44,023 $21,340 $28,557
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(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-5%, 5
years-2%, 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 July 31, 1997.
(4) The Standard and 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 Government/Corporate Bond Index tracks the performance
of government and corporate obligations, including U.S. government agency
and U.S. treasury securities and corporate and yankee bonds, with maturities
of one to ten years. 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 Flexible Portfolio Funds Index is an equally-weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
Flexible Portfolio 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.
83
DEAN WITTER STRATEGIST FUND
LETTER TO THE SHAREHOLDERS JULY 31, 1997, CONTINUED
Our underweighting in bonds, at only a 20 percent allocation, reflects our
concern that the Federal Reserve Board may feel compelled to raise rates in the
second half of 1997, thus keeping a lid on bond prices for the balance of the
year. Longer term, we would view any drop in long bonds' prices as a buying
opportunity and would likely use a portion of our 10 percent cash reserve to
purchase issues along the yield curve. Currently, the bond portfolio is
comprised of 15 government-issued securities and 35 corporate bonds, with a wide
variety of yields and maturities. All carry investment-grade ratings, as
mandated by our prospectus.
We appreciate your continued support and interest in Dean Witter Strategist Fund
and look forward to serving your investment needs in the future.
Sincerely,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
84
DEAN WITTER STRATEGIST FUND
RESULTS OF SPECIAL MEETING (UNAUDITED)
On May 21, 1997, a special meeting of shareholders of Dean Witter Strategist
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.:
VOTE NO. OF SHARES
- ------------------------------ -------------
For........................... 45,693,154
Against....................... 1,048,662
Abstain....................... 5,301,936
2) ELECTION OF TRUSTEES:
Michael Bozic
For........................... 48,083,122
Withheld...................... 3,960,630
Charles A. Fiumefreddo
For........................... 48,150,310
Withheld...................... 3,893,442
Edwin J. Garn
For........................... 48,169,641
Withheld...................... 3,874,111
John R. Haire
For........................... 48,073,337
Withheld...................... 3,970,415
Wayne E. Hedien
For........................... 48,165,238
Withheld...................... 3,878,514
Dr. Manuel H. Johnson
For........................... 48,190,670
Withheld...................... 3,853,082
Michael E. Nugent
For........................... 48,219,453
Withheld...................... 3,824,299
Philip J. Purcell
For........................... 48,216,267
Withheld...................... 3,827,485
John L. Schroeder
For........................... 48,159,768
Withheld...................... 3,883,984
3) APPROVAL OF A NEW INVESTMENT POLICY WITH RESPECT TO INVESTMENTS IN CERTAIN
OTHER INVESTMENT COMPANIES:
VOTE NO. OF SHARES
- ------------------------------ -------------
For........................... 42,529,103
Against....................... 3,210,911
Abstain....................... 6,303,738
4) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE FUND'S
INDEPENDENT ACCOUNTANTS:
VOTE NO. OF SHARES
- ------------------------------ -------------
For........................... 46,978,407
Against....................... 562,673
Abstain....................... 4,502,672
85
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1997
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------
COMMON STOCKS (69.1%)
AEROSPACE & DEFENSE (4.4%)
270,000 General Motors Corp. (Class
H).......................... $ 16,318,125
194,000 Honeywell, Inc................ 14,489,375
180,000 Litton Industries, Inc.*...... 9,348,750
140,000 Lockheed Martin Corp.......... 14,910,000
200,000 Thiokol Corp.................. 14,862,500
----------
69,928,750
----------
AIRLINES (0.6%)
250,000 Continental Airlines, Inc.
(Class B)*.................. 9,312,500
----------
ALUMINUM (0.8%)
150,000 Aluminum Co. of America....... 13,275,000
----------
AUTOMOTIVE (1.3%)
300,000 Chrysler Corp................. 11,137,500
250,000 Ford Motor Co................. 10,218,750
----------
21,356,250
----------
BANKS - MONEY CENTER (1.9%)
150,000 Chase Manhattan Corp.......... 17,034,375
102,000 Citicorp...................... 13,846,500
----------
30,880,875
----------
BANKS - REGIONAL (3.0%)
220,000 NationsBank Corp.............. 15,661,250
240,000 Washington Mutual, Inc........ 16,560,000
58,000 Wells Fargo & Co.............. 15,946,375
----------
48,167,625
----------
BEVERAGES - SOFT DRINKS (0.8%)
327,800 PepsiCo, Inc.................. 12,558,837
----------
BROKERAGE (1.2%)
266,666 Travelers Group, Inc.......... 19,183,285
----------
CABLE/CELLULAR (0.7%)
500,000 U.S. West Media Group*........ 11,031,250
----------
CHEMICALS (2.1%)
220,000 Du Pont (E.I.) de Nemours &
Co., Inc.................... 14,726,250
220,000 Monsanto Co................... 10,958,750
150,000 Praxair, Inc.................. 8,268,750
----------
33,953,750
----------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (2.6%)
97,964 Ascent Entertainment, Inc.*... 1,175,568
180,000 Cisco Systems, Inc.*.......... 14,298,750
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------
405,000 Comsat Corp................... $ 9,441,562
270,000 Tellabs, Inc.*................ 16,149,375
----------
41,065,255
----------
COMMUNICATIONS EQUIPMENT (0.5%)
100,000 Lucent Technologies, Inc...... 8,493,750
----------
86
COMPUTER SOFTWARE (1.9%)
110,000 Microsoft Corp.*.............. 15,544,375
270,000 Oracle Corp.*................. 14,664,375
----------
30,208,750
----------
COMPUTERS (2.0%)
200,000 Dell Computer Corp.*.......... 17,100,000
400,000 Gateway 2000, Inc.*........... 15,275,000
----------
32,375,000
----------
COMPUTERS - PERIPHERAL EQUIPMENT (0.9%)
353,600 Seagate Technology, Inc.*..... 14,519,700
----------
COMPUTERS - SYSTEMS (1.9%)
329,250 Diebold, Inc.................. 16,544,812
300,000 Sun Microsystems, Inc.*....... 13,706,250
----------
30,251,062
----------
CONSUMER PRODUCTS (1.2%)
253,400 Colgate-Palmolive Co.......... 19,195,050
----------
ELECTRICAL EQUIPMENT (2.1%)
258,000 Emerson Electric Co........... 15,222,000
258,000 General Electric Co........... 18,108,375
----------
33,330,375
----------
ENTERTAINMENT/GAMING (0.2%)
100,000 Circus Circus Enterprises,
Inc.*....................... 2,506,250
----------
FINANCIAL SERVICES (1.9%)
200,000 American Express Co........... 16,750,000
290,000 Fannie Mae.................... 13,720,625
----------
30,470,625
----------
FOODS (2.1%)
176,000 Campbell Soup Co.............. 9,130,000
150,000 General Mills, Inc............ 10,368,750
150,000 Kellogg Co.................... 13,781,250
----------
33,280,000
----------
FOREST PRODUCTS, PAPER & PACKING (1.9%)
210,000 Bowater Inc................... 10,998,750
300,000 Champion International
Corp........................ 18,600,000
----------
29,598,750
----------
SEE NOTES TO FINANCIAL STATEMENTS
87
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1997, CONTINUED
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------
HEALTHCARE - HMOS (0.9%)
600,000 Humana, Inc.*................. $ 14,625,000
-------------
HEAVY DUTY TRUCKS & PARTS (0.3%)
270,000 Navistar International
Corp.*...................... 5,568,750
-------------
HOUSEHOLD APPLIANCES (0.6%)
320,000 Maytag Corp................... 9,340,000
-------------
INSURANCE (4.2%)
200,000 Ace, Ltd...................... 16,400,000
142,500 American International Group,
Inc......................... 15,176,250
200,000 Chubb Corp.................... 14,100,000
350,000 Equitable Companies, Inc...... 13,781,250
150,000 Vesta Insurance Group, Inc.... 7,987,500
-------------
67,445,000
-------------
INTERNET (0.5%)
120,000 America Online, Inc.*......... 8,100,000
-------------
LEISURE (0.7%)
135,000 Walt Disney Co................ 10,909,687
-------------
MEDICAL PRODUCTS & SUPPLIES (0.4%)
99,000 Baxter International,
Inc......................... 5,723,438
-------------
OIL INTEGRATED - DOMESTIC (1.9%)
260,000 Amerada Hess Corp............. 15,291,250
212,000 Atlantic Richfield Co......... 15,860,250
-------------
31,151,500
-------------
OIL INTEGRATED - INTERNATIONAL (3.8%)
190,000 Chevron Corp.................. 15,033,750
240,000 Exxon Corp.................... 15,420,000
198,000 Mobil Corp.................... 15,147,000
130,000 Texaco, Inc................... 15,088,125
-------------
60,688,875
-------------
PHARMACEUTICALS (3.8%)
160,000 Abbott Laboratories........... 10,470,000
128,400 American Home Products
Corp........................ 10,584,975
194,744 Johnson & Johnson............. 12,134,986
151,000 Lilly (Eli) & Co.............. 17,063,000
102,200 Merck & Co., Inc.............. 10,622,413
-------------
60,875,374
-------------
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
RETAIL - DEPARTMENT STORES (1.4%)
1,000,000 Kmart Corp.*.................. $ 11,875,000
176,000 May Department Stores Co...... 9,834,000
-------------
21,709,000
-------------
RETAIL - SPECIALTY (5.1%)
450,000 Bed Bath & Beyond, Inc.*...... 14,850,000
350,000 Costco Companies Inc.*........ 13,256,250
216,000 Home Depot, Inc............... 10,773,000
265,000 Payless ShoeSource, Inc.*..... 16,297,500
88
1,500,000 Pier 1 Imports, Inc........... 26,437,500
-------------
81,614,250
-------------
RETAIL - SPECIALTY APPAREL (0.9%)
310,000 Gap, Inc. (The)............... 13,775,625
-------------
SAVINGS & LOAN ASSOCIATIONS (0.9%)
170,000 Golden West Financial Corp.... 14,301,250
-------------
SEMICONDUCTOR EQUIPMENT (2.3%)
200,000 Altera Corp.*................. 12,050,000
100,000 KLA-Tencor Corp.*............. 6,050,000
410,000 Teradyne, Inc.*............... 19,167,500
-------------
37,267,500
-------------
SEMICONDUCTORS (2.3%)
475,000 Cypress Semiconductor
Corp.*...................... 7,273,438
160,000 Intel Corp.................... 14,680,000
300,000 Micron Technology, Inc........ 14,606,250
-------------
36,559,688
-------------
SHOES (0.5%)
130,000 Nike, Inc. (Class B).......... 8,100,625
-------------
STEEL (0.7%)
180,000 Nucor Corp.................... 11,171,250
-------------
TOBACCO (1.1%)
390,000 Philip Morris Companies,
Inc......................... 17,598,750
-------------
TRUCKERS (0.8%)
500,000 Yellow Corp.*................. 13,437,500
-------------
TOTAL COMMON STOCKS
(IDENTIFIED COST
$740,508,406)................. 1,104,905,751
-------------
SEE NOTES TO FINANCIAL STATEMENTS
89
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1997, CONTINUED
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ---------------------------------------------------------------------------
CORPORATE BONDS (13.1%)
AIRLINES (0.7%)
$ 9,000 United Air Lines, Inc. 10.125%
due 03/22/15................ $ 11,155,410
------------
BANKS (1.5%)
6,800 Bankers Trust Co. (Series A) -
144A** 8.09% due 12/01/26... 6,961,500
5,000 Capital One Bank 5.95% due
02/15/01.................... 4,890,000
6,000 Mercantile Bancorporation,
Inc. 7.30% due 06/15/07..... 6,215,340
6,000 Republic New York Corp. 7.20%
due 07/15/97................ 6,059,100
------------
24,125,940
------------
BROKERAGE (1.1%)
6,000 Bear Stearns Co., Inc. 6.50%
due 08/01/02................ 6,023,700
6,000 Lehman Brothers Holdings, Inc.
(Series E) 6.50% due
07/18/00.................... 6,033,060
5,000 Salomon, Inc. 6.65% due
07/15/01.................... 5,037,500
------------
17,094,260
------------
CABLE & TELECOMMUNICATIONS (1.5%)
5,000 Comcast Cable
Communications - 144A**
8.875% due 05/01/17......... 5,810,200
5,000 Continental Cablevision, Inc.
9.50% due 08/01/13.......... 5,825,550
7,000 TCI Communications, Inc. 8.75%
due 08/01/15................ 7,775,180
5,000 Time Warner Pass-thru - 144A**
6.10% due 12/30/01.......... 4,900,000
------------
24,310,930
------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (0.3%)
5,000 MFS Communications, Inc.
8.875% due 01/15/06......... 3,984,714
------------
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ---------------------------------------------------------------------------
FINANCIAL SERVICES (4.4%)
$ 5,000 Advanta Corp.
6.384% due 08/07/98......... $ 4,992,950
3,500 Advanta Corp.
7.28% due 07/30/01.......... 3,514,280
5,000 Arkwright CSN Trust - 144A**
9.625% due 08/15/26......... 5,881,250
6,800 Central Fidelity Capital I
-144A** 6.75%+ due
04/15/27.................... 6,976,868
6,900 Centura Capital Trust I -
144A** 8.845% due
06/01/27.................... 7,460,625
5,000 Compass Trust I Series A 8.23%
90
due 01/15/27................ 5,270,500
4,000 Hutchison Whampoa - 144A**
(Cayman Islands) 7.50% due
08/01/27.................... 4,070,000
6,900 Money Store, Inc. (The) 8.375%
due 04/15/04................ 7,279,293
5,000 North Fork Capital Trust I
8.70% due 12/15/26.......... 5,256,250
7,500 Provident Capital Trust I
8.60% due 12/01/26.......... 7,856,250
5,000 Riggs Capital Trust II -
144A** 8.875% due
03/15/27.................... 5,278,800
7,000 Sakura Capital Funding -
144A** (Cayman Islands)
7.32%+ due
08/29/49.................... 7,052,500
----------
70,889,566
----------
INSURANCE (0.8%)
5,800 Terra Nova Holdings (United
Kingdom) 10.75% due
07/01/05.................... 6,506,440
5,900 Vesta Capital Trust I - 144A**
8.525% due 01/15/27......... 6,386,750
----------
12,893,190
----------
MACHINERY & MACHINE TOOLS (0.2%)
3,000 Joy Technologies Inc. 10.25%
due 09/01/03................ 3,267,570
----------
SEE NOTES TO FINANCIAL STATEMENTS
91
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1997, CONTINUED
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ---------------------------------------------------------------------------
METALS & MINING (0.4%)
$ 6,900 Placer Dome, Inc. (Canada)
8.50% due 12/31/45.......... $ 7,089,750
------------
OIL & GAS PRODUCTS (0.3%)
5,000 Mitchell Energy & Development
Corp. 6.75% due 02/15/04.... 4,971,000
------------
PROPERTY (0.4%)
6,000 Guangdong Enterprises - 144A**
(Hong Kong) 8.875% due
05/22/07.................... 6,324,240
------------
RETAIL (0.7%)
6,000 Heilig Myers Co.
7.60% due 08/01/07.......... 5,992,020
5,000 ShopKo Stores, Inc. 9.00% due
11/15/04.................... 5,617,650
------------
11,609,670
------------
TELECOMMUNICATIONS (0.8%)
5,000 British Telecom Finance
(United Kingdom) 9.625% due
02/15/19.................... 5,443,400
6,900 Total Access Communication -
144A** (Thailand) 8.375% due
11/04/06.................... 6,848,250
------------
12,291,650
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$202,989,974)................. 210,007,890
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (7.0%)
10,000 Federal Home Loan Banks 6.805%
due 03/26/02................ 10,017,200
310 Federal Home Loan Mortgage
Corp. 8.50% due 07/01/02.... 318,419
148 Federal Home Loan Mortgage
Corp. 9.00% due 08/01/02.... 151,556
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ---------------------------------------------------------------------------
$ 8,400 U.S. Treasury Bond 6.50% due
11/15/26.................... $ 8,588,664
7,000 U.S. Treasury Note 5.125% due
02/28/98.................... 6,983,550
28,000 U.S. Treasury Note 5.25% due
12/31/97.................... 27,978,440
1,900 U.S. Treasury Note 5.625% due
11/30/00.................... 1,889,531
3,900 U.S. Treasury Note 5.875% due
11/30/01.................... 3,898,284
5,000 U.S. Treasury Note 6.00% due
08/15/99.................... 5,025,250
5,000 U.S. Treasury Note 6.375% due
05/15/99.................... 5,055,600
12,050 U.S. Treasury Note 6.50% due
04/30/99.................... 12,210,626
4,900 U.S. Treasury Note 6.50% due
05/15/05.................... 5,044,403
5,000 U.S. Treasury Note 6.75% due
92
04/30/00.................... 5,120,950
11,900 U.S. Treasury Note 6.875% due
08/31/99.................... 12,163,704
7,000 U.S. Treasury Note 7.50% due
11/15/01.................... 7,423,640
------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(IDENTIFIED COST
$111,151,858)................. 111,869,817
------------
SHORT-TERM INVESTMENTS (10.0%)
U.S. GOVERNMENT AGENCIES (a) (10.0%)
109,800 Federal Home Loan Mortgage
Corp. 5.38% - 5.75% due
08/01/97 - 08/13/97......... 109,736,967
50,000 Student Loan Marketing Assoc.
5.44% due 08/18/97.......... 49,871,555
------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST
$159,608,522)................. 159,608,522
------------
SEE NOTES TO FINANCIAL STATEMENTS
93
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1997, CONTINUED
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
REPURCHASE AGREEMENT (0.0%)
$ 127 The Bank of New York 5.75% due
08/01/97 (dated 07/31/97;
proceeds $127,134) (b)
(IDENTIFIED COST
$127,114)................... $ 127,114
-------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST
$159,735,636)................. 159,735,636
-------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,214,385,874) (c)........ 99.2% 1,586,519,094
OTHER ASSETS IN EXCESS OF
LIABILITIES................ 0.8 12,492,053
----- --------------
NET ASSETS................. 100.0% $1,599,011,147
===== ==============
- ---------------------
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
+ Floating rate security. Coupon rate shown is the rate in effect at July
31, 1997.
(a) Securities were purchased on discount basis. The interest rates shown have
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $103,000 U.S. Treasury Bill 0.00% due 08/07/97 valued at
$102,902, $905 U.S. Treasury Note 7.125% due 09/30/99 valued at $952 and
$25,255 U.S. Treasury Note 6.25% due 05/31/00 valued at $25,802.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $375,011,084 and the
aggregate gross unrealized depreciation is $2,877,864, resulting in net
unrealized appreciation of $372,133,220.
SEE NOTES TO FINANCIAL STATEMENTS
94
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997
ASSETS:
Investments in securities, at value $ 1,586,519,094
(identified cost $1,214,385,874)..........................
Receivable for:
Investments sold........................................ 23,853,037
Interest................................................ 5,125,607
Shares of beneficial interest sold...................... 2,503,666
Dividends............................................... 829,667
Prepaid expenses and other assets........................... 35,452
---------------
TOTAL ASSETS........................................... 1,618,866,523
---------------
LIABILITIES:
Payable for:
Investments purchased................................... 16,522,123
Plan of distribution fee................................ 1,136,872
Shares of beneficial interest repurchased............... 1,249,005
Investment management fee............................... 720,945
Accrued expenses and other payables......................... 226,431
---------------
TOTAL LIABILITIES...................................... 19,855,376
---------------
NET ASSETS............................................. $ 1,599,011,147
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. 1,195,287,263
Net unrealized appreciation................................. 372,133,220
Accumulated undistributed net investment income............. 7,448,690
Accumulated undistributed net realized gain................. 24,141,974
---------------
NET ASSETS............................................. $ 1,599,011,147
===============
CLASS A SHARES:
Net Assets.................................................. $ 78,527
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 4,187
NET ASSET VALUE PER SHARE.............................. $ 18.75
===============
MAXIMUM OFFERING PRICE PER SHARE
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)..... $ 19.79
===============
CLASS B SHARES:
Net Assets.................................................. $ 1,540,879,742
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 82,168,617
NET ASSET VALUE PER SHARE.............................. $ 18.75
===============
CLASS C SHARES:
Net Assets.................................................. $ 114,448
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 6,103
NET ASSET VALUE PER SHARE.............................. $ 18.75
===============
CLASS D SHARES:
Net Assets.................................................. $ 57,938,430
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 3,089,332
NET ASSET VALUE PER SHARE.............................. $ 18.75
===============
SEE NOTES TO FINANCIAL STATEMENTS
95
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997*
NET INVESTMENT INCOME:
INCOME
Interest.................................................... $ 43,456,090
Dividends................................................... 10,407,080
---------------
TOTAL INCOME........................................... 53,863,170
---------------
EXPENSES
Plan of distribution fee (Class B shares)................... 12,491,604
Investment management fee................................... 7,751,652
Transfer agent fees......................................... 1,192,422
Shareholder reports and notices............................. 95,767
Custodian fees.............................................. 79,398
Registration fees........................................... 76,436
Professional fees........................................... 62,619
Trustees' fees and expenses................................. 14,922
Other....................................................... 20,165
---------------
TOTAL EXPENSES......................................... 21,784,985
---------------
NET INVESTMENT INCOME.................................. 32,078,185
---------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 52,266,640
Net change in unrealized appreciation....................... 285,799,377
---------------
NET GAIN............................................... 338,066,017
---------------
NET INCREASE................................................ $ 370,144,202
===============
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
96
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 1997* JULY 31, 1996
- -----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 32,078,185 $ 21,424,282
Net realized gain........................................... 52,266,640 97,968,604
Net change in unrealized appreciation....................... 285,799,377 (3,107,509)
-------------- --------------
NET INCREASE........................................... 370,144,202 116,285,377
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class B shares.......................................... (28,975,735) (21,021,721)
Net realized gain
Class B shares.......................................... (109,339,056) (70,591,947)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... (138,314,791) (91,613,668)
-------------- --------------
Net increase from transactions in shares of beneficial
interest.................................................. 107,876,963 357,037,738
-------------- --------------
TOTAL INCREASE......................................... 339,706,374 381,709,447
NET ASSETS:
Beginning of period......................................... 1,259,304,773 877,595,326
-------------- --------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$7,448,690 AND $4,346,240, RESPECTIVELY)................ $1,599,011,147 $1,259,304,773
============== ==============
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
97
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Strategist Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund's investment objective is to maximize
the total return of its investments. The Fund seeks to achieve its objective by
actively allocating its assets among major asset categories of equity and
fixed-income securities and money market instruments. The Fund was organized as
a Massachusetts business trust on August 5, 1988 and commenced operations on
October 31, 1988. On July 28, 1997, the Fund commenced offering three additional
classes of shares, with the then current shares, other than shares which were
purchased prior to November 8, 1989 (and with respect to such shares, certain
shares acquired through reinvestment of dividends and capital gains
distributions (collectively the "Old Shares")) and shares held by certain
employee benefit plans established by Dean Witter Reynolds Inc. and its
affiliate, SPS Transaction Services, Inc., designated as Class B shares. The Old
Shares and shares held by those employee benefit plans prior to July 28, 1997
have been designated Class D 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 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
98
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997, CONTINUED
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 of the Fund's
portfolio securities may be valued by an outside pricing service approved by the
Trustees. The pricing service may utilize a matrix system incorporating security
quality, maturity and coupon as the evaluation model parameters, and/or research
and 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.
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 record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their
99
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997, CONTINUED
federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they exceed
net investment income and net realized capital gains for tax purposes, they are
reported as distributions of paid-in-capital.
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
following annual rates to the net assets of the Fund determined at the close of
each business day: 0.60% to the portion of daily net assets not exceeding $500
million; 0.55% to the portion of daily net assets exceeding $500 million but not
exceeding $1 billion; 0.50% to the portion of daily net assets exceeding $1
billion but not exceeding $1.5 billion; and 0.475% to the portion of daily net
assets exceeding $1.5 billion.
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 lesser of: (a) the
average daily aggregate gross sales of the Class B shares since the
implementation of the Plan on November 8, 1989 (not including reinvestment of
dividend or capital gain distributions) less the average daily aggregate net
asset value of the Class B shares redeemed since the Fund's implementation of
the Plan upon which a contingent deferred sales charge has been imposed or
waived; or (b) the average daily net assets of Class B; and (iii) Class C --
1.0% of the average daily net assets of Class C. In the case of Class A shares,
amounts paid under the Plan are paid to the Distributor for services provided.
In the case of Class B and Class C shares, amounts paid under the Plan are paid
to the Distributor for services
100
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997, CONTINUED
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.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $37,067,710 at July 31, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended July 31, 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 year ended July 31, 1997, it
received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares of approximately $1,683,000. The shareholders pay such
charges which are not an expense of the Fund.
101
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997, CONTINUED
4. SHARES OF BENEFICIAL INTEREST+
Transactions in shares of beneficial interest were as follows:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 1997 JULY 31, 1996
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
CLASS A SHARES*
Sold................................................... 4,187 $ 77,553 -- --
----------- -------------- ----------- ------------
CLASS B SHARES
Sold................................................... 21,462,833 362,673,259 15,621,003 $252,119,338
Reinvestment of dividends and distributions............ 7,689,886 125,001,968 5,419,616 83,797,500
Shares issued in connection with the acquisition of
Dean Witter Managed Assets Trust...................... -- -- 20,952,000 322,593,266
Redeemed............................................... (22,487,425) (380,152,637) (18,698,191) (301,472,366)
----------- -------------- ----------- ------------
Net increase -- Class B................................ 6,665,294 107,522,590 23,294,428 357,037,738
----------- -------------- ----------- ------------
CLASS C SHARES*
Sold................................................... 6,103 112,493 -- --
----------- -------------- ----------- ------------
CLASS D SHARES*
Sold................................................... 10,440 195,743 -- --
Redeemed............................................... (1,699) (31,416) -- --
----------- -------------- ----------- ------------
Net increase -- Class D................................ 8,741 164,327 -- --
----------- -------------- ----------- ------------
Net increase in Fund................................... 6,684,325 $ 107,876,963 23,294,428 $357,037,738
=========== ============== =========== ============
- ---------------------
+ On July 28, 1997, 3,080,591 shares representing $56,682,871 were
transferred to class D.
* For the period July 28, 1997 (issue date) through July 31, 1997.
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 July 31, 1997 aggregated
$1,953,824,446 and $2,016,351,077, respectively. Included in the aforementioned
are purchases and sales of U.S. Government securities of $290,565,797 and
$498,666,902, respectively.
For the same period, the Fund incurred brokerage commissions with DWR of
$37,367, for portfolio transactions executed on behalf of the Fund.
For the period May 31, 1997 through July 31, 1997, the Fund incurred brokerage
commissions with Morgan Stanley & Co. Inc., an affiliate of the Investment
Manager since May 31, 1997, of $1,005, for portfolio transactions executed on
behalf of the Fund.
102
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997, CONTINUED
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 $9,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended July 31, 1997 included in
Trustees' fees and expenses in the Statement of Operations amounted to $1,735.
At July 31, 1997, the Fund had an accrued pension liability of $87,050 which is
included in accrued expenses in the Statement of Assets and Liabilities.
6. FEDERAL INCOME TAX STATUS
As of July 31, 1997, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
103
DEAN WITTER STRATEGIST FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
FOR THE PERIOD
OCTOBER 31,
FOR THE YEAR ENDED JULY 31 1988*
------------------------------------------------------------------------------- THROUGH
1997** 1996 1995 1994 1993 1992 1991 1990 JULY 31, 1989
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period ........... $ 16.02 $ 15.87 $ 14.43 $ 14.59 $ 14.39 $ 13.09 $ 11.65 $ 11.37 $ 9.45
-------- -------- ------- ------- ------- ------- ------- ------- -------
Net investment income .......... 0.39 0.30 0.34 0.30 0.26 0.27 0.27 0.23 0.38
Net realized and
unrealized gain ............... 4.10 1.43 1.86 0.22 0.81 1.27 1.50 0.55 1.84
-------- -------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations .................... 4.49 1.73 2.20 0.52 1.07 1.54 1.77 0.78 2.22
-------- -------- ------- ------- ------- ------- ------- ------- -------
Less dividends and
distributions from:
Net investment
income ...................... (0.36) (0.32) (0.29) (0.26) (0.31) (0.24) (0.26) (0.29) (0.30)
Net realized gain ........... (1.40) (1.26) (0.47) (0.42) (0.56) -- (0.07) (0.21) --
-------- -------- ------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions ................. (1.76) (1.58) (0.76) (0.68) (0.87) (0.24) (0.33) (0.50) (0.30)
-------- -------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period ........................ $ 18.75 $ 16.02 $ 15.87 $ 14.43 $ 14.59 $ 14.39 $ 13.09 $ 11.65 $ 11.37
======== ======== ======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT
RETURN+ ........................ 29.73% 11.47% 16.05% 3.53% 7.59% 11.88% 15.67% 7.21% 23.76%(1)
RATIOS TO AVERAGE NET
ASSETS:
Expenses ....................... 1.56% 1.58% 1.63% 1.62% 1.62% 1.63% 1.59% 1.53% 0.97%(2)(3)
Net investment income .......... 2.29% 1.88% 2.35% 2.03% 1.90% 2.19% 2.37% 2.39% 6.00%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of
period, in millions ........... $ 1,541 $ 1,259 $ 878 $ 806 $ 783 $ 441 $ 238 $ 196 $ 48
Portfolio turnover
rate .......................... 158% 174% 179% 90% 98% 79% 140% 101% 70%(1)
Average commission rate
paid .......................... $ 0.0595 $ 0.0597 -- -- -- -- -- -- --
- ---------------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date, other than shares which were purchased
prior to November 8, 1989 (and with respect to such shares, certain shares
acquired through reinvestment of dividends and capital gains distributions
(collectively the "Old Shares")) and shares held by certain employee
benefit plans established by Dean Witter Reynolds Inc., and its affiliate,
SPS Transaction Services, Inc., have been designated Class B shares. The
Old Shares and shares held by those employee benefit plans prior to July
28, 1997 have been designated Class D 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 Fund had borne all its expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment income
ratios would have been 1.48% and 5.48%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
104
DEAN WITTER STRATEGIST FUND
FINANCIAL HIGHLIGHTS, CONTINUED
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JULY 31, 1997
- ----------------------------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.40
---------
Net investment income................................................. 0.01
Net realized and unrealized gain...................................... 0.34
--------
Total from investment operations...................................... 0.35
--------
Net asset value, end of period........................................ $ 18.75
========
TOTAL INVESTMENT RETURN+.............................................. 1.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.92%(2)
Net investment income................................................. 5.06%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 79
Portfolio turnover rate............................................... 158%
Average commission rate paid.......................................... $ 0.0595
========
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.40
--------
Net investment income................................................. 0.01
Net realized and unrealized gain...................................... 0.34
--------
Total from investment operations...................................... 0.35
--------
Net asset value, end of period........................................ $ 18.75
========
TOTAL INVESTMENT RETURN+.............................................. 1.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.67%(2)
Net investment income................................................. 4.38%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 114
Portfolio turnover rate............................................... 158%
Average commission rate paid.......................................... $ 0.0595
- ---------------------
* The date shares were first issued.
+ 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
105
DEAN WITTER STRATEGIST FUND
FINANCIAL HIGHLIGHTS, CONTINUED
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JULY 31, 1997
- ----------------------------------------------------------------------------------------
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.40
--------
Net investment income................................................. 0.01
Net realized and unrealized gain...................................... 0.34
--------
Total from investment operations...................................... 0.35
--------
Net asset value, end of period........................................ $ 18.75
========
TOTAL INVESTMENT RETURN+.............................................. 1.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.67%(2)
Net investment income................................................. 5.40%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 57,938
Portfolio turnover rate............................................... 158%
Average commission rate paid.......................................... $ 0.0595
- ---------------------
* The date 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 B to
obtain the historical per share data and ratio information of their shares.
+ 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
106
DEAN WITTER STRATEGIST FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER STRATEGIST 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 Strategist Fund (the
"Fund") at July 31, 1997, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the 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 July 31, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
SEPTEMBER 12, 1997
1997 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended July 31, 1997, the Fund paid to its
shareholders $1.17 per share from long-term capital gains. For
such period 25.03% of the income dividend qualified for the
dividends received deduction available to corporations.
107
(This page has been left blank intentionally.)
108
DEAN WITTER ANNUAL REPORT
STRATEGIST FUND JULY 31, 1997
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
Mark A. Bavoso
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
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.
109
DEAN WITTER STRATEGIST FUND Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS January 31, 1998
DEAR SHAREHOLDER:
Following is the semiannual report to the shareholders of Dean Witter Strategist
Fund, for the six-month period ended January 31, 1998. This report reviews the
Fund's most recent performance and an analysis of its portfolio.
FUND PERFORMANCE
For the six-month period ended January 31, 1998, the Fund's Class B shares
posted a total return of -0.11 percent, versus 2.94 percent, 3.56 percent, 5.12
percent and 2.61 percent, respectively for the Lipper Flexible Portfolio Funds
Index, the Standard & Poor's 500 Composite Stock Index, the Lehman Brothers
Government/Corporate Bond Index and the Six Month U.S. Treasury Bill. Since
their inception on July 28, 1997, through January 31, 1998, the Fund's Class A,
C and D shares had total returns of 0.21 percent, -0.14 percent and 0.34
percent, respectively. Performance of the Fund's four share classes varies
because of differing charges and expenses.
INVESTMENT ANALYSIS
The Fund's underperformance for the period under review, August 1997 to January
1998, was due to our asset allocation which favored stocks and underweighted
bonds. For the six-month period, Dean Witter Strategist Fund maintained an asset
allocation target of 70 percent equities, 20 percent U.S. government and
corporate bonds and 10 percent cash equivalents. This was a change from the
first half of 1997 when the Fund was positioned at roughly a 50 percent/50
percent stock and bond/cash blend. The move was made because of our view that
corporate earnings growth would continue at an above average pace, therefore
leading us to take a more aggressive approach toward the equity markets. The
untimely currency crises in Indonesia, Singapore, Malaysia, and Thailand had the
compounding negative effect of pummelling technology stocks and causing a rapid
and significant "flight-to-quality" bond rally.
While the outperformance of bonds tied to the Asian Pacific crisis may have
affected our strategy during the second half of the year, January 1998 has been
a good month for the equity market. We would
110
DEAN WITTER STRATEGIST FUND
LETTER TO THE SHAREHOLDERS January 31, 1998, continued
expect this trend to continue through the first quarter of 1998, at the very
least, and provide improved returns to our shareholders based on our current
allocation target.
THE PORTFOLIO
Concerning the Fund's specific investments, the equity portion of the portfolio
features an emphasis on the U.S. consumer, who is enjoying unprecedented
financial liquidity tied to low unemployment and declining mortgage rates. The
Fund holds a number of retailers (Pier 1 Imports, Inc. and Kmart Corp.),
consumer products companies (Colgate-Palmolive Co. and Kellogg Co.) and leisure
time service providers (Walt Disney Co.). Also, the Fund holds significant
exposures to technology, financial services and energy stocks.
The fixed-income portion of the portfolio is well diversified among both
government and corporate issuers, varying maturities, interest rates and
duration. At period end, the Fund's bond portfolio, 55 issues in all, had an
average maturity of 9 1/4 years, an average yield of 6 1/4 percent, and an
average duration of 5 1/3 years. (Duration is a ratio which measures a bond
portfolio's sensitivity to general interest rate movements.)
LOOKING AHEAD
In our view, equity valuations continue to be quite attractive based on earnings
growth and subdued inflation, especially in light of the recent decline in
interest rates. As rates reach lower levels, the total return potential of
fixed-income investments diminishes as well, making other investment classes
more attractive. In our opinion, the near term view favors a continued over
weighting of equity investments versus both bonds and cash.
Should the equity market continue to outperform other asset classes and bond
yields remain stable or slightly higher, we will gradually seek opportunities to
lower our exposure to the stock market and raise our weighting to bonds and
perhaps cash, protecting profits while continuing to seek long-term total
returns. With the U.S. economy enjoying three percent growth, low unemployment,
subdued inflation, and a federal budget surplus just around the corner, both
stocks and bonds continue to look attractive in the nearer term.
We appreciate your continued support and interest in Dean Witter Strategist Fund
and look forward to serving your investment needs in the future.
Sincerely,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
111
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS January 31, 1998 (unaudited)
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------
COMMON STOCKS (68.1%)
Aerospace & Defense (3.0%)
320,000 General Motors Corp. (Class
H)........................... $ 11,080,000
194,000 Honeywell, Inc. .............. 13,592,125
101,848 Raytheon Co. (Class A)........ 5,206,979
200,000 Thiokol Corp. ................ 17,250,000
--------------
47,129,104
--------------
Airlines (0.7%)
250,000 Continental Airlines, Inc.
(Class B)*................... 11,593,750
--------------
Aluminum (1.0%)
200,000 Aluminum Co. of America....... 15,275,000
--------------
Appliances & Household Durables (0.8%)
320,000 Maytag Corp. ................. 12,300,000
--------------
Automotive (2.1%)
440,000 Chrysler Corp. ............... 15,317,500
350,000 Ford Motor Co. ............... 17,850,000
--------------
33,167,500
--------------
Banks (2.9%)
220,000 NationsBank Corp. ............ 13,200,000
240,000 Washington Mutual, Inc. ...... 15,420,000
58,000 Wells Fargo & Co. ............ 17,922,000
--------------
46,542,000
--------------
Banks - Money Center (1.4%)
100,000 Chase Manhattan Corp. ........ 10,718,750
102,000 Citicorp...................... 12,138,000
--------------
22,856,750
--------------
Beverages - Soft Drinks (0.8%)
327,800 PepsiCo, Inc. ................ 11,821,287
--------------
Biotechnology (0.5%)
400,000 BioChem Pharma, Inc.
(Canada)*.................... 8,150,000
--------------
Cable & Telecommunications (0.9%)
500,000 U.S. West Media Group,
Inc.*........................ 14,843,750
--------------
Chemicals (2.9%)
120,000 Dow Chemical Co. ............. 10,800,000
220,000 Du Pont (E.I.) de Nemours &
Co., Inc. ................... 12,457,500
380,000 Georgia Gulf Corp. ........... 12,397,500
220,000 Monsanto Co. ................. 10,436,250
--------------
46,091,250
--------------
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------
Communications Equipment (2.4%)
200,000 Bay Networks, Inc.*........... $ 5,437,500
150,000 Cisco Systems, Inc.*.......... 9,459,375
100,000 Lucent Technologies, Inc. .... 8,850,000
270,000 Tellabs, Inc.*................ 13,803,750
--------------
37,550,625
--------------
Computer Software (1.1%)
50,000 Microsoft Corp.*.............. 7,459,375
180,000 Network Associates, Inc.*..... 9,720,000
--------------
17,179,375
--------------
Computer Software & Services (0.7%)
220,000 HBO & Co. .................... 11,508,750
--------------
Computers (3.7%)
130,000 Dell Computer Corp.*.......... 12,926,875
329,250 Diebold, Inc. ................ 16,380,187
400,000 Gateway 2000, Inc.*........... 15,075,000
300,000 Sun Microsystems, Inc.*....... 14,381,250
--------------
58,763,312
--------------
Electric - Major (2.3%)
258,000 Emerson Electric Co. ......... 15,609,000
258,000 General Electric Co. ......... 19,995,000
--------------
35,604,000
--------------
Engineering & Construction (0.2%)
100,000 Fluor Corp. .................. 3,768,750
--------------
Financial Services (3.4%)
188,000 American Express Co. ......... 15,733,250
290,000 Fannie Mae.................... 17,907,500
399,999 Travelers Group, Inc. ........ 19,799,950
--------------
53,440,700
--------------
Foods (1.6%)
150,000 General Mills, Inc. .......... 11,165,625
300,000 Kellogg Co. .................. 13,856,250
--------------
25,021,875
--------------
Healthcare - HMOs (0.4%)
325,000 Humana, Inc.*................. 6,520,313
--------------
Household Products (1.2%)
253,400 Colgate-Palmolive Co. ........ 18,561,550
--------------
Insurance (4.8%)
188,000 Ace, Ltd. (Bermuda)........... 17,495,750
142,500 American International Group,
Inc. ........................ 15,719,531
200,000 Chubb Corp. .................. 15,187,500
SEE NOTES TO FINANCIAL STATEMENTS
112
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS January 31, 1998 (unaudited) continued
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------
260,000 Conseco, Inc. ................ $ 11,895,000
350,000 Equitable Companies, Inc. .... 16,100,000
--------------
76,397,781
--------------
Internet (0.7%)
120,000 America Online, Inc.*......... 11,482,500
--------------
Leisure (0.8%)
120,000 Walt Disney Co. .............. 12,787,500
--------------
Media Group (0.5%)
100,000 Clear Channel Communications,
Inc.*........................ 7,700,000
--------------
Office Equipment & Supplies (0.3%)
160,000 IKON Office Solutions,
Inc. ........................ 5,040,000
--------------
Oil - Domestic (1.7%)
260,000 Amerada Hess Corp. ........... 14,218,750
172,000 Atlantic Richfield Co. ....... 12,792,500
--------------
27,011,250
--------------
Oil - Integrated - International (4.2%)
190,000 Chevron Corp. ................ 14,214,375
240,000 Exxon Corp. .................. 14,235,000
198,000 Mobil Corp. .................. 13,488,750
200,000 Royal Dutch Petroleum Co.
(ADR) (Netherlands).......... 10,250,000
260,000 Texaco, Inc. ................. 13,536,250
--------------
65,724,375
--------------
Paper Products (1.5%)
210,000 Bowater, Inc. ................ 10,290,000
270,000 Champion International
Corp. ....................... 13,820,625
--------------
24,110,625
--------------
Pharmaceuticals (5.0%)
160,000 Abbott Laboratories........... 11,330,000
208,400 American Home Products
Corp. ....................... 19,889,175
194,744 Johnson & Johnson............. 13,035,677
302,000 Lilly (Eli) & Co. ............ 20,385,000
100,000 Warner-Lambert Co. ........... 15,050,000
--------------
79,689,852
--------------
Railroad Equipment (0.6%)
200,000 Trinity Industries, Inc. ..... 9,050,000
--------------
Retail - Department Stores (1.4%)
1,150,000 Kmart Corp.*.................. 12,650,000
176,000 May Department Stores Co. .... 9,251,000
--------------
21,901,000
--------------
Retail - Specialty (5.6%)
290,000 Bed Bath & Beyond, Inc.*...... 11,491,250
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------
350,000 Costco Companies, Inc.*....... $ 15,181,250
120,000 Eagle Hardware & Garden,
Inc.*........................ 2,235,000
216,000 Home Depot, Inc. ............. 13,027,500
200,000 Payless ShoeSource, Inc.*..... 13,012,500
550,000 Pep Boys-Manny, Moe & Jack.... 12,031,250
950,000 Pier 1 Imports, Inc. ......... 22,206,250
--------------
89,185,000
--------------
Retail - Specialty Apparel (1.4%)
465,000 Gap, Inc. (The)............... 18,164,063
150,000 Wet Seal, Inc. (Class A)*..... 4,584,375
--------------
22,748,438
--------------
Savings & Loan Associations (0.9%)
170,000 Golden West Financial
Corp. ....................... 14,354,375
--------------
Semiconductors (1.0%)
200,000 Intel Corp. .................. 16,200,000
--------------
Steel & Iron (0.5%)
180,000 Nucor Corp. .................. 8,572,500
--------------
Telecommunications (0.3%)
150,000 Winstar Communications,
Inc.*........................ 4,903,125
--------------
Tobacco (1.0%)
390,000 Philip Morris Companies,
Inc. ........................ 16,185,000
--------------
Transportation - Miscellaneous (0.7%)
150,000 Airborne Freight Corp. ....... 10,668,750
--------------
Truckers (0.9%)
550,000 Yellow Corp.*................. 14,231,250
--------------
Wholesale Distributor (0.3%)
250,000 CHS Electronics, Inc.*........ 5,000,000
--------------
TOTAL COMMON STOCKS
(Identified Cost
$770,393,889)................. 1,080,632,962
--------------
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
CORPORATE BONDS (10.0%)
Aerospace & Defense (0.3%)
$ 4,000 Northrop-Grumman Corp.
7.875% due 03/01/26.......... 4,482,280
--------------
Banks (2.7%)
3,800 Central Fidelity Capital I
Inc. (Series A)
6.594%+ due 04/15/27......... 3,873,150
SEE NOTES TO FINANCIAL STATEMENTS
113
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS January 31, 1998 (unaudited) continued
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------
$ 6,900 Centura Capital Trust
I - 144A**
8.845% due 06/01/27.......... $ 7,693,500
5,000 Compass Trust I (Series A)
8.23% due 01/15/27........... 5,368,050
4,900 MBNA Capital I (Series A)
8.278% due 12/01/26.......... 5,110,112
5,000 North Fork Capital Trust I
8.70% due 12/15/26........... 5,468,750
3,900 Norwest Financial, Inc.
6.20% due 02/15/01........... 3,944,460
7,043 St. Paul Bancorp, Inc.
7.125% due 02/15/04.......... 7,275,278
4,000 US Bank N.A.
6.50% due 02/01/08........... 4,055,000
--------------
42,788,300
--------------
Brokerage (1.2%)
3,900 Bear Stearns Co., Inc.
6.75% due 12/15/07........... 3,966,924
4,000 Lehman Brothers Holdings, Inc.
6.20% due 01/15/02........... 3,998,160
6,000 Paine Webber Group, Inc.
6.79% due 10/04/04........... 6,175,560
5,000 Salomon, Inc.
6.65% due 07/15/01........... 5,107,750
--------------
19,248,394
--------------
Cable & Telecommunications (1.3%)
5,000 Continental Cablevision, Inc.
9.50% due 08/01/13........... 5,926,900
5,000 Cox Enterprises, Inc. - 144A**
6.25% due 08/26/99........... 5,025,000
4,000 TCI Communications, Inc.
8.75% due 08/01/15........... 4,621,200
3,900 Time Warner Entertainment Co.
8.375% due 03/15/23.......... 4,459,689
--------------
20,032,789
--------------
Chemicals - Specialty (0.3%)
4,000 Solutia, Inc.
7.375% due 10/15/27.......... 4,177,520
--------------
Electric Power (0.1%)
1,500 Texas Utilities Co. (Class A) - 144A**
6.20% due 10/01/02............ 1,524,375
--------------
Financial Services (0.8%)
5,000 Advanta Corp.
6.384% due 08/07/98.......... 4,979,200
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------
$ 3,500 Advanta Corp.
7.28% due 07/30/01........... $ 3,338,090
4,000 MBIA Inc.
7.15% due 07/15/27........... 4,231,400
--------------
12,548,690
--------------
Insurance (1.4%)
5,000 Arkwright CSN Trust - 144A**
9.625% due 08/15/26.......... 5,931,250
7,000 Markel Capital Trust I (Series
B)
8.71% due 01/01/46........... 7,749,560
7,800 Orion Capital Trust I
8.73% due 01/01/37........... 8,443,500
--------------
22,124,310
--------------
Natural Gas (0.2%)
3,000 Apache Corp.
7.00% due 02/01/18........... 3,011,250
--------------
Oil - Integrated - Domestic (0.3%)
5,000 Mitchell Energy & Development
Corp.
6.75% due 02/15/04........... 5,027,800
--------------
Real Estate (0.3%)
5,000 Crescent Real Estate Equities
Co. - 144A**
6.625% due 09/15/02.......... 4,959,950
--------------
Recreation (0.3%)
3,900 Carnival Cruise Lines (Panama)
7.20% due 10/01/23........... 4,089,072
--------------
Retail - General Merchandise (0.3%)
5,000 ShopKo Stores, Inc.
9.00% due 11/15/04........... 5,651,200
--------------
Utilities - Telephone (0.3%)
2,000 GTE Corp.
8.75% due 11/01/21........... 2,416,080
2,000 GTE Florida, Inc.
6.86% due 02/01/28........... 2,017,500
--------------
4,433,580
--------------
Waste Management (0.2%)
4,000 USA Waste Services, Inc.
6.50% due 12/15/02........... 4,060,280
--------------
TOTAL CORPORATE BONDS
(Identified Cost
$153,682,514)................ 158,159,790
--------------
SEE NOTES TO FINANCIAL STATEMENTS
114
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS January 31, 1998 (unaudited) continued
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (10.4%)
$ 4,000 Fannie Mae
5.25% due 01/15/03........... $ 3,942,080
6,000 Federal Home Loan Mortgage
Corp.
6.943% due 03/21/07.......... 6,458,460
240 Federal Home Loan Mortgage
Corp.
8.50% due 07/01/02........... 246,941
123 Federal Home Loan Mortgage
Corp.
9.00% due 08/01/02........... 126,639
4,000 U.S. Treasury Bond
6.375% due 08/15/27.......... 4,295,200
3,500 U.S. Treasury Bond
6.50% due 11/15/26........... 3,805,200
14,900 U.S. Treasury Bond
6.625% due 02/15/27.......... 16,467,033
7,000 U.S. Treasury Note
5.125% due 02/28/98.......... 6,996,850
1,900 U.S. Treasury Note
5.625% due 11/30/00.......... 1,913,129
5,000 U.S. Treasury Note
5.625% due 02/28/01.......... 5,036,750
28,000 U.S. Treasury Note
5.875% due 04/30/98.......... 28,035,000
5,000 U.S. Treasury Note
5.875% due 02/28/99.......... 5,030,750
3,000 U.S. Treasury Note
5.875% due 11/30/01.......... 3,047,760
5,000 U.S. Treasury Note
6.00% due 08/15/99........... 5,050,200
4,000 U.S. Treasury Note
6.25% due 02/15/03........... 4,141,440
5,000 U.S. Treasury Note
6.375% due 05/15/99.......... 5,064,550
12,050 U.S. Treasury Note
6.50% due 04/30/99........... 12,223,400
5,000 U.S. Treasury Note
6.75% due 04/30/00........... 5,144,700
6,900 U.S. Treasury Note
6.875% due 08/31/99.......... 7,060,770
23,900 U.S. Treasury Note
6.875% due 05/15/06.......... 25,963,526
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------
$ 6,900 U.S. Treasury Note
7.25% due 05/15/04........... $ 7,546,599
7,000 U.S. Treasury Note
7.50% due 11/15/01........... 7,495,040
--------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Identified Cost
$162,345,731)................ 165,092,017
--------------
SHORT-TERM INVESTMENTS (11.5%)
U.S. GOVERNMENT AGENCIES (a) (11.5%)
182,000 Federal Home Loan Mortgage
Corp.
5.41% - 5.57% due 02/02/98 -
02/12/98
(Amortized Cost
$181,889,432)................ 181,889,432
--------------
REPURCHASE AGREEMENT (0.0%)
725 The Bank of New York
5.375% due 02/02/98 (dated
01/30/98; proceeds $725,316)
(b)
(Identified Cost $724,991)... 724,991
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost
$182,614,423)................ 182,614,423
--------------
TOTAL INVESTMENTS
(Identified Cost $1,269,036,557)
(c)................................. 100.0% 1,586,499,192
OTHER ASSETS IN EXCESS OF
LIABILITIES......................... 0.0% 114,314
------ --------------
NET ASSETS.......................... 100.0% $1,586,613,506
====== ==============
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional
investors.
+ Floating rate security. Coupon rate shown is the
rate in effect at January 31, 1998.
(a) Securities were purchased on a discount basis. The
interest rates shown have been adjusted to reflect
a money market equivalent yield.
(b) Collateralized by $718,890 U.S. Treasury Note
6.75% due 05/31/99 valued at $739,491.
(c) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross
unrealized appreciation is $330,273,992 and the
aggregate gross unrealized depreciation is
$12,811,357, resulting in net unrealized
appreciation of $317,462,635.
SEE NOTES TO FINANCIAL STATEMENTS
115
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $1,269,036,557)........................... $1,586,499,192
Receivable for:
Interest................................................ 5,759,047
Investments sold........................................ 3,273,139
Shares of beneficial interest sold...................... 1,977,866
Dividends............................................... 764,335
Prepaid expenses and other assets........................... 137,035
--------------
TOTAL ASSETS............................................ 1,598,410,614
--------------
LIABILITIES:
Payable for:
Investments purchased................................... 8,962,672
Plan of distribution fee................................ 1,183,207
Shares of beneficial interest repurchased............... 757,021
Investment management fee............................... 725,898
Accrued expenses and other payables......................... 168,310
--------------
TOTAL LIABILITIES....................................... 11,797,108
--------------
NET ASSETS.............................................. $1,586,613,506
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $1,243,092,167
Net unrealized appreciation................................. 317,462,635
Accumulated undistributed net investment income............. 2,601,696
Accumulated undistributed net realized gain................. 23,457,008
--------------
NET ASSETS.............................................. $1,586,613,506
==============
CLASS A SHARES:
Net Assets.................................................. $19,436,107
Shares Outstanding (unlimited authorized, $.01 par value)... 1,077,245
NET ASSET VALUE PER SHARE............................... $18.04
==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $19.04
==============
CLASS B SHARES:
Net Assets.................................................. $1,507,103,949
Shares Outstanding (unlimited authorized, $.01 par value)... 83,545,891
NET ASSET VALUE PER SHARE............................... $18.04
==============
CLASS C SHARES:
Net Assets.................................................. $3,006,533
Shares Outstanding (unlimited authorized, $.01 par value)... 166,851
NET ASSET VALUE PER SHARE............................... $18.02
==============
CLASS D SHARES:
Net Assets.................................................. $57,066,917
Shares Outstanding (unlimited authorized, $.01 par value)... 3,160,930
NET ASSET VALUE PER SHARE............................... $18.05
==============
SEE NOTES TO FINANCIAL STATEMENTS
116
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended January 31, 1998 (unaudited)
NET INVESTMENT INCOME:
INCOME
Interest.................................................... $ 16,169,259
Dividends (net of $19,549 foreign withholding tax).......... 6,199,131
------------
TOTAL INCOME............................................ 22,368,390
------------
EXPENSES
Plan of distribution fee (Class A shares)................... 16,479
Plan of distribution fee (Class B shares)................... 6,853,837
Plan of distribution fee (Class C shares)................... 9,495
Investment management fee................................... 4,326,157
Transfer agent fees and expenses............................ 696,820
Registration fees........................................... 59,990
Shareholder reports and notices............................. 49,895
Custodian fees.............................................. 49,808
Professional fees........................................... 31,137
Trustees' fees and expenses................................. 9,146
Other....................................................... 9,499
------------
TOTAL EXPENSES.......................................... 12,112,263
------------
NET INVESTMENT INCOME................................... 10,256,127
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 42,418,144
Net change in unrealized appreciation....................... (54,670,585)
------------
NET LOSS................................................ (12,252,441)
------------
NET DECREASE................................................ $ (1,996,314)
============
SEE NOTES TO FINANCIAL STATEMENTS
117
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 1998 JULY 31, 1997*
- ---------------------------------------------------------------------------------------
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................... $ 10,256,127 $ 32,078,185
Net realized gain................................... 42,418,144 52,266,640
Net change in unrealized appreciation............... (54,670,585) 285,799,377
-------------- --------------
NET INCREASE (DECREASE)......................... (1,996,314) 370,144,202
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares.................................. (201,991) --
Class B shares.................................. (14,137,352) (28,975,735)
Class C shares.................................. (21,268) --
Class D shares.................................. (742,510) --
Net realized gain
Class A shares.................................. (478,126) --
Class B shares.................................. (41,034,286) (109,339,056)
Class C shares.................................. (70,302) --
Class D shares.................................. (1,520,396) --
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS............... (58,206,231) (138,314,791)
-------------- --------------
Net increase from transactions in shares of
beneficial interest................................ 47,804,904 107,876,963
-------------- --------------
NET INCREASE (DECREASE)......................... (12,397,641) 339,706,374
NET ASSETS:
Beginning of period................................. 1,599,011,147 1,259,304,773
-------------- --------------
END OF PERIOD
(Including undistributed net investment income
of $2,601,696 and $7,448,690, respectively)..... $1,586,613,506 $1,599,011,147
============== ==============
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
118
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Strategist Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund's investment objective is to maximize
the total return of its investments. The Fund seeks to achieve its objective by
actively allocating its assets among major asset categories of equity and
fixed-income securities and money market instruments. The Fund was organized as
a Massachusetts business trust on August 5, 1988 and commenced operations on
October 31, 1988. On July 28, 1997, the Fund commenced offering three additional
classes of shares, with the then current shares, other than shares which were
purchased prior to November 8, 1989 (and with respect to such shares, certain
shares acquired through reinvestment of dividends and capital gains
distributions (collectively the "Old Shares")) and shares held by certain
employee benefit plans established by Dean Witter Reynolds Inc. and its
affiliate, SPS Transaction Services, Inc., designated as Class B shares. The Old
Shares and shares held by those employee benefit plans prior to July 28, 1997
have been designated Class D 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 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
119
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998 (unaudited) continued
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 of the Fund's
portfolio securities may be valued by an outside pricing service approved by the
Trustees. The pricing service may utilize a matrix system incorporating security
quality, maturity and coupon as the evaluation model parameters, and/or research
and 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.
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. 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 the
income is earned or expenses and realized and unrealized gains and losses are
incurred. 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" 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
120
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998 (unaudited) continued
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.
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
following annual rates to the net assets of the Fund determined at the close of
each business day: 0.60% to the portion of daily net assets not exceeding $500
million; 0.55% to the portion of daily net assets exceeding $500 million but not
exceeding $1 billion; 0.50% to the portion of daily net assets exceeding $1
billion but not exceeding $1.5 billion; and 0.475% to the portion of daily net
assets exceeding $1.5 billion.
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 -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
implementation of the Plan on November 8, 1989 (not including reinvestment of
dividend or capital gain distributions) less the average daily aggregate net
asset value of the Class B shares redeemed since the Fund's implementation of
the Plan upon which a contingent deferred sales charge has been imposed or
waived; or (b) the average daily net assets of Class B; and (iii) Class C -- up
to 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
121
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998 (unaudited) continued
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 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.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $36,818,858 at January 31, 1998.
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 six months ended January 31, 1998, 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 six months ended January 31,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $696,941 and $1,647,
respectively and received $43,507 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.
122
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998 (unaudited) continued
4. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 1998 JULY 31, 1997+*
-------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ----------- -------------
CLASS A SHARES
Sold....................................................... 1,236,257 $ 22,588,797 4,187 $ 77,553
Reinvestment of dividends and distributions................ 28,094 497,622 -- --
Redeemed................................................... (191,293) (3,523,127) -- --
---------- ------------- ----------- -------------
Net increase - Class A..................................... 1,073,058 19,563,292 4,187 77,553
---------- ------------- ----------- -------------
CLASS B SHARES
Sold....................................................... 6,916,167 126,174,847 21,462,833 362,673,259
Reinvestment of dividends and distributions................ 2,797,729 49,822,992 7,689,886 125,001,968
Redeemed................................................... (8,336,622) (151,930,300) (22,487,425) (380,152,637)
---------- ------------- ----------- -------------
Net increase - Class B..................................... 1,377,274 24,067,539 6,665,294 107,522,590
---------- ------------- ----------- -------------
CLASS C SHARES
Sold....................................................... 175,502 3,230,191 6,103 112,493
Reinvestment of dividends and distributions................ 4,761 84,506 -- --
Redeemed................................................... (19,515) (346,551) -- --
---------- ------------- ----------- -------------
Net increase - Class C..................................... 160,748 2,968,146 6,103 112,493
---------- ------------- ----------- -------------
CLASS D SHARES
Sold....................................................... 251,511 4,558,484 10,440 195,743
Reinvestment of dividends and distributions................ 114,296 2,038,084 -- --
Redeemed................................................... (294,209) (5,390,641) (1,699) (31,416)
---------- ------------- ----------- -------------
Net increase - Class D..................................... 71,598 1,205,927 8,741 164,327
---------- ------------- ----------- -------------
Net increase in Fund....................................... 2,682,678 $ 47,804,904 6,684,325 $ 107,876,963
========== ============= =========== =============
- ---------------------
+ On July 28, 1997, 3,080,591 shares representing $56,682,871 were transferred
to Class D.
* For Class A, C and D, for the period July 28, 1997 (issue date) through July
31, 1997.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the six months ended January
31, 1998 aggregated $624,873,316 and $635,625,834, respectively. Included in the
aforementioned are purchases and sales/prepayments of U.S. Government securities
of $158,849,294 and $109,547,739, respectively.
For the same period, the Fund incurred brokerage commissions with DWR of
$54,430, for portfolio transactions executed on behalf of the Fund.
123
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998 (unaudited) continued
For the same period, the Fund incurred brokerage commissions with Morgan Stanley
& Co. Inc., an affiliate of the Investment Manager, of $59,670, for portfolio
transactions executed on behalf of the Fund.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At January 31, 1998, the Fund had transfer agent
fees and expenses payable of approximately $20,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended January 31, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,072. At January 31, 1998, the Fund had an accrued pension liability of
$86,403 which is included in accrued expenses in the Statement of Assets and
Liabilities.
6. FEDERAL INCOME TAX STATUS
At July 31, 1997, the Fund had temporary book/tax differences which were
primarily attributable to capital loss deferrals on wash sales.
124
DEAN WITTER STRATEGIST FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
FOR THE SIX FOR THE YEAR ENDED JULY 31
MONTHS ENDED ----------------------------------------------------
JANUARY 31, 1998++ 1997*++ 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............... $18.75 $16.02 $15.87 $14.43 $14.59 $14.39
------ ------ ------ ------ ------ ------
Net investment income.............................. 0.12 0.39 0.30 0.34 0.30 0.26
Net realized and unrealized gain (loss)............ (0.15) 4.10 1.43 1.86 0.22 0.81
------ ------ ------ ------ ------ ------
Total from investment operations................... (0.03) 4.49 1.73 2.20 0.52 1.07
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income........................... (0.17) (0.36) (0.32) (0.29) (0.26) (0.31)
Net realized gain............................... (0.51) (1.40) (1.26) (0.47) (0.42) (0.56)
------ ------ ------ ------ ------ ------
Total dividends and distributions.................. (0.68) (1.76) (1.58) (0.76) (0.68) (0.87)
------ ------ ------ ------ ------ ------
Net asset value, end of period..................... $18.04 $18.75 $16.02 $15.87 $14.43 $14.59
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+........................... (0.11)%(1) 29.73% 11.47% 16.05% 3.53% 7.59%
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... 1.57%(2) 1.56% 1.58% 1.63% 1.62% 1.62%
Net investment income.............................. 1.26%(2) 2.29% 1.88% 2.35% 2.03% 1.90%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions............. $1,507 $1,541 $1,259 $878 $806 $783
Portfolio turnover rate............................ 46%(1) 158% 174% 179% 90% 98%
Average commission rate paid....................... $0.0571 $0.0595 $0.0597 -- -- --
- ---------------------
* 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 purchased
prior to November 8, 1989 (and with respect to such shares, certain shares
acquired through reinvestment of dividends and capital gains distributions
(collectively the "Old Shares")) and shares held by certain employee benefit
plans established by Dean Witter Reynolds Inc., and its affiliate, SPS
Transaction Services, Inc., have been designated Class B shares. The Old
Shares and shares held by those employee benefit plans prior to July 28,
1997 have been designated Class D shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
125
DEAN WITTER STRATEGIST FUND
FINANCIAL HIGHLIGHTS, continued
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
JANUARY 31, 1998++ JULY 31, 1997++
- ---------------------------------------------------------------------------------------------------
(unaudited)
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $18.75 $18.40
------ ------
Net investment income....................................... 0.17 0.01
Net realized and unrealized gain (loss)..................... (0.14) 0.34
------ ------
Total from investment operations............................ 0.03 0.35
------ ------
Less dividends and distributions from:
Net investment income.................................... (0.23) --
Net realized gain........................................ (0.51) --
------ ------
Total dividends and distributions........................... (0.74) --
------ ------
Net asset value, end of period.............................. $18.04 $18.75
====== ======
TOTAL INVESTMENT RETURN+.................................... 0.21%(1) 1.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.93%(2) 0.92%(2)
Net investment income....................................... 1.91%(2) 5.06%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $19,436 $79
Portfolio turnover rate..................................... 46%(1) 158%
Average commission rate paid................................ $0.0571 $0.0595
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $18.75 $18.40
------ ------
Net investment income....................................... 0.11 0.01
Net realized and unrealized gain (loss)..................... (0.14) 0.34
------ ------
Total from investment operations............................ (0.03) 0.35
------ ------
Less dividends and distributions from:
Net investment income.................................... (0.19) --
Net realized gain........................................ (0.51) --
------ ------
Total dividends and distributions........................... (0.70) --
------ ------
Net asset value, end of period.............................. $18.02 $18.75
====== ======
TOTAL INVESTMENT RETURN+.................................... (0.14)%(1) 1.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.67%(2) 1.67%(2)
Net investment income....................................... 1.15%(2) 4.38%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $3,007 $114
Portfolio turnover rate..................................... 46%(1) 158%
Average commission rate paid................................ $0.0571 $0.0595
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
126
DEAN WITTER STRATEGIST FUND
FINANCIAL HIGHLIGHTS, continued
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
JANUARY 31, 1998++ JULY 31, 1997++
- ---------------------------------------------------------------------------------------------------
(unaudited)
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 18.75 $ 18.40
------- -------
Net investment income....................................... 0.20 0.01
Net realized and unrealized gain (loss)..................... (0.14) 0.34
------- -------
Total from investment operations............................ 0.06 0.35
------- -------
Less dividends and distributions from:
Net investment income.................................... (0.25) --
Net realized gain........................................ (0.51) --
------- -------
Total dividends and distributions........................... (0.76) --
------- -------
Net asset value, end of period.............................. $ 18.05 $ 18.75
======= =======
TOTAL INVESTMENT RETURN+.................................... 0.34%(1) 1.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.66%(2) 0.67%(2)
Net investment income....................................... 2.17%(2) 5.40%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $57,067 $57,938
Portfolio turnover rate..................................... 46%(1) 158%
Average commission rate paid................................ $0.0571 $0.0595
- ---------------------
* The date 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 B to
obtain the historical per share data and ratio information of their
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
127
(This Page Intentionally Left Blank)
128
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
Mark A. Bavoso
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
STRATEGIST FUND
[GRAPHIC]
SEMIANNUAL REPORT
JANUARY 31, 1998
129
PROSPECTUS
MARCH 2, 1998
Dean Witter Global Asset Allocation Fund (the "Fund") is an open-end,
diversified management investment company whose investment objective is to seek
long-term total return on its investments. The Fund seeks to meet its investment
objective by allocating its assets among U.S. and foreign equities, fixed-income
and adjustable rate securities ("fixed-income securities") and money market
instruments. (See "Investment Objectives and Policies.")
The Fund offers four classes of shares (each, a "Class"), each with a
different combination of sales charges, ongoing fees and other features. The
different distribution arrangements permit an investor to choose the method of
purchasing shares that the investor believes is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other relevant circumstances. (See "Purchase of Fund Shares--Alternative
Purchase Arrangements.")
This Prospectus sets forth concisely the information you should know
before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated March 2, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
Table of Contents
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 4
Financial Highlights .................................................. 6
The Fund and its Management ........................................... 9
Investment Objective and Policies ..................................... 10
Risk Considerations ................................................... 11
Investment Restrictions ............................................... 19
Purchase of Fund Shares ............................................... 19
Shareholder Services .................................................. 31
Redemptions and Repurchases ........................................... 34
Dividends, Distributions and Taxes .................................... 35
Performance Information ............................................... 36
Additional Information ................................................ 36
Appendix .............................................................. 38
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Dean Witter
Global Asset Allocation Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 OR
(800) 869-NEWS (toll-free)
DEAN WITTER DISTRIBUTORS INC.,
DISTRIBUTOR
130
PROSPECTUS SUMMARY
- -----------------------------------------------------------------------------
The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an open-end,
Fund diversified management investment company. The Fund allocates its assets among U.S. and foreign equities,
income securities and money market instruments.
- ---------------- ------------------------------------------------------------------------------------------------------
Shares Shares of beneficial interest with $0.01 par value (see page 36). The Fund offers four Classes of shares,
Offered each with a different combination of sales charges, ongoing fees and other features (see pages 19-30).
- ---------------- ------------------------------------------------------------------------------------------------------
Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened through EasyInvest
Purchase (Service Mark) ). Class D shares are only available to persons investing $5 million ($25 million for certain
qualified plans) or more and to certain other limited categories of investors. For the purpose of meeting
the minimum $5 million (or $25 million) investment for Class D shares, and subject to the $1,000 minimum
initial investment for each Class of the Fund, an investor's existing holdings of Class A shares and 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 19).
- ---------------- ------------------------------------------------------------------------------------------------------
Investment The investment objective of the Fund is to seek long-term total return on its investments (see page 10).
Objective
- ---------------- ------------------------------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-owned
Manager and subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory, management
Sub-Adviser and administrative capacities to 103 investment companies and other portfolios with net assets under management
of approximately $105 billion at January 31, 1998. InterCapital has retained Morgan Grenfell Investment
Services Ltd. ("MGIS") as Sub-Adviser to provide investment advice and manage the Fund's investments outside
of the Western Hemisphere. MGIS currently serves as investment adviser for primarily U.S. corporate and
public employee benefit plans, investment companies, endowments and foundations with assets of approximately
$17.3 billion at December 31, 1997 (see page 9).
- ---------------- ------------------------------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual rate of 1.0% of the Fund's average daily net
Fee assets. The Sub-Adviser receives a monthly fee from InterCapital equal to 30% of InterCapital's investment
management fee (see page 9).
- ---------------- ------------------------------------------------------------------------------------------------------
Distributor Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution plan pursuant to
and Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with respect to the distribution fees paid
Distribution by the Class A, Class B and Class C shares of the Fund to the Distributor. The entire 12b-1 fee payable
Fee 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 19 and 28).
- ---------------- ------------------------------------------------------------------------------------------------------
Alternative Four classes of shares are offered:
Purchase
Arrangements - 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
19, 23 and 28).
2
131
- Class B shares are offered without a front-end sales charge, but will in most cases be subject to a
CDSC (scaled down from 5.0% to 1.0%) if redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate current value of a Class B
account with the Fund falls below the aggregate amount of the investor's purchase payments made during
the six years preceding the redemption. A different CDSC schedule applies to investments by certain
qualified plans. Class B shares are also subject to a 12b-1 fee assessed at the annual rate of 1.0% of
the lesser of: (a) the average daily net sales of the Fund's Class B shares or (b) the average daily net
assets of Class B. All shares of the Fund held prior to July 28, 1997 have been designated Class B
shares. Shares held before May 1, 1997 will convert to Class A shares in May, 2007. In all other
instances, Class B shares convert to Class A shares approximately ten years after the date of the
original purchase (see pages 19, 25 and 28).
- 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 19, 27 and 28).
- Class D shares are offered only to investors meeting an initial investment minimum of $5 million ($25
million for certain qualified plans) and to certain other limited categories of investors. Class D
shares are offered without a front-end sales charge or CDSC and are not subject to any 12b-1 fee (see
pages 19 and 28).
- ------------------ --------------------------------------------------------------------------------------------------------
Dividends and Dividends from net investment income and distributions from net capital gains, if any, are paid at least
Capital Gains annually. The Fund may, however, determine to retain all or part of any net long-term capital gains in
Distributions 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 31 and 35).
- ------------------ --------------------------------------------------------------------------------------------------------
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 34).
- ------------------ --------------------------------------------------------------------------------------------------------
Risk The net asset value of the Fund's shares will fluctuate with changes in market value of portfolio
Considerations securities. It should be recognized that the foreign securities and markets in which the Fund may invest
pose different and greater risks than those customarily associated with domestic securities and their
markets. The Fund may engage in various investment practices which present special risks, including
investments in forward foreign currency exchange contracts, lower-rated fixed-income securities,
convertible securities, adjustable rate mortgages, options and futures, investment companies, rights and
warrants, repurchase agreements, when-issued and delayed delivery securities and forward commitments,
when, as and if issued securities, reverse repurchase agreements and dollar rolls and private placements
(see pages 11-18).
- ------------------ --------------------------------------------------------------------------------------------------------
Shareholder Automatic Investment of Dividends and Distributions; Investment of Distributions Received in Cash;
Services Systematic Withdrawal Plan; Exchange Privilege; EasyInvest (Service Mark), Tax-Sheltered Retirement
Plans (see pages 31-33).
- ------------------ --------------------------------------------------------------------------------------------------------
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus
and in the Statement of Additional Information.
3
132
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, 1998.
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
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 ......................................................... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (5)(6) ....................................................... 0.25% 0.94% 1.00% None
Other Expenses .......................................................... 0.71% 0.71% 0.71% 0.71%
Total Fund Operating Expenses (7) ....................................... 1.96% 2.65% 2.71% 1.71%
- ------------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1
fee payable by Class A and a portion of the 12b-1 fee payable by each
of Class B and Class C equal to 0.25% of the average daily net assets
of the Class are currently each characterized as a service fee within
the meaning of National Association of Securities Dealers, Inc.
("NASD") guidelines and are payments made for personal service and/or
maintenance of shareholder accounts. The remainder of the 12b-1 fee, if
any, is an asset-based sales charge, and is a distribution fee paid to
the Distributor to compensate it for the services provided and the
expenses borne by the Distributor and others in the distribution of the
Fund's shares (see "Purchase of Fund Shares--Plan of Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will
be subject to the lower 12b-1 fee applicable to Class A shares. No
sales charge is imposed at the time of conversion of Class B shares to
Class A shares. Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing 1.00% distribution fee (see
"Purchase of Fund Shares--Alternative Purchase Arrangements").
(7) There were no outstanding shares of Class A, Class C or Class D prior
to July 28, 1997. Accordingly, "Total Fund Operating Expenses," as
shown above with respect to those Classes, are estimates based upon the
sum of 12b-1 Fees, Management Fees and estimated "Other Expenses."
4
133
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------ ------- ------- --------
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
Class A ...................................................... $71 $111 $153 $269
Class B ...................................................... $77 $112 $161 $298
Class C....................................................... $37 $ 84 $143 $304
Class D ...................................................... $17 $ 54 $ 93 $202
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ...................................................... $71 $111 $153 $269
Class B ...................................................... $27 $ 82 $141 $298
Class C ...................................................... $27 $ 84 $143 $304
Class D ...................................................... $17 $ 54 $ 93 $202
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER
OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares--Plan of
Distribution" and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of the
maximum front-end sales charges permitted by the NASD.
5
134
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.
FOR THE YEAR FOR THE PERIOD
ENDED FOR THE YEAR FEBRUARY 28, 1995*
JANUARY 31, ENDED THROUGH
1998**++ JANUARY 31, 1997 JANUARY 31, 1996
- ----------------------------------------------------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.84 $ 11.79 $ 10.00
------------ ------------ ------------
Net investment income (loss) ....... 0.03 (0.01) 0.17
Net realized and unrealized gain ... 0.35 0.55 2.20
------------ ------------ ------------
Total from investment operations ... 0.38 0.54 2.37
------------ ------------ ------------
Less dividends and distributions:
Net investment income ............. (0.03) (0.11) (0.34)
Net realized gain ................. (0.73) (0.38) (0.24)
------------ ------------ ------------
Total dividends and distributions .. (0.76) (0.49) (0.58)
------------ ------------ ------------
Net asset value, end of period ..... $ 11.46 $ 11.84 $ 11.79
============ ============ ============
TOTAL INVESTMENT RETURN+ ........... 3.29% 4.58% 23.89%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................... 2.65% 2.53% 1.14%(2)(3)
Net investment income .............. 0.25% 0.11% 1.71%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands ......................... $ 52,374 $ 65,314 $ 44,271
Portfolio turnover rate ............ 94% 63% 71%(1)
Average commission rate paid ....... $ 0.0153 $ 0.0013 --
- ------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Investment Manager had not reimbursed all expenses, the above
annualized expense and net investment loss ratios would have been 2.87%
and (0.02)%, respectively.
6
135
FINANCIAL HIGHLIGHTS (continued)
- -----------------------------------------------------------------------------
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JANUARY 31,
1998++
- -------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $ 13.09
--------
Net investment income ................... 0.05
Net realized and unrealized gain ........ (0.91)
--------
Total from investment operations ........ (0.86)
--------
Less distributions from net realized gain (0.73)
--------
Net asset value, end of period .......... $ 11.50
========
TOTAL INVESTMENT RETURN+ ................ (6.39)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 2.02%(2)
Net investment income ................... 0.79%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $ 27
Portfolio turnover rate ................. 94%
Average commission rate paid ............ $ 0.0153
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $ 13.09
--------
Net realized and unrealized gain ........ (0.91)
--------
Less distributions from net realized gain (0.73)
--------
Net asset value, end of period .......... $ 11.45
========
TOTAL INVESTMENT RETURN+ ................ (6.79)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 2.79%(2)
Net investment income ................... 0.07%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $ 53
Portfolio turnover rate ................. 94%
Average commission rate paid ............ $ 0.0153
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
7
136
FINANCIAL HIGHLIGHTS (continued)
- -----------------------------------------------------------------------------
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JANUARY 31,
1998++
- ------------------------------------------------------------------
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $ 13.09
--------
Net investment income ................... 0.07
Net realized and unrealized gain ........ (0.92)
--------
Total from investment operations ........ (0.85)
--------
Less distributions from net realized gain (0.73)
--------
Net asset value, end of period .......... $ 11.51
========
TOTAL INVESTMENT RETURN+ ................ (6.32)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 1.80%(2)
Net investment income ................... 1.08%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $ 17
Portfolio turnover rate ................. 94%
Average commission rate paid ............ $ 0.0153
- ------------
* 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.
8
137
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter Global Asset Allocation Fund (the "Fund") is an open-end,
diversified management investment company. The Fund is a trust of the type
commonly known as a "Massachusetts business trust" and was organized under the
laws of The Commonwealth of Massachusetts on October 18, 1994.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover &
Co. ("MSDWD"), a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses--securities,
asset management and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 103 investment companies (the "Dean Witter Funds"),
twenty-nine of which are listed on the New York Stock Exchange, with combined
assets of approximately $101 billion at January 31, 1998. The Investment Manager
also manages portfolios of pension plans, other institutions and individuals
which aggregated approximately $4 billion at such date.
The Fund has retained the Investment Manager to manage its business affairs
and manage the investment of the Fund's U.S. assets, including the placing of
orders for the purchase and sale of portfolio securities, and to supervise the
investment of all the Fund's assets. In addition, the Fund has retained
InterCapital to provide it with administrative services and InterCapital has, in
turn, retained Dean Witter Services Company to perform these administrative
services.
Under a Sub-Advisory Agreement between InterCapital and Morgan Grenfell
Investment Services Ltd. ("MGIS" or "Sub-Adviser"), MGIS provides the Fund with
investment advice and portfolio management relating to the Fund's investments in
securities issued by issuers located outside the Western Hemisphere, subject to
the overall supervision of the Investment Manager.
MGIS, whose address is 20 Finsbury Circus, London, England, manages, as of
December 31, 1997, assets of approximately $17.3 billion for primarily U.S.
corporate and public employee benefit plans, investment companies, endowments
and foundations. MGIS is an indirect subsidiary of Deutsche Bank AG, the largest
commercial bank in Germany.
Prior to March 1998, TCW Funds Management Inc. ("TCW") also served as a
Sub-Adviser to the Fund, providing investment advice and portfolio management
relating to the Fund's investment in securities issued by issuers located in
Canada and Latin America.
In October 1997, TCW informed InterCapital of its intention to resign as a
Sub-Adviser. Effective March 2, 1998, the investment advisory function performed
by TCW was assumed by the Investment Manager.
The Fund's Trustees review the various services provided by the Investment
Manager and the Sub-Adviser to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 1.0% to the Fund's average daily net assets. As compensation for
its services provided pursuant to its Sub-Advisory Agreement, the Investment
Manager pays the Sub-Adviser monthly compensation equal to 30% of its monthly
compensation. Prior to March 1998, the Investment Manager paid TCW monthly
compensation equal to 30% of its monthly
9
138
compensation. The Investment Manager will retain the portion of the investment
management fee previously paid to TCW. For the fiscal year ended January 31,
1998, the Fund accrued total compensation to the Investment Manager amounting to
1.0% of the Fund's average daily net assets (of which 30% was accrued to each of
MGIS and TCW by the Investment Manager) and the total expenses of Class B
amounted to 2.65% of the Fund's average daily net assets of Class B. Shares of
Class A, Class C and Class D were first issued on July 28, 1997. The expenses of
the Fund include: the fee of the Investment Manager; the fee pursuant to the
Plan of Distribution (see "Purchase of Fund Shares"); taxes; transfer agent,
custodian and auditing fees; certain legal fees; and printing and other expenses
relating to the Fund's operations which are not expressly assumed by the
Investment Manager under its Investment Management Agreement with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the Fund is to seek long-term total return on its
investments. This objective is a fundamental policy of the Fund and may not be
changed without shareholder approval. There is no assurance that the objective
will be achieved. The Fund's investment policies described below, unless
otherwise stated, are not fundamental and may be changed without shareholder
approval.
The Fund seeks to achieve its investment objective through a managed
investment policy utilizing a portfolio of U.S. and foreign equity, debt and
money market securities. The Investment Manager, with the assistance of the
Fund's Sub-Adviser, will initially allocate, and periodically reallocate, the
composition of the Fund's assets based upon an overall evaluation of global
monetary, economic and financial market trends and the anticipated relative
total return on securities available in different capital markets around the
world. In allocating among equity, fixed-income and money market securities
within a given capital market, the Investment Manager, with the assistance of
the Sub-Adviser, will consider the relative opportunity for price appreciation
of equity and fixed-income securities, dividend yields and the level of interest
rates paid on fixed-income securities of various maturities. Therefore, at any
given time, the Fund's assets may be invested in any amounts of either U.S. or
foreign equity or fixed-income (including money market) securities, or in any
combination thereof. Under normal circumstances, the Fund will have at least 65%
of its total assets invested in securities issued in at least three separate
countries (including the U.S.).
The Investment Manager will meet with the Fund's Sub-Adviser, at least
quarterly, to discuss the Fund's overall strategy of asset allocation described
above. Once determinations of the equity, fixed-income and money market sector
allocation and geographic distribution of the Fund's assets have been made, the
Investment Manager and the Sub-Adviser will each be responsible for the
individual security selection within its geographic area of responsibility. The
final determinations of the sector and geographic asset allocations of the Fund
will be made by the Investment Manager.
Within the equity sector, the Fund seeks to invest in those economic sectors
expected by the Investment Manager or Sub-Adviser to benefit from major trends
and in individual stocks which are deemed by them to have superior investment
potential. The Fund may purchase equity securities (including convertible debt
obligations and, except for certain foreign jurisdictions, convertible preferred
stock) sold on the New York, American and other domestic and foreign stock
exchanges and in the over-the-counter market.
Within the fixed-income sector, the Fund seeks to maximize the return on its
investments by adjusting maturities and coupon rates to prevailing interest rate
trends around the world, and by taking cognizance of various conditions and
trends in the foreign currency exchange markets. The fixed-income securities in
which the Fund may invest include debt securities with maturities of greater
than one year, which are issued or guaranteed by the U.S. Govern-
10
139
ment and its agencies or instrumentalities, by foreign governments (including
foreign states, provinces and municipalities) and agencies or instrumentalities
thereof and debt securities and preferred stocks issued by U.S. and foreign
corporations and other similar business entities. The Fund may also invest in
fixed-income securities issued or guaranteed by international organizations
designed or supported by multiple governmental entities (which are not
obligations of the U.S. Government or foreign governments) to promote economic
reconstruction or development such as the International Bank for Reconstruction
and Development (the "World Bank").
Generally, the fixed-income securities (including "convertible" securities,
see below) in which the Fund will invest will be rated at the time of their
purchase BBB or better by Standard & Poor's Corporation ("S&P") or Baa or better
by Moody's Investor Service, Inc. ("Moody's"), or investment grade by a
nationally recognized statistical rating organization ("NRSRO"), or which, if
unrated, are deemed to be of comparable quality by the Fund's Investment Manager
and/or Sub-Adviser. However, the Fund may invest up to 10% of its total assets
in fixed-income securities (including convertible securities) which are rated
below investment grade by a NRSRO or which are unrated (see below for a
discussion of the risks of investing in lower-rated and unrated fixed-income
securities and the Appendix for a description of the Moody's and S&P's ratings).
Investments in securities rated either Baa by Moody's or BBB by S&P may have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities with
higher credit ratings. If a fixed-income security held by the Fund is rated BBB
or Baa and is subsequently downgraded by a rating agency, the Fund will retain
such security in its portfolio until the Investment Manager and/or Sub-Adviser
determines that it is practicable to sell the security without undue negative
market or tax consequences to the Fund. In the event that the Fund's below
investment grade portfolio securities, including downgraded securities,
constitute 10% or more of the Fund's total assets, the Fund will seek to
immediately sell sufficient securities to reduce the total to below 10%.
Within its money market sector, the Fund seeks to maximize returns by
exploiting spreads among short-term instruments. The money market portion of the
Fund's portfolio will contain short-term (maturities of up to thirteen months)
fixed-income securities, issued by private and governmental institutions. Such
securities may include: U.S. and foreign government securities; domestic and
foreign bank obligations; certificates of deposit issued by foreign and domestic
banks; obligations of savings institutions; fully insured certificates of
deposit; and commercial paper rated within the two highest grades by S&P or the
highest grade by Moody's or, if not rated, issued by a company having an
outstanding debt issue rated at least AA by S&P or Aa by Moody's. Also included
within the money market sector are repurchase agreements and reverse repurchase
agreements with maturities of under thirteen months.
The principal currencies in which securities held in the Fund's portfolio
will be denominated are: the U.S. dollar; Australian dollar; Deutsche mark;
Japanese yen; French franc; British pound; Canadian dollar; Mexican peso; Swiss
franc; Dutch guilder; Hong Kong dollar; New Zealand dollar; Spanish peseta;
Swedish krona; and European Currency Unit.
RISK CONSIDERATIONS
- -----------------------------------------------------------------------------
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities and foreign currency rate fluctuations.
The market value of the Fund's portfolio
11
140
securities will increase or decrease due to a variety of economic, market or
political factors which cannot be predicted.
FOREIGN SECURITIES
Foreign securities investments may be affected by changes in currency rates
or exchange control-regulations, changes in governmental administration or
economic or monetary policy (in the United States and abroad) or changed
circumstances in dealings between nations. Fluctuations in the relative rates of
exchange between the currencies of different nations will affect the value of
the Fund's investments denominated in foreign currency. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S. dollar
value of the Fund's assets denominated in that currency and thereby impact upon
the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and demand
on the foreign exchange markets. These forces are themselves affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors. Moreover, foreign
currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of
the Fund will be conducted on a spot basis or through forward foreign currency
exchange contracts (described below). The Fund will incur certain costs in
connection with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of the Fund's trades effected in such markets. As such, the
inability to dispose of portfolio securities due to settlement delays could
result in losses to the Fund due to subsequent declines in value of such
securities, and the inability of the Fund to make intended security purchases
due to settlement problems could result in a failure of the Fund to make
potentially advantageous investments.
Certain of the foreign markets in which the Fund may invest will be emerging
markets. These new and incompletely formed markets will have increased risk
levels above those occasioned by investing in foreign markets generally. The
types of these risks are set forth above. The Fund's management will take
cognizance of these risks in allocating any of the Fund's investments in either
fixed-income or equity securities issued by issuers in emerging market
countries.
Forward Foreign Currency Exchange Contracts. The Fund may enter into forward
foreign currency exchange contracts ("forward contracts") in connection with its
foreign securities investments.
A forward contract involves an obligation to purchase or sell a currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. The Fund
may enter into forward contracts as a hedge against fluctuations in future
foreign exchange rates.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for ex-
12
141
ample, desire to "lock in" the price of the security in U.S. dollars or some
other foreign currency which the Fund is temporarily holding in its
portfolio. By entering into a forward contract for the purchase or sale, for
a fixed amount of dollars or other currency, of the amount of foreign
currency involved in the underlying security transactions, the Fund will be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar or other currency which is
being used for the security purchase (by the Fund or the counterparty) and
the foreign currency in which the security is denominated during the period
between the date on which the security is purchased or sold and the date on
which payment is made or received.
At other times, when, for example, the Fund's Investment Manager or its
Sub-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
when it is determined that the foreign currency in which the portfolio
securities are denominated has insufficient liquidity or is trading at a
discount as compared with some other foreign currency with which it tends to
move in tandem.
In addition, when the Fund anticipates purchasing securities at some time in
the future, and wishes to lock in the current exchange rate of the currency in
which those securities are denominated against the U.S. dollar or some other
foreign currency, the Fund may enter into a forward contract to purchase an
amount of currency equal to some or all of the value of the anticipated
purchase, for a fixed amount of U.S. dollars or other currency.
In all of the above circumstances, if the currency in which the Fund
securities holdings (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate.
The Fund generally will not enter into a forward contract with a term of greater
than one year, although it may enter into forward contracts for periods of up to
five years. The Fund may be limited in its ability to enter into hedging
transactions involving forward contracts by the Internal Revenue Code
requirements relating to qualification as a regulated investment company (see
"Dividends, Distributions and Taxes").
Depository Receipts. The Fund may also invest in securities of foreign
issuers in the form of American Depository Receipts (ADRs), European Depository
Receipts (EDRs) or other similar securities convertible into securities of
foreign issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a United States bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets and EDRs, in bearer form, are designed for use
in European securities markets.
FIXED-INCOME SECURITIES
All fixed-income securities are subject to two types of risks: the credit
risk and the interest rate
13
142
risk. The credit risk relates to the ability of the issuer to meet interest
or principal payments or both as they come due. The interest rate risk refers
to the fluctuations in the net asset value of any portfolio of fixed-income
securities resulting from the inverse relationship between price and yield of
fixed-income securities; that is, when the general level of interest rates
rises, the prices of outstanding fixed-income securities decline, and when
interest rates fall, prices rise.
Lower-Rated Securities. There is no limitation other than the overall 10%
limitation described above on the percentage of the Fund's total assets which
may be invested in convertible securities (see below) and debt securities below
investment grade. Securities below investment grade are the equivalent of high
yield, high risk bonds, commonly known as "junk bonds." Investment grade is
generally considered to be debt securities rated BBB or higher by S&P or Baa or
higher by Moody's. However, the Fund will not invest in debt securities that are
in default in payment of principal or interest.
Because of the special nature of the Fund's permitted investments in lower
rated debt securities, it must take account of certain special considerations in
assessing the risks associated with such investments. The prices of lower rated
securities have been found to be less sensitive to changes in prevailing
interest rates than higher rated investments, but are likely to be more
sensitive to adverse economic changes or individual corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet their projected business goals or to obtain additional
financing. If the issuer of a fixed-income security owned by the Fund defaults,
the Fund may incur additional expenses to seek recovery. In addition, periods of
economic uncertainty and change can be expected to result in an increased
volatility of market prices of lower rated securities and a corresponding
volatility in the net asset value of a share of the Fund.
Convertible Securities. Among the fixed-income securities in which the Fund
may invest are "convertible" securities. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula.
Convertible securities rank senior to common stocks in a corporation's capital
structure and, therefore, entail less risk than the corporation's common stock.
The value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion privilege), and its "conversion value"
(the security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
Adjustable Rate Mortgage Securities. The Fund may also invest in adjustable
rate mortgage securities ("ARMs"), which are pass-through mortgage securities
collateralized by mortgages with adjustable rather than fixed rates. ARMs
eligible for inclusion in a mortgage pool generally provide for a fixed initial
mortgage interest rate for either the first three, six, twelve or thirteen
scheduled monthly payments. Thereafter, the interest rates are subject to
periodic adjustment based on changes to a designated benchmark index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain ARMs
provide for additional limitations on the maximum amount by which the mortgage
interest rate may adjust for any single adjustment period. Alternatively,
certain ARMs contain limitations on changes in the required monthly payment. In
the event that a monthly payment is not sufficient to pay the interest accruing
on an ARM, any such excess interest is added to the principal balance of the
mortgage loan, which is repaid through future monthly payments. If the monthly
payment for such an instrument exceeds the sum of the interest accrued at the
applicable mortgage interest rate and the principal payment required at such
point to
14
143
amortize the outstanding principal balance over the remaining term of the loan,
the excess is utilized to reduce the then outstanding principal balance of the
ARM.
Zero Coupon Securities. A portion of the fixed-income securities purchased by
the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on portfolio
securities which are denominated in either U.S. dollars or foreign currencies
and on the U.S. dollar and foreign currencies, which are or may in the future be
listed on several U.S. and foreign securities exchanges or are written in
over-the-counter transactions ("OTC options"). OTC options are purchased from or
sold (written) to dealers or financial institutions which have entered into
direct agreements with the Fund.
The Fund is permitted to write covered call options on portfolio securities
and the U.S. dollar and foreign currencies, without limit, in order to hedge
against the decline in the value of a security or currency in which such
security is denominated (although such hedge is limited to the value of the
premium received), to close out long call option positions and to generate
income. The Fund may write covered put options, under which the Fund incurs an
obligation to buy the security (or currency) underlying the option from the
purchaser of the put at the option's exercise price at any time during the
option period, at the purchaser's election.
The Fund may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Fund may purchase call options to
close out a covered call position or to protect against an increase in the price
of a security it anticipates purchasing or, in the case of call options on a
foreign currency, to hedge against an adverse exchange rate change of the
currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The Fund may
purchase put options on securities which it holds in its portfolio to protect
itself against a decline in the value of the security and to close out written
put positions in a manner similar to call option closing purchase transactions.
There are no limits on the Fund's ability to purchase call and put options other
than compliance with the foregoing policies.
The Fund may purchase and sell futures contracts that are currently traded,
or may in the future be traded, on U.S. and foreign commodity exchanges on
underlying portfolio securities, on any currency ("currency" futures), on U.S.
and foreign fixed-income securities ("interest rate" futures) and on such
indexes of U.S. or foreign equity or fixed-income securities as may exist or
come into being ("index" futures). The Fund may purchase or sell interest rate
futures contracts for the purpose of attempting hedging some or all of the value
of its portfolio securities (or anticipated portfolio securities) against
anticipated changes in prevailing interest rates. The Fund may purchase or sell
index
15
144
futures contracts for the purpose of hedging some or all of its portfolio (or
anticipated portfolio) securities against changes in their prices (or the
currency in which they are denominated). As a futures contract purchaser, the
Fund incurs an obligation to take delivery of a specified amount of the
obligation underlying the contract at a specified time in the future for a
specified price. As a seller of a futures contract, the Fund incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
The Fund also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
Risks of Options and Futures Transactions. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options may generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer. Also,
exchanges may limit the amount by which the price of many futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Investment Manager or Sub-Adviser could be incorrect
in its expectations as to the direction or extent of various interest rate or
price movements or the time span within which the movements take place. For
example, if the Fund sold futures contracts for the sale of securities in
anticipation of an increase in interest rates, and then interest rates went down
instead, causing bond prices to rise, the Fund would lose money on the sale.
Another risk which will arise in employing futures contracts to protect against
the price volatility of portfolio securities is that the prices of securities,
currencies and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the U.S. dollar
cash prices of the Fund's portfolio securities and their denominated currencies.
See the Statement of Additional Information for a further discussion of risks.
Investment in Other Investment Vehicles. Under the Investment Company Act of
1940, as amended (the "Act"), the Fund generally may invest up to 10% of its
total assets in the aggregate in shares of other investment companies and up to
5% of its total assets in any one investment company. The Fund may not own more
than 3% of the outstanding voting stock of any investment company. Investment in
other investment companies or vehicles may be the sole or most practical means
by which the Fund can participate in certain foreign markets. Such investment
may involve the payment of substantial premiums above the value of such issuers'
portfolio securities, and is subject to limitations under the Act and market
availability. In addition, special tax considerations may apply. The Fund does
not intend to invest in such vehicles or funds unless, in the judgment of the
Investment Manager or Sub-Adviser, the potential benefits of such investment
justify the payment of any applicable premium or sales charge. As a shareholder
in an investment company, the Fund would bear its ratable share of that
investment company's expenses, including its advisory and administration fees.
At the same time the Fund would continue to pay its own management fees and
other expenses, as a result of which the Fund and its shareholders in effect
will be absorbing duplicate levels of advisory fees with respect to investments
in such other investment companies.
16
145
Rights and Warrants. The Fund may acquire rights and/or warrants which are
attached to other securities in its portfolio, or which are issued as a
distribution by the issuer of a security held in its portfolio. Rights and/or
warrants are, in effect, options to purchase equity securities at a specific
price, generally valid for a specific period of time, and have no voting rights,
pay no dividends and have no other rights with respect to the corporation
issuing them.
Repurchase Agreements. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of government securities or other securities
from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Fund will sell
back to the institution, and that the institution will 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 to minimize such risks. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions and maintaining
adequate collateralization.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are negotiated,
the price is fixed at the time of the commitment, but delivery and payment can
take place a month or more after the date of the commitment. There is no overall
limit on the percentage of the Fund's assets which may be committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage of
the Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value.
Reverse Repurchase Agreements and Dollar Rolls. The Fund may also use reverse
repurchase agreements and dollar rolls as part of its investment strategy.
Reverse repurchase agreements involve sales by the Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. The Fund may enter into dollar rolls in which the
Fund sells securities and simultaneously contracts to repurchase substantially
similar (same type and coupon) securities on a specified future date. Reverse
repurchase agreements and dollar rolls involve the risk that the market value of
the securities the Fund is obligated to repurchase under the agreement may
decline below the repurchase price. In the event the buyer of securities under a
reverse repurchase agreement or dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the agreement may be restricted pending
a determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. Reverse Repurchase
agreements and dollar rolls are speculative techniques involving leverage (which
may increase investment risk), and are considered borrowings by the Fund.
17
146
Restricted Securities. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. The procedures require that the following factors be taken into account in
making a liquidity determination: (1) the frequency of trades and price quotes
for the security; (2) the number of dealers and other potential purchasers who
have issued quotes on the security; (3) any dealer undertakings to make a market
in the security; and (4) the nature of the security and the nature of the
marketplace trades (the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). Investing in restricted
securities sellable pursuant to Rule 144A could have the effect of increasing
the level of the illiquidity of the Fund to the extent that qualified
institutional buyers of such securities become, for a time, uninterested in
purchasing these securities. If a restricted security is determined to be
"liquid," such security will not be included within the category "illiquid
securities," which under current policy may not exceed 15% of the Fund's net
assets.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager and its
Sub-Adviser with a view to achieving the Fund's investment objective. In
determining which securities to purchase for the Fund or hold in the Fund's
portfolio, the Investment Manager and the Sub-Adviser will rely on information
from various sources, including research, analysis and appraisals of brokers and
dealers, the views of Trustees of the Fund and others regarding economic
developments and interest rate trends, and the Investment Manager's and
Sub-Adviser's own analysis of factors they deem relevant.
The individuals who are primarily responsible for the day-to-day management
of the Fund's portfolio are Mark Bavoso, Senior Vice President of InterCapital
and Michael Bullock, Chairman and Chief Investment Officer of MGIS. Mr. Bavoso
is a member of InterCapital's Growth & Income Group and has been a portfolio
manager at InterCapital for over five years. Mr. Bullock is Chairman of MGIS and
chief investment officer of its parent company, Morgan Grenfell Asset Management
Limited.
Personnel of the Investment Manager and the Sub-Adviser have substantial
experience in the use of the investment techniques described above under the
heading "Options and Futures Transactions," which techniques require skills
different from those needed to select the portfolio securities underlying
various options and futures contracts.
Orders for transactions in portfolio securities and commodities may be placed
for the Fund with a number of brokers and dealers, including Dean Witter
Reynolds Inc. ("DWR"), Morgan Stanley & Co. Incorporated, other broker-dealer
affiliates of InterCapital, and broker-dealers affiliates of MGIS. Pursuant to
an order of the Securities and Exchange Commission, the Fund may effect
principal transactions in certain money market instruments with DWR. In
addition, the Fund may incur brokerage commissions on transactions conducted
through DWR, Morgan Stanley & Co. Incorporated and other affiliated brokers or
dealers of InterCapital and affiliated brokers or dealers of MGIS.
18
147
Although the Fund does not intend to engage in short-term trading, it may
sell portfolio securities without regard to the length of time they have been
held when such sale will, in the opinion of the Investment Manager or
Sub-Adviser, contribute to the Fund's investment objective.
The portfolio trading engaged in by the Fund may result in its portfolio
turnover rate exceeding 200%. The Fund is expected to incur higher than normal
brokerage commission costs due to its portfolio turnover rate. Short-term gains
and losses taxable at ordinary income rates may result from such portfolio
transactions. See "Dividends, Distributions and Taxes" for a full discussion of
the tax implications of the Fund's trading policy. A more extensive discussion
of the Fund's portfolio brokerage policies is set forth in the Statement of
Additional Information.
The expenses of the Fund relating to its portfolio management are likely to
be greater than those incurred by other investment companies investing primarily
in securities issued by domestic issuers as custodial costs, brokerage
commissions and other transaction charges related to investing on foreign
markets are generally higher than in the United States.
INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. For purposes
of the following limitations: (i) all percentage limitations apply immediately
after a purchase or initial investment, and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities).
2. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities.
3. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years
of continuous operation. This restriction shall not apply to any obligation
issued or guaranteed by the United States Government, its agencies or
instrumentalities.
4. As to 75% of its total assets, purchase more than 10% of the voting
securities, or more than 10% of any class of securities, of any issuer.
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.
PURCHASE OF FUND SHARES
- -------------------------------------------------------------------------------
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 which have entered into agreements with the Distributor
("Selected Broker-Dealers"). The principal executive office of the Distributor
is located at Two World Trade Center, New York, New York 10048.
19
148
The Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an initial sales charge are
subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified plans are subject
to a CDSC scaled down from 2.0% to 1.0% if redeemed within three years after
purchase.) Class C shares are sold without an initial sales charge but are
subject to a CDSC of 1.0% on most redemptions made within one year after
purchase. Class D shares are sold without an initial sales charge or CDSC and
are available only to investors meeting an initial investment minimum of $5
million ($25 million for certain qualified plans), and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the Fund,
Class A shares may be sold to categories of investors in addition to those set
forth in this prospectus at net asset value without a front-end sales charge,
and Class D shares may be sold to certain other categories of investors, in each
case as may be described in the then current prospectus of the Fund. See
"Alternative Purchase Arrangements--Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25 million
for certain qualified plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million (or $25 million)
initial investment for Class D shares, and subject to the $1,000 minimum initial
investment for each Class of the Fund, an investor's existing holdings of Class
A shares of the Fund and other Dean Witter Funds that are multiple class funds
("Dean Witter Multi-Class Funds") and shares of Dean Witter Funds sold with a
front-end sales charge ("FSC Funds") and concurrent investments in Class D
shares of the Fund and other Dean Witter Multi-Class Funds will be aggregated.
Subsequent purchases of $100 or more may be made by sending a check, payable to
Dean Witter Global Asset Allocation Fund, directly to Dean Witter Trust FSB (the
"Transfer Agent" or "DWT") at P.O. Box 1040, Jersey City, NJ 07303 or by
contacting an account executive of DWR or other Selected Broker-Dealer. When
purchasing shares of the Fund, investors must specify whether the purchase is
for Class A, Class B, Class C or Class D shares. If no Class is specified, the
Transfer Agent will not process the transaction until the proper Class is
identified. The minimum initial purchase in the case of investments through
EasyInvest (Service Mark), an automatic purchase plan (see "Shareholder
Services"), is $100, provided that the schedule of automatic investments will
result in investments totalling $1,000 within the first twelve months. The
minimum initial purchase in the case of an "Education IRA" is $500, if the
Distributor has reason to believe that additional investments will increase the
investment in the account to $1,000 within three years. In the case of
investments pursuant to (i) Systematic Payroll Deduction Plans (including
Individual Retirement Plans), (ii) the InterCapital mutual fund asset allocation
program and (iii) fee-based programs approved by the Distributor, pursuant to
which participants pay an asset based fee for services in the nature of
investment advisory or administrative services, the Fund, in its discretion, may
accept investments without regard to any minimum amounts which would otherwise
be required, provided, in the case of Systematic Payroll Deduction Plans, that
the Distributor has reason to believe that additional investments will increase
the investment in all accounts under such Plans to at least $1,000. In the case
of investments pursuant to Systematic Payroll Deduction Plans (including
Individual Retirement Plans), the Fund, in its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required, if the Fund has reason to believe that additional investments will
increase the investment in all ac-
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149
counts under such Plans to at least $1,000. Certificates for shares purchased
will not be issued unless requested by the shareholder in writing to the
Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. 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 plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
shares since the inception of the Fund (not including reinvestments of dividends
or capital gains distribu-
21
150
tions), less the average daily aggregate net asset value of the Fund's Class B
shares redeemed since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B. The Class B shares'
distribution fee will cause that Class to have higher expenses and pay lower
dividends than Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert automatically
to Class A shares of the Fund, based on the relative net asset values of the
shares of the two Classes on the conversion date. In addition, a certain portion
of Class B shares that have been acquired through the reinvestment of dividends
and distributions will be converted at that time. See "Contingent Deferred Sales
Charge Alternative--Class B Shares."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative--Class C Shares."
Class D Shares. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares are
sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
Selecting a Particular Class. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum investment
amount for Class 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
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151
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:
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
- ----------------------------------------------------------------------
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
B ten years
- ----------------------------------------------------------------------
C 1.0% CDSC during 1.0% No
first year
- ----------------------------------------------------------------------
D None None No
- ----------------------------------------------------------------------
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:
SALES CHARGE
------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- -------------------- --------------- ----------------
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
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.
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152
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of a single employer or
of employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act; and for investments in Individual Retirement
Accounts of employees of a single employer through Systematic Payroll Deduction
plans; or (g) any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months and has
some purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
Combined Purchase Privilege. Investors may have the benefit of reduced sales
charges in accordance with the above schedule by combining purchases of Class A
shares of the Fund in single transactions with the purchase of Class A shares of
other Dean Witter Multi-Class Funds and shares of FSC Funds. The sales charge
payable on the purchase of the Class A shares of the Fund, the Class A shares of
the other Dean Witter Multi-Class Funds and 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 that, together with the current
investment amount, is equal to at least $5 million ($25 million for certain
qualified plans), such investor is eligible to purchase Class D shares subject
to the $1,000 minimum initial investment requirement of that Class of the Fund.
See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from DWR or other Selected Broker-Dealers. The cost of Class A shares of the
Fund or shares of other Dean Witter Funds which were previously purchased at a
price including a front-end sales charge during the 90-day period prior to the
date of receipt by the Distributor of the Letter of Intent, or of Class A shares
of the Fund or shares of other Dean Witter Funds acquired in exchange for shares
of such funds purchased 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,
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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 and restrictions on transferability
of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section 401(a)
of the Internal Revenue Code ("Qualified Retirement Plans") with at least 200
eligible employees and for which DWT serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement;
(4) Qualified Retirement Plans for which DWT serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement.
(5) investors who are clients of a Dean Witter account executive who joined
Dean Witter from another investment firm within six months prior to the date of
purchase of Fund shares by such investors, if the shares are being purchased
with the proceeds from a redemption of shares of an open-end proprietary mutual
fund of the account executive's previous firm which imposed either a front-end
or deferred sales charge, provided such purchase was made within sixty days
after the redemption and the proceeds of the redemption had been maintained in
the interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, will be imposed on most Class
B shares redeemed within six years after purchase. The CDSC will be imposed on
any redemption of shares if after such redemption the aggregate current value of
a Class B account with the Fund falls below the aggregate amount of the
investor's purchase payments for Class B shares made during the six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption. In addition, Class B shares are subject to an annual
12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate gross sales
of the Fund's Class B shares since the inception of the Fund (not including
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since the
Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after 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
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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:
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
First...................... 5.0%
Second..................... 4.0%
Third...................... 3.0%
Fourth..................... 2.0%
Fifth...................... 2.0%
Sixth...................... 1.0%
Seventh and thereafter .... None
In the case of Class B shares of the Fund purchased on or after July 28, 1997
by Qualified Retirement Plans for which DWT serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject to
any CDSC upon redemption. However, shares redeemed earlier than three years
after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
First ..................... 2.0%
Second .................... 2.0%
Third ..................... 1.0%
Fourth and thereafter .... None
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which represents
an increase in value of shares purchased within the six years (or, in the case
of shares held by certain Qualified Retirement Plans, three years) preceding the
redemption; (ii) the current net asset value of shares purchased more than six
years (or, in the case of shares held by certain Qualified Retirement Plans,
three years) prior to the redemption; and (iii) the current net asset value of
shares purchased through reinvestment of dividends or distributions and/or
shares acquired in exchange for shares of FSC Funds or of other Dean Witter
Funds acquired in exchange for such shares. Moreover, in determining whether a
CDSC is applicable it will be assumed that amounts described in (i), (ii) and
(iii) above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (b) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified corporate or
self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2); (b)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (c) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which DWT serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement ("Eligible Plan"), provided that either: (a)
the plan continues to be an Eligible Plan
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after the redemption; or (b) the redemption is in connection with the complete
termination of the plan involving the distribution of all plan assets to
participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
Conversion to Class A Shares. All shares of the Fund held prior to July 28,
1997 have been designated Class B shares. Shares held before May 1, 1997 will
convert to Class A shares in May, 2007. In all other instances Class B shares
will convert automatically to Class A shares, based on the relative net asset
values of the shares of the two Classes on the conversion date, which will be
approximately ten (10) years after the date of the original purchase. The ten
year period is calculated from the last day of the month in which the shares
were purchased or, in the case of Class B shares acquired through an exchange or
a series of exchanges, from the last day of the month in which the original
Class B shares were purchased, provided that shares originally purchased before
May 1, 1997 will convert to Class A shares in May, 2007. The conversion of
shares purchased on or after May 1, 1997 will take place in the month following
the tenth anniversary of the purchase. There will also be converted at that time
such proportion of Class B shares acquired through automatic reinvestment of
dividends and distributions owned by the shareholder as the total number of his
or her Class B shares converting at the time bears to the total number of
outstanding Class B shares purchased and owned by the shareholder. In the case
of Class B shares held by a Qualified Retirement Plan for which DWT serves as
Trustee or DWR's Retirement Plan Services serves as recordkeeper pursuant to a
written Recordkeeping Services Agreement, the plan is treated as a single
investor and all Class B shares will convert to Class A shares on the conversion
date of the first shares of a Dean Witter Multi-Class Fund purchased by that
plan. In the case of Class B shares previously exchanged for shares of an
"Exchange Fund" (see "Shareholder Services--Exchange Privilege"), the period of
time the shares were held in the Exchange Fund (calculated from the last day of
the month in which the Exchange Fund shares were acquired) is excluded from the
holding period for conversion. If those shares are subsequently re-exchanged for
Class B shares of a Dean Witter Multi-Class Fund, the holding period resumes on
the last day of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
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
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156
made within one year after purchase (calculated from the last day of the month
in which the shares were purchased). The CDSC will be assessed on an amount
equal to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of that
section shall mean one year in the case of Class C shares. Class C shares are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class. Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject to 12b-1
fees applicable to Class C shares for an indefinite period subject to annual
approval by the Fund's Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or redemption
and without any 12b-1 fee. Class D shares are offered only to investors meeting
an initial investment minimum of $5 million ($25 million for Qualified
Retirement Plans for which DWT serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement) and the following categories of investors: (i) investors
participating in the InterCapital mutual fund asset allocation program pursuant
to which such persons pay an asset based fee; (ii) persons participating in a
fee-based program approved by the Distributor, pursuant to which such persons
pay an asset based fee for services in the nature of investment advisory or
administrative services (subject to all of the terms and conditions of such
programs referred to in (i) and (ii) above, which may include termination fees,
mandatory redemption upon termination and such other circumstances as specified
in the programs' agreements, and restrictions on transferability of Fund
shares); (iii) 401(k) plans established by DWR and SPS Transaction Services,
Inc. (an affiliate of DWR) for their employees; (iv) certain Unit Investment
Trusts sponsored by DWR; (v) certain other open-end investment companies whose
shares are distributed by the Distributor; and (vi) other categories of
investors, at the discretion of the Board, as disclosed in the then current
prospectus of the Fund. Investors who require a $5 million (or $25 million)
minimum initial investment to qualify to purchase Class D shares may satisfy
that requirement by investing that amount in a single transaction in Class D
shares of the Fund and other Dean Witter Multi-Class Funds, subject to the
$1,000 minimum initial investment required for that Class of the Fund. In
addition, for the purpose of meeting the $5 million (or $25 million) minimum
investment amount, holdings of Class A shares in all Dean Witter Multi-Class
Funds, shares of FSC Funds and shares of Dean Witter Funds for which such shares
have been exchanged will be included together with the current investment
amount. If a shareholder redeems Class A shares and purchases Class D shares,
such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act with respect to the distribution of Class A, Class B and Class C shares of
the Fund. In the case of Class A and Class C shares, the Plan provides that the
Fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them specifically on behalf of those shares.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed amounts equal to payments at
the annual rates of 0.25% and 1.0% of the average daily net assets of Class A
and Class C, respectively. In the case of Class B shares, the Plan provides that
the Fund will pay the Distributor a fee, which is accrued daily and paid
monthly, at the annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B shares since the inception of the
Fund (not including reinvestments of dividends or capital gains distributions),
less the average daily aggregate net asset value of the Fund's Class B shares
redeemed since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B. The fee is treated by
the Fund as an expense in the year it is accrued. In the case of Class A shares,
the entire amount of the fee cur-
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157
rently 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 January 31, 1998, Class B shares of the Fund
accrued payments under the Plan amounting to $580,914, which amount is equal to
0.94% of the average daily net assets of Class B for the fiscal year. These
payments accrued under the Plan were calculated pursuant to clause (a) of the
compensation formula under the Plan. All shares held prior to July 28, 1997 have
been designated Class B shares. For the period July 28, 1997 through January 31,
1998, Class A and Class C shares of the Fund accrued payments under the Plan
amounting to $28 and $241, 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 C, 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 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 such
excess amounts, including the carrying charge described above, totalled
$3,856,463 at January 31, 1998, which was equal to 7.36% of the net assets of
Class B on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses or any requirement that
the Plan be continued from year to year, such excess amount does not constitute
a liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to the Distributor under the
Plan, and the proceeds of CDSCs paid by investors upon redemption of shares, if
for any reason the Plan is terminated the Trustees will consider at that time
the manner in which to treat such expenses. Any cumulative expenses incurred,
but not yet recovered through distribution fees or CDSCs, may or may not be
recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
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
unreimbursed expenses representing a gross sales commission credited to account
executives at the time of sale totalled $303 in the case of Class C at December
31, 1997, which amount was equal to 0.57% of the net assets of Class C on such
date, and that there
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were no such expenses that may be reimbursed in the subsequent year in the case
of Class A 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 of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time) by taking the 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 or prior to the time assets are valued; if there were no sales that
day, the security is valued at the latest bid price (in cases where a security
is traded on more than one exchange, the security is valued on the exchange
designated as the primary market pursuant to procedures adopted by the
Trustees); (2) an option is valued at the mean between the latest bid and asked
prices; (3) a futures contract is valued at the latest sales price on the
commodities exchange on which it trades unless the Board determines that such
price does not reflect its market value, in which case it will be valued at its
fair value as determined by the Board of Trustees; (4) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest bid price; (5) when market quotations are not readily
available, including circumstances under which it is determined by the
Investment Manager or Sub-Adviser that sale or bid prices are not reflective of
a security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Fund's Trustees (valuation of debt securities for
which market quotations are not readily available may be based upon current
market prices of securities which are comparable in coupon, rating and maturity
or an appropriate matrix utilizing similar factors); (6) the value of short-term
debt securities which mature at a date less than sixty days subsequent to
valuation date will be determined on an amortized cost or amortized value basis;
and (7) the value of other assets will be determined in good faith at fair value
under procedures established by and under the general supervision of the Fund's
Trustees.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange and will therefore not be reflected in
the computation of the Fund's net asset value. If events that may affect the
value of such securities occur during such period, then these securities may be
valued at their fair value as determined in good faith under procedures
established by and under the supervision of some Trustees.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, in-
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159
cluding review of broker-dealer market price quotations, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service.
SHAREHOLDER SERVICES
- -------------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income dividends and
capital gains distributions are automatically paid in full and fractional shares
of the applicable Class of the Fund (or, if specified by the shareholder, in
shares of any other open-end Dean Witter Fund), unless the shareholder requests
that they be paid in cash. Shares so acquired are acquired at net asset value
and are not subject to the imposition of a front-end sales charge or a CDSC (see
"Redemptions and Repurchases").
Investment of Dividends or Distributions Received in Cash. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution 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 (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 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 "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-
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160
Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean Witter
Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust and five
Dean Witter funds which are money market funds (the "Exchange Funds"). Class A
shares may also be exchanged for shares of Dean Witter Multi-State Municipal
Series Trust and Dean Witter Hawaii Municipal Trust, which are Dean Witter Funds
sold with a front-end sales charge ("FSC Funds"). Class B shares may also be
exchanged for shares of Dean Witter Global Short-Term Income Fund Inc. ("Global
Short-Term"), which is a Dean Witter Fund offered with a CDSC. Exchanges may be
made after the shares of the Fund acquired by purchase (not by exchange or
dividend reinvestment) have been held for thirty days. There is no waiting
period for exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, Global
Short-Term or any Exchange Fund that is not a money market fund is on the basis
of the next calculated net asset value per share of each fund after the exchange
order is received. When exchanging into a money market fund from the Fund,
shares of the Fund are redeemed out of the Fund at their next calculated net
asset value and the proceeds of the redemption are used to purchase shares of
the money market fund at their net asset value determined the following business
day. Subsequent exchanges between any of the money market funds and any of the
Dean Witter Multi-Class Funds, FSC Funds or Global Short-Term or any Exchange
Fund that is not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a Dean Witter Multi-Class
Fund or shares of Global Short-Term, the holding period previously frozen when
the first exchange was made resumes on the last day of the month in which shares
of a Dean Witter Multi-Class Fund or shares of Global Short-Term are reacquired.
Thus, the CDSC is based upon the time (calculated as described above) the
shareholder was invested in shares of a Dean Witter Multi-Class Fund or in
shares of Global Short-Term (see "Purchase of Fund Shares"). In the case of
exchanges of Class A shares which are subject to a CDSC, the holding period also
includes the time (calculated as described above) the shareholder was invested
in shares of a FSC Fund. In the case of shares exchanged into an Exchange Fund
on or after April 23, 1990, upon a redemption of shares which results in a CDSC
being imposed, a credit (not to exceed the amount of the CDSC) will be given in
an amount equal to the Exchange Fund 12b-1 distribution fees 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 having a different CDSC schedule than that of this Fund
will be subject to the higher CDSC schedule, even if such shares are
subsequently re-exchanged for shares of the fund with the lower CDSC schedule.
Additional Information Regarding Exchanges. Purchases and exchanges should be
made for investment purposes only. A pattern of frequent exchanges may be deemed
by the Investment Manager to be abusive and contrary to the best interests of
the Fund's other shareholders and, at the Investment Manager's discretion, may
be limited by the Fund's refusal to accept additional purchases and/or exchanges
from the investor. Although the Fund does not have any specific definition of
what constitutes a pattern of frequent exchanges, and will consider all relevant
factors in determining whether a particular situation is abusive and contrary to
the best interests of the Fund and its other shareholders, investors should be
aware that the Fund and
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each of the other Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Dean Witter
Funds for which shares of the Fund have been exchanged, upon such notice as may
be required by applicable regulatory agencies. Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on exchange of shares of the Fund
pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. An exchange will be
treated for federal income tax purposes the same as a repurchase or redemption
of shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization Form,
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made in writing or
by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean Witter
Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer account
executive or the Transfer Agent for further information about the Exchange
Privilege.
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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.
Repurchase. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value per share next determined (see "Purchase of Fund Shares") after such
purchase order is received by DWR or other Selected Broker-Dealer, reduced by
any applicable CDSC.
The CDSC, if any, will be the only fee imposed upon repurchase by the Fund 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 above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented for
repurchase or redemption will be made by check within seven days after receipt
by the Transfer Agent of the certificate and/or written request in good order.
Such payment may be postponed or the right of redemption suspended under unusual
circumstances, e.g., when normal trading is not taking place on the New York
Stock Exchange. If the shares to be redeemed have recently been purchased by
check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another Selected Dealer are
referred to their account executive regarding restrictions on redemption of
shares of the Fund pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares redeemed
or repurchased and has not previously exercised this reinstatement privilege
may, within 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 the net asset value next determined after a reinstatement request, together
with the proceeds, is received by the Transfer Agent and receive a pro rata
credit for any CDSC paid in connection with such redemption or repurchase.
Involuntary Redemption. The Fund reserves the right to redeem, upon sixty
days' notice and at net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares have a value of
less than $100 as a result of redemptions or repurchases, or such lesser amount
as may be fixed by the Board of Trustees or, in the case of an account opened
through EasyInvest (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 the
shareholder to make an additional investment in an amount which will increase
the value of the account to at least the applicable amount before the redemption
is processed. No CDSC will be imposed on any involuntary redemption.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
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Dividends and Distributions. The Fund declares dividends separately for each
Class of shares and intends to distribute substantially all of the Fund's net
investment income and net realized short-term capital gains, if there are any,
at least annually. The Fund intends to distribute dividends from net long-term
capital gains, if any, at least once each year. The Fund may, however, determine
either to distribute or to retain all or part of any long-term capital gains in
any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
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 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.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the dividends received deduction.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return of
a portion of each shareholder's investment. All, or a portion, of such payments
will not be taxable to shareholders.
At the end of the calendar year, shareholders will be sent full information
on their dividends and capital gains distributions for tax purposes, including
information as to the portion taxable as ordinary income, the portion taxable as
long-term capital gains, and the amount of dividends eligible for the Federal
dividends received deduction available to corporations. To avoid being subject
to a 31% federal backup withholding tax on taxable dividends, capital gains
distributions and the proceeds of redemptions and repurchases, shareholders'
taxpayer identification numbers must be furnished and certified as to their
accuracy.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and makes the appropriate election with the Internal Revenue Service, the Fund
will report annually to its shareholders the amount per share of such taxes to
enable shareholders to claim United States foreign tax credits or deductions
with respect to such taxes. In the absence of such an election, the Fund would
deduct foreign tax in computing the amount of its distributable income.
Shareholders should consult their tax advisers as to the applicability of the
foregoing to their current situation.
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PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements and
sales literature. These figures are computed separately for Class A, Class B,
Class C and Class D shares. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. The "average annual
total return" of the Fund refers to a figure reflecting the average annualized
percentage increase (or decrease) in the value of an initial investment in a
Class of the Fund of $1,000 over periods of one, five and ten years, or for the
life of the Fund, if less than any of the foregoing. Average annual total return
reflects all income earned by the Fund, any appreciation or depreciation of the
Fund's assets, all expenses incurred by the 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.).
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, in the opinion of Massachusetts counsel to the
Fund, the risk to Fund shareholders of personal liability is remote.
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165
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 requirements and the
recommendations in the 1994 report by the Investment Company Institute Advisory
Group on Personal Investing.
The Fund's Sub-Adviser also has a Code of Ethics which complies with
regulatory requirements and, in so far as it relates to persons associated with
the Fund, 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.
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APPENDIX
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RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate,
and therefore not well safeguarded during both good and bad times in
the future. Uncertainty of position characterizes bonds in this
class.
B Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and a modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
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COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher-rated categories. Bonds rated AAA, AA, A and BBB are considered
investment grade bonds.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions which
could lead to inadequate capacity or willingness to pay interest and
repay principal.
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168
B Debt rated "B" has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC Debt rated "CCC" has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal.
CC The rating "CC" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating.
Cl The rating "Cl" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The 'D' rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does
not rate a particular type of obligation as a matter of policy.
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having
predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or minus (-): The rating from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within
major ratings categories.
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into group
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Ratings are applicable to both taxable and tax-exempt commercial paper.
The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2, and 3 to indicate the relative degree of safety.
A-1 indicates that the degree of safety regarding timely payment is very
strong.
A-2 indicates capacity for timely payment on issues with this designation
is strong. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1."
A-3 indicates a satisfactory capacity for timely payment. Obligations
carrying this designation are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying
the higher designations.
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169
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS
Dean Witter California Tax-Free Daily Income Trust
Dean Witter Liquid Asset Fund Inc.
Dean Witter New York Municipal Money Market Trust
Dean Witter Tax-Free Daily Income Trust
Dean Witter U.S. Government Money Market Trust
EQUITY FUNDS
Dean Witter American Value Fund
Dean Witter Balanced Growth Fund
Dean Witter Capital Appreciation Fund
Dean Witter Capital Growth Securities
Dean Witter Developing Growth Securities Trust
Dean Witter Dividend Growth Securities Inc.
Dean Witter European Growth Fund Inc.
Dean Witter Financial Services Trust
Dean Witter Fund of Funds
Dean Witter Global Dividend Growth Securities
Dean Witter Global Utilities Fund
Dean Witter Health Sciences Trust
Dean Witter Income Builder Fund
Dean Witter Information Fund
Dean Witter International SmallCap Fund
Dean Witter Japan Fund
Dean Witter Market Leader Trust
Dean Witter Mid-Cap Growth Fund
Dean Witter Natural Resource Development
Securities Inc.
Dean Witter Pacific Growth Fund Inc.
Dean Witter Precious Metals and Minerals Trust
Dean Witter Special Value Fund
Dean Witter S&P 500 Index Fund
Dean Witter Utilities Fund
Dean Witter Value-Added Market Series
Dean Witter World Wide Investment Trust
Morgan Stanley Dean Witter Competitive Edge Fund,
"Best Ideas" Portfolio
ASSET ALLOCATION FUNDS
Dean Witter Global Asset Allocation Fund
Dean Witter Strategist Fund
FIXED-INCOME FUNDS
Dean Witter Balanced Income Fund
Dean Witter California Tax-Free Income Fund
Dean Witter Convertible Securities Trust
Dean Witter Diversified Income Trust
Dean Witter Federal Securities Trust
Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Hawaii Municipal Trust
Dean Witter High Yield Securities Inc.
Dean Witter Intermediate Income Securities
Dean Witter Intermediate Term
U.S. Treasury Trust
Dean Witter Limited Term Municipal Trust
Dean Witter Multi-State Municipal Series Trust
Dean Witter New York Tax-Free Income Fund
Dean Witter Short-Term Bond Fund
Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities Trust
Dean Witter World Wide Income Trust
DEAN WITTER RETIREMENT SERIES
American Value Series
Capital Growth Series
Dividend Growth Series
Global Equity Series
Intermediate Income Securities Series
Liquid Asset Series
Strategist Series
U.S. Government Money Market Series
U.S. Government Securities Series
Utilities Series
Value-Added Market Series
ACTIVE ASSETS ACCOUNT PROGRAM
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
Active Assets Money Trust
Active Assets Tax-Free Trust
170
Dean Witter
Global Asset Allocation Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
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
Mark Bavoso
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank
One Chase Plaza
New York, NY 10005
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
SUB-ADVISER
Morgan Grenfell Investment Services Limited
DEAN WITTER
GLOBAL ASSET
ALLOCATION FUND
PROSPECTUS--MARCH 2, 1998
171
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
LETTER TO THE SHAREHOLDERS January 31, 1998
Two World Trade Center, New York, New York 10048
DEAR SHAREHOLDER:
The performances of global capital markets were mixed during the last twelve
months. Asian equity markets experienced the most turmoil and, in October,
these markets plunged under weak currencies and economic instability.
Indonesia was the hardest hit, losing 83.89 percent of its
value, followed by Malaysia (down 72.23 percent) and Thailand (down
68.82 percent). Even Hong Kong, whose currency has remained stable, declined
32.52 percent. And, once again the Japanese market disappointed investors,
falling 6.56 percent. The economy there slowed after the government reversed
an income tax rebate and increased a consumption tax. Investor confidence in
Japan was continually shaken as the financial system appeared ever more
fragile and politicians lost credibility while attempting to deal with the
economic slump.
In contrast to the Asian downturn, markets in the United States and Europe
continued to rally. The U.S. equity market was, once again, one of the
world's top performers, with the Standard & Poor's 500 Composite Stock Price
Index (S&P 500) advancing 26.84 percent. In Europe the dual catalysts of weak
domestic currencies and positive sentiment toward Economic and Monetary Union
(EMU) sent those equity markets higher. Especially strong performance was
seen in Portugal (+44.42 percent), Switzerland (+45.99 percent) and Italy
(+34.53 percent). Core European markets also did well with Germany up 29.37
percent and the Netherlands up 26.68 percent.
Global bonds and the U.S. dollar were strong performers over the last
year. The economic crisis in Asia reinforced the disinflationary trend of the
world economy, causing bond yields to drop in the United States
and Europe. The U.S. dollar continued to strengthen, appreciating by
10.4 percent against the German mark and by 4.6 percent against the Japanese
yen.
PERFORMANCE
For the fiscal year ended January 31, 1998, Dean Witter Global Asset
Allocation Fund Class B provided a total return of 3.29 percent versus
172
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
LETTER TO THE SHAREHOLDERS January 31, 1998, continued
15.97 percent for the Morgan Stanley Capital International World Index and
10.34 percent for the Lipper Global Flexible Portfolio Funds Index. The
accompanying chart compares the performance of a $10,000 investment in the
Fund from inception (February 28, 1995) through the fiscal year ended January
31, 1998, with the performance of similar hypothetical investments in the
Morgan Stanley Capital International World Index and the Lipper Global
Flexible Portfolio Funds Index.
[GROWTH OF $10,000 -- CLASS B GRAPHIC]
Past performance is not predictive of future returns.
(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 --
5%, since inception -- 3%). See the fund's prospectus for complete details
on fees and sales charges.
(3) Closing value after the deduction of a 3% CDSC, assuming a complete
redemption on January 31, 1998.
(4) The Morgan Stanley Capital International World Index (MSCI) measures
performances for a diverse range of global stock markets including the U.S.,
Canada, Europe, Australia, New Zealand and the Far East. The Index does not
include any expenses, fees or charges or reinvestment of dividends. The
Index is unmanaged and should not be considered an investment.
(5) The Lipper Global Flexible Portfolio Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper Global Flexible Portfolio 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 10 funds
represented in this Index.
The Fund's underperformance relative to its benchmarks was due to
overweightings in Japan and Asia during the period under review. In response
to the continuing decline of these markets and the still uncertain economic
environment there, the Fund has reduced its exposure to those markets. The
regional allocation targets for the beginning of the fiscal year are Europe,
38 percent (overweighted); United States, 35 percent (underweighted); Japan,
6 percent (underweighted); Emerging Asia, 6 percent (overweighted); Latin
America, 6 percent (overweighted); and other, 1 percent. The remaining 8
percent of the equity portfolio is held in cash. The Fund's asset target mix
is 70 percent equity, 20 percent fixed income and 10 percent money market
investments.
In October 1997, Trust Company of the West (TCW) informed the Fund's Board of
Trustees of its intention to resign as sub-adviser. On November 6, 1997, the
Board of Trustees of Dean Witter Global Asset Allocation Fund unanimously
recommended that a new investment management agreement between InterCapital
and Dean Witter Global Asset Allocation Fund be submitted to shareholders of
the Fund for approval at a special meeting scheduled for February 26, 1998.
If the new investment management agreement is approved by shareholders,
InterCapital will assume the investment advisory function formerly performed
by TCW upon effectiveness of the new investment management agreement.
173
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
LETTER TO THE SHAREHOLDERS January 31, 1998, continued
LOOKING AHEAD
We expect that world markets overall will continue to perform well over the
coming year but that Asian markets will remain volatile. However, we believe
that the asset allocation targets we have set for the Fund will reduce the
impact these markets will have on the Fund's performance.
We appreciate your support of Dean Witter Global Asset Allocation Fund and
look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
174
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998
SHARES/PRINCIPAL
AMOUNT VALUE
------ -----
COMMON AND PREFERRED
STOCKS AND BONDS (89.4%)
ARGENTINA (0.5%)
Banking
2,209 Banco de Galicia y Buenos Aires S.A. de C.V. (ADR) ............. $ 48,460
------------
Energy
2,700 Yacimentos Petroliferos Fiscales S.A. (ADR) .................... 82,181
------------
Multi-Industry
11,791 Perez Companc S.A. (Class B) ................................... 77,850
------------
Telecommunications
1,000 Telefonica de Argentina S.A. (Class B)(ADR) .................... 34,625
------------
TOTAL ARGENTINA ................................................ 243,116
------------
AUSTRALIA (0.6%)
Telecommunications
6,500 Telstra Corp. Ltd. (ADR)* ...................................... 293,719
------------
BRAZIL (1.5%)
Metals & Mining
2,840 Companhia Vale do Rio Doce S.A. (Pref.)(ADR) ................... 54,847
------------
Petroleum
944,000 Petroleo Brasileiro S.A. (Pref.) ............................... 201,745
------------
Telecommunications
3,410 Telecomunicacoes Brasileiras S.A. (ADR) ....................... 378,510
143,234 Telecomunicacoes de Sao Paulo S.A. (Pref.)(RCP)* .............. 41,454
------------
419,964
------------
Utilities -Electric
1,400 Centrais Electricas Brasileiras S.A. -Electrobras (ADR) ........ 30,100
2,260 Companhia Energetica de Minas Gerais S.A. (ADR) ................ 88,140
260,000 Companhia Energetica de Minas Gerais S.A. (Pref.) ............. 10,280
------------
128,520
------------
TOTAL BRAZIL ................................................... 805,076
------------
CHILE (0.3%)
Beverages -Soft Drinks
1,420 Embotelladora Andina S.A. (Series A)(ADR) ...................... $ 28,400
------------
Telecommunications
3,125 Compania de Telecomunicaciones de Chile S.A. (ADR) ............. 75,195
------------
Utilities -Electric
2,000 Enersis S.A. (ADR) ............................................ 52,875
------------
TOTAL CHILE ................................................... 156,470
------------
COLOMBIA (0.1%)
Banking
3,500 Banco Industrial Colombiano S.A. (ADR) ......................... 41,781
------------
DENMARK (2.4%)
Air Transport
1,200 Kobenhavns Lufthavne AS ....................................... 138,584
------------
Government Obligations
Kingdom of Denmark
DKK 1,400K 7.00% due 12/15/04 ............................................. 221,815
Kingdom of Denmark
DKK 1,300K 8.00% due 05/15/03 ............................................. 212,610
Kingdom of Denmark
DKK 1,720K 8.00% due 03/15/06 ............................................. 289,665
Kingdom of Denmark
DKK 800K 9.00% due 11/15/00 ............................................. 127,968
------------
852,058
------------
Pharmaceuticals
1,880 Novo-Nordisk AS (Series B) ..................................... 269,708
------------
TOTAL DENMARK .................................................. 1,260,350
------------
FINLAND (0.8%)
Insurance
7,060 Pohjola Insurance Co. "B" ...................................... 303,453
------------
Telecommunication Equipment
1,400 Nokia Oyj (A Shares) ........................................... 109,731
------------
TOTAL FINLAND .................................................. 413,184
------------
FRANCE (3.7%)
Banks -Money Center
43 Banque Nationale de Paris ...................................... 2,221
4,500 Credit Commercial de France ................................... 306,313
------------
308,534
------------
SEE NOTES TO FINANCIAL STATEMENTS
175
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
SHARES/PRINCIPAL
AMOUNT VALUE
------ -----
Electronics -Semiconductors
1,960 SGS-Thomson Microelectronics N.V.* ............................. $ 134,247
-----------
Household Products
2,060 Societe BIC S.A. ............................................... 150,673
-----------
Insurance
2,700 AXA-UAP ......................................................... 224,174
-----------
Leisure
1,500 Accor S.A. ..................................................... 295,082
-----------
Media
1,380 Canal Plus ..................................................... 278,229
-----------
Oil & Gas
1,690 Elf Aquitaine S.A. .............................................. 190,764
1,650 Total S.A. (B Shares) ........................................... 171,715
-----------
362,479
-----------
Telecommunication Equipment
1,400 Alcatel Alsthom S.A. ........................................... 185,662
-----------
TOTAL FRANCE ................................................... 1,939,080
-----------
GERMANY (4.1%)
Automotive
280 Bayerische Motoren Werke (BMW) AG .............................. 223,510
-----------
Chemicals -Diversified
2,950 Hoechst AG ..................................................... 103,710
-----------
Government Obligations
German Unity Fund
DEM 175K 8.00% due 01/12/02 .............................................. 108,062
DEM 605K Germany (Federal Republic) 5.25% due 10/20/98 ................... 334,520
DEM 661K Germany (Federal Republic) 6.25% due 01/04/24 ................... 391,830
DEM 695K Germany (Federal Republic) 6.50% due 10/14/05 ................... 417,684
DEM 455K Germany (Federal Republic) 7.25% due 10/21/02 ................... 277,154
-----------
1,529,250
-----------
Steel Related
1,050 SGL Carbon AG .................................................. 132,039
-----------
Utilities -Electric
2,650 VEBA AG ......................................................... 183,138
-----------
TOTAL GERMANY ................................................... 2,171,647
-----------
HONG KONG (2.7%)
Banking
37,400 Hang Seng Bank Ltd. ............................................. 295,021
-----------
Conglomerates
70,000 Hutchison Whampoa, Ltd. ......................................... 411,871
-----------
Real Estate
41,000 Hong Kong Land Holdings Ltd. ................................... 66,010
-----------
Telecommunications
160,000 Hong Kong Telecommunications Ltd. .............................. 333,118
-----------
Utilities -Electric
55,000 CLP Holdings Ltd. ............................................... 302,276
-----------
TOTAL HONG KONG ................................................. 1,408,296
-----------
ITALY (1.9%)
Government Obligations
Italy (Republic of)
ITL 615,000K 7.75% due 11/01/06 ............................................. 396,607
Italy (Republic of)
ITL 245,000K 10.00% due 08/01/03 ............................................. 166,646
-----------
563,253
-----------
Household Furnishings &
Appliances
6,400 Industrie Natuzzi SpA (ADR) ..................................... 156,800
-----------
Telecommunications
25,000 Telecom Italia Mobile SpA ....................................... 119,206
26,250 Telecom Italia SpA .............................................. 181,822
-----------
301,028
-----------
TOTAL ITALY ..................................................... 1,021,081
-----------
JAPAN (4.7%)
Automotive
9,000 Suzuki Motor Co. Ltd. ........................................... 82,979
-----------
Banking
6,000 Bank of Tokyo-Mitsubishi Ltd. ................................... 86,998
4,000 Mitsubishi Trust & Banking ..................................... 46,336
-----------
133,334
-----------
Building & Construction
4,000 Sekisui House Ltd. .............................................. 33,097
-----------
Business Services
8,000 Ricoh Co., Ltd. ................................................. 94,563
SEE NOTES TO FINANCIAL STATEMENTS -----------
176
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
SHARES/PRINCIPAL
AMOUNT VALUE
------ -----
Chemicals
16,000 Asahi Chemical Industrial Co. Ltd. .............................. $ 63,672
7,000 Shin-Etsu Chemical Co. .......................................... 155,556
--------------
219,228
--------------
Electrical Equipment
5,000 Sumitomo Electric Industries ................................... 73,680
--------------
Electronic & Electrical
Equipment
5,000 Canon, Inc. ..................................................... 121,355
9,000 Hitachi, Ltd. ................................................... 70,922
7,000 Matsushita Electric Industrial Co., Ltd. ....................... 105,359
6,000 NGK Insulators, Ltd. ........................................... 54,846
1,500 Sony Corp. ...................................................... 138,298
--------------
490,780
--------------
Engineering & Construction
8,000 Kajima Corp. ................................................... 27,423
--------------
Financial Services
1,000 Japan Associated Finance ....................................... 47,675
3,000 Nomura Securities Co. Ltd. ..................................... 40,189
--------------
87,864
--------------
Insurance
5,000 Tokio Marine & Fire Insurance Co. ............................... 55,556
--------------
Machinery
5,000 Daifuku Co. Ltd. ............................................... 26,990
1,100 Keyence Corp. ................................................... 166,430
8,000 Minebea Co., Ltd. ............................................... 85,106
15,000 NSK Ltd. ........................................................ 53,073
--------------
331,599
--------------
Manufacturing
1,900 Sony Music Entertainment Inc. .................................. 67,376
--------------
Pharmaceuticals
3,000 Yamanouchi Pharmaceutical Co. ................................... 72,813
--------------
Real Estate
5,000 Mitsubishi Estate Co. Ltd. ..................................... 55,162
4,000 Mitsui Fudosan Co. Ltd. ........................................ 39,716
--------------
94,878
--------------
Retail
2,700 Family Mart Co. Ltd. ........................................... 103,191
2,000 Ito-Yokado Co. Ltd. ............................................ 104,964
--------------
208,155
--------------
Steel & Iron
28,000 NKK Corp. ....................................................... $ 30,670
9,000 Yamato Kogyo Co., Ltd. ......................................... 81,560
--------------
112,230
--------------
Telecommunications
19 DDI Corp. ...................................................... 60,788
15 Nippon Telegraph & Telephone Corp. .............................. 135,934
--------------
196,722
--------------
Textiles -Apparel
7,000 Tokyo Style .................................................... 71,710
--------------
TOTAL JAPAN ..................................................... 2,453,987
--------------
MALAYSIA (0.6%)
Telecommunications
138,000 Telekom Malaysia Berhad ......................................... 339,642
--------------
MEXICO (1.5%)
Banking
8,750 Grupo Financiero Inbursa S.A. de C.V. (B Shares) ................ 27,615
--------------
Building & Construction
4,000 Apasco S.A. de C.V. ............................................ 26,005
2,300 Empresa ICA Sociedad Controladora S.A. de C.V. (ADR)* ........... 31,337
--------------
57,342
--------------
Building Materials
20,300 Cemex S.A. de C.V. (B Shares) ................................... 85,903
--------------
Conglomerates
9,443 ALFA S.A. de C.V. (Class A) ..................................... 50,229
15,900 Grupo Carso S.A. de C.V. (Series A1)* ........................... 90,589
--------------
140,818
--------------
Food, Beverage, Tobacco & Household Products
11,300 Fomento Economico Mexicano S.A. de C.V. (B Shares) .............. 70,792
2,730 Panamerican Beverages, Inc. (Class A)(ADR) ...................... 88,725
--------------
159,517
--------------
Media Group
1,700 Grupo Televisa S.A. (GDR)* ...................................... 54,719
--------------
SEE NOTES TO FINANCIAL STATEMENTS
177
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
SHARES/PRINCIPAL
AMOUNT VALUE
------ -----
Paper & Forest Products
15,600 Kimberly-Clark de Mexico S.A. de C.V. (A Shares) ................ $ 67,397
------------
Retail
19,000 Cifra S.A. de C.V. (C Shares)* ................................. 32,116
2,212 Cifra S.A. de C.V. (Series V) ................................... 4,021
------------
36,137
------------
Telecommunications
2,700 Telefonos de Mexico S.A. de C.V. (Series L)(ADR) ................ 132,975
------------
TOTAL MEXICO ................................................... 762,423
------------
NETHERLANDS (2.9%)
Chemicals
780 Akzo Nobel NV .................................................. 141,192
------------
Electrical Equipment
2,160 Philips Electronics NV .......................................... 145,837
------------
Insurance
2,528 Aegon NV ........................................................ 241,188
4,771 ING Groep NV .................................................... 218,452
------------
459,640
------------
Publishing
9,000 Ver Ned Uitgev Ver Bezit NV ..................................... 251,880
1,212 Wolters Kluwer NV ............................................... 164,014
------------
415,894
------------
Record & Tape Distribution
3,100 PolyGram NV ..................................................... 138,332
------------
Retail
4,656 Koninklijke Ahold NV ............................................ 128,273
------------
Semiconductor Equipment
1,500 ASM Lithography Holding NV* .................................... 103,313
------------
TOTAL NETHERLANDS ............................................... 1,532,481
------------
PERU (0.1%)
Brewery
45,169 Union de Cervecerias Peruanas Backus & Johnston S.A. (T Shares) . 38,400
------------
Telecommunications
Telefonica del Peru S.A.
1,300 (B Shares)(ADR) ................................................ 25,513
------------
TOTAL PERU ...................................................... 63,913
------------
SINGAPORE (1.9%)
Airlines
79,000 Singapore Airlines Ltd. ......................................... $ 516,672
------------
Banking
120,800 Overseas-Chinese Banking Corp. Ltd. ............................. 504,362
------------
TOTAL SINGAPORE ................................................. 1,021,034
------------
SPAIN (2.0%)
Banks
6,750 Banco Bilbao Vizcaya ............................................ 235,880
4,980 Banco Popular Espanol S.A. ..................................... 375,667
------------
611,547
------------
Government Obligations
Spain (Government of)
ESP 28,000K 7.90% due 02/28/02 .............................................. 201,299
Spain (Government of)
ESP 16,600K 8.80% due 04/30/06 .............................................. 132,104
------------
333,403
------------
Telecommunications
3,400 Telefonica de Espana S.A. ....................................... 111,141
------------
TOTAL SPAIN ..................................................... 1,056,091
------------
SWEDEN (3.0%)
Automobiles
3,400 Volvo AB (B Shares) ............................................. 93,086
------------
Business Services
7,440 Assa Abloy AB (Series B) ........................................ 183,509
5,940 Securitas AB (Series "B" Free) .................................. 173,615
------------
357,124
------------
Electrical Equipment
4,950 Ericsson (L.M.) Telephone Co. AB (Series "B" Free) .............. 194,127
------------
Government Obligations
Sweden (Government of)
SEK 4,600K 6.00% due 02/09/05 .............................................. 584,460
Sweden (Kingdom of)
SEK 300K 8.00% due 08/15/07 .............................................. 43,399
------------
627,859
------------
Multi-line Insurance
2,750 Skandia Forsakrings AB .......................................... 143,459
-------------
Pharmaceuticals
8,533 Astra AB (B Shares) ............................................. 151,011
-------------
TOTAL SWEDEN .................................................... 1,566,666
-------------
SEE NOTES TO FINANCIAL STATEMENTS
178
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
SHARES/PRINCIPAL
AMOUNT VALUE
------ -----
SWITZERLAND (2.8%)
Airlines
215 Sairgroup* ..................................................... $ 276,761
--------------
Banking
1,875 Credit Suisse Group-Reg ........................................ 298,844
85 UBS-Bearer ...................................................... 120,992
--------------
419,836
--------------
Foods & Beverages
100 Nestle S.A. ..................................................... 159,553
--------------
Pharmaceuticals
180 Novartis AG ..................................................... 308,537
30 Roche Holdings AG .............................................. 311,789
--------------
620,326
--------------
TOTAL SWITZERLAND ............................................... 1,476,476
--------------
UNITED KINGDOM (12.5%)
Aerospace
44,091 Rolls-Royce PLC ................................................ 149,087
--------------
Auto Parts
32,660 BBA Group PLC .................................................. 191,527
--------------
Building Materials
39,357 Blue Circle Industries PLC ...................................... 208,298
--------------
Electrical Equipment
18,909 BICC Group (The) PLC ............................................ 43,861
38,580 General Electric Co. PLC ........................................ 241,368
--------------
285,229
--------------
Financial Services
29,000 Abbey National PLC .............................................. 582,669
779 HSBC Holdings PLC ............................................... 20,360
--------------
603,029
--------------
Food, Beverage, Tobacco & Household Products
7,770 B.A.T. Industries PLC ........................................... 70,823
16,067 Bass PLC ........................................................ 254,581
--------------
325,404
--------------
Government Obligations
pounds sterling 43K United Kingdom Treasury Gilt 7.50% due 12/07/06 ............... 76,848
pounds sterling 162K United Kingdom Treasury Gilt 8.50% due 12/07/05 .............. 302,998
--------------
379,846
--------------
Insurance
28,646 Prudential Corp. PLC ............................................ $ 384,173
39,113 Royal & Sun Alliance Insurance Group PLC ....................... 442,765
--------------
826,938
--------------
Leisure
11,956 Granada Group PLC ............................................... 188,075
27,401 Rank Group PLC ................................................. 134,167
--------------
322,242
--------------
Multi-Industry
54,803 Tomkins PLC .................................................... 295,418
--------------
Natural Gas
36,150 BG PLC .......................................................... 194,868
--------------
Oil -International -Integrated
81,457 Shell Transport & Trading Co. PLC ............................... 553,530
--------------
Pharmaceuticals
28,024 Glaxo Wellcome PLC ............................................. 752,119
--------------
Publishing
15,445 EMAP PLC ........................................................ 264,909
--------------
Retail
14,201 Great Universal Stores PLC ...................................... 170,732
13,000 Kingfisher PLC .................................................. 203,436
--------------
374,168
--------------
Telecommunications
56,545 British Telecommunications PLC .................................. 540,343
41,306 Securicor PLC ................................................... 222,547
--------------
762,890
--------------
Transportation
7,201 British Airways PLC ............................................ 60,579
--------------
TOTAL UNITED KINGDOM ............................................ 6,550,081
--------------
UNITED STATES (38.6%)
Aerospace & Defense
4,980 General Motors Corp. (Class H) .................................. 172,432
--------------
Air Transport
7,340 Continental Airlines, Inc. (Class B)* .......................... 340,392
--------------
SEE NOTES TO FINANCIAL STATEMENTS
179
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
SHARES/PRINCIPAL
AMOUNT VALUE
------ -----
Automotive
9,730 Chrysler Corp. ................................................. $ 338,726
7,490 Ford Motor Co. ................................................. 381,990
------------
720,716
------------
Banking
3,750 BankBoston Corp. ............................................... 335,625
$ 100K Central Fidelity Capital I -144A** 6.75% due 04/15/27 ........... 101,925
2,850 Chase Manhattan Corp. ........................................... 305,484
2,530 Citicorp ........................................................ 301,070
5,440 First Tennessee National Corp. .................................. 320,280
4,750 Washington Mutual, Inc. ......................................... 305,187
------------
1,669,571
------------
Beverages -Soft Drinks
8,400 PepsiCo, Inc. ................................................... 302,925
------------
Chemicals
10,300 Georgia Gulf Corp. ............................................. 336,037
7,300 Monsanto Co. ................................................... 346,294
------------
682,331
------------
Computer Software
7,000 HBO & Co. ....................................................... 366,188
2,360 Microsoft Corp.* ............................................... 352,082
------------
718,270
------------
Computers
9,880 COMPAQ Computer Corp. ........................................... 297,018
10,740 Gateway 2000, Inc.* ............................................ 404,764
------------
701,782
------------
Computers -Systems .............................................
8,900 Sun Microsystems, Inc.* ........................................ 426,644
------------
Electrical Equipment
4,460 General Electric Co. ........................................... 345,650
4,630 Honeywell, Inc. ................................................ 324,389
------------
670,039
------------
Electronics -
Semiconductors/Components
4,040 Intel Corp. .................................................... 327,240
------------
Entertainment
3,520 The Walt Disney Co. ............................................ 375,100
------------
Financial Services
Associates Corp. N.A.
$ 100K 6.375% due 08/15/99 ............................................ 101,009
6,190 Fannie Mae ..................................................... 382,233
6,560 Travelers Group, Inc. .......................................... 324,720
------------
807,962
------------
Insurance
3,100 American International Group, Inc. ............................. $ 341,969
Orion Capital Trust I
$ 200K 8.73% due 01/01/37 ............................................. 216,500
------------
558,469
------------
Oil -International -Integrated
5,200 Exxon Corp. ..................................................... 308,425
------------
Oil Related
4,250 Mobil Corp. .................................................... 289,531
5,530 Texaco, Inc. ................................................... 287,906
------------
577,437
------------
Packaged Foods
4,290 General Mills, Inc. ............................................ 319,337
------------
Paper Products
7,100 Bowater, Inc. ................................................... 347,900
5,740 Champion International Corp. .................................... 293,816
------------
641,716
------------
Pharmaceuticals
4,500 American Home Products Corp. ................................... 429,469
4,990 Johnson & Johnson .............................................. 334,018
2,270 Warner-Lambert Co. .............................................. 341,635
------------
1,105,122
------------
Railroad Equipment
7,020 Trinity Industries, Inc. ....................................... 317,655
------------
Retail -Department Stores
25,000 Kmart Corp. ..................................................... 275,000
------------
Retail -Specialty
9,760 Bed Bath & Beyond, Inc.* ........................................ 386,740
5,680 Home Depot, Inc. ................................................ 342,575
12,400 Pep Boys-Manny, Moe & Jack ...................................... 271,250
------------
Savings & Loans Association 1,000,565
------------
3,600 Golden West Financial Corp. .................................... 303,975
------------
Steel
6,430 Nucor Corp. .................................................... 306,229
------------
Telecommunication Equipment
5,700 Cisco Systems, Inc.* ........................................... 359,456
------------
Tobacco
7,530 Philip Morris Companies, Inc. ................................... 312,495
------------
SEE NOTES TO FINANCIAL STATEMENTS
180
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
SHARES/PRINCIPAL
AMOUNT VALUE
------ -----
U.S. Government Obligations
U.S. Treasury Bond
$1,250K 6.875% due 08/15/25 ............................................ $ 1,417,675
U.S. Treasury Note
$ 50K 5.625% due 11/30/00 ............................................ 50,346
U.S. Treasury Note
$1,100K 5.875% due 04/30/98 ............................................ 1,101,375
U.S. Treasury Note
$ 175K 6.50% due 04/30/99 ............................................. 177,518
U.S. Treasury Note
$ 250K 6.50% due 05/15/05 ............................................. 264,610
U.S. Treasury Note
$1,150K 6.625% due 06/30/01 ............................................ 1,193,424
U.S. Treasury Note
$ 570K 6.875% due 08/31/99 ............................................ 583,281
U.S. Treasury Note
$1,000K 6.875% due 05/15/06 ............................................ 1,086,340
U.S. Treasury Note
$ 75K 7.50% due 11/15/01 ............................................. 80,304
--------------
5,954,873
--------------
TOTAL UNITED STATES ............................................ 20,256,158
--------------
VENEZUELA (0.2%)
Telecommunications
2,300 Compania Anonima Nacional Telefonos de Venezuela (Class D)(ADR)* 84,525
--------------
TOTAL COMMON AND PREFERRED STOCKS
AND BONDS
(Identified Cost $41,265,351) ................................... 46,917,277
--------------
CURRENCY DESCRIPTION,
AMOUNT EXPIRATION DATE
IN THOUSANDS AND STRIKE PRICE VALUE
------------ ---------------- -----
PURCHASED CALL OPTION ON
FOREIGN CURRENCY (0.1%)
FEBRUARY 10, 1998/YEN 120.72
yen 700 (Identified Cost $17,255) ...................................... $ 34,230
----------
PRINCIPAL
AMOUNT
------
SHORT-TERM INVESTMENT (a) (9.5%)
U.S. GOVERNMENT AGENCY
Federal Home Loan Mortgage Corp. 5.57% due 02/02/98 (Amortized
$5,000K Cost $4,998,969) 4,998,969
----------
TOTAL INVESTMENTS
(Identified Cost $46,281,575)(b) . 99.0% 51,950,476
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES.................... 1.0 521,061
-------- ------------
NET ASSETS........................ 100.0% $52,471,537
======== ============
- ------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
RCP Receipt shares.
K In thousands.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$7,665,499 and the aggregate gross unrealized depreciation is
$1,996,598, resulting in net unrealized appreciation of $5,668,901.
SEE NOTES TO FINANCIAL STATEMENTS
181
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
SUMMARY OF INVESTMENTS January 31, 1998
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------- ----- ----------
Aerospace.................... $ 149,087 0.3%
Aerospace & Defense.......... 172,432 0.3
Air Transport................ 478,976 0.9
Airlines..................... 793,433 1.5
Auto Parts................... 191,527 0.4
Automobiles.................. 93,086 0.2
Automotive................... 1,027,205 2.0
Banking...................... 3,139,980 6.0
Banks........................ 611,547 1.2
Banks -Money Center.......... 308,534 0.6
Beverages -Soft Drinks....... 331,325 0.6
Brewery...................... 38,400 0.1
Building & Construction ..... 90,439 0.2
Building Materials........... 294,201 0.6
Business Services............ 451,687 0.9
Chemicals.................... 1,042,751 2.0
Chemicals -Diversified....... 103,710 0.2
Computer Software............ 718,270 1.4
Computers ................... 701,782 1.3
Computers -Systems........... 426,644 0.8
Conglomerates................ 552,689 1.1
Currency Option ............. 34,230 0.1
Electrical Equipment......... 1,368,912 2.6
Electronic & Electrical
Equipment................... 490,780 0.9
Electronics -Semiconductors . 134,247 0.3
Electronics
-Semiconductors/Components . 327,240 0.6
Energy....................... 82,181 0.2
Engineering & Construction .. 27,423 0.1
Entertainment................ 375,100 0.7
Financial Services........... 1,498,855 2.8
Food, Beverage, Tobacco, &
Household Products.......... 484,921 0.9
Foods & Beverages............ 159,553 0.3
Government Obligations....... 4,285,669 8.2
Household Furnishings &
Appliances.................. 156,800 0.3
Household Products........... 150,673 0.3
Insurance.................... 2,428,230 4.6
Leisure...................... 617,324 1.2
Machinery.................... 331,599 0.6
Manufacturing................ 67,376 0.1
Media ....................... 278,229 0.5
Media Group.................. 54,719 0.1
Metals & Mining.............. 54,847 0.1
Multi-Industry............... $ 373,268 0.7%
Multi-Line Insurance......... 143,459 0.3
Natural Gas.................. 194,868 0.4
Oil & Gas.................... 362,479 0.7
Oil -International
-Integrated ................ 1,439,392 2.7
Packaged Foods............... 319,337 0.6
Paper & Forest Products ..... 67,397 0.1
Paper Products .............. 641,716 1.2
Petroleum.................... 201,745 0.4
Pharmaceuticals.............. 2,971,099 5.6
Publishing .................. 680,803 1.3
Railroad Equipment........... 317,655 0.6
Real Estate.................. 160,888 0.3
Record & Tape Distribution .. 138,332 0.3
Retail ...................... 746,733 1.4
Retail -Department Stores .. 275,000 0.5
Retail -Specialty............ 1,000,565 1.9
Savings & Loans Association . 303,975 0.6
Semiconductor Equipment ..... 103,313 0.2
Steel........................ 306,229 0.6
Steel & Iron................. 112,230 0.2
Steel Related................ 132,039 0.3
Telecommunication Equipment . 654,849 1.2
Telecommunications........... 3,111,057 5.9
Textiles -Apparel............ 71,710 0.1
Tobacco...................... 312,495 0.6
Transportation .............. 60,579 0.1
U.S. Government Agency....... 4,998,969 9.5
U.S. Government Obligations 5,954,873 11.3
Utilities -Electric ......... 666,809 1.3
------------- -----
$51,950,476 99.0%
============= =====
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ------------------ ----- ----------
Common Stocks ............... $35,948,975 68.5%
Corporate Bonds.............. 419,434 0.8
Foreign Currency Call
Option...................... 34,230 0.1
Foreign Government
Obligations................. 4,285,669 8.2
Preferred Stocks............. 308,326 0.6
U.S. Government Agency....... 4,998,969 9.5
U.S. Government Obligations . 5,954,873 11.3
------------- ----------
$51,950,476 99.0%
============= ==========
182
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1998
ASSETS:
Investments in securities, at value (identified cost $46,281,575) $51,950,476
Cash (including $45,203 in foreign currency)...................... 187,716
Receivable for:
Interest ....................................................... 234,284
Investments sold ............................................... 219,189
Foreign withholding taxes reclaimed ............................ 32,523
Dividends ...................................................... 32,254
Shares of beneficial interest sold ............................. 5,830
Deferred organizational expenses ................................. 73,239
Prepaid expenses and other assets ................................ 78,353
------
TOTAL ASSETS.................................................... 52,813,864
----------
LIABILITIES:
Payable for:
Investments purchased........................................... 118,812
Plan of distribution fee........................................ 45,092
Investment management fee....................................... 44,913
Shares of beneficial interest repurchased ...................... 36,796
Accrued expenses and other payables .............................. 96,714
------
TOTAL LIABILITIES............................................... 342,327
-------
NET ASSETS ..................................................... $52,471,537
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital .................................................. $49,192,315
Net unrealized appreciation ...................................... 5,660,048
Accumulated undistributed net investment income .................. 222,130
Distributions in excess of net realized gain ..................... (2,602,956)
----------
NET ASSETS ..................................................... $52,471,537
===========
CLASS A SHARES:
Net Assets ....................................................... $ 26,956
Shares Outstanding (unlimited authorized, $.01 par value) ........ 2,344
NET ASSET VALUE PER SHARE....................................... $ 11.50
===========
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ............... $ 12.14
===========
CLASS B SHARES:
Net Assets ....................................................... $52,374,341
Shares Outstanding (unlimited authorized, $.01 par value) ........ 4,568,443
NET ASSET VALUE PER SHARE....................................... $ 11.46
===========
CLASS C SHARES:
Net Assets........................................................ $ 53,358
Shares Outstanding (unlimited authorized, $.01 par value) ....... 4,660
NET ASSET VALUE PER SHARE ...................................... $ 11.45
===========
CLASS D SHARES:
Net Assets ....................................................... $ 16,882
Shares Outstanding (unlimited authorized, $.01 par value) ....... 1,467
NET ASSET VALUE PER SHARE ...................................... $ 11.51
===========
SEE NOTES TO FINANCIAL STATEMENTS
183
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended January 31, 1998*
NET INVESTMENT INCOME:
INCOME
Interest (net of $132 foreign withholding tax)....................... $1,044,521
Dividends (net of $77,953 foreign withholding tax) .................. 759,559
-------
TOTAL INCOME ...................................................... 1,804,080
---------
EXPENSES
Investment management fee ........................................... 621,396
Plan of distribution fee (Class A shares) ........................... 28
Plan of distribution fee (Class B shares) ........................... 580,914
Plan of distribution fee (Class C shares) ........................... 241
Professional fees ................................................... 88,295
Transfer agent fees and expenses..................................... 80,972
Shareholder reports and notices...................................... 78,146
Custodian fees ...................................................... 68,714
Registration fees.................................................... 55,755
Organizational expenses.............................................. 35,303
Trustees' fees and expenses ......................................... 13,810
Other ............................................................... 22,101
------
TOTAL EXPENSES..................................................... 1,645,675
---------
NET INVESTMENT INCOME.............................................. 158,405
-------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments ....................................................... 629,076
Foreign exchange transactions ..................................... 361,840
-------
NET GAIN........................................................... 990,916
-------
Net change in unrealized appreciation/depreciation on:
Investments ....................................................... 994,604
Translation of forward foreign currency contracts, other assets
and liabilities denominated in foreign currencies .............. (2,764)
------
NET APPRECIATION .................................................. 991,840
-------
NET GAIN........................................................... 1,982,756
---------
NET INCREASE ........................................................ $2,141,161
==========
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
184
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 1998* JANUARY 31, 1997
----------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 158,405 $ 65,971
Net realized gain...................................... 990,916 1,876,766
Net change in unrealized appreciation ................. 991,840 584,125
------- -------
NET INCREASE ........................................ 2,141,161 2,526,862
--------- ---------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -Class B shares.................. (148,714) (554,313)
Net realized gain
Class A shares........................................ (1,601) --
Class B shares........................................ (3,307,479) (2,041,599)
Class C shares........................................ (3,196) --
Class D shares........................................ (853) --
---------- ----------
TOTAL DIVIDENDS AND DISTRIBUTIONS ................... (3,461,843) (2,595,912)
---------- ----------
Net increase (decrease) from transactions in shares of
beneficial interest................................... (11,521,571) 21,111,669
----------- ----------
NET INCREASE (DECREASE).............................. (12,842,253) 21,042,619
NET ASSETS:
Beginning of period.................................... 65,313,790 44,271,171
---------- ----------
END OF PERIOD
(Including undistributed net investment income of
$222,130 and dividends in excess of net investment
income of $41,886)................................... $ 52,471,537 $65,313,790
============ ===========
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
185
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Global Asset Allocation Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
seek long-term total return on its investments. The Fund seeks to achieve its
objective through a managed investment policy utilizing a portfolio of U.S.
and foreign equity, debt and money market securities. The Fund was organized
as a Massachusetts business trust on October 18, 1994 and commenced
operations on February 28, 1995. On July 28, 1997, the Fund commenced
offering three additional classes of shares, with the then current shares
designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (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 Dean Witter InterCapital Inc. (the "Investment
Manager") or by TCW Funds Management, Inc. or Morgan Grenfell Investment
Services, Ltd. (the "Sub-Advisers") that sale and bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by
and under the general supervision of the Trustees (valuation of debt
securities for which market quotations are not readily available may be based
upon current market prices of securities which are comparable in coupon,
rating and maturity or an appropriate matrix utilizing similar factors); (4)
certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may
186
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
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 from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. 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. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are included in the
Statement of Operations as unrealized foreign currency gain or loss. The Fund
records realized gains or losses on delivery of the currency or at the time
the forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery.
187
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
F. OPTION ACCOUNTING PRINCIPLES -- When the Fund writes a call option, an
amount equal to the premium received is included in the Fund's Statement of
Assets and Liabilities as a liability which is subsequently marked-to-market
to reflect the current market value of the option written. If a written
option either expires or the Fund enters into a closing purchase transaction,
the Fund realizes a gain or loss without regard to any unrealized gain or
loss on the underlying security or currency and the liability related to such
option is extinguished. If a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security or currency
and the proceeds from such sale are increased by the premium originally
received.
When the Fund purchases a call or put option, the premium paid is recorded as
an investment and is subsequently marked-to-market to reflect the current
market value. If a purchased option expires, the Fund will realize a loss to
the extent of the premium paid. If the Fund enters into a closing sale
transaction, a gain or loss is realized for the difference between the
proceeds from the sale and the cost of the option. If a put option is
exercised, the cost of the security or currency sold upon exercise will be
increased by the premium originally paid. If a call option is exercised, the
cost of the security purchased upon exercise will be increased by the premium
originally paid.
G. 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.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
I. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $177,000 of which
approximately $144,000 have been reimbursed. The
188
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
balance has been absorbed by the Investment Manager. Such expenses have been
deferred and are being amortized on the straight-line method over a period
not to exceed five years from commencement of operations.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying
the annual rate of 1.0% to the net assets of the Fund determined as of the
close of each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to
the Fund.
Under Sub-Advisory Agreements between the Sub-Advisers and the Investment
Manager, the Sub-Advisers provide the Fund with investment advice and
portfolio management relating to the Fund's investments in securities,
subject to the overall supervision of the Investment Manager. As compensation
for the services provided pursuant to the Sub-Advisory Agreements, the
Investment Manager pays each Sub-Adviser monthly compensation equal to 30% of
its monthly compensation.
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 -up to 0.25% of the
average daily net assets of Class A; (ii) Class B -1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C -up to 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
189
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
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. The Distributor has advised the Fund that such
excess amounts, including carrying charges, totaled $3,856,463, at
January 31, 1998.
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 credit to account executives may be reimbursed in
the subsequent calendar year. For the period ended January 31, 1998, 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 January 31,
1998, it received contingent deferred sales charges from redemptions of the
Fund's Class B shares and Class C shares of $191,520 and $33, respectively,
and received approximately $1,018 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.
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, 1998
aggregated $52,418,164 and $70,854,970, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$12,840,577 and $12,053,968, respectively.
190
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
For the period May 31, 1997 through January 31, 1998, the Fund incurred
brokerage commissions of $3,481 with Morgan Stanley & Co., Inc., an affiliate
of the Investment Manager since May 31, 1997, for portfolio transactions
executed on behalf of the Fund.
For the year ended January 31, 1998, the Fund incurred brokerage commissions of
$21,991 with DWR for portfolio transactions executed on behalf of the Fund. At
January 31, 1998, the Fund's payable for investments purchased and receivable
for investments sold included unsettled trades with DWR of $34,738 and $78,910,
respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At January 31, 1998, the Fund had transfer agent
fees and expenses payable of approximately $1,200.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 1998 JANUARY 31, 1997
---------------- ----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
CLASS A SHARES*
Sold 2,202 $ 28,364 -- --
Reinvestment of dividends and distributions 142 1,601 -- --
--- ----- ---------- ------------
Net increase -Class A 2,344 29,965 -- --
----- ------ ---------- ------------
CLASS B SHARES
Sold 637,914 7,870,323 2,505,555 $ 30,094,772
Reinvestment of dividends and distributions 277,899 3,138,105 199,063 2,368,262
Redeemed (1,863,599) (22,637,924) (944,898) (11,351,365)
---------- ----------- -------- -----------
Net increase (decrease) -Class B (947,786) (11,629,496) 1,759,720 21,111,669
-------- ----------- --------- ----------
CLASS C SHARES*
Sold 4,664 59,900 -- --
Reinvestment of dividends and distributions 262 2,944
Redeemed (266) (3,252) -- --
-------- ----------- --------- ----------
Net increase -Class C 4,660 59,592 -- --
-------- ----------- --------- ----------
CLASS D SHARES*
Sold 1,391 17,515 -- --
Reinvestment of dividends and distributions 76 853 -- --
-------- ----------- --------- ----------
Net increase -Class D 1,467 18,368 -- --
-------- ----------- --------- ----------
Net increase (decrease) in Fund (939,315) $(11,521,571) 1,759,720 $ 21,111,669
======== ============ ========= ============
* For the period July 28, 1997 (issue date) through January 31, 1998.
191
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $2,450,000 during fiscal 1998.
As of January 31, 1998, the Fund had temporary book/tax differences primarily
attributable to post-October losses and permanent book/tax differences
primarily attributable to foreign currency gains, tax adjustments on passive
foreign investment companies sold by the Fund and nondeductible
organizational expense. To reflect reclassifications arising from the
permanent differences, paid-in-capital was charged $32,807, distributions in
excess of net realized gain was charged $221,518 and accumulated
undistributed net investment income was credited $254,325.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated
portfolio transactions or to manage foreign currency exposure associated with
foreign currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk
of an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their
contracts.
At January 31, 1998, the Fund had no outstanding forward contracts.
8. SUBSEQUENT EVENT
Effective March 2, 1998, the Investment Manager will assume directly the
sub-advisory responsibilities currently being performed by TCW Funds
Management, Inc. (TCW). The Investment Manager will retain the portion of
their fee currently paid to TCW.
192
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
FOR THE YEAR FOR THE PERIOD
ENDED FOR THE YEAR FEBRUARY 28, 1995*
JANUARY 31, ENDED THROUGH
1998**++ JANUARY 31, 1997 JANUARY 31, 1996
-------- ---------------- ----------------
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $11.84 $ 11.79 $10.00
------ ---------- ------
Net investment income (loss)............ 0.03 (0.01) 0.17
Net realized and unrealized gain ...... 0.35 0.55 2.20
---- ---- ----
Total from investment operations ....... 0.38 0.54 2.37
---- ---- ----
Less dividends and distributions:
Net investment income.................. (0.03) (0.11) (0.34)
Net realized gain...................... (0.73) (0.38) (0.24)
----- ----- -----
Total dividends and distributions ...... (0.76) (0.49) (0.58)
----- ----- -----
Net asset value, end of period.......... $11.46 $ 11.84 $11.79
====== ========== ======
TOTAL INVESTMENT RETURN+................ 3.29% 4.58% 23.89%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................... 2.65% 2.53% 1.14%(2)(3)
Net investment income................... 0.25% 0.11% 1.71%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $52,374 $ 65,314 $44,271
Portfolio turnover rate................. 94% 63% 71%(1)
Average commission rate paid............ $0.0153 $ 0.0013 --
- ------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All
shares of the Fund held prior to that date have been designated Class
B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on
the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Investment Manager had not reimbursed all expenses, the above
annualized expense and net investment loss ratios would have been
2.87% and (0.02)%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
193
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS, continued
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JANUARY 31,
1998++
------
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 13.09
--------
Net investment income ..................... 0.05
Net realized and unrealized gain .......... (0.91)
-----
Total from investment operations .......... (0.86)
-----
Less distributions from net realized gain (0.73)
-----
Net asset value, end of period ............ $ 11.50
========
TOTAL INVESTMENT RETURN+................... (6.39)% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 2.02% (2)
Net investment income ..................... 0.79% (2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 27
Portfolio turnover rate ................... 94%
Average commission rate paid .............. $ 0.0153
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 13.09
Net realized and unrealized gain .......... (0.91)
-----
Less distributions from net realized gain (0.73)
-----
Net asset value, end of period ............ $ 11.45
========
TOTAL INVESTMENT RETURN+................... (6.79)% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 2.79%(2)
Net investment income ..................... 0.07%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 53
Portfolio turnover rate ................... 94%
Average commission rate paid .............. $ 0.0153
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on
the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
194
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS, continued
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JANUARY 31,
1998++
----
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 13.09
--------
Net investment income ..................... 0.07
Net realized and unrealized gain .......... (0.92)
-----
Total from investment operations .......... (0.85)
-----
Less distributions from net realized gain (0.73)
-----
Net asset value, end of period ............ $ 11.51
========
TOTAL INVESTMENT RETURN+ .................. (6.32)% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.80%(2)
Net investment income ..................... 1.08%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 17
Portfolio turnover rate ................... 94%
Average commission rate paid .............. $ 0.0153
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day
of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
195
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER GLOBAL ASSET ALLOCATION FUND
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Dean Witter
Global Asset Allocation Fund (the "Fund") at January 31, 1998, 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 January 31, 1998 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
February 13, 1998
1998 FEDERAL TAX NOTICE (unaudited)
During the year ended January 31, 1998, the Fund paid to Class A, B,
C and D shareholders $0.63 per share from long-term capital gains.
Of this $0.63 distribution, $0.12 is taxable as 28% rate gain and
$0.51 is taxable as 20% rate gain. Additionally, for such period
22.07% of the income paid qualified for the dividends received
deduction available to corporations.
196
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
Mark Bavoso
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
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
GLOBAL ASSET
ALLOCATION FUND
[GRAPHIC]
ANNUAL REPORT
JANUARY 31, 1998
197
DEAN WITTER STRATEGIST FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of Dean
Witter Strategist Fund ("Dean Witter Strategist") to be issued pursuant to an
Agreement and Plan of Reorganization, dated April 30, 1998, between Dean Witter
Strategist and Dean Witter Global Asset Allocation Fund ("Dean Witter Global
Asset) in connection with the acquisition by Dean Witter Strategist of
substantially all of the assets, subject to stated liabilities, of Dean Witter
Global Asset. 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 June ,
1998. A copy of the Proxy Statement and Prospectus may be obtained without
charge by mailing a written request to Dean Witter Strategist at Two World Trade
Center, New York, New York 10048 or by calling (212) 392-2550 or (800) 896-NEWS
(TOLL FREE). Please retain this document for future reference.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS JUNE , 1998.
198
TABLE OF CONTENTS
PAGE
----
INTRODUCTION................................................ B-3
ADDITIONAL INFORMATION ABOUT DEAN WITTER STRATEGIST......... B-3
FINANCIAL STATEMENTS........................................ B-4
B-2
199
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated June , 1998
(the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus has
been sent to Dean Witter Global Asset shareholders in connection with the
solicitation of proxies by the Board of Trustees of Dean Witter Global Asset to
be voted at the Special Meeting of shareholders of Dean Witter Global Asset to
be held on August 19, 1998. This Statement of Additional Information
incorporates by reference the Statement of Additional Information of Dean Witter
Strategist dated September 26, 1997 and the Statement of Additional Information
of Dean Witter Global Asset dated March 2, 1998.
ADDITIONAL INFORMATION ABOUT DEAN WITTER STRATEGIST
INVESTMENT OBJECTIVES AND POLICIES
For additional information about Dean Witter Strategist's investment
objectives and policies, see "Investment Practices and Policies" and "Investment
Restrictions" in Dean Witter Strategist's Statement of Additional Information.
MANAGEMENT
For additional information about the Board of Trustees, officers and
management personnel of Dean Witter Strategist, see "The Fund and its
Management" and "Trustees and Officers" in Dean Witter Strategist's Statement of
Additional Information.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about Dean Witter Strategist's investment
manager, see "The Fund and its Management" in Dean Witter Strategist's Statement
of Additional Information. For additional information about Dean Witter
Strategist's independent auditors, see "Independent Accountants" in Dean Witter
Strategist's Statement of Additional Information. For additional information
about other services provided to Dean Witter Strategist, see "Custodian and
Transfer Agent" and "Shareholder Services" in Dean Witter Strategist's Statement
of Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For additional information about brokerage allocation practices, see
"Portfolio Transactions and Brokerage" in Dean Witter Strategist'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 Strategist, see "Description of
Shares of the Fund" in Dean Witter Strategist's Statement of Additional
Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of Dean Witter
Strategist's shares and the determination of net asset value, see "Purchase of
Fund Shares," "Redemptions and Repurchases," "Financial
B-3
200
Statements -- July 31, 1997" and "Shareholders Services" in Dean Witter
Strategist's Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
For additional information about Dean Witter Strategist's policies
regarding dividends and distributions and tax matters affecting Dean Witter
Strategist and its shareholders, see "Dividends, Distributions and Taxes," and
"Financial Statements -- July 31, 1997" in Dean Witter Strategist's Statement of
Additional Information.
DISTRIBUTION OF SHARES
For additional information about Dean Witter Strategist's distributor and
the distribution agreement between Dean Witter Strategist and its distributor,
see "Purchase of Fund Shares" in Dean Witter Strategist's Statement of
Additional Information.
PERFORMANCE DATA
For additional information about Dean Witter Strategist's performance, see
"Performance Information" in Dean Witter Strategist's Statement of Additional
Information.
FINANCIAL STATEMENTS
Dean Witter Strategist's most recent audited financial statements are set
forth in Dean Witter Strategist's Annual Report for the fiscal year ended July
31, 1997 and Dean Witter Strategist's updated, unaudited financial statements
are set forth in its unaudited Semi-Annual Report for the six month period ended
January 31, 1998. Copies of both Reports accompany, and are incorporated by
reference in, the Proxy Statement and Prospectus. Dean Witter Global Asset's
most recent audited financial statements are set forth in Dean Witter Global
Asset's Annual Report for the fiscal year ended January 31, 1998, which is
incorporated by reference in the Proxy Statement and Prospectus.
B-4
201
STATEMENT OF ADDITIONAL INFORMATION DEAN WITTER
SEPTEMBER 26, 1997 STRATEGIST FUND
- --------------------------------------------------------------------------------
Dean Witter Strategist Fund (the "Fund") is an open-end, non-diversified
management investment company, the investment objective of which is to maximize
the total return on its investments. The Fund seeks to achieve its objective by
actively allocating its assets among the major asset categories of equity
securities, fixed-income securities and money market instruments. See
"Investment Practices and Policies."
A Prospectus for the Fund dated September 26, 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.
Dean Witter
Strategist Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
202
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
The Fund and its Management ............................................... 3
Trustees and Officers ..................................................... 6
Investment Practices and Policies ......................................... 12
Investment Restrictions ................................................... 26
Portfolio Transactions and Brokerage ...................................... 27
The Distributor ........................................................... 29
Determination of Net Asset Value .......................................... 33
Purchase of Fund Shares ................................................... 34
Shareholder Services ...................................................... 36
Redemptions and Repurchases ............................................... 41
Dividends, Distributions and Taxes ........................................ 42
Performance Information ................................................... 44
Description of Shares of the Fund ......................................... 45
Custodian and Transfer Agent .............................................. 46
Independent Accountants ................................................... 46
Reports to Shareholders ................................................... 46
Legal Counsel ............................................................. 46
Experts ................................................................... 46
Registration Statement .................................................... 46
Financial Statements - July 31, 1997 ...................................... 47
Report of Independent Accountants ......................................... 64
Appendix .................................................................. 65
2
203
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
August 5, 1988.
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 management investment companies: Active Assets Money Trust, Active
Assets Tax-Free Trust, Active Assets California Tax-Free Trust, Active Assets
Government Securities Trust, Dean Witter Liquid Asset Fund Inc., InterCapital
Income Securities Inc., InterCapital Insured Municipal Bond Trust, InterCapital
Insured Municipal Trust, InterCapital Insured Municipal Income Trust,
InterCapital California Insured Municipal Income Trust, InterCapital Insured
Municipal Securities, InterCapital Insured California Municipal Securities,
InterCapital Quality Municipal Investment Trust, InterCapital Quality Municipal
Income Trust, InterCapital Quality Municipal Securities, InterCapital California
Quality Municipal Securities, InterCapital New York Quality Municipal
Securities, High Income Advantage Trust, High Income Advantage Trust II, High
Income Advantage Trust III, Dean Witter Government Income Trust, Dean Witter
High Yield Securities Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter
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, Dean Witter Utilities Fund, Dean Witter California
Tax-Free Daily Income Trust, Dean Witter World Wide Income Trust, Dean Witter
Intermediate Income Securities, Dean Witter Capital Growth Securities, Dean
Witter European Growth Fund Inc., Dean Witter Precious Metals and Minerals
Trust, Dean Witter New York Municipal Money Market 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 National Municipal Trust, Dean Witter
High Income Securities, Dean Witter International SmallCap Fund, Dean Witter
Mid-Cap Growth Fund, Dean Witter Select Dimensions Investment Series, Dean
Witter Balanced Growth Fund, Dean Witter Balanced Income Fund, Dean Witter
Hawaii Municipal Trust, Dean Witter Intermediate Term U.S. Treasury Trust, 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, Dean
Witter S&P 500 Index Fund, Municipal Income Trust, Municipal Income Trust II,
Municipal Income Trust III, Municipal Income
3
204
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. is the investment adviser: TCW/DW
Core Equity Trust, TCW/DW North American Government Income Trust, TCW/DW Latin
American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth
Fund, TCW/DW Balanced Fund, TCW/DW Total Return Trust, TCW/DW Mid-Cap Equity
Trust, TCW/DW Global Telecom Trust, TCW/DW Strategic Income Trust, TCW/DW
Emerging Markets Opportunities Trust, TCW/DW Term Trust 2000, TCW/DW Term Trust
2002 and TCW/DW Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves
as: (i) 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 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.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to the
Fund which were previously performed directly by InterCapital. 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 the Distributor of the Fund's shares, Dean Witter Distributors Inc.
("Distributors" or the "Distributor") (see "The Distributor"), will be paid by
the Fund. These expenses will be allocated among the four classes of shares of
the Fund (each, a "Class") pro rata based on the net assets of the Fund
attributable to each Class, except as described below. Such expenses include,
but are not limited to: expenses of the Plan of Distribution pursuant to Rule
12b-1 (the "12b-1 fee") (see "The Distributor"); charges and expenses of any
registrar; custodian, stock transfer and dividend disbursing agent; brokerage
commissions; taxes; engraving and printing of share certificates; registration
costs of the Fund and its shares under federal and state securities laws; the
cost and expense of printing, including typesetting, and distributing
Prospectuses and Statements of Additional Information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Trustees' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Trustees or
members of any advisory board or committee who are not employees of the
Investment Manager or 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;
4
205
fees and expenses of legal counsel, including counsel to the Trustees who are
not interested persons of the Fund or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager) and independent accountants; membership dues of industry associations;
interest on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Trustees) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto); and
all other costs of the Fund's operation. 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
following annual rates to the Fund's daily net assets: 0.60% of the portion of
the daily net assets not exceeding $500 million; 0.55% of the next $500 million;
0.50% of the next $500 million; and 0.475% of the portion of the daily net
assets exceeding $1.5 billion. The management fee is allocated among the Classes
pro rata based on the net assets of the Fund attributable to each Class. For the
fiscal years ended July 31, 1995, 1996 and 1997, the Fund accrued to the
Investment Manager total compensation of $4,679,443, $6,414,184 and $7,751,652,
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 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 October 30, 1992 and by the shareholders of the Fund at a Special
Meeting of Shareholders held on January 12, 1993, as such agreement had been
amended by the Trustees at their meetings held on April 28, 1993 and April 17,
1996, to lower the management fees charged on the Fund's daily net assets in
excess of $1 billion and $1.5 billion. 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 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 Investment Manager. The Agreement will automatically terminate in the event
of its assignment (as defined in the Act).
Under its terms, the Agreement had an initial term ending April 30, 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, 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 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 following owned more than 5% of the outstanding shares of Class C of the
Fund on September 15, 1997: Nancy Munday, Frank Lamberg & G. McCullough
Co-Trustees of the Nicholas Niminski Trust, 20856 North Rand Road, Barrington,
IL 60010--5.9%; Nancy Munday, Frank Lamberg & G. McCullough Co-Trustees of the
Scott Niminski Childrens Trust, 20856 North Rand Road, Barrington, IL
60010--5.9%; Nancy Munday, Frank Lamberg & G. McCullough Co-Trustees of the
Brian Niminski Trust, 20856 North Rand Road, Barrington IL 60010--5.9%; Dean
Witter Reynolds Custodian for David S. Brodnan IRA Rollover, 1153 Johnson Drive,
Unit 3017, Buffalo Grove, IL 60089-6949--6.1%; General
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Mortgage Corp., ATTN: Kris Dreyer, 28411 Northwestern Highway, Suite 1001,
Southfield, MI 48034-5540--10.2%; Robert M. Allan Jr. and/or Harry S. Allan
Trustees for the Allan Family Trust, 167 Del Mesa Carmel, Carmel, CA
93923-7951--12.0%.
The following owned more than 5% of the outstanding shares of Class D of the
Fund on September 15, 1997: Mellon Bank, N.A., Mutual Funds, P.O. Box 320,
Pittsburgh, Pennsylvania 15230-0320, as trustee of the Dean Witter START Plan
and the SPS Transaction Services, Inc. START Plan, employee benefit plans
established by DWR and SPS Transaction Services, Inc. (an affiliate of DWR) for
their employees as qualified under Section 401(k) of the Internal Revenue
Code--41.5%.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use, or at any time
permit others to use, the name "Dean Witter." The Fund has also agreed that in
the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate the
name "Dean Witter" from its name if DWR or its parent company shall so request.
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 84 Dean Witter Funds and the 14 TCW/DW Funds are shown
below.
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
Michael Bozic (56) Chairman and Chief Executive Officer of Levitz Furniture Corporation
Trustee (since November, 1995); Director or Trustee of the Dean Witter Funds;
c/o Levitz Furniture Corporation formerly President and Chief Executive Officer of Hills Department
6111 Broken Sound Parkway, N.W. Stores (May, 1991-July, 1995); formerly variously Chairman, Chief
Boca Raton, Florida 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 and Chief Executive Officer and Director of InterCapital, DWSC
Chairman of the Board, and Distributors; Executive Vice President and Director of DWR;
President and Chief Executive Chairman, Director or Trustee, President and Chief Executive Officer of
Officer and Trustee the Dean Witter Funds; Chairman, Chief Executive Officer and Trustee of
Two World Trade Center the TCW/DW Funds; Chairman and Director of Dean Witter Trust FSB
New York, New York ("DWT"); Director and/or officer of various MSDWD subsidiaries;
formerly Executive Vice President and Director of Dean Witter, Discover
and Co. (until February, 1993).
Edwin J. Garn (64) Director or Trustee of the Dean Witter Funds; formerly United States
Trustee Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee
c/o Huntsman Corporation (1980-1986); formerly Mayor of Salt Lake City, Utah (1972-1974);
500 Huntsman Way formerly Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice
Salt Lake City, Utah 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.
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NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
John R. Haire (72) Chairman of the Audit Committee and Chairman of the Committee of the
Trustee Independent Directors or Trustees and Director or Trustee of the Dean
Two World Trade Center Witter Funds; Chairman of the Audit Committee and Chairman of the
New York, New York 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).
Wayne E. Hedien (63) Retired, Director or Trustee of the Dean Witter Funds; Director of The
Trustee PMI Group, Inc. (private mortgage insurance); Trustee and Vice Chairman
c/o Gordon Altman Butowsky of The Field Museum of Natural History; formerly associated with the
Weitzen Shalov & Wein Allstate Companies (1966-1994), most recently as Chairman of The
Counsel to the Independent Trustees Allstate Corporation (March, 1993-December, 1994) and Chairman and
114 West 47th Street Chief Executive Officer of its wholly-owned subsidiary, Allstate
New York, New York 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 consulting firm;
Trustee Co-Chairman and a founder of the Group of Seven Council (G7C), an
c/o Johnson Smick International, Inc. international economic commission; Director or Trustee of the Dean
1133 Connecticut Avenue, N.W. Witter Funds; Trustee of the TCW/DW Funds; Director of NASDAQ (since
Washington, DC 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 investment
Trustee partnership; Director or Trustee of the Dean Witter Funds; Trustee of
c/o Triumph Capital, L.P. the TCW/DW Funds; formerly Vice President, Bankers Trust Company and BT
237 Park Avenue Capital Corporation (1984-1988); Director of various business
New York, New York organizations.
Philip J. Purcell* (54) Chairman of the Board of Directors and Chief Executive Officer of
Trustee MSDWD, DWR and Novus Credit Services Inc.; Director of InterCapital,
1585 Broadway DWSC and Distributors; Director or Trustee of the Dean Witter Funds;
New York, New York Director and/or officer of various MSDWD subsidiaries.
John L. Schroeder (67) Retired; Director or Trustee of the Dean Witter Funds; Trustee of the
Trustee TCW/DW Funds; Director of Citizens Utilities Company; formerly
c/o Gordon Altman Butowsky Executive Vice President and Chief Investment Officer of the Home
Weitzen Shalov & Wein Insurance Company (August, 1991-September, 1995).
Counsel to the Independent Trustees
114 West 47th Street
New York, New York
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208
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
Barry Fink (42) Senior Vice President (since March, 1997) and Secretary and General
Vice President, Secretary Counsel (since February, 1997) of InterCapital and DWSC; Senior Vice
and General Counsel President (since March, 1997) and Assistant Secretary and Assistant
Two World Trade Center General Counsel (since February, 1997) of Distributors; Assistant
New York, New York 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.
Mark Bavoso (36) Senior Vice President of InterCapital (since June, 1993); formerly Vice
Vice President President of InterCapital.
Two World Trade Center
New York, New York
Thomas F. Caloia (51) First Vice President and Assistant Treasurer of InterCapital and DWSC;
Treasurer Treasurer of the Dean Witter Funds and the TCW/DW Funds.
Two World Trade Center
New York, New York
- ----------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Executive Vice President and Director of DWR, and Director of
SPS Transaction Services, Inc. and various other MSDWD subsidiaries, Robert S.
Giambrone, Senior Vice President of InterCapital, DWSC, Distributors and DWT and
Director of DWT, and Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of InterCapital and Director of DWT, are Vice Presidents of
the Fund, and Marilyn K. Cranney, First Vice President and Assistant General
Counsel of InterCapital and DWSC, Lou Anne McInnis, Carsten Otto and Ruth Rossi,
Vice Presidents and Assistant General Counsels of InterCapital and DWSC, and
Frank Bruttomesso and Todd Lebo, staff attorneys with InterCapital, are
Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees currently consists of nine (9) trustees. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of this
Statement of Additional Information, there are a total of 84 Dean Witter Funds,
comprised of 127 portfolios. As of August 31, 1997, the Dean Witter Funds had
total net assets of approximately $90.6 billion and more than six million
shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own any
stock or other securities issued by InterCapital's parent company, MSDWD. These
are the "disinterested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with InterCapital. Four of the seven
Independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Dean Witter Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds'
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Boards, such individuals may reject other attractive assignments because the
Funds make substantial demands on their time. Indeed, by serving on the Funds'
Boards, certain Trustees who would otherwise be qualified and in demand to serve
on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee and
the Committee of the Independent Trustees. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1996,
the three Committees held a combined total of sixteen meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Trustees or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Dean Witter Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Trustees to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees will need to form a judgment on various issues,
and arranges to have that information furnished to Committee members. He also
arranges for the services of independent experts and consults with them in
advance of meetings to help refine reports and to focus on critical issues.
Members of the Committees believe that the person who serves as Chairman of both
Committees and guides their efforts is pivotal to the effective functioning of
the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment advisory, management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Manager and other service providers. In effect,
the Chairman of the Committees serves as a combination of chief executive and
support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee
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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). If a Board meeting
and a Committee meeting, or more than one Committee meeting, take place on a
single day, the Trustees are paid a single meeting fee by the Fund. The Fund
also reimburses such Trustees for travel and other out-of-pocket expenses
incurred by them in connection with attending such meetings. Trustees and
officers of the Fund who are or have been employed by the Investment Manager or
an affiliated company receive no compensation or expense reimbursement from the
Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended July 31, 1997.
FUND COMPENSATION
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
Michael Bozic................................................. $1,750
Edwin J. Garn................................................. 1,850
John R. Haire................................................. 3,750
Dr. Manuel H. Johnson......................................... 1,800
Michael E. Nugent............................................. 1,850
John L. Schroeder............................................. 1,850
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.
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CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
FOR SERVICE AS FOR SERVICE
CHAIRMAN OF AS TOTAL CASH
COMMITTEES OF CHAIRMAN OF COMPENSATION
FOR SERVICE INDEPENDENT COMMITTEES OF FOR SERVICES
AS DIRECTOR OR DIRECTORS/ INDEPENDENT TO
TRUSTEE AND FOR SERVICE AS TRUSTEES AND TRUSTEES AND 82 DEAN
COMMITTEE MEMBER TRUSTEE AND AUDIT AUDIT WITTER
OF 82 DEAN COMMITTEE MEMBER COMMITTEES OF COMMITTEES OF FUNDS AND
NAME OF WITTER OF 14 TCW/DW 82 DEAN WITTER 14 TCW/DW 14 TCW/DW
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS FUNDS FUNDS
- --------------------------- ---------------- ---------------- -------------- ------------- -------------
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
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, 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 Fund for the fiscal year ended July 31, 1997
and by the 57 Dean Witter Funds (including the Fund) as of December 31, 1996,
and the estimated retirement benefits for the Fund's Independent Trustees, to
commence upon their retirement, from the Fund as of July 31, 1997 and from the
57 Dean Witter Funds as of December 31, 1996.
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
FOR ALL ADOPTING FUNDS ESTIMATED ANNUAL
-------------------------------------- RETIREMENT BENEFITS BENEFITS
ESTIMATED ACCRUED AS EXPENSES UPON RETIREMENT(2)
CREDITED YEARS ESTIMATED ----------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND(3) FUNDS FUND(3) FUNDS
- --------------------------------- ------------------- ----------------- --------- ----------- --------- -----------
Michael Bozic.................... 10 50.0% $ 185 $ 20,147 $ 925 $ 51,325
Edwin J. Garn.................... 10 50.0 (325) 27,772 925 51,325
John R. Haire.................... 10 50.0 (1,286) 46,952 4,492 129,550
Dr. Manuel H. Johnson............ 10 50.0 (250) 10,926 925 51,325
Michael E. Nugent................ 10 50.0 (464) 19,217 925 51,325
John L. Schroeder................ 8 41.7 349 38,700 771 42,771
- ----------
(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
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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.
(3) These numbers reflect the effect of the combination of the net assets of
Dean Witter Managed Assets Trust with those of the Fund on December 22, 1995
pursuant to an Agreement and Plan of Reorganization.
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 stated in the Prospectus, the Fund may
invest in short-term to intermediate (one to five year maturities) and
intermediate to long term (greater than five year maturities) fixed-income
securities which are issued or guaranteed, as to principal and interest, by the
United States or its agencies and instrumentalities.
Such U.S. Government 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 thirty 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.
ZERO COUPON SECURITIES. A portion of the U.S. Government 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
reinvest-
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213
ment of interest received if prevailing interest rates rise. For this reason,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest currently.
MONEY MARKET INSTRUMENTS. As stated in the Prospectus, the money market
instruments which the Fund may purchase include U.S. Government securities, bank
obligations, Eurodollar certificates of deposit, obligations of savings
institutions, fully insured certificates of deposit and commercial paper. Such
securities are limited to:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as
the Federal Home Loan Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit 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;
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion
or more;
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 Federal Deposit
Insurance Corporation, limited to $100,000 principal amount per certificate
and to 10% or less of the Fund's total assets in all such obligations and in
all illiquid assets, in the aggregate;
COMMERCIAL PAPER. Commercial paper rated within the two highest grades
by Standard & Poor's Corporation ("S&P") or the highest grade by Moody's
Investors Service, Inc. ("Moody's") or, if not rated, issued by a company
having an outstanding debt issue rated at least AA by S&P or Aa by Moody's.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to notice provisions described below), and are at all times
secured by cash or cash equivalents, which are maintained in a segregated
account pursuant to applicable regulations and that are equal to at least the
market value, determined daily, of the loaned securities. The advantage of such
loans is that the Fund continues to receive the income on the loaned securities
while at the same time earning interest on the cash amounts deposited as
collateral, which will be invested in short-term obligations. The Fund will not
lend its portfolio securities if such loans are not permitted by the laws or
regulations of any state in which its shares are qualified for sale and will not
lend more than 25% of the value of its total assets. A loan may be terminated by
the borrower on one business days' 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
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loan period would inure to the Fund. The creditworthiness of firms to which the
Fund lends its portfolio securities will be monitored on an ongoing basis by the
Investment Manager 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. The Fund did not
lend any of its portfolio securities during the fiscal year ended July 31, 1997.
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. A
repurchase agreement may be viewed as a type of secured lending by the Fund
which typically involves the acquisition by the Fund of government 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 full value of the collateral, as specified in
the agreement, does not decrease below the repurchase price plus accrued
interest. If such decrease occurs, additional collateral will be 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 and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. Repurchase agreements will be transacted only with large,
well-capitalized and well-established financial institutions whose financial
condition will be continuously monitored by the Investment Manager subject to
procedures established by the Trustees. 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 the sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss. The Fund has not to date and does not presently intend
to enter into repurchase agreements so that more than 5% of the Fund's net
assets are subject to such agreements.
REVERSE REPURCHASE AGREEMENTS. The Fund may also use reverse repurchase
agreements as part of its investment strategy. Reverse repurchase agreements
involve sales by the Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price.
Generally, the effect of such a transaction is that the Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of otherwise obtaining the cash. Opportunities
to achieve this advantage may not always be available. 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. Reverse repurchase
agreements are considered borrowings by the Fund and for purposes other than
meeting redemptions may not exceed 5% of the Fund's total assets.
WARRANTS. The Fund may acquire warrants attached to other securities and,
in addition may invest up to 5% of the value of its total assets in warrants,
including up to 2% of such assets in warrants not
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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 corporation issuing them.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As discussed in the
Prospectus, from time to time, in the ordinary course of business, the Fund may
purchase securities on a when-issued or delayed delivery basis, i.e., delivery
and payment can take place a month or more after the date of the transactions.
The securities so purchased are subject to market fluctuation and no interest
accrues to the purchaser during this period. 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 securities on a when-issued or delayed delivery
basis, the Fund will record the transaction and thereafter reflect the value,
each day, of such security in determining the net asset value of the Fund. At
the time of delivery of the securities, the value may be more or less than the
purchase 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 for such when-issued or delayed delivery securities; 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. The Investment Manager and the Board
of Trustees do not believe that the Fund's net asset value or income will be
adversely affected by its purchase of securities on such basis.
WHEN, AS AND IF ISSUED SECURITIES. As discussed in the Prospectus, the Fund
may purchase securities on a "when, as and if issued" basis under which the
issuance of the security depends upon the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization, leveraged buyout or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until the Investment Manager 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. The
value of the Fund's commitments to purchase the securities of any one issuer,
together with the value of all securities of such issuer owned by the Fund, may
not exceed 5% of the value of the Fund's total assets at the time the initial
commitment to purchase such securities is made (see "Investment Restrictions").
Subject to the foregoing restrictions, the Fund may purchase securities on such
basis without limit. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value. The Investment Manager and the
Trustees do not believe that the net asset value of the Fund will be adversely
affected by its purchase of securities on such basis.
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 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 (currently the Chicago Board Options
Exchange, American Stock Exchange, New York Stock Exchange, Pacific Stock
Exchange and Philadelphia Stock Exchange) and are written in over-the-counter
transactions ("OTC Options"). Listed options are issued by the Options Clearing
Corporation
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("OCC"). Ownership of a listed call option gives the Fund the right to buy from
the OCC the underlying security covered by the option at the stated exercise
price (the price per unit of the underlying security) by filing an exercise
notice prior to the expiration date of the option. The writer (seller) of the
option would then have the obligation to sell to the OCC the underlying security
at that exercise price prior to the expiration date of the option, regardless of
its then current market price. Ownership of a listed put option would give the
Fund the right to sell the underlying security to the OCC at the stated exercise
price. Upon notice of exercise of the put option, the writer of the put would
have the obligation to purchase the underlying security from the OCC at the
exercise price.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian, so that they will
be treated as being covered.
OPTIONS ON GNMA CERTIFICATES. Currently, options on GNMA Certificates are
only traded over-the-counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, the Fund, as
a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy its
delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Fund will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA Certificates
in the cash market in order to maintain its cover. A GNMA Certificate held by
the Fund to cover an option position in any but the nearest expiration month may
cease to represent cover for the option in the event of a decline in the GNMA
coupon rate at which new pools are originated under the FHA/VA loan ceiling in
effect at any given time, as such decline may increase the prepayments made on
other mortgage pools. If this should occur, the Fund will no longer be covered,
and the Fund will either enter into a closing purchase transaction or replace
such Certificate with a Certificate which represents cover. When the Fund closes
out its position or replaces such Certificate, it may realize a loss and incur
transaction costs.
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.
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COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities and on stock index options, 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.
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
value of the premium received will fluctuate with varying economic market
conditions.
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.
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.
The Fund may also purchase put options to close out written put positions in
a manner similar to call options closing purchase transactions. In addition, the
Fund may sell a put option which it has previously purchased prior to the sale
of the securities 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
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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.
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 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 written 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 the case of listed options,
during the option period, the Fund may be required, at any time, to make payment
of the exercise price against delivery of the underlying security. The operation
of and limitations on covered put options in other respects are substantially
identical to those of call options.
The Fund will write put options for two purposes: (1) to receive the income
derived from the premiums paid by purchasers; and (2) when the Investment
Manager wishes to purchase the security underlying the option at a price lower
than its current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought. The potential gain on
a covered put option is limited to the premium received on the option (less the
commissions paid on the transaction) while the potential loss equals the
difference between the exercise price of the option and the current market price
of the underlying securities when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options in order to close out a covered call position (see
"Covered Call Writing" above) and, as to 2% of its total assets, purchase call
options on securities it intends to purchase. If, in the latter case, the price
of the security underlying the option fails to rise above the exercise price by
an amount exceeding the price of the option premium, the Fund will sustain a
loss equal to some or all of the premium price. A call purchased to close out a
position is likely to be on the same securities and have the same terms as the
written option. 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 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 when it was
purchased. 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 Investment Manager 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
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such calls not been written. In writing puts, the Fund assumes the risk of loss
should the market value of the underlying securities 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 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 or to purchase
an offsetting OTC option, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call option
writer may not be able to sell an underlying security at a time when it might
otherwise be advantageous to do so. A 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 cover for the put option for
other investment purposes until the exercise or expiration of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. However, the Fund may
be able to purchase an offsetting option which does not close out its position
as a writer but constitutes an asset of equal value to the obligation under the
option written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
OCC as a result of trades on that exchange would generally continue to be
exercisable in accordance with their terms.
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
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through one or more brokers). An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
The extent to which the Fund may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification as
a regulated investment company and the Fund's intention to qualify as such (see
"Dividends, Distributions and Taxes" in the Prospectus).
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, among other indexes, the Standard &
Poor's 100 Index and the Standard & Poor's 500 Index on the Chicago Board
Options Exchange, the Major Market Index and the Computer Technology Index, Oil
Index and Institutional Index on the American Stock Exchange and the NYSE Index
and NYSE Beta Index on the New York Stock Exchange, The Financial News Composite
Index on the Pacific Stock Exchange and the Value Line Index, National O-T-C
Index and Utilities Index on the Philadelphia Stock Exchange, each of which and
any similar index on which options are traded in the future which include stocks
that are not limited to any particular industry or segment of the market is
referred to as a "broadly based stock market index." The Fund will invest only
in broadly based indexes. Options on broad-based stock indexes provide the Fund
with a means of protecting the Fund against the risk of market-wide price
movements. If the Investment Manager anticipates a market decline, the Fund
could purchase a stock index put option. If the expected market decline
materialized, the resulting decrease in the value of the Fund's portfolio would
be offset to the extent of the increase in the value of the put option. If the
Investment Manager anticipates a market rise, the Fund may purchase a stock
index call option to enable the Fund to participate in such rise until
completion of anticipated common stock purchases by the Fund. Purchases and
sales of stock index options also enable the Investment Manager to more speedily
achieve changes in the Fund's equity positions.
The Fund will be able to 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, or by a
put option on the same stock index with a strike price no lower than the strike
price of the put option sold by the Fund, which cover is held for the Fund in a
segregated account maintained for it by the Fund's Custodian. All call options
on stock indexes written by the Fund will be covered either by a portfolio of
stocks substantially replicating the movement of the index underlying the call
option or by holding a separate call option on the same stock index with a
strike price no higher than the strike price of the call option sold by the
Fund.
RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, the Fund, as a call writer, would not be able to provide in
advance for their potential settlement obligations by
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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 will not
be able to satisfy its assignment obligations by delivering those stocks against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; and by the time it
learns that it has been assigned, the index may have declined with a
corresponding decrease in the value of its stock portfolio. This "timing risk"
is an inherent limitation on the ability of index call writers to cover their
risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
FUTURES CONTRACTS. As stated in the Prospectus, the Fund may purchase and
sell interest rate and stock index futures contracts ("futures contracts") that
are traded on U.S. commodity exchanges on such underlying securities as U.S.
Treasury bonds, notes, bills and GNMA Certificates ("interest rate futures") and
such indexes as the S&P 500 Index, the Moody's Investment-Grade Corporate Bond
Index and the New York Stock Exchange Composite Index ("index futures").
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) against changes in prevailing interest rates and to
alter the Fund's asset allocation in fixed-income securities. If the Investment
Manager anticipates that interest rates may rise and, concomitantly, the price
of fixed-income securities fall, or wishes to decrease the Fund's asset
allocation in fixed-income securities, the Fund may sell an interest rate
futures contract or a bond index futures contract. If declining interest rates
are anticipated or if the Investment Manager wishes to increase the Fund's asset
allocation of fixed-income securities, the Fund may purchase an interest rate
futures contract to protect against a potential increase in the price of
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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) against changes in
their prices. If the Investment Manager anticipates that the prices of stock
held by the Fund may fall or wishes to decrease the Fund's asset allocation in
equity securities, the Fund may sell a stock index futures contract. Conversely,
if the Investment Manager wishes to increase the Fund's assets which are
invested in stocks or as a hedge against anticipated price rises in those stocks
which the Fund intends to purchase, the Fund may purchase stock index futures
contracts. This allows the Fund to purchase equities, in accordance with the
Investment Manager's asset allocations, in an orderly and efficacious manner. 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 sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of equity security and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that the Fund will be able to enter into a closing
transaction.
INTEREST RATE FUTURES. 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. 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,
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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 which are traded on an Exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid), to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract at the time of exercise
exceeds, in 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 initial 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
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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
Investment Manager to accurately predict market and interest rate movements. As
stated in the prospectus, 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 on a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government securities
or other high grade debt obligations equal in value (when added to any initial
or variation margin on deposit) to the market value of the securities underlying
the futures contract or the exercise price of the option. Such a position may
also be covered by owning the securities underlying the futures contract (in the
case of a stock index futures contract a portfolio of securities substantially
replicating the relevant index), or by holding a call option permitting the Fund
to purchase the same contract at a price no higher than the price at which the
short position was established.
In addition, if the Fund holds a long position in a futures contract or has
sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained for the Fund
by its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Fund.
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.
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.
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
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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.
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 debt securities and futures markets could result. Price distortions
could also result if investors in futures contracts opt to make or take delivery
of underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the futures market. In addition, due to
the fact that, from the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of interest rate trends by the Investment Manager may still not result
in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which the Fund may invest. In the event a
liquid market does not exist, it may not be possible to close out a futures
position, and in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures contracts
are traded may compel or prevent the Fund from closing out a contract which may
result in reduced gain or increased loss to the Fund. The absence of a liquid
market in futures contracts might cause the Fund to make or take delivery of the
underlying securities at a time when it may be disadvantageous to do so.
The extent to which the Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such (see "Dividends, Distributions and Taxes" in the
Prospectus).
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 Investment Manager 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.
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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.
The Fund may not:
1. Invest in securities of any issuer if, to the knowledge of the
Fund, any officer or trustee/ director of the Fund or of the Investment
Manager owns more than 1/2 of 1% of the outstanding securities of such
issuer, and such officers and trustees/directors who own more than 1/2 of 1%
own in the aggregate more than 5% of the outstanding securities of such
issuers.
2. Purchase or sell real estate or interests therein, although the
Fund may purchase securities of issuers which engage in real estate
operations and securities secured by real estate or interests therein.
3. Invest more than 10% of its total assets in "illiquid securities"
(securities for which market quotations are not readily available) and
repurchase agreements which have a maturity of longer than seven days. The
staff of the Securities and Exchange Commission ("SEC") has taken the
position that purchased OTC options and the assets used as "cover" for
written OTC options are illiquid securities and the Fund will treat these
assets as such.
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 insofar as to the Fund may be deemed to have
borrowed by entrance into a reverse repurchase agreement), except that the
Fund may, but not to leverage the Fund's assets, 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
borrowing money in accordance with restrictions described above.
9. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objective and policies; (b) by investment in
repurchase agreements; or (c) by lending its portfolio securities.
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.
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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.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
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
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Subject to the general supervision of the Board of Trustees, the Investment
Manager is responsible for decisions to buy and sell securities for the Fund,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts without
a stated commission, although the price of the security usually includes a
profit to the dealer. The Fund 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. During the fiscal years ended July 31, 1995, 1996 and
1997, the Fund paid a total of $845,540, $1,417,865 and $1,189,162,
respectively, in brokerage commissions.
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. 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.
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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
fiscal year ended July 31, 1997, the Fund directed the payment of $1,114,797 in
brokerage commissions in connection with transactions in the aggregate amount of
$735,355,459 to brokers because of research services provided.
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.
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 such transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to 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 does not reduce the
management fee it pays to the Investment Manager by any amount of the brokerage
commissions it may pay to an affiliated broker or dealer. During the fiscal
years ended July 31, 1995, 1996 and 1997, the Fund paid a total of $84,770,
$105,265 and $37,367, respectively, in brokerage commissions to DWR. The
brokerage commissions paid to DWR represented approximately 3.14% of the total
brokerage commissions paid by the Fund for the fiscal year ended July 31, 1997
and were paid on account of transactions having an aggregate dollar value equal
to approximately 6.68% 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 July 31, 1997, the Fund paid a total of $1,005
in brokerage commissions to Morgan Stanley & Co., Inc., which broker-dealer
became an affiliate of the Investment Manager 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 0.08% 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 0.10% of the aggregate dollar value of all portfolio
transactions of the Fund during the period for which commissions were paid.
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During the fiscal year ended July 31, 1997, the Fund purchased bonds issued
by Bank America, The Bank of New York, Chase Manhattan Corp., Lehman Brothers
Holdings Inc., Morgan Stanley Group Inc. and PaineWebber Inc., and common stock
issued by Chase Manhattan Corp. At July 31, 1997, the Fund held a bond issued by
Lehman Brothers Holdings Inc. and common stock issued by Chase Manhattan Corp.
with market values of $6,033,060 and $17,034,375, 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 July
31, 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. 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 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 Trustees.
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 judgement or mistake of law or for any act
or omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan"), pursuant to which each Class, other than Class D, pays the
Distributor compensation accrued daily and payable monthly at the following
annual rates: 0.25% and 1.0% of the average daily net assets of Class A and
Class C, respectively, and, with respect to Class B, (i) 1.0% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's Class B shares since
the implementation of the Plan on November 8, 1989 (not including reinvestments
of dividends or capital gains distributions), less the average daily aggregate
net asset value of the Fund's Class B shares redeemed since the implementation
of the Plan upon which a contingent deferred sales charge has been imposed or
upon which such charge has been waived, or (b) the average daily net assets of
Class B attributable to shares issued, net of related shares redeemed, since the
implementation of the Plan; plus (ii) 0.25% of the average daily net assets of
Class B attributable to shares issued, net of related shares redeemed, prior to
implementation of the Plan. 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
Distribu-
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230
tor has informed the Fund that it and/or DWR received approximately $1,775,000,
$1,662,000 and $1,683,000 in contingent deferred sales charges for the fiscal
years ended July 31, 1995, 1996 and 1997, respectively, none of which was
retained by the Distributor. These amounts were received from Class B only. No
front-end sales charges were received from Class A and no contingent deferred
sales charges were received from Class A or Class C for the fiscal period July
28 through July 31, 1997.
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.
The Plan was adopted by a majority vote of the Trustees, including all of
the Trustees who are not "interested persons" of the Fund (as defined in the
Act) and who had or 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 27, 1989, and by
the shareholders holding a majority, as defined in the Act, of the outstanding
shares of the Fund, at the Fund's Special Meeting of Shareholders held on
November 8, 1989. The Plan amended and restated the Fund's initial Plan of
Distribution which had been in effect from August 26, 1988 through November 7,
1989.
At their meeting held on October 30, 1992, the Trustees of the Fund,
including all of the Independent 12b-1 Trustees, approved certain amendments to
the Plan which took effect in January, 1993 and were designed to reflect the
fact that upon an internal reorganization the share distribution activities
theretofore performed for the Fund by DWR were assumed by the Distributor and
DWR's sales activities are now being performed pursuant to the terms of a
selected dealer agreement between the Distributor and DWR. The amendments
provide that payments under the Plan will be made to the Distributor rather than
to DWR as before the amendment, and that the Distributor in turn is authorized
to make payments to DWR, its affiliates or other selected broker-dealers (or
direct that the Fund pay such entities directly). The Distributor is also
authorized to retain part of such fee as compensation for its own
distribution-related expenses. At their meeting held on April 28, 1993, the
Trustees, including a majority of the Independent 12b-1 Trustees, also approved
certain technical amendments to the Plan in connection with amendments adopted
by the National Association of Securities Dealers, Inc. to its Rules of the
Association. At their meeting held on December 19, 1995, the shareholders of the
Fund approved an amendment to the Plan to permit payments to be made under the
Plan with respect to distribution expenses incurred in connection with the
distribution of 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 by the Distributor under the Plan and
the purpose for which such expenditures were made. Class B shares of the Fund
accrued amounts payable to the Distributor under the Plan, during the fiscal
year ended July 31, 1997, of $12,491,604. This amount is equal to 0.89% of the
average daily net assets of Class B for the fiscal year and was calculated
pursuant to clauses (i)(a) and (ii) of the compensation formula under the Plan.
This amount is treated by the Fund as an expense in the year it is accrued. For
the fiscal period July 28 through July 31, 1997, Class A and Class C shares of
the Fund accrued payments under the Plan amounting to $1 and $6, respectively,
which amounts are equal to 0.25% and 1.0% of the average daily net assets of
Class A and Class C, 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 different distribution arrangement as set forth
in the Prospectus.
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231
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, 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 (not including reinvested
dividends or distributions) of the amount sold 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
InterCapital's 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 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 share sales. The distribution fee
that the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred on behalf of the Fund and, 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 sales credit as it is reduced by amounts received by the Distributor
under the Plan and any contingent deferred sales charges received by the
Distributor upon redemption of shares of the Fund. No other interest charge is
included as a distribution expense in the Distributor's calculation of
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.
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232
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.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended July 31, 1997 to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
$91,860,398 on behalf of Class B since the inception of the Fund. It is
estimated that this amount was spent in approximately the following ways: (i)
3.25% ($2,989,043)--advertising and promotional expenses; (ii) 0.29% ($270,696)
printing of prospectuses for distribution to other than current shareholders;
and (iii) 96.46% ($88,600,659)--other expenses, including the gross sales credit
and the carrying charge, of which 7.64% ($6,770,173) represents carrying
charges, 30.83% ($27,313,322) represents commission credits to DWR branch
offices for payments of commissions to account executives, 46.36% ($41,072,562)
represents overhead and other branch office distribution-related expenses, and
15.17% ($13,444,602) represents excess distribution expenses of Dean Witter
Managed Assets Trust, the net assets of which were combined with those of the
Fund on December 22, 1995 pursuant to an Agreement and Plan of Reorganization.
The amounts accrued by Class A and Class C for distribution during the fiscal
period July 28 through July 31, 1997 were for expenses which relate to
compensation of sales personnel and associated overhead expenses.
In the case of Class B shares, at any given time, the expenses in
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that in the case of Class B shares the
excess distribution expenses, including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges imposed
at the time of sale of the Fund's Class B shares, totalled $37,067,710 as of
July 31, 1997. Because there is no requirement under the Plan that the
Distributor be reimbursed for all 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 distribution expenses 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 or any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, had any direct or indirect
financial interest in the operation of the Plan except
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233
to the extent that the Distributor, InterCapital, DWR, DWSC or certain of their
employees may be deemed to have such 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, 1990 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 Trustees of the Fund, including a
majority of the Independent 12b-1 Trustees, at a meeting of the Trustees held on
April 24, 1997. Prior to approving the continuation of the Plan, the Trustees
requested and received from the Distributor and reviewed all 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 Trustees who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plan, 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
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As stated in the Prospectus, short-term securities with remaining maturities
of sixty days or less at the time of purchase are valued at amortized cost,
unless the Trustees determine such does not reflect the securities' market
value, in which case these securities will be valued at their fair value as
determined by the Trustees. Other short-term debt securities will be valued on a
mark-to-market basis until such time as they reach a remaining maturity of sixty
days, whereupon they will be valued at amortized cost using their value on the
61st day unless the Trustees determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. Listed options on debt securities are valued at
the latest sale price on the exchange on which they are listed unless no sales
of such options have taken place that day, in which case they will be valued at
the mean between their latest bid and asked prices. Unlisted options on debt
securities and all options on equity securities are valued at the mean between
their latest bid and asked prices. Futures are valued at the latest sale price
on the commodities exchange on which they trade unless the Trustees determine
such price does not reflect their market value, in which case they will be
valued at their fair value as determined by the Trustees. All other securities
and other assets are valued at their fair value as determined in good faith
under procedures established by and under the supervision of the Trustees.
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
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234
currently observes the following holidays: New Year's Day, Reverend Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
PURCHASE OF FUND SHARES
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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 FSB (the "Transfer Agent")
fails to confirm the investor's represented holdings.
LETTER OF INTENT. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund from
the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation," but
there will be no retroactive reduction of sales charges on previous purchases.
For the purpose of determining whether the investor is entitled to a further
reduced sales charge applicable to purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other Dean Witter Funds
held by the shareholder which were previously purchased at a price including a
front-end sales charge
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235
(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,
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236
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:
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ---------------------------------------- --------------------------
First................................... 5.0%
Second.................................. 4.0%
Third................................... 3.0%
Fourth.................................. 2.0%
Fifth................................... 2.0%
Sixth................................... 1.0%
Seventh and thereafter.................. None
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 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:
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ---------------------------------------- --------------------------
First................................... 2.0%
Second.................................. 2.0%
Third................................... 1.0%
Fourth and thereafter................... None
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
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Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by the Transfer
Agent. This is an open account in which shares owned by the investor are
credited by the Transfer Agent in lieu of issuance of a share certificate. If a
share certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares and may be redeposited
in the account at any time. There is no charge to the investor for issuance of a
certificate. Whenever a shareholder-instituted transaction takes place in the
Shareholder Investment Account, the shareholder will be mailed a confirmation of
the transaction from the Fund or from DWR or other selected broker-dealer.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the
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applicable Class of the Fund, unless the shareholder requests that they be paid
in cash. Each purchase of shares of the Fund is made upon the condition that the
Transfer Agent is thereby automatically appointed as agent of the investor to
receive all dividends and capital gains distributions on shares owned by the
investor. Such dividends and distributions will be paid, at the net asset value
per share, in shares of the applicable Class of the Fund (or in cash if the
shareholder so requests) as of the close of business on the record date. At any
time an investor may request the Transfer Agent, in writing, to have subsequent
dividends and/or capital gains distributions paid to him or her in cash rather
than shares. To assure sufficient time to process the change, such request
should be received by the Transfer Agent at least five business days prior to
the record date of the dividend or distribution. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payments will be made to DWR or the other selected
broker-dealer, and will be forwarded to the shareholder, upon the receipt of
proper instructions. It has been and remains the Fund's policy and practice
that, if checks for dividends or distributions paid in cash remain uncashed, no
interest will accrue on amounts represented by such uncashed checks.
TARGETED DIVIDENDS.-SM- 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 Strategist Fund or in another Class of Dean Witter
Strategist 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.-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. 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 DIVIDENDS OR 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 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 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.
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The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent, or amounts credited to a shareholder's DWR or other
selected broker-dealer brokerage account, within five business days after the
date of redemption. The Withdrawal Plan may be terminated at any time by the
Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her 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 INVESTMENT 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 Strategist Fund, and indicating the selected
Class, directly to the Fund's Transfer Agent. In the case of Class A shares,
after deduction of any applicable sales charge, the balance will be applied to
the purchase of Fund shares, and, in the case of shares of the other Classes,
the entire amount will be applied to the purchase of Fund shares, at the net
asset value per share next computed after receipt of the check or purchase
payment by the Transfer Agent. The shares so purchased will be credited to the
investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of each Class of shares of the Fund
may exchange their shares for shares of the same Class of shares of any other
Dean Witter Multi-Class Fund without the imposition of any exchange fee. Shares
may also be exchanged for shares of any of the following funds: Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust
and five Dean Witter Funds which are money market funds (the foregoing nine
funds are hereinafter referred to as the "Exchange Funds"). Class A shares may
also be exchanged for shares of Dean Witter Multi-State Municipal Series Trust
and Dean Witter Hawaii Municipal Trust, which are Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"). Class B shares may also be exchanged for
shares of Dean Witter Global Short-Term Income Fund Inc., 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.
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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, if any, incurred
on or after that date which are attributable to those shares. Shareholders
acquiring shares of an Exchange Fund pursuant to this exchange privilege may
exchange those shares back into a 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 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
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value of, the exchanged non-Free Shares. If an exchange between funds would
result in exchange of only part of a particular block of non-Free Shares, then
shares equal to any appreciation in the value of the block (up to the amount of
the exchange) will be treated as Free Shares and exchanged first, and the
purchase payment for that block will be allocated on a pro rata basis between
the non-Free Shares of that block to be retained and the non-Free Shares to be
exchanged. The prorated amount of such purchase payment attributable to the
retained non-Free Shares will remain as the purchase payment for such shares,
and the amount of purchase payment for the exchanged non-Free Shares will be
equal to the lesser of (a) the prorated amount of the purchase payment for, or
(b) the current net asset value of, those exchanged non-Free Shares. Based upon
the procedures described in the Prospectus under the caption "Purchase of Fund
Shares," any applicable CDSC will be imposed upon the ultimate redemption of
shares of any fund, regardless of the number of exchanges since those shares
were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $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 may, in its discretion, accept initial investments 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 may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days' prior written notice for
termination or material revision), provided that six months' prior written
notice of termination will be given to the shareholders who hold shares of
Exchange Funds pursuant to the Exchange Privilege, and provided further that the
Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is re-
stricted, (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
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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(s), 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
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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.
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 the Transfer Agent. Such
payment may be postponed or the right of redemption suspended at times (a) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on that Exchange is restricted, (c) when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (d) during any other period
when the Securities and Exchange Commission by order so permits; provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist. If the
shares to be redeemed have recently been purchased by check, payment of the
redemption proceeds may be delayed for the minimum time needed to verify that
the check used for investment has been honored (not more than fifteen days from
the time of receipt of
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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 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 the
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and will notify shareholders that, following an election by the
Fund, the shareholders will be required to include such undistributed gains in
determining their taxable income and may claim their share of the tax paid by
the Fund as a credit against their individual federal income tax.
Because the Fund intends to distribute all of its net investment income and
net 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 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 net short-term capital gains, are taxable to the
shareholder as ordinary income regardless of whether the shareholder receives
such payments in additional shares or in cash. Any dividends declared in the
last quarter of any calendar year which are paid in the following year prior to
February 1 will be deemed received by the shareholder in the prior calendar
year.
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 capital gains or losses.
Gains or losses on the Fund's transactions, if any, in futures and
non-equity options generally are treated as 60% long-term and 40% short-term
capital gains or losses. When the Fund engages in 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 that gain or loss is
realized, or to defer recognition of a realized loss for tax purposes.
Recognition, for tax purposes, of an unrealized loss may result in a lesser
amount of the Fund's realized net gains being available for distribution.
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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.
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.
Under current federal 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 or 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.
In computing net investment income, the Fund will not amortize premiums or
accrue discounts on fixed-income securities in the portfolio, except those
original issue discounts for which amortization is required for federal income
tax purposes. Additionally, with respect to market discounts on bonds, a portion
of any capital gain realized upon disposition may be characterized as taxable
ordinary income in accordance with the provisions of the Internal Revenue Code.
Realized gains and losses on security transactions are determined on the
identified cost method.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable. Therefore, an investor should consider the
tax implications of purchasing Fund shares immediately prior to a distribution
record date.
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. The
amount of dividends paid by the Fund which may qualify for the dividends
received deduction is limited to the aggregate amount of qualifying dividends
which the Fund derives from its portfolio investments which the Fund has held
for a minimum period, usually 46 days. Any distributions made by the Fund will
not be eligible for the dividends received deduction with respect to shares
which are held by the shareholder for 45 days or less. Any long-term capital
gain distributions will also not be eligible for
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the dividends received deduction. The ability to take the dividends received
deduction will also be limited in the case of a Fund shareholder which incurs or
continues indebtedness which is directly attributable to its investment in the
Fund.
After the end of the 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 portion eligible for the dividends received
deduction. 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 are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. These figures are
computed separately for Class A, Class B, Class C and Class D shares. The Fund's
"average annual total return" represents an annualization of the Fund's total
return over a particular period and is computed by finding the annual percentage
rate which will result in the ending redeemable value of a hypothetical $1,000
investment made at the beginning of a one, five or ten year period, or for the
period from the date of commencement of the Fund's operations, if shorter than
any of the foregoing. The ending redeemable value is reduced by any CDSC at the
end of the one, five or ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment, taking a root of the quotient (where the root is equivalent to the
number of years in the period) and subtracting 1 from the result. The average
annual total returns of Class B for the fiscal year ended July 31, 1997, for the
five year period ended July 31, 1997 and for the period from October 31, 1988
(commencement of operations) through July 31, 1997 were 24.73%, 13.09% and
14.26%, 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 C 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 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 July 31,
1997 were -3.45%, 0.90% and 1.90% for Class A, Class C and Class D,
respectively.
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 above, but
without deduction for any applicable sales charge. Based on this calculation,
the average annual total returns of Class B for the fiscal year ended July 31,
1997, for the five year period ended July 31, 1997 and for the period October
31, 1988 through July 31, 1997 were 29.73%, 13.33% and 14.26%, respectively.
In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a
44
245
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 total returns for Class B for
the fiscal year ending July 31, 1997, for the five year period ended July 31,
1997 and for the period October 31, 1988 through July 31, 1997 were 29.73%,
86.95% and 220.97%, respectively. Based on the foregoing calculations, the total
returns for Class A, Class C and Class D for the period July 28 through July 31,
1997 were 1.90%, 1.90% and 1.90%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 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 each Class at
inception of the Class would have grown to the following amounts at July 31,
1997:
INVESTMENT AT INCEPTION OF:
INCEPTION -----------------------------------
CLASS DATE $10,000 $50,000 $100,000
- ------------------------ ---------- --------- ----------- -----------
Class A................. 7/28/97 $ 9,655 $ 48,912 $ 98,843
Class B................. 10/31/88 32,097 160,485 320,970
Class C................. 7/28/97 10,190 50,950 101,900
Class D................. 7/28/97 10,190 50,950 101,900
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
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. 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 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 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
his/her or its duties. It also provides that all third persons shall look solely
to the Fund's property for satisfaction of claims arising in connection with the
affairs of the Fund. With the exceptions stated, the Declaration of Trust
provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liabilities in connection with the affairs of the Fund.
45
246
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, Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust FSB is an affiliate of Dean Witter InterCapital Inc., the Fund's
Investment Manager, and of Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
FSB's responsibilities include maintaining shareholder accounts, disbursing cash
dividends and reinvesting dividends, processing account registration changes,
handling purchase and redemption transactions, mailing prospectuses and reports,
mailing and tabulating proxies, processing share certificate transactions, and
maintaining shareholder records and lists. For these services Dean Witter Trust
FSB receives a per shareholder account fee.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, a report showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by the independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on July 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 July 31, 1997
included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
46
247
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1997
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (69.1%)
AEROSPACE & DEFENSE (4.4%)
270,000 General Motors Corp. (Class
H).......................... $ 16,318,125
194,000 Honeywell, Inc................ 14,489,375
180,000 Litton Industries, Inc.*...... 9,348,750
140,000 Lockheed Martin Corp.......... 14,910,000
200,000 Thiokol Corp.................. 14,862,500
-----------------
69,928,750
-----------------
AIRLINES (0.6%)
250,000 Continental Airlines, Inc.
(Class B)*.................. 9,312,500
-----------------
ALUMINUM (0.8%)
150,000 Aluminum Co. of America....... 13,275,000
-----------------
AUTOMOTIVE (1.3%)
300,000 Chrysler Corp................. 11,137,500
250,000 Ford Motor Co................. 10,218,750
-----------------
21,356,250
-----------------
BANKS - MONEY CENTER (1.9%)
150,000 Chase Manhattan Corp.......... 17,034,375
102,000 Citicorp...................... 13,846,500
-----------------
30,880,875
-----------------
BANKS - REGIONAL (3.0%)
220,000 NationsBank Corp.............. 15,661,250
240,000 Washington Mutual, Inc........ 16,560,000
58,000 Wells Fargo & Co.............. 15,946,375
-----------------
48,167,625
-----------------
BEVERAGES - SOFT DRINKS (0.8%)
327,800 PepsiCo, Inc.................. 12,558,837
-----------------
BROKERAGE (1.2%)
266,666 Travelers Group, Inc.......... 19,183,285
-----------------
CABLE/CELLULAR (0.7%)
500,000 U.S. West Media Group*........ 11,031,250
-----------------
CHEMICALS (2.1%)
220,000 Du Pont (E.I.) de Nemours &
Co., Inc.................... 14,726,250
220,000 Monsanto Co................... 10,958,750
150,000 Praxair, Inc.................. 8,268,750
-----------------
33,953,750
-----------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (2.6%)
97,964 Ascent Entertainment, Inc.*... 1,175,568
180,000 Cisco Systems, Inc.*.......... 14,298,750
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
405,000 Comsat Corp................... $ 9,441,562
270,000 Tellabs, Inc.*................ 16,149,375
-----------------
41,065,255
-----------------
COMMUNICATIONS EQUIPMENT (0.5%)
100,000 Lucent Technologies, Inc...... 8,493,750
-----------------
COMPUTER SOFTWARE (1.9%)
110,000 Microsoft Corp.*.............. 15,544,375
270,000 Oracle Corp.*................. 14,664,375
-----------------
30,208,750
-----------------
COMPUTERS (2.0%)
200,000 Dell Computer Corp.*.......... 17,100,000
400,000 Gateway 2000, Inc.*........... 15,275,000
-----------------
32,375,000
-----------------
COMPUTERS - PERIPHERAL EQUIPMENT (0.9%)
353,600 Seagate Technology, Inc.*..... 14,519,700
-----------------
COMPUTERS - SYSTEMS (1.9%)
329,250 Diebold, Inc.................. 16,544,812
300,000 Sun Microsystems, Inc.*....... 13,706,250
-----------------
30,251,062
-----------------
CONSUMER PRODUCTS (1.2%)
253,400 Colgate-Palmolive Co.......... 19,195,050
-----------------
ELECTRICAL EQUIPMENT (2.1%)
258,000 Emerson Electric Co........... 15,222,000
258,000 General Electric Co........... 18,108,375
-----------------
33,330,375
-----------------
ENTERTAINMENT/GAMING (0.2%)
100,000 Circus Circus Enterprises,
Inc.*....................... 2,506,250
-----------------
FINANCIAL SERVICES (1.9%)
200,000 American Express Co........... 16,750,000
290,000 Fannie Mae.................... 13,720,625
-----------------
30,470,625
-----------------
FOODS (2.1%)
176,000 Campbell Soup Co.............. 9,130,000
150,000 General Mills, Inc............ 10,368,750
150,000 Kellogg Co.................... 13,781,250
-----------------
33,280,000
-----------------
FOREST PRODUCTS, PAPER & PACKING (1.9%)
210,000 Bowater Inc................... 10,998,750
300,000 Champion International
Corp........................ 18,600,000
-----------------
29,598,750
-----------------
SEE NOTES TO FINANCIAL STATEMENTS
47
248
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1997, CONTINUED
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
HEALTHCARE - HMOS (0.9%)
600,000 Humana, Inc.*................. $ 14,625,000
-----------------
HEAVY DUTY TRUCKS & PARTS (0.3%)
270,000 Navistar International
Corp.*...................... 5,568,750
-----------------
HOUSEHOLD APPLIANCES (0.6%)
320,000 Maytag Corp................... 9,340,000
-----------------
INSURANCE (4.2%)
200,000 Ace, Ltd...................... 16,400,000
142,500 American International Group,
Inc......................... 15,176,250
200,000 Chubb Corp.................... 14,100,000
350,000 Equitable Companies, Inc...... 13,781,250
150,000 Vesta Insurance Group, Inc.... 7,987,500
-----------------
67,445,000
-----------------
INTERNET (0.5%)
120,000 America Online, Inc.*......... 8,100,000
-----------------
LEISURE (0.7%)
135,000 Walt Disney Co................ 10,909,687
-----------------
MEDICAL PRODUCTS & SUPPLIES (0.4%)
99,000 Baxter International,
Inc......................... 5,723,438
-----------------
OIL INTEGRATED - DOMESTIC (1.9%)
260,000 Amerada Hess Corp............. 15,291,250
212,000 Atlantic Richfield Co......... 15,860,250
-----------------
31,151,500
-----------------
OIL INTEGRATED - INTERNATIONAL (3.8%)
190,000 Chevron Corp.................. 15,033,750
240,000 Exxon Corp.................... 15,420,000
198,000 Mobil Corp.................... 15,147,000
130,000 Texaco, Inc................... 15,088,125
-----------------
60,688,875
-----------------
PHARMACEUTICALS (3.8%)
160,000 Abbott Laboratories........... 10,470,000
128,400 American Home Products
Corp........................ 10,584,975
194,744 Johnson & Johnson............. 12,134,986
151,000 Lilly (Eli) & Co.............. 17,063,000
102,200 Merck & Co., Inc.............. 10,622,413
-----------------
60,875,374
-----------------
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
RETAIL - DEPARTMENT STORES (1.4%)
1,000,000 Kmart Corp.*.................. $ 11,875,000
176,000 May Department Stores Co...... 9,834,000
-----------------
21,709,000
-----------------
RETAIL - SPECIALTY (5.1%)
450,000 Bed Bath & Beyond, Inc.*...... 14,850,000
350,000 Costco Companies Inc.*........ 13,256,250
216,000 Home Depot, Inc............... 10,773,000
265,000 Payless ShoeSource, Inc.*..... 16,297,500
1,500,000 Pier 1 Imports, Inc........... 26,437,500
-----------------
81,614,250
-----------------
RETAIL - SPECIALTY APPAREL (0.9%)
310,000 Gap, Inc. (The)............... 13,775,625
-----------------
SAVINGS & LOAN ASSOCIATIONS (0.9%)
170,000 Golden West Financial Corp.... 14,301,250
-----------------
SEMICONDUCTOR EQUIPMENT (2.3%)
200,000 Altera Corp.*................. 12,050,000
100,000 KLA-Tencor Corp.*............. 6,050,000
410,000 Teradyne, Inc.*............... 19,167,500
-----------------
37,267,500
-----------------
SEMICONDUCTORS (2.3%)
475,000 Cypress Semiconductor
Corp.*...................... 7,273,438
160,000 Intel Corp.................... 14,680,000
300,000 Micron Technology, Inc........ 14,606,250
-----------------
36,559,688
-----------------
SHOES (0.5%)
130,000 Nike, Inc. (Class B).......... 8,100,625
-----------------
STEEL (0.7%)
180,000 Nucor Corp.................... 11,171,250
-----------------
TOBACCO (1.1%)
390,000 Philip Morris Companies,
Inc......................... 17,598,750
-----------------
TRUCKERS (0.8%)
500,000 Yellow Corp.*................. 13,437,500
-----------------
TOTAL COMMON STOCKS
(IDENTIFIED COST
$740,508,406)................. 1,104,905,751
-----------------
SEE NOTES TO FINANCIAL STATEMENTS
48
249
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1997, CONTINUED
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------
CORPORATE BONDS (13.1%)
AIRLINES (0.7%)
$ 9,000 United Air Lines, Inc. 10.125%
due 03/22/15................ $ 11,155,410
-----------------
BANKS (1.5%)
6,800 Bankers Trust Co. (Series A) -
144A** 8.09% due 12/01/26... 6,961,500
5,000 Capital One Bank 5.95% due
02/15/01.................... 4,890,000
6,000 Mercantile Bancorporation,
Inc. 7.30% due 06/15/07..... 6,215,340
6,000 Republic New York Corp. 7.20%
due 07/15/97................ 6,059,100
-----------------
24,125,940
-----------------
BROKERAGE (1.1%)
6,000 Bear Stearns Co., Inc. 6.50%
due 08/01/02................ 6,023,700
6,000 Lehman Brothers Holdings, Inc.
(Series E) 6.50% due
07/18/00.................... 6,033,060
5,000 Salomon, Inc. 6.65% due
07/15/01.................... 5,037,500
-----------------
17,094,260
-----------------
CABLE & TELECOMMUNICATIONS (1.5%)
5,000 Comcast Cable
Communications - 144A**
8.875% due 05/01/17......... 5,810,200
5,000 Continental Cablevision, Inc.
9.50% due 08/01/13.......... 5,825,550
7,000 TCI Communications, Inc. 8.75%
due 08/01/15................ 7,775,180
5,000 Time Warner Pass-thru - 144A**
6.10% due 12/30/01.......... 4,900,000
-----------------
24,310,930
-----------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (0.3%)
5,000 MFS Communications, Inc.
8.875% due 01/15/06......... 3,984,714
-----------------
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (4.4%)
$ 5,000 Advanta Corp.
6.384% due 08/07/98......... $ 4,992,950
3,500 Advanta Corp.
7.28% due 07/30/01.......... 3,514,280
5,000 Arkwright CSN Trust - 144A**
9.625% due 08/15/26......... 5,881,250
6,800 Central Fidelity Capital I
-144A** 6.75%+ due
04/15/27.................... 6,976,868
6,900 Centura Capital Trust I -
144A** 8.845% due
06/01/27.................... 7,460,625
5,000 Compass Trust I Series A 8.23%
due 01/15/27................ 5,270,500
4,000 Hutchison Whampoa - 144A**
(Cayman Islands) 7.50% due
08/01/27.................... 4,070,000
6,900 Money Store, Inc. (The) 8.375%
due 04/15/04................ 7,279,293
5,000 North Fork Capital Trust I
8.70% due 12/15/26.......... 5,256,250
7,500 Provident Capital Trust I
8.60% due 12/01/26.......... 7,856,250
5,000 Riggs Capital Trust II -
144A** 8.875% due
03/15/27.................... 5,278,800
7,000 Sakura Capital Funding -
144A** (Cayman Islands)
7.32%+ due
08/29/49.................... 7,052,500
-----------------
70,889,566
-----------------
INSURANCE (0.8%)
5,800 Terra Nova Holdings (United
Kingdom) 10.75% due
07/01/05.................... 6,506,440
5,900 Vesta Capital Trust I - 144A**
8.525% due 01/15/27......... 6,386,750
-----------------
12,893,190
-----------------
MACHINERY & MACHINE TOOLS (0.2%)
3,000 Joy Technologies Inc. 10.25%
due 09/01/03................ 3,267,570
-----------------
SEE NOTES TO FINANCIAL STATEMENTS
49
250
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1997, CONTINUED
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------
METALS & MINING (0.4%)
$ 6,900 Placer Dome, Inc. (Canada)
8.50% due 12/31/45.......... $ 7,089,750
-----------------
OIL & GAS PRODUCTS (0.3%)
5,000 Mitchell Energy & Development
Corp. 6.75% due 02/15/04.... 4,971,000
-----------------
PROPERTY (0.4%)
6,000 Guangdong Enterprises - 144A**
(Hong Kong) 8.875% due
05/22/07.................... 6,324,240
-----------------
RETAIL (0.7%)
6,000 Heilig Myers Co.
7.60% due 08/01/07.......... 5,992,020
5,000 ShopKo Stores, Inc. 9.00% due
11/15/04.................... 5,617,650
-----------------
11,609,670
-----------------
TELECOMMUNICATIONS (0.8%)
5,000 British Telecom Finance
(United Kingdom) 9.625% due
02/15/19.................... 5,443,400
6,900 Total Access Communication -
144A** (Thailand) 8.375% due
11/04/06.................... 6,848,250
-----------------
12,291,650
-----------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$202,989,974)................. 210,007,890
-----------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (7.0%)
10,000 Federal Home Loan Banks 6.805%
due 03/26/02................ 10,017,200
310 Federal Home Loan Mortgage
Corp. 8.50% due 07/01/02.... 318,419
148 Federal Home Loan Mortgage
Corp. 9.00% due 08/01/02.... 151,556
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------
$ 8,400 U.S. Treasury Bond 6.50% due
11/15/26.................... $ 8,588,664
7,000 U.S. Treasury Note 5.125% due
02/28/98.................... 6,983,550
28,000 U.S. Treasury Note 5.25% due
12/31/97.................... 27,978,440
1,900 U.S. Treasury Note 5.625% due
11/30/00.................... 1,889,531
3,900 U.S. Treasury Note 5.875% due
11/30/01.................... 3,898,284
5,000 U.S. Treasury Note 6.00% due
08/15/99.................... 5,025,250
5,000 U.S. Treasury Note 6.375% due
05/15/99.................... 5,055,600
12,050 U.S. Treasury Note 6.50% due
04/30/99.................... 12,210,626
4,900 U.S. Treasury Note 6.50% due
05/15/05.................... 5,044,403
5,000 U.S. Treasury Note 6.75% due
04/30/00.................... 5,120,950
11,900 U.S. Treasury Note 6.875% due
08/31/99.................... 12,163,704
7,000 U.S. Treasury Note 7.50% due
11/15/01.................... 7,423,640
-----------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(IDENTIFIED COST
$111,151,858)................. 111,869,817
-----------------
SHORT-TERM INVESTMENTS (10.0%)
U.S. GOVERNMENT AGENCIES (a) (10.0%)
109,800 Federal Home Loan Mortgage
Corp. 5.38% - 5.75% due
08/01/97 - 08/13/97......... 109,736,967
50,000 Student Loan Marketing Assoc.
5.44% due 08/18/97.......... 49,871,555
-----------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST
$159,608,522)................. 159,608,522
-----------------
SEE NOTES TO FINANCIAL STATEMENTS
50
251
DEAN WITTER STRATEGIST FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1997, CONTINUED
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (0.0%)
$ 127 The Bank of New York 5.75% due
08/01/97 (dated 07/31/97;
proceeds $127,134) (b)
(IDENTIFIED COST
$127,114)................... $ 127,114
-----------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST
$159,735,636)................. 159,735,636
-----------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,214,385,874) (C)........ 99.2% 1,586,519,094
OTHER ASSETS IN EXCESS OF
LIABILITIES................ 0.8 12,492,053
----- --------------
NET ASSETS................. 100.0% $1,599,011,147
===== ==============
- ----------
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
+ Floating rate security. Coupon rate shown is the rate in effect at July
31, 1997.
(a) Securities were purchased on discount basis. The interest rates shown have
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $103,000 U.S. Treasury Bill 0.00% due 08/07/97 valued at
$102,902, $905 U.S. Treasury Note 7.125% due 09/30/99 valued at $952 and
$25,255 U.S. Treasury Note 6.25% due 05/31/00 valued at $25,802.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $375,011,084 and the
aggregate gross unrealized depreciation is $2,877,864, resulting in net
unrealized appreciation of $372,133,220.
SEE NOTES TO FINANCIAL STATEMENTS
51
252
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997
ASSETS:
Investments in securities, at value
(identified cost $1,214,385,874).......................... $1,586,519,094
Receivable for:
Investments sold........................................ 23,853,037
Interest................................................ 5,125,607
Shares of beneficial interest sold...................... 2,503,666
Dividends............................................... 829,667
Prepaid expenses and other assets........................... 35,452
--------------
TOTAL ASSETS........................................... 1,618,866,523
--------------
LIABILITIES:
Payable for:
Investments purchased................................... 16,522,123
Plan of distribution fee................................ 1,136,872
Shares of beneficial interest repurchased............... 1,249,005
Investment management fee............................... 720,945
Accrued expenses and other payables......................... 226,431
--------------
TOTAL LIABILITIES...................................... 19,855,376
--------------
NET ASSETS............................................. $1,599,011,147
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. 1,195,287,263
Net unrealized appreciation................................. 372,133,220
Accumulated undistributed net investment income............. 7,448,690
Accumulated undistributed net realized gain................. 24,141,974
--------------
NET ASSETS............................................. $1,599,011,147
==============
CLASS A SHARES:
Net Assets.................................................. $78,527
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 4,187
NET ASSET VALUE PER SHARE..............................
$18.75
==============
MAXIMUM OFFERING PRICE PER SHARE
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE).....
$19.79
==============
CLASS B SHARES:
Net Assets.................................................. $1,540,879,742
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 82,168,617
NET ASSET VALUE PER SHARE..............................
$18.75
==============
CLASS C SHARES:
Net Assets.................................................. $114,448
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 6,103
NET ASSET VALUE PER SHARE..............................
$18.75
==============
CLASS D SHARES:
Net Assets.................................................. $57,938,430
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 3,089,332
NET ASSET VALUE PER SHARE..............................
$18.75
==============
SEE NOTES TO FINANCIAL STATEMENTS
52
253
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997*
NET INVESTMENT INCOME:
INCOME
Interest.................................................... $ 43,456,090
Dividends................................................... 10,407,080
------------
TOTAL INCOME........................................... 53,863,170
------------
EXPENSES
Plan of distribution fee (Class B shares)................... 12,491,604
Investment management fee................................... 7,751,652
Transfer agent fees......................................... 1,192,422
Shareholder reports and notices............................. 95,767
Custodian fees.............................................. 79,398
Registration fees........................................... 76,436
Professional fees........................................... 62,619
Trustees' fees and expenses................................. 14,922
Other....................................................... 20,165
------------
TOTAL EXPENSES......................................... 21,784,985
------------
NET INVESTMENT INCOME.................................. 32,078,185
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 52,266,640
Net change in unrealized appreciation....................... 285,799,377
------------
NET GAIN............................................... 338,066,017
------------
NET INCREASE................................................ $370,144,202
============
- ----------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
53
254
DEAN WITTER STRATEGIST FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 1997* JULY 31, 1996
- -------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 32,078,185 $ 21,424,282
Net realized gain........................................... 52,266,640 97,968,604
Net change in unrealized appreciation....................... 285,799,377 (3,107,509)
---------------- ----------------
NET INCREASE........................................... 370,144,202 116,285,377
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class B shares.......................................... (28,975,735) (21,021,721)
Net realized gain
Class B shares.......................................... (109,339,056) (70,591,947)
---------------- ----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... (138,314,791) (91,613,668)
---------------- ----------------
Net increase from transactions in shares of beneficial
interest.................................................. 107,876,963 357,037,738
---------------- ----------------
TOTAL INCREASE......................................... 339,706,374 381,709,447
NET ASSETS:
Beginning of period......................................... 1,259,304,773 877,595,326
---------------- ----------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$7,448,690 AND $4,346,240, RESPECTIVELY)................ $1,599,011,147 $1,259,304,773
================ ================
- ----------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
54
255
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Strategist Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund's investment objective is to maximize
the total return of its investments. The Fund seeks to achieve its objective by
actively allocating its assets among major asset categories of equity and
fixed-income securities and money market instruments. The Fund was organized as
a Massachusetts business trust on August 5, 1988 and commenced operations on
October 31, 1988. On July 28, 1997, the Fund commenced offering three additional
classes of shares, with the then current shares, other than shares which were
purchased prior to November 8, 1989 (and with respect to such shares, certain
shares acquired through reinvestment of dividends and capital gains
distributions (collectively the "Old Shares")) and shares held by certain
employee benefit plans established by Dean Witter Reynolds Inc. and its
affiliate, SPS Transaction Services, Inc., designated as Class B shares. The Old
Shares and shares held by those employee benefit plans prior to July 28, 1997
have been designated Class D 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 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
55
256
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997, CONTINUED
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 of the Fund's
portfolio securities may be valued by an outside pricing service approved by the
Trustees. The pricing service may utilize a matrix system incorporating security
quality, maturity and coupon as the evaluation model parameters, and/or research
and 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.
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 record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their
56
257
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997, CONTINUED
federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they exceed
net investment income and net realized capital gains for tax purposes, they are
reported as distributions of paid-in-capital.
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
following annual rates to the net assets of the Fund determined at the close of
each business day: 0.60% to the portion of daily net assets not exceeding $500
million; 0.55% to the portion of daily net assets exceeding $500 million but not
exceeding $1 billion; 0.50% to the portion of daily net assets exceeding $1
billion but not exceeding $1.5 billion; and 0.475% to the portion of daily net
assets exceeding $1.5 billion.
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 lesser of: (a) the
average daily aggregate gross sales of the Class B shares since the
implementation of the Plan on November 8, 1989 (not including reinvestment of
dividend or capital gain distributions) less the average daily aggregate net
asset value of the Class B shares redeemed since the Fund's implementation of
the Plan upon which a contingent deferred sales charge has been imposed or
waived; or (b) the average daily net assets of Class B; and (iii) Class C --
1.0% of the average daily net assets of Class C. In the case of Class A shares,
amounts paid under the Plan are paid to the Distributor for services provided.
In the case of Class B and Class C shares, amounts paid under the Plan are paid
to the Distributor for services
57
258
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997, CONTINUED
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.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $37,067,710 at July 31, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended July 31, 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 year ended July 31, 1997, it
received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares of approximately $1,683,000. The shareholders pay such
charges which are not an expense of the Fund.
58
259
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997, CONTINUED
4. SHARES OF BENEFICIAL INTEREST+
Transactions in shares of beneficial interest were as follows:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 1997 JULY 31, 1996
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
CLASS A SHARES*
Sold............................................................. 4,187 $ 77,553 -- --
----------- -------------- ----------- ------------
CLASS B SHARES
Sold............................................................. 21,462,833 362,673,259 15,621,003 $252,119,338
Reinvestment of dividends and distributions...................... 7,689,886 125,001,968 5,419,616 83,797,500
Shares issued in connection with the acquisition of Dean Witter
Managed Assets Trust............................................ -- -- 20,952,000 322,593,266
Redeemed......................................................... (22,487,425) (380,152,637) (18,698,191) (301,472,366)
----------- -------------- ----------- ------------
Net increase -- Class B.......................................... 6,665,294 107,522,590 23,294,428 357,037,738
----------- -------------- ----------- ------------
CLASS C SHARES*
Sold............................................................. 6,103 112,493 -- --
----------- -------------- ----------- ------------
CLASS D SHARES*
Sold............................................................. 10,440 195,743 -- --
Redeemed......................................................... (1,699) (31,416) -- --
----------- -------------- ----------- ------------
Net increase -- Class D.......................................... 8,741 164,327 -- --
----------- -------------- ----------- ------------
Net increase in Fund............................................. 6,684,325 $ 107,876,963 23,294,428 $357,037,738
=========== ============== =========== ============
- ----------
+ On July 28, 1997, 3,080,591 shares representing $56,682,871 were
transferred to class D.
* For the period July 28, 1997 (issue date) through July 31, 1997.
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 July 31, 1997 aggregated
$1,953,824,446 and $2,016,351,077, respectively. Included in the aforementioned
are purchases and sales of U.S. Government securities of $290,565,797 and
$498,666,902, respectively.
For the same period, the Fund incurred brokerage commissions with DWR of
$37,367, for portfolio transactions executed on behalf of the Fund.
For the period May 31, 1997 through July 31, 1997, the Fund incurred brokerage
commissions with Morgan Stanley & Co. Inc., an affiliate of the Investment
Manager since May 31, 1997, of $1,005, for portfolio transactions executed on
behalf of the Fund.
59
260
DEAN WITTER STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997, CONTINUED
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 $9,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended July 31, 1997 included in
Trustees' fees and expenses in the Statement of Operations amounted to $1,735.
At July 31, 1997, the Fund had an accrued pension liability of $87,050 which is
included in accrued expenses in the Statement of Assets and Liabilities.
6. FEDERAL INCOME TAX STATUS
As of July 31, 1997, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
60
261
DEAN WITTER STRATEGIST FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
FOR THE YEAR ENDED JULY 31
--------------------------------------------------
1997** 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 16.02 $ 15.87 $ 14.43
------------ ------------ ------------
Net investment income................................................. 0.39 0.30 0.34
Net realized and unrealized gain...................................... 4.10 1.43 1.86
------------ ------------ ------------
Total from investment operations...................................... 4.49 1.73 2.20
------------ ------------ ------------
Less dividends and distributions from:
Net investment income.............................................. (0.36) (0.32) (0.29)
Net realized gain.................................................. (1.40) (1.26) (0.47)
------------ ------------ ------------
Total dividends and distributions..................................... (1.76) (1.58) (0.76)
------------ ------------ ------------
Net asset value, end of period........................................ $ 18.75 $ 16.02 $ 15.87
============ ============ ============
TOTAL INVESTMENT RETURN+.............................................. 29.73% 11.47% 16.05%
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. %1.56 %1.58 %1.63
Net investment income................................................. %2.29 %1.88 %2.35
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................................ $ 1,541 $ 1,259 $ 878
Portfolio turnover rate............................................... 158% 174% 179%
Average commission rate paid.......................................... $0.0595 $0.0597 --
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.59 $ 14.39 $ 13.09
------------ ------------ ------------
Net investment income................................................. 0.30 0.26 0.27
Net realized and unrealized gain...................................... 0.22 0.81 1.27
------------ ------------ ------------
Total from investment operations...................................... 0.52 1.07 1.54
------------ ------------ ------------
Less dividends and distributions from:
Net investment income.............................................. (0.26) (0.31) (0.24)
Net realized gain.................................................. (0.42) (0.56) --
------------ ------------ ------------
Total dividends and distributions..................................... (0.68) (0.87) (0.24)
------------ ------------ ------------
Net asset value, end of period........................................ $ 14.43 $ 14.59 $ 14.39
============ ============ ============
TOTAL INVESTMENT RETURN+.............................................. 3.53% 7.59% 11.88%
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.62% 1.62% 1.63%
Net investment income................................................. 2.03% 1.90% 2.19%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................................ $ 806 $ 783 $ 441
Portfolio turnover rate............................................... 90% 98% 79%
Average commission rate paid.......................................... -- -- --
FOR THE PERIOD
OCTOBER 31,
1988*
THROUGH
1991 1990 JULY 31, 1989
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 11.65 $ 11.37 $ 9.45
------------ ------------ ------------
Net investment income................................................. 0.27 0.23 0.38
Net realized and unrealized gain...................................... 1.50 0.55 1.84
------------ ------------ ------------
Total from investment operations...................................... 1.77 0.78 2.22
------------ ------------ ------------
Less dividends and distributions from:
Net investment income.............................................. (0.26) (0.29) (0.30)
Net realized gain.................................................. (0.07) (0.21) --
------------ ------------ ------------
Total dividends and distributions..................................... (0.33) (0.50) (0.30)
------------ ------------ ------------
Net asset value, end of period........................................ $ 13.09 $ 11.65 $ 11.37
============ ============ ============
TOTAL INVESTMENT RETURN+.............................................. 15.67% 7.21% 23.76%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.59% 1.53% 0.97%(2)(3)
Net investment income................................................. 2.37% 2.39% 6.00%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................................ $ 238 $ 196 $ 48
Portfolio turnover rate............................................... 140% 101% 70%(1)
Average commission rate paid.......................................... -- -- --
- ----------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date, other than shares which were purchased
prior to November 8, 1989 (and with respect to such shares, certain shares
acquired through reinvestment of dividends and capital gains distributions
(collectively the "Old Shares")) and shares held by certain employee
benefit plans established by Dean Witter Reynolds Inc., and its affiliate,
SPS Transaction Services, Inc., have been designated Class B shares. The
Old Shares and shares held by those employee benefit plans prior to July
28, 1997 have been designated Class D 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 Fund had borne all its expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment income
ratios would have been 1.48% and 5.48%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
61
262
DEAN WITTER STRATEGIST FUND
FINANCIAL HIGHLIGHTS, CONTINUED
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JULY 31, 1997
- ----------------------------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.40
-------
Net investment income................................................. 0.01
Net realized and unrealized gain...................................... 0.34
-------
Total from investment operations...................................... 0.35
-------
Net asset value, end of period........................................ $ 18.75
=======
TOTAL INVESTMENT RETURN+.............................................. 1.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.92%(2)
Net investment income................................................. 5.06%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 79
Portfolio turnover rate............................................... 158%
Average commission rate paid.......................................... $0.0595
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.40
-------
Net investment income................................................. 0.01
Net realized and unrealized gain...................................... 0.34
-------
Total from investment operations...................................... 0.35
-------
Net asset value, end of period........................................ $ 18.75
=======
TOTAL INVESTMENT RETURN+.............................................. 1.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.67%(2)
Net investment income................................................. 4.38%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 114
Portfolio turnover rate............................................... 158%
Average commission rate paid.......................................... $0.0595
- ----------
* The date shares were first issued.
+ 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
62
263
DEAN WITTER STRATEGIST FUND
FINANCIAL HIGHLIGHTS, CONTINUED
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JULY 31, 1997
- ----------------------------------------------------------------------------------------
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.40
-------
Net investment income................................................. 0.01
Net realized and unrealized gain...................................... 0.34
-------
Total from investment operations...................................... 0.35
-------
Net asset value, end of period........................................ $ 18.75
=======
TOTAL INVESTMENT RETURN+.............................................. 1.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.67%(2)
Net investment income................................................. 5.40%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $57,938
Portfolio turnover rate............................................... 158%
Average commission rate paid.......................................... $0.0595
- ----------
* The date 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 B to
obtain the historical per share data and ratio information of their shares.
+ 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
63
264
DEAN WITTER STRATEGIST FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER STRATEGIST 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 Strategist Fund (the
"Fund") at July 31, 1997, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the 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 July 31, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
SEPTEMBER 12, 1997
1997 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended July 31, 1997, the Fund paid to its
shareholders $1.17 per share from long-term capital gains. For
such period 25.03% of the income dividend qualified for the
dividends received deduction available to corporations.
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APPENDIX
- --------------------------------------------------------------------------------
RATINGS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its corporate and
municipal bond rating system. The modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and a modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
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. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the
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266
following considerations: (1) likelihood of default-capacity and willingness of
the obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature of and provisions of the
obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for debt in higher-rated
categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not
rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2 and 3 to indicate the relative degree of safety.
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying
this designation are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
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STATEMENT OF ADDITIONAL INFORMATION
MARCH 2, 1998
DEAN WITTER
GLOBAL ASSET ALLOCATION
FUND
Dean Witter Global Asset Allocation Fund (the "Fund") is an open-end
diversified management investment company whose investment objective is to seek
long-term total return on its investments. The Fund seeks to meet its investment
objective by allocating its assets among U.S. and foreign equities, fixed-income
securities and money market instruments. (See "Investment Practices and
Policies.")
A Prospectus for the Fund dated March 2, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone numbers listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc., at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
Dean Witter Global Asset Allocation Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
268
TABLE OF CONTENTS
The Fund and its Management.................. 3
Trustees and Officers........................ 7
Investment Practices and Policies............ 13
Investment Restrictions...................... 28
Portfolio Transactions and Brokerage ........ 29
The Distributor.............................. 31
Purchase of Fund Shares ..................... 36
Shareholder Services......................... 38
Redemptions and Repurchases.................. 43
Dividends, Distributions and Taxes........... 44
Performance Information...................... 46
Shares of the Fund........................... 47
Custodian and Transfer Agent ................ 48
Independent Accountants...................... 48
Reports to Shareholders...................... 48
Legal Counsel................................ 48
Experts ..................................... 49
Registration Statement....................... 49
Financial Statements at January 31, 1998 .... 50
Report of Independent Accountants............ 71
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269
THE FUND AND ITS MANAGEMENT
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts business
trust" and was organized under the laws of the Commonwealth of Massachusetts on
October 18, 1994.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"), a
Delaware corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. InterCapital is a wholly-owned
subsidiary of 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
portfolio of of the Fund is conducted by or under the direction of officers of
the Fund and of the Investment Manager and Sub-Advisers, subject to review by
the Fund's Board of Trustees. Information as to these Trustees and officers is
contained under the caption "Trustees and Officers."
InterCapital is also the investment manager (or investment adviser and
administrator) of the following investment companies: Dean Witter Liquid Asset
Fund, Inc., InterCapital Income Securities Inc., Dean Witter High Yield
Securities Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter Developing
Growth Securities Trust, Dean Witter Tax-Exempt Securities Trust, Dean Witter
Dividend Growth Securities Inc., Dean Witter Natural Resource Development
Securities Inc., Dean Witter American Value Fund, Dean Witter U.S. Government
Money Market Trust, Dean Witter Variable Investment Series, Dean Witter World
Wide Investment Trust, Dean Witter Select Municipal Reinvestment Fund, Dean
Witter U.S. Government Securities Trust, Dean Witter California Tax-Free Income
Fund, Dean Witter New York Tax-Free Income Fund, Dean Witter Convertible
Securities Trust, Dean Witter Federal Securities Trust, Dean Witter Value-Added
Market Series, High Income Advantage Trust, Dean Witter Government Income Trust,
InterCapital Insured Municipal Bond Trust, Dean Witter Utilities Fund, High
Income Advantage Trust II, Dean Witter California Tax-Free Daily Income Trust,
Dean Witter Strategist Fund, High Income Advantage Trust III, Dean Witter World
Wide Income Trust, Dean Witter Intermediate Income Securities, Dean Witter New
York Municipal Money Market Trust, Dean Witter Capital Growth Securities, Dean
Witter European Growth Fund Inc., Dean Witter Pacific Growth Fund Inc., Dean
Witter Precious Metals and Minerals Trust, Dean Witter Global Short-Term Income
Fund Inc., Dean Witter Multi-State Municipal Series Trust, Dean Witter
Short-Term U.S. Treasury Trust, InterCapital Quality Municipal Investment Trust,
InterCapital Insured Municipal Trust, Dean Witter Diversified Income Trust, Dean
Witter Health Sciences Trust, Dean Witter Global Dividend Growth Securities,
Dean Witter Limited Term Municipal Trust, Dean Witter Special Value Fund, Dean
Witter Income Builder Fund, Dean Witter Financial Services Trust, Dean Witter
Market Leader Trust, InterCapital Insured Municipal Securities, InterCapital
Insured California Municipal Securities, InterCapital Insured Municipal Income
Trust, InterCapital California Insured Municipal Income Trust, InterCapital
Quality Municipal Income Trust, InterCapital Quality Municipal Securities,
InterCapital California Quality Municipal Securities, InterCapital New York
Quality Municipal Securities, Active Assets Money Trust, Active Assets Tax-Free
Trust, Active Assets California Tax-Free Trust, Active Assets Government
Securities Trust, Municipal Income Trust, Municipal Income Trust II, Municipal
Income Trust III, Municipal Income Opportunities Trust, Municipal Income
Opportunities Trust II, Municipal Income Opportunities Trust III, Prime Income
Trust, Municipal Premium Income Trust, Dean Witter Short-Term Bond Fund, Dean
Witter Global Utilities Fund, Dean Witter International SmallCap Fund, Dean
Witter Retirement Series, Dean Witter Mid-Cap Growth Fund, Dean Witter Balanced
Income Fund, Dean Witter Balanced Growth Fund, Dean Witter Hawaii Municipal
Trust, Dean Witter Information Fund, Dean Witter Intermediate Term U.S. Treasury
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Trust, Dean Witter Japan Fund, Dean Witter S&P 500 Index Fund, Dean Witter Fund
of Funds, Morgan Stanley Dean Witter Growth Fund, Morgan Stanley Dean Witter
Competitive Edge Fund and Dean Witter Select Dimensions Investment Series. The
foregoing investment companies, together with the Fund, are collectively
referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser: TCW/DW
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 Mid-Cap Equity
Trust, TCW/DW Total Return Trust, TCW/DW Emerging Markets Opportunities Trust
and TCW/DW Global Telecom Trust (the "TCW/DW Funds"). InterCapital also serves
as: (i) administrator of The BlackRock Strategic Term Trust Inc., a closed-end
investment company; (ii) sub-administrator of MassMutual Participation Investors
and Templeton Global Governments Income Trust, closed-end investment companies,
and (iii) investment adviser of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in DWR's International Active
Assets Account program and are neither citizens nor residents of the United
States.
Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
manage the investment of the Fund's U.S. assets, including the placing of orders
for the purchase and sale of portfolio securities and supervise the investment
of all of the Fund's assets. The Investment Manager in conjunction with Morgan
Grenfell Investment Services Ltd. ("MGIS" or "Sub-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.
The Management Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for any
act or omission by the Investment Manager or for any losses sustained by the
Fund or its investors. The Management Agreement in no way restricts the
Investment Manager from acting as investment manager or adviser to others.
Under the terms of the Management Agreement, in addition to managing the
Fund's investments, the Investment Manager maintains certain of the Fund's books
and records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of
prospectuses, statements of additional information, proxy statements and reports
required to be filed with federal and state securities commissions (except
insofar as the participation or assistance of independent accountants and
attorneys is, in the opinion of the Investment Manager, necessary or desirable).
In addition, the Investment Manager pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Manager. The
Investment Manager also bears the cost of telephone service, heat, light, power
and other utilities provided to the Fund.
Expenses not expressly assumed by the Investment Manager under the Management
Agreement, the Sub-Adviser pursuant to the Sub-Advisory Agreement (see below),
or by Dean Witter Distributors Inc., the Distributor of the Fund's shares
("Distributors" or "the Distributor") will be paid by the Fund. These expenses
will be allocated among the four classes of shares of the Fund (each, a "Class")
pro rata based on the net assets of the Fund attributable to each Class, except
as described below. Such expenses include, but are not limited to: expenses of
the Plan of Distribution pursuant to Rule 12b-1 (the "12b-1 fee") (see "The
Distributor"); charges and expenses of any registrar; custodian, stock transfer
and dividend disbursing agent; brokerage commissions; taxes; engraving and
printing of share certificates; registration costs of the Fund and its shares
under federal and state securities laws; the cost and expense of printing,
including typesetting, and distributing Prospectuses and Statements of
Additional Information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of
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shareholders' and Trustees' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Investment Manager or Sub-Adviser or any corporate affiliate of the
Investment Manager or Sub-Adviser; all expenses incident to any dividend,
withdrawal or redemption options; charges and expenses of any outside service
used for pricing of the Fund's shares; fees and expenses of legal counsel,
including counsel to the Trustees who are not interested persons of the Fund or
of the Investment Manager or Sub-Adviser (not including compensation or expenses
of attorneys who are employees of the Investment Manager) and independent
accountants; membership dues of industry associations; interest on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Trustees) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification relating thereto); and all other costs
of the Fund's operation. 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 1.0% to the Fund's average daily net assets. The management fee is
allocated among the Classes pro rata based on the net assets of the Fund
attributable to each Class. The Investment Manager assumed all operating
expenses (except for the Plan of Distribution fee and any brokerage fees) and
waived the compensation provided for in the Management Agreement for the period
February 28, 1995 (commencement of operations) through December 31, 1995. For
the period February 28, 1995 through January 31, 1996 and for the fiscal years
ended January 31, 1997 and 1998, the Fund accrued to the Investment Manager
total compensation under the Investment Management Agreement of $35,663 (after
deduction of waived fees), $589,449 and $621,396, respectively.
Pursuant to a Sub-Advisory Agreement between the Investment Manager and MGIS,
MGIS has been retained, subject to the overall supervision of the Investment
Manager and the Trustees of the Fund, to assist the Investment Manager in
determining the asset allocations of the Fund, and to manage the portion of the
Fund's portfolio invested in securities issued by issuers located outside of the
Western Hemisphere.
MGIS was organized as a British corporation in 1972 and manages, as of
December 31, 1997, assets of approximately $17.3 billion for primarily U.S. and
Canadian corporate and public employee benefit plans, investment companies,
endowments and foundations. MGIS' principal office is located at 20 Finsbury
Circus, London, England. MGIS is a subsidiary of London based Morgan Grenfell
Asset Management Limited, which is itself a subsidiary of London-based Morgan
Grenfell Group plc (which is owned by Deutsche Bank AG, an international
commercial and investment banking group) and is registered as an investment
adviser under the Investment Advisers Act of 1940. In 1838, Morgan Grenfell was
founded to provide merchant banking services, primarily trade financing between
Great Britain and the United States. In 1958, its investment management arm
began operations. In recent years, Morgan Grenfell Group plc has achieved a
prominent position in the securities industry by providing investment and
commercial banking services, financial services, and discretionary management
and advisory services covering all of the world's leading securities markets.
Morgan Grenfell Asset Management Limited, through its various investment
management subsidiaries, which have extensive experience in global investment
management, is managing, as of December 31, 1997, approximately $144.2 billion
worldwide.
Prior to March 1998, TCW Funds Management, Inc. ("TCW"), a wholly-owned
subsidiary of the TCW Group, Inc., served as a sub-adviser to the Fund pursuant
to a Sub-Advisory Agreement between the Investment Manager and TCW. In October
1997, TCW indicated its intention to resign as sub-adviser. Prior to November 6,
1997, the Investment Manager informed the Board of Trustees of its intention to
assume the investment management function performed by TCW. On November 6, 1997,
the Board
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approved the submission to shareholders for approval at a special meeting of
shareholders of a new Investment Management Agreement between the Fund and the
Investment Manager. The new Investment Management Agreement clarified the
Investment Manager's ability to manage all or part of the Fund's portfolio
itself, rather than through a sub-adviser. The Fund's shareholders approved the
new Investment Management Agreement at a meeting held on February 26, 1998.
TCW's resignation and the new Investment Management Agreement became effective
on March 2, 1998.
Both the Investment Manager and the Sub-Adviser have authorized any of their
directors, officers and employees who have been elected as Trustees or officers
of the Fund to serve in the capacities in which they have been elected. Services
furnished by the Investment Manager and the Sub-Adviser may be furnished by
directors, officers and employees of the Investment Manager and the Sub-Adviser.
In connection with the services rendered by the Sub-Adviser, the Sub-Adviser
bears the following expenses: (a) the salaries and expenses of its personnel;
and (b) all expenses incurred by it in connection with performing the services
provided by it as Sub-Adviser, as described above.
As full compensation for the services and facilities furnished to the Fund
and the Investment Manager and expenses of the Fund and the Investment Manager
assumed by the Sub-Adviser, the Investment Manager pays the Sub-Adviser monthly
compensation equal to 30% of the Investment Manager's monthly compensation
payable under the Management Agreement. For the period February 28, 1995
(commencement of operations) through January 31, 1996, and for the fiscal years
ended January 31, 1997 and 1998, the Investment Manager informed the Fund that
it accrued to the Sub-Adviser total compensation of $10,699, $176,835 and
$186,419, respectively, under its Sub-Advisory Agreement. For the period
February 28, 1995 (commencement of operations) through January 31, 1996 and for
the fiscal years ended January 31, 1997 and 1998, the Investment Manager
informed the Fund that it accrued to TCW compensation of $10,699, $176,835 and
$186,419, respectively, under the Sub-Advisory Agreement between the Investment
Manager and TCW (the "TCW Sub-Advisory Agreement"). The Investment Manager will
retain the portion of the Investment Management fee previously paid to TCW.
The Investment Manager has paid the organizational expenses of the Fund,
approximately $177,000, incurred prior to the offering of the Fund's shares. The
Fund has reimbursed the Investment Manager $144,000 for such expenses. The Fund
has deferred and is amortizing the organizational expenses on the straight line
method over a period not to exceed five years from the date of commencement of
the Fund's operations.
The Management Agreement was initially approved by the Board of Trustees at a
meeting held November 6, 1997 and by shareholders at a special meeting held on
February 26, 1998 and took effect on March 2, 1998. The Sub-Advisory Agreement
and the TCW Sub-Advisory Agreement were 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 Management Agreement is
substantially identical to a prior investment management agreement and the
Sub-Advisory Agreement is substantially identical to the prior sub-advisory
agreement initially approved by the Board of Trustees on December 6, 1994 and by
InterCapital, as the then sole shareholders of the Fund on December 7, 1994. The
Agreements took effect on May 31, 1997 upon the consummation of the merger of
Dean Witter, Discover & Co. with Morgan Stanley Group Inc. The Management
Agreement and the Sub-Advisory 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, as defined in the Investment Company Act of 1940 (the
"Act"), of the outstanding shares of the Fund, or by the Investment Manager. The
Management Agreement and the Sub-Advisory Agreement will automatically terminate
in the event of their assignment (as defined in the Act).
Under their terms, the Management Agreement and the Sub-Advisory Agreement
have initial terms ending April 30, 1999 and will remain in effect from year to
year thereafter, provided continuance of the Agreements is approved at least
annually by the vote of the holders of a majority, as defined in the Act, of the
outstanding shares of the Fund, or by the Board of Trustees of the Fund;
provided that in either
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273
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 following owned more than 5% of the outstanding shares of Class A of the
Fund on February 5, 1998: Dean Witter InterCapital Inc., Two World Trade Center,
73rd Floor, New York, New York 10048 -- 34.69%; Dean Witter Reynolds Inc.,
Custodian for Donna K. Elliott, IRA dated 10/8/82, 322 Hagy, Rt. 1, Box 106,
Toulon, IL 61483--19.10%; Michael D. Okin, 5425 Avenida Del Mar, Sarasota, FL
34242 -- 16.58%; Peter O. Okin, 5425 Avenida Del Mar, Sarasota, FL 34242--14.93%
and Dean Witter Reynolds Inc., Custodian for M.D. Petrakis, Simple IRA, Dated
2/20/97, 2508 N. Campbell, Chicago, IL 60647--14.65%. The following owned more
than 5% of the outstanding shares of Class C of the Fund on February 5, 1998:
Donald F. Griffone Sr., Trustee, Donald F. Griffone Living Trust, Under
Agreement dated 12/9/96, 5521 Washington Street, Downers Grove, IL
60516--35.91%; Theodore Thompson and Cora Y. Thompson, Thompson Trustees of the
Thompson Family Trust dated 7/1/92, 229 La Cruz Road, Santa Fe, NM
87501--17.84%; Dean Witter InterCapital Inc., Two World Trade Center, 73rd
Floor, New York, NY 10048--17.35%; Dean Witter Reynolds Inc., Custodian for
Jeannette Broughton, IRA standard dated 4/16/96, 925 Chesaco Avenue, Baltimore,
MD 21237--13.26% and Ruth C. Hairgrove and Ann Dietrich, JTTEN, 1000 South
Lorraine #309, Wheaton, IL 60187--7.40%. The following owned more than 5% of the
outstanding shares of Class D of the Fund on February 5, 1998: David R. Dyroff,
15 Woodoaks Trail, Ladue, MO 63124--51.46% and Dean Witter InterCapital Inc.,
Two World Trade Center, 73rd Floor, New York, NY 10048--48.47%.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use, or at any time
permit others to use, the name "Dean Witter." The Fund has also agreed that in
the event the Management Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate the
name "Dean Witter" from its name if DWR or its parent company shall so request.
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 85 Dean Witter Funds and 11 TCW/DW Funds, are shown
below:
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- --------------------------------------------
Michael Bozic (57)....................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of the
c/o Levitz Furniture Corporation Dean Witter Funds; formerly President and Chief Executive
6111 Broken Sound Parkway, N.W. Officer of Hills Department Stores (May, 1991-July, 1995);
Boca Raton, Florida formerly variously Chairman, Chief Executive Officer, President
and Chief Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and Co.; Director of
Eaglemark Financial Services, Inc., the United Negro College
Fund and Weirton Steel Corporation.
Charles A. Fiumefreddo* (64)............. Chairman, Chief Executive Officer and Director of InterCapital,
Chairman of the Board, DWSC and Distributors; Executive Vice President and Director of
President, Chief Executive Officer DWR; Chairman, Director or Trustee, President and Chief
and Trustee Executive Officer of the Dean Witter Funds; Chairman, Chief
Two World Trade Center Executive Officer and Trustee of the TCW/DW Funds; Chairman and
New York, New York Director of Dean Witter Trust FSB ("DWT"); Director and/or
officer of various MSDWD subsidiaries.
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NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- --------------------------------------------
Edwin J. Garn (65)....................... Director or Trustee of the Dean Witter Funds; formerly United
Trustee States Senator (R-Utah)(1974-1992) and Chairman, Senate Banking
c/o Huntsman Corporation Committee (1980-1986); formerly Mayor of Salt Lake City, Utah
500 Huntsman Way (1971-1974); formerly Astronaut, Space Shuttle Discovery (April
Salt Lake City, Utah 12-19, 1985); Vice Chairman, Huntsman Corporation; Director of
Franklin Covey (time management systems); John Alden Financial
Corp. (health insurance), United Space Alliance (joint venture
between Lockheed Martin and the Boeing Company) and Nuskin Asia
Pacific (Multilevel Marketing); member of the board of various
civic and charitable organizations.
John R. Haire (73)....................... Chairman of the Audit Committee and Chairman of the Committee
Trustee of the Independent Directors or Trustees and Director or
Two World Trade Center Trustee of the Dean Witter Funds; Chairman of the Audit
New York, New York 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 Advisor
(1964-1978); Director of Washington National Corporation
(insurance).
Wayne E. Hedien (64)..................... Retired; Director or Trustee of the Dean Witter Funds; Director
Trustee of The PMI Group, Inc. (private mortgage insurance); Trustee
c/o Gordon Altman Butowsky and Vice Chairman of The Field Museum of Natural History;
Weitzen Shalov & Wein formerly associated with the Allstate
Companies (1966-1994), Counsel to the Independent Trustees most
recently as Chairman of The Allstate Corporation (March, 114
West 47th Street 1993-December, 1994) and Chairman and Chief
Executive Officer New York, New York of its wholly-owned
subsidiary, Allstate Insurance Company (July, 1989-December,
1994); director of various other business and charitable
organizations.
Dr. Manuel H. Johnson (49)............... Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm; Co-Chairman and a founder of the Group of Seven Council
c/o Johnson Smick International, Inc. (G7C), an international economic commission; Director or
1133 Connecticut Avenue, N.W. Trustee of the Dean Witter Funds; Trustee of the TCW/DW Funds;
Washington, DC Director of NASDAQ (since June, 1995); Director of Greenwich
Capital Markets Inc. (broker-dealer); Chairman and Trustee of
the Financial Accounting Foundation (oversight organization for
the Financial Accounting Standards Board); formerly Vice
Chairman of the Board of Governors of the Federal Reserve
System (1986-1990) and Assistant Secretary of the U.S.
Treasury.
Michael E. Nugent (61)................... General Partner, Triumph Capital, L.P., a private investment
Trustee partnership; Director or Trustee of the Dean Witter Funds;
c/o Triumph Capital, L.P. Trustee of the TCW/DW Funds; formerly Vice President, Bankers
237 Park Avenue Trust Company and BT Capital Corporation (1984-1988); Director
New York, New York of various business organizations.
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NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- --------------------------------------------
Philip J. Purcell* (54).................. Chairman of the Board of Directors and Chief Executive Officer
Trustee of MSDWD, DWR and Novus Credit Services Inc.; Director of
1585 Broadway InterCapital, DWSC and Distributors; Director or Trustee of the
New York, New York Dean Witter Funds; Director and/or officer of various MSDWD
subsidiaries.
John L. Schroeder (67)................... Retired; Director or Trustee of the Dean Witter Funds; Trustee
Trustee of the TCW/DW Funds; Director of Citizens Utilities Company;
c/o Gordon Altman Butowsky Formerly Executive Vice President and Chief Investment Officer
Weitzen Shalov & Wein of the Home Insurance Company (August, 1991-September, 1995).
Counsel to the Independent Trustees
114 West 47th Street
New York, New York
Barry Fink (43).......................... Senior Vice President (since March, 1997) and Secretary and
Vice President, Secretary General Counsel (since February, 1997) of InterCapital and
and General Counsel DWSC; Senior Vice President (since March, 1997) and Assistant
Two World Trade Center Secretary and Assistant General Counsel (since February, 1997)
New York, New York of Distributors; Assistant Secretary of DWR (since August,
1996); Vice President, Secretary and General Counsel of the
Dean Witter Funds and the TCW/DW Funds (since February, 1997);
previously First Vice President (June, 1993-February, 1997),
Vice President (until June, 1993) and Assistant Secretary and
Assistant General Counsel of InterCapital and DWSC and
Assistant Secretary of the Dean Witter Funds and the TCW/DW
Funds.
Mark Bavoso (37)......................... Senior Vice President of InterCapital (since June, 1993);
Vice President formerly Vice President of InterCapital; Vice President of
Two World Trade Center various Dean Witter Funds.
New York, New York
Thomas F. Caloia (51).................... First Vice President and Assistant Treasurer of InterCapital
Treasurer and DWSC; Treasurer of the Dean Witter Funds and the TCW/DW
Two World Trade Center Funds.
New York, New York
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
In addition, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Executive Vice President and Director of DWR, and Director of
SPS Transaction Services, Inc. and various other MSDWD subsidiaries, Robert M.
Scanlan, President and Chief Operating Officer of InterCapital and DWSC,
Executive Vice President of Distributors and DWT and Director of DWT, Joseph J.
McAlinden, Executive Vice President and Chief Investment Officer of InterCapital
and Director of DWT, Robert S. Giambrone, Senior Vice President of InterCapital,
DWSC, Distributors and DWT and Director of DWT, and Edward F. Gaylor and Paul D.
Vance, Senior Vice Presidents of InterCapital, are Vice Presidents of the Fund.
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 and Todd Lebo, staff attorneys with InterCapital, are Assistant
Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same individuals
also serve as directors or trustees for all of the Dean Witter Funds, and are
referred to in this section as Trustees. As of the date
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of this Statement of Additional Information, there are a total of 84 Dean Witter
Funds, comprised of 128 portfolios. As of January 31, 1998, the Dean Witter
Funds had total net assets of approximately $96 billion and more than six
million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own any
stock or other securities issued by InterCapital's parent company, MSDWD. These
are the "disinterested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with InterCapital. Four of the seven
independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Dean Witter Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee and
the Committee of the Independent Trustees. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1997,
the three Committees held a combined total of seventeen meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Trustees or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
The Committee of the Independent Trustees is charged with recommending to the
full Board approval of management, advisory and administration contracts, Rule
12b-1 plans and distribution and underwriting agreements; continually reviewing
Fund performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
Independent Trustees are required to select and nominate individuals to fill any
Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1 plan
of distribution. Most of the Dean Witter Funds have such a plan.
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.
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The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment advisory, management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Manager and other service providers. In effect,
the Chairman of the Committees serves as a combination of chief executive and
support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and 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 $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee of
the Independent Trustees an additional annual fee of $1,200). If a Board meeting
and a Committee meeting, or more than one Committee meeting, take place on a
single day, the Trustees are paid a single meeting fee by the Fund. The Fund
also reimburses such Trustees for travel and other out-of-pocket expenses
incurred by them in connection with attending such meetings. Trustees and
officers of the Fund who are or have been employed by the Investment Manager or
an affiliated company receive no compensation or expense reimbursement from the
Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended January 31, 1998.
FUND COMPENSATION
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
Michael Bozic ............. $1,650
Edwin J. Garn ............. 1,850
John R. Haire ............. 3,800
Wayne E. Hedien ........... 832
Dr. Manuel H. Johnson ..... 1,800
Michael E. Nugent ......... 1,850
John L. Schroeder ......... 1,850
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The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for services
to the 84 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 14 TCW/DW Funds that were in operation at December 31, 1997.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Dean Witter Money Market Funds. Mr. Hedien's term as Director or
Trustee of each Dean Witter Fund commenced on September 1, 1997.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
FOR SERVICE AS
CHAIRMAN OF
COMMITTEES OF FOR SERVICE AS
INDEPENDENT CHAIRMAN OF
FOR SERVICE DIRECTORS/ COMMITTEES OF TOTAL CASH
AS DIRECTOR OR FOR SERVICE AS TRUSTEES AND INDEPENDENT COMPENSATION
TRUSTEE AND TRUSTEE AND AUDIT TRUSTEES FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER COMMITTEES OF 84 AND AUDIT 84 DEAN WITTER
NAME OF OF 84 DEAN WITTER OF 14 TCW/DW DEAN WITTER COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS TCW/DW FUNDS TCW/DW FUNDS
- ------------------- ----- ----- ----- ------------ ------------
Michael Bozic ....... $133,602 -- -- -- $133,602
Edwin J. Garn ....... 149,702 -- -- -- 149,702
John R. Haire ....... 149,702 $73,725 $157,463 $25,350 406,240
Wayne E. Hedien ..... 39,010 -- -- -- 39,010
Dr. Manuel H.
Johnson ............ 145,702 71,125 -- -- 216,827
Michael E. Nugent ... 149,702 73,725 -- -- 223,427
John L. Schroeder ... 149,702 73,725 -- -- 223,427
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, not including the Fund, have adopted a retirement program under
which an Independent Trustee who retires after serving for at least five years
(or such lesser period as may be determined by the Board) as an Independent
Director or Trustee of any Dean Witter Fund that has adopted the retirement
program (each such Fund referred to as an "Adopting Fund" and each such Trustee
referred to as an "Eligible Trustee") is entitled to retirement payments upon
reaching the eligible retirement age (normally, after attaining age 72). Annual
payments are based upon length of service. Currently, upon retirement, each
Eligible Trustee is entitled to receive from the Adopting Fund, commencing as of
his or her retirement date and continuing for the remainder of his or her life,
an annual retirement benefit (the "Regular Benefit") equal to 25.0% of his or
her Eligible Compensation plus 0.4166666% of such Eligible Compensation for each
full month of service as an Independent Director or Trustee of any Adopting Fund
in excess of five years up to a maximum of 50.0% after ten years of service. The
foregoing percentages may be changed by the Board.(1) "Eligible Compensation" is
one-fifth of the total compensation earned by such Eligible Trustee for service
to the Adopting Fund in the five year period prior to the date of the Eligible
Trustee's retirement. Benefits under the retirement program are not secured or
funded by the Adopting Funds.
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement.
The amount estimated to be payable under this method, through the
remainder of the later of the lives of such Eligible Trustee and spouse,
will be the actuarial equivalent of the Regular Benefit. In addition, the
Eligible Trustee may elect that the surviving spouse's periodic payment
of benefits will be equal to either 50% or 100% of the previous periodic
amount, an election that, respectively, increases or decreases the
previous periodic amount so that the resulting payments will be the
actuarial equivalent of the Regular Benefit.
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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, 1997, and the estimated retirement benefits for the
Fund's Independent Trustees, to commence upon their retirement, from the 57 Dean
Witter Funds as of December 31, 1997.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
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)
- --------------------------- ------------ ------------ ----- --------
Michael Bozic ............. 10 50.0% $ 20,499 $ 47,025
Edwin J. Garn ............. 10 50.0 30,878 47,025
John R. Haire ............. 10 50.0 (19,823)(3) 127,897
Wayne E. Hedien ........... 9 42.5 0 39,971
Dr. Manuel H. Johnson ..... 10 50.0 12,832 47,025
Michael E. Nugent ......... 10 50.0 22,546 47,025
John L. Schroeder ......... 8 41.7 39,350 39,504
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until June 1, 1998.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
Forward Foreign Currency Exchange Contracts. As discussed in the Prospectus,
the Fund may enter into forward foreign currency exchange contracts ("forward
contracts") as a hedge against fluctuations in future foreign exchange rates.
The Fund will conduct its foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into forward contracts to purchase or sell
foreign currencies. A forward contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large, commercial and
investment banks) and their customers. Such forward contracts will only be
entered into with United States banks and their foreign branches or foreign
banks whose assets total $1 billion or more. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
When the Investment Manager and/or the Sub-Adviser of the Fund believes that
the currency of a particular foreign country may suffer a substantial movement
against the U.S. dollar, it may enter into a forward contract to purchase or
sell, for a fixed amount of dollars or other currency, the amount of foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. The Fund will not 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
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enter into such forward contracts when it determines that the best interests of
the Fund will be served. The Fund's custodian bank will place cash, U.S.
Government securities or other appropriate liquid portfolio securities in a
segregated account of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of forward contracts entered into
under the circumstances set forth above. If the value of the securities placed
in the segregated account declines, additional cash or securities will be placed
in the account on a daily basis so that the value of the account will equal the
amount of the Fund's commitments with respect to such contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign securities denominated in a foreign currency against adverse exchange
rate moves vis-a-vis the U.S. dollar, at the maturity of the forward contract
for delivery by the Fund of a foreign currency, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency (however, the ability of the Fund to terminate a contract is
contingent upon the willingness of the currency trader with whom the contract
has been entered into to permit an offsetting transaction). It is impossible to
forecast the market value of portfolio securities at the expiration of the
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of the foreign currency. Conversely, it may be necessary to sell
on the spot market some of the foreign currency received upon the sale of the
portfolio securities if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Fund has written a call option on a security or the
currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a greater
extent than the value of the premium received for the option. The Fund will
maintain with its Custodian at all times, cash, U.S. Government securities, or
other appropriate liquid portfolio securities in a segregated account equal in
value to all forward contract obligations and option contract obligations
entered into in hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, 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.
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OPTIONS AND FUTURES TRANSACTIONS
As stated in the Prospectus, the Fund may write covered call options against
securities held in its portfolio and covered put options on eligible portfolio
securities and stock indexes and purchase options of the same series to effect
closing transactions, and may hedge against potential changes in the market
value of investments (or anticipated investments) and facilitate the
reallocation of the Fund's assets into and out of equities and fixed-income
securities by purchasing put and call options on portfolio (or eligible
portfolio) securities and engaging in transactions involving futures contracts
and options on such contracts. The Fund may also hedge against potential changes
in the market value of the currencies in which its investments (or anticipated
investments) are denominated by purchasing put and call options on currencies
and engage in transactions involving currency futures contracts and options on
such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and equity
securities are listed on exchanges and are written in over-the-counter
transactions ("OTC options"). Listed options are issued by the Options Clearing
Corporation ("OCC") and other clearing entities including foreign exchanges.
Ownership of a listed call option gives the Fund the right to buy from the OCC
the underlying security covered by the option at the stated exercise price (the
price per unit of the underlying security) by filing an exercise notice prior to
the expiration date of the option. The writer (seller) of the option would then
have the obligation to sell to the OCC the underlying security at that exercise
price prior to the expiration date of the option, regardless of its then current
market price. Ownership of a listed put option would give the Fund the right to
sell the underlying security to the OCC at the stated exercise price. Upon
notice of exercise of the put option, the writer of the put would have the
obligation to purchase the underlying security from the OCC at the exercise
price.
Options on Treasury Bonds and Notes. Because trading in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges on which such securities trade will not continue indefinitely to
introduce options with new expirations to replace expiring options on particular
issues. Instead, the expirations introduced at the commencement of options
trading on a particular issue will be allowed to run their course, with the
possible addition of a limited number of new expirations as the original ones
expire. Options trading on each issue of bonds or notes will thus be phased out
as new options are listed on more recent issues, and options representing a full
range of expirations will not ordinarily be available for every issue on which
options are traded.
Options on Treasury Bills. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian, so that they will
be treated as being covered.
Options on Foreign Currencies. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Fund may purchase call options on foreign currencies
in which securities it anticipates purchasing are denominated to secure a set
U.S. dollar price for such securities and protect against a decline in the value
of the U.S. dollar against such foreign currency. The Fund may also purchase
call and put options to close out written option positions.
The Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which a
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security is denominated and the U.S. dollar, then a loss to the Fund occasioned
by such value decline would be ameliorated by receipt of the premium on the
option sold. At the same time, however, the Fund gives up the benefit of any
rise in value of the relevant portfolio securities above the exercise price of
the option and, in fact, only receives a benefit from the writing of the option
to the extent that the value of the portfolio securities falls below the price
of the premium received. The Fund may also write options to close out long call
option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase or
write such options unless and until, in the opinion of the management of the
Fund, the market for them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in connection with
the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by all of those factors which
influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
OTC Options. Exchange-listed options are issued by the OCC which assures that
all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with the Fund. With OTC options, such variables
as expiration date, exercise price and premium will be agreed upon between the
Fund and the transacting dealer, without the intermediation of a third party
such as the OCC. If the transacting dealer fails to make or take delivery of the
securities underlying an option it has written, in accordance with the terms of
that option, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction. The Fund will engage in OTC option
transactions only with primary U.S. Government securities dealers recognized by
the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options on
portfolio securities and the U.S. dollar and foreign currencies, without limit.
Generally, a call option is "covered" if the Fund owns, or has the right to
acquire, without additional cash consideration (or for additional cash
consideration held for the Fund by its Custodian in a segregated account) the
underlying security (currency) subject to the option except that in the case of
call options on U.S. Treasury Bills, the Fund might own U.S. Treasury Bills of a
different series from those underlying the call option, but with a principal
amount and value corresponding to the exercise price and a maturity date no
later than that of the securities (currency) deliverable under the call option.
A call option is also covered if the Fund holds a call on the same security
(currency) as the underlying security (currency) of the written option, where
the exercise price of the call used for coverage is equal to or less than the
exercise price of the call written or greater than the exercise price of the
call written if the mark to market difference is maintained by the Fund in cash,
U.S. Government securities or other liquid portfolio securities which the Fund
holds in a segregated account maintained with its Custodian.
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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 (currency) alone. Moreover, the
income received from the premium will offset a portion of the potential loss
incurred by the Fund if the securities (currency) underlying the option are
ultimately sold (exchanged) by the Fund at a loss. The premium received will
fluctuate with varying economic market conditions. If the market value of the
portfolio securities (or the currencies in which they are denominated) upon
which call options have been written increases, the Fund may receive less total
return from the portion of its portfolio upon which calls have been written than
it would have had such calls not been written.
As regards listed options and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Fund to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. Also, effecting a closing purchase transaction will
permit the cash or proceeds from the concurrent sale of any securities subject
to the option to be used for other investments by the Fund. The Fund may realize
a net gain or loss from a closing purchase transaction depending upon whether
the amount of the premium received on the call option is more or less than the
cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be wholly or partially offset by unrealized
appreciation in the market value of the underlying security (currency).
Conversely, a gain resulting from a closing purchase transaction could be offset
in whole or in part or exceeded by a decline in the market value of the
underlying security (currency).
The Fund may also purchase put options to close out written put positions in
a manner similar to call options closing purchase transactions. In addition, the
Fund may sell a put option which it has previously purchased prior to the sale
of the securities (currency) underlying such option. Such a sale would result in
a net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid on the put option
which is sold. Any such gain or loss could be offset in whole or in part by a
change in the market value of the underlying security (currency). If a put
option purchased by the Fund expired without being sold or exercised, the
premium would be lost.
Covered Put Writing. As a writer of a covered put option, the Fund incurs an
obligation to buy the security underlying the option from the purchaser of the
put, at the option's exercise price at any time during the option period, at the
purchaser's election (certain listed and OTC put options written by the Fund
will be exercisable by the purchaser only on a specific date). A put is
"covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other liquid portfolio securities in an amount equal to at least
the exercise price of the option, at all times during the option period.
Similarly, a short put position could be covered by the Fund by its purchase of
a put option on the same security as the underlying security of the written
option, where the exercise price of the purchased option is equal to or more
than the exercise price of the put written or less than the exercise price of
the put written if the mark to market difference is maintained by the Fund in
cash, U.S. Government securities or other liquid portfolio securities which the
Fund holds in a segregated account maintained at its Custodian. In writing puts,
the Fund assumes the risk of loss should the market value of the underlying
security decline below the exercise price of the option (any loss being
decreased by the receipt of the premium on the option written). In the case of
listed options, during the option period, the Fund may be required, at any time,
to make payment of the exercise price against delivery of the underlying
security. The operation of and limitations on covered put options in other
respects are substantially identical to those of call options.
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The Fund will write put options for two purposes: (1) to receive the income
derived from the premiums paid by purchasers; and (2) when the Investment
Manager wishes to purchase the security underlying the option at a price lower
than its current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought. The potential gain on
a covered put option is limited to the premium received on the option (less the
commissions paid on the transaction) while the potential loss equals the
difference between the exercise price of the option and the current market price
of the underlying securities when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
Purchasing Call and Put Options. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options in order to close out a covered call position (see
"Covered Call Writing" above) or purchase call options on securities they intend
to purchase. The Fund may also purchase a call option on foreign currency to
hedge against an adverse exchange rate move of the currency in which the
security it anticipates purchasing is denominated vis-a-vis the currency in
which the exercise price is denominated. The purchase of the call option to
effect a closing transaction or a call written over-the-counter may be a listed
or an OTC option. In either case, the call purchased is likely to be on the same
securities (currencies) and have the same terms as the written option. If
purchased over-the-counter, the option would generally be acquired from the
dealer or financial institution which purchased the call written by the Fund.
The Fund may purchase put options on securities (currency) which it holds (or
has the right to acquire) in its portfolio only to protect itself against a
decline in the value of the security (currency), if the value of the underlying
security (currency) were to fall below the exercise price of the put purchased
in an amount greater than the premium paid for the option, the Fund would incur
no additional loss. The Fund may also purchase put options to close out written
put positions in a manner similar to call options closing purchase transactions.
In addition, the Fund may sell a put option which it has previously purchased
prior to the sale of the securities (currency) underlying such option. Such a
sale would result in a net gain or loss depending on whether the amount received
on the sale is more or less than the premium and other transaction costs paid on
the put option which is sold. Any such gain or loss could be offset in whole or
in part by a change in the market value of the underlying security (currency).
If a put option purchased by the Fund expired without being sold or exercised,
the premium would be lost.
Risks of Options Transactions. The successful use of options depends on the
ability of the Adviser to forecast correctly interest rates and market
movements. If the market value of the portfolio securities (or the currencies in
which they are denominated) upon which call options have been written increases,
the Fund may receive a lower total return from the portion of its portfolio upon
which calls have been written than it would have had such calls not been
written. During the option period, the covered call writer has, in return for
the premium on the option, given up the opportunity for capital appreciation
above the exercise price should the market price of the underlying security (or
the currency in which it is denominated) increase, but has retained the risk of
loss should the price of the underlying security (currency) decline. The covered
put writer also retains the risk of loss should the market value of the
underlying security (currency) decline below the exercise price of the option
less the premium received on the sale of the option. In both cases, the writer
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver or receive the underlying
securities (currency) at the exercise price.
Prior to exercise or expiration, an option position can only be terminated by
entering into a closing purchase or sale transaction. If a covered call option
writer is unable to effect a closing purchase transaction or to purchase an
offsetting over-the-counter option, it cannot sell the underlying security until
the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell (exchange) an underlying security
(currency) at a time when it might otherwise be advantageous to do so. A covered
put option writer who is unable to effect a closing purchase transaction or to
purchase an offsetting over-the-counter option would continue to bear the risk
of decline in the market price of the underlying security (currency) until the
option expires or is exercised. In addition, a covered put writer would be
unable to utilize the amount held in cash or U.S. Government or other liquid
portfolio securities as security for the put option for other investment
purposes until the exercise or expiration of the option.
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The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. However, the Fund may
be able to purchase an offsetting option which does not close out its position
as a writer but constitutes an asset of equal value to the obligation under the
option written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on an
exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
OCC as a result of trades on that exchange would generally continue to be
exercisable in accordance with their terms.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through the
broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by the Investment Manager.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). An exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which the Fund may write.
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.
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The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
Stock Index Options. Options on stock indexes are similar to options on stock
except that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The multiplier for an index option
performs a function similar to the unit of trading for a stock option. It
determines the total dollar value per contract of each point in the difference
between the exercise price of an option and the current level of the underlying
index. A multiplier of 100 means that a one-point difference will yield $100.
Options on different indexes may have different multipliers. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Unlike stock options, all settlements are in cash and a gain or
loss depends on price movements in the stock market generally (or in a
particular segment of the market) rather than the price movements in individual
stocks. Currently, options are traded on the S&P 100 Index and the S&P 500 Index
on the Chicago Board Options Exchange, the Major Market Index and the Computer
Technology Index, Oil Index and Institutional Index on the American Stock
Exchange and the NYSE Index and NYSE Beta Index on the New York Stock Exchange,
The Financial News Composite Index on the Pacific Stock Exchange and the Value
Line Index, National O-T-C Index and Utilities Index on the Philadelphia Stock
Exchange, each of which and any similar index on which options are traded in the
future which include stocks that are not limited to any particular industry or
segment of the market is referred to as a "broadly based stock market index."
Options on stock indexes provide the Fund with a means of protecting the Fund
against the risk of market wide price movements. If the Investment Manager
anticipates a market decline, the Fund could purchase a stock index put option.
If the expected market decline materialized, the resulting decrease in the value
of the Fund's portfolio would be offset to the extent of the increase in the
value of the put option. If the Investment Manager anticipates a market rise,
the Fund may purchase a stock index call option to enable the Fund to
participate in such rise until completion of anticipated common stock purchases
by the Fund. Purchases and sales of stock index options also enable the
Investment Manager to more speedily achieve changes in the Fund's equity
positions.
The Fund will write put options on stock indexes only if such positions are
covered by cash, U.S. Government securities or other high grade debt obligations
equal to the aggregate exercise price of the puts, which cover is held for the
Fund in a segregated account maintained for it by the Fund's Custodian. All call
options on stock indexes written by the Fund will be covered either by a
portfolio of stocks substantially replicating the movement of the index
underlying the call option or by holding a separate call option on the same
stock index with a strike price no higher than the strike price of the call
option sold by the Fund.
Risks of Options on Indexes. Because exercises of stock index options are
settled in cash, call writers such as the Fund cannot provide in advance for
their potential settlement obligations by acquiring and holding the underlying
securities. A call writer can offset some of the risk of its writing position by
holding a diversified portfolio of stocks similar to those on which the
underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary from the value of the index. Even if an index call writer could
assemble a stock portfolio that exactly reproduced the composition of the
underlying index, the writer still would not be fully covered from a risk
standpoint because of the "timing risk" inherent in writing index options. When
an index option is exercised, the amount of cash that the holder is entitled to
receive is determined by the difference between the exercise price and the
closing index level on the date when the option is exercised. As with other
kinds of options, the writer will not learn that it has been assigned until the
next business day, at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer or a
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covered call on a specific underlying security, such as a common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds stocks that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those stocks against payment of the exercise price. Instead, it will be required
to pay cash in an amount based on the closing index value on the exercise date;
and by the time it learns that it has been assigned, the index may have
declined, with a corresponding decrease in the value of its stock portfolio.
This "timing risk" is an inherent limitation on the ability of index call
writers to cover their risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
Futures Contracts. The Fund may purchase and sell interest rate and stock
index futures contracts ("futures contracts") that are traded on U.S. and
foreign commodity exchanges on such underlying securities as U.S. Treasury
bonds, notes and bills ("interest rate" futures), on the U.S. dollar and foreign
currencies, and such indexes as the S&P 500 Index, the Moody's Investment-Grade
Corporate Bond Index and the New York Stock Exchange Composite Index ("index"
futures).
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts and bond index
futures contracts for the purpose of hedging its fixed-income portfolio (or
anticipated portfolio) securities against changes in prevailing interest rates.
If the Investment Manager or a Sub-Adviser anticipates that interest rates may
rise and, concomitantly, the price of fixed-income securities fall, the Fund may
sell an interest rate futures contract or a bond index futures contract. If
declining interest rates are anticipated, the Fund may purchase an interest rate
futures contract to protect against a potential increase in the price of U.S.
Government securities the Fund intends to purchase. Subsequently, appropriate
fixed-income securities may be purchased by the Fund in an orderly fashion; as
securities are purchased, corresponding futures positions would be terminated by
offsetting sales of contracts.
The Fund will purchase or sell futures contracts on the U.S. dollar and on
foreign currencies to hedge against an anticipated rise or decline in the value
of the U.S. dollar or foreign currency in which a portfolio security of the Fund
is denominated vis-a-vis another currency.
The Fund will purchase or sell stock index futures contracts for the purpose
of hedging its equity portfolio (or anticipated portfolio) securities against
changes in their prices. If the Investment Manager or a Sub-Adviser anticipates
that the prices of stock held by the Fund may fall, the Fund may sell a stock
index futures contract. Conversely, if the Investment Manager or a Sub-Adviser
wishes to hedge against anticipated price rises in those stocks which the Fund
intends to purchase, the Fund may purchase stock index futures contracts. In
addition, interest rate and stock index futures contracts will be bought or sold
in order to close out a short or long position in a corresponding futures
contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Index
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futures contracts provide for the delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value at
the open or close of the last trading day of the contract and the futures
contract price. A futures contract sale is closed out by effecting a futures
contract and the futures contract price. A futures contract sale is closed out
by effecting a futures contract purchase for the same aggregate amount of the
specific type of equity security and the same delivery date. If the sale price
exceeds the offsetting purchase price, the seller would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller would pay the difference and would realize a loss. Similarly,
a futures contract purchase is closed out by effecting a futures contract sale
for the same aggregate amount of the specific type of equity security and the
same delivery date. If the offsetting sale price exceeds the purchase price, the
purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no assurance
that the Fund will be able to enter into a closing transaction.
Interest Rate Futures Contracts. When the Fund enters into an interest rate
futures contract, it is initially required to deposit with the Fund's Custodian,
in a segregated account in the name of the broker performing the transaction, an
"initial margin" of cash or U.S. Government securities or other liquid portfolio
securities equal to approximately 2% of the contract amount. Initial margin
requirements are established by the exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the exchanges.
Initial margin in futures transactions is different from margin in securities
transactions in that initial margin does not involve the borrowing of funds by a
broker's client but is, rather, a good faith deposit on the futures contract
which will be returned to the Fund upon the proper termination of the futures
contract. The margin deposits made are marked to market daily and the Fund may
be required to make subsequent deposits called "variation margin," with the
Fund's Custodian, in the account in the name of the broker, which are reflective
of price fluctuations in the futures contract. Currently, interest rates futures
contracts can be purchased on debt securities such as U.S. Treasury Bills and
Bonds, U.S. Treasury Notes with maturities between 6 1/2 and 10 years, GNMA
Certificates and Bank Certificates of Deposit.
Index Futures Contracts. The Fund may invest in index futures contracts. An
index futures contract sale creates an obligation by the Fund, as seller, to
deliver cash at a specified future time. An index futures contract purchase
would create an obligation by the Fund, as purchaser, to take delivery of cash
at a specified future time. Futures contracts on indexes do not require the
physical delivery of securities, but provide for a final cash settlement on the
expiration date which reflects accumulated profits and losses credited or
debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms through
which it effects index futures contracts in a manner similar to that described
above for interest rate futures contracts. Currently, the initial margin
requirement is approximately 5% of the contract amount for index futures. In
addition, due to current industry practice, daily variations in gains and losses
on open contracts are required to be reflected in cash in the form of variation
margin payments. The Fund may be required to make additional margin payments
during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
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.
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Options on Futures Contracts. The Fund may purchase and write call and put
options on futures contracts and enter into closing transactions with respect to
such options to terminate an existing position. An option on a futures contract
gives the purchaser the right (in return for the premium paid), and the writer
the obligation, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option is accompanied by delivery of the accumulated balance in
the writer's futures margin account, which represents the amount by which the
market price of the futures contract at the time of exercise exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the Investment
Manager or a Sub-Adviser wished to protect against an increase in interest rates
and the resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Investment Manager or Sub-Adviser seeks to hedge. Any premiums received in
the writing of options on futures contracts may, of course, augment the total
return of the Fund and thereby provide a further hedge against losses resulting
from price declines in portions of the Fund's portfolio.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put), option is
less (more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the Fund's assets
which may be subject to a hedge position. In addition, in accordance with the
regulations of the Commodity Futures Trading Commission ("CFTC") under which the
Fund is exempted from registration as a commodity pool operator, the Fund may
only enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that the Fund would be permitted to write options on futures
contracts for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of futures
and options thereon by the Fund.
Risks of Transactions in Futures Contracts and Related Options. The Fund may
sell a futures contract to protect against the decline in the value of
securities held by the Fund. However, it is possible that the futures market may
advance and the value of securities held in the portfolio of the Fund may
decline. If this occurred, the Fund would lose money on the futures contract and
also experience a decline in value of its portfolio securities. However, while
this could occur for a very brief period or to a very small degree, over time
the value of a diversified portfolio will tend to move in the same direction as
the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Fund may determine not to invest in the securities as
planned and will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities.
In addition, if the Fund holds a long position in a futures contract or has
sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other liquid portfolio securities equal to the
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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.
If the Fund maintains a short position in a futures contract or has sold a
call option on a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government securities
or other liquid portfolio securities equal in value (when added to any initial
or variation margin on deposit) to the market value of the securities underlying
the futures contract or the exercise price of the option. Such a position may
also be covered by owning the securities underlying the futures contract (in the
case of a stock index futures contract a portfolio of securities substantially
replicating the relevant index), or by holding a call option permitting the Fund
to purchase the same contract at a price no higher than the price at which the
short position was established.
Exchanges may limit the amount by which the price of futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Internal Revenue Code's requirements
for qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Dividends, Distributions and Taxes" in the Prospectus and
the Statement of Additional Information.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of the
securities 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 debt securities and futures markets could result. Price distortions
could also result if investors in futures contracts opt to make or take delivery
of underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the futures market. In addition, due to
the fact that, from the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of interest rate trends by the Investment Manager may still not result
in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which the Fund may invest. In the event a
liquid market does not exist, it may not be possible to close out a futures
position, and in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures contracts
are traded may compel or prevent the Fund from closing out a contract which may
result in reduced gain or increased loss to the Fund. The absence of a liquid
market in futures contracts might cause the Fund to make or take delivery of the
underlying securities at a time when it may be disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities.
OTHER INVESTMENT PRACTICES
Zero Coupon Securities. As discussed in the Prospectus, a portion of the U.S.
Government securities purchased by the Fund may be "zero coupon" Treasury
securities. These are U.S. Treasury bills, notes and bonds which have been
stripped of their unmatured interest coupons and receipts or
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which are certificates representing interests in such stripped debt obligations
and coupons. In addition, a portion of the fixed-income securities purchased by
the Fund may be "zero coupon" securities. "Zero coupon" securities are purchased
at a discount from their face amount, giving the purchaser the right to receive
their full value at maturity. A zero coupon security pays no interest to its
holder during its life. Its value to an investor consists of the difference
between its face value at the time of maturity and the price for which it was
acquired, which is generally an amount significantly less than its face value
(sometimes referred to as a "deep discount" price).
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as the Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the security during the year.
Currently, the only U.S. Treasury security issued without coupons is the
Treasury bill. However, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account).
Warrants and Rights. The Fund may invest up to 5% of the value of its net
assets in warrants, including not more than 2% in warrants not listed on either
the New York or American Stock Exchange. Warrants are, in effect, an option to
purchase equity securities at a specific price, generally valid for a specific
period of time, and have no voting rights, pay no dividends and have no rights
with respect to the corporations issuing them. The Fund may acquire warrants
attached to other securities without reference to the foregoing limitations.
The Fund may also invest up to 5% of the value of its net assets in stock
rights.
Repurchase Agreements. As discussed in the Prospectus, when cash may be
available for only a few days, it may be invested by the Fund in repurchase
agreements until such time as it may otherwise be invested or used for payments
of obligations of the Fund. These agreements, which may be viewed as a type of
secured lending by the Fund, typically involve the acquisition by the Fund of
debt securities from a selling financial institution such as a bank, savings and
loan association or broker-dealer. The agreement provides that the Fund will
sell back to the institution, and that the institution will repurchase, the
underlying security ("collateral") at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The
collateral will be maintained in a segregated account and will be
marked-to-market daily to determine that the value of the collateral, as
specified in the agreement, does not decrease below the purchase price plus
accrued interest. If such decrease occurs, additional collateral will be
requested and, when received, added to the account to maintain full
collateralization. The Fund will accrue interest from the institution until the
time when the repurchase is to occur. Although such date is deemed by the Fund
to be the maturity date of a repurchase agreement, the maturities of securities
subject ot repurchase agreements are not subject to any limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Investment Manager and
Sub-Advisers subject to procedures established by the Board of Trustees of the
Fund. In addition, as described above, the value of the collateral underlying
the repurchase agreement will be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. In the event
of a default or bankruptcy by a selling financial institution, the Fund will
seek to liquidate such collateral. However, the exercising of the Fund's right
to liquidate such collateral could involve certain
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costs or delays and, to the extent that proceeds from any sale upon a default of
the obligation to repurchase were less than the repurchase price, the Fund could
suffer a loss. It is the current policy of the Fund not to invest in repurchase
agreements that do not mature within seven days if any such investment, together
with any other illiquid assets held by the Fund, amounts to more than 15% of its
net assets. The Fund's investments in repurchase agreements may at times be
substantial when, in the view of the Investment Manager, liquidity, tax or other
considerations warrant.
Reverse Repurchase Agreements and Dollar Rolls. As discussed in the
Prospectus, the Fund may also use reverse repurchase agreements and dollar rolls
as part of its investment strategy. Reverse repurchase agreements involve sales
by the Fund of portfolio assets concurrently with an agreement by the Fund to
repurchase the same assets at a later date at a fixed price. Generally, the
effect of such a transaction is that the Fund can recover all or most of the
cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
The Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current months and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish a segregated account with its custodian bank in which
it will maintain cash, U.S. Government Securities or other liquid portfolio
securities equal in value to its obligations in respect of reverse repurchase
agreements and dollar rolls. Reverse repurchase agreements and dollar rolls
involve the risk that the market value of the securities the Fund is obligated
to repurchase under the agreement may decline below the repurchase price. In the
event the buyer of securities under a reverse repurchase agreement or dollar
roll files for bankruptcy or becomes insolvent, the Fund's use of proceeds of
the agreement may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation to repurchase
the securities. Reverse repurchase agreements and dollar rolls are speculative
techniques involving leverage and are considered borrowings by the Fund.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to notice provisions described below), and are at all times
secured by cash or cash equivalents, which are maintained in a segregated
account pursuant to applicable regulations and that are equal to at least the
market value, determined daily, of the loaned securities. The advantage of such
loans is that the Fund continues to receive the income on the loaned securities
while at the same time earning interest on the cash amounts deposited as
collateral, which will be invested in short-term obligations. The Fund will not
lend its portfolio securities if such loans are not permitted by the laws or
regulations of any state in which its shares are qualified for sale and will not
lend more than 25% of the value of its total assets. A loan may be terminated by
the borrower on one business day's notice, or by the Fund on four business days'
notice. If the borrower fails to deliver the loaned securities within four days
after 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 Investment Manager and Sub-Advisers pursuant to procedures adopted and
reviewed, on an ongoing basis, by the Board of Trustees of the Fund.
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When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities. However, the
Fund has no intention of lending any of its portfolio securities during its
fiscal year ending January 31, 1999.
When-Issued and Delayed Delivery Securities and Forward Commitments. As
discussed in the Prospectus, from time to time the Fund may purchase securities
on a when-issued or delayed delivery basis or may purchase or sell securities on
a forward commitment basis. When such transactions are negotiated, the price is
fixed at the time of the commitment, but delivery and payment can take place a
month or more after the date of commitment. While the Fund will only purchase
securities on a when-issued, delayed delivery or forward commitment basis with
the intention of acquiring the securities, the Fund may sell the securities
before the settlement date, if it is deemed advisable. The securities so
purchased or sold are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date. At the time the Fund makes
the commitment to purchase or sell securities on a when-issued, delayed delivery
or forward commitment basis, it will record the transaction and thereafter
reflect the value, each day, of such security purchased, or if a sale, the
proceeds to be received, in determining its net asset value. At the time of
delivery of the securities, the value may be more or less than the purchase or
sale price. The Fund will also establish a segregated account with its custodian
bank in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase securities
on a when-issued, delayed delivery or forward commitment basis. Subject to the
foregoing restrictions, the Fund may purchase securities on such basis without
limit.
When, As and If Issued Securities. As discussed in the Prospectus, the Fund
may purchase securities on a "when, as and if issued" basis under which the
issuance of the security depends upon the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization, leveraged buyout or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until the Investment Manager or
Sub-Adviser determines that issuance of the security is probable. At such time,
the Fund will record the transaction and, in determining its net asset value,
will reflect the value of the security daily. At such time, the Fund will also
establish a segregated account with its custodian bank in which it will maintain
cash or cash equivalents or other liquid portfolio securities equal in value to
recognized commitments for such securities. Once a segregated account has been
established, if the anticipated event does not occur and the securities are not
issued, the Fund will have lost an investment opportunity. The value of the
Fund's commitments to purchase the securities of any one issuer, together with
the value of all securities of such issuer owned by the Fund, may not exceed 5%
of the value of the Fund's total assets at the time the initial commitment to
purchase such securities is made (see "Investment Restrictions"). Subject to the
foregoing restrictions, the Fund may purchase securities on such basis without
limit. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a "when, as and if issued" basis may increase the
volatility of its net asset value. The 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.
Private Placements. As discussed in the Prospectus, the Fund may invest up to
5% of its total assets in securities which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or which are otherwise not readily marketable.
(Securities eligible for resale pursuant to Rule 144A of the Securities Act, and
determined to be liquid pursuant to the procedures discussed in the following
paragraph, are not subject to the foregoing restriction.) Limitations on the
resale of such securities may have an adverse effect on their marketability, and
may prevent the Fund from disposing of them promptly at reasonable prices. The
Fund may have to bear the expense of registering such securities for resale and
the risk of substantial delays in effecting such registration.
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The Securities and Exchange Commission ("SEC") has adopted Rule 144A under
the Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. The procedures require that the following factors be taken into account in
making a liquidity determination: (1) the frequency of trades and price quotes
for the security; (2) the number of dealers and other potential purchasers who
have issued quotes on the security; (3) any dealer undertakings to make a market
in the security; and (4) the nature of the security and the nature of the
marketplace trades (the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). If a restricted security is
determined to be "liquid," such security will not be included within the
category "illiquid securities," which under the SEC's current policies may not
exceed 15% of the Fund's net assets, and will not be subject to the 5%
limitation set out in the preceding paragraph.
The Rule 144A marketplace of sellers and qualified institutional buyers is
new and still developing and may take a period of time to develop into a mature
liquid market. As such, the market for certain private placements purchased
pursuant to Rule 144A may be initially small or may, subsequent to purchase,
become illiquid. Furthermore, the Investment Manager may not posses all the
information concerning an issue of securities that it wishes to purchase in a
private placement to which it would normally have had access, had the
registration statement necessitated by a public offering been filed with the
Securities and Exchange Commission.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate for the fiscal years ended January 31,
1997 and 1998 were 62.82% and 93.62%, respectively. A 100% turnover rate would
occur, for example, if 100% of the securities held in the Fund's portfolio
(excluding all securities whose maturities at acquisition were one year or less)
were sold and replaced within one year.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of Shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund. For purposes of the following restrictions: (i) all
percentage limitations apply immediately after a purchase or initial investment;
and (ii) any subsequent change in any applicable percentage resulting from
market fluctuations or other changes in total or net assets does not require
elimination of any security from the portfolio.
The Fund may not:
1. Purchase or sell real estate or interests therein, including
investments in limited partnerships the sole purpose of which is investing in
real estate, although the Fund may purchase securities of issuers which
engage in real estate operations and securities secured by real estate or
interests therein.
2. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in
the securities of companies which operate, invest in, or sponsor such
programs.
3. Borrow money, except that the Fund may borrow from a bank for temporary
or emergency purposes in amounts not exceeding 5% (taken at the lower of cost
or current value) of its total assets (not including the amount borrowed),
and (ii) may engage in reverse repurchase agreements and dollar rolls.
4. Pledge its assets or assign or otherwise encumber them except to secure
borrowings effected within the limitations set forth in restriction (3). For
the purpose of this restriction, collateral
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arrangements with respect to the writing of options and collateral
arrangements with respect to initial or variation margin for futures are not
deemed to be pledges of assets.
5. Issue senior securities as defined in the Act, except insofar as the
Fund may be deemed to have issued a senior security by reason of (a) entering
into any repurchase or reverse repurchase agreement; (b) purchasing any
securities on a when-issued or delayed delivery basis; (c) purchasing or
selling futures contracts, forward foreign exchange contracts or options; (d)
borrowing money in accordance with restrictions described above; or (e)
lending portfolio securities.
6. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest consistent
with its investment objective and policies; (b) by investment in repurchase
agreements; or (c) by lending its portfolio securities.
7. Make short sales of securities.
8. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of portfolio securities. The deposit or payment
by the Fund of initial or variation margin in connection with futures
contracts or related options thereon is not considered the purchase of a
security on margin.
9. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing of
a portfolio security.
10. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or sell futures contracts or option on futures.
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.
As a non-fundamental policy, the Fund will 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision of the Board of Trustees, the Investment
Manager and the Sub-Adviser are responsible for decisions to buy and sell
securities for the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. 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. During the
period from February 28, 1995 (commencement of operations) through January 31,
1996 and for the fiscal years ended January 31, 1997 and 1998, the Fund paid
$84,109, $131,642 and $183,625, respectively, in brokerage commissions.
The Investment Manager and the Sub-Adviser currently serve as investment
manager to a number of clients, including other investment companies, and may in
the future act as investment adviser to others. It is the practice of the
Investment Manager and the Sub-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, 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
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Investment Manager may utilize a pro rata allocation process based on the size
of the Dean Witter Funds involved and the number of shares available from the
public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager and Sub-Adviser from obtaining a
high quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Investment
Manager and Sub-Adviser rely upon their experience and knowledge regarding
commissions generally charged by various brokers and on their judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on foreign securities exchanges. Fixed commissions
on such transactions are generally higher than negotiated commissions on
domestic transactions. There is also generally less government supervision and
regulation of foreign securities exchanges and brokers than in the United
States.
In seeking to implement the Fund's policies, the Investment Manager and
Sub-Adviser effect transactions with those brokers and dealers who the
Investment Manager and Sub-Adviser believe provide the most favorable prices and
are capable of providing efficient executions. If the Investment Manager and/or
Sub-Adviser believe such prices and executions are obtainable from more than one
broker or dealer, they may give consideration to placing portfolio transactions
with those brokers and dealers who also furnish research and other services to
the Fund or the Investment Manager and/or Sub-Adviser. 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 fiscal year ended
January 31, 1998, the Fund directed the payment of $6,931 in brokerage
commissions in connection with transactions in the aggregate amount of
$5,167,568 to brokers because of research services provided.
The information and services received by the Investment Manager and
Sub-Adviser from brokers and dealers may be of benefit to them in the management
of accounts of some of their other clients and may not in all cases benefit the
Fund directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and/or Sub-Adviser and thereby
reduce their expenses, it is of indeterminable value and the management fee paid
to the Investment Manager is not reduced by any amount that may be attributable
to the value of such services.
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 from February 28, 1995 (commencement of
operations) through January 31, 1996 and for the fiscal years ended January 31,
1997 and 1998, 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 the unlisted trading privileges
may be effected through DWR, Morgan Stanley & Co. Incorporated ("MS & Co.")
other affiliated brokers and dealers of the Investment Manager and affiliated
brokers and dealers of a Sub-Adviser. In order for these affiliated brokers and
dealers to effect any portfolio transactions for the Fund, the commissions, fees
or other remuneration received by them must
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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 of the Investment
Manager or the Sub-Adviser are consistent with the foregoing standard. The Fund
does not reduce the management fee it pays to the Investment Manager by any
amount of the brokerage commissions it may pay to an affiliated broker or
dealer. The Fund paid DWR $21,991 in brokerage commissions (11.98% of all
commissions) during the fiscal year ended January 31, 1998 to effect 31.26% of
all transactions entered into by the Fund during the fiscal year in which
brokerage commissions were incurred. During the period June 1, 1997 through
January 31, 1998, the Fund paid a total of $3,481 in brokerage commissions to MS
& Co., which broker-dealer became an affiliate of the Investment Manager 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 1.90% 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 1.74% 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 January 31, 1998, the Fund did not acquire any
securities of the ten brokers who executed the largest dollar amounts of the
Fund's portfolio transactions or of the ten dealers who executed the largest
dollar amounts of principal transactions with the Fund during the period, or
securities of the parents of those broker-dealers.
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 losses sustained by the Fund or its shareholders.
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PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan") pursuant to which each Class, other than Class D, pays the
Distributor compensation accrued daily and payable monthly at the following
annual rates: 0.25% and 1.0% of the average daily net assets of Class A and
Class C, respectively, and, with respect to Class B, 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Fund's Class B shares since the
inception of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or upon which such charge has been
waived, or (b) the average daily net assets of Class B. The Distributor also
receives the proceeds of front-end sales charges and of contingent deferred
sales charges imposed on certain redemptions of shares, which are separate and
apart from payments made pursuant to the Plan (see "Purchase of Fund Shares" in
the Prospectus). The Distributor has informed the Fund that it and/or DWR
received (a) approximately $76,000, $132,581 and $191,520 in contingent deferred
sales charges from Class B for the period February 28, 1995 (commencement of
operations) through January 31, 1996 and the fiscal years ended January 31, 1997
and 1998, respectively, (b) approximately $0 and $33 in contingent deferred
sales charges from Class A and Class C, respectively, for the fiscal year ended
January 31, 1998, and (c) approximately $1,018 in front-end sales charges from
Class A for the fiscal year ended January 31, 1998, 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
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.
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 December 6, 1994 and by
InterCapital, as the then sole shareholder of the Fund on December 7, 1994. At
their meeting held on October 26, 1995, the Trustees of the Fund, including all
of the Independent 12b-1 Trustees, approved an amendment to the Plan to permit
payments to be made under the Plan with respect to certain distribution expenses
incurred in connection with the distribution of shares, including personal
services to shareholders with respect to holdings of such shares, of an
investment company whose assets are acquired by the Fund in a tax-free
reorganization. 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. Class B shares of the Fund accrued amounts payable
to the Distributor under the Plan, during the fiscal year ended January 31,
1998, of $580,914. This is an accrual at an annual rate of 0.94% of the average
daily net assets of Class B and was calculated pursuant to clause (a) of the
compensation formula under the Plan. This amount is treated by the Fund as an
expense in the year it is accrued. For the fiscal period July 28, 1997 through
January 31, 1998, Class A and Class C shares of the Fund accrued payments under
the Plan amounting to $28 and $241, respectively, which amounts are equal to
0.25% and 1.00% of the average daily net assets of Class A and Class C,
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 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
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299
sales credit of up to 5.0% of the amount sold (except as provided in the
following sentence) and an annual residual commission, currently a residual of
up to 0.25% of the current value of the respective accounts for which they are
the account executives or dealers of record in all cases. On orders of $1
million or more (for which no sales charge was paid) or net asset value
purchases by employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") for which
Dean Witter Trust FSB ("DWT") serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement, 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 (not including reinvested
dividends or distributions) of the amount sold in all cases. In the case of
Class B shares purchased on or after July 28, 1997 by Qualified Retirement Plans
for which DWT serves as Trustee or DWR's Retirement Plan Services serves as
recordkeeper pursuant to a written Recordkeeping Services Agreement, 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 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
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300
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.
Each Class paid 100% of the amounts accrued with respect to that Class under
the Plan for the fiscal year ended January 31, 1998, to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
$5,633,834 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) 27.32%
($1,539,192)--advertising and promotional expenses; (ii) 3.60%
($202,713)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 69.08% ($3,891,929)--other expenses, including the gross
sales credit and the carrying charge, of which 7.52% ($292,583) represents
carrying charges, 36.99% ($1,439,738) represents commission credits to DWR
branch offices for payments of commissions to account executives and 55.49%
($2,159,608) represents overhead and other branch office distribution-related
expenses. The amounts accrued by Class A and Class C for distribution during the
fiscal period July 28, 1997 through January 31, 1998 were for expenses which
relate to compensation of sales personnel and associated overhead expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that in the case of Class B shares the
excess distribution expenses, including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges imposed
at the time of sale of the Fund's Class B shares, totalled $3,856,463 as of
January 31, 1998. 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 financial
interest in the operation of the Plan except to the extent that the Distributor,
InterCapital, DWR, DWSC 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
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301
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 by the shareholders of the
affected Class or Classes of the Fund, and all material amendments to 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
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 by taking the value of all assets of
the Fund, subtracting its liabilities, dividing by the number of shares
outstanding and adjusting to the nearest cent. The New York Stock Exchange
currently observes the following holidays: New Year's Day, Reverend Dr. Martin
Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to 4:00 p.m., New York time. The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are also
generally determined prior to 4:00 p.m., New York time. Occasionally, events
which affect the values of such securities and such exchange rates may occur
between the times at which they are determined and 4:00 p.m., New York time, and
will therefore not be reflected in the computation of the Fund's net asset
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value. If events materially affecting the value of such securities occur during
such period, then these securities may be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
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 FSB (the "Transfer Agent")
fails to confirm the investor's represented holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund from
the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the Fund
to sell, the indicated amount. In the event the Letter of Intent goal is not
achieved within the thirteen-month period, the investor is required to pay the
difference between the sales charge otherwise applicable to the purchases made
during this period and sales charges actually paid. Such payment may be made
directly to the Distributor or, if not paid, the Distributor is authorized by
the shareholder to liquidate a sufficient number of his or her escrowed shares
to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation," but
there will be no retroactive reduction of sales charges on previous purchases.
For the purpose of determining whether the investor is entitled to a further
reduced sales charge applicable to purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other Dean Witter Funds
held by the shareholder which were previously purchased at a price including a
front-end sales charge
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(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 Qualified Retirement Plans, three years). However, no
CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption, plus (b) the current net
asset value of shares purchased through reinvestment of dividends or
distributions of the Fund or another 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 Qualified Retirement
Plans, three years) will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than six (three) years prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Dean Witter front-end sales charge funds, or
for shares of other Dean Witter funds for which shares of front-end sales charge
funds have been exchanged. A portion of the amount redeemed which exceeds an
amount which represents both such increase in value and the value of shares
purchased more than six years (or, in the case of shares held by certain
Qualified Retirement 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:
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YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
First .................... 5.0%
Second ................... 4.0%
Third .................... 3.0%
Fourth ................... 2.0%
Fifth .................... 2.0%
Sixth .................... 1.0%
Seventh and thereafter ... None
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified Retirement
Plans for which DWT serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement:
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
First ................... 2.0%
Second .................. 2.0%
Third ................... 1.0%
Fourth and thereafter ... None
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
of purchase which are in excess of these amounts and which redemptions do not
qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by Dean Witter
Trust FSB (the "Transfer Agent"). This is an open account in which shares owned
by the investor are credited by the Transfer Agent in lieu of issuance of a
share certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares and
may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder instituted
transaction takes place in the Shareholder Investment Account, the shareholder
will be mailed a confirmation of the transaction from the Fund or from DWR or
other selected broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of the
Fund, unless the shareholder requests that they be paid in cash. Each purchase
of shares of the Fund is made upon the condition that the Transfer Agent is
thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares
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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. It has been and remains the Fund's policy and practice
that, if checks for dividends or distributions paid in cash remain uncashed, no
interest will accrue on amounts represented by such uncashed checks.
Targeted Dividends (Service Mark) . In states where it is legally
permissible, shareholders may also have all income dividends and capital gains
distributions automatically invested in shares of any Class of an open-end Dean
Witter Fund other than Dean Witter Global Asset Allocation Fund or in another
Class of Dean Witter Global Asset Allocation 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 (subject to any applicable sales charges). Shares
of the Dean Witter money market funds redeemed in connection with EasyInvest are
redeemed on the business day preceding the transfer of funds. For further
information or to subscribe to EasyInvest, shareholders should contact their DWR
or other selected broker-dealer account executive or the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares of
the applicable Class at net asset value, without the imposition of a CDSC upon
redemption, by returning the check or the proceeds to the Transfer Agent within
30 days after the payment date. If the shareholder returns the proceeds of a
dividend or distribution, such funds must be accompanied by a signed statement
indicating that the proceeds constitute a dividend or distribution to be
invested. Such investment will be made at the net asset value per share next
determined after receipt of the check or proceeds by the Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount, not
less 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
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in the application. The shares will be redeemed at their net asset value
determined, at the shareholder's option, on the tenth or twenty-fifth day (or
next following business day) of the relevant month or quarter and normally a
check for the proceeds will be mailed by the Transfer Agent, or amounts credited
to a shareholder's 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,
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 Dean Witter Global Asset Allocation Fund, and indicating
the selected Class, directly to the Fund's Transfer Agent. In the case of Class
A shares, after deduction of any applicable sales charge, the balance will be
applied to the purchase of Fund shares, and, in the case of shares of the other
Classes, the entire amount will be applied to the purchase of Fund shares, at
the net asset value per share next computed after receipt of the check or
purchase payment by the Transfer Agent. The shares so purchased will be credited
to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of each Class of shares of the Fund
may exchange their shares for shares of the same Class of shares of any other
Dean Witter Multi-Class Fund without the imposition of any exchange fee. Shares
may also be exchanged for shares of any of the following funds: Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust
and five Dean Witter Funds which are money market funds (the foregoing nine
funds are hereinafter referred to as the "Exchange Funds"). Class A shares may
also be exchanged for shares of Dean Witter Multi-State Municipal Series Trust
and Dean Witter Hawaii Municipal Trust, which are Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"). Class B shares may also be exchanged for
shares of Dean Witter Global Short-Term Income Fund Inc. ("Global Short-Term"),
which is a Dean Witter Fund offered with a CDSC. Exchanges may be made after the
shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment. An exchange
will be treated for federal income tax purposes the same as a repurchase or
redemption of shares, on which the shareholder may realize a capital gain or
loss.
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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 Global Short-Term are exchanged for shares of an Exchange
Fund, the exchange is executed at no charge to the shareholder, without the
imposition of the CDSC at the time of the exchange. During the period of time
the shareholder remains in the Exchange Fund (calculated from the last day of
the month in which the Exchange Fund shares were acquired), the holding period
or "year since purchase payment made" is frozen. When shares are redeemed out of
the Exchange Fund, they will be subject to a CDSC which would be based upon the
period of time the shareholder held shares in a Dean Witter Multi-Class Fund or
in Global Short-Term. However, in the case of shares exchanged into an Exchange
Fund on or after April 23, 1990, upon a redemption of shares which results in a
CDSC being imposed, a credit (not to exceed the amount of the CDSC) will be
given in an amount equal to the Exchange Fund 12b-1 distribution fees 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 Global
Short-Term 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 Global Short-Term are reacquired. A CDSC is
imposed only upon an ultimate redemption, based upon the time (calculated as
described above) the shareholder was invested in a Dean Witter Multi-Class Fund
or in Global Short-Term. In the case of exchanges of Class A shares which are
subject to a CDSC, the holding period also includes the time (calculated as
described above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or in
Global Short-Term are exchanged for shares of a Dean Witter Multi-Class Fund,
shares of Global Short-Term, shares of a FSC Fund, or shares of an Exchange
Fund, the date of purchase of the shares of the fund exchanged into, for
purposes of the CDSC upon redemption, will be the last day of the month in which
the shares being exchanged were originally purchased. In allocating the purchase
payments between funds for purposes of the CDSC, the amount which represents the
current net asset value of shares at the time of the exchange which were (i)
purchased more than one, three or six years (depending on the CDSC schedule
applicable to the shares) prior to the exchange, (ii) originally acquired
through reinvestment of dividends or distributions and (iii) acquired in
exchange for shares of FSC Funds, or for shares of other Dean Witter Funds for
which shares of FSC Funds have been exchanged (all such shares called "Free
Shares"), will be exchanged first. After an exchange, all dividends earned on
shares in an Exchange Fund will be considered Free Shares. If the exchanged
amount exceeds the value of such Free Shares, an exchange is made, on a
block-by-block basis, of non-Free Shares held for the longest period of time
(except that, with respect to Class B shares, if shares held for identical
periods of time but subject to different CDSC schedules are held in the same
Exchange Privilege account, the shares of that block that are subject to a lower
CDSC rate will be exchanged prior to the shares of that block that are subject
to a higher CDSC rate). Shares equal to any appreciation in the value of
non-Free Shares exchanged will be treated as Free Shares, and the amount of the
purchase payments for the non-Free Shares of the fund exchanged into will be
equal to the lesser of (a) the purchase payments for, or (b) the current net
asset value of, the exchanged non-Free Shares. If an exchange between funds
would result in exchange of only part of a particular block of non-Free Shares,
then shares equal to any appreciation in the value of the block (up to the
amount of the exchange) will be treated as Free Shares and exchanged first, and
the purchase payment for that block will be allocated on a pro rata basis
between the non-Free Shares of that block
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to be retained and the non-Free Shares to be exchanged. The prorated amount of
such purchase payment attributable to the retained non-Free Shares will remain
as the purchase payment for such shares, and the amount of purchase payment for
the exchanged non-Free Shares will be equal to the lesser of (a) the prorated
amount of the purchase payment for, or (b) the current net asset value of, those
exchanged non-Free Shares. Based upon the procedures described in the Prospectus
under the caption "Purchase of Fund Shares," any applicable CDSC will be imposed
upon the ultimate redemption of shares of any fund, regardless of the number of
exchanges since those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Dean Witter Liquid Asset
Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter California
Tax-Free Daily Income Trust and Dean Witter New York Municipal Money Market
Trust, although those funds may, in their discretion, accept initial investments
of as low as $1,000. The minimum initial investment for the Exchange Privilege
account of each Class is $10,000 for Dean Witter Short-Term U.S. Treasury Trust,
although that fund, in its discretion, may accept initial purchases of as low as
$5,000. The minimum initial investment for the Exchange Privilege account of
each Class is $5,000 for Dean Witter Special Value Fund. The minimum initial
investment for the Exchange Privilege account of each Class of all other Dean
Witter Funds for which the Exchange Privilege is available is $1,000.) Upon
exchange into an Exchange Fund, the shares of that fund will be held in a
special Exchange Privilege Account separately from accounts of those
shareholders who have acquired their shares directly from that fund. As a
result, certain services normally available to shareholders of 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 may be terminated or
revised at any time by the Fund and/or any of the Dean Witter funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days' prior written notice for
termination or material revision), provided that six months' prior written
notice of termination will be given to the shareholders who hold shares of
Exchange Funds pursuant to the Exchange Privilege, and provided further that the
Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, (d) during any
other period when the Securities and Exchange Commission by order so permits
(provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective, policies and restrictions.
For further information regarding the Exchange Privilege, shareholders should
contact their DWR or other selected broker-dealer account executive or the
Transfer Agent.
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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. 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 supplement
to the prospectus or 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. Such payment may be postponed
or the right of redemption suspended at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on that Exchange is restricted, (c) when an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check (including a certified check or bank cashiers
check), payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
It has been and remains the Fund's policy 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.
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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 the
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and, if the Fund makes an election, the shareholders would include
such undistributed gains in their income and shareholders will be able to claim
their share of the tax paid by the Fund as a credit against their individual
federal income tax.
Any dividends declared in the last quarter of any calendar year which are
paid in the following calendar year prior to February 1 will be deemed received
by the shareholder in the prior calendar year.
Gains or losses on sales of securities by the Fund will generally be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be generally short-term capital gains or losses.
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). If so qualified,
the Fund will not be subject to federal income tax on its net investment income
and capital gains, if any, realized during any fiscal year if it distributes
such income and capital gains to its shareholders. In addition, the Fund intends
to distribute to its shareholders each calendar year a sufficient amount of
ordinary income and capital gains to avoid the imposition of a 4% excise tax.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes,
including information as to the portion taxable as ordinary income, the portion
taxable as long-term capital gains, and the amount of dividends eligible for the
Federal dividends received deduction available to corporations. To avoid being
subject to a 31% Federal backup withholding tax on taxable dividends, capital
gains distributions and the proceeds of redemptions and repurchases,
shareholders' taxpayer identification numbers must be furnished and certified as
to their accuracy.
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. It is expected that the Treasury will issue
regulations or other guidance to permit shareholders to take into account their
proportionate share of the Fund's capital gains distributions that will be
subject to a reduced rate under the Taxpayer Relief Act of 1997. The Taxpayer
Relief Act reduces the maximum tax on long-term capital gains from 28% to 20%;
however, it also
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lengthens the required holding period to obtain the lower rate from more than 12
months to more than 18 months. The lower rates do not apply to collectibles and
certain other assets. Additionally, the maximum capital gain rate for assets
that are held more than five years and that are acquired after December 31, 2000
is 18%.
Any dividend or capital gains distribution received by a shareholder from any
investment company will have the effect of reducing the net asset value of the
shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable. Therefore, an investor should consider the
tax implications of purchasing Fund shares immediately prior to a distribution
record date.
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. The
amount of dividends paid by the Fund which may qualify for the dividends
received deduction is limited to the aggregate amount of qualifying dividends
which the Fund derives from its portfolio investments which the Fund has held
for a minimum period, usually 46 days within a 90-day period beginning 45 days
before the ex-dividend date of each qualifying dividend. Shareholders must meet
a similar holding period requirement with respect to their shares to claim the
dividends received deduction with respect to any distribution of qualifying
dividends. Any long-term capital gain distributions will also not be eligible
for the dividends received deduction. The ability to take the dividends received
deduction will also be limited in the case of a Fund shareholder which incurs or
continues indebtedness which is directly attributable to its investment in the
Fund.
The Fund may elect to retain net capital gains and pay corporate income tax
thereon. In such event, each shareholder of record on the last day of the Fund's
taxable year would be required to include in income for tax purposes such
shareholder's proportionate share of the Fund's undistributed net capital gain.
In addition, each shareholder would be entitled to credit such shareholder's
proportionate share of the tax paid by the Fund against federal income tax
liabilities, to claim refunds to the extent that the credit exceeds such
liabilities, and to increase the basis of his shares held for federal income tax
purposes by an amount equal to 65% of such shareholder's proportionate share of
the undistributed net capital gain.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital loss
to the extent of any distributions of net long-term capital gains during the
six-month period.
Dividends, interest and capital gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim United States foreign tax credits or
deductions with respect to such taxes, subject to certain provisions and
limitations contained in the Code. If more than 50% of the Fund's total assets
at the close of its fiscal year consist of securities of foreign corporations,
the Fund would be eligible and would determine whether or not to file an
election with the Internal Revenue Service pursuant to which shareholders of the
Fund will be required to include their respective pro rata portions of such
withholding taxes in their United States income tax returns as gross income,
treat such respective pro rata portions as taxes paid by them, and deduct such
respective pro rata portions in computing their taxable income or,
alternatively, use them as foreign tax credits against their United States
income taxes. If the Fund does elect to file the election with the Internal
Revenue Service, the Fund will report annually to its shareholders the amount
per share of such withholding.
Special Rules for Certain Foreign Currency Transactions. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies are currently considered to be qualifying
45
312
income for purposes of determining whether the Fund qualifies as a regulated
investment company. It is currently unclear, however, who will be treated as the
issuer of certain foreign currency instruments or how foreign currency options,
futures, or forward foreign currency contracts will be valued for purposes of
the regulated investment company diversification requirements applicable to the
Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's function currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In general,
foreign currency gains or losses from forward contracts, from futures contracts
that are not "regulated futures contracts", and from unlisted options will be
treated as ordinary income or loss under Code Section 988. Also, certain foreign
exchange gains or losses derived with respect to foreign fixed-income securities
are also subject to Section 988 treatment. In general, therefore, Code Section
988 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income, rather than increasing or decreasing the amount of the Fund's
net capital gain. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary dividend distributions.
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of certain
technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the Fund
level which could not be eliminated by distributions to shareholders. The
Taxpayer Relief Act of 1997 establishes a mark to market regime which allows
taxpayers investing in PFIC's to avoid most, if not all, of the difficulties
posed by the PFIC Rules. In any event, it is not anticipated that any taxes on
the Fund with respect to investments in PFIC's would be significant.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. These figures are
computed separately for Class A, Class B, Class C and Class D shares. The Fund's
"average annual total return" represents an annualization of the Fund's total
return over a particular period and is computed by finding the annual percentage
rate which will result in the ending redeemable value of a hypothetical $1,000
investment made at the beginning of a one, five or ten year period, or for the
period from the date of commencement of the Fund's operations, if shorter than
any of the foregoing. The ending redeemable value is reduced by any CDSC at the
end of the one, five or ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment, taking a root of the quotient (where the root is equivalent to the
number of years in the period) and subtracting 1 from the result. The average
annual total returns of Class B for the fiscal year ended January 31, 1998 and
for the period February 28, 1995 (commencement of the Fund's operation) through
January 31, 1998 were -1.55% and 9.62%, 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 C 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 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 January 31,
1998 were -11.31%, -7.66% and -6.32% for Class A, Class C and Class D,
respectively.
46
313
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 to 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 Class B may be calculated in the manner described above, but
without deduction for any applicable sales charge. Based upon this calculation,
the average annual total returns of Class B for the fiscal year ended January
31, 1998 and for the period February 28, 1995 through January 31, 1998 were
3.29% and 10.48%, respectively.
The Fund may compute its aggregate total return for each Class for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without the
reduction for any sales charges) by the initial $1,000 investment and
subtracting 1 from the result. Based on the foregoing calculation, the total
return of Class B for the fiscal year ended January 31, 1998 and for the period
February 28, 1995 (commencement of operations) through January 31, 1998 were
3.29% and 33.82%, respectively. Based on the foregoing calculations, the total
returns for Class A, Class C and Class D for the period July 28 through January
31, 1998 were -6.39%, -6.79% and -6.32%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 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 each Class at
inception of the Class would have grown (declined) to the following amounts at
January 31, 1998:
INCEPTION INVESTMENT AT INCEPTION OF:
CLASS DATE: --------------------------------------
- ----- -----
$ 10,000 $ 50,000 $100,000
-------- -------- --------
Class A ............ 07/28/97 $ 8,870 $ 44,933 $ 90,802
Class B ............ 02/28/95 13,382 66,910 133,820
Class C ............ 07/28/97 9,321 46,605 93,210
Class D ............ 07/28/97 9,368 46,840 93,680
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
SHARES OF THE FUND
The shareholders of the Fund are entitled to a full vote for each full share
of beneficial interest held. The Fund is authorized to issue an unlimited number
of shares of beneficial interest. 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. 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.
47
314
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 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 Chase Manhattan Bank, One Chase Plaza, New York, New York 10005 is the
Custodian of the Fund's assets in the United States and around the world. As
Custodian, The Chase Manhattan Bank has contracted with various foreign banks
and depositaries to hold portfolio securities of non-U.S. issuers on behalf of
the Fund. Any of the Fund's cash balances with the Custodian in excess of
$100,000 are unprotected by federal deposit insurance. Such balances may, at
times, be substantial.
Dean Witter Trust FSB, Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust FSB is an affiliate of Dean Witter 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 FSB's
responsibilities include maintaining shareholder accounts, disbursing cash
dividends and reinvesting dividends, processing account registration changes,
handling purchase and redemption transactions, mailing prospectuses and reports,
mailing and tabulating proxies, processing share certificate transactions, and
maintaining shareholder records and lists. For these services Dean Witter Trust
FSB receives a per shareholder account fee 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.
48
315
EXPERTS
The financial statements of the Fund for the year ended January 31, 1998
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
316
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------
COMMON AND PREFERRED
STOCKS AND BONDS (89.4%)
ARGENTINA (0.5%)
Banking
2,209 Banco de Galicia y Buenos Aires S.A. de C.V. (ADR) ................. $ 48,460
-----------
Energy
2,700 Yacimentos Petroliferos Fiscales S.A. (ADR) ........................ 82,181
-----------
Multi-Industry
11,791 Perez Companc S.A. (Class B) ....................................... 77,850
-----------
Telecommunications
1,000 Telefonica de Argentina S.A. (Class B)(ADR) ........................ 34,625
-----------
TOTAL ARGENTINA .................................................... 243,116
-----------
AUSTRALIA (0.6%)
Telecommunications
6,500 Telstra Corp. Ltd. (ADR)* .......................................... 293,719
-----------
BRAZIL (1.5%)
Metals & Mining
2,840 Companhia Vale do Rio Doce S.A. (Pref.)(ADR) ....................... 54,847
-----------
Petroleum
944,000 Petroleo Brasileiro S.A. (Pref.) ................................... 201,745
-----------
Telecommunications
3,410 Telecomunicacoes Brasileiras S.A. (ADR) ............................ 378,510
143,234 Telecomunicacoes de Sao Paulo S.A. (Pref.)(RCP)* ................... 41,454
-----------
419,964
-----------
Utilities -Electric
1,400 Centrais Electricas Brasileiras S.A. -Electrobras (ADR) ............ 30,100
2,260 Companhia Energetica de Minas Gerais S.A. (ADR) .................... 88,140
260,000 Companhia Energetica de Minas Gerais S.A. (Pref.) .................. 10,280
-----------
128,520
-----------
TOTAL BRAZIL ....................................................... 805,076
-----------
CHILE (0.3%)
Beverages -Soft Drinks
1,420 Embotelladora Andina S.A. (Series A)(ADR) .......................... $ 28,400
-----------
Telecommunications
3,125 Compania de Telecomunicaciones de Chile S.A. (ADR) ................. 75,195
-----------
Utilities -Electric
2,000 Enersis S.A. (ADR) ................................................. 52,875
-----------
TOTAL CHILE ........................................................ 156,470
-----------
COLOMBIA (0.1%)
Banking
3,500 Banco Industrial Colombiano S.A. (ADR) ............................. 41,781
-----------
DENMARK (2.4%)
Air Transport
1,200 Kobenhavns Lufthavne AS ............................................ 138,584
-----------
Government Obligations
Kingdom of Denmark
DKK 1,400K 7.00% due 12/15/04 ................................................. 221,815
Kingdom of Denmark
DKK 1,300K 8.00% due 05/15/03 ................................................. 212,610
Kingdom of Denmark
DKK 1,720K 8.00% due 03/15/06 ................................................. 289,665
Kingdom of Denmark
DKK 800K 9.00% due 11/15/00 ................................................. 127,968
-----------
852,058
-----------
Pharmaceuticals
1,880 Novo-Nordisk AS (Series B) ......................................... 269,708
-----------
TOTAL DENMARK ...................................................... 1,260,350
-----------
FINLAND (0.8%)
Insurance
7,060 Pohjola Insurance Co. "B" .......................................... 303,453
-----------
Telecommunication Equipment
1,400 Nokia Oyj (A Shares) ............................................... 109,731
-----------
TOTAL FINLAND ...................................................... 413,184
-----------
FRANCE (3.7%)
Banks -Money Center
43 Banque Nationale de Paris .......................................... 2,221
4,500 Credit Commercial de France ........................................ 306,313
-----------
308,534
-----------
SEE NOTES TO FINANCIAL STATEMENTS
50
317
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------
Electronics -Semiconductors
1,960 SGS-Thomson Microelectronics N.V.* ................................. $ 134,247
-----------
Household Products
2,060 Societe BIC S.A. ................................................... 150,673
-----------
Insurance
2,700 AXA-UAP ............................................................ 224,174
-----------
Leisure
1,500 Accor S.A. ......................................................... 295,082
-----------
Media
1,380 Canal Plus ......................................................... 278,229
-----------
Oil & Gas
1,690 Elf Aquitaine S.A. ................................................. 190,764
1,650 Total S.A. (B Shares) .............................................. 171,715
-----------
362,479
-----------
Telecommunication Equipment
1,400 Alcatel Alsthom S.A. ............................................... 185,662
-----------
TOTAL FRANCE ....................................................... 1,939,080
-----------
GERMANY (4.1%)
Automotive
280 Bayerische Motoren Werke (BMW) AG .................................. 223,510
-----------
Chemicals -Diversified
2,950 Hoechst AG ......................................................... 103,710
-----------
Government Obligations
German Unity Fund
DEM 175K 8.00% due 01/12/02 ................................................. 108,062
DEM 605K Germany (Federal Republic) 5.25% due 10/20/98 ...................... 334,520
DEM 661K Germany (Federal Republic) 6.25% due 01/04/24 ...................... 391,830
DEM 695K Germany (Federal Republic) 6.50% due 10/14/05 ...................... 417,684
DEM 455K Germany (Federal Republic) 7.25% due 10/21/02 ...................... 277,154
-----------
1,529,250
-----------
Steel Related
1,050 SGL Carbon AG ...................................................... 132,039
-----------
Utilities -Electric
2,650 VEBA AG ............................................................ 183,138
-----------
TOTAL GERMANY ...................................................... 2,171,647
-----------
HONG KONG (2.7%)
Banking
37,400 Hang Seng Bank Ltd. ................................................ $ 295,021
-----------
Conglomerates
70,000 Hutchison Whampoa, Ltd. ............................................ 411,871
-----------
Real Estate
41,000 Hong Kong Land Holdings Ltd. ....................................... 66,010
-----------
Telecommunications
160,000 Hong Kong Telecommunications Ltd. .................................. 333,118
-----------
Utilities -Electric
55,000 CLP Holdings Ltd. .................................................. 302,276
-----------
TOTAL HONG KONG .................................................... 1,408,296
-----------
ITALY (1.9%)
Government Obligations
Italy (Republic of)
ITL 615,000K 7.75% due 11/01/06 ................................................. 396,607
Italy (Republic of)
ITL 245,000K 10.00% due 08/01/03 ................................................ 166,646
-----------
563,253
-----------
Household Furnishings &
Appliances
6,400 Industrie Natuzzi SpA (ADR) ........................................ 156,800
-----------
Telecommunications
25,000 Telecom Italia Mobile SpA .......................................... 119,206
26,250 Telecom Italia SpA ................................................. 181,822
-----------
301,028
-----------
TOTAL ITALY ........................................................ 1,021,081
-----------
JAPAN (4.7%)
Automotive
9,000 Suzuki Motor Co. Ltd. .............................................. 82,979
-----------
Banking
6,000 Bank of Tokyo-Mitsubishi Ltd. ...................................... 86,998
4,000 Mitsubishi Trust & Banking ......................................... 46,336
-----------
133,334
-----------
Building & Construction
4,000 Sekisui House Ltd. ................................................. 33,097
-----------
Business Services
8,000 Ricoh Co., Ltd. .................................................... 94,563
-----------
SEE NOTES TO FINANCIAL STATEMENTS
51
318
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------
Chemicals
16,000 Asahi Chemical Industrial Co. Ltd. ................................. $ 63,672
7,000 Shin-Etsu Chemical Co. ............................................. 155,556
-----------
219,228
-----------
Electrical Equipment
5,000 Sumitomo Electric Industries ....................................... 73,680
-----------
Electronic & Electrical
Equipment
5,000 Canon, Inc. ........................................................ 121,355
9,000 Hitachi, Ltd. ...................................................... 70,922
7,000 Matsushita Electric Industrial Co., Ltd. ........................... 105,359
6,000 NGK Insulators, Ltd. ............................................... 54,846
1,500 Sony Corp. ......................................................... 138,298
-----------
490,780
-----------
Engineering & Construction
8,000 Kajima Corp. ....................................................... 27,423
-----------
Financial Services
1,000 Japan Associated Finance ........................................... 47,675
3,000 Nomura Securities Co. Ltd. ......................................... 40,189
-----------
87,864
-----------
Insurance
5,000 Tokio Marine & Fire Insurance Co. .................................. 55,556
-----------
Machinery
5,000 Daifuku Co. Ltd. ................................................... 26,990
1,100 Keyence Corp. ...................................................... 166,430
8,000 Minebea Co., Ltd. .................................................. 85,106
15,000 NSK Ltd. ........................................................... 53,073
-----------
331,599
-----------
Manufacturing
1,900 Sony Music Entertainment Inc. ...................................... 67,376
-----------
Pharmaceuticals
3,000 Yamanouchi Pharmaceutical Co. ...................................... 72,813
-----------
Real Estate
5,000 Mitsubishi Estate Co. Ltd. ......................................... 55,162
4,000 Mitsui Fudosan Co. Ltd. ............................................ 39,716
-----------
94,878
-----------
Retail
2,700 Family Mart Co. Ltd. ............................................... 103,191
2,000 Ito-Yokado Co. Ltd. ................................................ 104,964
-----------
208,155
-----------
Steel & Iron
28,000 NKK Corp. .......................................................... $ 30,670
9,000 Yamato Kogyo Co., Ltd. ............................................. 81,560
-----------
112,230
-----------
Telecommunications
19 DDI Corp. .......................................................... 60,788
15 Nippon Telegraph & Telephone Corp. ................................. 135,934
-----------
196,722
-----------
Textiles -Apparel
7,000 Tokyo Style ........................................................ 71,710
-----------
TOTAL JAPAN ........................................................ 2,453,987
-----------
MALAYSIA (0.6%)
Telecommunications
138,000 Telekom Malaysia Berhad ............................................ 339,642
-----------
MEXICO (1.5%)
Banking
8,750 Grupo Financiero Inbursa S.A. de C.V. (B Shares) ................... 27,615
-----------
Building & Construction
4,000 Apasco S.A. de C.V. ................................................ 26,005
2,300 Empresa ICA Sociedad Controladora S.A. de C.V. (ADR)* .............. 31,337
-----------
57,342
-----------
Building Materials
20,300 Cemex S.A. de C.V. (B Shares) ...................................... 85,903
-----------
Conglomerates
9,443 ALFA S.A. de C.V. (Class A) ........................................ 50,229
15,900 Grupo Carso S.A. de C.V. (Series A1)* .............................. 90,589
-----------
140,818
-----------
Food, Beverage, Tobacco & Household Products
11,300 Fomento Economico Mexicano S.A. de C.V. (B Shares) ................. 70,792
2,730 Panamerican Beverages, Inc. (Class A)(ADR) ......................... 88,725
-----------
159,517
-----------
Media Group
1,700 Grupo Televisa S.A. (GDR)* ......................................... 54,719
-----------
SEE NOTES TO FINANCIAL STATEMENTS
52
319
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------
Paper & Forest Products
15,600 Kimberly-Clark de Mexico S.A. de C.V. (A Shares) ................... $ 67,397
-----------
Retail
19,000 Cifra S.A. de C.V. (C Shares)* ..................................... 32,116
2,212 Cifra S.A. de C.V. (Series V) ...................................... 4,021
-----------
36,137
-----------
Telecommunications
2,700 Telefonos de Mexico S.A. de C.V. (Series L)(ADR) ................... 132,975
-----------
TOTAL MEXICO ....................................................... 762,423
-----------
NETHERLANDS (2.9%)
Chemicals
780 Akzo Nobel NV ...................................................... 141,192
-----------
Electrical Equipment
2,160 Philips Electronics NV ............................................. 145,837
-----------
Insurance
2,528 Aegon NV ........................................................... 241,188
4,771 ING Groep NV ....................................................... 218,452
-----------
459,640
-----------
Publishing
9,000 Ver Ned Uitgev Ver Bezit NV ........................................ 251,880
1,212 Wolters Kluwer NV .................................................. 164,014
-----------
415,894
-----------
Record & Tape Distribution
3,100 PolyGram NV ........................................................ 138,332
-----------
Retail
4,656 Koninklijke Ahold NV ............................................... 128,273
-----------
Semiconductor Equipment
1,500 ASM Lithography Holding NV* ........................................ 103,313
-----------
TOTAL NETHERLANDS .................................................. 1,532,481
-----------
PERU (0.1%)
Brewery
45,169 Union de Cervecerias Peruanas Backus & Johnston S.A. (T Shares) .... 38,400
-----------
Telecommunications
Telefonica del Peru S.A.
1,300 (B Shares)(ADR) .................................................... 25,513
-----------
TOTAL PERU ......................................................... 63,913
-----------
SINGAPORE (1.9%)
Airlines
79,000 Singapore Airlines Ltd. ............................................ $ 516,672
-----------
Banking
120,800 Overseas-Chinese Banking Corp. Ltd. ................................ 504,362
-----------
TOTAL SINGAPORE .................................................... 1,021,034
-----------
SPAIN (2.0%)
Banks
6,750 Banco Bilbao Vizcaya ............................................... 235,880
4,980 Banco Popular Espanol S.A. ......................................... 375,667
-----------
611,547
-----------
Government Obligations
Spain (Government of)
ESP 28,000K 7.90% due 02/28/02 ................................................. 201,299
Spain (Government of)
ESP 16,600K 8.80% due 04/30/06 ................................................. 132,104
-----------
333,403
-----------
Telecommunications
3,400 Telefonica de Espana S.A. .......................................... 111,141
-----------
TOTAL SPAIN ........................................................ 1,056,091
-----------
SWEDEN (3.0%)
Automobiles
3,400 Volvo AB (B Shares) ................................................ 93,086
-----------
Business Services
7,440 Assa Abloy AB (Series B) ........................................... 183,509
5,940 Securitas AB (Series "B" Free) ..................................... 173,615
-----------
357,124
-----------
Electrical Equipment
4,950 Ericsson (L.M.) Telephone Co. AB (Series "B" Free) ................. 194,127
-----------
Government Obligations
Sweden (Government of)
SEK 4,600K 6.00% due 02/09/05 ................................................. 584,460
Sweden (Kingdom of)
SEK 300K 8.00% due 08/15/07 ................................................. 43,399
-----------
627,859
-----------
Multi-line Insurance
2,750 Skandia Forsakrings AB ............................................. 143,459
-----------
Pharmaceuticals
8,533 Astra AB (B Shares) ................................................ 151,011
-----------
TOTAL SWEDEN ....................................................... 1,566,666
-----------
SEE NOTES TO FINANCIAL STATEMENTS
53
320
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------
SWITZERLAND (2.8%)
Airlines
215 Sairgroup* ......................................................... $ 276,761
-----------
Banking
1,875 Credit Suisse Group-Reg ............................................ 298,844
85 UBS-Bearer ......................................................... 120,992
-----------
419,836
-----------
Foods & Beverages
100 Nestle S.A. ........................................................ 159,553
-----------
Pharmaceuticals
180 Novartis AG ........................................................ 308,537
30 Roche Holdings AG ................................................. 311,789
-----------
620,326
-----------
TOTAL SWITZERLAND .................................................. 1,476,476
-----------
UNITED KINGDOM (12.5%)
Aerospace
44,091 Rolls-Royce PLC ................................................... 149,087
-----------
Auto Parts
32,660 BBA Group PLC ..................................................... 191,527
-----------
Building Materials
39,357 Blue Circle Industries PLC ......................................... 208,298
-----------
Electrical Equipment
18,909 BICC Group (The) PLC ............................................... 43,861
38,580 General Electric Co. PLC ........................................... 241,368
-----------
285,229
-----------
Financial Services
29,000 Abbey National PLC ................................................. 582,669
779 HSBC Holdings PLC .................................................. 20,360
-----------
603,029
-----------
Food, Beverage, Tobacco & Household Products
7,770 B.A.T. Industries PLC .............................................. 70,823
16,067 Bass PLC ........................................................... 254,581
-----------
325,404
-----------
Government Obligations
pounds sterling 43K United Kingdom Treasury Gilt 7.50% due 12/07/06 .................... 76,848
pounds sterling 162K United Kingdom Treasury Gilt 8.50% due 12/07/05 .................... 302,998
-----------
379,846
-----------
Insurance
28,646 Prudential Corp. PLC ............................................... $ 384,173
39,113 Royal & Sun Alliance Insurance Group PLC .......................... 442,765
-----------
826,938
-----------
Leisure
11,956 Granada Group PLC .................................................. 188,075
27,401 Rank Group PLC .................................................... 134,167
-----------
322,242
-----------
Multi-Industry
54,803 Tomkins PLC ....................................................... 295,418
-----------
Natural Gas
36,150 BG PLC ............................................................. 194,868
-----------
Oil -International -Integrated
81,457 Shell Transport & Trading Co. PLC .................................. 553,530
-----------
Pharmaceuticals
28,024 Glaxo Wellcome PLC ................................................ 752,119
-----------
Publishing
15,445 EMAP PLC ........................................................... 264,909
-----------
Retail
14,201 Great Universal Stores PLC ......................................... 170,732
13,000 Kingfisher PLC ..................................................... 203,436
-----------
374,168
-----------
Telecommunications
56,545 British Telecommunications PLC ..................................... 540,343
41,306 Securicor PLC ...................................................... 222,547
-----------
762,890
-----------
Transportation
7,201 British Airways PLC ............................................... 60,579
-----------
TOTAL UNITED KINGDOM ............................................... 6,550,081
-----------
UNITED STATES (38.6%)
Aerospace & Defense
4,980 General Motors Corp. (Class H) ..................................... 172,432
-----------
Air Transport
7,340 Continental Airlines, Inc. (Class B)* .............................. 340,392
-----------
SEE NOTES TO FINANCIAL STATEMENTS
54
321
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------
Automotive
9,730 Chrysler Corp. ..................................................... $ 338,726
7,490 Ford Motor Co. ..................................................... 381,990
-----------
720,716
-----------
Banking
3,750 BankBoston Corp. ................................................... 335,625
$ 100K Central Fidelity Capital I -144A** 6.75% due 04/15/27 .............. 101,925
2,850 Chase Manhattan Corp. .............................................. 305,484
2,530 Citicorp ........................................................... 301,070
5,440 First Tennessee National Corp. ..................................... 320,280
4,750 Washington Mutual, Inc. ............................................ 305,187
-----------
1,669,571
-----------
Beverages -Soft Drinks
8,400 PepsiCo, Inc. ...................................................... 302,925
-----------
Chemicals
10,300 Georgia Gulf Corp. ................................................. 336,037
7,300 Monsanto Co. ....................................................... 346,294
-----------
682,331
-----------
Computer Software
7,000 HBO & Co. .......................................................... 366,188
2,360 Microsoft Corp.* ................................................... 352,082
-----------
718,270
-----------
Computers
9,880 COMPAQ Computer Corp. .............................................. 297,018
10,740 Gateway 2000, Inc.* ................................................ 404,764
-----------
701,782
-----------
Computers -Systems
8,900 Sun Microsystems, Inc.* ............................................ 426,644
-----------
Electrical Equipment
4,460 General Electric Co. ............................................... 345,650
4,630 Honeywell, Inc. .................................................... 324,389
-----------
670,039
-----------
Electronics -
Semiconductors/Components
4,040 Intel Corp. ........................................................ 327,240
-----------
Entertainment
3,520 The Walt Disney Co. ................................................ 375,100
Financial Services
Associates Corp. N.A.
$ 100K 6.375% due 08/15/99 ................................................ 101,009
6,190 Fannie Mae ......................................................... 382,233
6,560 Travelers Group, Inc. .............................................. 324,720
-----------
807,962
Insurance
3,100 American International Group, Inc. ................................. $ 341,969
Orion Capital Trust I
$ 200K 8.73% due 01/01/37 ................................................. 216,500
-----------
558,469
-----------
Oil -International -Integrated
5,200 Exxon Corp. ........................................................ 308,425
-----------
Oil Related
4,250 Mobil Corp. ........................................................ 289,531
5,530 Texaco, Inc. ....................................................... 287,906
-----------
577,437
-----------
Packaged Foods
4,290 General Mills, Inc. ................................................ 319,337
-----------
Paper Products
7,100 Bowater, Inc. ...................................................... 347,900
5,740 Champion International Corp. ....................................... 293,816
-----------
641,716
-----------
Pharmaceuticals
4,500 American Home Products Corp. ....................................... 429,469
4,990 Johnson & Johnson .................................................. 334,018
2,270 Warner-Lambert Co. ................................................. 341,635
-----------
1,105,122
-----------
Railroad Equipment
7,020 Trinity Industries, Inc. ........................................... 317,655
-----------
Retail -Department Stores
25,000 Kmart Corp. ........................................................ 275,000
-----------
Retail -Specialty
9,760 Bed Bath & Beyond, Inc.* ........................................... 386,740
5,680 Home Depot, Inc. ................................................... 342,575
12,400 Pep Boys-Manny, Moe & Jack ......................................... 271,250
-----------
1,000,565
-----------
Savings & Loans Association
3,600 Golden West Financial Corp. ........................................ 303,975
-----------
Steel
6,430 Nucor Corp. ........................................................ 306,229
-----------
Telecommunication Equipment
5,700 Cisco Systems, Inc.* ............................................... 359,456
-----------
Tobacco
7,530 Philip Morris Companies, Inc. ...................................... 312,495
-----------
SEE NOTES TO FINANCIAL STATEMENTS
55
322
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------
U.S. Government Obligations
U.S. Treasury Bond
$1,250K 6.875% due 08/15/25 ................................................ $ 1,417,675
U.S. Treasury Note
$ 50K 5.625% due 11/30/00 ................................................ 50,346
U.S. Treasury Note
$1,100K 5.875% due 04/30/98 ................................................ 1,101,375
U.S. Treasury Note
$ 175K 6.50% due 04/30/99 ................................................. 177,518
U.S. Treasury Note
$ 250K 6.50% due 05/15/05 ................................................. 264,610
U.S. Treasury Note
$1,150K 6.625% due 06/30/01 ................................................ 1,193,424
U.S. Treasury Note
$ 570K 6.875% due 08/31/99 ................................................ 583,281
U.S. Treasury Note
$1,000K 6.875% due 05/15/06 ................................................ 1,086,340
U.S. Treasury Note
$ 75K 7.50% due 11/15/01 ................................................. 80,304
-----------
5,954,873
-----------
TOTAL UNITED STATES ................................................ 20,256,158
-----------
VENEZUELA (0.2%)
Telecommunications
2,300 Compania Anonima Nacional Telefonos de Venezuela (Class D)(ADR)* ... 84,525
-----------
TOTAL COMMON AND PREFERRED STOCKS
AND BONDS
(Identified Cost $41,265,351) ...................................... 46,917,277
-----------
CURRENCY DESCRIPTION,
AMOUNT EXPIRATION DATE
IN THOUSANDS AND STRIKE PRICE VALUE
- ------------ ----------------------------------------------------------------- ----------
PURCHASED CALL OPTION ON
FOREIGN CURRENCY (0.1%)
FEBRUARY 10, 1998/YEN 120.72
yen 700 (Identified Cost $17,255) ...................................... $ 34,230
----------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENT (a) (9.5%)
U.S. GOVERNMENT AGENCY
Federal Home Loan Mortgage Corp. 5.57% due 02/02/98 (Amortized
$5,000K Cost $4,998,969) ................................................ 4,998,969
----------
TOTAL INVESTMENTS
(Identified Cost $46,281,575)(b) .................... 99.0% 51,950,476
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES ...................................... 1.0 521,061
----- -----------
NET ASSETS .......................................... 100.0% $52,471,537
===== ===========
- ------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
RCP Receipt shares.
K In thousands.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$7,665,499 and the aggregate gross unrealized depreciation is
$1,996,598, resulting in net unrealized appreciation of $5,668,901.
SEE NOTES TO FINANCIAL STATEMENTS
56
323
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
SUMMARY OF INVESTMENTS January 31, 1998
Aerospace ......................................... $ 149,087 0.3%
Aerospace & Defense ............................... 172,432 0.3
Air Transport ..................................... 478,976 0.9
Airlines .......................................... 793,433 1.5
Auto Parts ........................................ 191,527 0.4
Automobiles ....................................... 93,086 0.2
Automotive ........................................ 1,027,205 2.0
Banking ........................................... 3,139,980 6.0
Banks ............................................. 611,547 1.2
Banks -Money Center ............................... 308,534 0.6
Beverages -Soft Drinks ............................ 331,325 0.6
Brewery ........................................... 38,400 0.1
Building & Construction ........................... 90,439 0.2
Building Materials ................................ 294,201 0.6
Business Services ................................. 451,687 0.9
Chemicals ......................................... 1,042,751 2.0
Chemicals -Diversified ............................ 103,710 0.2
Computer Software ................................. 718,270 1.4
Computers ......................................... 701,782 1.3
Computers -Systems ................................ 426,644 0.8
Conglomerates ..................................... 552,689 1.1
Currency Option ................................... 34,230 0.1
Electrical Equipment .............................. 1,368,912 2.6
Electronic & Electrical
Equipment ........................................ 490,780 0.9
Electronics -Semiconductors ....................... 134,247 0.3
Electronics
-Semiconductors/Components ....................... 327,240 0.6
Energy ............................................ 82,181 0.2
Engineering & Construction ........................ 27,423 0.1
Entertainment ..................................... 375,100 0.7
Financial Services ................................ 1,498,855 2.8
Food, Beverage, Tobacco, &
Household Products ............................... 484,921 0.9
Foods & Beverages ................................. 159,553 0.3
Government Obligations ............................ 4,285,669 8.2
Household Furnishings &
Appliances ....................................... 156,800 0.3
Household Products ................................ 150,673 0.3
Insurance ......................................... 2,428,230 4.6
Leisure ........................................... 617,324 1.2
Machinery ......................................... 331,599 0.6
Manufacturing ..................................... 67,376 0.1
Media ............................................. 278,229 0.5
Media Group ....................................... 54,719 0.1
Metals & Mining ................................... 54,847 0.1
Multi-Industry .................................... $ 373,268 0.7%
Multi-Line Insurance .............................. 143,459 0.3
Natural Gas ....................................... 194,868 0.4
Oil & Gas ......................................... 362,479 0.7
Oil -International
-Integrated ...................................... 1,439,392 2.7
Packaged Foods .................................... 319,337 0.6
Paper & Forest Products ........................... 67,397 0.1
Paper Products .................................... 641,716 1.2
Petroleum ......................................... 201,745 0.4
Pharmaceuticals ................................... 2,971,099 5.6
Publishing ........................................ 680,803 1.3
Railroad Equipment ................................ 317,655 0.6
Real Estate ....................................... 160,888 0.3
Record & Tape Distribution ........................ 138,332 0.3
Retail ............................................ 746,733 1.4
Retail -Department Stores ......................... 275,000 0.5
Retail -Specialty ................................. 1,000,565 1.9
Savings & Loans Association ....................... 303,975 0.6
Semiconductor Equipment ........................... 103,313 0.2
Steel ............................................. 306,229 0.6
Steel & Iron ...................................... 112,230 0.2
Steel Related ..................................... 132,039 0.3
Telecommunication Equipment ....................... 654,849 1.2
Telecommunications ................................ 3,111,057 5.9
Textiles -Apparel ................................. 71,710 0.1
Tobacco ........................................... 312,495 0.6
Transportation .................................... 60,579 0.1
U.S. Government Agency ............................ 4,998,969 9.5
U.S. Government Obligations ....................... 5,954,873 11.3
Utilities -Electric ............................... 666,809 1.3
----------- ----
$51,950,476 99.0%
=========== ====
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ------------------ ----- ----------
Common Stocks .................................. $35,948,975 68.5%
Corporate Bonds ................................ 419,434 0.8
Foreign Currency Call
Option ........................................ 34,230 0.1
Foreign Government
Obligations ................................... 4,285,669 8.2
Preferred Stocks ............................... 308,326 0.6
U.S. Government Agency ......................... 4,998,969 9.5
U.S. Government Obligations .................... 5,954,873 11.3
----------- ----
$51,950,476 99.0%
=========== ====
57
324
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1998
ASSETS:
Investments in securities, at value (identified cost $46,281,575) ... $ 51,950,476
Cash (including $45,203 in foreign currency) ........................ 187,716
Receivable for:
Interest .......................................................... 234,284
Investments sold .................................................. 219,189
Foreign withholding taxes reclaimed ............................... 32,523
Dividends ......................................................... 32,254
Shares of beneficial interest sold ................................ 5,830
Deferred organizational expenses .................................... 73,239
Prepaid expenses and other assets ................................... 78,353
------------
TOTAL ASSETS ...................................................... 52,813,864
------------
LIABILITIES:
Payable for:
Investments purchased ............................................. 118,812
Plan of distribution fee .......................................... 45,092
Investment management fee ......................................... 44,913
Shares of beneficial interest repurchased ......................... 36,796
Accrued expenses and other payables ................................. 96,714
------------
TOTAL LIABILITIES ................................................. 342,327
------------
NET ASSETS ........................................................ $ 52,471,537
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ..................................................... $ 49,192,315
Net unrealized appreciation ......................................... 5,660,048
Accumulated undistributed net investment income ..................... 222,130
Distributions in excess of net realized gain ........................ (2,602,956)
------------
NET ASSETS ........................................................ $ 52,471,537
============
CLASS A SHARES:
Net Assets .......................................................... $ 26,956
Shares Outstanding (unlimited authorized, $.01 par value) ........... 2,344
NET ASSET VALUE PER SHARE ......................................... $ 11.50
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) .................. $ 12.14
============
CLASS B SHARES:
Net Assets .......................................................... $ 52,374,341
Shares Outstanding (unlimited authorized, $.01 par value) ........... 4,568,443
NET ASSET VALUE PER SHARE ......................................... $ 11.46
============
CLASS C SHARES:
Net Assets .......................................................... $ 53,358
Shares Outstanding (unlimited authorized, $.01 par value) ........... 4,660
NET ASSET VALUE PER SHARE ......................................... $ 11.45
============
CLASS D SHARES:
Net Assets .......................................................... $ 16,882
Shares Outstanding (unlimited authorized, $.01 par value) ........... 1,467
NET ASSET VALUE PER SHARE ......................................... $ 11.51
============
SEE NOTES TO FINANCIAL STATEMENTS
58
325
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended January 31, 1998*
NET INVESTMENT INCOME:
INCOME
Interest (net of $132 foreign withholding tax) ...................... $ 1,044,521
Dividends (net of $77,953 foreign withholding tax) .................. 759,559
-----------
TOTAL INCOME ...................................................... 1,804,080
-----------
EXPENSES
Investment management fee ........................................... 621,396
Plan of distribution fee (Class A shares) ........................... 28
Plan of distribution fee (Class B shares) ........................... 580,914
Plan of distribution fee (Class C shares) ........................... 241
Professional fees ................................................... 88,295
Transfer agent fees and expenses .................................... 80,972
Shareholder reports and notices ..................................... 78,146
Custodian fees ...................................................... 68,714
Registration fees ................................................... 55,755
Organizational expenses ............................................. 35,303
Trustees' fees and expenses ......................................... 13,810
Other ............................................................... 22,101
-----------
TOTAL EXPENSES .................................................... 1,645,675
-----------
NET INVESTMENT INCOME ............................................. 158,405
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments ....................................................... 629,076
Foreign exchange transactions ..................................... 361,840
-----------
NET GAIN .......................................................... 990,916
-----------
Net change in unrealized appreciation/depreciation on:
Investments ....................................................... 994,604
Translation of forward foreign currency contracts, other assets
and liabilities denominated in foreign currencies ................ (2,764)
-----------
NET APPRECIATION .................................................. 991,840
-----------
NET GAIN .......................................................... 1,982,756
-----------
NET INCREASE ........................................................ $ 2,141,161
===========
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
59
326
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 1998* JANUARY 31, 1997
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .................................... $ 158,405 $ 65,971
Net realized gain ........................................ 990,916 1,876,766
Net change in unrealized appreciation .................... 991,840 584,125
------------ ------------
NET INCREASE ........................................... 2,141,161 2,526,862
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -Class B shares .................... (148,714) (554,313)
Net realized gain
Class A shares .......................................... (1,601) --
Class B shares .......................................... (3,307,479) (2,041,599)
Class C shares .......................................... (3,196) --
Class D shares .......................................... (853) --
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ...................... (3,461,843) (2,595,912)
------------ ------------
Net increase (decrease) from transactions in shares of
beneficial interest ..................................... (11,521,571) 21,111,669
------------ ------------
NET INCREASE (DECREASE) ................................ (12,842,253) 21,042,619
NET ASSETS:
Beginning of period ...................................... 65,313,790 44,271,171
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$222,130 and dividends in excess of net investment
income of $41,886) ..................................... $ 52,471,537 $ 65,313,790
============ ============
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
60
327
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Global Asset Allocation Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
seek long-term total return on its investments. The Fund seeks to achieve its
objective through a managed investment policy utilizing a portfolio of U.S. and
foreign equity, debt and money market securities. The Fund was organized as a
Massachusetts business trust on October 18, 1994 and commenced operations on
February 28, 1995. On July 28, 1997, the Fund commenced offering three
additional classes of shares, with the then current shares designated as Class B
shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (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 Dean Witter InterCapital Inc. (the "Investment Manager") or by TCW
Funds Management, Inc. or Morgan Grenfell Investment Services, Ltd. (the
"Sub-Advisers") that sale and bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (4) certain of the Fund's portfolio securities may
be valued by an outside pricing service approved by the Trustees. The pricing
service may
61
328
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
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 from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. 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. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized foreign currency gain or loss. The Fund records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
62
329
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
F. OPTION ACCOUNTING PRINCIPLES -- When the Fund writes a call option, an amount
equal to the premium received is included in the Fund's Statement of Assets and
Liabilities as a liability which is subsequently marked-to-market to reflect the
current market value of the option written. If a written option either expires
or the Fund enters into a closing purchase transaction, the Fund realizes a gain
or loss without regard to any unrealized gain or loss on the underlying security
or currency and the liability related to such option is extinguished. If a
written call option is exercised, the Fund realizes a gain or loss from the sale
of the underlying security or currency and the proceeds from such sale are
increased by the premium originally received.
When the Fund purchases a call or put option, the premium paid is recorded as an
investment and is subsequently marked-to-market to reflect the current market
value. If a purchased option expires, the Fund will realize a loss to the extent
of the premium paid. If the Fund enters into a closing sale transaction, a gain
or loss is realized for the difference between the proceeds from the sale and
the cost of the option. If a put option is exercised, the cost of the security
or currency sold upon exercise will be increased by the premium originally paid.
If a call option is exercised, the cost of the security purchased upon exercise
will be increased by the premium originally paid.
G. 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.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
I. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $177,000 of which
approximately $144,000 have been reimbursed. The
63
330
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
balance has been absorbed by the Investment Manager. Such expenses have been
deferred and are being amortized on the straight-line method over a period not
to exceed five years from commencement of operations.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying the
annual rate of 1.0% to the net assets of the Fund determined as of the close of
each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
Under Sub-Advisory Agreements between the Sub-Advisers and the Investment
Manager, the Sub-Advisers provide the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for the services
provided pursuant to the Sub-Advisory Agreements, the Investment Manager pays
each Sub-Adviser monthly compensation equal to 30% of its monthly compensation.
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 -up to 0.25% of the
average daily net assets of Class A; (ii) Class B -1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C -up to 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
64
331
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
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.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $3,856,463, at January 31, 1998.
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 credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended January 31, 1998, 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 January 31,
1998, it received contingent deferred sales charges from redemptions of the
Fund's Class B shares and Class C shares of $191,520 and $33, respectively, and
received approximately $1,018 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.
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, 1998 aggregated
$52,418,164 and $70,854,970, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $12,840,577 and
$12,053,968, respectively.
65
332
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
For the period May 31, 1997 through January 31, 1998, the Fund incurred
brokerage commissions of $3,481 with Morgan Stanley & Co., Inc., an affiliate of
the Investment Manager since May 31, 1997, for portfolio transactions executed
on behalf of the Fund.
For the year ended January 31, 1998, the Fund incurred brokerage commissions of
$21,991 with DWR for portfolio transactions executed on behalf of the Fund. At
January 31, 1998, the Fund's payable for investments purchased and receivable
for investments sold included unsettled trades with DWR of $34,738 and $78,910,
respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At January 31, 1998, the Fund had transfer agent
fees and expenses payable of approximately $1,200.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 1998 JANUARY 31, 1997
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------
CLASS A SHARES*
Sold .......................................... 2,202 $ 28,364 -- --
Reinvestment of dividends and distributions ... 142 1,601 -- --
---------- ------------ --------- ------------
Net increase -Class A ......................... 2,344 29,965 -- --
---------- ------------ --------- ------------
CLASS B SHARES
Sold .......................................... 637,914 7,870,323 2,505,555 $ 30,094,772
Reinvestment of dividends and distributions ... 277,899 3,138,105 199,063 2,368,262
Redeemed ...................................... (1,863,599) (22,637,924) (944,898) (11,351,365)
---------- ------------ --------- ------------
Net increase (decrease) -Class B .............. (947,786) (11,629,496) 1,759,720 21,111,669
---------- ------------ --------- ------------
CLASS C SHARES*
Sold .......................................... 4,664 59,900 -- --
Reinvestment of dividends and distributions ... 262 2,944
Redeemed ...................................... (266) (3,252) -- --
---------- ------------ --------- ------------
Net increase -Class C ......................... 4,660 59,592 -- --
---------- ------------ --------- ------------
CLASS D SHARES*
Sold .......................................... 1,391 17,515 -- --
Reinvestment of dividends and distributions ... 76 853 -- --
---------- ------------ --------- ------------
Net increase -Class D ......................... 1,467 18,368 -- --
---------- ------------ --------- ------------
Net increase (decrease) in Fund ............... (939,315) $(11,521,571) 1,759,720 $ 21,111,669
========== ============ ========= ============
* For the period July 28, 1997 (issue date) through January 31, 1998.
66
333
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $2,450,000 during fiscal 1998.
As of January 31, 1998, the Fund had temporary book/tax differences primarily
attributable to post-October losses and permanent book/tax differences primarily
attributable to foreign currency gains, tax adjustments on passive foreign
investment companies sold by the Fund and nondeductible organizational expense.
To reflect reclassifications arising from the permanent differences,
paid-in-capital was charged $32,807, distributions in excess of net realized
gain was charged $221,518 and accumulated undistributed net investment income
was credited $254,325.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At January 31, 1998, the Fund had no outstanding forward contracts.
8. SUBSEQUENT EVENT
Effective March 2, 1998, the Investment Manager will assume directly the
sub-advisory responsibilities currently being performed by TCW Funds Management,
Inc. (TCW). The Investment Manager will retain the portion of their fee
currently paid to TCW.
67
334
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
FOR THE YEAR FOR THE PERIOD
ENDED FOR THE YEAR FEBRUARY 28, 1995*
JANUARY 31, ENDED THROUGH
1998**++ JANUARY 31, 1997 JANUARY 31, 1996
------------ ---------------- ------------------
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 11.84 $ 11.79 $ 10.00
------------ ------------ ------------
Net investment income (loss) ........... 0.03 (0.01) 0.17
Net realized and unrealized gain ....... 0.35 0.55 2.20
------------ ------------ ------------
Total from investment operations ....... 0.38 0.54 2.37
------------ ------------ ------------
Less dividends and distributions:
Net investment income ................. (0.03) (0.11) (0.34)
Net realized gain ..................... (0.73) (0.38) (0.24)
------------ ------------ ------------
Total dividends and distributions ...... (0.76) (0.49) (0.58)
------------ ------------ ------------
Net asset value, end of period ......... $ 11.46 $ 11.84 $ 11.79
============ ============ ============
TOTAL INVESTMENT RETURN+ ............... 3.29% 4.58% 23.89%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................... 2.65% 2.53% 1.14%(2)(3)
Net investment income .................. 0.25% 0.11% 1.71%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands ............................. $ 52,374 $ 65,314 $ 44,271
Portfolio turnover rate ................ 94% 63% 71%(1)
Average commission rate paid ........... $ 0.0153 $ 0.0013 --
- ------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Investment Manager had not reimbursed all expenses, the above
annualized expense and net investment loss ratios would have been 2.87%
and (0.02)%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
68
335
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS, continued
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JANUARY 31,
1998++
--------------
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .................... $ 13.09
--------
Net investment income ................................... 0.05
Net realized and unrealized gain ........................ (0.91)
--------
Total from investment operations ........................ (0.86)
--------
Less distributions from net realized gain ............... (0.73)
--------
Net asset value, end of period .......................... $ 11.50
========
TOTAL INVESTMENT RETURN+ ................................ (6.39)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................................ 2.02%(2)
Net investment income ................................... 0.79%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................. $ 27
Portfolio turnover rate ................................. 94%
Average commission rate paid ............................ $ 0.0153
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .................... $ 13.09
--------
Net realized and unrealized gain ........................ (0.91)
--------
Less distributions from net realized gain ............... (0.73)
--------
Net asset value, end of period .......................... $ 11.45
========
TOTAL INVESTMENT RETURN+ ................................ (6.79)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................................ 2.79%(2)
Net investment income ................................... 0.07%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................. $ 53
Portfolio turnover rate ................................. 94%
Average commission rate paid ............................ $ 0.0153
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
69
336
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS, continued
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JANUARY 31,
1998++
--------------
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .................... $ 13.09
--------
Net investment income ................................... 0.07
Net realized and unrealized gain ........................ (0.92)
--------
Total from investment operations ........................ (0.85)
--------
Less distributions from net realized gain ............... (0.73)
--------
Net asset value, end of period .......................... $ 11.51
========
TOTAL INVESTMENT RETURN+ ................................ (6.32)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................................ 1.80%(2)
Net investment income ................................... 1.08%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................. $ 17
Portfolio turnover rate ................................. 94%
Average commission rate paid ............................ $ 0.0153
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
70
337
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER GLOBAL ASSET ALLOCATION FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter Global Asset Allocation
Fund (the "Fund") at January 31, 1998, 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 January
31, 1998 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
February 13, 1998
1998 FEDERAL TAX NOTICE (unaudited)
During the year ended January 31, 1998, the Fund paid to Class A, B, C
and D shareholders $0.63 per share from long-term capital gains. Of
this $0.63 distribution, $0.12 is taxable as 28% rate gain and $0.51 is
taxable as 20% rate gain. Additionally, for such period 22.07% of the
income paid qualified for the dividends received deduction available to
corporations.
338
DEAN WITTER STRATEGIST FUND
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated herein by reference to Exhibits 1
and 2 under Item 16 below and by reference to Item 27 of, Post-Effective
Amendment No. 11 to Registrant's Registration Statement on Form N-1A, dated
September 26, 1997, which was filed electronically pursuant to Regulation S-T on
September 25, 1997 ("Post-Effective Amendment No. 11") as an amendment to
Registrant's Registration Statement on Form N-1A (File Nos. 811-5634 and
33-23669) (the "Registration Statement").
ITEM 16. EXHIBITS
Declaration of Trust dated August 4, 1988 ("Declaration of
(1) Trust") (incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 8); Amendment Establishing and
Designating Additional Classes of Shares to Declaration of Trust
(incorporated herein by reference to Exhibit 1 to Post-Effective
Amendment No. 10)
(2) Amended and Restated By-Laws of Registrant dated as of October
23, 1997
(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. 10)
(7) (a) Distribution Agreement between Registrant and Dean Witter
Distributors Inc. (incorporated herein by reference to
Exhibit 6(a) to Post-Effective Amendment No. 10)
(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.
10)
(c) Form of Selected Dealer Agreement (incorporated herein by
reference to Exhibit 6 to Post-Effective Amendment No. 8)
(8) Not Applicable
(9) (a) Custody Agreement dated September 20, 1991 (incorporated
herein by reference to Exhibit 8 to Post-Effective Amendment
No. 8)
(b) Amended and Restated Transfer Agency and Services Agreement
between Registrant and Dean Witter Trust FSB
(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. 10)
(b) Dean Witter Funds Multiple Class Plan pursuant to Rule 18f-3
(incorporated herein by reference to Exhibit 18 to
Post-Effective Amendment No. 10)
(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. 9)
C-1
339
(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 July 31, 1997 (incorporated herein by reference to
Form 24f-2 filed with the Securities and Exchange Commission
on September 10, 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
340
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 30th day of April 1998.
DEAN WITTER STRATEGIST 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.
SIGNATURE TITLE DATE
--------- ----- ----
1. Principal Executive Officer
/s/ CHARLES A. FIUMEFREDDO President, Chief Executive April 30, 1998
--------------------------------------------- Officer, Trustee and Chairman
2. Principal Financial Officer
/s/ THOMAS F. CALOIA Treasurer and Principal April 30, 1998
--------------------------------------------- Accounting Officer
3. Majority of Trustees
/s/ MICHAEL BOZIC Trustee April 30, 1998
---------------------------------------------
/s/ EDWIN J. GARN Trustee April 30, 1998
---------------------------------------------
/s/ JOHN R. HAIRE Trustee April 30, 1998
---------------------------------------------
/s/ WAYNE E. HEDIEN Trustee April 30, 1998
---------------------------------------------
/s/ MANUEL H. JOHNSON Trustee April 30, 1998
---------------------------------------------
/s/ MICHAEL E. NUGENT Trustee April 30, 1998
---------------------------------------------
/s/ JOHN L. SCHROEDER Trustee April 30, 1998
---------------------------------------------
/s/ PHILIP J. PURCELL Trustee April 30, 1998
---------------------------------------------
C-3
341
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------- ------
(2) Amended and Restated By-Laws of Registrant dated October 23,
1997
(9)(b) Amended and Restated Transfer Agency and Services Agreement
between Registrant and Dean Witter Trust Company
(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